M/s. Garg Brothers Pvt. Ltd. Vs DCIT (ITAT Kolkata)
Hon’ble ITAT held that In respect of assessments completed prior to date of search that have not abated, the scope of proceedings under section 153A of Income Tax Act, 1961 has to be confined only to material found during search. As no material, whatsoever, was found in the course of search, question of making addition on account of unexplained share capital could not have been the subject-matter of proceedings under section 153A.
FULL TEXT OF THE ITAT JUDGMENT
The captioned three appeals filed by the different assessee’s involving common issues and all appeals pertaining to Assessment year 2009-10, are directed by the orders passed by the Principal Commissioner of Income Tax u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’). By way of these appeals, these assessee’s have challenged the correctness of the order passed by the Commissioner of Income Tax, dated 15.03.2017 exercising the jurisdiction u/s 263 of the Act.
2. At the outset it has been brought to our notice that there is a delay of 211 days in filing these appeals. The assessee’s have moved a condonation petition before the Tribunal to condone the aforesaid delay. The ld. Counsel for the assessee, Shri S.K. Tulsiyan, has submitted before us that these assessee’s are not much aware of the intricacy of income tax and thus, used to rely on the expert advice rendered by their Tax Consultants. Later, on an advice from a senior lawyer, the assessee’s came to know that the order of ld. Principal CIT u/s 263 of the Act is appealable before the Tribunal. Since, their earlier Authorized Representative/Tax Consultants had not intimated the assessee’s about future course of action which needs to be taken against the said order u/s 263 of the Act, the assessee’s did not prefer an appeal before the Tribunal. On advice from a senior lawyer, the assessee’s came to know that the order u/s 263 is appealable and thereafter the assessee’s handed over the relevant records to the senior lawyer who prepared the necessary documents for filing the appeal against the order u/s 263 and therefore, there was a delay about 211 days.
The ld. DR opposed the admissions of appeal. According to him, Ignorantia juris non excusat” i.e. ignorance of law is not an excuse. According to ld. CIT-DR, the assessee should be vigilante and law does not help sleeping person. So he does not want us to condone the delay.
3. We have heard both the parties on this preliminary issue. Having regard to the reasons given in the application for condonation of delay, we are of the considered opinion that assessee was under a bona fide belief that the impugned order of Pr. CIT was not appealable before this Tribunal, since they were not advised by their Tax Consultants about this legal right. Later on, when a Senior Lawyer advised them to file an appeal, the assessee’s immediately took steps to file the appeals. Therefore, the delay caused, we note, was because of the wrong advice of the Tax Professional, for which assessee’s cannot be penalized. For the ends of justice, we condone the delay and admit the appeal for hearing.
4. These three appeals filed by the different assessee’s emanate from a common search conducted at their premises, involves common and identical issues, therefore, appeals have been heard together and are being disposed of by this consolidated order. For the sake of convenience, since facts remain similar and the grounds are identical, we take ITA 2520/Kol/2017 i.e. M/s Cliff Trexim Pvt Ltd,as lead case for deciding the above appeals en masse.
5. The grounds of appeal raised by the assessee in the lead case (ITA No.2520/Kol/2017) are as follows:
1. That on the facts and in the circumstances of the case, the Ld. Pr. CIT having derived satisfaction on the basis of information received from the DDIT (Inv), Unit-2(2),Kolkata and not from the record as envisaged u/s.263 of the Act, the impugned order of the A.O. passed u/s. 153A/143(3) of the Act could not have been declared erroneous and prejudicial to the interest of revenue.
2. That the action of the Ld. Pr. CIT in invoking jurisdiction u/s.263 by alleging that the O. failed to carry out necessary enquiry and investigation in regard to the share capital is devoid of merit inasmuch as the impugned assessment pertains to unabated assessment of the appellant.
3. That there being no incriminating material discovered pursuant to search in this case and as per proviso 2 to sec. 153A the assessment in this case was not pending, the Ld. Pr. CIT erred in alleging that the A. O. failed to carry out necessary enquiry and investigation in relation to the return which pertained to material already on record.
4. That the Ld. Pr. CIT under wrong notion has invoked provisions of sec.263 of the Act without considering that during search operation u/s. 132 on two occasions, nothing incriminating was found and the impugned assessment u/s. 153A/143(3) of the Act was made by the A.O. after making due verification and after being satisfied with the complete details and authentic documents of the share capital filed by the
5. That the impugned order passed by the A. O. originally being neither erroneous nor prejudicial to the interest of the revenue, the Ld. Pr. CIT wrongly invoked jurisdiction by making allegation which is not supported by any evidence or by law.
