TMI Blog2019 (8) TMI 990X X X X Extracts X X X X X X X X Extracts X X X X ..... ible material. AO has not conducted any independent inquiry except the Commission issued to Calcutta Wing which has resulted nothing but reported that the company was not found at the address which is otherwise not disputed by the Revenue as the assessment was completed and statement of the director of the said company was recorded by the Investigation Wing in earlier investigation proceedings. Therefore, the said report of the Commission issued by the AO is contrary to the earlier investigation report to dispute the identity and existence of the said company. Enhancement of assessment on the basis of the application made u/s 245C(1) before Settlement Commission - application for want of any conclusive proof or document disclosing undisclosed income offered by the assessee - HELD THAT:- There is no quarrel that the material and other information produced by the assessee before the Settlement Commission or any evidence recorded by the Settlement Commission in the proceedings before it can be used by the AO as well as other income tax authority for the purpose of assessment. However, when application filed by the assessee u/s 245C(1) itself fails for want of any material support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.2 The assessee is an individual and filed her return of income for the year under consideration on 20-07-2012 declaring total income of ₹ 10,33,768/-. The assessment u/s 143 (3) of the Act was completed on 30-09-2014 accepting the return of income of the assessee. Thereafter a search and seizure operation was conducted on 17-12-2014 on various premises of Sehgal Group to which the assessee belongs. The assessee filed her return of income in response to notice u/s 153 of the Act on 5-08-2016 declaring total income as declared in the original return of income. During the course of search and seizure action, certain books of account, documents and agreement to sell dated 10-10-2011 were found and seized. As per said agreement, the assessee with her husband has agreed to sell their properties as under:- Particulars Area Plot No 1, Nemi Sagar Colony, Jaipur 332.50 Sq. Yards Plot No. 272, Nemi Sagar Colony, Jaipur 385.00 Sq. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d amount was forfeited by the assessee. Therefore, forfeited amount is required to be reduced from the cost of acquisition at the time of subsequent sale of these properties. As per terms of Section 51 of the Act, the ld. CIT(A) accepted these conditions of the assessee and deleted the addition made by the AO by holding that the addition made by the AO is without any incriminating material found during the search and seizure action. Further, the ld. CIT(A) has also held that advance of ₹ 8.00 crores received for sale of properties under the agreement to sell was forfeited by the assessee and therefore, the same is required to be reduced from the cost of acquisition at the time of sale of properties and hence no addition can be made u/s 68 of the Act on this account. 2.4 Aggrieved by order of the ld. CIT(A), the Revenue has filed the present appeal. 2.5 Before us, the ld CIT -DR submitted that agreement found during the course of search and seizure action is an incriminating material as it has disclosed transactions of receipt of advance for sale of these properties and therefore, the ld. CIT(A) has committed an error in holdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement found during the course of search and seizure action cannot be disputed by the department as the agreement itself does not disclose any undisclosed income and the AO has treated the agreement as well as transaction as bogus. Hence, the department cannot take a contradictory stand by saying that agreement found during the course of search is an incriminating material and at the same time it is held to be bogus. The ld.AR has also raised the legal objection that the Revenue has not challenged the findings of the ld. CIT(A) on the issue of deleting the addition without any incriminating material found during the course of search and seizure action. Thus the ld.AR has contended that once the department has not challenged the findings of the ld. CIT(A) on the legal issue, the ground raised by the department on the merit of the addition would become infructuous. In support of his contention, the ld.AR submitted that ld. CIT(A) has followed various binding precedents including the decision of Hon'ble Jurisdictional High Court as to the addition made by the AO without any incriminating material. 2.7 On merits, the ld.AR has submitted that the assessee has dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as found deposited in the bank through RTGS transfer. Therefore, it is not a credit in the books of account and consequently, the provisions of Section 68 cannot be invoked. In support of his contention, he has relied on the following decisions. 1. Smt. Ramilaben B Patel vs ITO (2019) 174 ITD 694 (Ahd. Tribunal) 2. Satish Kumar vs ITO (2019) 175 DTR 121 (Asr. Tribunal) 3. Mehl V Vyas vs ITO (2017) 164 ITD 296 (Mumbai Tribunal) The ld.AR thus supported the order of the ld. CIT(A). 