IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH `D' : NEW DELHI)
BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER
and
SHRI KULDIP SINGH, JUDICIAL MEMBER
ITA No.890/Del./2019
(Assessment Year : 2014-15)
M/s. Marudhara Marketing Pvt. Ltd., vs. ACIT,
C/o Ravi Gupta, Advocate, Central Circle 30,
E 6A, Kailash Colony, New Delhi.
New Delhi 110 048.
(PAN : AAACM8162G)
(APPELLANT) (RESPONDENT)
ASSESSEE BY : Shri P.C. Yadav, Advocate
REVENUE BY : Shri J.K. Mishra, CIT DR
Date of Hearing : 04.09.2019
Date of Order : 21.10.2019
ORDER
PER KULDIP SINGH, JUDICIAL MEMBER :
Appellant, M/s. Marudhara Marketing Pvt. Ltd. (hereinafter
referred to as the `assessee') by filing the present appeal, sought to set
aside the impugned order dated 28.12.2018 passed by the Commissioner
of Income - tax (Appeals)-30, New Delhi qua the assessment year
2014-15 on the grounds inter alia that:-
"1. On the facts and in the circumstances of the case Ld. CIT
(A) has erred both on facts and in law in upholding the
impugned order passed by the respondent illegally, violating the
principles of natural justice, without fair and objective
application of mind to the facts of the case and the law applicable
2 ITA No.890/Del./2019
and without being guided by the binding decisions of courts and
tribunals and hence liable to be set aside and quashed and
declared non est in law.
2. On the facts and circumstances of the case, the learned
Ld. CIT (A) erred both on facts and in law, in sustaining, the
order passed by the Ld. Assessing Officer is bad and liable to be
quashed as the same has been framed on the basis of satisfaction
note which does not reveal any incriminating evidence leading to
undisclosed income.
3. On the facts and circumstances of the case, the learned
Ld. CIT (A) has erred, both on facts and in law, in sustaining the
action of AO in completion of proceedings u/s 153A r. w .s. 153C,
of the Act, solely on the basis Unverified/ unratified/
unsubstantiated/ unconfirmed statement of Shri Mul Chand
Malu.
4. That on the facts and circumstances of the case, the
learned Ld. CIT (A) has erred, both on facts and in law, in
sustaining the assessment by the Ld. AO and making
additions of Rs.1,79,99,800/- on account of share capital and
share premium, ignoring the facts and circumstances of the case.
5. That on the facts and circumstances of the case, the
learned Ld. CIT (A) has erred, both on facts and in law, in
sustaining the assessment by the Ld. AO and in making
addition of Rs.1,79,99,800/- on account of share capital and
share premium, despite the fact that the assessee has discharged
the onus cast upon it under section 68 of the Income-tax Act.
6. That on the facts and circumstances of the case, the
learned Ld. CIT (A) has erred, both on facts and in law, in
sustaining the assessment by the Ld. AO and in making
addition of Rs.1,79,99,800/- despite the fact that no incriminating
documents were found during the course of search.
7. On the facts and in the circumstances of the case Ld. CIT
(A) has erred both on facts and in law, in sustaining the action of
AO violating the principle of natural justice by not providing
opportunity for cross-examination of persons, whose statements
have been relied upon by the AO, in spite of specific request
made by the appellant in assessment proceedings as well as
before CIT(A).
8 That the impugned assessment order is arbitrary, illegal,
bad in law and in violation of rudimentary principles of
contemporary jurisprudence."
3 ITA No.890/Del./2019
2. Briefly stated the facts necessary for adjudication of the issue at
hand are : Assessee company being a private limited company engaged
in agricultural activities. Original assessment of the assessee was
processed under section 143 (1) of the Income-tax Act, 1961 (for short
`the Act') at the returned income but on the basis of search and seizure
operation carried out u/s 132 of the Act at the various business and
residential premises of Kuber Group of cases including premises of Shri
Vikas Malu at 1/8, West Patel Nagar, New Delhi. From the searched
premises, documents belonging to assessee were found and Assessing
Officer (AO) of Vikas Malu recorded satisfaction note that certain
documents were found pertaining to assessee, which were handed over
to AO of the assessee on the basis of which satisfaction note was
recorded and notice u/s 153A read with section 153C was issued. AO
framed assessment u/s 153A r/w section 153C by making addition of
Rs.1,79,99,800/- on account of share capital and share premium on
failure of the assessee to provide necessary evidence to prove the share
capital and share premium to prove the identity of creditors, genuineness
and creditworthiness of the company providing share capital/share
application money/share premium and assessed the total income of the
assessee at Rs.1,80,49,600/-.
3. Assessee carried the matter by way of an appeal before the ld.
CIT (A) who has confirmed the addition by dismissing the appeal.