6. That, therefore, as the assessment order passed by the A.O. u/s. 153A/143(3) of the Act is neither erroneous nor prejudicial to the interest of the revenue as there is no loss of revenue, the impugned order u/s.263 of the Act of the Ld. Pr. CIT directing to reframe the assessment as per his guidelines on the same set of facts and evidence on record being devoid of any merit and bad in law is liable to be quashed and the appellant be given such relief(s) as prayed for.
7. That, the appellant craves leave to amend, alter, modify, substitute, add to, abridge and/ or rescind any or all of the above grounds.”
6. By raising the aforesaid Ground Nos. 1 to 6, the assessee have challenged the jurisdiction of the Principal CIT u/s 263 of the Act to interfere in the order passed by the Assessing Officer u/s 153A r.w. section 143(3) of the Act. The brief facts apropos the aforesaid issue are that a search and seizure operation under the provisions of section 132(1) of the Act was conducted on Banktesh Group on 29.05.2012 and subsequent dates. The assessee’s are part of the Banktesh Group. In the instant lead case, the assessee filed its return of income for A.Y 2009-10 u/s 139 of the Act on 25.09.2009 showing total income of Rs.4,28,560/-. A notice u/s 153A of the Act was issued on the assessee on 25.06.2014 calling for filing return of income. In response to such notice, the assessee filed its return of income u/s 153A of the Act on 15.12.2014 declaring total income of Rs.4,28,560/-. The assessment was completed on 30.03.2015 at total income of Rs.7,73,840/-.
7. Thereafter, the ld. Principal CIT found fault with the assessment order passed by the AO, by taking note that accommodation entries in the form of bogus share capital have been taken by different assessee’s of the said group with the help of different accommodation entry operators. According to him during search conducted on 02.03.2016, entry operators have confirmed that the allotment of shares made by the above assessee amounting to Rs.10.40 crores on 31.09.2009 is one of the transactions found as accommodation entry. According to ldPr CIT, the allottee companies were found to be bogus and non-existing and the entry operators admitted to have provided accommodation entry in the form of share capital/premium to the Banktesh Group of companies in lieu of commission. Therefore, the ld. CIT issued a show-cause notice u/s 263 of the Act dated 09.11.2016 asking the assessee to show-cause as to why the assessment order passed on 03.2015 u/s 153A/143(3) should not be treated as erroneous in so far it is prejudicial to the interest of the Revenue as per the provisions of section 263 of the I.T. Act.
8. In response to the show-cause notice, the assessee filed written submissions before the ld. Principal CIT and submitted the documents which were submitted by the assessee before the AO in the assessment proceedings u/s 153A of the Act. The assessee submitted that during the assessment proceedings, the assessee has submitted bank statements, balance sheet, Profit & Loss A/c, Income Tax Return Acknowledgement, source of funds for two layers. During the proceedings before the ld. Principal CIT the assessee submitted that during the course of search action conducted on 02.03.2016 and also the earlier search action conducted 29.05.2012, in all the search actions, the Department did not find a single document from the premises of the assessee group evidencing that the assessee had in fact, paid cash for raising share capital. The assessee also submitted before the Pr. CIT that except the statement of some of the alleged accommodation entry operators, the investigation wing does not have a single document under its possession to prove its allegation that the share capital raised by the assessee company is accommodation in nature. Therefore, the assessee pleaded before the ld. Principal CIT that the order passed by the AO u/s 153A is neither erroneous nor prejudicial to the interest of the Revenue.
9. However, the ld. Principal CIT, having gone through the reply of the assessee held that AO failed to conduct detailed investigation about the identity, genuineness and credit worthy of the shareholders. According to him, the genuineness of the investment has to be examined in detail to the extent that the shareholders have invested the money and the corporate veil be Therefore, the ld. Principal CIT rejected the contention of the assessee and held that order passed by the AO dated 30.03.2015 for A.Y 2009-10 is erroneous and prejudicial to the interest of Revenue and, therefore, he directed the AO to make necessary examination on the issue and pass a fresh assessment order.
10. Not being satisfied with the order of the ld. CIT(A), the assessee is in appeal before us.
11. The ld. Senior Counsel assailing the decision of ld. Principal CIT drew our attention to show-cause notice (SCN) issued by the ld. Principal CIT dated 04/09.11.2016 and stated as under:
“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 DCIT, Central Circle 3(2), Kolkata.
