PCIT (Central) Vs Kalyanika Infra Mega Ventures Pvt. Ltd. (Madhya Pradesh High Court)
The Revenue filed an appeal under Section 260A of the Income Tax Act, 1961 against the order dated 23/11/2023 passed by the ITAT, Jabalpur in ITA No. 185/JAB/2018 for Assessment Year 2014-15.
The assessee had filed its return on 28/11/2014, declaring total income of nil. Its case was selected for scrutiny and notice under Section 143(2) was issued on 03/09/2015. Subsequently, following a search under Section 132 at the premises of the assessee-company’s Director and other family members, the assessee’s case was centralized under Section 127 by order dated 04/05/2016 and transferred to Central Circle, Jabalpur.
The assessee was engaged in real estate development and related activities. According to the Revenue, various incriminating articles and records were seized during the search and handed over to the Central Circle. However, no search or survey was conducted at the premises of the assessee-company itself.
The assessment was completed under Section 143(3). During assessment proceedings, the Assessing Officer found that the assessee had received credits of Rs.3,68,00,000/- from M/s Little Star Securities Pvt. Ltd., which was stated to be an identified/established bogus company providing accommodation entries. The addition was made on account of unexplained cash credit under Section 68. The CIT(A) confirmed the addition.
The ITAT allowed the assessee’s appeal on the ground that the assessment ought to have been made under Section 153C instead of Section 143(3), treating the assessment as invalid and deleting the addition.
Before the High Court, the Revenue proposed several substantial questions of law concerning the applicability of Section 153C, whether the seized financials constituted incriminating material, the validity of the Section 143(3) assessment, and the addition relating to the unsecured loan. The Revenue also contended that the ITAT’s findings were perverse because relevant facts and evidence had allegedly not been properly considered.
The assessee opposed the appeal, submitting that the proposed questions were questions of fact and that no substantial question of law arose.
The High Court examined Section 260A and noted that an appeal from an ITAT order lies only where a substantial question of law is involved. Referring to the principles laid down by the Supreme Court, the Court observed that a substantial question of law must satisfy the applicable legal requirements and that the Tribunal is the final fact-finding authority.
The Court held that the Revenue had raised questions of fact and disputed the ITAT’s factual findings in the guise of substantial questions of law. It found no perversity in the ITAT’s order, observing that the Tribunal had dealt with the grounds raised by the Revenue and passed a well-reasoned and speaking order after considering the material on record.
The High Court further held that, in the absence of demonstrated perversity in the Tribunal’s findings, interference with the findings of the CIT(A) and ITAT was not warranted. It concluded that no question of law, much less any substantial question of law, arose for consideration under Section 260A.
Accordingly, the High Court found no merit in the Revenue’s appeal and dismissed the appeal in limine.
FULL TEXT OF THE JUDGMENT/ORDER OF MADHYA PRADESH HIGH COURT
Instant appeal is filed by the appellant-Revenue under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act of 1961’)being aggrieved by the order dated 23/11/2023 passed by the Income Tax Appellate Tribunal (ITAT), Jabalpur in ITA No. 185/JAB/2018 for the Assessment Year 2014-15.
2. The following substantial question of law has been proposed in this appeal :
“(i) Whether on the facts and in the circumstances of the case, the ITAT was justified in annuling the 143(3) assessment on the ground that the assessment should have been framed under Section 153 C of the Act, without appreciating that since seized documents in the instant case are not incriminating nature, the AO is legally barred from framing assessment u/s 153C as confirmed by the Hon’ble Supreme Court judgment in the case of Abhishar Buildwell P. Ltd. [ TS-202-SC-2023] ?
(ii) Whether on the facts and in circumstances of the case and in law, the Hon’ble ITAT was justified in holding that the mere financials of any entity, which were seized during the search action are incriminating material. ?
