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Commissioner Of Income Tax-7 Vs. M/s Refam Management Services (P) Ltd.
December, 17th 2015
%                                            Judgment delivered on: 05.11.2015
+       ITA 171/2015
COMMISSIONER OF INCOME TAX-7                                   ..... Appellant
+       ITA 172/2015
COMMISSIONER OF INCOME TAX-7                                   ..... Appellant
+       ITA 173/2015
COMMISSIONER OF INCOME TAX-7                                   ..... Appellant
+       ITA 174/2015
COMMISSIONER OF INCOME TAX-7                                   ..... Appellant
Advocates who appeared in these cases:
For the Appellant    : Mr N.P. Sahni, Senior Standing Counsel with
                       MR Nitin Gulati, Junior Standing Counsel.
For the Respondent   : Mr. Arvind Kumar and Mr. Vikas Jain.

ITA 171/2015 & Connected Matters                                      Page 1 of 9

1.      The Revenue has preferred these appeals under Section 260A of the

Income Tax Act, 1961 (hereafter the `Act') impugning a common order

dated 26th August, 2014 passed by the Income Tax Appellate Tribunal

(hereafter the `Tribunal') in a batch of six appeals and six cross objections

relating to six assessment years (AYs), being AYs 2003-04 to 2008-09. The

aforesaid appeals before the Tribunal, were filed by the Revenue (being

ITA Nos. 1081-1086/Del/2012) impugning a common order of the

Commissioner Income Tax (Appeals) dated 5th December, 2011 partly

allowing appeals of the Assessee in respect of the assessment orders (all

dated 31st December, 2010) passed by the Assessing Officer (hereafter

`AO') under Section 153C read with Section 143(2) of the Act. The

Revenue was aggrieved inasmuch as the CIT(A) had set aside the addition

to the total income of the Assessee made by the AO under Section 69C of

the Act in respect of the purchases as declared by the Assessee as well as

set aside the AO's decision to disallow the entire expenses claimed by the

Assessee. The Tribunal's order dated 26th August, 2014 also disposed of the

ITA 171/2015 & Connected Matters                                 Page 2 of 9
cross objections preferred by the Assessee ­ 6 in number ­ as being

academic. The Assessee had challenged the CIT(A)'s order to the limited

extent that the CIT(A) had not accepted the Assessee's contention that the

assessment orders passed were illegal and without jurisdiction.

2.      This Court, by an order dated 9th March, 2015, admitted the present

appeals and issued notice to the respondents. On the said date, the

following questions were framed:-

     1. Did the ITAT fall into error in holding that Section 69C was
        inapplicable in the facts and circumstances of the present cases
        given that the Revenue's contention was that the material in the
        form of statement recorded during the search proceedings
        indicated that no genuine sale and purchase transaction was
        entered into by the assessee; and

     2. Whether in the circumstances, the AO was justified in bringing
        to tax the amounts disallowed in the course of search
        assessment under Section 153C.

3.      At the outset, Mr Kumar, learned counsel for the Assessee submitted

that the AO had no jurisdiction to make an assessment under Section 153C

of the Act as no relevant material belonging to the Assessee had been found

during the search conducted under Section 132 of the Act on B.K. Dhingra,

Poonam Dhingra and Madhusudan Buildcon Pvt. Ltd. He submitted that in

absence of any incriminating material, proceedings under Section 153C of

ITA 171/2015 & Connected Matters                                  Page 3 of 9
the Act could not be initiated. In addition, he submitted that the proceedings

in respect of AY 2003-04 and AY 2004-05 were beyond the period of six

years from the end of financial year preceding the year in which satisfaction

under Section 153C of the Act was recorded and, thus, outside the scope of

Section 153C of the Act. He submitted that the present case also involved

the question as to jurisdiction of the AO to make assessments under Section

153C of the Act; but, as the questions of law were framed prior to issuance

of notice in these appeals, the Assessee had no opportunity to suggest the


4.      Mr N.P. Sahni, learned Senior Standing Counsel for the Revenue, did

not dispute that the substantial question of law as suggested by Mr. Kumar

also arose in these matters. Accordingly, the parties were also heard on the

following question of law which arises from the impugned order passed by

the Tribunal:-

                 Whether the AO had jurisdiction to assess and reassess
                 the income of the Assessee under Section 153C in respect
                 of AYs 2003-04 to 2008-09?

5.      These appeals were taken up alongwith a batch of appeals captioned

Commissioner of Income Tax-7 v. RRJ Securities Ltd.: ITA 164/2015

and other connected matters, decided on 30.10.2015.