2.8 We have considered the rival submissions as well as relevant material on record. The AO has referred to seized material being agreement to sell dated 10-10-2011 whereby the assessee alongwith her husband Shri D.P. Sehgal agreed to sell their properties situated at Nemi Sagar Colony, Vaishali Nagar, Jaipur for a consideration of ₹ 56.00 crores. The said agreement was entered into with M/s. Makesworth Projects Developers Pvt. Ltd which paid an amount of ₹ 8.00 crores out of ₹ 56.00 crores through RTGS transfer in the month of Sept. 2011 to the assessee and Shri D.P. Sehgal as an advan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the financial statement of the said company showing the net worth of the said company of more than ₹ 20.00 crores. As regards the genuineness of the transactions, the AO doubted the genuineness based on the report of the Investigation Wing, Calcutta. On the contrary, the assessee has contended that the transaction is through banking channel and the amount is received as an advance towards sale of these properties under agreement to sell dated 10-10-2011. The existence of the agreement is not in dispute as found during the course of search and the payment was made through banking channel. Thus in the absence of any findings or any material to show that assessee's own unaccounted money have come back in the shape of alleged advance the genuineness of the transaction cannot be doubted merely on suspicion. Therefore, the reliance placed by the AO on the report of Investigation Wing, Calcutta itself is not a conclusive evidence to contradict or disprove the evidence produced by the assessee to prove the identity, creditworthiness of the purchaser and genuineness of the transaction. Once the assessee has discharged her onus to prove the identity and creditworthiness of the cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue or the fair market value, as the case may be, in computing the cost of acquisition] The ld. CIT(A) has decided this issue in para 7.1. to 8.7 as under:- 7.1 I have considered the impugned order, the arguments advanced and the case laws cited. I have also gone through the order of AO, detailed submissions made from pages no. 1 to 47 with accompanying documents in the APB from pg. 48 to 164. I have perused the relevant judgments relied on in the case law compilation book from pages 1 to 323. In my view the issues to be decided are: (A) Whether in case of an assessment is completed and not pending on the date of search, whether an AO is competent to travel beyond the evidence found as a result of search which does not suggest any undisclosed income? (B) on merits, whether the addition made u/s 68 is sustainable in law as also in facts of the present case? 7.2 For deciding issue (A) above, there cannot be better guidance than the decision of jurisdictional high court in the case of Jai Steel (India), (2013) 36 Taxmann.com 523. In the said case, the facts were that A search ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame would also be taken into consideration. The requirement of assessment or reassessment under the said section has to be read in the context of Sections 132 or 132A of the Act, inasmuch as, in case nothing incriminating is found on account of such search or requisition, then the question of reassessment of the concluded assessments does not arise, which would require more reiteration and it is only in the context of the abated assessment under second proviso which is required to be assessed. 19. The underline purpose of making assessment of total income under Section 153A of the Act is, therefore, to assess income which was not disclosed or would not have been disclosed. The purpose of second proviso is also very clear, inasmuch as, once a assessment or reassessment is pending' on the date of initiation of search or requisition and in terms of Section 153A a return is filed and the AO is required to assess the same, there cannot be two assessment orders determining the total income of the assessee for the said assessment year and, therefore, the proviso provides for abatement of such pending assessment and reassessment proceedings and it is only the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ratio laid down, it can be safely concluded that when a search is initiated in the case of an appellant, the AO shall issue notice to such person requiring him to file return in respect of each assessment years falling within six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted and shall assess or reassess the total income for such years. However as per second proviso, only those assessments will abate which are pending on the date of search. Thus the assessment not pending on the date of search will not abate and assessment for such non pending years will be only on the basis of incriminating material found during search. In respect of non abated assessment, though the assessment is to be framed regarding, the addition to the income that has already been assessed, the assessment will be made on the basis of incriminating material and in absence of any incriminating material, the completed assessment can be reiterated. Just as the appellant cannot raise any additional claim for any exemption/deduction in respect of unabated assessment where no incriminating material is found, the powers of the AO will be also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment or reassessment that stood abated shall stand revived. 