TMI Blog2019 (4) TMI 1906X X X X Extracts X X X X X X X X Extracts X X X X ..... leted as consequential in nature. - Decided in favour of assessee. - IT(SS) No. 142/Kol/2018 - - - Dated:- 24-4-2019 - Shri A.T. Varkey, JM And Dr.A.L.Saini, AM Assessee by : Shri S.K.Tulsiyan, Adv. ld.AR Department by : Shri A.K. Singh, CIT, ld.DR ORDER Dr. Arjun Lal Saini, AM: The captioned appeal filed by the Assessee, pertaining to assessment year 2010-11, is directed against the order passed by the Commissioner of Income-tax (Appeals)-21, Kolkata, in Appeal No. 10851/DCIT,CC-3(2)/CIT(A)-21/KOL/201718, dated 02-11-2018, which in turn arises out of an order passed by the Assessing Officer u/s 153A/143(3) of the Income-Tax Act, 1961 (in short, the Act ), dated 3112-2017. 2. Although, the appeal filed by the assessee for Assessment Year 2010-11, contains a multiple ground of appeals. However, at the time of hearing we have carefully perused all the grounds raised by the assessee. Most of the grounds raised by the assessee are either academic in nature or contentious in nature. However, to meet the end of justice, we confine ourselves to the core of the controversy and main grievances of the assessee. With this background, we summarize and concis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 10.12.2016, declaring a total income of ₹ 5,98,550/-. Thereafter, an assessment u/s 153A/143(3) of the Act was completed on 31.12.2017 assessing the total income at ₹ 56,23,550/-. In the Assessment Order, the Ld ACIT, Central Circle-3(2), Kolkata (AO) made addition u/s 68 of the Act on account of share capital, to the tune of ₹ 50,00,000/-. The assessing officer also made addition u/s 69C of the Act of alleged expenditure on commission paid to the tune of ₹ 25,000/- on account of raising the share capital. 5. Being aggrieved with the aforesaid additions made by the Ld AO, the assessee filed an appeal before the Ld CIT(A)-21, Kolkata. During the appellate proceeding before the Ld CIT(A), an exhaustive submission was filed by the assessee along with supporting details and documents in support of each claim stating the following: (a) On the basis of the search conducted on 29.05.2012, the assessee's assessment stood completed U/s 153A/ 143(3) of the Act, on 30.03.2015. (b) Again, during the course of second search operation conducted on 02.03.2016, no documents pertaining to the assessee was found and/or seized, let alone the fact as to whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eproduced below: 1.The assessee is a limited company engaged in textile business. It is one of the group companies of Banktesh Group. 2.A search and seizure operation was conducted in the case of Banktesh Group on 29/05/2012 and the assessee company was covered in the search warrant. 3.Thereafter again on 02/03/2016 a search and seizure operation was conducted in the case of Banktesh Group and the assessee company s name was covered in the search warrant. 4.Pursuant to the search operation a notice u/s 153A of the Act was issued to the assessee for A.Y. 2010-11 and in response the assessee filed the Return of Income on 10/12/2016 declaring a total income of ₹ 5,98,550/- 5.Assessment u/s 153A/143(3) of the Act was completed on 31/12/2017 assessing the total income at ₹ 56,23,550/- and raised consequential demand of ₹ 28,25,940/-. In the assessment order the ld. ACIT, Central Circle-3(2), Kolkata (A.O.) made the following additions to the assessee s income. a. Addition u/s 68 of the Act on account of share capital- ₹ 50,00,000/- b. Addition of alleged expenditure on commission paid ₹ 25,000/- For raising the share capital u/s 69 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act was submitted by the assessee company on 12.10.2010. The said Return of income of the assessee was processed under section 143(1) of the Income Tax Act, 1961, on 14.04.2011. Before us, the assessee is in appeal for assessment year 2010-11, which was completed on 14.04.2011. We note that after completion of original assessment dated 14.04.2011, for A.Y.201011, a search and seizure operation was conducted in the case of Banktesh Group on 29.05.2012 (first search) and the assessee company was covered in the search warrant, therefore, A.Y.2010-11 is an unabated assessment. Consequent upon the said search operation, assessment u/s 153A r/w 143(3) of the Act was completed on 30.03.2015 and no adverse inference was drawn in the said assessment order regarding the share capital raised during the previous year relevant to the A.Y. 2010-11. Thereafter, again on 02.03.2016, a search and seizure operation (second search) was conducted in the case of Banktesh Group and the assessee company's name was covered in the search warrant. Pursuant to the search operation, a notice u/s 153A of the Act was issued to the assessee for A.Y. 2010-11 and in response, the assessee filed the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follows: I. Section 153A of the Income-tax Act, 1961 - Search and seizure (General principles) Assessment years 2001-02 to 2003-04 and 2004-05 - High Court in impugned order held that invocation of section 153A to re-open concluded assessments of assessment years earlier to year of search was not justified in absence of incriminating material found during search qua each such earlier assessment year - Whether SLP against said decision was to be dismissed - Held, yes [Para 2] [In favour of assesse] II. Section 69 read with sections 132 and 153A, of the Income-tax Act, 1961 - Undisclosed investment (Franchise fees) - Assessment years 2001-02 to 2004-05 - During course of search, assessee made a disclosure on account of change in method of accounting of franchise fee and undisclosed franchise fees for relevant year - On basis of said statement, Assessing Officer opined that number of outlets for which franchise fee was received had more or less remained same in all assessment years from 2001-02 to 2006-07 and estimated undisclosed income at a certain percentage of amount of disclosure made by assessee in her statement under section 132(4) - High Court in impugned order held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fortified by the following judgments, wherein similar issue has been decided by holding that in case of unabated assessments, without incrementing material addition should not be made. That is, following judgments of the various judicial forums wherein it has been time and again held that where no incriminating material is found in the course of search pertaining to the assessee then it is not permissible to make addition: CIT vsVeerprabhu Marketing Ltd [73 taxmann.com 149] (Cal HC) CIT vs Kabul Chawla reported in [380 ITR 573]( Delhi HC) Jai Steel (India) Vs ACIT [259 CTR 281] (Raj HC) ChetandasLakshmandas [254 CITR 392] (Del HC) CIT Vs Continental Warehousing Corpn [58 taxmann.com 78] All Cargo Global Logistics Ltd Vs DCIT [18 ITR (Trib) 106] (Mum ITAT) LMJ International Ltd Vs DCIT [119 IT] 214] (Kol ITAT) ACIT VsPratibha Industries [141 ITD 151] (Mum ITAT) DCIT Vs Merlin Project Ltd [ITA No. 381 of 2011] (Kol ITAT) ACIT VsBudhiya Marketing Ltd [ITA No. 1545 of 2012] (Kol ITAT) BiswanathGarodia vs DCIT (76 taxmann.com 81) (Kol ITAT) 11. On similar facts, we also rely on the judgment of the coordinate Bench of ITAT, Kolkata in the case of Mrid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search operations which would have any bearing or relation to the income-tax assessment for the relevant assessment year 2010-11, hence no addition should be made. 12. We note that without prejudice to the above and on the merits as well, the ld counsel for the assessee submits that the addition of ₹ 50,00,000/- made by the Assessing Officer under Section 68 of the Income-tax Act, 1961 was unsustainable on facts and in law. During the year under consideration the assessee had received share application from 2 applicants, On reference to the assessment records of the proceedings u/s 143(3), it would be noted that in compliance to the AO's requisition, the A/R of the assessee had furnished various documentary evidences substantiating the share application monies paid by the respective share applicants. The documents so furnished inter alia included copies of share application forms, letters of allotment, copies of the relevant bank statements in respect of accounts from which share application monies were paid, PAN and address of the share subscribers for the year ended 31st March 2010. The documents furnished before the AO substantiated that each of the share applicant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany has challenged in the first place, the very usurpation of jurisdiction by ld. Principal CIT to invoke his revisional powers enjoyed u/s 263 of the Act. Therefore, first we have to see whether the requisite jurisdiction necessary to assume revisional jurisdiction is there existing before the Pr. CIT to exercise his power. For that, we have to examine as to whether in the first place the order of the Assessing Officer found fault by the Principal CIT is erroneous as well as prejudicial to the interest of the Revenue. For that, let us take the guidance of judicial precedence laid down