IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `A' NEW DELHI
BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER
AND
SHRI L.P. SAHU, ACCOUNTANT MEMBER
I.T.A.No.6205/Del/2013
Assessment Year : 2009-10
Asstt.Commissioner of Income Tax, vs M/s Amrapali Grand,
Central Circle-7, New Delhi. C-56/40, Sector-62,
Noida- U.P.
(AAMFA2157N)
C.O.No. 150/Del/2014
( IN I.T.A.No.6205/Del/2013)
Assessment Year : 2009-10
M/s Amrapali Grand, vs ACIT, CC-7,
Noida- U.P. New Delhi.
(Appellant) (Respondent)
Appellant by: Shri Ramesh Chander, CIT DR
Respondent by : Shri Amit Goel & Saurabh Goel
Date of Hearing: 28.8.2015
Date of pronouncement: 23.11.2015
ORDER
PER CHANDRAMOHAN GARG, J.M.
This appeal of the revenue as well as C.O. of the assessee have been
preferred against the order of the CIT(A)-I, New Delhi dated 18.9.2013 passed
in Appeal No. 93/13-14 for assessment year 2009-10.
2. Briefly stated the facts giving rise to this appeal are that a search and
seizure operation was conducted on 9.9.2010 in Amrapali Group of cases.
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Subsequently, a notice u/s 153C of the Act was issued on 12.4.12 to the present
assessee and in response to which the assessee filed a letter stating that the
return declaring income of Rs. 1,01,96,580 filed on 30.09.2009 may be treated
as filed in response to the said notice. Further, notice u/s 142(1) along with
questionnaire on 8.2.2012 and 7.9.2012 and another notice u/s 143(2) of the Act
was issued on 7.9.12. The Assessing Officer vide assessment order dated
18.3.2013 assessed taxable income of the assessee by making two additions viz.
first addition on account of bogus purchases and second addition on account of
notional interest disallowed from expenditure claimed by the assessee under the
head of interest on term loan. The assessee preferred an appeal before the
CIT(A) agitating the validity of notice u/s 153C of the Act as well as on merit
agitating the additions made by the assessee. The CIT(A) granted relief to the
assessee on both the grounds on merit and deleted both the said additions.
However, the first appellate authority dismissed the legal ground of the assessee
upholding the validity of notice u/s 153C of the Act as within valid jurisdiction
of the Assessing Officer. Now, the revenue is before this Tribunal agitating the
order of the CIT(A) which granted relief to the assessee on both the counts but
the assessee has also filed cross objections challenging the conclusion of the
CIT(A) which uphold the validity of action and notice u/s 153C of the Act.
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3. At the very outset, both the parties are agreed that the C.O. of the
assessee being legal may be considered and heard first. We have heard
arguments of both the sides and carefully perused the relevant material placed
on record. Ld. AR submitted that on the fact and circumstances of the case and
in law, notice u/s 153 of the Act issued to the assessee was illegal and without
jurisdiction and accordingly, the assessment order passed on the foundation of
such notice is not sustainable and is liable to be quashed. Ld. AR further
submitted that on the facts and circumstance of the case and in law, the CIT(A)
should have held that the assessment order passed by the Assessing Officer is
bad in law and void ab initio. Further elaborating the stand of the Assessing
Officer, ld. AR submitted that satisfaction note does not even satisfy as to the
capacity of the Assessing Officer on which personal satisfaction has been
recorded. Ld. AR further submitted that there are no documents belonging to
the assessee found during search and seizure operation and even as per contents
of the satisfaction note itself, there are no documents found belonging to the
assessee. Ld. AR vehemently contended that as per contents of the satisfaction
note, Annexure A-1, AB-1 page no. 53 & 54, satisfaction has been recorded but
the same documents/pages do not belong to the assessee and it is not even the
case of the Assessing Officer that these documents belong to the assessee. Ld.
AR pointed out that in the second para of satisfaction note, the Assessing
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Officer writes that "therefore, the company wise information appearing in these
pages will be treated as documents pertaining to all the respective companies in
the said chart. Therefore, it is apparent that according to the Assessing Officer
himself, there were no documents pertaining to the assessee but certain
information in the form of chart was treated as documents belonging to the
assessee. Ld. AR further submitted that the manner in which satisfaction note
has been recorded on the basis and contents of the said satisfaction note does
not express any fact that any document or other article belonging to the assessee
was recovered during search and seizure operation. Ld. AR further pointed out
that firstly the Assessing Officer of the searched person has to hold that the
documents etc. seized during the seizure operation belongs to or belong to the
other person, other than the person searched is a prerequisite and in absence of
such satisfaction proceedings u/s 153C of the Act cannot be initiated against
such other person.
4. Learned counsel of the assessee further referred to his written synopsis
and submitted that the first requirement of law is that the Assessing Officer of
the searched person is required to rebut appeal presumption u/s 132(4A)(i) and
u/s 292C(1)(i) that seized documents do not belong or belongs to the searched
person and then the Assessing Officer of the searched person has to draw an
inference as to whom the seized documents belong to the person other than the
person searched. Ld. AR further contended that in the case of Pepsi Food Pvt.
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Ltd. vs ACIT reported as (2014) 52 Taxmann.com 220(Delhi), the Hon'ble
Jurisdictional High Court of Delhi has held that it is for the Assessing Officer of
the searched person to rebut the presumption and come to a conclusion or
satisfaction that the documents in fact belong to somebody else. There must be
cogent material available with the Assessing Officer before he/she arrives at the
satisfaction that the seized document does not belong to the searched person but
to somebody else and submissions and conjectures of the Assessing Officer
cannot take place of legal satisfaction as required by section 153C of the Act.
5. Ld. AR also pointed out that this being a position of very first step of the
Assessing Officer of the person searched prior to the handing over such
document etc. to the other person and the Assessing Officer of the other person
has to record satisfaction as per provisions of section 153C of the Act and in the
present case, from first step prior to the issuance of notice u/s 153C of the Act
has not been fulfilled and inasmuch as this condition precedent has not been met
by the Assessing Officer, therefore, notice u/s 153C of the Act is liable to be
quashed.
