Diligent Investments Limited , MUMBAI V. D.C.I.T.,Central Circle-2(4), Kolkata

ITSSA 83/KOL/2019

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 8558 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 11 month(s) 27 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 14-11-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 17-11-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Search and seizure; Valuation report
• Section: 132; 153A; 73; 153C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “A” (Virtual Court Hearing) BENCH KOLKATA Before Shri P. M. Jagtap, Vice-President and Shri Partha Sarathi Choudhury, Judicial Member I.T.(SS) No.83/Kol/2019 Assessment Year: 2010-11 Diligent Investment Limited............................................................Appellant 155, Maker Tower, J.Cuffe Parade, Mumbai-400005. [PAN: AAACD3772F] vs. DCIT, C(C)-2(4), Kolkata............................................................Respondent Appearances by: Shri M. D. Shah, AR, appeared on behalf of the appellant. Shri Amol Sudhir Kamat, Addl. CIT, Sr. DR, appeared on behalf of the Respondent. Date of concluding the hearing : November 11, 2021 Date of pronouncing the order : November 15, 2021 ORDER Shri Partha Sarathi Choudhury, Judicial Member: This appeal preferred by the assessee emanates from the order of Ld. CIT(A)-20, Kolkata u/s 153A/143(3) of the Act dated 16.09.2019 for the assessment year 2010-11 as per the grounds of appeal on record. 2. At the very outset, the Ld. Counsel for the assessee submitted that this is an unabated assessment case and there is no incriminating material found in regard to the assessee. Demonstrating the same from the facts of the case, the Ld. Counsel brought to our notice at paras 10 & 11 in the assessment order where it is stated that during the year under review, information has been received from Director of Income Tax (I & CI), Mambai that search in the case of Amrapali Group of Ahmedabad was conducted on 26.10.2012. Detailed analysis of the client codes modified by ACFL (a group entity involved in Broking) was carried out and it was found that CCM was used as a tool so as to systematically sift profits and losses. On further analysis by the Director of Income Tax (I&CI), the profits were found to be systematically shifted to the codes of person I.T.(SS) No.83/Kol/2019 Assessment Year: 2010-11 Diligent Investment Limited 2 who had book losses and did not pay any substantial taxes on the profits gained. The entire analysis of CCM of only one broker led to detection of shifting of losses and result reduction of book profits aggregating to Rs. 46.57 crores. Para 11 states that on the busis of above information, it was found that assessee company has created fictitious profit and losses were by misusing the client code modifications facility offered by Amrapali Aadya Trading & Investment Private Limited, Amrapali Trading & Finance Capital Limited in F & O segment on NSE during March, 2010. The assessee company had taken fictitious loss of Rs.85,33,015/- to set off against its profit for the year. Therefore, an amount of Rs.85,33,015/- was disallowed and added to the total income of the assessee. It is the contention of the Ld. Counsel for the assessee that it is undisputed in the case of unabated assessment if incriminating materials are absent in respect of the assessee then addition cannot be sustained in that case. Placing strong reliance on this legal proposition, the Ld. Counsel referred to the decision of the ITAT, Kolkata in ITA No.86 to 92/Kol/2019 A.Y 2008-09 to 2014-15 in the case of ACIT vs. M/s JIS Foundation dated 09.07.2021 wherein on this exact identical issue, it was observed and held as follows: “23. Now coming to the legal issue raised by the assessee, we proceed to answer the question. Whether in absence of any incriminating material found in the course of search at the premises of the assessee trust (administrative office only), the additions made in the assessments of the assessee trust which were unabated [since assessment of AY 2008-09 to AY 2012-13 was non-pending] on the date of search 13.03.2014, could be held to be sustainable on facts and in law? 24. We note that on the date of search i.e. 13-03-2014, admittedly income tax assessment for AY 2008-09 to AY 2012-13 of the assessee trust was unabated since assessments were not pending before the AO on the date of search on 13.03.2014. We note that the provisions of Section 153A of the Act, forms part of Chapter XIV of the Act contain special provisions for completing assessments in case of search conducted u/s 132 of the Act or requisition made u/s 132A of the Act. These provisions can be invoked only in cases where the Income-tax Department has exercised its extra ordinary powers of conducting search and seizure operations after complying with stringent pre-conditions prescribed in Section 132 of the Act. We do not deny the Ld. CIT, DR's contention that once a search u/s 132 is conducted against a person, then irrespective whether any incriminating material is found, the AO is required to proceed against such person for completing the assessments u/s 153A of the Act for the specified six assessment years. To this extent, there is no quarrel. However we find that Section 153A itself creates the fine distinction/differentiation amongst specified six assessment years depending whether prior to the date of I.T.