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From the Courts »
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DCIT, Central Cirlce-5, Room No.-361,3rd Floor, ARA Centre,Jhandewalan Extn., New Delhi-55.Vs Qualitron Commodities Pvt. Ltd.,13-B, 3rd Floor, Netaji Subhash Marg, Darya Ganj, New Delhi
January, 07th 2015
             IN THE INCOME TAX APPELLATE TRIBUNAL
                   DELHI BENCH: `F' NEW DELHI
              BEFORE SH.I.C.SUDHIR, JUDICIAL MEMBER
                                AND
               SH. T.S.KAPOOR, ACCOUNTANT MEMBER
                          I.T.A .No. 4666/Del/2012
                        (ASSESSMENT YEAR-2004-05 )

DCIT,                                  vs Qualitron Commodities Pvt. Ltd.,
Central Cirlce-5, Room No.-361,           13-B, 3rd Floor, Netaji Subhash Marg,
3rd Floor, ARA Centre,                    Darya Ganj, New Delhi
Jhandewalan Extn., New Delhi-55.          PAN-AAACQ0950E
(APPELLANT)                               (RESPONDENT)

                              C.O. No.-447/Del/2012
                          (In I.T.A .No. 4666/Del/2012)
                        (ASSESSMENT YEAR-2004-05 )

Qualitron Commodities Pvt. Ltd.,       vs DCIT,
13-B, 3rd Floor, Netaji Subhash           Central Cirlce-5, Room No.-361,
Marg, Darya Ganj, New Delhi               3rd Floor, ARA Centre,
PAN-AAACQ0950E                            Jhandewalan Extn., New Delhi-55.
 (APPELLANT)                              (RESPONDENT)

                Appellant by       Sh. Sunil Bajpai, CIT DR
                Respondent by      Sh. Gautam Jain, CA

                                     ORDER
PER I.C.SUDHIR, JM


      The Revenue has questioned first appellate order on the sole ground that

the Ld. CIT(A) has erred in deleting the addition of Rs.68,00,000/- out of the total

addition of Rs.1,25,00,000/- made by the AO u/s 68 of the Act on account of

unexplained share application money by admitting additional evidence in

contravention of Rule 46A of Income Tax Rules 1962.
                                         2                        I.T.A .No. 4666/Del/2012
                                                                  & C.O. No.-447/Del/2012

2.    The assessee on the other hand has objected first appellate order on the

validity of the assessment framed u/s 153C r.w.s. 143(3) of the Act and upholding

of the disallowance of Rs.34,61,585/- on account of the short term capital loss on

the sale of land situated at Rajokri, Delhi (objections Nos.-1, 1.1, 2, 3 & 3.1).

3.    The ld. AR drew our attention to the application moved for condonation of

delay of 8 days in filing the cross-objection due to inadvertence on the part of

office of the Ld. CA of the assessee. He also cited several decisions referred in

the application to support its contention that there was no malafide behind the

delay. The Ld. CIT DR opposed the same.

4.    Considering the above submission we do not find reason to doubt the

explanation furnished by the assessee for the delay. We thus condone the delay

to prefer the disposal of the matter on its merits. In turn application is allowed.

5.    Since the issue raised in objections Nos.-1 & 1.1 of the cross-objection

preferred by the assessee questioning the validity of assessment framed u/s 153C

of the Act goes to the root of the matter, we prefer to adjudicate upon it first.

6.    We have heard and considered the arguments advanced by the parties in

view of the orders of the authorities below, material available on record and the

decisions relied upon.

7.    The facts in brief are that search and seizure operation u/s 132 of the Act

was carried out at the premises of Raj Darbar Group of cases on 31.07.2008. The

AO noted that during the course of search operation certain documents belonging

to the assessee company were also seized. He initiated proceedings u/s 153C of
                                        3                       I.T.A .No. 4666/Del/2012
                                                                & C.O. No.-447/Del/2012




the Act in the case of assessee. In response to the notice issued u/s 153C of the

Act the assessee filed its return of income declaring a loss of Rs.34,72,761/-.

The AO noted that during the assessment year the assessee had allotted

1,25,00,000 shares of Rs.10/- each at a premium of Rs.90/- per share to the six

companies. The assessee was asked to prove the genuineness of the transaction

by filing necessary evidence. The assessee was also asked to file a note on share

premium account. The assessee furnished the list of companies to whom shares

were allotted at premium alongwith amount. It also furnished documents like

confirmation, bank statement of these companies, their balance sheets etc. The

AO after conducting inquiry come to the conclusion that most of the concerns did

not exist on the given address. He accordingly doubted the genuineness of the

identities of these concerns and made addition of Rs.1,25,00,000/- claimed to be

received from these companies as unexplained cash credit u/s 68 of the Act.

8.    The assessee had also claimed a short term capital loss of Rs.34,61,585/-

on sale of land situated at Rajokri, Delhi. The AO was not satisfied with the

explanation furnished by the assessee in this regard to justify the claimed loss and

he disallowed the amount and added the same to the income of the assessee.