4 ITA No.890/Del./2019
Feeling aggrieved, the assessee has come up before the Tribunal by way
of filing the present appeal.
4. We have heard the ld. Authorized Representatives of the parties
to the appeal, gone through the documents relied upon and orders passed
by the revenue authorities below in the light of the facts and
circumstances of the case.
5. Undisputedly, assessment was framed in this case u/s 153C of the
Act on the basis of search and seizure operation carried out at the
premises of Kuber Group as well as the premises of Vikas Malu on
09.10.2014. It is also not in dispute that on the basis of search and
seizure operation, satisfaction note was recorded, available at pages 64
& 65 of the paper book. It is also not in dispute that search and seizure
operation was never been carried out at the premises of the assessee.
6. In the backdrop of the aforesaid facts and circumstances of the
case, ld. AR for the assessee contended inter alia that in the satisfaction
note recorded by the AO of the searched person, no discussion on the
document seized pertaining to the assessee has been made; that addition
has not been made on any of the incriminating material unearthed during
the search and seizure operation at the Kuber Group of cases and Vikash
Malu on 09.10.2014; that the AO has made the addition only on the
basis of material already supplied by the assessee and not on any
incriminating material; that the notice u/s 143 (2) of the Act was
required to be issued on 30.09.2015 which was never issued till date;
5 ITA No.890/Del./2019
that alleged seized material appeared in the satisfaction note of the
searched person does not find mention in the satisfaction note recorded
by the AO of the assessee; that assessment which was not pending on
the date of search cannot be reopened u/s 153C if there is no
incriminating material found and in these circumstances, reassessment
cannot be made and relied upon on the decisions in CIT vs. Index
Securities (2018) 304 CTR 0067 (Del.) and CIT vs. Singhad Technical
Education 397 ITR 344 (SC). He also relied upon the decisions in CIT
vs. RRJ Securities 380 ITR 612 (Del.) and CIT vs. Swar Agency 397
ITR 400 (Del.).
7. As against this, ld. DR for the Revenue in order to repel the
arguments addressed by the ld. AR for the assessee filed detailed
submissions which are extracted for record and ready perusal as under :-
" As mentioned in para 5 of the assessment order, the
assessee was asked to produce the directors of the companies
from which share capital/share premium was received during the
year. The assessee never produced those persons before the AO.
Therefore, onus cast on the assessee was never discharged.
Further, the share capital and share premium has been received
from a company based in Kolkata. The profit shown by the said
subscriber M/s Binapani Merchandise Pvt. Ltd. was only Rs.
16,437/-. On perusal of bank statement of M/s Binapani
Merchandise Pvt. Ltd. submitted by the assessee before the AO, it
may be noted that the cheques are received and immediately
another cheque is issued by M/s Binapani. At any given point of
time, the balance is in the range of Rs.38,000-80,000. Hence, the
surrounding circumstances show that M/s Binapani
Merchandise Pvt. Ltd is an entry provider company. The reliance
on statements of Mr. Moolchand Malu and Mr. Vikas Kumar
Agarwal of Kolkata is only to substantiate the findings. The fact
remains that the assessee never produced the directors of M/s
Binapani Merchandise Pvt. Ltd before the AO and therefore
onus cast on the assessee was never discharged.
6 ITA No.890/Del./2019
2. In the above case, it is humbly submitted that the
following decisions may kindly be considered with regard to
addition made u/s 68 of I.T. Act :
1. PCIT Vs NRA Iron & Steel (P.) Ltd. [2019] 103
taxmann.com 48 (Se) where Hon'ble Supreme Court reverse
order of lower Authorities holding that where there was failure
of assessee to establish credit worthiness of investor companies,
Assessing Officer was' justified in passing assessment order
making additions under section 68 for share capital I premium
received by assessee company. Merely because assessee company
had filed all primary evidence, it could not be said that onus on
assessee to establish credit worthiness of investor companies
stood discharged
2. PCIT Vs NDR PROMOTERS PVT LTD (2019-TIOL-
172-HC-OEL-IT) where Hon'ble Delhi High Court held that a
case involving make-believe paper work to camouflage the bogus
nature of the transactions is to be treated as unexplained credit
u/s 68
3. ITO Vs Synergy Finlease Pvt. Ltd (ITA
No.4778/0eI/2013) where Hon'ble ITAT Delhi held that where
investor of share application money had nominal income and
cheques had been received just before issue of cheques for share
application money, creditworthiness was not proved and addition
u/s 68 was sustained.
