TMI Blog2017 (5) TMI 1224X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. These are five appeals by the Revenue under Section 260A of the Income Tax Act 1961 ('Act') directed against a common order dated 13th May, 2016 passed by the Income Tax Appellate Tribunal ( ITAT ) in ITA Nos. 2409 to 2412/Del/12 and 2437/Del/12 for the Assessment Years ( AYs ) 2000-01 to 2004-05. 2. The main contention of the Revenue in these appeals is that the decision of the Division Bench ( DB ) of this Court in Commissioner of Income Tax (Central-III) v. Kabul Chawla (2016) 380 ITR 573 (Del) (hereafter Kabul Chawla) as regards the assumption of jurisdiction under Section 153A of the Act requires reconsideration, particularly in light of a later decision of a coordinate Bench of this Court in Smt. Dayawanti Gupta v. CIT (2016) 390 ITR 496 (Del) (hereafter Dayawanti Gupta). The Revenue's submission is that the invocation of Section 153A of the Act to re-open concluded assessments of the AYs earlier to the year of search is justified even in the absence of incriminating material found during the search qua each such earlier AY. For reasons to follow, the Court does not agree with the above submissions of the Revenue. 3. Since there are typographical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the group companies/concerns. 7. The Revenue claims that the documents seized pertained to the period 2002 to 2005. On the date of the search itself i.e., 23rd December, 2005, the officials of the Income Tax Department ( ITD ) recorded the statement of Shri Pawan Gadia S/o Shri M.S. Gadia, a resident of Vasant Kunj. Although the statement was under Section 133A of the Act, it was recorded on oath. Shri Gadia admitted that he was working at M/s. Satya Farms as VicePresident since August, 2001. He stated that he was supervising the work of the following companies/concerns: (i) Ferns Petal Trading Pvt. Ltd. (ii) FNP Pvt. Ltd. (iii) FNP Events Wedding Pvt. Ltd (iv) Flowered Touch India Pvt. Ltd. (v) FNP Petals Pvt. Ltd. 8. The Revenue s case is that the Respondent/Assessee, Smt. Meeta Gutgutia, is the proprietor of M/s. Ferns N Petals which is engaged in the sale of fresh flowers and other related products. On the basis of documents recovered during the search and seizure operation, a notice under Section 153A was issued to the Assessee on 12th December, 2006. Thereafter, notice dated 3rd October, 2007 along with questionnaire under Sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/- (d) AY 2004-05 @ 80% of disclosed amount ₹ 88,00,000/- (e) AY 2005-06 @ 90% of disclosed amount ₹ 99,00,000/- (f) AY 2006-07 @ 100% of disclosed amount ₹ 1,10,00,000/- 13. There was no addition made for AY 2006-07 although the disclosure was made relevant to the said year. Proceedings before the CIT (A) 14. Five separate appeals were filed by the Assessee before the CIT(A). The CIT(A) by five different orders relatable to each of the AYs in question partly allowed the appeals deleting most of the additions made by the AO. While the orders of the CIT(A) for the appeals pertaining to the AYs 200001 and 2001-02 were issued on 12th March 2012, the order in the appeal relating to AYs 2002-03 was issued by the CIT (A) on 13th March, 2012. Separate orders in relation to AYs 2003-04 and 2004-05 were issued by the CIT (A) on 14th March, 2012. 15. Before the CIT(A), the Assessee produced additional evidence under Rule 46A of the Income Tax Rules, 1962 (Rules). This included copies of the franchisee agreements. By a letter dated 9th July, 2010, the CIT(A) forwarded the additional evidence to the AO for his comments. The AO then submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noted that the accounts of the Assessee had been tax audited and no adverse comments had been made by the Tax Auditors. The AO had also not rejected the books of accounts of the Assessee. It was accordingly held that the disallowance of the franchise commission paid was not sustainable. Accordingly, the disallowance was deleted. 20. A separate issue concerned additions on account of undisclosed franchisee commission (fee) that had been received by the Assessee. The observations of the AO that the books of accounts had not been produced by the Assessee despite specific opportunities was noted by the CIT(A). The AO s observation that the Assessee did not declare any income from the franchisee fee for any of the subsequent years till a search was conducted was also noted. The disclosure made on 24th March, 2006 regarding the admission of change in the management policy and the disclosure of ₹ 110 lakhs on account of unrecorded franchisee fees received during the current year was also noticed. 