Case Law Details
Sh. Sanjay Garg Vs DCIT (ITAT Chandigarh)
Facts- A search and seizure operation in terms of section 132(1) was carried out at the business and residential premises of M/s Longowalia Group of Cases and the assessee Shri Sanjay Garg also was one of the persons covered in such search. Accordingly, notice u/s 153A of the Act was issued on 23.06.2016 for the impugned AY and the assessee submitted his ROI declaring total income of Rs.10,45,490/-.
Subsequently, during the course of assessment proceedings, the AO noticed that the assessee had forfeited an amount of Rs.70 lacs said to have been received as advance against the sale of property. This amount was received in assessment year 2011-12 from a Delhi based company M/s Namo Resorts Private Limited and the amount was shown under the head ‘current liability’ in the Balance Sheet. The Assessing Officer (AO) required the assessee to submit complete details regarding the transaction alongwith documentary evidences like copy of agreement, ITR, bank account and Balance Sheet of M/s Namo Resorts Private Limited. The assessee submitted a reply alongwith the copy of bank account and submitted that he was the co-owner of the property bearing No.171/2, Major Gurdial Singh Road, Civil Lines, Ludhiana alongwith his brother Shri Sandeep Garg and that they had entered into an agreement with M/s Namo Resorts Private Limited to sell the said property for a total consideration of Rs.1,40,00,000/-. It was further submitted before the AO that the assessee thereafter, attempted, thrice to get the final registry executed but the representative of the said company did not appear and, therefore, the assessee, alongwith his brother, forfeited the amount received as advance. However, the AO was of the view that the assessee had failed to submit any financial details in respect of M/s Namo Resorts Private Limited and, as per the opinion of the AO, the impugned transaction appeared to be suspicious. It was also noted that earlier a commission u/s 131(1)(d) of the Act through the Investigation Directorate at Delhi requesting them to make in-depth enquiries in the activities of the company M/s Namo Resorts Private Limited had been issued but it was informed by the Delhi Directorate that none of the persons to whom the summons u/s 13 1(1) of the Act were served, had responded/attended to the enquiries. The AO reached the conclusion that the assessee had failed to discharge his onus with respect to the creditworthiness, identity as well as the genuineness. Placing reliance on the concept of preponderance of probability, the AO proceeded to add the amount of Rs.70 lacs u/s 68 of the Act and completed the assessment at Rs.85,45,490/-.
Aggrieved, the assessee carried the matter before the Ld.CIT(A), who dismissed the appeal of the assessee by upholding the order of the AO. Aggrieved, the assessee has now approached the Tribunal challenging the confirmation of addition by the Ld.CIT(A).
Conclusion- Accordingly, following the ratio of various judicial precedents, we hold that in absence of any incriminating material found during the course of search with respect to the impugned transaction, the AO did not have any power to make the impugned addition. We set aside the order of the Ld.CIT(A) and direct the AO to delete the addition.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
This appeal is preferred by the assessee against the order dated 28.07.2021 passed by the Learned Commissioner of Income Tax (Appeals)-3, Gurgaon [in short the ‘Ld.CI T(A)’], for the assessment year 2011-12.