6. Ld. AR further placed reliance on the judgment of Hon'ble
Jurisdictional High Court of Delhi in the case of Pepsico India Holdings
Pvt. Ltd. vs ACIT (2014) 50 Taxmann.com 299 (Del) and submitted that the
Hon'ble High Court has made it clear that the Assessing Officer should not
confuse the expression "belongs to" with the expressions "relates to" or "refers
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to" and that too in the present case, the Assessing Officer has not mentioned
that any documents etc. belong to or belongs to was recovered or unearthed
during search and seizure operation, hence, this satisfaction note is hit by the
proposition laid by Hon'ble High Court of Delhi in the case of Pepsi India
Holding Pvt. Ltd. (supra). Ld. Ld. DR has also drawn our attention to last line
of para 2 of the impugned satisfaction note wherein the satisfaction has been
recorded and submitted that the Assessing Officer has simply mentioned that
the company wise information appearing in these pages (Annexure 1 party AB-
1 page no. 53 & 54) will be treated as document pertaining to all the respective
companies, appearing in the said chart. Ld. AR vehemently contended that said
mentioning of the Assessing Officer clearly reveals that there were no
documents etc. before the Assessing Officer at the time of recording satisfaction
as per section 153C of the Act and merely a chart showing details of projects of
Amrapali Group cannot be held as belongs to or belong to the present assessee
company.
7. Further, ld. AR also placed reliance on the recent judgment dated
10.7.2015 of Hon'ble High Court of Madhya Pradesh in the case of CIT vs
Mechmen passed in I.T.A. No. 44/2011 and other related appeals and
contended that when no satisfaction note has been recorded by the Assessing
Officer of the other person before issuing notice u/s 153C of the Act and none
of the papers belong to or belongs to the assessee have been found during search
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and seizure operation, then the notice u/s 153C of the Act and none of the
papers belong to or belongs to the assessee have been found during search and
seizure operation, then the notice u/s 153C of the Act cannot be held as valid
assumption of jurisdiction and all proceedings in pursuance thereto should be
held as bad in law and void ab initio.
8. Ld. AR further contended that without prejudice to the above legal
contentions, it is also submitted that even if, for the sake of arguments but not
admitting, it is presumed that the seized documents referred to in satisfaction
note were `belonging to' the assessee and that the Assessing Officer was
entitled to issue notice u/s 153C of the Act, even in such a situation, the
Assessing Officer was duty bound to close the proceedings after calling off
returns u/s 153C of the Act because there is nothing incriminating in the seized
documents. To support this contention, ld. AR placed reliance on the judgment
of Hon'ble Jurisdictional High Court of Delhi in the case of SSP Aviation vs
DCIT (2012) 20 Taxman.com 214 (Delhi).
9. Ld. DR vehemently contended that the C.O. of the assessee challenging
the jurisdiction of the Assessing Officer is not maintainable in the light of
provisions of section 124 of the Act. Ld. DR placing reliance on the decision of
ITAT Ahmedabad Bench in the case of DCIT vs Sandip M. Patel said to be
reported in 22 Taxmann.com (AHD. TRI) submitted that independent legal
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ground cannot be raised by way of cross objection. He pointed out para no. 3.8
at page 27 of this judgment to support this legal contention.
10. Ld. AR strongly opposed the aforesaid legal contention of the department
and submitted that the provision of section 124 of the Act is only related to the
territorial jurisdiction of the Assessing Officer which nowhere states about the
jurisdiction of the Assessing Officer provided u/s 153A or 153C of the Act
which is relevant to the present case. Ld. AR further pointed out that the facts
and circumstances of the present case are quite dissimilar and distinguishable
from the facts of the case of Sandip M. Patel (supra) as relied by the ld. AR.
11. On careful consideration of above submissions and legal contentions of
the ld. Ld. DR, we are of the view that from bare reading of provisions of
section 124 of the Act, it is amply clear that this provision mandates about the
territorial jurisdiction of the Assessing Officer over any one and a rider has been
put about challenge of assessee regarding territorial jurisdiction by this
provision, hence, we decline to accept the contention of ld. CIT DR that the
assessee cannot agitate validity of notice u/s 153C of the Act u/s 124 of the Act.
Furthermore, when we proceed to consider the facts and circumstances of the
case of Sandip M. Patel, we see that the Ahmedabab Tribunal has never decided
that the assessee cannot raise legal objection to the validity of notice u/s 153C
of the Act by way of cross objection. On careful reading of said relevant para
3.8 at page 27 of the said order, we note that these observations as relied by Ld.
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DR have been given in a certain situation which is not similar to the present
case and hence, we respectfully hold that the benefit of the ratio of the decision
of Coordinate Bench of ITAT, Ahmedabad in the case of DCIT vs Sandip N.
Patel is not available for the revenue. Accordingly, we proceed to decide the
cross objection of the assessee challenging the validity of notice u/s 153C of the
Act and all subsequent proceedings held in pursuance thereto.
12. On cross objections, Ld. DR further supported the action of the Assessing
Officer and submitted that the CIT(A) rightly dismissed ground no. 1,2, 3, 5 (b)
and 6 (b) of the Act upholding the validity of notice u/s 153C of the Act and
reassessment order passed u/s 153C r/w section 143(3) of the Act as the
Assessing Officer rightly assumed jurisdiction to issue notice u/s 153C of the
Act and making reassessment proceedings consequential.
13. On careful consideration of above submissions of both the sides, at the
very outset, we may point out that the Assessing Officer issued a notice u/s
153C of the Act on 12.4.12 to the assessee asking to file the return of income
for the relevant assessment year after recording reasons for initiation of action
u/s 153C of the Act. Ld. AR has placed a copy of the said reasons spread over 4
pages which we are enclosing with this order as Annexure A-1 for the sake of
clarity and brevity in our findings and observations.
14. Further, before we proceed to adjudicate the allegation of assessee
challenging the valid assumption of jurisdiction for issuance of notice u/s 153C
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of the Act and all subsequent proceedings, we find it appropriate to carefully
peruse the proposition and dicta laid down by Hon'ble Jurisdictional High Court
and other Hon'ble High Courts on this issue. Firstly, we observe that in the case
of Pepsi Food Pvt. Ltd. vs ACIT (supra) the Hon'ble Jurisdictional High Court
held as under:-
"6. On a plain reading of Section 153C, it is evident that the
Assessing Officer of the searched person must be "satisfied" that
inter alia any document seized or requisitioned "belongs to" a
person other than the searched person. It is only then that the
Assessing Officer of the searched person can handover such
document to the Assessing Officer having jurisdiction over such
other person (other than the searched person). Furthermore, it is
only after such handing over that the Assessing Officer of such
other person can issue a notice to that person and assess or re-
assess his income in accordance with the provisions of Section
153A. Therefore, before a notice under Section 153C can be
issued two steps have to be taken. The first step is that the
Assessing Officer of the person who is searched must arrive at a
clear satisfaction that a document seized from him does not belong
to him but to some other person. The second step is after such
satisfaction is arrived at that the document is handed over to the
Assessing Officer of the person to whom the said document
"belongs". In the present cases it has been urged on behalf of the
petitioner that the first step itself has not been fulfilled. For this
purpose it would be necessary to examine the provisions of
presumptions as indicated above. Section 132(4A)(i) clearly
stipulates that when inter alia any document is found in the
possession or control of any person in the course of a search it
may be presumed that such document belongs to such person. It is
similarly provided in Section 292C(1)(i). In other words, whenever
a document is found from a person who is being searched the
normal presumption is that the said document belongs to that
person. It is for the Assessing Officer to rebut that presumption
and come to a conclusion or "satisfaction" that the document in
fact belongs to somebody else. There ,must be some cogent
material available with the Assessing Officer before he/she arrives
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at the satisfaction that the seized document does not belong to the
searched person but to somebody else. Surmise and conjecture
cannot take the place of "satisfaction".
xxxxxxxxxxx
11. It is evident from the above satisfaction note that apart from
saying that the documents belonged to the petitioner and that the
Assessing Officer is satisfied that it is a fit case for issuance of a
notice under Section 153C, there is nothing which would indicate
as to how the presumptions which are to be normally raised as
indicated above, have been rebutted by the Assessing Officer.
