The ACIT, Central Circle-3, Vadodara V. M/s. Merit Sales Pvt. Ltd., Vadodara

ITSSA 83/AHD/2021

• Counselvise Citation: [2023] 102 COUNSELVISE.COM (IT) 0492 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 26-10-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 24-10-2023
• Assessment Year: 2011-2012
• Appeal Filed On: 10-06-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Search and seizure; Set aside
• Section: 131; 68; 132; 143(3); 153A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “A” BENCH Before: Shri Waseem Ahmed, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member Asstt. Commissioner of Income-tax, Central Circle-3, Vadodara (Appellant) Vs M/s. Merit Sales Pvt. Ltd. , 1,Chandramani Nagar, Vidhya Vihar School Lane, Off High Tension Road, Subhanpura, Vadodara PAN: AAGCM8860K (Respondent) Revenue Represented: Shri Akhilendra Pratap Yadav, CIT-DR Assessee Represented: Shri Jigar Adhiyaru, A.R. Date of hearing : 25-10-2023 Date of pronouncement : 27-10-2023 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- This appeal is filed by the Revenue as against the appellate order dated 09-03-2021 passed by the Commissioner of Income Tax (Appeals)-12, Ahmedabad, arising out of the assessment order passed under section 153A r.w.s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2011-12. IT(SS)A No. 83/Ahd/2021 Assessment Year 2011-12 I.T.(SS)A No. 83/Ahd/2021 A.Y. 2011-12 Page No ACIT Vs. M/s. Merit Sales Pvt. Ltd. 2 2. The brief facts of the case is that the assessee is a Private Limited Company incorporated on 19.11.2010 having its registered office at Kolkata and alleged to be floated by an accommodation entry operator of Kolkata naming Shri Pankaj Agrawal. Statement of Shri Pankaj Agrawal was recorded u/s. 131 of the Act on 11.06.2014, wherein he categorically accepted that he was involved in providing accommodation entries to the beneficiaries through share capitals and unsecured loans from fictitious paper companies floated by him. One of the original directors of the assessee company naming Shri Chandan Das was also found in the list of dummy directors used by Shri Pankaj Agrawal for floating fictitious paper companies. 2.1. Thus on perusal of the Balance Sheet of the assessee company for the Assessment Year 2011-12, the Ld. A.O. noticed that 5000 shares at the rate of Rs. 10/- per share were issued to Shri Sethiya Abhay and Shri Paras Jain each against share application money. The assessee company has shown receipt of advance of Rs. 1,50,00,000/- under the head current liabilities and provisions, however in the next financial year 2011-12, M/s. Montego Reality Pvt. Ltd. and M/s. Fine Link Suppliers Pvt. Ltd. were issued 7500 shares each at the rate of Rs. 10/- per share with a premium of Rs. 990/-. The assessee was asked to prove the genuineness of transaction, identity and creditworthiness of the investors by issuing a show cause notice dated 11.03.2016. The assessee vide its reply dated 12-05-2016 submitted that in the Assesment Year 2014-15 & 2015-16, Mr. Sanjay Shah and Mrs. Bindiya Shah had purchased all the shares from the previous shareholders (25,000 I.T.(SS)A No. 83/Ahd/2021 A.Y. 2011-12 Page No ACIT Vs. M/s. Merit Sales Pvt. Ltd. 3 shares @ Rs. 604/-), hence it is difficult to get the Income Tax Returns, Bank Statements and other details of the original shareholders of the company. As the assessee failed to prove the genuineness of the transaction, creditworthiness and identity of the parties, the Assessing Officer issued another show cause notice to why not to treat the entire share capital advance of Rs. 1,51,00,000/- to be added as unexplained cash credit of the assessee. 2.2. The assessee replied that the company is not a paper company for providing accommodation entries and the Statement of Shri Pankaj Agrawal was never provided to the assessee. So, the above conclusion of the Assessing Officer is not correct as per law. However the assessee could able to produce ITR, Bank Statement and Confirmation from M/s. Montego Reality Pvt. Ltd. and M/s. Fine Link Suppliers Pvt. Ltd. as Annexure-2. Thus the assessee claimed the identity, genuineness and creditworthiness of the investors are proved and there is no seized material by the Revenue during the course of search action conducted on 12.02.2015 by the department. In the absence of any seized material, there cannot be any additions in the hands of the assessee company and relied upon various case laws. The above objection was rejected by the Assessing Officer and proceeded with making an addition of share capital/share application money of Rs. 1.51 crores as undisclosed income of the assessee and demanded tax thereon. I.T.(SS)A No. 83/Ahd/2021 A.Y. 2011-12 Page No ACIT Vs. M/s. Merit Sales Pvt. Ltd. 4 3. Aggrieved against the same, the assessee filed an appeal before Commissioner (Appeals) who allowed the assessee appeal observing as follows: “.....5.19 It is an undisputed fact that on the date of initiation of the search no assessment proceedings were pending in this assessment year. Therefore, the proceedings were not abated in the case as mentioned in the second proviso to section 153A(1) of the Act. It seems that the AO lost sight of the fact that he was not making an assessment under section 153A(1) of the Act read with its second proviso. As discussed hereinabove, there is no indication in the contents of the assessment order that the addition was made on the basis of any incriminating material found and seized in search. 