21. The CIT(A) examined in detail the basis for the AO s addition of the undisclosed franchisee fee for all the years in question (other than the AY 2000-01). The CIT(A) noted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the ITAT. While the Assessee filed ITA Nos. 2409/Del/2012 to 2413/Del/2012, the Revenue filed ITA Nos. 2433/Del/2012 to 2437/Del/2012. Impugned order of the ITAT 25. A perusal of the common order of the ITAT shows that it first dealt with one common ground raised by the Assessee in all its appeals which concerned the jurisdictional issue of the validity of the invocation of Section 153A of the Act by the Revenue. It was contended that for the AYs 2000-01 to 2003-04, there was no incriminating material seized during the course of search and, therefore, the assessment order in respect of those AYs ought to be quashed. The ITAT, following the decisions of this Court in Kabul Chawla (supra) and Pr. CIT v. Lata Jain [2016] 384 ITR 543 (Del), accepted the above grounds urged by the Assessee and held that the assumption of jurisdiction under Section 153A for the said AYs was bad in law. 26. As regards AY 2004-05, the ITAT noted that the addition for the said AY was based on the seized documents. Accordingly, it was held that the assessment for the AY 2004-05 under Section 153A was valid. The ITAT then proceeded to examine the appeal filed by the Revenue for the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmon order of the ITAT in relation to the Revenue s own appeal being ITA No. 2437/Del/2012 pertaining to AY 2004-05. 30. It is also significant to note that the Revenue has not challenged the dismissal of its appeals being ITA Nos. 2433/Del/2012, 2434/Del/2012, 2435/Del/2012 and 2436/Del/2012 for AYs 2000-01, 2001-02, 2002-03 and 2003-04 concerning the deletion by the CIT(A) of the additions made by the AO. 31. On its part, the Assessee has also not challenged the order of the ITAT to the extent it holds that for AY 2004-05 there was incriminating material and to the extent the ITAT rejected the Assessee s appeal for that year on the ground that invocation of Section 153A of the Act was wrong. Further, the additions made by the CIT(A) for AY 2004-05 were sustained by the ITAT. To that extent, the Assessee had filed an appeal in the ITAT being ITA No. 2143/Del/2012 for AY 2004-05. However, the dismissal of the said appeal of the Assessee by the ITAT for non-prosecution by the impugned order has not been challenged by the Assessee. 32. The net result of what is in issue in the present appeals is: (i) The validity of the invocation of Section 153A of the Act by the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gupta and, in particular, to paragraphs 16 to 20 and 23 thereof. It is pointed out that this judgment was delivered by the DB of this Court after duly considering the decision of this Court Kabul Chawla. (c) The statement of Shri Pawan Gadia was not retracted at any stage of the proceedings. It was the statement recorded during search. The surrendered amount of ₹ 1.10 crores was not related to any particular AY at the time when the said statement was made. During the course of the search, several other documents such as cash memos/invoices/bills of purchase/hand written papers other documents etc. pertaining to the period from the year 2002 to 2005 were seized. It was, therefore, not as if there was no seized material for AYs other than AY 2006-07. In the memorandum of appeal in ITA No. 306/2017, it is stated that these documents were as under: i. Pages at S.No. 12 to 27 of Annexure A-1 [comprising 258 documents] pertain to AY 2003-04. ii. Similarly, Page No. 28 to 34 of Annexure A-3 [comprising 96 pages) pertain to AY 2005-06. iii. Similarly, Page No. 35 to 41 of Annexure A-4 [comprising 124 pages) pertain to AY 2004-05. iii. Similarly, Page No. 42 to 44 of Annex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence uncovered during the search or the consequent search proceedings. For instance, the factum of the franchisee commission came to light for the first time during the search proceedings. There was no disclosure/declaration of income on this score till the search was conducted. During the submissions made on 23rd September,2010, the Assessee acknowledged that there were 21 franchisees for AY 200405. On this basis, the CIT(A) ought to have sustained at least half of the amount added by the AO since there were 42 franchisee outlets for the AY 2004-05. (g) As regards quashing of assessment for the AYs 2000-01 to 2003-04, by the ITAT, it is submitted that the additions made on account of franchisee commission for each of the AY were on account of undisclosed receipt of franchisee commission coming to light during the search. The addition was based on information revealed by Shri Pawan Gadia in his statement dated 23rd December, 2005 recorded at the time of search. Even otherwise, the additions were related directly or indirectly to the seized material and evidence uncovered during or after the search. (h) Even otherwise, the quashing of assessments on the basis of the illega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 7th February, 2017 in ITA Nos. 61/2017 and 62/2017 (The Pr. Commissioner of Income Tax-9 v. Ram Avtar Verma) where the decision in Kabul Chawla (supra)was followed. (d) The decision in Dayawanti Gupta (supra) was distinguishable on facts. There, there was an admission by the Assessee that they were not maintaining regular books of accounts and the AO in those cases had specifically rejected the books of accounts. There was a confirmation in response to Question No. 11 in Dayawanti Gupta (supra) that there