2.0 The brief facts of the case are that a search and seizure operation in terms of section 132(1) of the Income Tax Act, 1961 (hereinafter called ‘the Act’) was carried out at the business and residential premises of M/s Longowalia Group of Cases and the assessee Shri Sanjay Garg also was one of the persons covered in such search. Accordingly, notice u/s 153A of the Act was issued on 23.06.2016 for the impugned assessment year and the assessee submitted his return of income declaring total income of Rs.10,45,490/- under the head ‘income from salary, ‘house property’, business & profession and ‘other sources. Subsequently, during the course of assessment proceedings, the AO noticed that the assessee had forfeited an amount of Rs.70 lacs said to have been received as advance against the sale of property. This amount was received in assessment year 2011-12 from a Delhi based company M/s Namo Resorts Private Limited and the amount was shown under the head ‘current liability’ in the Balance Sheet. The Assessing Officer (AO) required the assessee to submit complete details regarding the transaction alongwith documentary evidences like copy of agreement, ITR, bank account and Balance Sheet of M/s Namo Resorts Private Limited. The assessee submitted a reply alongwith the copy of bank account and submitted that he was the co-owner of the property bearing No.171/2, Major Gurdial Singh Road, Civil Lines, Ludhiana alongwith his brother Shri Sandeep Garg and that they had entered into an agreement with M/s Namo Resorts Private Limited to sell the said property for a total consideration of Rs.1,40,00,000/-. It was further submitted before the AO that the assessee thereafter, attempted, thrice to get the final registry executed but the representative of the said company did not appear and, therefore, the assessee, alongwith his brother, forfeited the amount received as advance. However, the AO was of the view that the assessee had failed to submit any financial details in respect of M/s Namo Resorts Private Limited and, as per the opinion of the AO, the impugned transaction appeared to be suspicious. It was also noted that earlier a commission u/s 131(1)(d) of the Act through the Investigation Directorate at Delhi requesting them to make in-depth enquiries in the activities of the company M/s Namo Resorts Private Limited had been issued but it was informed by the Delhi Directorate that none of the persons to whom the summons u/s 13 1(1) of the Act were served, had responded/attended to the enquiries. The AO reached the conclusion that the assessee had failed to discharge his onus with respect to the creditworthiness, identity as well as the genuineness. Placing reliance on the concept of preponderance of probability, the AO proceeded to add the amount of Rs.70 lacs u/s 68 of the Act and completed the assessment at Rs.85,45,490/-.
2.1 Aggrieved, the assessee carried the matter before the Ld.CIT(A), who dismissed the appeal of the assessee by upholding the order of the AO.
2.2. Aggrieved, the assessee has now approached the Tribunal challenging the confirmation of addition by the Ld.CIT(A) by raising the following grounds:
“1. That order passed u/s 250(6) of the Income Tax Act, 1961 by the Learned Commissioner of Income Tax (Appeals)-S, Gurgaon is against law and facts on the file in as much as he was not justified to uphold an addition of Rs. 70,00,000/-which amount was received by the appellant as advance against sale of property from M/s Namo Resorts Private Limited and which was forfeited due to non-fulfillment of the terms of the agreement as the same was capital receipts.
2. That the Learned CIT(A) was not justified to uphold the alleged addition to be made in terms of Section 69A of the Act.
3. That the Learned CIT(A) was further not justified to uphold the initiation of proceedings u/s 153A and consequent thereof an addition made at Rs. 70,00,000/-in the absence of any incriminating material found during the course of search u/s 132 on 04.09.2014.
4. That the Learned CIT(A) was not justified to hold that a document (page No. 63) seized from Nalagarh which revealed the details of bank accounts of the appellant was in the nature of an incriminating document particularly when all bank accounts reflected in the sheet of paper were duly disclosed.”
3.0 At the outset, the Learned Authorized Representative (Ld. AR) submitted that no incriminating material in respect of this transaction had been found during the course of search and pertaining to assessment year 2011-12 in respect to the impugned sale of property or advance received from M/s Namo Resorts Private Limited and, therefore, in absence of such material, no addition could have been made in terms of the provisions of section 153A r.w.s. 143(3) of the Act. Our attention was drawn to para 5 of the assessment order wherein the AO has stated that he had found out from the assessment proceedings in assessment year 2011-12 that the assessee had received an advance. The Ld. AR highlighted the fact that the AO had made no reference to any incriminating material having been found. The Ld. AR placed the reliance on numerous judicial precedents to support his contention that in absence of any incriminating material found during the course of search, no addition could be made u/s 153A of the Act. Reliance was also placed on numerous judicial precedents.
3.1 Arguing on the merits of the appeal, the Ld. AR submitted that it is a fact on record that the assessee had entered into an agreement during assessment year under consideration with M/s Namo Resorts Private Limited to sell a property at Ludhiana which he co-owned with his brother and had received an advance of Rs.70 lacs and the assessee had also obtained TS-1 (which is the document required in the State of Punjab for executing the registry). It was further submitted that the date of registry was extended three times, but the company with whom the agreement to sell had been entered into did not appear for the purpose of execution of the registry and, therefore, in terms of the agreement, the assessee forfeited the amount received as advance. It was submitted that the allegation of the AO that the amount remained unexplained in terms u/s 68 of the Act, was incorrect in as much as the same stood explained as being advance received and subsequently forfeited against the sale of property.