4. Prem Castings (P.) Ltd. Vs CIT [2017] 88 taxmann.com
189 (Allahabad) where Hon'ble Allahabad High Court held that
additions u/s 68 warrant being sustained where the identities &
creditworthiness of investors in the assessee company are not
established by the assessee & are also proved incorrect by the
Department's Assessee Information System. In such
circumstances, assessee cannot resist the additions on grounds
that it did not have opportunity to cross-examine relevant
witnesses. An assessee company cannot hide behind the shell of a
corporate entity to feign ignorance regarding the identity of any
person who invests in its share capital.
Prem Castings (P.) Ltd. Vs CIT 2018-TIOL-274-SC-IT
where Hon'ble Supreme Court held as follows:
"We do not find any merit in this petition. The Special
Leave Petition is accordingly dismissed."
5. CIT Vs MAF Academy (P.) Ltd (361 ITR 258) where
Hon'ble Delhi High Court held that where assessee, a private
limited company, sold its shares to unrelated parties at a huge
premium and thereupon within short span of time those shares
were purchased back even at a loss, share transactions in
question were to be regarded as bogus and, thus, amount
received from said transactions was to be added to assessee's
taxable income under section 68 It was held as follows:
7 ITA No.890/Del./2019
"53 In contrast to the above judgments, in the present
case, the Assessee is a private limited company and in the
factual matrix, we have held that the Assessee has not
been able to discharge the initial onus and has not been
able to establish the identity, creditworthiness of the share
applicants and the genuineness of the transaction.
Though, in our considered opinion, none of the above
judgments, referred to by the Assessee respondent, are
applicable in the facts of the present case and in view of
the findings recorded by us hereinabove.
54. In view of the above, we are of the view that the
Assessee has not discharged the onus satisfactorily and
the additions made by the Assessing Officer were justified
and sustainable. "
6. CIT Vs Navodaya Castle Pvt Ltd [2014] 367 ITR 306
(Del) where Hon'ble Delhi High Court accepted that since the
assessee was unable to produce the directors and the principal
officers of the six shareholder companies and also that as per the
information and details collected by the Assessing Officer from
the concerned bank, the Assessing Officer had observed that
there were genuine concerns about identity, creditworthiness of
shareholders as well as genuineness of the transactions.
"20. Now, when we go to the order of the Tribunal in
the present case, we notice that the Tribunal has merely
reproduced the order of the Commissioner of Income-tax
(Appeals) and upheld the deletion of the addition. In fact,
they substantially relied upon and quoted the decision of
its co-ordinate Bench in the case of MAF Academy P.
Ltd., a decision which has been overturned by the Delhi
High Court, vide its judgment in CIT v. MAF Academy P.
Ltd. [2014] 206 DLT 277 ; [2014] 361 ITR 258(Delhi)). In
the impugned order it is accepted that the assessee was
unable to produce directors and principal officers of the
six shareholder companies and also the fact that as per
the information and details collected by the Assessing
Officer from the concerned bank, the Assessing Officer
has observed that there were genuine concerns about
identity, creditworthiness of shareholders as well as
genuineness of the transactions.
21. In view of the aforesaid discussion, we feel that the
matter requires an order of remit to the Tribunal for fresh
adjudication keeping in view the aforesaid case law."
Navodaya Castle Pvt Ltd Vs CIT ([2015] 56 taxmann.com 18
(SC)/[2015] 230 Taxman 268 (SC)
SLP of assessee dismissed by Hon'ble Supreme Court
8 ITA No.890/Del./2019
7. Konark Structural Engineering (P.) Ltd. Vs DCIT [2018]
96 taxmann.com 255 (SC)where assessee-company received
certain amount as share capital from various shareholders, in
view of fact that summons to shareholders under section 131
could not be served as addresses were not available, and,
moreover, those shareholders were first time assessees and were
not earning enough income to make deposits in question,
addition made by Assessing Officer under section 68 was to be
confirmed; SLP dismissed
Konark Structural Engineering (P.) Ltd. Vs DCIT [2018]
90 taxmann.com 56 (Bombay) where Hon'ble Bombay High
Court held that where assessee-company received certain amount
as share capital from various shareholders, in view of fact that
summons served to shareholders under section 131 were
unserved with remark that addressees were not available, and,
moreover, those shareholders were first time assessees and were
not earning enough income to make deposits in question,
impugned addition made by AO under sec. 68, was to be
confirmed
8. Pratham Telecom India Pvt Ltd Vs DCIT (2018-TIOL-
1983-HC-MUM-IT) where Hon'ble Bombay High Court held
that mere production of PAN numbers & bank statements is
sufficient enough to discharge the burden on taxpayer to escape
the realms of Section 68
9. J J Development Pvt Ltd Vs CIT (2018-TIOL-395-SC-IT)
where Hon'ble Supreme Court held that when the assessee fails
to provide a convincing explanation with regard to the cash
credit before the AO and the same was accepted by the ITAT
being a fact finding body, the same cannot be disputed further.
