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TMI Blog2020 (1) TMI 859X X X X Extracts X X X X X X X X Extracts X X X X ..... Do- -Do- -Do- 46/Ran/19 -Do- 2014-15 -Do- -Do- -Do- 47/Ran/19 -Do- 2015-16 -Do- -Do- 143(3) of the Act 48/Ran/19 M/s. K.D.S. Contractors Pvt. Ltd. 2009-10 30.11.2018 -Do- 153A r.w.s. 143(3) of the Act 49/Ran/19 -Do- 2010-11 -Do- -Do- -Do- 50/Ran/19 -Do- 2011-12 -Do- -Do- -Do- 51/Ran/19 -Do- 2012-13 -Do- -Do- -Do- 52/Ran/19 -Do- 2013-14 -Do- -Do- -Do- 53/Ran/19 -Do- 2014-15 -Do- -Do- -Do- 54/Ran/19 -Do- 2015-16 -Do- -Do- 143(3) of the Act 2. The captioned appeals concern AYs. 2009-10 to 2015-16 in the case of captioned assessees who are stated to be having transactions with Padam Kumar Jain Group. In view of the simultaneous search conducted on both the assessees and issues being interlinked and similar, all the captioned appeals of both assessees have been heard together and are being disposed of by common order. 3. For the sake of convenience and to begin with, we shall first take up the appeal concerning M/s. Rajat Minerals Pvt. Ltd. concerning AY 2009-10 in IT(SS)A No. 41/Ran/2019 for appreciation of facts and adjudication of the common issues involved. IT(SS)A No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. CIT(A) was not justified in confirming the addition of Rs. 4,84,70,106/- U/s 69 being unexplained investment. For the year under consideration the assessee purchases fixed assets details of which was completely reflected in the audited books. The source of the payment stands explained as was made through banking channel and bills as available was also produced before the Ld. AO making the assessment. Moreover, we would like to mention that the depreciation claimed against the fixed assets was also allowed, as such, the authorities below were not justified in sustaining this addition in absence of any incriminating material found during the search operation. The addition made is fit to be deleted. 7. For that Ld. CIT(A) was not justified in confirming the addition of Rs. 11,05,71,212/-being disallowance of expenses claimed. The authorities below confirmed the disallowance to the tune of 100% for the expenses claimed under Picking expenses. Screening expenses, Stacking expenses, Breaking & sizing, General expenses, Local shifting expenses. Salary & wages, Temporary hut making charges. Bush cutting expenses, Compressor hire charges, Crusher expenses. Pollution control expenses, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e very root of the assessment and involves a legal finding. Reliance is placed upon the decision of Hon'ble Apex Court in the case of NTPC Vs. CIT 229 ITR 383." 6. The prayer for admission of additional grounds noted above which are not set forth in memorandum of appeal are being admitted for adjudication in terms of Rule 11 of Income Tax (Appellate Tribunal) Rules, 1963 owing to the fact that objections raised in additional grounds are legal in nature for which relevant facts are stated to be emanating from existing records. 7. Turning to the facts, a search and seizure operation under s.132(1) of the Act was carried out in the business and residential premises of Padam Kumar Jain Group of cases at Ranchi, Chaibasa, Barbil, Chennai etc. on 03.07.2014 and subsequent dates. A search and seizure operation was also carried out at the transit/branch office/site office of the assessee and his group consisting of M/s. Rajat Minerals Pvt. Ltd., K. D. S. Contractors Pvt. Ltd., K. D. Sharma & Smt. Tripta Sharma. No search action was stated to be carried out at the registered office of assessee or any other place of business. This search was said to be a part of the main search conduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no other association. The AO however proceeded on the premise that discovery of any incriminating document is not a sin qua non to make assessments under s.153A of the Act. The AO observed that issue of warrant of search and search under s.132 of the Act is sufficient for initiation of proceedings under s.153A of the Act and only condition for initiation of proceedings under s.153A of the Act is occurrence of search under s.132 of the Act. It was further observed that Section 153A of the Act does not provide that assessment/re-assessment should be based on 'incriminating material' alone and the AO is empowered to assess or re-assess the 'total income' of the six financial years covered under search regardless of presence of incriminating material. The AO also took extensive note of Tax Evasion Petition dated 21.11.2016 received in the course of assessment by him alleging incriminating information against the assessee. The AO proceeded to assess the income on the basis of such Tax Evasion Petition. It was noted that as per the balance sheet of the assessee company, sundry creditors / current liability to the tune of Rs. 11,37,79,828/- remains unpaid for AY 2009-10 in question. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eply in a span of hardly 5 days. Statedly, the assessee did submit its reply to the said questionnaire dated 21.11.2016 but however on 29.11.2016 instead of 28.11.2016 i.e. after a delay of one day. The learned counsel paused here to submit that the assessment order was purportedly passed without waiting for the compliance even till the end of the appointed day. This act of AO frustrated whatever little opportunity was provided for compliance to assessee. Agitating the issue, the learned counsel pointed out that instant appeals pertain to search matters where substantial complexities are ordinarily involved. The AO was making assessments in as many as 28 cases pertaining to assessee group for which the AO purportedly passed orders (in all 28 cases on the same very date) without waiting for the compliance from the captioned assessees so enjoined with onerous burden to respond in all cases in mere 5 days, till even the end of day. It was pointed out that not only the action of the AO without waiting even till the end of the day of the compliance in as many as 28 cases is malafide and repugnant, the whole action of the AO towards purported completion of assessments of 28 cases in one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the JCIT on the same day within a span of few hours/minutes clearly underline total non-applicability of mind and a mechanical step by the senior authority in abdication of its statutory responsibilities, even if, the date of order i.e. 28.11.2016 is momentarily taken as sacrosanct. The learned counsel made a reference to the decision of the co-ordinate bench in Geetarani Panda vs. ACIT IT(SS)A No. 01/CTK/2017 order dated 05.07.2018; Rishav Buildwell Pvt. Ltd. & Ors. vs. DCIT ITA No.2122/Del/2010 order dated 04th July, 2019; AAA Paper Marketing Pvt. Ltd. vs. DCIT ITA No. 167/LKW/2016 dated 28.04.2017 and Indra Bansal & Ors. vs. ACIT ITA Nos. 514-516/Jodh/2015 for the unequivocal proposition that the approval given by the Joint Commissioner in an utmost hasty manner and in a mechanical manner does not tantamount to approval contemplated under s.153D of the Act. The learned counsel accordingly submitted that the assessment orders passed under s.153A of the Act with reference to the captioned appeals grossly suffer from lack of statutory approval envisaged under s.153D of the Act and therefore orders of assessment are clearly bad in law and thus unsustainable in law. 10.5 To prop up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her pointed out that the assessment order was served on the assessee by speed post on 14.12.2016 which clearly shows that the assessment order was dispatched some time in 2nd week of December. An inexplicable delay of about 10 days in dispatch of the assessment order so hurriedly framed within a few hours (in as many as 28 cases) with approval of JCIT also on same day again indicate that assessment orders in captioned appeals are antedated and thus such antedated assessment orders are required to be stuck down as void at the threshold. 10.6 The learned counsel for the assessee next pointed out that he does not require to independently argue Ground No.2 of the additional ground which is merely an extension of the first additional ground. 10.7 Adverting to main grounds of appeal, the learned counsel for the assessee raised yet another legal contention of invalidity of additions/disallowances in the assessment proceedings under s.153A of the Act in the absence of any 'incriminating material' found in the course of search under s.132 of the Act. In this regard, the learned counsel adverted to its immediate response before the AO (as recorded in the assessment order itself at page no. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n allegedly received by the AO. Neither the assessment order nor the remand report makes any reference to documents found as per the 'list of inventory'. It was submitted that in the course of search, business documents executed in ordinary course will be naturally found but that would not mean that such documents are 'incriminating' in nature per se. In the above factual scenario, the learned counsel submitted that AYs. 2009-10, 2010-11, 2011-12 & 2012-13 (for both the appellants) stood completed/time barred at the time of initiation of search on 03.07.2014 and thus could not be disturbed by making further additions/disallowances de hors reference to any incriminating material found or seized in the course of search. 