Mere use or mention of the word "satisfaction" or the words "I am
satisfied" in the order or the note would not meet the requirement
of the concept of satisfaction as used in Section 153C of the said
Act. The satisfaction note itself must display the reasons or basis
for the conclusion that the Assessing Officer of the searched
person is satisfied that the seized documents belong to a person
other than the searched person. We are afraid, that going through
the contents of the satisfaction note, we are unable to discern any
"satisfaction" of the kind required under Section 153C of the said
Act.
12. This being the position the very first step prior to the
issuance of a notice under Section153C of the said Act has not
been fulfilled. Inasmuch as this condition precedent has not been
met, the notices under Section 153C are liable to be quashed. It is
ordered accordingly. The writ petitions are allowed as above.
There shall be no order as to costs."
15. We further observe that in the case of Pepsico India Holdings Pvt. Ltd. vs
ACIT, the Hon'ble Jurisdictional High Court of Delhi in para 12 to 16 held as
follows:-
"12. However, by virtue of the order dated 02.12.2013, the
Assessing Officer rejected each one of these objections and
observed that the provisions of Section I53C of the said Act had
been rightly invoked and the petitioner was directed to comply
with the assessment proceedings under Section 153C read with
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Section 143(3) of the said Act insofar as the Assessment Years
2006-2007 to 2011-2012 were concerned.
13. Having set out the position in law in the decision of this
Court in the case of Pepsi Foods Pvt, Ltd. (supra), it must be
seen as to whether the Assessing Officer of the searched person
(the Jaipuria Group) could be said to have arrived at a
satisfaction that the documents mentioned above belonged to
the petitioners.
14. First of all we may point out, once again, that it is
nobody"s case that the Jaipuria Group had disclaimed these
documents as belonging to them. Unless and until it is
established that the documents , do not belong to the searched
person, the provisions of Section 153C of the said Act do not get
attracted because the very expression used in Section 153C of
the said Act is that "where the Assessing Officer satisfied that
any money, bullion, jewellery or other valuable article or thing
or books of account or documents seized or requisitioned
belongs or belong to a person other than the person referred to
in section 153A In view of this phrase, it is necessary that
before the provisions of Section 153C of the said Act can be
invoked, the Assessing Officer of the searched person must he
satisfied that the seized material (which includes documents)
does not belong to the person referred to in Section 153A (i.e.,
the searched person). In the Satisfaction Note, which is the
subject matter of these writ petitions, there is nothing therein to
indicate that the seized documents do not belong to the Jaipuria
Group. This is even apart from the fact that, as we have noted
above, there is no disclaimer on the part of the Jaipuria Group
insofar as these documents are concerned.
15. Secondly, we may also observe that the finding of
photocopies in the possession of a searched person does not
necessarily mean and imply that they "belong" to the person
who holds the originals. Possession of documents and
possession of photocopies of documents are two separate
things. While the Jaipuria Group may be the owner of the
photocopies of the documents it is quite possible that the
originals may be owned by some other person. Unless it is
established that the documents in question, whether they be
photocopies or originals, do not belong to the searched person,
the question of invoking Section 153C of the said Act does not
arise.
16. Thirdly, we would also like to make it clear that the
assessing officers should not confuse the expression "belongs
to" with the expressions "relates to" or "refers to". A registered
sale deed, for example, "belongs to" the purchaser of the
properly although it obviously "relates to" or "refers to" the
vendor. In this example if the purchasers premises are searched
and the registered sale deed is seized, it cannot he said that it
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"belongs to" the vendor just because his name is mentioned in
the document. In the converse case if the vendor"s premises are
searched and a copy of the sale deed is seized, it cannot be said
that the said copy "belongs to" the purchaser just because it
refers to him and he (the purchaser) holds the original sale
deed. In this light, it is obvious that none of the three sets of
documents - copies of preference shares, unsigned leaves of
cheque books and the copy of the supply and loan agreement -J
can be said to "belong to" the petitioner."
16. We further observe that in the case of CIT vs Mechmen (supra), the
Hon'ble Madhya Pradesh High Court in para 22 and 23 held as follows:-
"22. Reverting to the substantial questions of law
articulated while admitting these appeals, we hold that the same
will be of no avail to the Department considering the fact
situation of the present case and for the reasons mentioned
hitherto. In that, we have rejected the argument that even in
cases, under Section 153C the Assessing Officer(s) need not
record satisfaction and in particular at both the stages - be it
Assessing Officer of searched person or Assessing Officer having
jurisdiction over such other person. Notably, the requirement of
recording satisfaction is not for the benefit of the Assessing
Officer(s), but lending credence to his satisfaction and on which
matters the assessce can give meaningful explanation and reason
it out as and when opportunity is given to the concerned
assessee.
23. In the present case, the concurrent finding of fact recorded by
the Appellate Forums is that, no satisfaction has been recorded
by the Assessing Officer before issuing of notice under section
153C Further, none of the papers seized belongs or belong to the
assessee (noticee). The Appellate Forums have further found that
no addition or even observations have been made by the
Assessing Officer in any of the orders for the relevant assessment
years in connection with any material found during the course of
search Even for that reason no action under section 153C, is
justified. These findings of fact need no interference and have not
been questioned before us. Considering the above, these appeals
must fail."
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17. Further, Hon'ble Jurisdictional High Court of Delhi in the case of S.S.P.