(SS) No.83/Kol/2019 Assessment Year: 2010-11 Diligent Investment Limited 3 search, the assessment proceedings are pending or not before the AO. We note that the relevant section itself clarifies that where an assessment was already completed against an assessee and any appeals or further proceedings are pending, then such appeals or other proceedings do not abate. We should keep in mind that merely because an assessee is subjected to search u/s 132 of the Act, such action by itself does not give carte blanche to the Department to subject such an assessee to the rigors of the assessment afresh for all the six years. It is for this reason that the Parliament in its wisdom has categorically created two classes among the six years, (a) un-abated assessment and (b) abated assessments. Consequent to a search conducted u/s 132 of the Act, the AO is required to issue notices u/s 153A of the Act to assess the income of the assessee for six assessment years preceding the date of search. These six assessment years comprise of assessments which are not abated ( non-pending assessment before AO on the date of search ); and assessments which are pending before the AO on the date of search, which would be treated as abated. In the case of abated assessments, the AO is free to frame the assessment in regular manner and determine the correct taxable income for the relevant year inter alia including the undisclosed income un-earthed during search, having regard to the provisions of the Act. However, in relation to unabated assessments (AYs), which were not pending on the date of search, there is a restriction on the powers of the AO. In case of unabated assessments, the AO can re-assess the income only to the extent and with reference to any incriminating material which the Revenue has unearthed in the course of search. Merely because an assessee is subjected to search, he cannot be placed on a different pedestal or put in a more disadvantageous position than an assessee who is not subjected to search unless in the course of search some incriminating documents or evidence or information or material is gathered by the Investigating authorities so as to vest the AO with the necessary powers to make additions to the total income in relation to assessments which did not abate on account of search. Considering these aspects the Hon'ble Delhi High Court in the case of CIT vs Kabul Chawla reported in (2016) 380 ITR 573 (Del) held as under:- “37. On a conspectus of section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: Once a search takes place under section 132 of the Act, notice under section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the Ld AOs as a fresh exercise. The Ld AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The Ld AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". I.T.(SS) No.83/Kol/2019 Assessment Year: 2010-11 Diligent Investment Limited 4 Although Section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the Ld AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to complete assessment proceedings. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the 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 material existing or brought on the record of the Ld AO. Completed assessments can be interfered with by the Ld AO while making the assessment under section 153A only on the basis of some incriminating material unearthed 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 made known in the course of original assessment." 38. The present appeals concern AYs 2002-03, 2005-06 and 2006-07, on the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed.” The Hon’ble Apex court in the case of CIT v. Sinhgad Technical Education Society 397 ITR 344 in the context of section 153C of the Act has held as under: “18) In this behalf, it was noted by the ITAT that as per the provisions of Section 153C of the Act, incriminating material which was seized had 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. Since this requirement under Section 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of Section 153C of the Act.’’ 25. We find that the Hon'ble Delhi High Court while adjudicating the appeal in the case of CIT vs Kabul Chawla (2016) 380 ITR 573 had taken judicial note of host of the earlier decisions in the cases of CIT vs Anil Kumar Bhatia reported in (2013) 352 ITR 493 (Del) ; CIT vs Chetan Das Lachman Das reported in (2012) 211 Taxman 61 (Del HC) ; Madugula Venu vs DIT reported in (2013) 215 Taxman 298 (Del HC) ; Canara Housing Development Co. vs DCIT reported in (2014) 49 taxmann.com 98 (Kar HC) ; Filatex India Ltd vs CIT reported in (2014) 229 Taxman 555 (Del HC) ; Jai Steel (India) vs ACIT reported in (2013) 219 Taxman 223 (Del HC) ; CIT vs Murli Agro Products Ltd reported in (2014) 49 taxmann.com 172 (Bom I.T.(SS) No.83/Kol/2019 Assessment Year: 2010-11 Diligent Investment Limited 5 HC) ; CIT vs Continental Warehousing Corporation (Nhava Sheva) Ltd reported in (2015) 374 ITR 645 (Bom HC) and All Cargo Global Logistics Ltd vs DCIT reported in (2012) 137 ITD 287 (Mum ITAT) (SB). We also find that Revenue’s SLP against the decision of the Hon'ble Delhi High Court in the case of Kabul Chawla (Supra) was dismissed by the Hon'ble Apex Court which is reported in 380 ITR (St.) 4 (SC). 