10.7.3 Building up the contention on legal principles, the learned counsel submitted that assessment of income under s.143(3) r.w.s. 153A of the Act must have nexus to the incriminating material, if any, found in the course of search in respect of unabated assessment as continuously held by various High Courts and approved by the Hon'ble Supreme Court (by way of dismissal of SLP). To buttress the legal position that presence of incriminating material discovered in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned counsel pointed out that the AO has inter alia invoked Section 68 of the Act for certain additions. Section 68 of the Act necessarily enjoins presence of entries in the books of accounts. Such additions in the spheres of Section 68 of the Act is not permissible in the absence of evidence in contradicting bonafides of credits as found in the course of search. The learned counsel contented that the action of the Revenue in making additions under s.68 of the Act (on account of sundry creditors/bogus liability) on the basis of regular books of account, disallowance of various expenditures, additions towards investment in fixed assets shown in the balance sheet under s.69 of the Act (in the alleged absence of satisfactory explanation towards nature and source investment) is totally uncalled for as per the schematic interpretation of scheme of assessment under s.153A of the Act. The learned counsel for assessee thus professed that the aforesaid additions/adjustments to the return of income is a subject matter of regular assessment under normal provisions and such action under specified provisions in the course of search assessment is bad in law and thus requires to be set as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09.2016 to buttress the aforesaid contention on behalf of the Revenue. The learned CIT.DR accordingly contented that no merit in the claim of the assessee could be drawn that additions/disallowance in unabated assessments are unsustainable in the absence of incriminating material. It was thus submitted that the preliminary legal grounds raised on behalf of the assessee are totally devoid of any legitimacy. 13. We have carefully considered the rival submissions and legal grounds raised. Before we deal with additions on merits, it will be desirable to adjudicate wide ranging legal objections of overwhelming nature raised on behalf of the assessee which goes to the root of the matter. Broad contours of the appeal of the assessee hinges around following pertaining legal issues emanating in the case: (i) Whether the AO was justified in passing the assessment order hurriedly without waiting for expiry of at least the date on which a compliance to the questionnaire issued was sought; (ii) whether the preparation of draft assessment orders of as many as 28 cases was plausible in a span of few hours given the complexity involved in search matters and whether the approval of 28 draft order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd he could have passed only after that date; secondly, it is difficult to fathom that the AO would be able to prepare 28 draft orders in a span of 2-3 hours involving complex issues in search matters; and thirdly, it is yet more difficult to fathom that the superior authority could plausibly go through the assessment records and the draft assessment orders and grant an informed approval with objective application of mind to such draft orders in search matters (involving contentious and complex legal and factual issues) on the same day in a further squeezed time available to the JCIT. In short, it is the case of the assessee that the time available at the disposal of the AO is hardly 5-6 hours of the day after the lapse of the appointed time on the date of hearing. In this very short period, apart from all other routine work carried out, the AO has purportedly drafted 28 assessment orders and forwarded the same to the JCIT (superior authority) together with case records and the JCIT, in turn, has perused such voluminous case records and granted approval contemplated under s.153D of the Act to enable the AO to pass a formal final assessment order. 