Apex Court dismissed the Special Leave to Petition filed by the
assessee
10. DRB Exports (P.) Ltd. Vs CIT [2018] 93 taxmann.com
490 (Calcutta) where Hon'ble Calcutta High Court held that
where AO made addition under section 68 in respect of increase
in share capital of assessee-company, in view of fact that
addresses of most of purported shareholders were identical and
they could not be traced out despite notice issued under section
131, Tribunal was justified in confirming impugned addition
11. CIT Vs Nipun Builders & Developers (P.) Ltd (30
taxmann.com 292, 214 Taxman 429, 350 ITR 407, 256 CTR 34)
where Hon'ble Delhi High Court held that where assessee failed
to prove identity and capacity of subscriber companies to pay
share application money, amount so received was liable to be
taxed under section 68. It was held as follows:
9 ITA No.890/Del./2019
"12. A perusal of the order of the Tribunal shows that
it has gone on the basis of the documents submitted by the
assessee before the AO and has held that in the light of
those documents, it can be said that the assessee has
established the identity of the parties. It has further been
observed that the report of the investigation wing cannot
conclusively prove that the assessee's own monies were
brought back in the form of share application money. As
noted in the earlier paragraph, it is not the burden of the
AO to prove that connection. There has been no
examination by the Tribunal of the assessment
proceedings in any detail in order to demonstrate that the
assessee has discharged its onus to prove not only the
identity of the share applicants, but also their
creditworthiness and the genuineness of the transactions.
No attempt was made by the Tribunal to scratch the
surface and probe the documentary evidence in some
depth, in the light of the conduct of the assessee and other
surrounding circumstances in order to see whether the
assessee has discharged its onus under Section 68. With
respect, it appears to us that there has only been a
mechanical reference to the case-law on the subject
without any serious appraisal of the facts and
circumstances of the case.
13. We, therefore, answer the substantial question of
law framed by us in the negative, in favour of the revenue
and against the assessee. The appeal of the revenue is
allowed with no order as to costs."
12. CIT Vs Nova Promoters & Finlease (P) Ltd (18
taxmann.com 217, 206 Taxman 207, 342 ITR 169, 252 CTR 187)
where Hon'ble Delhi High Court held that amount received by
assessee from accommodation entry providers in garb of share
application money, was to be added to its taxable income under
section 68. It Was held as follows:
"41. In the case before us, not only did the material
before the Assessing Officer show the link between the
entry providers and the assessee-company, but the
Assessing Officer had also provided the statements of
Mukesh Gupta and Rajan Jassal to the assessee in
compliance with the rules of natural justice. Out of the 22
companies whose names figured in the information given
by them to the investigation wing, 15 companies had
provided the so-called "share subscription monies" to the
assessee. There was thus specific involvement of the
assessee-company in the modus operandi followed by
Mukesh Gupta and Rajan Jassal. Thus, on crucial factual
10 ITA No.890/Del./2019
aspects the present case stands on a completely different
footing from the case of Oasis Hospitalities (P.) Ltd.
(supra).
42. In the light of the above discussion, we are unable
to uphold the order of the Tribunal confirming the
deletion of the addition of Rs. 1,18,50,000 made under
section 68 of the Act as well as the consequential addition
of Rs. 2,96,250. We accordingly answer the substantial
questions of law in the negative and in favour of the
department. The assessee shall pay costs which we assess
at Rs. 30,000/-."
13. CIT Vs Ultra Modern Exports (P.) Ltd (40 taxmann.com
458, 220 Taxman 165) where Hon'ble Delhi High Court held
that where in order to ascertain genuineness of assessee's claim
relating to receipt of share application money, Assessing Officer
sent notices to share applicants which returned unserved,
however, assessee still managed to secure documents such as
their income tax returns as well as bank account particulars, in
such circumstances, Assessing Officer was justified in drawing
adverse inference and adding amount in question to assessee's
taxable income under section 68. It was held as follows:
"9. As noticed previously, the CIT (A) was of the
opinion that the assessee had discharged the basic onus
which was cast upon it after considering the ruling in
Lovely Exports (P.) Ltd.'s case (supra). The material and
the records in this case show that notice issued to the 5 of
the share applicants were returned unserved. The
particulars of returns made available by the assessee and
taken into consideration in paragraph 3.4 by the AO in
this case would show that the said parties/applicants had
disclosed very meager income. The AO also noticed that
before issuing cheques to the assessee, huge amounts
were transferred in the accounts of said share applicants.