3.2 It was further argued that the allegation that the assessee had failed to substantiate the identity and creditworthiness of the said party as well as the genuineness of the transaction, was incorrect for the simple reason that the assessee had filed copy of agreement to sell, copy of Board Resolution of M/s Namo Resorts Private Limited, copy of bank statement showing an amount of Rs.70 lacs paid as advance to the assessee as well as proofs of attendance with the Registrar. Our attention was drawn to copies of these documents placed in the Paper Book filed by the assessee. The Ld. AR submitted that, therefore, the assessee had completely discharged the onus establishing the genuineness of the transaction as well as the identity and creditworthiness of the party.
4.0 In response to the arguments of the Ld. AR, the Ld.Sr.DR submitted that the assessee could not establish the creditworthiness of the purported buyer. It was submitted that the return of income of M/s Namo Resorts Private Limited was only of Rs.5 lacs and further the perusal of the bank account of that company would show that the amount given as advance had been deposited on the same day as the date of transfer of advance and, therefore, it was obvious that the assessee had failed to establish the creditworthiness of the party.
4.1 Regarding the arguments of the Ld. AR that no incriminating material had been found during the course of search which could be made the basis for making the impugned addition, it was submitted that the Hon’ble Kerala High Court in the case of CIT Vs. K.P. Ummer had held that when a notice u/s 153A of the Act is issued, it enables the Department to carry out assessment/re-assessment with respect to six immediately preceding years and this does not require any incriminating material recovered during search relating to those prior years in which there is no time left on the date of search for framing of assessment u/s 143(3) of the Act. The Ld.Sr.DR pointed out that in this case the original assessment had been framed u/s 143(1) and, therefore, as per the judgment of the Hon’ble Kerala High Court, as above, the AO had the jurisdiction to make the impugned addition.
5.0 We have heard the rival submissions and have also perused the material on record. We have also gone through the various documents filed by the assessee in support of his plea. The main thrust of the arguments of the Ld. representative is that since no incriminating material had been found during the course of search with respect to sale of property, the impugned addition could not have been made. We note that the AO has not mentioned any incriminating material relating to this impugned transaction in the assessment order and when the issue was raised by the assessee before the Ld. First Appellate Authority, he dismissed the same in para 5.3 of the order in which he has placed reliance on the judgment of the Hon’ble Kerala High Court in the case of CIT Vs. K.P. Ummer (supra) as well as judgment of the Hon’ble Allahabad High Court in the case of CIT Vs. Raj Kumar Arora reported in 367 ITR 517 (All.), CIT Vs. Kesarwani Zarda Bhandar in ITA No.270 of 2014 and another judgment of the Hon’ble Kerala High Court in the case of E.N. Gopa Kumar Vs. CIT reported in 75 Taxmann.com 215 (Kerala). However, we note that apart from the judgments cited by the Ld.CIT(A) in the impugned order and also relied upon by the Ld.Sr.DR, there are numerous judgments of other Hon’ble High Courts which are in favour of the assessee on the issue as to whether in the case of assessments framed u/s 153A of the Act, addition could be made in absence of any incriminating material in those years where no assessment proceedings were pending and assessment had been made u/s 143(1)/143(3) of the Act. In this regard it will be worthwhile to reproduce the relevant extract from the order of the Coordinate Bench of the ITAT Chandigarh Bench in the case of Malabuilders Private Limited Vs. ACIT reported in 51 ITR(T)272 (Chd.) as under:
“15. The issue before us is, whether in case of assessments framed under section 153A of the Act, addition could be made in the absence of any incriminating material in those years where no assessment proceedings were pending and assessment had been made u/s 143(1)/143(3) of the Act.
16. We are in complete agreement with the contention of the Ld.AR that the issue is no longer res integra in view of various decisions of the High Courts h o l d i n g t h a t completed assessments can be interfered with by the Assessing Officer 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.