Aviation vs DCIT (supra) in para 17 held thus:-
"17. The judgment of this court in Saraya Industries
Ltd. (supra) was relied upon by Mr. Bajpai, in support of
his contention that the seizure of the document must be of
such nature that even closed assessments for six years
could be reopened and this requirement postulates that
the provisions of Section 153C can be set in motion only
if there is a finding that the seized document or books of
account or valuable article represents the undisclosed
income of the other person. The said decision does not
assist the petitioner. The section merely enables the
revenue authorities to investigate into the contents of the
document seized, which belongs to a person other than
the person searched so that it can be ascertained whether
the transaction or the income embedded in the document
has been accounted for in the case of the appropriate
person. It is aimed at ensuring that income does not
escape assessment in the hands of any other person
merely because he has not been searched under Section
132 of the Act. It is only a first step to the enquiry, which
is to follow. The Assessing Officer who has reached the
satisfaction that the document relates to a person other
than the searched person can do nothing except to
forward the document to the Assessing Officer having
jurisdiction over the other person and thereafter it is for
the Assessing Officer having jurisdiction over the other
person to follow the procedure prescribed by Section
153A in an attempt to ensure that the income reflected by
the document has been accounted for by such other
person. If he is so satisfied after obtaining the returns
from such qther person for the six assessment years, the
proceedings will have to be closed. If the returns filed by
the other person for the period of six years does not show
that the income reflected in the document has been
accounted for, additions will be accordingly made after
following the procedure prescribed by law and after
giving adequate opportunity of being heard to such other
person. That, in sum and substance, is the position."
18. In the light of aforesaid proposition/dicta of Hon'ble Jurisdictional High
Court of Delhi and Hon'ble M.P. High Court, when we analyse the facts and
circumstances of the present case, we observe that from reasons recorded by the
Assessing Officer for initiation of action and issuance of notice u/s 153C of the
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Act, from the contents of reasons recorded, it is apparent that these reasons have
been recorded in the case of Amrapali Grand and the search and seizure
operation u/s 132(1) of the Act on 9.9.2010 was conducted in the Amrapali
Group which is a separate entity and thus we safely infer that the reasons as
(Annexure 1) were recorded in the case of the other person other than the person
searched. From the contents of reasons recorded for issuance of notice u/s 153C
of the Act, we note that after stating the detail of search and seizure operation,
the Assessing Officer of the other person mentions that as per Annexure A-1,
pages 53 & 54 viz. detailed chart of all the projects undertaken by Amrapali
group which contains company wise detail of projects undertaken by various
companies of Amrapali Group, it may be mentioned that Amrapali Group is not
a legal entity but comprises of group of companies which individually and
separately are having their different corporate/partnership firm entities.
Subsequently, the Assessing Officer of the other person i.e. present assessee
states that "Therefore, the company wise information appearing in these pages
will be treated as documents pertaining to all the respective companies,
appearing in the said chart."
19. At this point, we may point out that the chart appearing on page 53 & 54
contains detail of projects wherein present assessee i.e. Amrapali Grand has
been enlisted at sl. No. 1 and in the other relevant columns, location project
wise stage of completion, cost incurred, cost to be incurred, balance amount to
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be received from cashier, sale value of unsold flats, total receivables and surplus
amounts have been mentioned. This chart contains details of 12 companies
including the present assessee and title of this chart is mentioned as "Amrapali
group, detail of projects".
20. We further observe that in the first para appearing on page no. 2 of the
reasons recorded, the Assessing Officer of the other person has noted the details
of companies and their managers of Amrapali Group and subsequently it has
been mentioned that during the course of search, incriminating documents as to
unaccounted cash receipts totalling to Rs.31.33 crore were seized which have
been admitted to be unaccounted by the management of search person/entity,
hence surrendered as unexplained income in the books of M/s Ultra Homes
Construction (P) Ltd. In para 1& 2 of the reasons recorded, the Assessing
Officer of the other person noted that "however, the receipt of unaccounted cash
and payment of unaccounted expenses by the management in respect of
Amrapali Grand is imminently possible which is also evident by the documents
seized at pages 54 & 55 of Annexure seized by party AB-1". In view of logical
and vigilant reading of reasons recorded by the Assessing Officer of the other
person set out in the earlier paras, it is clear that the reasons have been recorded
by the person other than the person searched and in the very first part of
allegations, the Assessing Officer of the other person noted that a detailed chart
showing company wise information will be treated as document pertaining to
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respective companies appearing in the said chart. From these observations of
the Assessing Officer of the other person, we can safely infer that according to
the Assessing Officer himself, there were, in fact, no documents belonging to
the assessee but certain information in the form of chart showing details of
company wise projects, which was recovered during the search and seizure
operation on Amrapali group, has been treated as documents pertaining to all
the respective companies appearing in the said chart including the present
assessee. In the said stipulations of reasons recorded, we are unable to see any
observations or facts or any other material which was recovered or unearthed
during the search and seizure operation on Amrapali group on 9.9.2010. We
may point out that the Assessing Officer in para 2 of the reasons recorded
himself noted that during the course of search, incriminating documents as to
the unaccounted cash receipts totalling to Rs.31.33 crore were seized which
have been admitted to have been unaccounted by the management of search
entity and the same was surrendered as unexplained income in the books of M/s
Ultra Home Construction (P) Ltd. which is a company of Amrapali Group. In
this position, when the unaccounted cash receipts have been accounted and
surrendered as unexplained income to M/s Ultra Home, we are unable to see
any other incriminating material or document etc. which could lead the
Assessing Officer of other person to record his satisfaction that documents etc.
belong to or belongs to the present assessee (other person) were seized during
search and seizure operation on Amrapali group. In this position, when the
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unaccounted cash receipts have been accounted and surrendered as unexplained
income of M/s Ultra Home, we are unable to see any other incriminating
material or document etc. which could lead the Assessing Officer of other
person to record his satisfaction that documents etc. belong to or belongs to the
present assessee (other person) were seized during search and seizure operation
on Amrapali group.
21. In view of foregoing discussion, we are unable to hold that the only basis
of reasons recorded for action u/s 153C of the Act before the Assessing Officer
of the other person i.e. present assessee was a chart containing details of
provision of 12 companies of Amrapali Group including present assessee but
this chart does not qualify the definition of document belonging to person other
than the searched person viz. the present assessee and for initiation of action and
issuance of notice u/s 153C of the Act but seizure of document etc. belonging to
other person is a prerequisite and in absence of search and seizure operation
proceedings u/s 153C of the Act, notice under the said provision cannot be
initiated and issued against such other person. At the cost of repetition, when
we analyse the proposition laid down by Hon'ble Jurisdictional High Court in
the case of Pepsi Food Pvt. Ltd. vs CIT (supra) , we clearly observe that their
lordships have explicitly held that before a notice u/s 153C of the Act can be
issued, two step have to be taken; the first step is that the Assessing Officer of
the person who is searched must arrive at a clear satisfaction that the document
18
I.T.A. 6205 & CO 150/D/14
ASSESSMENT YEAR 2009-10
does not belong to him but to some other person, the second step is; after such
satisfaction is arrived at, the documents be handed over to the Assessing Officer
of the person to whom such document belongs. Their lordships further held that
for this purpose, it would be necessary to examine the provisions of
presumption wherein section 132(4A)(i) clearly stipulates that when inter alia
any document is found in the control and possession of any person in the course
of search, it may be presumed that such books of account, other documents, or
other valuable article or thing belong or belongs to such person and it is also
similarly provided in section 292C(i). Their lordships laying down a dicta
which is binding on us, further held that whenever a document is found from a
person who is being searched, the presumption is that the said documents
belong to that person and it is for the Assessing Officer of the searched person
to rebut that presumption and come to a conclusion or satisfaction that the
document, in fact, belongs to somebody else. It was further held that there must
be cogent reason available with the Assessing Officer before he/she arrives at
the satisfaction that the seized document does not belong to the searched person
but to somebody else and surmises and conjectures cannot take place of
satisfaction.