was no year-wise recording of transactions. In the present case, however, there was no such admission; the books of accounts were accepted by the AO. Further, in response to question No. 16 it was stated by the Assessee in the present case that there was no scope to manipulate profits. The surrender was made on the basis of a survey and that too to buy peace of mind . (e) It was erroneous for the Revenue to contend that the Assessee failed to furnish books of accounts. Before the CIT(A), a remand report was sought from the AO on the additional documents submitted by the Assessee. A personal hearing was also given to the AO and the original assessment records were v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any of the other AYs i.e., AYs 2000-01 to 2004-05. The documents as stated by the Revenue in its Memorandum of Appeal in ITA No. 306/2017 viz., Annexures A1, A3 to A5 stated to pertain to AY 2003-04, 2005-06, 2004-05, and 2006-07 respectively have neither been described as such or in any detail by the Revenue either in these appeals. They have not been referred to or discussed in any of the orders of the AO or the CIT(A). Although it was repeatedly urged by Mr. Manchanda that there were hundreds of seized documents , what is necessary to examine is whether they were in fact incriminating documents . Any and every document cannot be and is in fact not an incriminating document. The legal position, as will be discussed shortly, is that there can be no addition made for a particular AY without there being an incriminating material qua that AY which would justify such an addition. Therefore, the mere fact there may have been documents pertaining to the above AYs does not satisfy the requirement of law that there must be incriminating material. In any event, the aforementioned documents i.e., A1, A3, A4 and A5 pertain to only some of the AYs with which we are concerned i.e., AYs 2003- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to, any proceeding under this Act. Therefore, there is a considerable difference in the nature of the statement recorded under Section 132(4) and that recorded under Section 133A(3)(iii) of the Act. 41. This distinction was noticed by this Court in CIT v. Dhingra Metal Works (supra). The Court there referred to the decision of the Kerala High Court in Paul Mathews Sons v. Commissioner of Income Tax (2003) 263 ITR 101 (Ker) and of the Madras High Court in CIT v. S. Khader Khan Son (supra) and observed that the word may occurring in Section 133A(3)(iii) of the Act clarifies beyond doubt that the material collected and the statement recorded during the survey is not a conclusive piece of evidence by itself. Incidentally, the decision of the Madras High Court in CIT v. S. Khader Khan Son (supra) has been affirmed by the Supreme Court by the dismissal on 20th September, 2012 of SLP (Civil) No. 13224/2008 filed by the Revenue against the said decision after granting leave. To the same effect is the decision of this Court in CIT v. Sunrise Tooling System Pvt. Ltd (supra) and of the Jharkhand High Court in Shree Ganesh Trading Co. v. Commissioner of Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Can you reconcile these figures with books of sale. Ans : These are the current years a/c subject to finalization and therefore is reconcilable. Q.23 I am showing page 48 of annexure A-5, Please explain the figures contained therein. Ans : These are the account receivable of FNP Market which I am not able to reconcile at this moments. Q.24 What are the cash balances in books of different concern of whose a/cs are being maintained at this stages. Ans : Since the books a/cs are not completed we are unable to tell the exact cash balance as on date. Q.25 In the light of the questions asked and answers given by you, do you want to offer any income to tax which is outside the books of a/c and also keeping in mind that you do not main~ stock register of flowers. Ans : To buy the peace of mind, we offer to declare an income of ₹ 2.5 crs. in our three firms/companies which are Ferns Petal India Pvt. Ltd.. Ferns Petal Prop. Mrs. Meeta Gutgutia and FNP Marketing Prop. Mr.. Vikas Gutgutia which also includes cash seized by you from their premises as well as residence of Sh. Vikas Gutgutia and Meeta Gutgutia, subject to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cuments seized should be taken to be incriminating because it was only for that reason that Mr. Pawan Gadia has felt constrained to make the disclosure. 