TMI Blog2016 (3) TMI 1167X X X X Extracts X X X X X X X X Extracts X X X X ..... re being only valid survey proceedings, no assessments can be framed u/s 153A by AO. The plea of the department that a harmonious construction of record and provisions shall be made which is an implied reference to sec. 292B also cannot be accepted. This is so because jurisdictional errors cannot be cured by such indirect means. A search on director cannot be deemed to be a search on distinct and separate incorporated entity i.e. company. Since assessments are bad in law any admission of undisclosed income by director cannot make any relevance. Consequently we hold that the impugned assessments framed u/s 153A are bad in law not being in consequence to provisions of sec 132. - Decided in favour of assessee - ITA Nos. 761, 1016, 762, 1017, 1018, 1019 & 1020/JP/2013 - - - Dated:- 16-3-2016 - Vikram Singh Yadav (Accountant Member) And R. P. Tolani (Judicial Member) For the Assessee : Vijay Goyal, Gulshan Agarwal For the Revenue : M. S. Meena, CIT -DR ORDER This is a set of assessee s appeals against 07 separate orders of ld. CIT(A), Central, Jaipur dated 22-07-2013, 30-10-2013, 22-07-2013 and 30-10-2013 (four appeals) for the assessment years 2003-04 to 2009-10 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Tax Act and settled by Hon ble Supreme Court and various other High Courts that assessment u/s 153A can be made only consequent to a search u/s 132(1) by issuing, authorizing, serving the search warrant in conformity with the relevant provisions of law . In the case of the assessee no valid search was carried on assesse company s premises. Only a survey u/s 133A was carried out. Therefore, there being no search in terms of sec. 132(1) the impugned assessment framed u/s 153A are bad in law and deserve to be annulled. iii. In this behalf following propositions are raised by the assesse: - There was no search u/s 132(1) in the assessee s premises:- a) It is contended that M/s Mittal Granites (MG for brevity) has a factory for cutting and polishing of granites situated at Plot No A-301(E) Road No 14, VKI Area, Jaipur. Admittedly no search was carried out there and on the department carried out only survey proceedings u/s 133A of Income Tax Act 27/08/2008, during the course thereof, books of account and documents were impounded and inventoried u/s 133A. Despite recording these facts orders impugned assessments have been arbitrarily completed u/s 153A by ld. AO misdirected h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mittal, Sh. Prafful Mittal, Sh. Shubham Mittal, Sh. Deepak Mittal, and Sh. Saurabh Mittal were also searched. Panchanama and inventory prepared consequent to search at B-18, Chomu House, Jaipur, does not makes any reference to assessee s name. Paper Book reference is made to such panchanama and inventory prepared at B-18, which are not the premises of assesse company. c) B-19, Chomu House, Sardar Patel Road, Jaipur. (PB pg 360 to 364):- The assessee has no office or business in this premise. This is residential premise of Sh..Madan lal Mittal, Smt. Sangita Mittal, Sh. Lal Chand Mittal, Sh. Radhey Shyam Mittal, Smt. Sharda Mittal, Sh. Murari Lal Mittal, Smt. Shakuntala Mittal, Sh. Suresh Mittal, Sh. Mayank Mittal, Sh.Rajesh Mittal, Sh. Ankit Mittal. Smt. Vaishali Mittal, Sh. Aashish Mittal, Sh. Prafful Mittal, Sh. Shubham Mittal, Sh. Deepak Mittal, and Sh. Saurabh Mittal. The name of assessee is not appearing on the panchanama and inventory prepared for search at B-19, Chomu House, in the absence thereof, it cannot be assumed that there was search in terms of sec. 132(1) on the assesse in question. d) D-42, Chomu House, Sardar Patel Road, Jaipur: The assessee has no off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 05-09-2008 C-1, Mittal Chamber, C- Scheme, Jaipur Answer to question No 2 is that office of M/s Mittal Enterprises, Mittal Associates, Mittal Bros, and Mittal co is at C-1, Shiv Heera Path, Chomu House, Jaipur 415 From the above statements, it is clear that the assessee has no office at C-1, Mittal Chamber, Shiv Heera Path, Chomu House, Jaipur, therefore, warrant in its name was neither served nor executed upon the assesse. Consequently there being neither valid service nor execution of search warrant on assessee the impugned search assessments framed u/s 153A on assesse are void ab initio for want of these vital ingredients. The assessee having no existence in the searched premises of other group concerns; it cannot be assumed that because there was search in group concern therefore it can be assumed or nationally assumed that assessee was also searched u/s 132(1). 