Case Law Details
DCIT Vs Avinash Singla (ITAT Chandigarh)
ITAT Chandigarh held that treating capital gains earned on sale of shares as bogus merely on the basis of warning letter of SEBI without any incriminating material found during course of search demonstrating transaction as bogus is unjustified. Accordingly, appeal of revenue dismissed.
Facts- During course of search a warning letter from SEBI was found, wherein, SEBI has apprised that Assessee had received share of Turbotech Engineering Ltd. in-off market from entities connected to the company and sold these shares in the on-market. The prices of these shares have been manipulated, therefore, assessees are warned to be careful in future to avoid recurrence of such instances. AO was of the view that this letter do indicate that these are the shares whose prices were manipulated by certain professionals and, therefore, capital gains earned on the transactions of these shares deserves to be treated as bogus and required to be added as an income of the Assessee.
CIT(A) deleted all the additions. Being aggrieved, revenue has preferred the present appeal.
Conclusion- Held that during the course of search details regarding alleged transactions of penni stock was not found. The Department was only able to lay its hands on the letter of SEBI which was missing in the case of Smt. Meenu Singla. The Assessing Officer, thereafter, he himself has not cross verified anything. He only followed some information available on the portal of the Revenue without cross verifying any circumstance. The ld. CIT(A) appreciated the controversy in right prospective and rightly concluded that during the search no incriminating material was found demonstrating the alleged transactions as a bogus one. In view of above discussion, we do not find any merit in these appeals and they are dismissed.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
The present three appeals are directed at the instance of the Revenue against the separate orders of ld. CIT(A) dated 6.10.2023, 6.10.2023 passed in the case of Shri Avinash Singla for A.Y. 2013-14 and 2014-15 and dated 14.08.2023 passed in the case of Smt. Meenu Singla for A.Y. 2014-15. The issues agitated in all these appeals are common. Therefore, we heard them together and deem it appropriate to disposed off them by this common order.
2. That before proceedings to take note of brief facts, it is pertinent to mention that ITA No. 15 of 2024 in the case of Meenu Singla is time barred by 62 days. In order to explain the delay, Revenue has filed an Application pleading therein that the additions deleted by ld. CIT(A) was of Rs. 37,96,083/- being sale consideration of the shares and Rs. 1,89,804/- as unexplained commission expenses on which tax effect is less than Rs. 50 lacs and, therefore, it was thought that no appeal is required to be filed before the Tribunal. However, when appeal of Shri Avinash Singla in A.Ys. 2013-14 and 2014-15 were examined for filing then, it revealed that though tax effect in those appeals is also less than Rs. 50 lacs but the issues fall within the exemption clause of tax effect Circular. This was by way of a Misc. letter dated 16.09.2019 issued by CBDT. This letter was not within the knowledge of the Assessing Officer in the beginning but while examining the case of other assessee it came to his notice. Due to this reason, the appeal could not be filed well in time.
4. With the assistance of the ld. Representatives we have gone through the record carefully.
5. Sub-section 5 of Section 253 contemplates that the Tribunal may admit an appeal or permit filing of memorandum of cross- objections after expiry of relevant period, if it is satisfied that there was a sufficient cause for not presenting it within that period. This expression sufficient cause employed in the section has also been used identically in sub-section 3 of section 249 of Income Tax Act, which provides powers to the Commissioner to condone the delay in filing the appeal before the Commissioner. Similarly, it has been used in section 5 of Indian Limitation Act, 1963. Whenever interpretation and construction of this expression has fallen for consideration before Hon’ble High Court as well as before the Hon’ble Supreme Court, then, Hon’ble Court were unanimous in their conclusion that this expression is to be used liberally. We may make reference to the following observations of the Hon’ble Supreme court from the decision in the case of Collector Land Acquisition Vs. Mst. Katiji & Others, 1987 AIR 1353:
1. Ordinarily a litigant does not stand to benefit by lodging an appeal late.
2. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this when delay is condoned the highest that can happen is that a cause would be decided on merits after hearing the parties.
3. “Every day’s delay must be explained” does not mean that a pedantic approach should be made. Why not every hour’s delay, every second’s delay? The doctrine must be applied in a rational common sense pragmatic manner.
4. When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay.
5. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk.