10. Thus on a plain reading of Section 153A of the Income-tax Act, it becomes clear that on initiation qfproceedings under Section 153A, it is only the assessment/ reassessment proceedings that are pending on the date of conducting search under Section 132 or making requisition under Section 132A of the Act stand abated and not the assessments/ reassessments already finalised for those assessmentyears covered under Section 153A of the Act. By a circular No. 8 of 2003 dated 18-9-2003 (See 263 /TR (St) 61 at 107) the CBDT has clarified that on initiation of proceedings under Section 153A, the proceedings pending in appeal, revision or rectification proceedings against finalised assessment/ reassessment shall not abate. It is only because, the finalised assessments/ reassessments do not abate, the appeal, revision or rectification pending against finalised assessments/ reassessments would not abate. Therefore, the argument of the revenue, that on initiation of proceedings under Section 153A, the assessments/ reassessments finalised for the assessment years covered under Section 153A of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not have travelled beyond any incriminating material found during search while framing assessment u/s 153A in respect of assessment which was not pending on the date of search. 7.3 Having held as above, the next question that needs to be answered is as to whether the Agreement to Sale/Bayana found during the search can be considered as incriminating material so as to make addition on the basis amount stated to be received therein? Though there is no definition of 'incriminating material, the same has to be given a contextual meaning. In one case the same may not be incriminating, while in respect of same material but in respect of another person the same can be held so. Briefly explaining, the incriminating material should be such which by itself is able to lead to computation of undisclosed income. The books of accounts, vouchers, bank accounts, summary of accounts maintained in regular course of business and duly disclosed cannot be considered as incriminating in nature. In the case of RRJ Securities Pvt. Ltd. (380 ITR 612), Hon'ble Delhi High Court held that data in hard disk found at the premises of a chartered accountant on basis of which accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uine. 7.5 In view of the above reasoning, I hold that since on date of search, the assessment for impugned year was not pending and hence not abated. Therefore, based on reasoning of Hon'ble jurisdictional high court and host of all other courts cited above, I hold that the AO could not have travelled beyond the seized material which by itself is not incriminating in nature. Since the 'Agreement to Sale/Bayana' found during search is not of incriminating in nature and which by itself does not reveal/ hint any un- disclosed income, the AO exceeded his jurisdiction in making addition on the basis of such document found during search. 8. As regards of addition u/s 68 on merits of the case the same is discussed herein. 8.1 The AO has treated the amount received from Makesworth as unexplained cash credit. The sole reason is found to be statement of Mr. Pravin Agarwal recorded by investigation wing at Kolkata. From the statement of Mr. Pravin Agarwal it is observed that he was indulging in providing bogus accommodation entries in form of 'bogus share capital, long-term capital gain, Unsecured loan, sell of shares etc.' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had not made a full and true disclosure of the relevant facts on which account the income of the appellant chargeable to tax had escaped assessment. In Lakhmani Me2val Das's case (supra), the appellant in his return, claimed deductions of certain sums paid by way of interest on the borrowings, including the one from Mohan Singh Kanayalal, who was shown as one of the creditors of the appellant. A confession had allegedly been made by Mohan Singh Kanhaiya Lal to the effect that he had only lent his name. However, there was nothing to show that the confession related to any loan advanced to the appellant or even the period during which name and not loan was lent. There was no other material either to show that the confession made was in relation to the period 1-4-1957 to 31-3-1958, subject-matter of the assessment which was sought to be reopened. It was in that fact situation that Hon'ble Supreme Court found that the information based on the confession of the creditor Mohan Singh Kanhaiya Lal was vague, indefinite, remote and far-fetched and could not justify the formation of any belief that the income of the appellant had for the period 1-4-1957 and 31-3-1958 escaped assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amine him in spite of same was asked for repeatedly. Rather, he justified his action of not providing cross examination by citing judicial rulings. The AO has relied upon the judgment of Rajasthan High Court in case of Rameshwar Lal Mali (256 ITR 536) for not allowing cross examination, whereas the appellant has relied upon judgment of Rajasthan High Court in case of Supertech Diamond Tools (2014 44 Taxmann.com 460). In the case of Rameshwar Lal Mali (supra) the finding of the court was that: In the instant case, the estimation of sales has not been made solely on the basis of the statements of the witnesses recorded during the survey. It is based on the entire facts relating to the business of the assessee which includes location of the shop, past history, various defects in the books of account and the statements of the persons available on the spot during the survey. Thus, it cannot be said that the estimation is solely on the basis of the statements of the witnesses recorded on the spot. Thus there is no law laid down that the statement of persons who are outsiders, recorded and used against the appellant need not be given. While in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cross examine is a part of the audi altrem partem principle and the same can be denied only on strong reason to be recorded and communicated. The