On analysis of assessment records, it is observed that in the year under consideration, the assessee raised share capital and premium to the tune of Rs. 10.40 crore. During the assessment proceeding, the assessee furnished the list of investors who subscribed in shares of the assessee company. The assessee furnished the supporting documents regarding share transactions of investor companies. But no detailed investigation was carried out at the time of assessment regarding genuineness of introduction of share capital.
Meanwhile a search operation against Banktesh group was once again conducted on 02.03.2016 by DDIT(lnv.), Unit 2(2),Kol. During the course of 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 different known accommodation entry operators. The allotment of shares made by the above assessee amounting to Rs. 10.40 crore. On 31.09.2009 is one of the transactions found as accommodation entry by the Investigation wing. The allottee companies were found to be bogus and non-existing. The statements of entry operators were also recorded during the search & seizure operation which confirmed the findings of the Investigation Wing. The entry operators admitted to have provided accommodation entry in the form of share capital/premium to the Banktesh Group of Companies in lieu of commission.
In view of the above discussion, the assessment completed on 30.03.2015 may be erroneous in so far as it is prejudicial to the interest of the revenue.
You are, therefore, requested to show cause as to why the Assessment Order passed on 30.03.2015 u/s. 153A by the DCIT, Central Circle 3(2), Kolkata should not be treated as erroneous in so far as it is prejudicial to the interests of the revenue as per the provisions of sec.263 of the Income Tax Act.”
12. The ld. Counsel for the assessee drew our attention to following facts which are undisputed and important to adjudicate the issue.
1. Search & seizure operation u/s 132 was conducted on 29.05.2012 on Benktesh group and nothing incriminating was found.
2. Consequent upon the said search, the A. O initiated 153A proceeding on the appellant-company for A. Y 2009-10, which was an unabated year. He was thus not required to investigate further in relation to this unabated year when nothing incriminating document was found/seized. Assessment order u/s 153A/143(3) was passed on 30.03.2015.
3. Ld. Pr. CIT based upon information received from DDIT(Inv.), Kolkata consequent upon search action u/s 132 carried on Banktesh Group on 02.03.2016 and seizure of some documents, issued SCN u/s 263 of the Act (placed at Pages 17 & 18 of the P/B) as to why assessment order for A. Y 2009-10 (unabated year) should not be set aside for de novo assessment.
13. The ld. Counsel pointed out that the sole satisfaction behind SCN was that during search conducted on 02.03.2016 on Banktesh group and investigation it was found that accommodation entries in the form of bogus share capital have been taken by the group companies with the help of different known accommodation entry operators and one of such accommodation entries were allotment of shares of Rs.10.40 crores by the appellant-company. It was further alleged in the SCN that statements recorded from the entry operators during search operation also confirmed the said position.
14. In this connection, it is submitted by the AR that a show-cause notice must be accompanied with the material on which the opinion of the authority (Ld. Pr. C.I.T.) is based. Further, such SCN should have documents on the basis of which the Ld. Pr. C.I.T. has arrived at the conclusion that the assessment order u/s.153A/143 of the Act for unabated A.Y. 2009-10 was erroneous and prejudicial to the interests of revenue. Absence of these two ingredients and/or components is a gross violation of principle of natural Furthermore, mention of the reasons for issuing SCN in the subsequent order passed uls.263 of the Act is of no use/avail. The reasons backed by details and evidences are required to be mentioned in the SCN itself so as to offer opportunity to the noticee to meet up the case and serve the purpose of the appellant-noticee.
15. According to ld. Counsel a reading of SCN, it is quite evident that none of the aforesaid conditions precedent for issuing SCN is existing in this case. Nothing particular has been mentioned on whom search and investigation was carried out. There is no whisper about identity of such entry operators who allegedly admitted to have provided accommodation entries to Banktesh group, including the appellant-company. No report of the Investigating Wing and alleged statement of the so-called entry operators were provided to the appellant to ensure authentication of documents collected at the back of the appellant. As a corollary, the appellant was denied to have any opportunity to cross-examine such deposed persons, whose statements were out rightly used against the appellant. Therefore, the whole exercise of the Ld. Pr. C.I.T. in having invoked jurisdiction u/s.263 of the Act is bereft of principle of natural justice.