14.1 At the first look itself, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and approval thereon by the JCIT and closure of the assessment on the same day is not judicially palatable. As also observed earlier, the AO has prepared the draft assessment order without even waiting for completion of that date of hearing is gross sub-version of the quasi-judicial process and such ipse-dixit conduct deserves to be deprecated. The superior authority performing the solemn duty to supervise the action of the AO claimed to have approved such large staked search matter in a spur of moment does not inspire any confidence in such hawkish supervisory process. When sequence of events are integrated and collated, the plea of the assessee that the whole exercise of the aforesaid revenue authorities are antedated cannot be refuted to be without any substance. The stand of the assessee that the assessment order in all probability is antedated to avoid consideration of reply of the assessee filed on 29.11.2016 also clinches for two more reasons; (i) the assessment order itself assertively refers to the reply of the assessee in response to the questionnaire dated 21.11.2016 as per para 5.4 of the assessment order. The order sheet, as a matter of record, clearly shows that no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt records. Notwithstanding aforesaid, the JCIT was expected to enquire into reply of the assessee in response to the questionnaire dated 21.11.2016 which was crucial and of utmost significance in the context of the allegations made by AO. JCIT however has summarily endorsed the action of the AO presuming no substance in replies allegedly filed without looking at it nor he could have seen such non-existent reply on 28.11.2016. Apparently, the approval granted by the JCIT, if any, suffers from inherent lack of application of mind on the draft assessment order and consideration of relevant assessment records. The purported approval so granted by the JCIT has been clearly reduced to an empty ritual rendering such approval to be invalid in the eyes of law. We also cannot loose sight of the fact that no minimal enquiry into the issues of substantial nature arising from the draft assessment orders have been made by the JCIT defeating the salutary purpose of Section 153D of the Act. 14.6 On appraisal of the facts and circumstances of the case and peculiarities of the instant case and having regard to the long line of judicial precedents in similar circumstances including Pr.CIT vs. Shree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search. No such reference has been made in the assessment order. The additions under s.68 of the Act has been made on the basis of credits appearing in financial statement annexed to TEP only which petition was received at a much later stage in the course of assessment post search. It was pointed out that a reference was, however, made to certain documents in the 'remand proceedings' before the CIT(A) at belated stage. The AO is not entitled to make radical changes in basis of assessment in the remand proceedings at belated stage. Without prejudice, a reference was made to the incriminating documents 'CMB-24' in the remand report is admittedly seized from the possession of other searched person namely 'Core Minerals' at Barbil. Seized documents marked as 'AK-01' was admittedly seized from 'Padam Kumar Jain'. Document marked (CMB-1) was seized from 'Core Minerals'. Documents bearing identification mark 'UKD-1' was also seized from third party which is unknown and no reference to such documents are found in the 'list of inventories' prepared at the time of search. No reference of such documents is also found in the statement recorded under s.132(4) of the Act. It was contended that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of CIT vs. Kabul Chawla (2016) 380 ITR 573 (Del); Pr.CIT vs. Saumya Constructions Pvt. Ltd. (2016) 387 ITR 529 (Guj); Principal Commissioner of Income Tax-1 vs. Devangi alias Rupa 2017-TIOL-319 HC-AHM-IT; CIT vs. IBC Knowledge Park Pvt. Ltd. (2016) 385 ITR 346 (Kar); Pr. CIT-2 vs. Salasar Stock Broking Ltd. 2016-TIOL-2099-HC KOL-IT and CIT vs. Gurinder Singh Bawa (2016) 386 ITR 483 (Bom), Reference was also made to another two decisions of Hon'ble Delhi Court in Pr. CIT vs. Mahesh Kumar Gupta 2016-TIOL-2994-HC-Del and the decision dated 7th February, 2017 in ITA Nos. 61/2017 and 62/2017 in the Pr, Commissioner of Income Tax-9 vs. Ram Avtar Verma where the decision in Kabul Chawla (supra) was followed. The Hon'ble Delhi High Court made an exhaustive reference to the decisions noted above and held that invocation of Section 153A of the Act to reopen concluded assessments of earlier assessment years was not permissible in the absence of incriminating material found during search qua each such earlier assessment years. While holding so, the Hon'ble Delhi High Court also distinguished the co-ordinate bench decision of the same Court in the case of Smt. Dayawanti Gupta vs. CIT (20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct or a requisition under s.132A of the Act. Once a search or requisition is made, the mandate is cast upon the AO to issue notice under s.153A of the Act and complete the assessment of 6 assessment years. The Hon'ble Gujarat High Court took note of the fact that object of scheme legislated for assessment in search cases is to bring to tax the undisclosed income which is found during the course of or pursuant to search or requisition and therefore additions/disallowances must be linked with search/requisition. It was noted by the Hon'ble Court that additions made on the basis of some materials collected by the AO much subsequent to the search is not permissible. 