9.    Before the Ld. CIT(A) the assessee questioned the validity of the

assessment framed u/s 153C of the Act in absence of incriminating material

found during the course of search and the additions made by the AO on the merits

of the case. The Ld. CIT(A) did not agree with the contention of the assessee

regarding the validity of assessment framed u/s 153C of the Act in absence of
                                        4                       I.T.A .No. 4666/Del/2012
                                                                & C.O. No.-447/Del/2012

incriminating material found during the course of search.         He however has

deleted the addition of Rs.68,00,000/- out of the total addition of Rs.1,25,00,000/-

made by the AO on account of unexplained share application money and has

sustained the disallowance of claimed loss of Rs,34,61,585/-.

10.   In support of the issue raised in objection Nos.1 & 1.1 of the cross-

objection, the Ld. AR submitted that the original return of income was filed by

the assessee company declaring a loss of Rs.34,72,761/- duly supported by

Audited Financial statement for the year under consideration. The said return

was accepted as such no notice u/s 143(2) of the Act was served upon the

assessee. Thereafter notice u/s 153C of the Act was issued to the assessee as a

result of search conducted at the premises of Rajdarbar Group. In response to the

notice issued u/s 153C of the Act return of income was filed declaring a loss as

was declared in the original return of income. He submitted that the AO made

addition of Rs.1,25,00,000/- u/s 68 of the Act on account of alleged unexplained

cash credit being not satisfied with the genuineness of the share capital received

by the assessee and addition of Rs.34,61,585/- was made on account of

disallowance of the claimed short term capital loss on sale of land. He submitted

that both these additions are not based on incriminating material detected as a

result of search on Rajdarbar Group of cases. He submitted that as a result of

search conducted on Rajdarbar Group of cases proceedings u/s 153C were also

initiated for the assessment years 2003-04 to 2009-10, however no additions have

been made therein on the basis of any incriminating material found as a result of
                                       5                      I.T.A .No. 4666/Del/2012
                                                              & C.O. No.-447/Del/2012

search.      Thus the additions made by the AO during the year are without

jurisdiction. Ld. AR also referred page No.19 to 23 of the Paper Book filed on

behalf of the Revenue. These are copies of certificate of incorporation, e-filing

receipt, Form No.-18 & Form No.-35.         Referring these documents and the

contents of the written synopsis, the Ld. AR contended that there is no allegation

in the satisfaction note recorded by the AO for initiation of the proceedings u/s

153C in the case of the assessee, copy made available at Page No.-160 of the

paper Book (assessee) that any document was found "belonging to the assessee".

He submitted that photocopies of statutory documents does not constitute

"material belonging to assessee". There is no disclosure by the searched person

that such documents belong to the assessee. 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

Act. He submitted further that the statutory documents are not incriminating

material which confer jurisdiction u/s 153C of the Act. In this regard he placed

reliance on the decision of Hon'ble Delhi High Court in the cases of Pepsico

India Holdings (P.) Ltd., WP(C) No.-414/2014 dated 14.08.2014 and in the case

of Pepsi Foods (P.) Ltd. in WP(C)-415/2014 dated 07.08.2014.

11.   Ld. AR also placed reliance on the following decisions:-

      (i)      CIT vs Anil Kumar Bhatia 352 ITR 493 (Del.);
      (ii)     Al-Cargo Global Logistics Ltd. vs ACIT 137 ITD 287 (Mum.)
               {SB};
                                        6                      I.T.A .No. 4666/Del/2012
                                                               & C.O. No.-447/Del/2012

      (iii)   Sanjay   Agarwal     vs   DICT   (ITA    No.-3184/Del/2013         dated
              16.06.2014);
      (iv)    Jay Steel India vs. ACIT 259 CTR 281 (Raj.);
      (v)     ACIT vs Manoj Narayan Agarwal 160 TTJ 416 (Del.);
      (vi)    M/s DSL Properties, ITA-1344/Del/2012 order dated 22.03.2013;
      (vii) Kusum Gupta & others vs DCIT (ITA No.-4873/Del/2009 order
              dated 28.03.2013);
      (viii) ACIT vs Preadeep Kumar (ITA No.-4016/Del/2011 order dated
              16.06.2014);
      (ix)    SSP Aviation Ltd. vs DCIT 346 ITR 177 (Del.)
12.   Ld. DR on the other hand placed reliance on the first appellate order with

this contention that a plain reading of provision of section 153C of the Act

indicates that the assessment u/s 153C is mandatory even when no incriminating

material is found during the course of search u/s 132 or in the case of requisition

made u/s 132A. He submitted that the provisions u/s 153A are plain and clear

and there is no ambiguity. He submitted that it is a well-established principle of

interpretation of statute that the words of "statutes" must be understood in their

natural, ordinary or popular sense unless the language of statues is ambiguous.