ITA 171/2015 & Connected Matters                                  Page 4 of 9
6.      Briefly stated, the relevant facts necessary to address the issues

involved in the above captioned matters are as under:-

6.1     Search and seizure operations were undertaken under Section 132 of

the Act in the case of Sh. B.K. Dhingra, Smt. Poonam Dhingra and M/s

Madhusudan Buildcon Pvt. Ltd. (hereafter also referred to as `searched

persons') on 20th October, 2008. Certain documents belonging to the

Assessee Company were seized during the search. The AO of the Assessee

recorded a `Satisfaction Note' on 5th July, 2010 to the effect that the

documents seized belonged to the Assessee and, hence, Section 153C was

invokeable.        On the aforesaid basis, proceedings were initiated under

Section 153C and a notice dated 6th July, 2010 for the AY 2003-04 was

issued to the Assessee.

6.2     The Assessee, in compliance with the notice issued under Section

153C of the Act, filed its returns of income under protest. Subsequently,

notices under Section 142(1)/143(2) of the Act were also issued for the

purpose of assessing the income of the Assessee with respect to AY 2003-


ITA 171/2015 & Connected Matters                                Page 5 of 9
6.3     The Assessee sent a letter dated 29th November, 2010 to the AO

requesting the AO to provide copies of the seized material. The Assessee

also contested the initiation of proceedings under Section 153C of the Act

in addition to contending that the assessments were time barred. In reply to

the said letter, the ACIT vide a letter dated 3 rd December, 2010 observed

that the Assessee interpreted the first proviso of Section 153C(1) wrongly.

6.4     The AO subsequently passed assessment orders dated 31 st December,

2010, under Section 143(3)/153C of the Act. During the assessment

proceedings, it was observed that the Assessee had purchased and sold

textile goods and fabrics and it was called upon to provide evidence of

purchases and was further directed to provide the details of payments (by

cash or cheque). In its reply, the Assessee claimed that all the purchases

were made in cash. The Assessee claimed that it was dealing only in tax

free goods and was not required to file sales tax returns.

6.5     The AO observed that the case of the Assessee is connected with

`Thapar Group' of cases in which it was declared that at least 15 concerns

were operating from the address "B-340, Hari Nagar, New Delhi". These

concerns were alleged to be capital formation concerns with huge reserves

and surpluses that were reflected as invested in stock of textiles. The AO

ITA 171/2015 & Connected Matters                                Page 6 of 9
also found that no operations were undertaken from the aforementioned

premises. In view of the aforesaid, the AO concluded that the Assessee was

unable to substantiate any purchase of stocks and, therefore, made addition

of the amounts reflected as purchases under Section 69C of the Act. The

AO also disallowed 100% of the expenses claimed by the Assessee in its

P & L Account concluding that they were unverifiable.

6.6     In response to a request under the Right to Information Act, 2005,

the ACIT vide a letter dated 14th May, 2015 provided the Assessee with a

photocopy of papers seized that contained `Record Slips' of a cheque book

pertaining to a Bank Account with Centurion Bank of Punjab Limited,

Tilak Nagar Branch, New Delhi. The said record slips - which formed a

part of the cheque book ­ contained an entries pertaining to a cheques

issued in 2008.

6.7     The CIT(A), however, allowed the appeal of the Assessee with

regard to the disallowance of purchases under Section 69C of the Act and

observed that Section 69C of the Act applies only when there is some

expenditure and the Assessee is unable to explain the source from which

such expenditure has been incurred. The CIT(A) held that the Assessee had

accounted for all the purchases made in cash in its books of accounts and,

ITA 171/2015 & Connected Matters                               Page 7 of 9
thus, the source of the expenditure could not be stated to be unexplained.

The CIT(A) also deleted the addition made by the AO on account of 100%

disallowance of expenditure.

6.8     Being aggrieved by the common order dated 5th December, 2011

passed by the CIT(A), the Revenue filed six separate appeals in respect of

the relevant assessment years before the Tribunal. The Assessee, on the

other hand, filed cross objections which were numbered as separate

appeals. The Tribunal upheld the view of CIT(A) that an addition under

Section 69C of the Act was not sustainable and, accordingly, by an order

dated 26th August, 2014, rejected the appeals preferred by the Revenue. The

Tribunal also agreed with the decision of the CIT(A) regarding deletion of

100% disallowance of expenditure and depreciation claimed by the

Assessee. The aforesaid order is impugned in the present appeals.

7.      It is apparent from the above that the only document seized during

the search in question was a cheque book pertaining to the Assessee which

reflected issue of cheques during the period August 2008 to October 2008,

relevant to the AY 2009-10. The facts and the questions of law that arise in

these appeals are similar to the facts and the controversy involved in RRJ

Securities Ltd. (supra). Thus, for the reasons stated in RRJ Securities Ltd.

ITA 171/2015 & Connected Matters                                Page 8 of 9
(supra), the third question framed, whether the proceedings under Section

153C of the Act could be initiated against the Assessee, is answered in

favour of the Assessee and against the Revenue.

8.      In view of the above, it is not necessary for us to examine the other

questions. The appeals are, accordingly, dismissed. In the circumstances,

the parties are left to bear their own costs.

                                                    VIBHU BAKHRU, J

                                                    S. MURALIDHAR, J
NOVEMBER 05, 2015

ITA 171/2015 & Connected Matters                                 Page 9 of 9
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