This discussion itself would reveal that even though the
share applicants could not be accessed through notices,
the assessee was in a position to obtain documents from
them. While there can be no doubt that in Lovely Exports
(P.) Ltd. (supra), the Court indicated the rule of "shifting
onus" i.e. the responsibility of the Revenue to prove that
Section 68 could be invoked once the basic burden stood
discharged by furnishing relevant and material
particulars, at the same time, that judgment cannot be
said to limit the inferences that can be logically and
legitimately drawn by the Revenue in the natural course
of assessment proceedings. The information that assessee
11 ITA No.890/Del./2019
furnishes would have to be credible and at the same time
verifiable. In this case, 5 share applicants could not be
served as the notices were returned unserved. In the
backdrop of this circumstance, the assessee's ability to
secure documents such as income tax returns of the share
applicants as well as bank account particulars would
itself give rise to a circumstance which the AO in this case
proceeded to draw inferences from. Having regard to the
totality of the facts, i.e., that the assessee commenced its
business and immediately sought to infuse share capital
at a premium ranging between Rs. 90-190 per share and
was able to garner a colossal amount of Rs. 4.34 Crores,
this Court is of the opinion that the CIT (Appeals) and the
ITA T fell into error in holding that AO could not have
added back the said amount under Section 68. The
question of law consequently is answered in favour of the
Revenue and against the assessee."
14. CIT Vs Frostair (P.) Ltd (26 taxmann.com 11, 210
taxman 221) where Hon'ble Delhi High Court held that where
details furnished by assessee about share applicants were
incorrect, addition under section 68 was proper. It was held as
follows:
"12. The application of the ratio of every decision by a
quasi-judicial body like the ITAT has to be nuanced, and
contextual. Thus, while the findings in Divine Leasing,
Oasis International or even Lovely Exports might be
preceded by a general discussion of the correct approach
to be adopted by the AO, in a given case where additions
are sought to be made on account of share application
moneys not found to be genuine, the basic facts of the
case cannot be lost sight of. On a proper application of
the ratio in Oasis - and subsequently, the Division Bench
ruling in CIT v. Nova Promoters & Finlease (P) Ltd
[2012J 206 Taxman 207/18 taxmann.com 217 (Delhi) it is
evident that the AO took into account - if we may say so,
in exhaustive detail, after a painstaking examination of
the records after two or three layers of scrutiny- all the
materials and held that the claim that the amounts
claimed to be received on account of share applications
were not based on genuine transactions. The CIT (A)
upheld that order, after calling for a remand report. In
these circumstances, the conclusion of the Tribunal, that
the assessee had discharged its onus, appears to be based
on a superficial understanding of the Jaw, and an
uninformed one about the overall facts and circumstances
of the case.
12 ITA No.890/Del./2019
13. In view of the above reasons, the questions of law
in these appeals are answered in favour of the revenue.
The orders of the Assessing Officer are restored. The
appeals are to succeed and are therefore allowed."
15. CIT Vs N R Portfolio Pvt Ltd [2014] 42 taxmann.com 339
(Delhi)/[2014] 222 Taxman 157 (Delhi)(MAG)/[2014] 264 CTR
258 (Delhi) where Hon'ble Delhi High Court held that if AO
doubts the documents produced by assessee, the onus shifts on
assessee to further substantiate the facts or produce the share
applicant in proceeding. It was held as follows:
"30. What we perceive and regard as correct position of
law is that the court or tribunal should be convinced
about the identity, creditworthiness and genuineness of
the transaction. The onus to prove the three factum is on
the assessee as the facts are within the assessee's
knowledge. Mere production of incorporation details,
PAN Nos. or the fact that third persons or company had
filed income tax details in case of a private limited
company may not be sufficient when surrounding and
attending facts predicate a cover up. These facts indicate
and reflect proper paper work or documentation but
genuineness, creditworthiness, identity are deeper and
obtrusive. Companies no doubt are artificial or juristic
persons but they are soulless and are dependent upon the
individuals behind them who run and manage the said
companies. It is the persons behind the company who take
the decisions, controls and manage them."
16. CIT Vs Empire Builtech (P.) Ltd (3661TR 110) where
Hon'ble Delhi High Court held that u/s 68 it is not sufficient for
assessee to merely disclose address and identities of
shareholders; it has to show genuineness of such individuals or
entities.