5.20 In view of the aforesaid findings and respectfully following the judgments/decisions of Jurisdictional High Court, Jurisdictional Tribunal and other Courts, wherein it has been held that in absence of incriminating (one of section 153A material/evidence, addition/disallowance cannot be sustained within the provision of section 153A of the Act. In my considered opinion, the action of the AO for making addition of the share capital and premium treating the same as unexplained u/s.68 of IT Act is not justified and the same is deleted as not tenable in the eyes of law. In view of the above discussion, the addition made by the AO is found not sustainable. Accordingly, the addition made in assessment u/s. 153A is deleted. 4. Aggrieve against the same, the Revenue is in appeal before us raising the following Grounds of Appeal: 1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in holding that any addition during the assessment u/s.153A has to be confined to the incriminating material found during the course of search u/s.132(1) of the Act, even though, there is no such stipulation in sec. 153A of the Act. 2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in not appreciating that sec.153A requires a notice to be issued requiring the assessee to furnish his return of income in respect of each assessment year falling within six assessment years and to assess or re-assess the total income of those six assessment years, and that the scheme of assessment or re-assessment of the total income of a person searched will be brought to naught if no addition is allowed to be made for those six assessment years in the absence of any seized incriminating material. I.T.(SS)A No. 83/Ahd/2021 A.Y. 2011-12 Page No ACIT Vs. M/s. Merit Sales Pvt. Ltd. 5 3. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in not appreciating that while computation of undisclosed income of the block period u/s.158BB was to be made on the basis of evidence found as a result of search or requisition of books of accounts, there is no such stipulation in sec.153A and sec.153BI specifically states that the provisions of Chapter-XIV-B, under which sec.158BB falls, would not be applied where a search was initiated u/s.132 after 31/5/2003. 4. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in not appreciating that assessment in relation to certain issues not related to the search and seizure may arise in any of the said six assessment years after the search u/s.132 is conducted in the case of the assessee, and that if the interpretation of the ld. CIT(A) were to hold it will not be possible to assess such income in the 153A proceedings, while no other parallel proceedings to assess such other income can be initiated, leading to no possibility of assessing such other income, which could not have been the intention of the legislature. Further, the AO is duty bound to assess correct income of assessee as held by the Hon'ble Apex Court in the case of Mahalaxmi Sugar Mills, 160 ITR 920(SC). 5. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the decisions of Hon'ble Delhi High court in the case of CIT Vs. Anil Kumar Bhatia [211 Taxman 453, 352 ITR (493)] & Kerala High Court in the case of E.N. Gopakumar vs. Commissioner of Income-tax (Central) [2016] 75 Taxmann.com 215 (ker.) wherein Courts held that assessments in a search case can be concluded against interest of assessee including making additions even without any incriminating material being available against assessee in search under section 132 of the Act. 6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring the fact that Shri Pankaj Agarwal, an entry operator in Kolkatta in his statement on oath admitted that he operates various paper companies including the assessee for providing accommodation and the assessee has also failed to prove the genuineness of the share capital and share application money received by it and the creditworthiness of the persons from whom it was claimed to have received. 7. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting entire addition of Rs.1,51,00,000/- made on account of unexplained cash credit under Section 68 of the Income-tax Act. 8. It is, therefore, prayed that the order the Ld. CIT(A)-12, Ahmedabad may be set aside and that of the AO may be restored to the above extent. 9. The appellant craves leave to add, alter, amend and/or withdraw any ground(s) of appeal either before or during the course of hearing of the appeal. I.T.(SS)A No. 83/Ahd/2021 A.Y. 2011-12 Page No ACIT Vs. M/s. Merit Sales Pvt. Ltd. 6 5. Ld. CIT-DR Shri Akhilendra Pratap Yadav appearing for the Revenue supported the order passed by the Assessing Officer and requested to uphold the addition made u/s. 68 of the Act. 6. Per contra, the Ld. Counsel Shri Jigar Adhiyaru appearing for the assessee submitted before us. Similar search taken place on 12-02-2015 in the group of cube companies, wherein the matter travelled before this Tribunal in IT(SS)A Nos. 84, 85 & 161/Ahd/2021 in the case of ACIT Vs. M/s. Blackberry Ventures Pvt. Ltd. This Hon’ble Bench vide its order dated 26.04.2023 dismissed the Revenue appeal for the very same Assessment Year 2011-12. Since identical issue is involved in the present case, following the above decision Revenue appeal is liable to be dismissed. 