17. We find, that the issue first came up for consideration before the High Court of Bombay in the case of CIT Vs. M/s Murli Agro Products Ltd. (supra), wherein on the issue of exercise of revisionary powers by the Commissioner of Income Tax u/s 263 of the Act, on the order passed by the Assessing Officer under section 153A, it was contended by the Revenue that the impugned order was erroneous and prejudicial to the interest of the Revenue since the Assessing Officer had only determined the undisclosed income and not the total income which is the mandate of section 153A .The Hon’ble High Court, while adjudicating the issue, dealt at length with the purpose of introduction of the new search assessment procedures, as against the earlier block assessment procedures and then went on to interpret the proviso to section 153A(1) , and held that it is only pending proceedings which are abated on initiation of proceedings under section 153A of the Act, while the assessments which have attained finality cannot be disturbed unless materials gathered in the course of proceedings under section 153A of the Act established otherwise.
18. Thereafter, the Delhi High Court in the case of CIT Vs. Anil Kumar Bhatia 352 ITR 493, interpreted the provisions of section 153A of the Act at length, and held that as against the earlier block assessment procedure which roped in only the undisclosed income and the regular assessment proceedings were preserved, resulting in multiple assessments, under the present assessment procedures prescribed under section 153A/B/C of the Act, only one assessment order in respect of each of the six assessment years had to be passed. Th Hon’ble High Court held that this was sought to be achieved in case of those assessment years where assessment proceedings were pending on the date of search by abating them and framing fresh assessment including incomes relating to incriminating material found during search. In case of those assessment years where an assessment order had already been passed under section 143(1)(a) or 143(3), those assessments could be reopened and the total income reassessed taking note of the undisclosed income if any unearthed during search, the fetters to reopening, being removed by insertion of the non-obstante clause to section 153A. The entire thrust of the judgment rested on the interpretation that there cannot be multiple assessment orders in case of search assessments under section 153A/B/C of the Act and, therefore, where assessments were pending they would abate to enable the Assessing officer to assess the total income including undisclosed income, and where assessments or reassessments had been completed, they would not abate and the Assessing Officer would only reopen the completed assessments and include therein undisclosed income. The High Court went on to hold that such determination would be similar to orders passed in any reassessment where the total income determined in the original assessment order and income that escaped assessment are clubbed together and assessed as total income.
19. The Bombay High Court in the case of CIT Vs. Continental Warehousing (supra) upheld the interpretation of the section by the Division Bench of the same Court in the case of Murli Agro (supra) and held that finalized assessments cannot be touched by resorting to the provision of section 153A and addition was to be made only on the basis of material unearthed during search, since ‘search’ and ‘requisition’ are the crucial words appearing in the substantive provision and proviso and they would throw light on the issue of applicability of the provision. The Court upheld the understanding of the legal provision of section 153A by the Special Bench in the I.T.A.T. in this case and further held that the Delhi High Court had in the case of Anil Kumar Bhatia also reached to the same conclusion. It also referred to the judgment of the Karnataka High Court in the case of Canara Housing Development Co. Vs. DCIT (2014) 49 TAxmann..98 and stated that even as per that judgment, the scope of enquiry in search carried under section 153A had to essentially revolve around search or requisition under section 132A of the Act.
20. In the case of Kabul Chawla (supra), the Delhi High Court after considering various decisions of High Courts, summarized the legal position in paragraph 37, which is reproduced below :
“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 place. 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 material.”
v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. 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 AO.
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.”
21. The Delhi High Court further reiterated the proposition laid down in Kabul Chawla (supra) in the case of CIT Vs. RRJ Securities, 380 ITR 612 and Pr. CIT Vs. Lata Jain in ITA No.274/2016 dt.29-04-2016.