impugned order holding that it would have directed cross examination if it felt it was necessary, is hardly a reason in support of coming to the conclusion that no cross examination was called for in the present facts. This reason itself makes the impugned order vulnerable. Thus the ratio emerging is that when an adverse view is to be drawn on the basis of statement of a third party, the person affected should be afforded an opportunity to rebut such statement and cross examination if asked for. The supreme court in case of C. Vasantlal Co. (45 ITR 206) has held that it was open to the income-tax officer to collect materials to facilitate assessment by private inquiries. But if be desires to use the material so collected, assessee must be informed of the material and must be given an adequate opportunity to explain it. In the present case it is seen that after the statement of Mr. Pravin Agarwal were furnished to the appellant, the appellant explained that there is no authority with him to state that all the transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y cash credit as explained. I therefore hold that the addition u/s 68 is required to be deleted and it is so held now. 8.6 Before parting it is made clear that legislature has already anticipated such situation of advance money received on sale agreement of property, its forfeiture. Taxation of forfeiture of advance money so received is provided in section 51 of I.T. Act. The advance received on the agreement to sale will be appropriately considered u/s 51 when the final sale deed is entered into or when the property is transferred within the meaning of s. 45 of the Act. For the sake of ready reference section 51 reads as under: Advance money received. 51. Where any capital asset was on any previous occasion the subject of negotiations for its transfer, any advance or other money received and retained by the assessee in respect of such negotiations shall be deducted from the cost for which the asset was acquired or the written down value or the fair market value, as the case may be, in computing the cost of acquisition : [Provided that where any sum of money, received as an advance or otherwise in the course of neg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase. (vii) Section 245HA of the Act does not hold that offer of additional income u/s 245C(1) is a conclusive proof or that AO shall presume the offer as unaccounted income. (viii) Offer of income for settlement is not more than an information for the purpose of assessment and it cannot be lawfully presumed as undisclosed income of assessee without AO carrying out independent enquiries. 3. Under the facts and circumstances of the case, the ld. CIT(A) has erred in law as well as facts in believing the application made by the assessee before Settlement Commission as having more evidentiary value than mere statements recorded u/s 132(4) or section 131 of the IT Act, 1961 for sustaining the addition of ₹ 5 lacs. 3.2 The issue raised by the assessee in the cross appeal is regarding enhancement of assessment made by the ld. CIT(A) on the basis of the application made u/s 245C(1) of the Act before Settlement Commission which was rejected for want of any conclusive proof or document disclosing undisclosed income offered by the assessee. 3.3 Pursuant to search and seizure action dated 17-12-2014 on M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 154500 72615 227115 2014-15 1230570 6,00,000 1830570 185400 55620 241020 2015-16 893090 10,00,000 1893090 297988 73578 371566 Total 5883639 35,00,000 1034910 334269 1369179 The said application was rejected by the Settlement Commission while passing order u/s 245D(1) of the Act on the ground that additional income is declared merely on the basis of estimates and therefore, it does not fulfill the conditions laid down as per provisions of Section 245C(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he absence of any incriminating material found during the course of search and seizure action. Thus the ld.AR of the assessee submitted that in the case of the assessee when no incriminating material was found during the course of search and seizure action substantiating the alleged undisclosed income, the addition cannot be made solely on the basis of income offered by the assessee in the application u/s 245C(1) of the Act which was rejected by the Settlement Commission. 3.4 On the other hand, the ld. DR supported the order of the ld. CIT(A) and contended that there is no confidentiality clause either in the provision of Section 245C or 245D of the Act or in the Income Tax Rules relating to Settlement Commission. Regarding the provision of Section 245HA(3), the AO shall be entitled to use all the material and other informations produced by the assessee before the Settlement Commission or the results of the enquiry held or evidence recorded by the Settlement Commission in the course of the proceedings before it. Thus the ld. DR has supported that the material which is a part of the proceedings before the Settlement Commission can be used by the AO or other Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted by the assessee u/s 245(C(1) of the Act as an evidentiary value and additional income offered in the said application of ₹ 5.00 lacs in the year under consideration was added to the income of the assessee. At the outset, we note that the Settlement Commission has rejected the application of the assessee by giving the reasons mentioned in the order dated 6-01-2017 as under:- 11 .Apparently, in the case of Smt. Renu Sehgal, the additional