6. It must be grasped that judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so.
6. Similarly, we would like to make reference to authoritative pronouncement of Hon’ble Supreme Court in the case of N. Balakrishnan M. Krishnamurthy (supra). It reads as under:
“Rule of limitation are not meant to destroy the right of parties. They are meant to see that parties do not resort to dilatory tactics, but seek their remedy promptly. The object of providing a legal remedy is to repair the damage caused by reason of legal injury. Law of limitation fixes a life-span for such legal remedy for the redress of the legal injury so suffered. Time is precious and the wasted time would never revisit. During efflux of time newer causes would sprout up necessitating newer persons to seek legal remedy by approaching the courts. So a life span must be fixed for each remedy. Unending period for launching the remedy may lead to unending uncertainty and consequential anarchy. Law of limitation is thus founded on public policy. It is enshrined in the maxim Interest reipublicae up sit finislitium ( it is for the general welfare that a period be putt to litigation). Rules of limitation are not meant to destroy the right of the parties. They are meant to see that parties do not resort to dilatory tactics but seek their remedy promptly. The idea is that every legal remedy must be kept alive for a legislatively fixed period of time. A court knows that refusal to condone delay would result foreclosing a suitor from putting forth his cause. There is no presumption that delay in approaching the court is always deliberate. This Court has held that the words ” sufficient cause” under Section 5 of the Limitation Act should receive a liberal construction so as to advance substantial justice vide Shakuntala Devi lain Vs. Kuntal Kumari [ AIR 1969 SC 575] and State of West Bengal Vs. The Administrator, Howrah Municipality [AIR 1972 SC 749]. It must be remembered that in every case of delay there can be some lapse on the part of the litigant concerned. That alone is not enough to turn down his plea and to shut the door against him. If the explanation does not smack of mala fides or it is not put forth as part of a dilatory strategy the court must show utmost consideration to the suitor. But when there is reasonable ground to think that the delay was occasioned by the party deliberately to gain time then the court should lean against acceptance of the explanation. While condoning delay the Could should not forget the opposite party altogether. It must be borne in mind that he is a looser and he too would have incurred quiet a large litigation expenses. It would be a salutary guideline that when courts condone the delay due to laches on the part of the applicant the court shall compensate the opposite party for his loss”.
7. We do not deem it necessary to re-cite or recapitulate the proposition laid down in other decisions. It is suffice to say that the Hon’ble Courts are unanimous in their approach to propound that whenever the reasons assigned by an applicant for explaining the condonation of delay, then such reasons are to be construed with a justice oriented approach.
8. In the light of the above, if we have examine the facts of the present case than it would reveal that there was no deliberate attempt at the end of ld. DCIT to make this appeal time barred. It was not a deliberated strategy for litigating the issue in the Due to some bona fide lapse, the ld. Assessing Officer failed to take note of the subsequent Board’s Circular which provided that in case of penni stock, tax effect circular will not be applicable. Therefore, we condone the delay and proceed to decide the appeals on merits.
9. The facts on all vital points are common in all the three years, rather, order of ld. CIT(A) is verbatim same except variation in the dates and quantum of the additions. Therefore, for the facility of reference, we are taking up facts from ITA No. 814/Chd/2023, i.e., in the case of Shri Avinash Singla.
10. A perusal of the grounds of appeal would reveal that Revenue has taken six grounds in each appeal, however, perusal of these grounds would reveal that they are not in consonance with Rule 8 of ITAT They are descriptive and argumentative in nature. In brief, common issue involved in these appeals is :
Whether capital gains earned by the assessees / respondents on sale of shares of Turbotech Engineering Ltd. deserves to be treated as bogus in assessment orders passed u/s 153A of the Income Tax Act.
11. The brief facts of the case are that a search and seizure operation was conducted in the cases of AFI group of companies and residential premises of both the assesses was covered under the search. The search was conducted on 04.2018. Thereafter, Assessing Officer issued has notices u/s 153A of the Income Tax Act to both the assessees on 27.01.2020. Smt. Meena Singla had filed her original return u/s 139(1) on 31.07.2014. In response to the notice u/s 153A, she has again filed her return of income on 15.02.2020. The income was declared at the same figure, i.e., Rs. 5,48,420/-.