4.4 Ld. Counsel placed reliance on judgments of Hon ble Supreme Court judgment in the case of NTPC Ltd. vs. CIT, 229 ITR 383 (SC), jurisdictional High Court in Zakir Hussain v. CIT 202 ITR 40 (Raj) and other mentioned in written submissions to suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion vs. ACIT , 20 SOT 489 (Mum), wherein, it was held that where a search is carried out at the premises owned by the assessee, but rented to other concern, the same does not result into a valid search u/s 132 on the assessee. (ii) Hon ble High Court of Bombay, in the case of CIT vs. J.M. Trading Company in ITA No.589 of 2009 dismissed the appeal filed by the department against the aforesaid Tribunal judgment by following observations: The Tribunal has categorically recorded a finding of fact of initiation of the search that non compliance to the provisions of the Act by the Authorised Officer, such searches are invalid and illegal. No search was conducted against the assessee as the premises occupied by the assessee were not entered upon and searched by the Authorised Officer Further vide order dated 06.09.2010, the Hon ble Supreme Court, in CIT, Mumbai vs. M/s J.M. Trading Corporation Ltd. in CC No.13456/2010, has dismissed the departmental SLP against the Hon ble Bombay High Court order. (iii) ITAT Delhi Bench in the case of ACIT Vs Sarmangalam Builders Developers Pvt Ltd ITA No 196 to 198/Del/2011 order dated 14th March 2014 held in para 11 to 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w. 12. No decision to the contrary has been brought to our notice. 13. In view of the above discussion, we hold that since no search was conducted on the premises of the assessee and the search conducted was conducted on a premises not owned by the assessee, the proceedings u/s 153A of the Act are invalid and bad in law. Accordingly, the orders of the authorities below are set aside and quashed. Hence, CO No.1 is accepted and CO No.2 is rejected. CO No.3, being on merits, requires no adjudication. 5.2 Since the search u/s 132 was not on assessee and some documents indicating undisclosed income of assessee were found at directors residence. In that case, the legal course for revenue was to initiate the proceedings u/s 153C and frame the assessment after recording appropriate satisfaction. Ld. DR conceded that no action u/s 153C was taken and only survey u/s 133A was carried out. Thus sec. 153C also cannot be deemingly applied to assessments in question as the ld AO has neither recorded statutory satisfaction in this behalf nor issued any notice u/s 153C. An assessment which ought to have been completed u/s 153C cannot be framed in the guise of sec. 153A for this propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. CIT Ors. 1976 CTR (P H) 316 : (1976) 103 ITR 579 (P H) held that a search authorized in the absence of material necessary to form the requisite belief under s. 132(1) on the basis of blank warrant of authorization signed by the CIT was illegal and no order under s. 132(5) on the basis of such a search could be made. The Delhi High Court in Ajit Jain's case (supra) held that it is axiomatic that search under s. 132 has to be a valid search. An illegal search is no search and as a necessary corollary in such a case Chapter XIV-B would have no application. This judgment of the Delhi High Court has been upheld by the apex Court in Union of India vs. Ajit Jain Anr. (supra). The Delhi High Court in CIT vs. Rohini S. Walia (supra) held that it would be a futile exercise to entertain the appeals where admittedly no search warrant was issued in case of the assessees and the Tribunal held that unless a search warrant was issued, the AO could not invoke the provisions of s. 158BC of the IT Act, 1961 for initiation of block assessment proceedings against the assessees. Thus, we are of the view that in absence of any search warrant in the name of an assessee, search conduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the absence of any incriminating material found during the course of search any inquiry consequent to search. 