income has been declared merely on the basis of estimates. In response to specific query raised by the Bench in this regard, the A.R. fairly admitted that applicant is not in possession of any details of transactions from which the additional income is claimed to have arisen. In view of this position, we are in no position, even got to the prima facie findings that a full and true disclosure has been made. Accordingly, the Settlement Application filed by Smt. Renu Sehgal does not fulfill the conditions laid down as provision of section 245C(1). Accordingly, the application filed by this applicant i.e. Smt. Renu Sehgal is not allowed to be proceeded with. Thus it is a finding of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the disclosure made under section 245D(1) of the Act even if constructed as if no order under section 245D(4) has been passed it will not give a license to the AO to use the confidential information disclosed in an annexure to the application of the Settlement Commission. If the application is treated as not admitted under 245D(1) of the Act, then the provisions are clear that confidential information can never be passed on to the AO nor can it be used in evidence against the assessee. Section 245D(4) has clearly held that admission of assessee s application under section 245(1) was incorrect. We find that any confidential information disclosed in annexure to the settlement application before Income Tax Settlement Commission can never be the basis to make the addition. We find that in the instant case, the AO has reopened the assessment under section 147. Thereafter, AO has not brought any evidence or made any inquiry that assessee has earned additional income of ₹ 5 lakhs as brokerage income. In the instant case, after reopening the assessment order, the AO had not made any inquiry and not examined the material which was before him that how this income was declared by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings. If the contention on behalf of the appellant is accepted, in that case, there is no question of further adjudication by the Central Excise Officer with respect to the amount admitted by the assessee while submitting the application before the Settlement Commission submitted under Section 32E(1) of the Act. Once the application or proceedings before the Settlement Commission fails, the Central Excise Officer is required to adjudicate the entire proceedings and show cause notice. Under the circumstances, so far as proposed question of law No.1 is concerned, the present Tax Appeals deserve to be dismissed and are, accordingly, dismissed by answering the proposed question of law No.1 against the Revenue. 14. Respectfully following the same, we hold that Hon ble Gujarat High Court s judgment in the case of Maruti Fabrics pertains to Central Excise but if we compare central excise under section 32E of the Central Excise Act this section is parallel to section 245C of the Income Tax Act. One primary condition mentioned in section 32E for filing central excise settlement petition is a show cause notice for recovery of duty issued by Central Exci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Gujarat High Court has held that if the petition filed before the Settlement Commission wherein assessee has made declaration but proves that assessee has neither earned such income nor any incriminating material was found during the search relating to undisclosed income then no addition can be made. 17. We have also gone through the judgment of ITAT, Mumbai in the case of Dolat Investment vs. Dy. Commissioner of Income Tax wherein the ITAT has specifically held in para 22 which reads as under: 22. The first issue is whether the case of the assessee for assessment year 2005-06 was admitted by the Settlement Commission under section 245D(1) of the Act? On this issue, we have already seen that in the order dated 30-11- 2007 under section 245D(4) of the Act, the Settlement Commission has clearly held that the assessee for assessment year 2005-06 does not satisfy the criteria of offering income on which at least an income-tax payable should exceed ₹ 1 lakh. The Settlement Commission has further held that when admitting the petition of the assessee for assessment year 2005-06, this aspect was overlooked and that they are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod specified under sub-section (4A) of section 245D, the proceedings before the Settlement Commission shall abate on the specified date. Specified date would be (i) in respect of an application referred to in sub-section (2A) or sub-section (2D), on or before the 31st day of March, 2008; (ii) in respect of an application made on or after 1st day of June, 2007 within nine months from the end of the month in which the application was made. (2) Where a proceeding before the Settlement Commission abates, the Assessing Officer or as the case may be any other income-tax authority before whom the proceeding at the time of making the application was pending, shall dispose of the case in accordance with the provisions of this Act as if no application under section 245C had been made. (3) For the purposes of sub-section (2), the Assessing Officer or as the case may be, other income-tax authority, shall be entitled to use all the material and other information produced by the assessee before the Settlement Commission or the results of the inquiry held or evidence recorded by the Settlement Commission in the course of the proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X
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