46. As regards the second submission, it must be pointed out that this submission is both factually incorrect and based on surmises. During the course of the proceedings before the CIT(A), by means of an application under Rule 46A or the Rules, the Assessee sought to produce additional evidence which was permitted by the CIT(A). That decision of the CIT(A) was never challenged by the Revenue. In any event, the dismissal of its appeal by the ITAT pertaining to the AYs 2000-01, 2001-02, 2002-03 and 2003-04 on merits was never challenged by it. What the CIT(A) did was to seek a remand report from the AO. On 23rd September, 2010, the Assessee wrote a letter to the AO offering a detailed explanation for each of the additions and the other points raised by the AO. This has also been referred to hereinbefore. That letter specifically states that the Assessee had been maintaining regular books of accounts on TALLY software on Computer and have filed regular Income Tax returns along with Profit Loss Account and Balance Sheet which wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ete names and addresses of 46 outlets, 65 strategic alliance and 156 vendor partners outside India as mentioned in your group profile. That question was based on the information collected from the Assessee s website. On the other hand, the Assessee filed an affidavit dated 18th March, 2010 before the CIT(A) pointing out that there were different numbers of owned/controlled outlets and franchisee outlets during the various AYs. From that affidavit, it would be seen that for AY 2004-05, there were only 4 owned outlets and 21 franchisee outlets. 48. In the remand proceedings, the AO could not dispute the above information. As already noticed, the Assessee had brought with herself all the franchisee agreements to substantiate the above submission made in her affidavit. It is for this reason that in para 6.3 (f) of the order passed by the CIT(A) for AYs 2004-05, it was categorically held: No evidence to dispute the affirmations in the affidavit have been brought on record by the AO in the remand proceedings. The estimated additions made by the AO from AYs 2001-02 onwards was ₹ 55 lakhs for AY 2001-02, ₹ 66 lakhs for AY 2002-03, ₹ 77 lakhs for AY 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rought by the Assessee. Thereafter, the CIT(A) came to the conclusion that the number of franchisee/retail outlets as disclosed by the Assessee was correct. This factual determination has not been shown by the Revenue to be perverse or contrary to the records. The entire edifice of the arguments of Mr. Manchanda that the AO was not heard and that there was a failure by the Assessee to produce the accounts and records is wholly contrary to what emerges from a reading of the detailed orders of the CIT(A). 52. For the aforementioned reasons, the deletion by the CIT(A) of the additions made by the AO for the AYs 2004-05 both as regards the franchisee fee/commission of ₹ 88 lakhs and the rent amount appears to be based on factual findings and, therefore, does not call for any interference by this Court. 53. At this stage, it is also to be noticed that an elaborate argument was made by Mr. Manchanda on the aspect of the security deposits accepted by the Assessee. These were of two kinds one was of refundable security deposits and the other for non-refundable security deposits. As far as the refundable security deposits were concerned, the AO himself in his remand report acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cidentally, both these decisions were discussed threadbare in the decision of this Court in Kabul Chawla (supra). As far as CIT v. Anil Kumar Bhatia (supra) was concerned, the Court in paragraph 24 of that decision noted that we are not concerned with a case where no incriminating material was found during the search conducted under Section 132 of the Act. We therefore express no opinion as to whether Section 153A can be invoked even under such situation . That question was, therefore, left open. As far as CIT v Chetan Das Lachman Das (supra) is concerned, in para 11 of the decision it was observed: 11. Section 153A (1) (b) provides for the assessment or reassessment of the total income of the six assessment years immediately preceding the assessment year relevant to the previous year in which the search took place. To repeat, there is no condition in this Section that additions should be strictly made on the basis of evidence found in the course of the search or other post-search material or Information available with the Assessing Officer which can be related to the evidence found. This, however, does not mean that the assessment under Section 153A can be arbitrary or m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid provision, which is intricately linked with search and requisition under Sections 132 and 132A of the Act, it is apparent that: (a) the assessments or reassessments, which stand abated in terms of II proviso to Section 153A of the Act, the AO acts under his original jurisdiction, for which, assessments have to be made; (b) regarding other cases, the addition to the income that has already been assessed, the assessment will be made on the basis of incriminating material; and (c) in absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. 