by the Hon ble Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the CIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer s order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue. The same is reproduced as under: Summary of legal position 37.On a conspectus of Section 153A(1) of the Act, read with provisions thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i.Once a search takes place under Section 132 of the Act, notice under Section 153 A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii.Assessments and re-assessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii.The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the `total income of the aforementioned six years in separate 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 . Although Section 153 A does not say that additions should be strictly made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d fact that the documents which were seized did not establish any co-relation, document-wise, with these four Assessment Years. Since this requirement under Section 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of Section 153C of the Act. Para 9 of the order of the ITAT reveals that the ITAT had scanned through the Satisfaction Note and the material which was disclosed therein was culled out and it showed that the same belongs to Assessment Year 2004-05 or thereafter. After taking note of the material in para 9 of the order, the position that emerges therefrom is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the respondent, argued that notice in respect of Assessment Years 2000-01 and 200102 was even time barred. Support, is also drawn from the following judgments: i) BiswanathGarodiaVs.DCIT (2016) 76 taxmann. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f fact by us, we cannot term the assessment order passed by the AO u/s 153A/143(3) dated 30.03.2015 as erroneous. 57. However, we note that the ld. Principal CIT while invoking the jurisdiction u/s 263 of the Act, has taken note of the second search which happened on 02.03.2016 and has referred to the investigation carried out by the investigation wing after the second search on 02.03.2016. In this context, it would be appropriate to reproduce the again the show-cause notice issued by the Principal CIT which is as under: OFFICE OF THE PR. COMMISSIONER OF INCOME TAX, CENTRAL, KOLKATA 2 Aayakar Bhawa Poorva, 110, Shantipally, E M Bye Pass, Kolkata 700 107. F.No. Pr.CIT/Central II/KOL/263/2016-17/6186 Dated: 04/11/2016 To The Principal Officer, M/s. Cliff Trexim (P) Ltd. 57, Burtolla Street, Kolkata 700 007. Sir, Sub: Show Cause Notice u/s 263 of the I.T. Act, 1961 in the case of M/s. Cliff Trexim (P) Ltd..., (PAN-AABCC0961E) for the A.Y 2009-10. Please refer to the above. Assessment for the A.Y 2009-10 u/s 153A of the Income Tax Act, 1961 in the case of M/s. Cliff TreximPvt. Ltd. which is a part of Banktesh Group was completed on 30.03.2015 by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalyse the same, what is revealed is the following: (i) The assessment u/s 153A/143(3) against the assessee being a part of Banktesh Group for A.Y 2009-10 has been completed on 30.03.2015 by the AO. (ii) The Prin. CIT did an analysis of assessment records and he observed that in the year under consideration, i.e A.Y 2009-10, the assessee has raised share capital and premium to the tune of ₹ 10.40 crores. (iii) During the assessment proceedings, the assessee furnished the list of investors who subscribed in shares of the assessee company. (iv) The assessee furnished the supporting documents regarding share transactions of investors companies (v) But no detailed investigation was carried out at the time assessment regarding genuineness of introduction of share capital (vi) On 02.03.2016 another search was conducted against the Banktesh Group by DDIT(Investigation), Unit-2, Kolkata (vii) During the search (second search) post search investigation, it was found that accommodation entries in the form of bogus share capital have been taken by different group of companies by the said group with the help of accommodation entry operators and that the allottee co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of assessment records and he observed that in the year under consideration, i.e A.Y 2009-10, the assessee has raised share capital and premium to the tune of ₹ 10.40 crores. (iii)During the assessment proceedings, the assessee furnished the list of investors who subscribed in shares of the assessee company. (iv) The assessee furnished the supporting documents regarding share transactions of