2015 (10) TMI 179 - AT - Income Tax

Validity of proceedings initiated under section 153C - CIT (Appeals) held that assessing officer has validly assumed jurisdiction u/s 153C - Held that - The issue is covered by the decision of Hon ble Delhi High Court in the case of SSP Aviation ltd vs DCIT (2012 (4) TMI 335 - DELHI HIGH COURT) which reads that the satisfaction that is required to be reached by the Assessing Officer having jurisdiction over the searched person is that the valuable article or books of account or documents seized during the search belong to a person other than the searched person. The last line states that there is no requirement in section 153C(1) that the Assessing Officer should also be satisfied that such valuable articles or books of account or documents belonging to the other person must be shown to show to conclusively reflect or disclose any undisclosed income. The facts of this case are that there had been a survey in P group of companies. In the course of search, certain documents were found showing that the assessee acquired certain development rights from P group of companies. A satisfaction was recorded by the Assessing Officer in the case of the assessee u/s 153C. Thereafter, the proceedings were initiated against the assessee u/s 153A and the assessee was directed to file returns for the six assessment years. Assessments were completed u/s 143(3) read with section 153C. As the appeals were pending before the CIT(A), the assessee filed Writ petition before the Hon ble High Court contending that the AO had illegally assumed jurisdiction u/s 153C read with section 153A and that there was no undisclosed income to be assessed in the assessee s hands. Dismissing the petition, the Hon ble High Court held that the satisfaction that is required to be reached by the AO having jurisdiction of the person searched is that the valuable articles or books of account, etc., seized during the search belong to a person other than the person searched and there was no requirement in section 153C(1) that the AO should also be satisfied that such valuable articles or books of account, etc., belonging to the other person must conclusively reflect or disclose any undisclosed income. - Decided against assessee. Addition made in respect of share capital contribution received - Held that - all the companies who has contributed towards the share capital of the assessee are duly registered under the Companies Act with the Registrar of Companies. It is not a case where the companies are not in existence. The companies are having their respective PAN Nos., filing their income tax returns, holding bank account, issuing cheques in favour of the assessee as contribution towards share capital. The identity of the companies who have contributed towards share capital are duly proved. The transaction that they have contributed towards share capital is also proved as they have issued cheques by submitting the share application to the company and the company has allowed the shares in the name of those companies. This fact has not been denied. Merely because these companies are not able to prove the source from where they have invested and deposited the amount in their bank accounts, the assessee cannot be made liable, as in our opinion, the assessee is not required to prove the source of source. The proviso in section 68 has been inserted w.e.f.1.4.2013 and therefore, the onus to prove the nature and source of such sum so credited shall be on the assessee only from assessment year 2013-14 not prior to that. Hon ble Jurisdictional High Court in the case of CIT vs. Metachem Industries,(1999 (9) TMI 21 - MADHYA PRADESH High Court) has also taken the similar view. Even the Hon ble Gujarat High Court in the case of Deputy Commissioner of Income Tax vs Rohini Builder, 2001 (3) TMI 9 - GUJARAT High Court has also taken the view that the assessee is not required to prove the source of source. On this basis also, following the decision of Hon ble Supreme Court in the case of Lovely Exports (2008 (1) TMI 575 - SUPREME COURT OF INDIA ), the additions made are to be deleted. The AO is directed to take action in the hands of the companies/persons, who has contributed towards share capital in the case of the assessee in accordance with law in respect of which the addition has been made Also from the assessment order, we noted that the AO observed that Mr Vinay Gandhi, who was a Chartered Accountant, in his statement dated 14.2.2009 stated that his source of income is C.A. practice and he has arranged entries for the assessee company by introducing him to Sunil Agarwal. Even in the statement of Shri Gunjan Karun S/O. Shri J.K.Ray recorded on 21.12.2009, it has been stated that they have signed the cheque and given it to C.A. Mr Vinay Gandhi for share capital entry. The C.A. who is in practice is barred to carry on any other business as per the code of conduct formulated by the Institute of Chartered Accountants. Even in case the C.A. has accepted that he was engaged in such illegal action, the AO is directed to take action against the C.A. before the Institute of Chartered Accountants so that disciplinary action be taken as the C.A. who is holding certificate of practice cannot be engaged in the business of providing the entries - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of salary paid to Gaurav Sharma and Smt. Shashi Sharma.
2. Validity of appeals by the revenue based on tax effect.
3. Validity of proceedings initiated under section 153C of the Income Tax Act.
4. Addition made in respect of share capital contribution received by the assessee.
5. Charging of interest under sections 234A, 234B, and 234C of the Income Tax Act.

Detailed Analysis:

1. Disallowance of Salary Paid to Gaurav Sharma and Smt. Shashi Sharma:
The revenue's appeals for the assessment years 2003-04 to 2008-09 were based on the disallowance of salary paid to Gaurav Sharma and Smt. Shashi Sharma. The Tribunal noted that the total tax effect in all the appeals filed by the revenue was less than Rs. 4 lakhs, which is the threshold limit set by the Central Board of Direct Taxes (CBDT) for filing appeals. Consequently, the appeals were dismissed in limine due to the low tax effect.

2. Validity of Appeals by the Revenue Based on Tax Effect:
The Tribunal referred to CBDT Instruction No. 5/2014, which specifies that appeals should not be filed where the tax effect does not exceed Rs. 4 lakhs before the Tribunal. The Tribunal also cited the Gujarat High Court decision in the case of CIT v. Sureshchandra Durgaprasad Khatod (HUF) and the Delhi High Court decision in CIT v. M/s. P.S. Jain & Co., which held that such instructions apply to pending cases as well. Since the total tax effect in all the appeals was less than Rs. 4 lakhs, the appeals were dismissed.

3. Validity of Proceedings Initiated Under Section 153C of the Income Tax Act:
The assessee contended that the documents seized during the search were not incriminating and hence, no valid assumption of jurisdiction under section 153C could be made. The Tribunal held that the documents found during the search belonged to the assessee and were sufficient for the Assessing Officer (AO) to assume jurisdiction under section 153C. The Tribunal relied on the Delhi High Court decision in SSP Aviation Ltd. v. Dy. CIT, which clarified that the AO only needs to be satisfied that the documents belong to a person other than the searched person, without requiring the documents to show undisclosed income.

4. Addition Made in Respect of Share Capital Contribution Received by the Assessee:
The Tribunal noted that the share capital contributions were received through proper banking channels and the identity of the shareholders was established. The Tribunal referred to the Supreme Court decision in CIT v. Lovely Exports (P) Ltd., which held that if the identity of the shareholders is established, the burden is not on the assessee to prove their creditworthiness. The Tribunal also observed that no incriminating material was found during the search relating to the share capital contributions. Consequently, the additions made were deleted.

5. Charging of Interest Under Sections 234A, 234B, and 234C of the Income Tax Act:
The Tribunal directed the AO to recompute the interest under sections 234A, 234B, and 234C after giving effect to the order.

Conclusion:
The Tribunal dismissed the revenue's appeals due to the low tax effect and lack of incriminating evidence. The assessee's cross-objections were also dismissed as infructuous. The additions made on account of share capital contributions were deleted, and the AO was directed to recompute the interest under sections 234A, 234B, and 234C.