12. Shri Avinash Singla has filed his original return of income for A.Y. 2013-14 on 11.02.2014 declaring total income of Rs. 7,34,020/-. This return was filed u/s 139(4) of the Income Tax Act. Same very income has been declared by the Assessee in the return filed in response to the notice u/s 153A. In A.Y. 2014-15, he has filed return of income u/s 139(4) on 05.01.2015 declaring total income of 5,98,810/- and same figure has been declared in a return filed on 20.02.2020 in response to notice u/s 153A of the Income Tax Act.
13. The Assessing Officer had issued notices u/s 143(2) and thereafter made a reference to page 11 of Annexure A seized during the course of search, which has been reproduced by the Assessing Officer at page 3 as well as by ld. CIT(A). This Annexure is a letter written by SEBI to Avinash Kumar. The SEBI has apprised that Assessee had received share of Turbotech Engineering Ltd. in-off market from entities connected to the company and sold these shares in the on-market. The prices of these shares have been manipulated, therefore, assessees are warned to be careful in future to avoid recurrence of such instances. The Assessing Officer was of the view that this letter do indicte that these are the shares whose prices were manipulated by certain professionals and, therefore, capital gains earned on the transactions of these shares deserves to be treated as bogus and required to be added as an income of the Assessee. In response to the show cause notice to the Assessee, the Assessee has filed all documentary evidence, i.e., contract note, purchase note and how sale price was received by assessees through banking channels. The Assessee further submitted that in all these years returns were filed long back, time limit to issue notice u/s 143(2) was expired and no notice was issued by the Department. During the course of search no material was found with regard to these shares. Nor Assessing Officer has conducted any enquiry for doubting the evidence submitted by the Assessee. He simply harping on the information available in the portal of the Revenue. The Assessing Officer himself not cross verified any of the details. Simply, he has accepted those informations available with the Revenue as a gospel truth and disbelieve the version of the Assessee.
14. The ld. CIT(A) has gone through the record carefully and deleted all the additions by recording following For the facility of reference, we take note the findings of the CIT(A) from ITA No. 814/Chd/2023, as under:
“6.2.2 I have carefully considered the submissions of the appellant, assessment order, facts of the case and legal position. Before proceeding further, it is very important to analyze and understand the meaning of the term ‘incriminating material’ and position of law on assessment u/s 153A/153C cases. Now this issue of scope of assessment u/s 153A of the Act has been decided by the Hon’ble Supreme Court in the case of PCIT Central-3 vs. Abhisar Build well Pvt. Ltd. Reported at 150 Taxmann.com 257 (SC) (2023) wherein, it has been held by the Hon’ble Court as under:
“14. In view of the above and for the reasons stated above, it is concluded as under:
i) That in case of search under Section 132 or requisition under Section 132A, the O. assumes the jurisdiction for block assessment under section 153 A;
ii) All pending assessments/reassessments shall stand abated;
iii) In case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the ‘total income’ taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and
iv) In case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132A of “the Act, However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under Sections 147/148 of the Act, subject to fulfillment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved.
The question involved in the present set of appeals and review petition is answered accordingly in terms of the above and the appeals and review petition preferred by the Revenue are hereby dismissed. No costs.”
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Section 150, read with sections 148 and 153A, of the Income- tax Act, 1961 – Income escaping assessment – Assessment in pursuance of an order of appeal, etc. (Review) – CIT v. Abhisar Buildwell (P.) Ltd. [20231 149 taxmann.com 399 (SC) and submitted that waiver of limitation as stipulated in section 150(2) was to be read in respect of date of issue of notice for reassessment under section 148 and that even though appeals of revenue were dismissed in respect of assessments passed under 153A and 153C. in respect of such income which was found to have escaped assessment other than through incriminating material, Assessing Officers would be entitled to reassess such income in terms of section 147/148 read with section 150 – However, prayers sought could be said to be in form of review which would require detail consideration at length looking into importance of matter – Whether therefore, present application in form of clarification was not to be entertained and revenue was to be relegated to file an appropriate review application seeking reliefs which were sought in present application – Held, yes”
6.2.3. Further, in the case of UK Paints (Overseas) Ltd. Reported at TS-229-SC-2023, this view has been
6.2.4. Therefore, now in view of the binding judgment of above judgment of Hon’ble Supreme Court, it is now settled that assessment in search cases u/s 153A or 153C can be made only if there is incriminating material found during search. Therefore, moot question is whether there is any incriminating material found during search in present case. It has been observed that there is single document which is the basis of entire proceedings and the addition. This paper is reproduced as under:-
“Securities and Exchange Board of India
ASSISTANT MANAGER
Investigations Department
January 20, 2018
AVINASH KUMAR
No. 521, Sector 38B Chandigarh, Sector 36, Po Chd Chandigarh, Near Gugamadi
Mandir, Chandigarh India 160038
Sir/Madam,
Sub: Investigation in the trading activities of certain entities in the scrip of Turbotech engineering Limited ( 03 cases)
1. It was observed that you had received share of Turbotech Engineering Limited (“company”) in off- market from entities connected to the company and sold shares in the on-market, being counter party to the trade/s of entity/ies connected to the company who manipulated the price of the captioned scrip during the period October 18, 2012 – June 17,2013.