investors companies (v) But no detailed investigation was carried out at the time assessment regarding genuineness of introduction of share capital 60. From a perusal of the above facts reveal that ld. Principal CIT is finding fault with the AO in not conducting detailed enquiry about the share capital introduced into the assessee company. Though in the same breath, the Principal CIT admits that assessee has produced all relevant documents before the AO in respect to the share capital. However, the ld. Principal CIT missed the most important fact that A.Y 200910 was not pending before the Assessing Officer on the date of first search on 29.05.2012, so it is an unabated assessment and the AO could have only reiterated the assessment crystallized as per intimation forwarded by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are bogus and non-existing. (viii).The statement of entry operators were also recorded during search and seizure operation which confirmed the finding of the investigation wing that in lieu of commission they provided accommodation entry in the form of share capital/premium to the Banktesh Group of Companies (ix).In view of the aforesaid facts, the Pr. CIT is of the view that assessment completed on 30.03.2015 may be erroneous in so far as it is prejudicial to the interest of the Revenue. 63. From the reading of the aforesaid facts taken note by the Principal CIT, it is evident that the sheet anchor on which the Principal CIT based his foundation to find fault with the Assessing Officer is emanating from the second search which happened on 02.03.2016 based on which investigation report has been made wherein the share capital raised by the assessee company for Assessment Year 2009-10 is under suspicion/cloud. So, the Principal CIT refers to the second search which happened on 02.03.2016 and the investigation report thereafter made by the investigation wing which is subsequent and obviously a development after framing the assessment order by the Assessing Officer dated 30.03 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 15.03.2017 being ab initio void. 66. Before we part, we would like to address the contention of ld. CIT (DR), that since intimation u/s 143(1) was only issued by the Department in this case, it cannot be viewed that the assessment was unabated on the date of search. We note that the very same issue was before the Hon ble Delhi High court in Kabul Chawla (supra) wherein also the issue of 143(1) intimation and the expiry of time to issue 143(2) notice by Assessing Officer before the date of search was also adjudicated and thereafter only the law was laid down by the Hon ble High Court of Delhi, so the issue raised by the ld. CIT(DR) is no longer res integra and therefore, has no merit. The Hon ble Calcutta High court s order in Tata Metaliks Ltd. is distinguishable on facts and pertained to filing of revised return of income in cases where assessee received intimation u/s 143(1) of the Act and is not in conflict with the view of Hon ble Delhi High Court in Kabul Chawla (supra) which is on 153A proceedings after search is conducted by the Department. 67. Moreover, it has to be remembered that Principal CIT cannot do indirectly what he could have done directly. The said pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o material found in the course of search. Since no material whatsoever was found in the course of search, the question of allowing additional depreciation or not could not have been subject matter of proceedings u/.s.153A of the Act. Consequently, the CIT in exercise of his powers u/s 263 of the Act ought not to have or could not have directed examination of the said issue afresh by the Assessing Officer. Thus ground no.1 raised by the assessee is allowed. The proceedings u/s 263 of the Act is accordingly quashed. In view of the above conclusion, the other ground of appeal raised bythe assessee does not require any consideration. 18.In the result, appeal of the assessee is allowed. 68. Since, we have quashed the Section 263 proceedings; therefore, we are not adjudicating the other arguments of the ld. AR. 69. In the result, these three appeals of the assessee s are allowed. 14. Therefore, based on the facts and legal precedents explained above, undisputedly, the assessment year under question i.e. Assessment Year 2010-11 which was not pending before the Assessing Officer on the date of search on 29.05.2012 (first search), it was also not pending on the date of second ..... X X X X Extracts X X X X X X X X Extracts X X X X
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