22. On going through the above judgments, we find that the reason for upholding the proposition that addition u/s 153A, in case of earlier completed assessments, can be made only on the basis of incriminating material found during search or requisition is that:
1. Assessment u/s 153A can be framed only in cases where a search is initiated u/s 132 or Books of Accounts, other documents or any assets are requisitioned u/s 132A of the Act. Moreover notices u/s 153A(1)(a) can be issued and income assessed or reassessed of six years preceding the assessment year relevant to the previous year in which search is conducted or requisition is made. Thus the crucial words “search” and “requisition” appear in the substantive provision and the proviso, which throws light on the issue of applicability of the provision .Such assessments have a vital link with the initiation and conduct of search .Since search can be authorized only on the fulfillment of conditions enumerated in section 132,those conditions will have to be taken into account while interpreting section 153A and the interpretation arrived at is that in respect of unabated proceedings assessment has to be made on the basis of books of accounts or other documents not produced in the course of original assessment but found in the course of search and undisclosed income/property discovered in the course of search. Section 153A being enacted to a search and requisition, its construction would have to be made accordingly.
2. The second proviso to section 153A (1) states that on initiation of proceedings u/s 153A ,the assessment/reassessment proceedings pending on the date of conducting search or making requisition u/s 132A of the Act, shall stand abated. The CBDT Circular no. 8 of 2003 dt.18-09-03,clarifies that proceedings in appeal, revision or rectification against finalized assessments/reassessments shall not abate. Reading the two together, the Courts have stated that as per section 153A,Assessments/reassessments already finalized do not abate, meaning thereby that they attain finality, which cannot be disturbed unless some incriminating materials are gathered during the course of search.
3. That the words “assess” or “reassess” has been used at more than one place in the section and a harmonious construction of the entire provision would lead to the conclusion that the word “assess” has been used in the context of abated proceedings and “reassess” has been used for completed proceedings which would not abate as they are not pending on the date of initiation of search or making of requisition.
23. We may add that that the requirement of the section is limited to opening or reopening of the cases for the purpose of making assessment or reassessment of the total income of preceding six assessment years prior to the year of search. It does not contain any provision regarding the concept of making assessment of undisclosed income as was there in the earlier Block assessment regime under chapter XIVB. It does not specifically contain any provision regarding the nature of addition which can be made under this section. The section has provided, for the removal of doubts ,by way of insertion of Explanation at the end of the section that save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to assessment made under this section. This implies that nature of assessment or reassessment made under this section shall be governed by the normal provisions of the Act. In case it is an assessment made for the first time, all provisions of assessment which are applicable to assessments made u/s 143(3) shall apply and in case it is a reassessment being made all principles of reassessment which are applicable in case of proceedings u/s 147/148 shall become applicable . Thus in cases where assessments have already been made addition to be made in proceedings u/s 153A is to be restricted to incriminating material found if any.
24. It is amply evident from the above that the issue is settled, with a number of decisions of the High Courts holding that in the case of completed assessments, no addition can be made in the absence of any incriminating material. Though we do agree that there are decisions of High courts which hold otherwise and state that u/s 153A , addition in case of completed assessments need not be restricted to incriminating material, but in view of the Apex court decision in CIT vs Vegetable Products Ltd.(1973) 88 ITR 192 which states that where there are two reasonable constructions of a statute ,the construction favouring the assessee should be adopted, we hold that in case of completed assessments under section 143(3)/143(1) of the Act, in the absence of any incriminating material found during the course of search, the Assessing Officer has no jurisdiction to make any addition under section 153A of the Act.”
5.1 The above extracted portion from the order as aforesaid lays down the settled judicial precedent and the judgment of the Hon’ble Apex Court in the case of CIT Vs. M/s Vegetables Products Limited reported in 88 ITR 192 also supports the case of the assessee as there is no judgment of Hon’ble Jurisdictional High Court on this issue which would go against the assessee. Accordingly, following the ratio of various judicial precedents as aforementioned, we hold that in absence of any incriminating material found during the course of search with respect to the impugned transaction, the AO did not have any power to make the impugned addition. We set aside the order of the Ld.CIT(A) and direct the AO to delete the addition.
5.2 Since we have already allowed the legal ground of the assessee by holding that no addition could have been made in absence of any incriminating material, the ground raised by the assessee with respect to the merits of the addition become academic in nature and do not require any further adjudication by us.
6.0 In the final result, the appeal of the assessee stands allowed.
Order pronounced on 23.05.2022.
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