22. In the present case, undisputedly and admittedly, there was no satisfaction
note recorded by the Assessing Officer of the person searched. This being the
position, the first step prior to the issuance of notice u/s 153C of the Act has not
19
I.T.A. 6205 & CO 150/D/14
ASSESSMENT YEAR 2009-10
been fulfilled by the Assessing Officer of the person searched i.e. Amrapali
group. When we proceed to evaluate the validity of reasons recorded by the
Assessing Officer of the other person for issuance of notice and initiation of
proceedings u/s 153C of the Act, then from the reasons recorded (Annexure A-
1), it is amply clear that the Assessing Officer has merely picked on pages no.
53 & 54 of the sized material which is, in fact, a chart showing detail of
provision of Amrapali group company including name of the present assessee of
Amrapali Grand at sl. No.1 but this cannot be held as belong to or belongs to the
present assessee. It is further observed that even the Assessing Officer of the
other person has not used the words "belong to or belongs to" in the reasons
recorded and he has noted that the company wise information appearing in these
pages will be treated as document pertaining to all the respective companies
appearing in the said chart. Ld. DR has pointed out that as per amended section
153C of the Act, the word `pertains to' is sufficient for valid assumption of
jurisdiction, issuance of notice u/s 153C of the Act. However, we do not agree
with this contention of the ld. CIT DR as the present case is relevant to
assessment year 2009-10 and the amendment inserted in section 153C of the
Act by Finance Act 2015 is applicable w.e.f. 1.6.2015 and onwards which
cannot be taken as retrospective for placing word `pertain to" or "pertains to".
Per contra, from the reading of pre-revised section 153C, it is clear that there
were words `belong to' or `belongs to' a person other than the person referred to in section
153C of the Act and in the present case, the Assessing Officer of the other person has not
20
I.T.A. 6205 & CO 150/D/14
ASSESSMENT YEAR 2009-10
mentioned `belongs to' or `belong to' in the reasons recorded clearly
demonstrate that the Assessing Officer himself was not sure about the chart
which was used as `pertain to' the present assessee as to whether the same can
be treated as `pertain to' or `pertains to' the present assessee. This ambiguous
state of mind of the Assessing Officer of the other person clearly demonstrates
that the Assessing Officer proceeded to initiate proceedings and to issue notice
u/s 153C of the Act without assumption of valid jurisdiction for the same.
23. At this juncture, we further take cognizance of the dicta laid down by the
Hon'ble Jurisdictional High Court in the case of Pepsico India Ltd. vs CIT
(supra) wherein speaking for the Jurisdictional High Court, their lordships in
para 16 held that the "the Assessing Officer should not confuse the expression
`belong to' with the expression `relates to' or `refers to'. It is further pertinent to
take cognizance of decision of Madhya Pradesh High Court in the case of CIT
vs Mechmen wherein their lordships after referring to the decisions of Hon'ble
Delhi High Court in the case of Pepsi Food Pvt. Ltd., Pepsico Holding Pvt. Ltd.
and observations in the case of SSP Aviation Ltd. (supra), it has been held that
even in cases u/s 153C of the Act, the Assessing Officer need not record
satisfaction in particular at both the stages, be it Assessing Officer of the
searched person or Assessing Officer having jurisdiction over such other
person, the requirement of recording satisfaction is not for the benefit of the
Assessing Officer but lending credence to his satisfaction and on which matters
21
I.T.A. 6205 & CO 150/D/14
ASSESSMENT YEAR 2009-10
the assessee can give meaningful explanation and reason it out as and when
opportunity is given to the concerned assessee.
24. At this juncture, it is also relevant to respectfully take cognizance of dicta
laid down by Hon'ble High Court of Delhi in the case of CIT vs MGF
Automobiles Ltd. dated 13.8.15 I.T.A. 13 & 14/2015 wherein speaking for the
Jurisdictional High Court, their lordships held that the Assessing Officer
proceeded to frame assessment u/s 153A of the Act relying on some information
not unearthed during the search, then the assessment orders passed with
reference to section 153A(1) of the Act were unsustainable in law.
Furthermore, the Hon'ble High Court of Delhi in the case of PCIT vs Kurele
Paper Mill Pvt. Ltd. I.T.A. No.369/2015 dated 6.7.15, their lordships held as
follows:-
"2. The Court finds that the order of the CIT(Appeals) reveals
that there is a factual finding that "no incriminating evidence
related to share capital issued was found during the course of
search as is manifest from the order of the AO." Consequently, it
was held that the AO was not justified in invoking Section 68 of
the Act for the purposes of making additions on account of share
capital."
25. First of all, it would be appropriate to deal with the contention of the ld.
DR that in the reasons recorded, the Assessing Officer rightly held the chart
showing project wise detail of the Amrapali group of 12 companies including
the present assessee pertained to present assessee and thus, the action of the
Assessing Officer in issuance of notice u/s 153C of the Act and framing
22
I.T.A. 6205 & CO 150/D/14
ASSESSMENT YEAR 2009-10
assessment under said provision was quite correct in view of the amendment in
section 153C of the Act wherein the words `pertain to' or `pertains to' or any
information contained therein `relates to' have been inserted. While we analyse
the intention of the legislature, we are in agreement with the contention of the
ld. AR that this amendment is not retrospective but prospective because said
amendment was inserted by Finance Act 2015 w.e.f. 1.6.15 prospectively which
cannot apply to the present case which pertains to assessment year 2009-10.
26. On the basis of our foregoing discussion and in the light of proposition
and dicta laid down by Hon'ble High Court of Delhi and Hon'ble M.P. High
Court, we are of the opinion that the following facts and circumstances
emerging from the base document Annexure A-1 i.e. reasons recorded for
initiation of proceedings and issuance of notice u/s 153C of the Act:-
i) Undisputedly, Annexure A-1 spread over 4 pages, as annexed to
this order, has been recorded in the case of other person i.e. present
assessee.
ii) From the record we are unable to see any reason or satisfaction
recorded by the Assessing Officer of the searched person prior to
handing over of alleged pages 53 & 54 to the Assessing Officer of
the other person.
iii) Annexure A-1 clearly reveals that the sole basis of the demand by
the Assessing Officer is the chart i.e. page no. 53 & 54 which
23
I.T.A. 6205 & CO 150/D/14
ASSESSMENT YEAR 2009-10
contains the project wise detail of 12 companies of Amrapali
Group including the present assessee which has been tabled at sl.