153A are not enacted so as to be used as an arbitrary means to review own orders and unsettle the issues which are settled. The impugned additions are bereft of any basis and purely products of a perception that since there is a search, then even if no incriminating material in found the additions are somehow or other to be made in 153A assessments as a matter of right. Such perception is untenable, illegal and denounced by higher courts. Without quoting any specific defect in the books, ld. AO arbitrarily rejected them and simply by increasing the declared GP, made following trading additions which are confirmed by CIT(A):- AY GP rate declared by Assessee Estimation of GP by AO GP addition made by AO and confirmed by CIT(A) 2003-04 28.74% 30% 52726 2004-05 23.75% 25% 65213 2005-06 23.77% 25% 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erely because the average GP rate was slightly lower than the average GP rate of the earlier year. Vishal Infrastructure Ltd Vs ACIT 104 ITD 537 (ITAT Hyderabad) :- Hon ble ITAT Hyderabad A Bench held that the undisputed fact is that the assessee which is a limited company has been consistently following a particular method of accounting. Its accounts are audited both under the Companies Act as well as under s. 44AB. Such audited accounts are being filed with the Registrar of Companies as well as with the IT Department for more than 7 years. The Revenue has scrutinized the accounts and the method of accounting regularly employed and adopted by the assessee year after year have not been found fault with. Auditors of the company both under the Companies Act and the IT Act have been consistently certifying that the assessee has been regularly following the method of accounting and that the annual profits can be properly deduced from such method of accounting employed by the assessee. The auditors over the years have also been certifying that the accounts are regularly maintained and are complete in the sense that there is no significant omission therein. This finding has been acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the correct profits cannot be deduced from the regular books of account of the assessee and even if books are rejected additions in search assessments u/s 153A cannot be made in the absence of incriminating material. In the case of the assessee, the taxable profits are ascertainable from the completed, duly closed audited record and books of account regularly maintained by the assessee. 7.1 Apropos the arbitrary estimation of GP, it is vehemently contended that, for each year GP cannot remain same which is recognized by accounting practices also. Besides the assessee is engaged in the purchase of granites block whose quality, strength varies from block to block. The same is processed by cutting machines and polishing machines. The quality of product varies from block to block due to various reasons including Cracks, Defects, Colour, Shape etc. All these defects and imperfections cause huge variation in the yield and profitability from the trading. Thus its futile to assume that assessee will be always able to show same or better GP year after year. Besides acute competition in this trade, it makes difficult to maintain consistent GP. The ld. AO estimated the GP of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time of survey as closing stock of 27.08.2008 the consolidated GP of the assessee for the period 01.04.2003 to 27.08.2008 can be computed and the same can be compared from the total gross profit declared by the assessee. The calculation is as under: - a) Year to year trading results declared by the assessee in regular books of accounts and AO s action in estimation of GP was as under:- AY PB pg Opening Stock Purchases Exp Gross Profit Total Debit Side Sales + Job Work Closing Stock Total Credit side % GP Declared by Assessee GP rate Estimated by AO GP Addition made by AO (In Rs.) (In Rs.) 2003-04 24,31 47500 3527821 1204732 4780053 4191 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01.04.03) 47,500 By Sales + Job Charges 4,09,26,713 To Purchases 2,70,51,663 AY Amount AY Amount 03-04 41,91,525 03-04 16,18,043 04-05 52,07,905 04-05 28,63,591 05-06 48,44,287 05-06 28,36,648 06-07 84,40,846 06-07 54,32,810 07-08 73,42,616 07-08 47,59,059 08-09 71,11,586 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing those cited above. ii. Books of accounts have been rejected without citing any specific defects. Only defect cited is a sweeping observation that quality wise stock register is not maintained. Various courts have clearly held that the absence of stock register cannot be the sole ground for rejection of books. This is so because Hon ble supreme court in the case of CIT vs. Excel industries Ltd., 358 ITR 295 has held that valuation of stock is basically revenue neutral as the excess value