17. CIT Vs Focus Exports (P.) Ltd (51 taxmann.com 46
(Delhi)/[2015] 228 Taxman 88 where Hon'ble Delhi High Court
held that where in respect of share application money, assessee
failed to provide complete address and PAN of certain share
applicants whereas in case of some of share applicants, there
were transactions of deposits and immediate withdrawals of
money from bank, impugned addition made under section 68 was
to be confirmed
18 PCIT Vs Bikram Singh [2017] 85 taxmann.com 104
(Delhi)/[2017] 250 Taxman 273 (Delhi)/[2017] 399 ITR 407
(Delhi) where Hon'ble Delhi High Court held that even if a
transaction of loan is made through cheque, it cannot be
presumed to be genuine in the absence of any agreement,
13 ITA No.890/Del./2019
security and interest payment. Mere submission of PAN Card of
creditor does not establish the authenticity of a huge loan
transaction particularly when the ITR does not inspire such
confidence. Mere submission of ID proof and the fact that the
loan transactions were through the banking channel, does not
establish the genuineness of transactions. Loan entries are
generally masked to pump in black money into banking channels
and such practices continue to plague Indian economy
19 Rick Lunsford Trade & Investment Ltd Vs CIT [2016]
385 ITR 399 (Cal) The assessee did not produce books of account
or bank accounts or shareholders' register. Eight out of fifty six
persons from shareholders' list provided by assessee denied
subscription. Remaining notices returned with endorsement "not
known". Hon'ble Calcutta High Court held that unexplained
share application money was rightly treated as assessee's income
20 Rick Lunsford Trade & Investment Ltd Vs CIT [2016-
TIOL-207 -SC-IT] (Supreme Court) where Hon'ble Supreme
Court dismissed SLP upholding that it is open to the Revenue
Department to make addition on account of alleged share capital
u/s 68, where the assessee company has failed to show
genuineness of its shareholders."
8. When we examine para 6(iv) of satisfaction note recorded by the
AO of the other person, available at page 64 of the paper book, the
document seized referred to unsecured loan of Rs.80,00,000/- borrowed
from M/s. Handsome Merchants Pvt. Ltd. Share received from
Binapani Merchandise Pvt. Ltd. for Rs.51,42,000/- and share premium
for Rs.1,28,57,000/-.
9. It is further mentioned in para 6(v) of satisfaction note that the
seized documents, ledgers found in respect of share application amount
and unsecured loan received from various parties and these documents
belong to assessee and sought to initiate proceedings u/s 153C of the
Act. However, when we examine reasons recorded by the AO of the
assessee for initiating proceedings u/s 153C of the Act, there is not a
14 ITA No.890/Del./2019
passing reference even to the aforesaid information/documents allegedly
seized from Vikas Malu rather in the column of information/details, it is
mentioned that, "Ledger accounts found of Green Valley Resorts. Trial
Balance Journal entry in the Books of Blooming Dale Resorts purchase
of shares amounting of Rs.5,00,000/-. Amounting to Rs.10,00,000/-
given to Blooming Dale Resorts and Rs.10,00,000/- to Kuber Breweries
Ltd.." For ready perusal, reasons recorded by AO of the assessee for
initiating proceedings u/s 153C are extracted as under :-
Reasons recorded for initiation of proceeding u/s 153C of the I.T.
Act, 1961 in the case of M/s. Marudhara Marketing Pt. Ltd.
PAN: AACCM8162G
In Kuber group of cases search & seizure action at the
residential/business premises of the persons was conducted on
09.10.2014. During the course of search, various incriminating
documents/books of account were found and seized. While
examining the seized documents of this group, the A.O of the
searched person came across with certain documents which
according to him do not belong to the searched person but belong
of M/s Marudhara Marketing Pvt. ltd. the person other than the
searched person He has also recorded his satisfaction that action
u/s 153C of the Act' is attracted in this case of person other than
the searched person. The said documents are as under :-
S. Searched Annex- Page Date/ Information/
No. Premises ure Period Details
Warrant in the name A-4 Page Ledger
of Sh. Vikas Malu A-6 No.30- accounts found
PAN:ACZPM0292M A-7 33 of Green valley
1/9, West Patel Nagar, Page Resorts. Trial
New Delhi no.26 Balance.
& 49 Journal entry
in the Books of
Blooming Dale
Resorts
purchase of
shares
amounting of
Rs.5,00,000/-.
Amounting to
Rs.10,00,000/-
given to
Blooming Dale
Resorts and
15 ITA No.890/Del./2019
10,00,000/- to
Kuber
Breweries Ltd.
The AO of the searched person has handed over the above seized
documents with his satisfaction to the undersigned being the AO
of M/s Marudhara Marketing Pvt. Ltd., the person other than the
person searched for initiating action u/s 153C of t he Act.
I have carefully gone through these seized documents and have
patiently applied my mind in the seized documents as handed
over to me by the A.O. of the searched persons namely Sh. Vikas
Malu. 1/8, West Patel Nagar, New Delhi from where these
documents were seized along with the satisfaction and I am
satisfied that these seized documents have a bearing on the
determination of the total income M/s Marudhara Marketing Pvt.