No. 1 in this chart. The Assessing Officer of the present assessee
has noted that this chart is being treated as document pertaining to
all the respective companies appearing in the said chart. The
provisions of section 153C of the Act, as existed at the time of
recording reason, require that where the Assessing Officer is
satisfied with any money, bullion, jewellery or other valuable
article or thing or books of accounts or documents seized or
requisitioned belongs to or belonged to a person other than the
person referred to in section 153A of the Act, then the books of
accounts or documents etc. seized or requisitioned shall be handed
over to the Assessing Officer for jurisdiction over such other
person. In the present case, the Assessing Officer of the searched
person has not recorded any satisfaction to rebut the presumption
u/s 132(4A)(i) and u/s 292C(i) that seized documents do not belong
to the searched person. Furthermore, the reasons recorded by the
Assessing Officer of the other person i.e. present assessee,
Annexure A-1 clearly reveals that the Assessing Officer of the
other person in the reasons recorded prior to initiation of action and
issuance of notice u/s 153C has not recorded that the chart pages
53 & 54 in Annexure A-1 party AB-1, the sole alleged document
24
I.T.A. 6205 & CO 150/D/14
ASSESSMENT YEAR 2009-10
belong to or belongs to the present assessee. However, the
Assessing Officer of the present assessee referring to the said chart
has merely mentioned that the company wise non-appearing in
these pages will be treated as document pertaining to all the
respective companies which is not a proper and valid reason for
initiation of action and issuance of notice u/s 153C of the Act.
iv) We also observe that except chart pages 53 & 54, there was no
other document etc. before the Assessing Officer of the present
assessee at the time of recording reasons for initiation of action and
issuance of notice u/s 153C of the Act.
27. In the totality of the facts and circumstances and our finding as noted
above, about the initiation of action and issuance of notice u/s 153C of the Act,
we reach to a logical conclusion that as per proposition laid down by the
Jurisdictional High Court of Delhi in the case of Pepsi Food vs ACIT, Pepsico
Indi Holdings Pvt. Ltd. vs ACIT (supra) which were referred to by Hon'ble
Madhya Pradesh High Court in the case of CIT vs Mechmen (supra), it is vivid
that the first required step of the Assessing Officer of the person who was
searched have not recorded satisfaction that the sole document viz. chart pages
53 & 54 seized during the search and seizure operation of Amrapali Group do
not belong to the searched person but to the present assessee. We further
observe that the reasons recorded by the Assessing Officer of the present
25
I.T.A. 6205 & CO 150/D/14
ASSESSMENT YEAR 2009-10
assessee do not qualify the requirement of valid satisfaction as per provisions of
section 153C of the Act (as existed in the Act at the time of recording
satisfaction) as there is no mention of any allegation that the chart pages 53 &
54 belong to or belongs to the present assessee. At this stage, it is profitable to
take note of the judgement of Hon'ble High Court of Delhi in the case of
Pepsico India Holding Pvt. Ltd. wherein their lordships make it clear that the
Assessing Officer should not confuse the expression `belong to' with the
expression `relates to' or `refers to', meaning thereby that as per dicta laid down
by Jurisdictional High Court, the main requirement is that the reason for
initiation of action and issuance of notice u/s 153C of the Act, the Assessing
Officer of the other person is mandatorily required to record that the documents
etc. belong to belongs to the other person and over such other person, he has
jurisdiction to assess.
28. In the present case, the base of document i.e. chart pages 53 & 54 does
not belong or belongs to the present assessee as the Assessing Officer of the
other person himself was not clear in his mind that whether this chart belongs to
or belong to the present assessee, therefore, he made jugglery of words by
mentioning that the company wise non appearing in these pages will be treated
as documents pertaining to all respective companies including the assessee
company appearing in the said chart. In this situation, we are inclined to hold
that the reasons recorded by the Assessing Officer of the present assessee for
26
I.T.A. 6205 & CO 150/D/14
ASSESSMENT YEAR 2009-10
initiation of action u/s 153C of the Act and issuance of notice under the said
provision do not quash the requirement of said provision as accepted in the Act
at the time of recording satisfaction. It is also relevant to mention that the so-
called seized document i.e. chart cannot be held as belongs to or belong to the
present assessee and on this ground also, the validity of reasons recorded comes
within the teeth of proposition laid down by Hon'ble Jurisdictional High Court
in the case of Pepsico Holding Pvt. Ltd. (supra) and Pepsi Food Pvt. Ltd. vs CIT
(supra). Respectfully following the proposition laid down by Hon'ble
Jurisdictional High Court, we are inclined to hold that the reasons recorded for
action u/s 153 of the Act and issuance of notice under the said provision was not
only bad in law but void ab initio which cannot be held as sustainable and
consequently, we quash the same. Accordingly, C.O. of the assessee is hereby
allowed.
I.T.A. No. 6205/Del/2013 for A.Y. 2009-10 on merits
29. This appeal has been preferred against the same order of Ld. CIT(A)
(supra) which upheld the validity of notice and action u/s 153C of the Act.
30. Ground Nos. 1 & 4 are general in nature which need no adjudication.
The main grounds raised by the Revenue read as under:-
"2. On the facts and the circumstances of the case the Ld. CIT(A)
has erred in law in deleting the addition of Rs. 1,12,60,413/- made
by AO on account of bogus purchases of raw material.
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I.T.A. 6205 & CO 150/D/14
ASSESSMENT YEAR 2009-10
3. On the facts and the circumstances of the case the Ld. CIT(A)
has erred in law in deleting the addition of Rs.1,71,85,440/- made
by AO on account of interest free loan & advances."
Ground No. 3 of the Revenue
31. Apropos Ground No. 2 the Ld. CIT DR pointed out para 7.10 of the
assessment order and submitted that the assessee did not charge any interest in
respect of advances given to them nor any goods have been received during the
year and at the same time, the assessee has borrowed huge interest bearing
funds and has also made payment of interest on loan to Bank of Maharashtra
thus the notional interest @ 8% per annum on interest free advances was rightly
disallowed from interest expenditure claimed by the assessee. The Ld. AR
further pointed out that the Ld. CIT(A) granted relief to the assessee without
any basis, hence, the impugned order may be set aside by restoring that of the
A.O.
