Case Law Details
Longowalia Yarns Limited Vs DCIT (ITAT Chandigarh)
ITAT Chandigarh held that AO not empowered to disturb the assessment order/ reassessment order which has attained finality, unless contrary material gathered in the course of proceedings u/s 153A of the Income Tax Act.
Facts-
A search and seizure action u/s. 132 of the Act was conducted at the business and residential premises of the assessee on 04/09/2014. Thereafter, notice u/s. 153A was issued on 23/06/2016 and assessment was framed u/s. 153A r.w.s 143(3) dt. 30/12/2016 wherein AO has applied the commission rate of 2% for obtaining alleged accommodation entries in the garb of share capital / share application money amounting to Rs. 11,50,00,000/-and added the amount of Rs. 23,00,000/-on account of unexplained expenditure u/s. 69C of the Act.
Here it is relevant to note that the assessee had originally filed its ROI u/s. 139(1) on 12/09/2011 and same was processed u/s. 143(1) on 08/02/2012 and thereafter the original assessment was framed u/s. 143(3) on 28/03/2014 wherein addition of Rs. 11,50,00,000/- was made on account of unexplained share application money received u/s. 68 of the Act. Subsequently during the pendency of the appeal u/s. 250 against the original assessment order, the assessee availed the benefit of Vivad Se Vishwas Scheme 2020 and the matter relating to addition u/s. 68 on account of unexplained share application money thus attained finality.
Thereafter, during the course of impugned reassessment proceedings u/s 153A, vide order sheet entry dt. 20/12/2016, the assessee was required to show cause as to why the commission paid to entry operator @ 2% for obtaining alleged accommodation entries in the garb of share capital / share application may not be added as unexplained expenditure u/s. 69C of the Act.
Conclusion-
AO cannot disturb the assessment order or reassessment order which has attained finality, unless the material gathered in the course of proceedings u/s 153A of the Act establishes that relief granted under the final assessment/reassessment was contrary to the fact unearthed during the course of 153A proceedings.
In this case, the original assessment proceedings stood completed u/s 143(3) vide order dated 28/03/2014 and were not abated as on the date of search i.e, 04/09/2014. It is a consistent stand of the assessee before the AO as well as before the ld CIT(A) that no incriminating material has been found during the course of search proceedings basis which the addition towards unexplained expenditure u/s 69C has been made. Nothing has been brought on record by AO either in the reassessment proceedings or during the appellate proceedings before the ld CIT(A) and even during the course of hearing before us to rebut the same. In view of this, we do not find any justification on the part of AO for making the impugned addition u/s 69C in the case of the assessee. Therefore, the impugned addition of Rs 23,00,000/- is hereby directed to be deleted.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
This is an appeal filed by the Assessee against the order of the Ld. CIT(A)-3, Gurgaon dt. 14/03/2022 wherein the assessee has taken the following grounds of appeal:
1. That order passed u/s 250(6) of the Income Tax Act, 1961 by the Learned Commissioner of Income Tax (Appeals)-3, Gurgaon is against law and facts on the file in as much as he was not justified to uphold the action of the Learned Assessing Officer in making an addition of Rs. 23,00,000/- on account of alleged unexplained expenditure computed @ 2% of the total share capital/application money received by the appellant merely on presumptuous basis by resort to the provisions of Section 69C.
2. That Learned CIT(A) gravely erred in upholding the addition of Rs. 23,00,000/- on account of alleged unexplained expenses particularly in the absence of any incriminating material found/noticed during the course of search.
3. That Learned CIT(A) gravely erred in upholding the addition of Rs. 23,00,000/-on account of alleged unexplained expenditure merely relying on statements of some persons-who were never made available for cross examination and thus, the upholding of addition in violation of principles of natural justice is bad in law.”
2. Briefly the facts of the case are that a search and seizure action under section 132 of the Act was conducted at the business and residential premises of the assessee on 04/09/2014. Thereafter, notice under section 153A was issued on 23/06/2016 and assessment was framed under section 153A r.w.s 143(3) dt. 30/12/2016 wherein AO has applied the commission rate of 2% for obtaining alleged accommodation entries in the garb of share capital / share application money amounting to Rs. 11,50,00,000/-and added the amount of Rs. 23,00,000/-on account of unexplained expenditure under section 69C of the Act.
2.1 Here it is relevant to note that the assessee had originally filed its return of income under section 139(1) on 12/09/2011 and same was processed under section 143(1) on 08/02/2012 and thereafter the original assessment was framed under section 143(3) on 28/03/2014 wherein addition of Rs. 11,50,00,000/- was made on account of unexplained share application money received under section 68 of the Act. Subsequently during the pendency of the appeal under section 250 against the original assessment order, the assessee availed the benefit of Vivad Se Vishwas Scheme 2020 and the matter relating to addition under section 68 on account of unexplained share application money thus attained finality.
2.2 Thereafter, during the course of impugned reassessment proceedings u/s 153A, vide order sheet entry dt. 20/12/2016, the assessee was required to show cause as to why the commission paid to entry operator @ 2% for obtaining alleged accommodation entries in the garb of share capital / share application may not be added as unexplained expenditure under section 69C of the Act.
2.3 In response, it was submitted by the assessee that transactions are not sham or bogus and therefore there arises no question of having paid any commission for such alleged bogus entries. It was further submitted that there is no evidence whatsoever that proves that any commission was paid in cash to arrange for said share capital. There is no evidence as to whom the alleged payment of commission has been made and any addition on this count would be based purely on hypothetical workings and is devoid of any merit because any payment that the assessee company has made is through proper banking channels and / or recorded in the books of accounts. Thereafter considering the submissions of the assessee but not finding the same acceptable, the AO has proposed rate of commission @ 2% as appropriate and justified, and has made the addition u/s 69C of the Act.