7. We have given our thoughtful consideration and perused the materials available on record including the Paper Book filed by the Revenue. On perusal of the assessment order passed by the Ld. A.O., there is no reference/mention about seized or incriminating material by the Revenue relating to the addition made by the Assessing Officer namely share capital/share application money of Rs. 1.51 crores. However based on the third party statement namely one Shri Pankaj Agrawal, the above additions are made by the Assessing Officer. It is further seen during the assessment proceedings, the assessee produced the identity, genuineness and creditworthiness of the investors by producing their respective Bank Statements, Income Tax Returns and Confirmations filed by the parties. However the same were not accepted by the Assessing I.T.(SS)A No. 83/Ahd/2021 A.Y. 2011-12 Page No ACIT Vs. M/s. Merit Sales Pvt. Ltd. 7 Officer and added the entire share capital/share application money of Rs. 1.51 crores as the undisclosed income of the assessee. On an identical situation, the additions made in the case of M/s. Blackberry Ventures Pvt. Ltd., the Co-ordinate Bench of this Tribunal deleted the same by observing as follows: “....10. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, there was search action under section 132 of the Act dated 12th February 2015 (i.e. during the financial year 2014-15 corresponding to A.Y. 2015-16) carried out in the case of the assessee and in consequence to the same, the proceedings under section 153A of the Act were initiated for the year under consideration i.e. A.Y. 2011-12 being the year/period falling under block of six assessment years preceding to the A.Y. in which the search was conducted. The assessment under section 153A r.w.s. section 143(3) of the Act for the year under consideration was framed after making addition of Rs. 40,16,29,000/- being bogus accommodation entry in the form of share capital issued at premium. On appeal by the assessee, the learned CIT (A) deleted the addition made by the AO by observing that there was no material of incriminating nature found during the search at the premises of the assessee. Therefore, the year under consideration being unabated/completed assessment year, no addition should be made in absence of any incriminating material. The learned DR before us vehemently argued that there is no provision under section 153A/153C which restrict the assessment or reassessment in case of search to the extent of incriminating materials only. 10.1 About the fact that no addition can be made in the absence of incriminating material in unabated assessment year, we find that it has been settled by various Hon’ble Courts including Hon’ble Jurisdictional High Court that the completed/ unabated assessments cannot be disturbed in the absence of any incriminating materials/ documents whereas the assessment/ reassessment can be made with respect to abated assessment years. The word 'assess' in Section 153A/153C of the Act is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to the completed assessment proceedings. The Hon’ble Gujarat High Court in the case of Saumya Construction reported in 81 taxmann.com 292 has held that there cannot be any addition of regular items shown in the books of accounts until and unless there were certain materials of incriminating nature found during search. The word incriminating has not been defined under the Act, but it refers to those materials/ documents/ information which were collected during the search proceedings and not produced in the original assessment proceeding. Simultaneously, these documents had bearing on the total income of the assessee. Now coming to the case on hand, we note that year under consideration is unabated as the assessment under section I.T.(SS)A No. 83/Ahd/2021 A.Y. 2011-12 Page No ACIT Vs. M/s. Merit Sales Pvt. Ltd. 8 143(3) of the Act was completed before the date of search. The AO in the assessment order while making the addition in the hands of assessee has nowhere referred any material of incriminating nature found from the premises of assessee about the credit of share capital along with premium which would have made basis for the addition in the assessment. We also find that during the regular assessment proceeding under section 143(3) of the Act, the question was raised regarding the credit of share capital and premium which, the assessee duly explained. The AO also cross verified the same from the share subscribers by issuing notices under section 133(6) of the Act and thereafter, the AO accepted the genuineness of the credit of share capital and premium. In our considered view, once the revenue authority accepted the genuineness of any transaction in the regular assessment after due verification, then the same cannot be disturbed in the proceedings under section 153A unless and until some incriminating material was unearthed during the search proceeding. The learned CIT(A), in this regard, has given unambiguous finding that no material of incriminating nature was found or referred by the AO for making the assessment under section 153A r.w.s. 143(3) of the Act. 10.2 At the time of hearing, the learned DR has not brought anything on record contrary to the finding of the learned CIT (A) suggesting that the addition was made based on incriminating material found from the premises of the assessee. Accordingly, we hold that there cannot be any addition of the regular items which were disclosed by the assessee in the regular books of accounts in the absence of incriminating material/information found from the premises of the assessee. In holding so, we draw support and guidance from the judgment of Hon’ble Gujarat High Court in case of Saumya Construction (P.) Ltd (supra) wherein it was held as under: “Thus, while in view of the mandate of sub-section (1) of section 153A in every case where there is a search or requisition, the Assessing Officer is obliged to issue notice to such person to furnish returns of income for the six years preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made, any addition or disallowance can be made only on the basis of material collected during the search or requisition. In case no incriminating material is found, the earlier assessment would have to be reiterated.” 