26. We also find that the Hon'ble Jurisdictional High Court in the case of Principal CIT vs M/s Salasar Stock Broking Ltd in G.A.No. 1929 of 2016 ITAT No. 264 of 2016 dated 24.8.2016 endorsed the aforesaid view of Hon'ble Delhi High Court in Kabul Chawla's case. The Hon’ble High Court also placed reliance on their own decision in the case of CIT vs Veerprabhu Marketing Ltd reported in (2016) 73 taxmann.com 149 (Cal HC) and held as follows: “Subject matter of challenge is a judgement and order dated 18th December, 2015 by which the learned Tribunal dismissed an appeal preferred by the Revenue registered as ITA No.1775/Kol/2012 and allowed a cross-objection registered as CO- 30/Kol/2013 both pertaining to the assessment year 2005-06. The learned Tribunal was of the opinion that the Assessing Officer had no jurisdiction under Section 153A of the Income Tax Act to reopen the concluded cases when the search and seizure did not disclose any incriminating material. In taking the aforesaid view, the learned Tribunal relied upon a judgement of Delhi High Court in the case of CIT[A] vs. Kabul Chawla in ITA No.707/2014 dated 28th August, 2014. The aggrieved Revenue has come up in appeal. Mr. Bagaria, learned Advocate appearing for the assessee, submitted that more or less an identical view was taken by this Bench in ITA 661/2008 [CIT vs. Veerprabhu Marketing Ltd.] wherein the following views were expressed - "We are in agreement with the views expressed by the Karnataka High Court that incriminating material is a pre- requisite before power could have been exercised under section153C read with section 153A. In the case before us, the assessing officer has made disallowances of the expenditure, which were already disclosed, for one reason or the other. But such disallowances were not contemplated by the provisions contained under section 153C read with section 153A. The disallowances made by the assessing officer were upheld by the CIT(A) but the learned Tribunal deleted those disallowances." In that view of the matter, we are unable to admit the appeal. The appeal is, therefore, dismissed.” 27. Considering the judicial precedents (supra) on the subject, particularly the decision of the Hon'ble jurisdictional Calcutta High Court in the case of PCIT vs Salasar Stock Broking Ltd. (supra) which is binding upon this Tribunal as well as the Hon’ble Apex Court decision in CIT v. Sinhgad Technical Education Society ( supra), we hold that in the case of unabated assessments of an assessee, no addition is permissible in the order u/s 153A of the Act unless it is based on any tangible, cogent and relevant incriminating material found during the course of search qua the assessee and qua the AY. I.T.(SS) No.83/Kol/2019 Assessment Year: 2010-11 Diligent Investment Limited 6 28. In view of the above legal position, let us now proceed to examine whether the additions/disallowances which the AO made in the orders impugned in this appeal [AY 2008-09 to AY 2012-13] was based on or made with reference to any incriminating material/document found in the course of search. We note that in the assessment orders for AY 2008-09 to AY 2012-13, the AO have not referred to any material un-earthed during search conducted on 13.03.2014 in the orders impugned to justify the additions. There is no whisper/mention of any material leave alone any incriminating material seized during search to justify the addition in these un-abated assessments other than the in-valid valuation report as discussed supra. The valuation report of DVO in the facts discussed cannot be held to be incriminating material, since it is not a fall out of any incriminating material un-earthed during search to suggest any investment in building which is over and above the investment shown by the assessee in its audited books. And as found by us, the search party pursuant to search u/s 132 of the Act did not even visited the educational institution which fact is evident from the perusal of panchnama which shows that the search team has only searched the administrative office situate at “Dwarika Building”, 7, Sarat Bose Road, Kolkata-700020 and not at the campus of educational institution situated at Nilgunj Road, Panihati, Kolkata-700 114 . So, from the perusal of panchnama and the assessment orders, it can be safely inferred that the reference made by DDIT (Inv.) for valuation of the properties on 01.04.2014 was without any incriminating materials found during search [oral or documentary which could have suggested that the assessee has shown less investment in its books for building construction] Therefore, no addition was permissible in the assessment order u/s 153A of the Act in the case of un-abated assessments unless it is based on relevant incriminating material found during the course of search qua the assessee and qua the AY. Thus the assessee succeeds in its cross-appeals on the legal issue raised in respect of appeals pertaining to AY 2008-09 to AY 2012-13.Consequently appeal of assessee pertaining to these assessment years are allowed.” 3. Both the parties agreed that the facts and circumstances in the aforesaid referred case are similar to the present case of the assessee herein also. As there is no incriminating material found and again as it is an unabated assessment, therefore, in such a case, no additions can be upheld. Hence, the assessee succeeds in this legal ground. 4. In the result, the appeal of the assessee is allowed. Order is pronounced in the open court on 15.11.2021. Sd/- Sd/- [P. M. Jagtap] [Partha Sarathi Chaudhury] Vice-President Judicial Member Dated: 15.11.2021. RS I.T.(SS) No.83/Kol/2019 Assessment Year: 2010-11 Diligent Investment Limited 7 Copy of the order forwarded to: 1. Diligent Investment Limited 2. DCIT, C(C)-2(4), Kolkata 3. CIT(A)- 4. CIT- , 5. CIT(DR), //True copy// By order Sr.PS/D.D.O, Kolkata Benches