Introduction: The recent case of PCIT (Central) vs. Sanjay Singhal before the Delhi High Court delves into the intricate issues surrounding the validity of additions under Section 69A of the Income Tax Act, 1961. The appeal by the revenue challenges the order of the Income Tax Appellate Tribunal (ITAT), which deleted an addition made by the Assessing Officer (AO) concerning undisclosed profit/loss from trading in pulses and menthe on MCX/NCDEX. This analysis explores the key arguments, legal framework, and the court’s reasoning leading to the dismissal of the appeal.
Background: For the Assessment Year (AY) 2015-16, the AO made an addition of Rs. 11,35,85,032, alleging undisclosed profit/loss in trading activities with Raj Laxmi Commodities Private Limited. The AO posited that this transaction was conducted in collusion with Raj Laxmi and invoked Section 69A of the Income Tax Act, 1961. The respondent, Sanjay Singhal, Principal Officer and MD of the Sharp Group of Companies, contested this addition.
1. The AO’s Basis: The AO based the addition on the belief that the profit/loss was booked in connivance with Raj Laxmi, and that Raj Laxmi facilitated unauthorized access to an employee of Sharp Corp. Pvt. Ltd.
2. Section 69A Invocation: The crux of the dispute revolved around the applicability of Section 69A of the Income Tax Act. The AO contended that the section warranted the addition, while the respondent argued otherwise.
1. Section 69A of the Income Tax Act: Section 69A empowers the AO to make additions to an assessee’s income if there is evidence of investments, money, bullion, jewelry, or other valuable articles, which are found to be the assessee’s own but are not recorded in the books of account.
2. Search and Survey Provisions: The case involved considerations of the search and survey conducted under Sections 133A and 132 of the Income Tax Act, respectively.
3. Judicial Precedents: The court relied on precedents like CIT vs. Kabul Chawla and Principal Commissioner of Income Tax vs. Abhisar Buildwell to establish the legal principles governing the validity of additions based on incriminating material.
1. Survey vs. Search Date Discrepancy: The Tribunal observed that the search and survey were conducted on different dates concerning the respondent and Sharp Group of Companies. Importantly, no incriminating material was found during the search on 07.04.2017 related to the AY in question.
2. Conclusion on Section 69A Applicability: The Tribunal concluded that since no incriminating material was found in the AY under consideration, Section 69A did not apply.
3. Reliance on Statement of Raj Laxmi Director: The court noted that the AO’s order was primarily based on the statement of Mr. Naresh Kumar Aggarwal, Director of Raj Laxmi. This statement was recorded during a survey under Section 133A on 29.12.2015, not during the subsequent search in 2017.
4. Conclusive Assessment: As the AY was treated as a concluded assessment, the court held that without incriminating material found during the relevant search, the addition made by the AO was unsustainable.
Conclusion: The Delhi High Court, in dismissing the appeal, emphasized the pivotal role of incriminating material in invoking Section 69A. The absence of such material during the search in the relevant AY led the court to uphold the ITAT’s decision to delete the addition. This case reinforces the principle that additions under Section 69A must be supported by concrete evidence discovered during the search or survey, ensuring a fair and substantiated assessment.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. This appeal concerns Assessment Year (AY) 2015-16.
2. Via the instant appeal, the appellant/revenue, seeks to assail the order dated 17.04.2023 passed by the Income Tax Appellate Tribunal [in short, “Tribunal”].
3. The moot question which arose for consideration before the Tribunal was: Whether the addition amounting to Rs.1 1,35,85,032/- made by the Assessing Officer (AO) concerning purported undisclosed profit/loss made by the respondent/assessee from trading in pulses and menthe on M CX/NCDEX was sustainable?
4. The AO took the view that the aforementioned profit/loss was booked in connivance with an entity named Raj Laxmi Commodities Private Limited [in short, “Raj Laxmi”].
4.1 The AO also concluded that Raj Laxmi had given the User ID-3 to an employee of M /s Sharp Corp. Pvt. Ltd. i.e., one Mr Babulal Jangid.
5. The record shows that the respondent/assessee, i.e., M r Sanjay Singhal at the relevant time was the Principal Officer and M D of the Sharp Group of Companies.
6. It is in these circumstances that the AO invoked the provisions of Section 69A of the Income Tax Act, 1961 [in short, “Act”] and accordingly made an addition in the hands of the respondent/assessee, on substantive basis, and in the hands of Sharp Group of Companies Ltd., albeit on protective basis.
7. We have perused the impugned order and the material on record.
8. There are observations made in the impugned order pertaining to Section 69A of the Act.
9. The Tribunal has concluded that since nothing was found in the search and survey conducted vis-à-vis Sharp Group of Companies Ltd. and the respondent/assessee/Sanjay Singhal on 07.04.2017, the said provision was not applicable.
10. Mr Sanjay Kumar, learned senior standing counsel, who appears on behalf of appellant/revenue, says that the view taken by the Tribunal concerning the applicability of Section 69A of the Act was erroneous and that material was recovered which shows that the respondent/assessee was the owner of money, and the subject transaction concerning this aspect had not been recorded in the books of account maintained by the respondent/assessee. However, what cannot be denied by Mr Kumar is that the order of the AO is founded completely on the statement of Mr Naresh Kumar Aggarwal, Director of Raj Laxmi.
11. It is also not in dispute that Mr Naresh Kumar Aggarwal’s statement was recorded on 29.12.2015 when survey under Section 133A of the Act was conducted qua Raj Laxmi.
12. As indicated above, insofar as the Sharp Group of Companies Ltd. and respondent/assessee were concerned, the search and survey was conducted on 07.04.2017. This aspect has been recorded by the Tribunal in paragraph 33 of the impugned order.
13. Clearly, no incriminating material vis-à-vis the respondent/assessee was found in the search conducted on 07.04.2017.
14. Even according to Mr Kumar, the AY in issue would have to be treated as a concluded assessment.
15. Given the position that no incriminating material was found in the AY in issue, the addition made by the AO cannot be sustained. [See CIT vs. Kabul Chawla, 380 ITR 573 & Principal Commissioner of Income Tax vs. Abhisar Buildwell, 2023 SCC OnLine SC 481.]
16. We are therefore sustaining the impugned order, having regard to only this aspect of the matter.
17. The appeal is accordingly closed in view of what we have recorded above. The conclusion arrived at by the Tribunal is correct and therefore, no other substantial question of law requires to be adjudicated by us.
18. Consequently, the application for condonation of delay in re-filing is rendered infructuous and is accordingly closed.
19. Parties will act based on the digitally signed copy of the order.