Search & Seizure: No Incriminating Evidence Found, No Addition Can Be Made To Income: Recent Dharampal Satyapal Case
In DCIT vs. Dharampal Satyapal Ltd & vice-versa [ITA No. 3877, 3878, 3879, 3880, 3881/Del/2016 with ITA No. 3310, 3717, 3718, 3719, 3737/Del/2016 (A.Y.: 2005-06 to 2009-10), decided on 17.05.2018], briefly, there were bunch of 10 appeals pertaining to the same assessee for different A.Y.s, out of which the Revenue filed five appeals and five appeals by the assessee against the common order passed by the CIT (A)-44, New Delhi dated 29.02.2016 for AYs 2005-06 to 2011- 12. Though the CIT(A) had decided the issues for A.Y. 2005-06 to 2011-12, however, appeals for A.Y. 2010-11 and 2011-12 were not heard with the appeals of A.Y. 2005- 06 to 2009-10 as those appeals involved certain grounds related to transfer pricing issues. Therefore, the above-mentioned appeal consisted of appeals for A.Y. 2005-06 to 2009-10. They were heard together involving the common issues and were disposed of by the common order.
The parties before ITAT, Delhi argued that in the appeal of the assessee the validity of issue of notice under section 153A of the Income Tax Act, 1961(for short ‘the Act’) and consequential assessment was challenged contesting that additions/ disallowances made were not based on any incriminating material seized during the course of search, therefore, the issue covering ground No. 1 of the appeal of the assessee was decided first. The main reason for argument of both the parties was that, if the arguments of the assessee that the addition and adjustment made to the total income are to be based only on incriminating material found during the course of search fails, then only the other issues in the appeal of the revenue as well as of the assessee will survive.
Facts & Decision in brief of the case relating to the issue:
The assessee being a limited company was engaged in the business of manufactures and trading in Pan Masala, Gutkha, Jarda, perfumery compounds, herbs, mouth fresheners, snack foods, water, composite canes and processing of silver, etc. The assessee filed its return of income on 31.10.2005 showing total income of Rs. 151516608/-. The assessee claimed deduction under section 80IC of the Act. Further, assessee being a company it was also subjected to tax over and above normal computation of tax, on the book profit tax under section 115JB of the Act. The appellant was assessed to book profit at Rs. 733688144/-. Subsequently, assessment under section 143(3) of the Act was made on 30.03.2007 after making certain disallowances. The assessee challenged the disallowances before the CIT(A) that passed an order upholding certain disallowances and directing the AO for re-computation.
Meanwhile search and seizure operations under section 132 of the Act was carried out on the assessee on 21.01.2011 subsequent, to that notice under section 153A of the Act was issued on 09.01.2012. The assessee filed its return of income on 22.02.2012 submitting that original return filed may be treated as return filed in response to the notice. The AO stated that there was a complexity in the books of account of the assessee passed order under section 142(2A) of the Act appointing the special auditor who filed an audit report on 15.01.2013. Subsequently, after granting an opportunity of hearing to the assessee order under section 153A of the Act was passed on 26.05.2014 at Rs. 630340134/- under the normal computation provisions and book profit was determined under section 115JB of the Act at Rs 735895087/-. In the assessment order the AO made several additions and therefore, assessee challenged the same before the CIT (A). The CIT (A) passed a combined order for several years i.e. A.Y.s 2005-06 to 2011-12 on 29.02.2016 allowing the appeal of the assessee partly. Therefore, both the parties were in appeal before ITAT, Delhi.
The assessee vide ground No. 1 had challenged that there was no incriminating material found during the course of search and therefore, on the date of search i.e. 21.10.2011 the A.Y. 2005-06 to 2009-10 were not pending and therefore, the addition made to the total income of the assessee were not valid.
The assessee before the CIT (A) agitated the above ground that there was no incriminating evidence found during the course of search and therefore, no addition can be made. The CIT (A) held that the AO had the jurisdiction to assess the total income irrespective of the seized material, as there was one addition on account of evidence gathered during the search.
On appeal to ITAT, Delhi, the learned Members of the ITAT took into consideration the rival submissions, legal position, facts and circumstances of the case and observed the various additions made by the AO for A.Y. 2005-06 and examined whether it had been made based on any incriminating material found during the course of search for that year. The learned Members weighed the seized papers as per chart submitted by the CIT DR, which were referred to by the AO in the assessment order and also analyzed them with respect to various additions for the impugned assessment years involved. The learned Members observed that no other documents were produced before them pertaining to the captioned A.Y.s involved in these appeals.
The following table shows the various additions made by the AO for AY 2005-06:
|1.||Prior period expenses||1128236|
|2.||Transfer pricing adjustment as per order u/s 92CA(3)||5135817|
|3.||Bogus purchases of sandalwood oil||349002066|
|4.||Disallowance u/s 40A(3)||115024|
|5.||TDS is neither deducted nor deposited||430429|
|6.||Diversion of funds to group entities not backed by business expediency and amount of interest to be disallowed u/s 36(1)(iii) of the Income Tax Act, 1961||5496058|
|7.||Details of amount charged at lesser to group concerns rate than rate charged to others||4271539|
|8.||Disallowance u/s 14A interest paid on investment made out of borrowed funds in equity||4911624|
|9.||Additions made u/s 143(3) in order dated 30.03.2007|
|10.||Disallowance u/s 14A interest paid on investment made out of borrowed funds in equity||500000|
|11.||Disallowance for foreign travelling expenses||486409|
Similar were the facts for the additions of the AY s 2006-07 to 2009- 10.
The learned Members of the ITAT, Delhi held that in view of the above facts, for the ground No 1 of the appeal of the assessee, there was no incriminating material found during the course of search relevant to A.Y. 2005-06 to AY 2009- 10, which were concluded A.Y., and could have been disturbed only on the basis of any incriminating material showing escapement of income found during the course of search relevant to that A.Y. only. Hence, we do not have any other option but to allow ground No. 1 of the appeal of the assessee for the impugned A.Y.s. In the result ground No. 1 of the appeal of the assessee is allowed for all A.Y. 2005-06. Accordingly, respective grounds of the appeal of the assessee for A.Y. 2006-07 to 2009-10 challenging the additions in absence of any incriminating material stands allowed.