Ltd, PAN:AACCM8162GH for the relevant assessment years
referred to in sub-section (1) of section 153A of the Act and that
it is a fit case for initiating proceedings u/s 153C of the Act.
Accordingly, notice u/s 153A r.w.s 153C of the I.T. Act, 1961,
M/s Marudhara Marketing Pvt. Ltd. PAN:AACCM8162GH for
A.Ys. 2009-10 to 2014-15 are being issued
Place : New Delhi. sd/-
Date : 06.9.16 (Rakesh Kumar)
Assistant Commissioner of Income Tax
Central Circle 31, New Delhi."
10. Again when we perused para 5.2 of the assessment order AO has
lost sight of the information/details/documents referred rather
proceeding to make the addition on the basis of information/documents
referred to in para 6(iv) of the reasons recorded in case of searched
person.
11. Now, the ld. AR for the assessee contended that the proceedings
initiated by the AO in this case are invalid as no incriminating material
has been unearthed during the course of search. When we examine this
fact in the light of the fact that the present addition pertains to
Assessment Year 2014-15 and when we further examine the contention
16 ITA No.890/Del./2019
of the assessee that assessment pertains to AY 2014-15 stood terminated
by operation of law when time for issuing the notice u/s 143 (2) was
expired. When we examine this contention in the light of the fact that
original IT return was filed by the assessee on 29.09.2014 which was
processed on 21.03.2015 as per assessment order as admitted by the AO
in para 1 of the assessment order. In these circumstances, the AO was
required to issue notice u/s 143 (2) before 30.09.2015, but strangely
enough no notice has been issued u/s 143 (2) to the assessee till date.
12. Coordinate Bench of the Tribunal in case of decision rendered by
Third Member in DCIT vs. M/s. Royal Cartons P. Ltd. in ITA
No.472/Coch/2013 for AY 2005-06 order dated 16.09.2015 decided the
identical issue relying upon the findings made in the decision of Third
Member in case of Hotel Royale Park vs. DCIT in ITA Nos.601-
603/Coch/2013 & CO Nos.01-03/Coch/2014 which is extracted for
ready perusal as under :-
" ......
"The provisions of s. 153C of the Act was amended to
obviate practical difficulties which arose in its
interpretation from time to time. The amendment made by
Finance (No.2) Act, 2014 as the Legislature found that
different authorities were assigning different meanings to
the provisions. As such, a state of affairs resulted in
ambiguities which gave rise to conflicting decisions on
subject, the Legislature in its wisdom thought it prudent
to change the language thoroughly explicit. It so
happened from time to time that during the course of
conducting a search and seizure operation u/s. 132 of the
Act, money, bullion, jewellery or other valuable article or
thing or books of account or documents belonging to
another person were seized. On one hand, the seized
materials were sent to the Assessing Authority having
jurisdiction over the other person and on the other hand,
the Assessing Authority receiving such seized material
17 ITA No.890/Del./2019
acts mechanically initiates proceedings His 153C of the
Act without any verification. Such interpretation is never
the intendment of the Legislature. The Legislature found
that multiplicity of proceedings resulted and confusion
reigned supreme. In order to eliminate such contradictory
situations, it was made clear that the Assessing Authority
while receiving such seized material belonging to the
other person shall be satisfied that such material must be
of incriminating nature", Thus, the Amending Act, in
fact, explained the procedure to deal with a situation
where incriminating materials found in course of a
search belonged to a third person. The provision was
amended to stop unintended consequences and to prevent
undue hardship on the third party who is not being-
searched. The scheme that even a partnership deed or a
disclosed bank statement or projected statement was
enough to assume jurisdiction u/s. 153C of the Act was
curtailed to the extent of incriminating materials found.
In fact a logical conclusion was drawn to that effect. In
fact, the interpretation of the existing provisions was
defeating the object and purpose of the enactment and
was leading to infructuous litigation without any rhyme
or reason. By such interpretation, there were two
assessment orders standing on the same issues raising
identical tax demands for the same assessment years
which is an absurd proposition. This based on the maxim
Ut Res Magis Valeat Quam Pareat. The construction
which would reduce the legislature to a futility should be
avoided; an alternative that will introduce uncertainty,
friction or confusion into the working of the system
should be rejected. An interpretation which leads to
unworkable results and brings about absurdity cannot be
accepted. In any case, such a situation was never the
intention of the Legislatures. To do away with this
judicial error, the Act was amended to cure the obvious
omission and to clarify the intention behind the
enactment."
25. Therefore, in the light of the above decision, I am of the
firm view that the order passed by the Ld. Judicial Member is in
accordance with law. I, therefore, answer Question No.1
accordingly, i.e. in the absence of any incriminating material, to
initiate proceedings u/s. 153C of the Act, the Assessing officer is
no! justified in re-opening the assessment for the assessment
year 2005-06 which has attained finality."