15.3.4 Similar view has been expressed in catena of decisions viz; Pr.CIT vs. Deepak J. Panchal (Guj) 397 ITR 153 (Guj); Chetnaben J. shah vs. ITO Tax Appeal No. 1437 of 2007 judgment dated 14.07.2016; CIT vs. Continental Warehousing Corporation (2015) 374 ITR 645 (Bom.); Pr.CIT vs. Desai Construction Pvt. Ltd. 387 ITR 552 (Guj.); Gurinder Singh Baba 386 ITR 483 (Bom); & CIT vs. Deepak Kumar Agarwal (2017) 398 ITR 586 (Bom.). 15.3.5 The Hon'ble Delhi High Court in Pr.CIT vs. Subhash Khattar ITA No. 60/2017 judgment dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... summarized as follows: (i) the scope of assessment under s.153A of the Act is limited to the incriminating evidence found during the search and no further in so far as unabated assessments are concerned; & (ii) unless there is incriminating material qua each assessment years to which additions are sought to be made in respect of concluded assessments, the assessment under s.153A of the Act by making additions/disallowances would be vitiated in law. 15.6 As discussed in length, the issue has been dynamic and a matter of legal interpretation. We are governed by the schematic interpretation given to provisions of Section 153A of the Act by different Hon'ble Courts. In the light of judicial fiat reading down the scope and spectrum of assessment under s.153A of the Act in narrower compass, the position of law is explicitly clear. In the absence of any connection with the incriminating material unearthed in search proceedings of assessee, additions / disallowances in respect of concluded assessment i.e. AYs. 2009-10 to 2012-13 in instant appeals, are not permissible in law. The additions were made by the AO solely on the basis of some TEP received in November 2016 as against search cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration of law will however be governed by normal assessment powers under s.153A of the Act. 16. We shall now advert to the correctness of various additions made in AYs. 2013-14 to 2015-16 on merits. 16.1 Notwithstanding the view expressed in para 14 (supra) that the assessment order is predated and therefore no maintainable coupled with the observations that the assessment orders are not maintainable also on the ground that the approval of the JCIT is mechanical and perfunctory and further observations in para 15 (supra) that the additions/disallowances made in each unabated assessments for AY 2009 10 to 2012-13 are also not maintainable otherwise due to failure of the Revenue to discharge its burden towards presence of incriminating material as result of search on assessee, we are however also inclined to deal with the additions on merits for the sake of completeness. This is so having regard to stakes involved where there is reasonable possibility of present order of ITAT being placed before Hon'ble High Court for its judicial review. We however make it abundantly clear that all the assessment orders in the captioned appeals are liable to be quashed for diverse and independent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uires to be deleted on this first parameter itself i.e. the assessee not being shareholders of the lender company cannot be taxed under s. 2(22)(e) of the Act. 16.5 We also observe here that there is a considerable force in the alternative argument raised on behalf of the assessee that while considering accumulated profits of the company for the purposes of additions under s.2(22)(e) of the Act for the assessment years in question, the payment made by the lender company which stood disallowed in the earlier years is required to be adjusted and consequently, accumulated profits of the lender company would stand reduced to the extent of disallowances carried out by the AO in the earlier assessment years. When a loan by a company to a shareholder in the manner set out in section 2(22)(e) is treated as a deemed dividend, it is to be treated as payment out of accumulated profits of the company. Any legal fiction will have to be carried to its logical conclusion. If the payment under section 2(22)(e) is treated as a deemed dividend and is required to be so treated to the extent the company possesses accumulated profits, the logical conclusion is that this payment must be considered as a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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