34. The argument of the Revenue that the AO was free to disturb income de hors the incriminating material while making assessment under Section 153A of the Act was specifically rejected by the Court on the ground that it was not borne out from the scheme of the said provision which was in the context of search and/or requisition. The Court also explained the purport of the words assess and reassess , which have been found at more than one place in Section 153A of the Act as under: 26. The plea raised on behalf of the assessee that as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs in which both the disclosed and the undisclosed income would be brought to tax . iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material. v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search or requisition. However, instead of the earlier regime of block assessment whereby, it was only the undisclosed income of the block period that was assessed, section 153A of the Act seeks to assess the total income for the assessment year, which is clear from the first proviso thereto which provides that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years. The second proviso makes the intention of the Legislature clear as the same provides that assessment or reassessment, if any, relating to the six assessment years referred to in the sub-section pending on the date of initiation of search under section 132 or requisition under section 132A, as the case may be, shall abate. Subsection (2) of section 153A of the Act provides that if any proceeding or any order of assessment or reassessment made under sub-section (1) is annulled in appeal or any other legal provision, then the assessment or reassessment relating to any assessment year which had abated under the second proviso would stand revived. The proviso thereto says that such revival shall cease to have effect if such order of annulme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch or requisition. In case where a pending reassessment under section 147 of the Act has abated, needless to state that the scope and ambit of the assessment would include any order which the Assessing Officer could have passed under section 147 of the Act as well as under section 153A of the Act. xxx 19. On behalf of the appellant, it has been contended that if any incriminating material is found, notwithstanding that in relation to the year under consideration, no incriminating material is found, it would be permissible to make additions and disallowance in respect of an the six assessment years. In the opinion of this court, the said contention does not merit acceptance, inasmuch as. the assessment in respect of each of the six assessment years is a separate and distinct assessment. Under section 153A of the Act, assessment has to be made in relation to the search or requisition, namely, in relation to material disclosed during the search or requisition. If in relation to any assessment year, no incriminating material is found, no addition or disallowance can be made in relation to that assessment year in exercise of powers under section 153A of the Act and the earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) has been affirmed by the Supreme Court by the dismissal of the Revenue's SLP on 7th December, 2015. The decision in Dayawanti Gupta 64. That brings us to the decision in Dayawanti Gupta (supra). As rightly pointed out by Mr. Kaushik, learned counsel appearing for the Respondent, that there are several distinguishing features in that case which makes its ratio inapplicable to the facts of the present case. In the first place, the Assessees there were engaged in the business of Pan Masala and Gutkha etc. The answers given to questions posed to the Assessee in the course of search and survey proceedings in that case bring out the points of distinction. In the first place, it was stated that the statement recorded was under Section 132(4) and not under Section 133A. It was a statement by the Assessee himself. In response to question no. 7 whether all the purchases made by the family firms, were entered in the regular books of account, the answer was: We and our family firms namely M/s Assam Supari Traders and M/s Balaji Perfumes generally try to record the transactions made in respect of purchase, manufacturing and sales in our regular books of accounts but it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT's findings do not reveal any fundamental error, calling for correction. The inferences drawn in respect of undeclared income were premised on the materials found as well as the statements recorded by the assessees. These additions therefore were not baseless. Given that the assessing authorities in such cases have to draw inferences, because of the nature of the materials - since they could be scanty (as one habitually concealing income or indulging in clandestine operations can hardly be expected to maintain meticulous books or records for long and in all probability be anxious to do away with such evidence at the shortest possibility) the element of guess work is to have some reasonable nexus with the statements recorded and documents seized. In tills case, the differences of opinion between the CIT (A) on the one hand and the AO and ITAT on the other cannot be the sole basis for disagreeing with what is essentially a factual surmise that is logical and plausible. These findings do not call for interference. The second question of law is answered again in favour of the revenue and against the assessee. 69. What weighed with the Court in the above decision was the h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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