16. Our attention was drawn to the decision of Hon’ble Allahabad High Court in the case of Vijay Kumar Sharma vs. Appropriate Authority (1996) 220 ITR 509 (AII). In that case, the notice issued by the Appropriate Authority did not refer to the material on which opinion was formed nor any document whatsoever was annexed to the SCN. It was thus held as under:
“Held, on the facts, that the notice did not state that in the opinion of the appropriate authority, the fair market value of the property in question was 15 per cent more than the apparent consideration mentioned in the agreentent to sell between the parties nor did it refer to the material on which such an opinion was formed. No document whatsoever was annexed to this show-cause notice. The notice was not valid. Moreover, the adjournment of the hearing for a very short period and the change of venue of hearing to Lucknow without giving the petitioner sufficient time to make travel arrangements and in disregard of the fact that the petitioner had applied for the earlier adjournment on the ground of illness depicted a complete disregard of the principles of natural justice. The period of limitation prescribed by section 269UD had expired. This was not a fit case for remand. The proceedings were liable to be quashed.”
17. It was brought to our notice that on further reference to the Hon’ble Apex Court by the Appropriate Authority, the Hon’ble Apex Court in their judgment reported in (2001) 249 ITR 554 (SC) affirming the judgment of Hon’ble Allahabad High Court held that a SCN must be accompanied with the material on which the opinion of the said authority is based. Further the same should have documented on the basis of which the said authority has arrived at any conclusion. Absence of these is a gross violation of natural justice. The order pronounced, to quote, is as under:
“There has been so gross a breach of principles of natural justice in this case that the High Court (see [1996 (220 ITR 509 (All)], was right in setting aside the order on that count and not giving consideration to remitting the matter.” [Emphasis given]
18. Attention of ours was drawn to the decision of ITAT, Delhi in the case of Cargill India Pvt. Ltd. vs. DCIT (2008) 300 ITR (AT) 223, wherein at pages 52 & 53 of the Report it has been held as under:
“122. We further find substance in the arguments of learned counsel for the assessee that not only notices as above were vague, non-specific and showed lack of application of mind, even the show-cause notice issued under section 271 G suffered from the same defect. No specific clause of the rule or detail of the international transaction relating to which default was committed, were stated in the show-cause notice issued by the Assessing Officer. The notices issued were prima facie illegal and bad in law. He relied upon the decision in the case of Reckitt and Colman of India Ltd. [1996] 88 ELT 641 (SC) and on the case of Hindustan Polymers Co. Ltd. [1999] 106 ELT 12. In the case of Amrit Foods v. CCE [2006] 6 RC 435; [2005] 190 ELT 433 (SC) wherein their Lordships observed as under (page 438 of 6 RC) :
“The Revenue has preferred an appeal from the order of the Tribunal setting aside the imposition of penalty under rule 1 73Q of the Central Excise Rules, 1944. The Tribunal has set aside the order of the Commissioner on the ground that neither the show-cause notice nor the order of the Commissioner specified which particular clause of rule 1 73Q had been allegedly contravened by the appellant. We are of the view that the finding of the Tribunal is correct. Rule 1 73Q contains six clauses the contents of which are not same. It was, therefore, necessary for the assessee to be put on notice as to the exact nature of contravention for which the assessee was liable under the provisions of rule 1 73Q. This not having been done the Tribunal’s finding cannot be faulted. The appeal is, accordingly, dismissed with no order as to costs.”
123. In the above case the apex court held that if allegations in the show cause notice are not specific and are vague, lacks details and/or unintelligible, that is sufficient to hold that noticee was not given proper opportunity. Such notice was struck down. The cited decisions are applicable to the facts of the case and arguments of Shri Agarwal are well taken. As a penalty of 2 per cent, is imposable under section 271 G in respect of international transaction, it was necessary to specify in the show-cause notice under section 271 G, the international transactions or the documents/information with reference to which the taxpayer committed the default by failing to furnish the requisite information in time. This would enable him to file a proper reply in defence. Without detail of default, no adequate reply could be furnished. The contention of the learned Departmental representative that specific clauses of rule 10D(1) under which information was not furnished within time and default was committed were mentioned in the penalty order is of no avail. The mention of the above detail in the order is of no use. The details were required to be mentioned in the show cause notice so as to afford reasonable and adequate opportunity to the assessee to meet out the case and serve the purpose of the notice. For the above defect also, the penalty proceedings are held to be vitiated and liable to be cancelled.” [Emphasis ours]
19. According to AR, a perusal of the above decisions including that of the Hon’ble Apex Court, which is law of the land, brings out the necessary requirements of a valid SCN and the same are in equal force applicable to the facts and circumstances of the instant case of the appellant. To sum up, these are –