if any determined is to be allowed as deduction in next year as opening stock. iii. No cogent reason has offered by ld. AO for holding that declared GP is inappropriate, no comparable case has been cited and different % of GP estimation has been resorted to in different years by ld. AO. Thus there is clear self-contradiction in AOs estimate and proposition that declared GP should be ideally same. The GP estimate being baseless, illogical, overlooking the realities of granite stone trade and without citing any comparable is liable to be deleted on merits also. iv. assuming but not agreeing that AO s action is correct even then the additions are unjustified in as much as these additions w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble for the assessee to maintain the day to day stock register because of number of quality and varieties and colours However, even if separate record is not maintained the Books of Accounts can t be rejected on this ground based on its reliance on the above cited cases of - Jas Jack Elegance Exports,Haridas Parikh (ITAT Jodhpur):- Hon ble ITAT Jodhpur, Vishal Infrastructure (ITAT Hyderabad), Radhasoami Satsang Neo Poly packs, Ashok Refractories, Avdesh Pratap Singh Abdul Rehman Bros. In all these cases a clear proposition has been laid that absence of stock register per se may not lead to an inference that books are incomplete, unreliable or false so as to be rejected without any cogent reasons. In the given facts and circumstances we are of the view that ratio of these judgments is applicable to the case of the assesse, therefore, we uphold the books of accounts of the assessee. Besides assessee s books are audited as per law, purchases/sales/trading expenses are duly supported by bills and vouchers and are duly verifiable. Therefore, the correctness of account books and trading results cannot be arbitrarily questioned or interfered and profits estimated for no cogent reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n disputed by the department that though assessee s name appears in search authorization, as a group search director s residence was searched. Actually no premises of the assesse company were searched which is evident as there is no Panchnama or inventory in assesse company s name. Department s reliance is mainly on the search on the residence of Director, his admission for disclosure of assesse s income and a plea to construe the record harmoniously to hold that search was there on assessee. Assessee has raised serious objections to the effect that search is a sever action and invasion of personal rights and such actions must stand the strict scrutiny of relevant provisions. It is contended that superior courts in no of judgments have held that jurisdictional issue are to be seriously viewed and the executive action must conform to the strict interpretation and not harmonious assumptions. Survey party recorded the statement of Shri Subhash Gupta on 27/08/2008 who clearly stated in answer to question no 8 that the apart from factory at VKI area, MG assessee s Head Office is situate at B-18, C-Scheme; Chomu House, Jaipur and does not have any other office, godown or branch at any ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on cannot be validated in casual manner. In the absence of any search u/s 132 and no action u/s 153C as mentioned above the assessments in question cannot be validated on assumptions to fall under these provisions. Thus sec. 153C cannot be deemingly applied in the absence of mandatory recording of statutory satisfaction and requisite notice u/s 153C, thus what has not been done directly cannot be done indirectly. We fully appreciate the mandate of superior courts while considering the validity of assessment consequent to search. Mumbai Bench of the Tribunal in the case of J.M. Trading Corporation vs. ACIT , 20 SOT 489 (Mum) held that where a search is carried out at the premises owned by the assessee, but rented to other concern, the same does not result into a valid search u/s 132 on the assessee. Revenue appeal has been dismissed in this case by hon ble High Court of Bombay ( ITA No.589 of 2009) by following observations: The Tribunal has categorically recorded a finding of fact of initiation of the search that non compliance to the provisions of the Act by the Authorised Officer, such searches are invalid and illegal. No search was conducted against the assessee as the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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