(iii) Whether on the facts and circumstances of the case and in law, Hon’ble ITAT has erred in annulling the assessment made u/s 143(3) on the ground that assessment should have been made u/s 153C and thereby deleting the addition of Rs.3,38,00,000/- made by the AO on account of unexplained cash credit u/s 68 which was confirmed by the learned CIT(A) without appreciating that :
(a) in the absence of incriminating material having been found and seized, it would invalidate an assessment u/s 153C read with section 153A, in case the assessment had been made by the AO u/s 153C, as recently confirmed in the judgment delivered by Hon’ble Supreme Court in the case of Abhisar Buildwell P. Ltd. [TS-202-SC-2023] ?
(b) for a case to fall u/s 153C, the jurisdictional requirement is the satisfaction of the AO that the books of accounts and documents or assests seized or requisitioned have a bearing on the determination of the total income of the assessee and, in the instant case, there was no basis for the AO to proceed u/s 153C, since no incriminating material in relation to the assessee was found during the search conducted as per seized material handed over to the AO. ?
(c) the mere handing over of the seized material to the AO was not sufficient to take up assessment u/s 153C since there is nothing incriminating about the material seized in the present case. ?
(d) the AO cannot be compelled to be satisfied, since doing so would amount to questioning the judgment of the AO in the matter and, accordingly, the non-recording of satisfaction by the AO is to be taken as conclusive of his being not satisfied in the matter and, therefore, the question of abatement of the pending assessment in such a case does not arise. ?
(e) the assessment u/s 143(3) is the determination of total income and an instance of search does not annul or dilute the same in the present case. ?
(iv) Whether, on the facts and in circumstances of the case and in law, the Hon’ble ITAT was justified in quashing the assessment order u/s 143(3), made in consequence of the case being selected for complete scrutiny through CASS, and deleting the addition of Rs.3,68,00,000/- made on account of unsecured loan of Rs.3,68,00,000/- from M/s Little State Securities Pvt. Ltd. without appreciating the facts of the case brought on record by the Assessing Officer including that this ‘lender’ is an identified/established bogus company having no business and provided accommodation entries only and further, as established by learned CIT(A), that this loan is received in contravention of the Companies Act 2013.?
(v) Whether on the facts and in circumstances of the case and in law, the findings given by ITAT in its order suffers from perversity as it failed to allude to relevant facts, misread the evidence and its probative value and the legal position, which itself gives rise to the question of law in view of the ration of decisions in several cases including the case of Sudarshan Silk and Sarees ITR 205 (SC)?
AND/OR
Any other question of law that may arise during the course of hearing based on the relevant law in view of the factual backdrop in the instant matter.?”
3. Brief facts of the case are that the respondent-assessee had filed its return on 28/11/2014 declaring total income of Rs. nil for the assessment year 2014-15. The case of the assessee was selected for scrutiny and notice under Section 143(2) of the Income Tax Act, 1961 (hereinafter referred as the Act of 1961) was issued on 03/09/2015. Due to search under Section 132 of the Act of 1961 premises of the Director and other family members of the assessee-company, the case of the assessee-company was centralized under Section 127 of the Act of 1961 by Principal Commissioner of Income Tax-I, Jabalpur vide order dated 04/05/2016 to Central Circle, Jabalpur. The main business activity of the company is development of real estate and related activities. During search various incriminating article and records were seized. The investigating wing handed over all the documents and records to the Central Circle, Jabalpur. Assessment was completed under Section 143(3) of the Act being neither search nor any survey was carried out at the premises of the assessee company. Learned CIT(A) decided the appeal of the assessee, whereby the addition made by the Assessing Officer was confirmed. Being aggrieved appeal was filed by the assessee was allowed by learned ITAT on the sole ground /basis that assessement should have been made under Section 153C and not under Section 143(3) of the Act and treating the assessment as invalid and bad in law, thereby deleting the addition of Rs.3,68,00,000/- made by the A.O.(which was confirmed by the learned CIT(A) on account of unexplained cash credit under Section 68 of the Act of 1961.During assessment proceedings, it was found that the assessee company had received credits of Rs.3,68,00.000/- from M/s Little Star Securities Pvt. Ltd., which is an identified/established bogus company having no business and provides accommodation entries only. Further, it was observed by the AO during assessment proceedings that neither search nor any survey was carried out at the premises of the assessee-company. Learned ITAT confirmed the order passed by the CIT(A). Feeling aggrieved by the same, present appeal has been filed on the substantial questions of law, which has been enumerated in the preceding paragraphs.