32. The Ld. AR replied that the assessee used its funds which were infused
by the partners into the appellant firm for the project and advances made to
these persons by the assessee were to raise capital for the purpose of business
and these transactions are not in the nature of business advances. The Ld. AR
vehemently contended that the interest payments made by the appellant firm to
Bank of Maharashtra also do not appear to have any nexus with the money
advanced as all the payments are related to the term loan from the Bank for
28
I.T.A. 6205 & CO 150/D/14
ASSESSMENT YEAR 2009-10
various payments to various authorities and all the receipts are from M/s Ultra
Homes as partners contribution to the appellants on going projects.
33. The Ld. DR also placed rejoinder by submitting that no remand report
was called by the Ld. CIT(A) before granting relief to the assessee and assessee
cannot be allowed to make a new case during appellate proceedings.
34. At the very outset, we observe that the Ld. CIT(A) granted relief for the
assessee with following observations and conclusions:
"6.2 I have considered the assessment order and the
submissions made. Facts are that the appellant firm has
advanced the money to these persons who are directors in M/s
Ultra Home Construction Pvt. Ltd. Funding for various projects
of the Amrapali Group is raised mainly from banks / financial
institutions, which require that the directors / partners must
also give personal guarantees for the loans and for such
guarantees they must themselves have adequate assets and
liquid funds. M/s Ultra Home Construction Pvt. Ltd. is the flag-
ship company of Amrapali Group and bank finance is raised by
this company. This company is also majority partner of the
appellant firm. Funds are infused by the partners into the
appellant firm for the project, which in turn advances money to
the directors of Ultra Home Construction Pvt. Ltd. so that more
funds / finances can be raised as the project progresses. The
advances made to these persons by the appellant firm were to
raise capital for the purpose of business. Therefore, these
transactions are not in the nature of loan but in the nature of
business advances. The interest payment made by the appellant
firm to Bank of Maharastra also does not appear to have any
nexus with the money advanced as all the payments are related
to the term loan from the bank or various payments to various
authorities and all the receipts are from M/s Ultra Home as
partner's contribution to the appellant's ongoing project."
29
I.T.A. 6205 & CO 150/D/14
ASSESSMENT YEAR 2009-10
35. In view of above, the Ld. AR has placed reliance on the order of Hon'ble
High Court of Delhi in the case of Tinbox Co. 260 ITR 637 (Delhi) and
submitted that where the firm advanced interest free funds to sister concern, and
there are findings that capital of firm and interest free unsecured loans exceeded
amounts advanced to sister concern, the disallowance of part of interest on
borrowed capital is not justified. In the present case, the A.O proceeded to
make addition by observing that the assessee has not charged interest in respect
of advances of Rs. 21.48 lac given to the persons closely connected nor any
goods have been received from them and on the other hand, the assessee has
taken huge interest bearing loan from Bank of Maharashtra and has also paid
Rs. 3.17 crores thereon. Further, after noting above facts, the A.O proceeded to
make proportionate disallowance of Rs.1.71,85,440/- reducing the interest claim
of the assessee.
36. On appeal by the assessee, the Ld. CIT(A) granted relief with a
conclusion and observations as reproduced above. The Ld. CIT(A) placing
reliance on the judgment of Hon'ble Delhi High Court in the case of SSP
Aviation Ltd. vs DCIT (supra) held that the impugned addition based on
disallowance of interest does not relate to emanating from the allegation of
suppression of sales or receipt of unaccounted cash in sale of flats. Further, the
first appellate authority also noted that the advances made to these
persons/entities by the assessee firm were to raise capital for the purpose of
30
I.T.A. 6205 & CO 150/D/14
ASSESSMENT YEAR 2009-10
business and also that these transactions are not in the nature of business
advances. The Ld. CIT(A) also noted that the interest payment made by the
assessee to Bank of Maharashtra also does not appear to have any nexus with
the money advanced as all payments. In the light of above noted facts, when we
analyse the action of the A.O. and contentions of the Ld. Ld. DR, we observe
that aforesaid observations of the Ld. CIT(A) have not been controverted by
them. This view also finds support from the dicta laid down by Hon'ble High
Court in the case of Tin Box (supra). Accordingly, we are unable to see any
valid reason to interfere with the order of the first appellate authority. Thus,
Ground No. 3 of the Revenue being devoid of merits is dismissed.
Ground No.2
37. Apropos Ground No. 2, we have heard arguments of both the sides and
carefully perused the material placed on record before us on this issue. The Ld.
DR supported the action of the A.O and submitted that the assessee claimed
expenditure on account of purchase from certain parties who were involved in
merely issue of purchase bills effecting the payments through banking channels
for commission not actually supported with physical verification of goods. The
Ld. DR also pointed out that Shri A. K. Sharma, Director of group company,
M/s Ultra Homes in his statement recorded on 9/9/2010, during search and
seizure operation, had agreed to surrender huge amounts and hence, when the
assessee failed to produce the relevant party (seller) to prove the genuineness of
31
I.T.A. 6205 & CO 150/D/14
ASSESSMENT YEAR 2009-10
alleged purchase, the A.O was quite correct in making addition in this regard.
The Ld. DR vehemently argued that the Ld. CIT(A) granted relief without any
basis hence impugned order may be set aside by restoring that of the A.O.
38. Replying to the above, the Ld. Counsel of the assessee strongly supported
the order of the Ld. CIT(A) and submitted that the assessee submitted all
relevant purchase bills, freight bills and Dharma Kanta Weigh Bills but the A.O
simply noted that the assessee failed to produce these alleged vendors, hence he
proceeded to make further addition treating the same as bogus purchases
without any basis and cogent reasoning which was rightly deleted by the Ld.
CIT(A) on the basis of proper appreciation of facts, documents and
circumstances of the case.
39. From the operation part of the first appellate order, we note that the Ld.
CIT(A) granted relief to the assessee with following observations and
conclusion:
"3.5 However, so far as the second aspect of the matter is
concerned, whether AO can travel beyond the satisfaction
recorded, in my considered view the provision u/s 153C is
more akin to the provisions of section 147. The assessment is
to be framed only when the AO comes to the finding that the
material found belonging to the person indicates or establishes
income that has not been disclosed in the tax returns filed.
This implies that the AO is to limit his action within the
confines of the material found. Section 153C does not permit
roving enquires nor confers omnibus powers on the revenue to
assess or reassess the income. When the fact or material, the
basis on which the proceeding was initiated, is verified and
does not lead to the conclusion of undisclosed income, the
32
I.T.A. 6205 & CO 150/D/14
ASSESSMENT YEAR 2009-10
proceeding has to be necessarily closed. In the view 1 have
taken above, I am supported by Hon'ble Delhi High Court in
SSP Aviation Ltd v. DC IT [2012] 346 UR 177 cited by Ld. AR
above. The AO had jurisdiction to initiate proceedings u/s
153C but having verified the material belonging to the
appellant, and not finding any undisclosed income on that
basis, should have closed the proceedings. I hold
accordingly."