He submitted that language of section 153A is simple, clear and unambiguous. It

empowers the AO to issue notice and make assessment of specified six years

where a search is initiated u/s 132 or requisition is made u/s 132A of the Act. He

placed reliance on the following decisions:-

      (1) IPCA Laboratory Ltd. vs DCIT 266 ITR 521 (SC);

      (2) Prakash Nath Khanna & Another vs CIT & Another 266 ITR 1 (SC);
                                       7                       I.T.A .No. 4666/Del/2012
                                                               & C.O. No.-447/Del/2012

      (3) Padmasundara Rao (DECD.) & Others vs State of Tamil Nadu &

          Others 255 ITR 147 (SC);

      (4) Indian Rayon Corporation Ltd. vs CIT 231 ITR 26 (Bom.);

      (5) Smt. Tarulata Shyam & Others vs CIT [108 ITR 345] (SC)

13.   Having gone through the decisions relied upon, we find that the Hon'ble

Delhi High Court in the case of Pepsi Foods Pvt. Ltd. (cited supra) after

discussing the issue in detail has been pleased to come to the conclusion that in

the satisfaction note apart from saying that the documents belong to the petitioner

and that the AO is satisfied that it is a fit case for issuance of notice u/s 153C.

Thus relevant extract of the decision is being reproduced below:-




      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 presumption 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 "1 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 153 are liable to be
      quashed. It is ordered accordingly. The writ petitions are
      allowed as above. There shall be no order as to costs."
                                         8                       I.T.A .No. 4666/Del/2012
                                                                 & C.O. No.-447/Del/2012

14.   Again in the case of Pepsico India Holdings Pvt. Ltd. (cited supra), the

Hon'ble High Court has been pleased to observe that the finding of the

photocopies in the possession of a searched person does not 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 and 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 Act does not arise. The Hon'ble High Court has also been pleased to

make it clear that the AOs should not confuse the expression "belongs to" with

the expression "relates to" or again "refers to".       A registered sale deed for

example "belongs to" the purchaser of the property although it obviously "relates

to" or again "refers to " vendor. In this example if the purchaser's premises are

searched and registered with sale deed is seized, it cannot be said that it "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 the purchasers holds the original sale deed. In this light, it is

obvious that none of the three sets of documents/copies of preference shares,

undersigned leaves of cheque books and the copy of the supply and loan

agreement can be said to "belong to" the petitioner. With these observations the
                                        9                       I.T.A .No. 4666/Del/2012
                                                                & C.O. No.-447/Del/2012

Hon'ble High Court was pleased to hold that the ingredients of section 153C of

the Act have not been satisfied. Consequently notices issued u/s 153C were

quashed.

15.   Similar are the facts of the present case before us. The documents seized

during the course of search and seizure proceedings from the Rajdarbar Group

have been referred as "relating to" the assessee, in the satisfaction note recorded

by the AO while initiating the proceedings u/s 153C of the Act against the

assessee. Finding a reference in the satisfaction note recorded by the AO for

initiation of proceedings u/s 153C of the Act against the assessee are certificate of

incorporation, e-filing receipt, Form No.-18, Form No.-35. In view of the ratio

laid down in the above discussed decisions of Hon'ble High Court in the cases of

Pepsico India Holdings Pvt. Ltd. (cited supra) and Pepsi Foods Pvt. Ltd. (cited

supra) the satisfaction of the AO that the said documents "belong to" the assessee

is condition precedent to initiate proceedings u/s 153C of the Act. In absence of

such finding by the AO, the notice issued u/s 153C in the present case is held

invalid. Besides there was no incriminating material found during the course of

search and the assessment was not pending or abated to justify the assessment

framed u/s 193A r.w.s 153C as well as section 143(3) of the Act against the

assessee.   This view is supported with the decisions cited in para No.-11

hereinabove. The assessment in the question framed in furtherance to the said

invalid notice and in absence of incriminating material is thus held as void and

the same is quashed as such. The issue raised in objections Nos. 1 & 1.1 of the
                                      10                      I.T.A .No. 4666/Del/2012
                                                              & C.O. No.-447/Del/2012

Cross-objection is thus decided in favour of the assessee. These objections are

thus allowed.

16.   In view of the above finding when the very assessment has been held as

void, the remaining objections of the cross-objection questioning the additions

sustained by the Ld. CIT(A) and the grounds of the appeal preferred by the

Revenue questioning the action of the CIT(A) in deleting some additions have

become infructuous. The same are being disposed of as such.

17.   In result, cross-objection preferred by the assessee is allowed and the

appeal preferred by the Revenue is dismissed.

      The order is pronounced in the open court on 06th of January 2015.

       Sd/-                                                      Sd/-
(T. S.KAPOOR)                                              (I.C.SUDHIR)
ACCOUNTANT MEMBER                                    JUDICIAL MEMBER
Dated: 06 /01/2015
*Amit Kumar*

Copy forwarded to:
1.     Appellant
2.     Respondent
3.     CIT
4.     CIT(Appeals)
5.     DR: ITAT
                                                      ASSISTANT REGISTRAR
                                                            ITAT NEW DELHI

 
 
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