4. Learned counsel for the appellant contended that the learned ITAT has erred in allowing the appeal filed by the assessee-company, therefore, on the aforesaid substantial questions of law, this appeal is fit to be entertained.
5. Per contra, learned counsel for the respondent/assessee vehemently opposed the prayer and submitted that the learned ITAT has not committed any error so as to admit this appeal. He further contended that present ITA is based merely questions of facts and on this ground also present appeal is not maintainable. No question of law much less any substantial question of law is involved in the appeal, therefore, same deserves to be dismissed.
6. Heard learned counsel for the parties and perused the substantial questions of law.
7. Before dealing with the aforesaid controversy, it would be expedient to refer to Section 260-A of the Act of 1961. The provisions, relevant for our purpose, read thus:
“260-A. Appeal to High Court – (1) An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal, if the High Court is satisfied that the case involves a substantial question of law.
(2) The Principal Chief Commissioner or Chief Commissioner or the Principal Commissioner or Commission or an assessee aggrieved by any order passed by the Appellate Tribunal may file an appeal to the High Court and such appeal under this sub- section shall be
(a) filed within one hundred and twenty days from the date on which the order appealed against is received by the assessee or the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner;
(b) xxx
(c) in the form of a memorandum of appeal precisely stating therein the substantial question of law involved.
(2A) The High Court may admit an appeal after the expiry of the period of one hundred and twenty days referred to in clause (a) of sub-section (2), if it is satisfied that there was sufficient cause for not filing the samewithin that period.
(3) Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question.
(4) The appeal shall be heard only on the question so formulated, and the respondents shall, at the hearing of the appeal, be allowed to argue that the case does not involve such question : Provided that nothing in this sub-section shall be deemed to take away or abridge the power of the court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question,
(5) The High Court shall decide the question of law so formulated and deliver such a judgment thereon containing the grounds on which such decision is founded and may award such cost as it deems fit.
(6) The High Court may determine any issue which-
(a) has not been determined by the Appellate Tribunal; or
(b) has been wrongly determined by the Appellate Tribunal, by reasons of a decision on such question of law as is referred to in sub-Section (1).
(7) Save as otherwise provided in this Act, the provisions of the Code of Civil Procedure, 1908 (5 of 1908), relating to appeals to the High Court shall, as far as may be, apply in the case of appeals under this section.”
8. From a bare reading of the Section, it is apparent that an appeal to the High Court from a decision of the Tribunal lies only when a substantial question of law is involved, and where the High Court comes to the conclusion that a substantial question of law arises from the said order, it is mandatory that such question(s) must be formulated. The expression “substantial question of law” is not defined in the Act. Nevertheless, it has acquired a definite connotation through various judicial pronouncements.
9. While explaining the import of the said expression, the Apex Court in case of Sir Chunilal V. Mehta & Sons, Ltd. Vs. Century Spinning and Manufacturing Co. Ltd., AIR 1962 SC 1314, observed that:
“6. The proper test for determining whether a question of law raised in the case is substantial would, in our opinion, be whether it is of general public importance or whether it directly and substantially affects the rights of the parties and if so whether it is either an open question in the sense that it is not finally settled by this Court or by the Privy Council or by the Federal Court or is not free from difficulty or calls for discussion of alternative views. If the question is settled by the highest Court or the general principles to be applied in determining the question are well settled and there is a mere question of applying those principles or that the plea raised is palpably absurd the question would not be a substantial question of law.”