10.3 We also draw support and guidance from the judgment of Hon’ble Supreme Court in case of PCIT Vs. Meeta Gutgutia reported in 96 taxmann.com 468 where the SLP filed by the Revenue was dismissed. The headnote of the judgment reads as under: I. Section 153A of the Income-tax Act, 1961 - Search and seizure (General principles) - Assessment years 2001-02 to 2003-04 and 2004-05 - High Court in impugned order held that invocation of section 153A to re-open concluded assessments of assessment I.T.(SS)A No. 83/Ahd/2021 A.Y. 2011-12 Page No ACIT Vs. M/s. Merit Sales Pvt. Ltd. 9 years earlier to year of search was not justified in absence of incriminating material found during search qua each such earlier assessment year - Whether SLP against said decision was to be dismissed - Held, yes [Para 2] [In favour of assessee] 10.4 In view of the above, we hold that there cannot be any addition to the total income of the assessee of the regular items as made by the AO in the present case. Accordingly, we do not find any infirmity in the finding of the learned CIT (A). Hence the ground of appeal of the Revenue is hereby dismissed. 10.5 Since we have decided the issue on technical ground, we do not find necessary to give finding on the merit of the issue since all the other issue raised by the Revenue on merit become infructuous. Thus, the other grounds of appeal of the Revenue are also dismissed accordingly. 11. In the result, the appeal of the Revenue is dismissed.” 7.1. Further it is well settled Principle of law by various judgements rendered by the Jurisdictional Gujarat High Court when an assessment has to be made in relation to the search or requisition under section 153A of the Act, namely, in relation to material disclosed during the course of search or requisition, if in relation to any particular assessment year, at the same time when there is no incriminating material found, no addition or disallowance can be made in relation to that assessment year in exercise of powers under section 153A of the Act and the earlier assessment shall have to be reiterated. This legal preposition is now settled by the Hon’ble Supreme Court by judgement dated 24- 04-2023 in the batch of cases namely PCIT, Central-3 -Vs- Abhisar Buildwell Pvt. Ltd. reported [2023] 149 taxmann.com 399 (SC) holding that in respect of completed assessments/unabated assessments no addition can be made by Assessing Officer in the absence of any incriminating material found during the course of I.T.(SS)A No. 83/Ahd/2021 A.Y. 2011-12 Page No ACIT Vs. M/s. Merit Sales Pvt. Ltd. 10 search under section 132 or requisition made under section 132A of the Act observing as follows: “Section 153A, read with sections 132 and 143, of the Income-tax Act, 1961 - Search and seizure - Assessment in case of (Conditions precedent) - Whether object of section 153A is to bring under tax undisclosed income which is found during course of search or pursuant to search or requisition; therefore, only in a case where undisclosed income is found on basis of incriminating material, Assessing Officer would assume the jurisdiction to assess or reassess total income for entire six years block assessment period even in case of completed/unabated assessment- Held, yes - Whether in case of search under section 132 or requisition under section 132A, Assessing Officer assumes jurisdiction for block assessment under section 153A and that all pending assessments/reassessments shall stand abated - Held, yes - Whether in respect of completed assessments/unabated assessments no addition can be made by Assessing Officer in absence of any incriminating material found during course of search under section 132 or requisition under section 132A - Held, yes - Whether, however, completed/unabated assessments can be reopened by Assessing Officer in exercise of powers under section 147/148 subject to fulfilment of conditions as envisaged/mentioned under section 147/148 and those powers are saved - Held, yes 7.2. The Hon’ble Supreme Court in this case of Abhisar Buildwell Pvt. Ltd. considered Judgements of various High Courts and concurred with one of the Judgement of the Gujarat High Court in the case of Saumya Construction and laid down the following points in a nutshell : “... ... 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 I.T.(SS)A No. 83/Ahd/2021 A.Y. 2011-12 Page No ACIT Vs. M/s. Merit Sales Pvt. Ltd. 11 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 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. 8. Thus we do not find any merits in the grounds raised by the Revenue. Thus Ground Nos. 1 to 6 raised by the Revenue are hereby dismissed. 9. Ground No. 7 is on merits of the case, as we have already held that the assessment itself invalid in law consequently addition made on merits of the case is also hereby dismissed. . 10. In the result, the appeal filed by the Revenue is hereby dismissed. Order pronounced in the open court on 27-10-2023 Sd/- Sd/- (WASEEM AHMED) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 27/10/2023 I.T.(SS)A No. 83/Ahd/2021 A.Y. 2011-12 Page No ACIT Vs. M/s. Merit Sales Pvt. Ltd. 12 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद