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TMI Blog2014 (10) TMI 352X X X X Extracts X X X X X X X X Extracts X X X X ..... (MCX), National Commodity & Derivative Exchange Limited (NCDX) and National Board of Trade (NBOT) on its own behalf and also on behalf of its clients. The assessments in the case of Girish Kumar Sharda were also framed u/s 153A. The additions made primarily relates to the unexplained cash credits in the form of unsecured loan from K.K.Patel Finance Limited. East West Finvest (I) Limited, Purvi Finvest Limited and Trimurtis Finvest Limited. The other items of addition were disallowance of interest expenses and disallowance of expenses u/s 14A. 4. By the impugned order, the ld. CIT(A) deleted the addition after having the following observations :- "4. I have already mentioned in para 2.3 herein above, the various issues on which additions are made in various cases of assessee group under appeal as listed in Table no. 1. For the sake of brevity, I am giving' my finding on each of these issues involved before giving my decision on the various grounds raised by the appellants. 4.1 Issue No.1: Unexplained share capital, premium and share, application money introduced as the source could not be explained by the assessee. The AO has considered the source of introduction of share cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee to establish the identity and genuineness of the transaction and the credit worthiness of entry credited in the books of accounts. Taking into account of the fact that the assessee had not furnished any material evidence to furnish the requisite details especially in view of the modus operandi of the business noticed from the facts as emerged from the impounded material, I consider the entire amount of introduction of share application money of Rs. 1,41,37,000/- as unexplained. Hence, the same is added to the total income of the assessee u/s. 68 of the I.T.Act." In the assessment orders for all these relevant assessment years, the AO has detailed the modus operandi adopted by the assessee group based on the notings on the impounded loose papers and documents. The AO has illustrated in the body of the assessment order the numerous entries of cash receipts from various parties/ mediators and cash payment / deposit in bank accounts as recorded in the impounded loose papers. The entries pertains to the period of about one month from 03.04.2006 to 01.05.2006. The group has been maintaining their bank accounts of different group companies in Centurion Bank, HSBC Bank, IDBI Bank and Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartment's stand that the loan obtained by them from. Lunkad Group were not genuine and that the same was accommodation entries in lieu of equivalent amount paid by them in cash to the Lunkad Group. During the appeal proceedings in the case of M/s. Mittal Appliances Ltd.,[IT-141/09-10, CIT(A)-II, Indore] and M/s. Sanghvi Foods Pvt. Ltd., [IT-409/09-10, CIT(A)-II, Indore] it is observed that the AO had even examined Shri Anil Saini, Director of K.K. Patel Finance Ltd., (one of the associates of Lunkads) and Shri Sarad Darak, Director of Trimurti Finvest Pvt. Ltd. and Poorvi Finvest Pvt. Ltd. Both Shri Anil Saini and Shri Sarad Darak could not explain the sources of the bank deposits in the accounts of those companies satisfactorily. The bank accounts of these three companies (i.e. K.K. Patel Finance Ltd., Trimurti Finvest Pvt. Ltd. and Poorvi . Finvest Pvt. Ltd.) are maintained in the Indore Swayam Siddh Mahila Co-operative Bank whereby funds were transferred to Mittal Appliances Ltd., and Sanghvi Foods Pvt. Ltd. Prior to transfer of fund, the account reflects deposit entries (by clearing). When specific question was asked by the AD to Shri Anil Saini to explain such credit ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, in the circumstances, the additions made on this issue deserve to be sustained on substantive basis in the cases of Lunkad group of companies itself." 4.1.4 In the context of the facts and findings as given in the Lunkad Group of cases, It has been held that the Lunkad group had failed in discharging its onus to explain the source of huge share capital introduced year after year in their group companies. The documents impounded during the survey in the Lunkad group of cases, though, for the limited period only, do suggest the modus operandi adopted by them in providing entries to the beneficiaries. But this has not been accepted by the Lunkad group so far. Rather, they (Lunkad group) have issued - confirmatory letters to the various beneficiaries in support of having given genuine loan and share application money. Had they accepted the modus operandi of providing only entries, then the required recourse would have been confirming the additions made in the hands of beneficiaries. But this has not been done so. Rather the Lunkad group had tried to re-inforce the stand of beneficiaries by way of issuing confirmatory letters to them but in their own cases they have utterly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p of cases, though for the limited period only, had suggested the modus operandi adopted by them in providing entries to the beneficiaries; but in view of the stand taken by the Lunkad group, [who had rather issued confirmatory letters to the various beneficiaries in support of having given genuine loan and share application money on the one hand and had failed utterly to discharge the primary onus of explaining the source in their own cases], addition was to be sustained in the hands of Lunkad group of companies. It was also observed therein that had the Lunkad group accepted giving entries to those beneficiaries then I would have sustained the addition in the case of beneficiaries. But since that was not done so and the Lunkad group rather had attempted to reinforce the stand of beneficiaries saying that the unsecured loan and share capital given to the beneficiaries were no longer the accommodation entries but rather genuine transactions, I had taken decision to grant relief in the case of beneficiaries because otherwise that would have amounted to double addition on the same item though on different hands. It is noted that the relevant appeals in the case of Purvi Finvest Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was found and seized from the premises of the assessee. 6. There was marginal delay in filing the cross objection. Keeping in view the reasonable cause for delay, in the interest of justice we condone the delay and cross objections are also heard on merit. 7. The assessee has filed the written synopsis of the arguments, which reads as under :- "With reference to the hearing of above referred cross objections we have to submit that the short facts of the case are that a search and seizer operation u/s 132 was carried out at the assessee's premises and company Sharda Commodities Pvt. Ltd., of which assessee is director on 02.05.2008. No incriminating document was found and seized during the course of search. Consequent to the search notices related 153(A) was issued in respect of all the years and following addition were made:- S.No. Particular Assessment Year 2004-05 Assessment Year 2005-06 Assessment Year 2006-07 Assessment Year 2007-08 01. Unexplained Cash Credits 1,35,50,000/- 18,00,000/- 15,00,000/- 02. Disallowance out of Interest 5,75,371/- 30,24,946/- 28,30,354/- 10,91,968/- 03. Disallowance 14A 1,00,189/- 1,27,806/- 1,02,645/- 17,988/- Aggrieved by the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cash Credit u/s 68, interest thereon and disallowance u/s 14A . On these two issues the special bench of ITAT in the case of All Cargo Global Logistics Ltd Vs. DCIT reported in 137 ITD 287 (Mum-SB) and various benches of Tribunal and so also Delhi High Court in the case of Anil Kumar Bhatia after analyzing section 153A and so also CBDT Circular held that no addition could be made in assessment u/s 153A / 143 (3) when no incriminating document was found and seized during the course of search , which could indicate any undisclosed income in the completed assessment which are not abate. The same will be clear from the followings:- (i) Section 153A as introduced in the statute w.e.f 01.06.2005, wherein the section starts with the non obstante phrase "Notwithstanding ... ", therefore, as soon as the search is concluded, the AO having jurisdiction over the assessee, a jurisdiction is cast upon the AO to issue notices under section 153A(1), for the preceding six years, calling upon that person to file its returns. As soon as the notices are issued, due process of law shall begin and AO and the assessee are required to follow the same, which shall culminate with the AO to assess or reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enced from 7th April, 2003. A notification had been received from the Commissioner of Customs (Import), Jawahar Customs House bearing No.3 of 2003 dated 28th Feb, 2003, classifying the area of 3,282 square mtrs. as "customs area" for the purpose of storage, stuffing/de-stuffing and clearance of export/import cargo. Subsequently the Commissioner has notified the same area as "Customs area" for export cargo and the assessee has been certified as a custodian for cargo under Customs Act, 1962, Copies of relevant notifications were also enclosed. On the above facts the Hon'ble Special Bench in para 58 held as under.- "58. Thus question No.1 before us is answered a) as under: (a) In assessments that are abated, the A.O. retains the original jurisdiction as well as jurisdiction conferred on him under section 153A for which assessments shall be made for each of the six assessment years separately: (b) In other cases, in addition to the income that has already been assessed, the assessment under section 153A will be made on the basis of incriminating material, which in the context of relevant provisions means. (i) books of account, other documents, found in the course of search but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... introduction of the group of Sections namely, 153A to 1 53C, the single block assessment concept was given a go-by. Under the new Section 153A, in a case where search is "initiated under section 132 or requisition of books of account, documents or assets is made under Section 132A after 31.5.2008, the Assessing Officer is obliged to issue notices calling upon the searched person to furnish returns for the six assessment years immediately preceding the assessment year relevant to the previous year in. which the search was conducted or requisition was made. The other difference is that there is no broken period from the first day of April of the financial year in which the search took place or the requisition was made and ending with the date of search/requisition. Under Section 153A and the new scheme provided for, the AO is required to exercise the normal assessment powers in respect of the previous year in which the search took place. 19. Under the provisions of Section 153A, as we have already noticed, the Assessing Officer is bound to issue notice to the assessee to furnish returns for each assessment year falling within the svc assessment years immediately preceding the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 21. Now there can be cases where at the time when the search is initiated or requisition is made, the assessment or reassessment proceedings relating to any assessment year falling within the period of the six assessment years mentioned above, may be pending. In such a case, the second proviso to sub section (1) of Section 153A says that such proceedings "shall abate". The reason is not far to seek; Under Section 153A, there is no room for multiple assessment orders in respect of any of the six assessment years under consideration. That is because the Assessing Officer has to determine not merely the undisclosed income of the assessee, but also the total income' of the assessee in whose case a search or requisition has been initiated. Obviously there cannot be several orders for the sane assessment year determining the total income of the assessee in order to ensure this state of affairs namely, that in respect the six assessment years preceding the assessment year relevant to the year in which the search took place there is only one determination of the total income, it has been provided in the second proviso of sub Sub-Section 153A that any proceedings for assessment or r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld lead to serious hardship, inconvenience, injustice, absurdity and anomaly. Finally, it has been mentioned that the Board Circular No. 7 of 2003, dated 5th September, 2003 (2003) 184 CTR (St) 33. Clearly indicates that the appeal, revision etc. arising out of earlier assessment shall not abate, which means that there is no merger of earlier assessments with the assessment made under the new scheme". (v) Further in para 55(d) & (g) to (i) the Hon'ble Bench observed as under:- "Para d "(d)In the case of Padmasundara Rao (Deed.) (Supra) a note of caution has been made that while interpreting a statute, casus omissus should not be readily inferred. Instead all parts of a statute or section must be construed together with reference to the context and other clause so as to make it a consistent statute. We have read the provisions of section 132(1) and section 153A together, which are n the nature of cause and effect and therefore in our humble opinion we have rightly read them together, Reading section 153A in isolation and as interpreted by the learned standing counsel would have the effect that in case of an assessment, which is not pending and where nothing is found, the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they were relevant to the assessment, have not been produced, but found in the course of search. (i) The decision in the case of Ramallah Gupta (supra) leads to the conclusion that recourse to section 147 cannot be taken for the years which are covered under section 153A. There is other finding regarding reassessment of 6 years also, which is incidental to the aforesaid finding. We may add that we have not held that the assessment can be made only for those years in respect of which books or assets etc, are found We have come to the clear finding that assessment/ reassessment for all six years will have to be made. The real question is the scope of reassessment which is not pending, for which we have read provisions of section 132(1) and section 153A together. Thus the total income under reassessment may be the same as in the original assessment or may be higher than that, depending upon the materials which are uncovered in the course of search. We are also of the view that issue of notice for six years and computing reassessment for these years even if no material is found in the course of search for some years even if no material is found in the course of search for some years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tics Ltd (Supra) has held that provisions of section 153A come into operation if a search or requisition is initiated after 31.05.2003 and no satisfaction of this condition, the AO is under obligation to issue notice to the person requiring him to furnish the return of income for six years immediately preceding the year of search. The Special Bench further held that in case assessment has abated, the AO retains the original jurisdiction as well as jurisdiction under section 153A for which assessment shall be made for each assessment year separately. Thus in case where assessment has abated the AO can make addition in the assessment, even if no incriminating material has been found. But in other cases the Special Bench held that the assessment under section 153A can be made on the basis of incriminating material which in the context of relevant provisions means books of account and other documents found in the course of search but not produced in the course of original assessment and "undisclosed income or property disclosed during the course of search. In the present case, the assessment had been completed under summary scheme under section 143(1) and time limit for issue of notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etermined in the original assessment order and the income that escaped assessment are clubbed together and assessed as the total income". Therefore, the AO. Accordingly has to stop short in these proceedings and restrict himself to the income already determined /assessed in the already concluded proceedings for the year(s), whether under section 143(1) or 143(3) .Thus it is a case of valid notice under section 153A, with no undisclosed income to be clubbed with income originally assessed and finalized However, it has to be added here that proceedings under section 153A are linked to the search having been initiated on the person, not with the documents found and seized The documents so found and seized, may become useful to the AO for making an assessment of total income under section 153A read with 143(3). (b) In the case of Shree Yamuna Proteins Dahod Vs. ACIT CC-1, Baroda ITA No. 227 to 232 /Ahd/2010 order dated 21.09.2012 the Hon'ble ITAT Ahmedabad Bench held as under:- Para 6 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. We have already noted that the assessment for the assessment years 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above discussion and also bearing in mind the binding nature of Special Bench decision in the case of All Cargo Logistics Ltd. *Supra), we confirm the stand of the Commissioner (Appeals), wherein it has been held that where incriminating material found in the course of search proceedings relating to any assessment year, the completed assessment for such years cannot be disturbed. The stand so taken by the Commissioner is consistent with the stand taken by the Special Bench, Mumbai of this Tribunal, Which has been pointed out earlier, is a binding judicial precedence for us. Accordingly, grievances of the Assessing Officer are rejected. (f) Shri Shankar R.Jhunjhunwala Vs. ACIT Aurangabad IT No. 225/PN111 order dated 31.07.2012 Para 8. Even viewed in the aforesaid context, we find that the claim of the assessee is untenable. In this case, as the Commissioner of Income Tax (Appeals) has observed, the income returned by the assessee under section 139(1) of the Act has achieved finality. Even before us, the assessee has not asserted that on the date of search the assessment for the instant year was pending so as to abate. Therefore, in this case where income returned under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice u/s 143(2) was issued, therefore, the assessment has attained finality before the date of search i.e. 04.10.06 2005-06 17.04.2006 31.03.2008 30.04.2007 The time limit for issuance of notice u/s 143(2) has not been expired. Therefore the assessment was still open and in view of the provisions of section 153A such assessment gets abated 2006-07 31.03.2007 31.03.2008 31.01.2008 The time limit for issuance of notice u/s 143(2) has not been expired. Therefore the assessment was still open and in view of the provisions of section 153A such assessment gets abated Under section 153A the Assessing Officer is empowered to assessee or reassess the total income for six assessment years, proceeding to the year of assessment in which search has taken place. There can be only one assessment order in respect of six assessment years. If the assessment proceedings are pending completion, on the date of search is initiated, they will get abated and the Assessing Officer has to complete the assessment on the total income including disclosed and undisclosed income. If the assessment proceedings have already completed or attained finality. Then there is no question of any abatement since no p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was found only during the course of assessment proceedings. Nowhere the Assessing Officer has referred any incriminating material found during the course of search so as to indicate that advance was given to the assessee in contravention of provisions of section 2(22) (e). However, we found that CIT(A) while dealing with this issue have noted that " the information that the assessee has not paid tax on deemed dividend taxable u/s 2(22)(e) came to the knowledge of the authorized officer during the course of search." 30. It is clear from the above that contradictory finding has been recorded by the CIT(A) with respect to information that assessee has not paid tax on deemed dividend taxable u/s 2(22) (e) came to the knowledge of authorized office during the course of search. However, the CIT(A) has not referred to any incriminating material indicating contravention of provisions of Section 2(22)(e) as found during the course of search. Even during the course of hearing before us, the Ld. CIT DR did not refer to any incriminating material found during the course of search to substantiate the observation of CIT(A) . On the other hand, the Ld. Authorized Representative has vehemently a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tower, Y.N. Road, Indore. 2. M/s. Purvi Finvest Ltd., AABCP6564C G-1, "Rudraksh", 127, Baikunthdham Colony, Indore (M.P.) 3. M/s. Trimurti Finvest AAACT6383N Ltd.,9, Bhoj Nagar, Annapurna Road, Indore. 4. M/s.East West Finvest AAACE6834D Ltd., G01,"Rudraksh", 127, Baikunthdham, Colony, Indore MP Page 66 of 79 10. During the course of assessment, the Assessing Officer asked the assessee to establish identity, genuineness and creditworthiness of these creditors. It was submitted that M/s. K.K.Patel Finance Limited, Indore, is being regularly assessed to tax and engaged in the finance activities and they have given the deposits on interest basis to other also. As per balance sheet filed with the Department they have share capital to the tune of Rs. 89,32,500/- and reserve and surplus of Rs. 61,453,923/- total amounting to Rs. 1,50,76,423/-. M/s. East West Finvest India Limited, Indore, is being regularly assessed to tax and filed confirmation of account alongwith the bank statement in which transaction of assessee is reflected. The said company also engaged in the business of finance activities and they have given the deposits as and when maturity of deposits received from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing was the precise observations of the Assessing Officer :- "The assessee's balance sheet reflects credits amounting to Rs. 2,70,21,800/-. He asked to explain the genuineness of the credits as well as identity and creditworthiness of the creditor, in response, the assessee has filed confirmations from the said creditors, in response, the assessee has filed confirmations from the said creditors, copies of final accounts have been filed in respect of one creditor and copy of acknowledgement of return in respect of one person. The lender's names include some of the persons who are considered to be regular name lenders'. The names in question alongwith the amount shown as received from them are reflected below :- 1. M/s. K.K.Patel Finance Limited, Indore Rs. 10,00,000/- 2. M/s.East West Finvest India Limited, Indore Rs. 35,00,000/- 3. M/s. Purvi Finvest Ltd.,Indroe. Rs. 29,00,000/- 4. M/s.Trimurthi Finvest Ltd.,Indroe. Rs. 61,50,000/- Total Rs. 1,35,50,000/- The same wordings are given in the subsequent assessment years for making the addition of Cash Credit." 14. The ld. CIT(A) has deleted the addition by observing that addition is warranted in the hands of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum is found credited in the accounts of the creditors. Then the creditors may be examined so as to explain the credit so far as the source of deposit in the account of the assessee is concerned. The assessee can be considered to have explained by bringing the material on record in the shape of confirmations, bank account and income tax numbers of that person. Thus the assessee had filed ample evidence to discharge the burden cast upon him and the ld. Assessing Officer has not brought any material on record to show that the explanation filed by the assessee, was in any manner, unsatisfactory consequent thereto the evidence filed by the assessee remain unrebutted. 18. There is no dispute to the fact that the loan taken from these creditors were duly repaid by the assessee by account payee cheques in the assessment years 2005-06 to 2007-08 i.e. much prior to the date of search carried by the Department which is evident from copies of account of these creditors available on record. 19. After perusing the balance sheet of various lender companies as per the audited accounts, we found that all the parties from whom loan was taken were having substantial funds available with them to ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22. Now coming to the decision of Narmada Extrusions Limited in I.T(SS).A.Nos. 327/Ind/2011 order dated 30.12.2011, as cited by the ld. CIT DR, we found that in this case also on merit it was held that the addition should be restricted with reference to the incriminating documents found during course of survey in the case of Lunkad Group from 1.4.2006 to 1.5.2006. It was also observed at page 53 of the said order that the addition should be made with reference to the amount of cash found to be given by the assessee to the Lunkad Group as per incriminating documents so found at Lunkad Group during survey after giving opportunity to the assessee for cross examination. Merely presumption without any material on record to the effect that even in respect of earlier years, the assessee might have given cash to the Lunkad Group for getting unsecured loan, is not justified. In the instant case before us, the Assessing Officer could not bring out any material to suggest that any incriminating entry was found in the documents so collected by the Department from Lunkad Group which pertains to the period 1.4.2006 to 1.5.2006. It is not in dispute that all the loan transactions were through a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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