13. Furthermore, it is undisputed fact that AO made addition on the
basis of items which were not at all subject matter of the reasons
18 ITA No.890/Del./2019
recorded in case of the assessee rather made the addition on those items
which were disclosed by the assessee at the time of filing the original
return of income. In these circumstances, when no incriminating
material was unearthed during the search operation indicating that
assessee has received share application money, no proceeding u/s 153C
can be initiated. All these facts as to entire share application money and
share premium have been duly proved to have been disclosed in the
original return of income from the questionnaire issued by AO u/s
14291) as is evident from pages 48 to 50 of the paper book, which is a
letter issued by the AO to the assessee. AO further categorically
mentioned at page 50 of the paper book that financials for AY 2009-10
to 2014-15 are available on ITD/MCA. All these facts go to prove that
the assessment was not pending on the date of search and as such, was
not liable to be reopened u/s 153C of the Act as no incriminating
material and the items which are already disclosed cannot be reassessed.
14. Hon'ble Supreme Court in case of CIT vs. Sinhgad Technical
Education Society (2017) 397 ITR 344 (SC) decided this legal issue by
holding the decision rendered by the Tribunal in favour of the assessee
by returning following findings :-
"Search and Seizure-New scheme of assessment in search cases-
Validity of Proceeding u/s 153C-Assessee was educational
institution registered under the Bombay Public Trusts Act, 1950
and Societies Registration Act, 1860-Assessee also got itself
registered under Section 12AA and because of said registration
under Section 12AA of the Act, Sections 11 and 12 of the Act
apply to assessee as per which income earned by assessee from
property held for charitable or religious purposes (Section 11)
and income from contributions were exempt from taxation under
19 ITA No.890/Del./2019
certain circumstances- AO recorded his satisfaction to effect that
assessee trust could not be considered as a genuine trust and
issued notice u/s. 153C for initiation of Proceeding-CIT(A) partly
allowed Assessee's appeal and sustained action of AO in
initiating proceeding u/s. 153C-ITAT held that satisfaction was
not properly recorded and notice under Section 153C was time
barred in respect of Assessment ~ 2000-01 to 2003-04 ITAT
quashed notice in respect of Assessment Years and High Court
upheld odder of ITAT-Held, as per provisions of Section 153C of
the Act, incriminating material which was seized had to pertain
to Assessment Years in question and 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 was essential for assessment under that
provision, it became jurisdictional fact-Para 9 of order of ITAT
revealed that ITAT had scanned through Satisfaction Note and
material which was disclosed therein was culled out and it
showed that same belonged to Assessment Year 2004-05 or
thereafter-It was specifically recorded that counsel for
Department could not point out to contrary-ITAT rightly
permitted this additional ground to be raised and correctly dealt
with same ground on merits as well -Order of High Court
affirming this view of Tribunal was therefore, without any
blemish- Assessment order was set aside only in respect of four
such Assessment Years that too on the technical ground-
Revenue's Appeals dismissed."
15. Furthermore, assessment order reveals that the AO has carried
out the entire exercise of assessment mechanically because satisfaction
note recorded by AO of the assessee is diametrically opposite/different
from the satisfaction note recorded by the AO of searched person.
Satisfaction note recorded by the AO in case of the assessee is
pertaining to some entries of Green Valley Resorts, Blooming Dates
Resort and Kuber Breweries but bearing no mention of receiving any
share application money from Binapani Merchandise. It appears that
AO has lost sight of the provisions contained u/s 153C and has travelled
beyond his jurisdiction without verifying the requirement that
20 ITA No.890/Del./2019
incriminating material has to be there to initiate the proceedings u/s
153C of the Act.
16. In view of the facts and circumstances of the case and law
applicable thereto, we are of the considered view that addition cannot be
made on the basis of surrounding circumstances and statement recorded
during the statement of Moolchand Malu and Vikas Kumar Agarwal
recorded during the search proceedings as contended by ld. DR, hence
the submissions made by the ld. DR and case laws relied upon are not
applicable to the facts and circumstances of the case.
17. In view of what has been discussed above, we are of the
considered view that the assessment framed u/s 153C is not sustainable
in the eyes of law being without jurisdiction and also being time barred,
hence hereby quashed without going into the merits of the case.
Consequently, the appeal filed by the assessee is allowed.
Order pronounced in open court on this 21st day of October, 2019.
Sd/- sd/-
(R.K. PANDA) (KULDIP SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated the 21st day of October, 2019
TS
Copy forwarded to:
1.Appellant
2.Respondent
3.CIT
4.CIT(A)-30, New Delhi.
5.CIT(ITAT), New Delhi. AR, ITAT
NEW DELHI.
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