3. On appeal, the Ld. CIT(A) has upheld the findings of the AO and has stated that the AO applied the rate of 2% after taking inference from the findings as a result of search proceedings in the cases of various accommodation entry providers and assesses throughout the country and the AO has also relied on the statements recorded of various accommodation entry providers wherein thy have admitted providing accommodation entries on commission basis ranging from 0.25 to 7% and therefore adoption of 2% rate of commission by the AO is reasonable.
3.1 Regarding the contention of the assessee that the addition cannot be sustained in the absence of any incriminating material found during the course of search proceedings, the Ld. CIT(A) has held that in terms of provision of Section 153A(1)(b), the AO was required to assess / reassess the total income for the year under consideration and in support, the reliance was placed on the decision of Hon’ble Kerala High Court in the case of CIT Vs. KP Ummerthat and decision of Hon’ble Allahabad High Court in case of Rajkumar Arora reported in 367 ITR 517 and it was accordingly held that the AO was having jurisdiction to assess the income of the appellant on the basis of material available at the time of assessment and not to restrict the addition subject to incriminating material found during the course of search.
4. Against the said findings and the order of the Ld. CIT(A), the assessee is in appeal before us.
5. During the course of hearing, it was submitted that the addition of Rs. 23,00,000/- on account of alleged commission @ 2% is based totally on surmises and conjectures. It was submitted that no material / evidence whatsoever has been found and which has been confronted to the appellant which even remotely suggests that appellant had paid 2% commission in respect of alleged bogus share capital and the AO has also not provided any basis as to how the arbitrary figure of 2% of commission has been arrived at and it clearly suggests that addition have been made to best suit his preset mind without even a iota of evidence to rely upon.
5.1 It was further submitted that no incriminating material was found during the course of search in case of the assessee and given the fact that the assessment was originally framed under section 143(3) of the Act, in absence of any incriminating material where the assessment already stood completed and not abated, no addition can be made under section 69C of the Act. In support, the reliance was placed on the decision of Hon’ble Delhi High Court in case of CIT Vs. Kabul Chawla (2016) 380 ITR 573, PCIT Vs. Meeta Gutgutia, Delhi High Court in 395 ITR 526 wherein the SLP filed by the Department has been dismissed as reported in 96 taxmann.com 468 and decision of Coordinate Chandigarh Benches in case of M/s Mala Builders Pvt. Ltd. Vs. ACIT, in ITA Nos. 433 to 437/Chd/2014.
5.2 It was further submitted that mere fact that the assessee has opted for Vivad Se Vishwas Scheme 2020 should not be construed that the assessee has accepted the addition made on account of alleged unexplained credit under section 68 of the Act amounting to Rs. 11,50,00,000/- and in support reliance was placed on the FAQ No. 52 & 55 issued by CBDT vide Circular No. 9/2020 dt. 22/04/2020.
6. The Ld. DR fairly submitted that the original assessment for the assessment year under consideration stood completed and not abated as on the date of search i.e, 04/09/2014. However, he has relied on the findings of the Ld. CIT(A) as well as decision of Hon’ble Allahabad High Court in case of Sri Raj Kumar Arora (Supra) wherein the Hon’ble High Court has held that it is open to the AO to assess / reassess the income of the assessee under section 153A of the Act even bereft of any incriminating material found during the course of search.
7. We have heard the rival submissions and perused the material on record. We find that the issue is squarely covered in favour of the assessee by the decision of the Hon’ble Delhi High Court in the case of CIT Vs Kabul Chawla (Supra) and in the case of Principal CIT Vs. Meeta Gutgutia (Supra) wherein the Hon’ble Delhi High Court has held that in relation to the assessments which have already been concluded and not abated as on the date of search, the AO is precluded from making additions on any other issue except relating or concerning to the incriminating material found during the search action in case of the assessee. The Assessing Officer cannot disturb the assessment order or reassessment order which has attained finality, unless the material gathered in the course of proceedings u/s 153A of the Act establishes that relief granted under the final assessment/reassessment was contrary to the fact unearthed during the course of 153A proceedings. Reliance is also placed on the decision of the Hon’ble Gujarat High Court in the case of PCIT Vs RSA Digi Prints 2017 (9) TMI 530, Hon’ble Bombay High Court in the case of CIT Vs Continental Warehousing Corporation (2015) 374 ITR 645 and the decision of Hon’ble Calcutta High Court in the case of PCIT Vs Salasor Stock Broking Ltd. 2016 (8) TMI 1131 wherein similar proposition has been laid down by the Hon’ble High Courts. The unanimous proposition laid down in aforesaid case laws can be well applied to the present case. In this case, the original assessment proceedings stood completed u/s 143(3) vide order dated 28/03/2014 and were not abated as on the date of search i.e, 04/09/2014. It is a consistent stand of the assessee before the AO as well as before the ld CIT(A) that no incriminating material has been found during the course of search proceedings basis which the addition towards unexplained expenditure u/s 69C has been made. Nothing has been brought on record by the Assessing officer either in the reassessment proceedings or during the appellate proceedings before the ld CIT(A) and even during the course of hearing before us to rebut the same. In view of this, we do not find any justification on the part of the Assessing Officer for making the impugned addition u/s 69C in the case of the assessee. Therefore, the impugned addition of Rs 23,00,000/- is hereby directed to be deleted.
8. In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 12/01/2023
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