2. The above matter has been viewed seriously and you are hereby warned to be careful in future to avoid recurrence of such instances.
Sd/-
Kiran Chandrakant Sewant
6.2.4.1 On carefully considered this paper, following facts become clear:
(i) This letter of the SEBI is in the nature of letter giving information/warning/ contract to the investor of the company M/s. Turbotech Engineering Ltd. that investigation has been started for share price manipulation during the period 18/10/2012 to 7/06/2013 by the company.
ii) This letter, by its nature, is a caution letter to the investor to be careful in future in details with this scrip. The SEBI has the rights well as duty to protect interest of the investment. This letter is in the direction of such effort.
(iii) This letter is not a confidential letter and therefore must be available in the public domain.
(iv) This letter is dated 29/01/2018, which is much beyond the present AY i.e. AY 2013-14 & 2014-15.
(v) This paper does qualify as incriminating material by the appellant as the transaction has been disclosed in his books of accounts/return of income.
(vi) This paper does not indicate whether the appellant was involved in any price manipulation and whether there was any transaction of giving cash and obtaining It does not speak of any middleman, any broker any other entity involved in these transactions.
6.2.5. To summarize, the basic test of any document being qualified to be incriminating is that it must have some indication of undisclosed transaction/activity, which is not reflected in the books of account or return of income of the person. As discussed above in the point no. (i) to (vi), this document cannot be said to be incriminating document. Therefore, any addition on the basic of this document, which is not incriminating, cannot be sustained in view of the law laid down by the Hon’ble Supreme Court in the case of PCIT, Central-3 vs Abhisar Buildwell Pvt. Ltd. reported at 150 Taxmann.com 257 (SC) (2023). Therefore, no addition treating this transaction as bogus, as well as unexplained expenditure on commission for arranging this transaction (Rs. 24,05,283/- and Rs. 1,20,264/-) cannot be sustained and hence deleted.
6.3 Grounds of Appeal Nos. 5 to 12: Since the addition has been deleted on legal grounds i.e. ground of appeal no. 4, other grounds become infructuous and academic in nature. Hence, require no further adjudication.
7. In the result, appeal is allowed.
15. With the assistance of the ld. Representatives we have gone through the record Admittedly, nothing was found during the course of search except a warning letter from the SEBI reproduced in the findings of the CIT(A). This letter in itself does not exhibit that anything which is relevant for the assessment of the income of the Assessee. It is just a caution to the Assessee for avoiding any transaction with such type of shares. It is an apprehension that this company might be involved in manipulating the price of its shares but concretely it does not provide the transactions of the Assessee are are to be treated as bogus. Apart from the above, it is penitent to note that while construing the scope of section 153A, Hon’ble Delhi High Court has propounded following proposition:-
CIT vs. Kabul Chawla 61 taxman.com 412
19. The Hon’ble Delhi High Court after considering host of decisions propounded following propositions in the concluding paragraph of the judgment, which read as under:-
“Summary of the legal position
37. On a conspectus of Section 153A(1) of the Act, read with the provisos 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 reassessments 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 The AO has the power to assess and reassess the ‘total income’ of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs “in which both the disclosed and the undisclosed income would be brought to tax”.
iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment “can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized “
v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be The word ‘assess’ in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word ‘reassess’ to completed assessment proceedings.
vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the
vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.
Conclusion
38. The present appeals concern AYs, 2002-03, 2005-06 and 2006-07. On the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed.