10. Similarly, in Santosh Hazari Vs. Purushottam Tiwari, (2001) 3 SCC 179 it was observed that:
“A point of law which admits of no two opinions may be a proposition of law but cannot be a substantial question of law. To be “substantial” a question of law must be debatable, not previously settled by law of the land or a binding precedent, AIR 1962 SC 1314 (2001) 3 SCC 179 and must have a material bearing on the decision of the case, if answered either way, insofar as the rights of the parties before it are concerned. To be a question of law “involving in the case” there must be first a foundation for it laid in the pleadings and the question should emerge from the sustainable findings of fact arrived at by court of facts and it must be necessary to decide that question of law for a just and proper decision of the case. An entirely new point raised for the first time before the High Court is not a question involved in the case unless it goes to the root of the matter. It will, therefore, depend on the facts and circumstance of each case whether a question of law is a substantial one and involved in the case, or not; the paramount overall consideration being the need for striking a judicious balance between the indispensable obligation to do justice at all stages and impelling necessity of avoiding prolongation in the life of any lis.”
11. In Hero Vinoth (Minor) Vs. Seshamma, (2006) 5 SCC 545, the Apex Court has observed that:
“The general rule is that High Court will not interfere with the concurrent findings of the courts below. But it is not an absolute rule. Some of the well recognised exceptions are where (i) the courts below have ignored material evidence or acted on no evidence; (ii) the courts have drawn wrong inferences from proved facts by applying the law erroneously; or (iii) the courts have wrongly cast the burden of proof. When we refer to “decision based on no evidence”, it not only refers to cases where there is a total dearth of evidence, but also refers to any case, where the evidence, taken as a whole, is not reasonably capable of supporting the finding.”
12. A finding of fact may give rise to a substantial question of law, inter alia, in the event the findings are based on no evidence and/or while arriving at the said finding, relevant admissible evidence has not been taken into consideration or inadmissible evidence has been taken into consideration or legal principles have not been applied in appreciating the evidence, or when the evidence has been misread. (See : Madan Lal Vs. Mst. Gopi & Anr. (1980) 4 SCC 255; Narendra Gopal Vidyarthi Vs. Rajat Vidyarthi, (2009) 3 SCC 287; Commissioner of Customs (Preventive) Vs. Vijay Dasharath Patel (2007) 4 SCC 118; Metroark Ltd. Vs. Commissioner of Central Excise, Calcutta (2004) 12 SCC 505; West Bengal Electricity Regulatory Commission Vs. CESC Ltd. (2002) 8 SCC 715 ).
13. The Apex Court in case of K.Ravindranathan Nair vs. CIT, (2001) 1 SCC 135 has observed as under :
“The High Court overlooked the cardinal principle that it is the Tribunal which is the final fact finding authority. A decision on fact of the Tribunal can be gone into by the High Court only if a question has been referred to it which says that the finding of the Tribunal on facts is perverse, in the sense that it is such as could not reasonably have been arrived at on the material placed before the Tribunal. In this case, there was no such question before the High Court. Unless and until a finding of fact reached by the Tribunal is canvassed before the High Court in the manner set out above, the High Court is obliged to proceed upon the findings of fact reached by the Tribunal and to give an answer in law to the question of law that is before it.”
14. When tested on the anvil of the afore-noted legal principles, we are of the opinion that in the instant case no substantial question of law arises from the order of the Tribunal as the appellant has raised all the question of facts and have disputed the fact findings of the ITAT in the garb of substantial questions of law which is not permitted by the statute itself. This Court refrains from entertaining this appeal as there is no perversity in the order passed by the ITAT since the ITAT has dealt with all the grounds raised by the appellant in the order impugned and has passed a well reasoned and speaking order taking into consideration all the material available on record. The Tribunal being a final fact finding authority, in the absence of demonstrated perversity in its finding, interference with the concurrent findings of the CIT (A) as well as the ITAT therewith by this Court is not warranted.
15. For the aforesaid reasons, we have no hesitation in holding that no question of law, much less any substantial question of law arises from the order of the Tribunal requiring consideration of this court. There is no merit in the appeal as making addition/deletion cannot be said to be erroneous and prejudicial to the interest of revenue. Thus, in our opinion, the present case does not involve any substantial question of law so as to meet the provisions of Section 260(A) of the Act for admitting the appeal.
16. In view of the aforesaid discussion, we do not find any merit in this appeal, which in our opinion deserves to be and is hereby dismissed in limine.
