2024 (7) TMI 1414 - AT - Income Tax

Validity of assessment u/s 153C - said provisions are not applicable on the facts of the case - notice is issued to the 'other person' under Section 153C - difference to the computation of the block of six years preceding the AY relevant 'to the previous year /in which the search was conducted - HELD THAT - We have taken into consideration the aforesaid findings of the CIT(A) and the relevant dates of search, recording of satisfaction and transmission of record are as such not disputed, then CIT(A) was not in error to rely the judgment of RRJ Securities Ltd. 2015 (11) TMI 19 - DELHI HIGH COURT . In the present case since in the case of the 'other person' the AO issues notice only subsequent to the notices issued under Section 153 A to the searched person, the starting point for computation of the block period would be the date on which, based on the seized documents, notice is issued to the 'other person' under Section 153 C of the Act. Thus in the present case, the six year period prior to AY 2012-13 i.e. AY 2007-08 to AY 2012-13. Thus no notice could be issued under Section 153 C of the Act to reopen the Assessee's assessment for A Y 2006-07 In fact, the manner in which ground No. 1 to 3 are raised, without relying any contrary judicial decision, makes the grounds, superfluous. We have no reason to differ from the conclusion drawn by CIT(A). Accordingly, ground No. 1 to 3, of the appeal of revenue, which go to the root of the exercise of jurisdiction, cannot be sustained. Consequently, the appeal of the Revenue is dismissed.

Issues Involved:
1. Jurisdiction under Section 153C.
2. Prospective nature of the amendment to Section 153C.
3. Date of handing over documents as the date of search.
4. Allegation of the assessee company being a shell company.
5. Deletion of addition on account of unexplained share capital and share premium.
6. Deletion of addition on account of undisclosed commission.
7. Deletion of disallowance of bogus expenses.

Detailed Analysis:

1. Jurisdiction under Section 153C:
The Revenue contended that the CIT(A) erred in holding that the assessment years covered under Sections 153A and 153C are different. The CIT(A) found that the notice under Section 153C was issued on 08.10.2018, and thus the relevant assessment years would be 2013-14 to 2018-19. Since the notice was issued for the assessment year 2010-11, it was deemed barred by limitation. The CIT(A) referenced the provisions of Section 153C and the judgment of the Hon'ble Delhi High Court in the case of SARWAR AGENCY PVT LTD, which held that the six assessment years for which assessments can be made under Section 153C should be construed with reference to the date of handing over of assets/documents to the AO of the assessee. Consequently, the CIT(A) concluded that the proceedings under Section 153C for the assessment years 2010-11, 2011-12, and 2012-13 were beyond jurisdiction.

2. Prospective Nature of the Amendment to Section 153C:
The Revenue argued that the CIT(A) erred in treating the amendment to Section 153C as prospective. The CIT(A) held that the amendment by the Finance Act, 2017, which stated that the block period for both the searched person and the "other person" would be the same six assessment years preceding the year of search, is prospective. This interpretation was supported by the Hon'ble Delhi High Court in the case of SARWAR AGENCY PVT LTD.

3. Date of Handing Over Documents as the Date of Search:
The CIT(A) treated the date of handing over documents (08.10.2018) as the date of search for deciding the relevant assessment year. The CIT(A) referred to the provisions of Section 153C and the judgment in the case of RRJ Securities Ltd., which clarified that the six assessment years for which assessments can be made under Section 153C should be construed with reference to the date of handing over of assets/documents.

4. Allegation of the Assessee Company Being a Shell Company:
The Revenue alleged that the assessee company was a shell company used for providing accommodation entries and failed to provide the identity and creditworthiness of the lenders. The CIT(A) found that the incriminating documents did not pertain to the appellant at the time of the search, as the appellant had sold its investment in Mysore Finlease Private Limited in 2012-13, before the date of the search in July 2015. The CIT(A) relied on the judgment of the Hon'ble Supreme Court in CIT Vs. Sinhgad Technical Educational Society, which held that incriminating material must pertain to the specific person for the specific period.

5. Deletion of Addition on Account of Unexplained Share Capital and Share Premium:
The CIT(A) deleted the addition of Rs. 13,32,00,000/- on account of unexplained share capital and share premium investment and Rs. 26,64,000/- on account of commission charges paid to bogus companies. The CIT(A) concluded that the additions were not based on any incriminating material related to the assessment year in question.

6. Deletion of Addition on Account of Undisclosed Commission:
The CIT(A) deleted the addition of Rs. 53,26,221/- on account of undisclosed commission earned from laundering funds for providing accommodation entries. The CIT(A) found no incriminating material to support the addition.

7. Deletion of Disallowance of Bogus Expenses:
The CIT(A) deleted the disallowance of Rs. 5,80,314/- on account of bogus expenses booked in the profit and loss account. The CIT(A) concluded that the disallowance was not supported by any incriminating material.

Conclusion:
The CIT(A) found that the notices under Section 153C were beyond valid jurisdiction and the additions made were not supported by incriminating material. The Revenue's appeal was dismissed, and the CIT(A)'s order was upheld. The AO was given the liberty to initiate proceedings under Sections 147/148 or seek action under Section 263 as per the provisions of law.

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