39. The question framed by the Court is answered in favour of the Assessee and against the Revenue.
40. The appeals are accordingly dismissed but in the circumstances no orders as to costs”.
20. This judgment and other judgments on this school of thought have fallen for consideration of the Hon’ble Supreme Court, in the case of CIT vs. Abhisar Buildwell 149 taxmann 399 who concurred with the Hon’ble Delhi High Court as well as Hon’ble Gujrat High Court in PCIT vs. Somya Construction Tax appeal No. 1010 of 2017 . The relevant part of the finding of the Hon’ble Supreme Court in this aspect reads as under:-
“11. As per the provisions of Section 153A, in case of a search under Section 132 or requisition under Section 132A, the AO gets the jurisdiction to assess or reassess the ‘total income’ in respect of each assessment year falling within six assessment years. However, it is required to be noted that as per the second proviso to Section 153A, the assessment or re- assessment, if any, relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search under Section 132 or making of requisition under Section 132A, as the case may be, shall abate. As per sub-section (2) of Section 153A, if any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub- section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner. Therefore, the intention of the legislation seems to be that in case of search only the pending assessment/reassessment proceedings shall abate and the AO would assume the jurisdiction to assess or reassess the ‘total income’ for the entire six years period/block assessment period. The intention does not seem to be to re- open the completed/unabated assessments, unless any incriminating material is found with respect to concerned assessment year falling within last six years preceding the search. Therefore, on true interpretation of Section 153A of the Act, 1961, in case of a search under Section 132 or requisition under Section 132A and during the search any incriminating material is found, even in case of unabated/completed assessment, the AO would have the jurisdiction to assess or reassess the ‘total income’ taking into consideration the incriminating material collected during the search and other material which would include income declared in the returns, if any, furnished by the assessee as well as the undisclosed income. However, in case during the search no incriminating material is found, in case of completed/unabated assessment, the only remedy available to the Revenue would be to initiate the reassessment proceedings under sections 147/48 of the Act, subject to fulfilment of the conditions mentioned in sections 147/148, as in such a situation, the Revenue cannot be left with no remedy. Therefore, even in case of block assessment under section 153A and in case of unabated/completed assessment and in case no incriminating material is found during the search, the power of the Revenue to have the reassessment under sections 147/148 of the Act has to be saved, otherwise the Revenue would be left without remedy.
12. If the submission on behalf of the Revenue that in case of search even where no incriminating material is found during the course of search, even in case of unabated/completed assessment, the AO can assess or reassess the income/total income taking into consideration the other material is accepted, in that case, there will be two assessment orders, which shall not be permissible under the law. At the cost of repetition, it is observed that the assessment under Section 153A of the Act is linked with the search and requisition under Sections 132 and 132A of the Act. The object of Section 153A is to bring under tax the undisclosed income which is found during the course of search or pursuant to search or requisition. Therefore, only in a case where the undisclosed income is found on the basis of incriminating material, the AO would assume the jurisdiction to assess or reassess the total income for the entire six years block assessment period even in case of completed/unabated assessment. As per the second proviso to Section 153A, only pending assessment/reassessment shall stand abated and the AO would assume the jurisdiction with respect to such abated assessments. It does not provide that all completed/unabated assessments shall abate. If the submission on behalf of the Revenue is accepted, in that case, second proviso to section 153A and sub- section (2) of Section 153A would be redundant and/or re- writing the said provisions, which is not permissible under the law.
13. For the reasons stated hereinabove, we are in complete agreement with the view taken by the Delhi High Court in the case of Kabul Chawla (supra) and the Gujarat High Court in the case of Saumya Construction (supra) and the decisions of the other High Courts taking the view that no addition can be made in respect of the completed assessments in absence of any incriminating material”.
16. It is pertinent to note that returns were filed before 03.2015 in all these cases. The time limit to issue notice u/s 143(2) for scrutinizing those returns had expired long back. The search has taken place on 25.04.2018. During the course of search details regarding alleged transactions of penni stock was not found. The Department was only able to lay its hands on the letter of SEBI which was missing in the case of Smt. Meenu Singla. The Assessing Officer, thereafter, he himself has not cross verified anything. He only followed some information available on the portal of the Revenue without cross verifying any circumstance. The ld. CIT(A) appreciated the controversy in right prospective and rightly concluded that during the search no incriminating material was found demonstrating the alleged transactions as a bogus one. In view of above discussion, we do not find any merit in these appeals and they are dismissed.
17. In the result, all the appeals of the Revenue are dismissed.
Order pronounced on 06.01.2025
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