5.2 The facts are that the appellant apparently purchased
certain construction materials from Shree Saraswati Steel
Centre, Ghaziabad (Tor Steel) and Laxmi Enterprises,
Ghaziabad (Cement). The bills and other documents for these
purchases were produced before the AO. The payments for the
purchases were made by the appellant from its bank account
with Corporation Bank (A/c No.CBCA-27) and Bank of
Maharastra (CA-227) credited to the bank accounts of Shree
Saraswati Steel Centre (A/c No.00191131000233) and Laxmi
Enterprises (A/c No.00191131000929) maintained with
Oriental Bank of Commerce, Wright Ganj, Ghaziabad. The
only reason for the revenue to treat these transactions as
bogus is that Shree Saraswati Steel Centre, stated to be
running its business from 50, Mali Wara Ghaziabad (LIP),
was not found at the said premises and the proprietor of Laxmi
Enterprises did not personally appear (although reply was
filed by the said concern). The revenue has also linked these
transactions with an admission made by Sh. Anil Sharma, the
Managing Director and main person of the Amrapalli group,
during the course of search that the group had engaged in
unsubstantiated purchases and his offer to tax of undisclosed
income amounting to Rs.44,87,02,688/- on this count.
5.3 I have carefully considered the case made out by the
revenue in the assessment order vis-a-vis the submissions of
the appellant and the documents produced before me (also
produced before the AO). Admittedly, all the documents
required to establish the purchases were produced by the
appellant before the AO. However, on failure of the appellant
to produce Shree Saraswati Steel Centre, the revenue issued
two summons to the said party to enforce attendance, but the
summons were returned by post with the remark that the firm
had '"·left". The appellant was, thereafter, again required to
33
I.T.A. 6205 & CO 150/D/14
ASSESSMENT YEAR 2009-10
physically produce the party for verification and upon failure
to do so the revenue treated the transactions as bogus.
However, the moot question here is whether it was in order for
the revenue to subsequently require the appellant to produce
the party for physical verification? The revenue justifies the
adverse view it has taken for the reason that the party had not
been found at the given address. The appellant's claim on the
other hand is that it is not the case that the party was not in
existence but rather the party had left the premises as
evidenced by the noting of the Department of Posts on the
returned summons. Production of the documents evidencing
the transactions was in itself sufficient to discharge the
primary onus on the appellant, and there was no obligation on
the appellant to physically produce the party before the AO
unless some defect had been found in the documentary
evidence so produced. Though technical rules of evidence are
not strictly applicable to tax proceedings (Dhakeswari Cotton
Mills Ltd. v. CIT [1954] 26 ITR 775 & Dhakeswari Cotton
Mills Ltd. v. CIT [1955] 27 ITR 126 (SC)}, taxing authorities
are not required to put on blinkers while looking at the
documents produced before them and they are to look into the
surrounding circumstances to find out the reality of the
recitals made in those documents {CIT v. Durga Prasad More
[1971] 82 ITR 540 (SC)). Therefore, in the present case it was
not appropriate to require the appellant to produce the party
for physical verification without finding any defect in the
documentary evidence produced. Further, non appearance of
the proprietor of Laxmi Enterprises could not be held against
the appellant unless appellant had been provided with the
opportunity to produce the said party, which does not appear
to have been done. From the documents produced, it is seen
that M/s Shree Saraswati Steel Centre was duly registered with
the VAT authority having TIN: 09190900301 and CST No, GD
5243336 and VAT@ 4% was also deducted on the sales; and
M/s Laxmi Enterprises was duly registered with TIN:
09388805587 since 01.12.2007 and VAT @ 12.5% had been
charged on the sales. The appropriate course of action was to
inform the VAT authorities about the tax deducted so that the
deposit of tax could have been verified by them. The AO of the
selling parties could have also been informed about the sales
made and whether these had been reflected in the tax returns
filed and to take action if no return had been filed. In any case,
adverse view could still have been taken against the appellant
34
I.T.A. 6205 & CO 150/D/14
ASSESSMENT YEAR 2009-10
if neither the VAT had been deposited nor the said parties filed
any income-tax return. Moreover, the bank accounts of the
parties, available with the AO, could also have been further
investigated. None of these courses of action appear to have
been taken by the revenue. Instead, addition was made for
non- production of the said party. Business relation can be
transaction-based, and it is not possible for any business
concern to physically produce all the parties with which it may
have had transactions in the past. Therefore, the adverse
inference drawn by the revenue is pre-mature and without
sound basis."
40. At the very outset, we note that the CIT(A) has followed proposition laid
down by Hon'ble Jurisdictional High Court (supra) in the case of SSP Aviation
Ltd. vs DCIT. We further observe that after detailed discussion on the
documentary evidence of the assessee, the Ld. CIT(A) rightly noted that in the
eventuality when assessee failed to produce alleged vendors, the appropriate
course of action for A.O was to inform VAT authorities about the tax said to be
deducted by the sellers so that the deposit of VAT tax could have been verified
by them. Simultaneously, the A.O of the vendors could have also been
informed about the sales made and to verify whether these sales had been
reflected in their respective tax returns. The Ld. CIT(A) also mentions that the
A.O could also have investigated bank accounts of the parties (Vendors)
available with him and none of these courses have been taken by the A.O. The
First Appellate Authority rightly concluded that instead of adopting said
available courses, the A.O proceeded to made disallowance and addition for
non-production of vendors parties and adverse inference drawn by the A.O was
35
I.T.A. 6205 & CO 150/D/14
ASSESSMENT YEAR 2009-10
pre-mature and without any sound basis. The Ld. CIT(A) rightly concluded that
u/s 153C of the Act, the A.O cannot travel beyond the satisfaction recorded and
the impugned addition based on alleged bogus purchases does not pertain to or
emanate from allegation of suppression of sales or receipt of unaccounted cash
in the sale of flats. This view also finds support from dicta laid down by
Hon'ble High Court of Delhi in the case of CIT vs MGF Automobiles Ltd.
(supra) and Pr. CIT vs Kurele Paper Mills. P. Ltd (supra). Accordingly, we are
unable to see any perversity or any other valid reason to interfere with the
impugned order and thus we uphold the same on this issue of additions in regard
to purchases. Accordingly, Ground No. 2 of the Revenue fails.
41. In the result, cross-objections of the assessee are allowed and appeal of
the Revenue on both the grounds is dismissed.
The decision is pronounced in the open court on 23.11.15.
Sd/- Sd/-
(L.P. SAHU) (C.M. GARG)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 23rd November, 2015
`GS'
36
I.T.A. 6205 & CO 150/D/14
ASSESSMENT YEAR 2009-10
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asst. Registrar,
ITAT, New Delhi
37
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