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TMI Blog2016 (3) TMI 1125X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of incriminating material, the Assessing Officer should reiterate the completed assessment X X X X Extracts X X X X X X X X Extracts X X X X ..... . 7.(i) On the facts and circumstances of the case ld.CIT(A) has erred both on facts and in law in confirming the abovesaid disallowance in view of the fact that no incriminating material was found during the course of search. (ii) The disallowance is otherwise untenable as the reassessment proceedings under section 153A are to be restricted to the incriminating material found during the course of search. 8. On the facts and circumstances of the case ld.CIT(A) has erred both on facts and in law in not appreciating the fact that the various additions made by the A.O. are otherwise untenable as the original assessment has been completed under Section 143(3) and the disallowance has been made in the reassessment proceedings merely on change of opinion without there being any adverse material found during the course of search. 9.(i) On the facts and circumstances of the case ld.CIT(A) has erred both on facts and in law in not appreciating the fact that the original assessment order passed under Section 143(3) having merged with the order of appellate authorities, the A.O. was not justified in reappraising the same and tinkering with the same. (ii) The above action of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon the assessee to prove the credit in its books of account. To discharge such onus, assessee has to establish the identity of the shareholder, creditworthiness of the shareholder and genuineness of the transaction. From the various details given by the Assessing Officer in respect of the share applicants whose credits have not been accepted, it is evident that they had very meager business income and from such meager income, they cannot invest huge money in the form of share capital with the assessee company. That summons issued to those share applicants were not complied with. The assessee was informed of this position and was requested to produce the director of such share applicant company. The assessee did not produce the director of the said company. On these facts, the Assessing Officer rightly concluded that the assessee did not discharge the onus which lay upon it to prove the credit in the form of share capital. In support of his contention, he relied upon the decision of Hon'ble Delhi High Court in the case of CIT Vs. Nova Promoters and Finlease (P) Ltd. - [2012] 342 ITR 169 (Delhi). He, therefore, submitted that the order of learned CIT(A) on this point may be reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned above in paragraph 4 of the assessment order can be said to be incriminating material. The details Del/2012 & 6 othersfound by the Revenue authorities during the course of search were the documents relating to share application money which were duly disclosed by the assessee in its account. The document was only the group summary of the share application money because in the assessee company, persons from various groups viz. M/s Suncity Group, Essel Group, Action Group and Odeon Group of companies have applied for shares and the Assessing Officer himself, after analyzing all the share application money, has mentioned about the application by these groups of companies who have applied for the shares in the assessee company. That in the assessment order, the Assessing Officer has nowhere mentioned that any incriminating material was found at the time of search. Learned DR also, though argued at the time of hearing that various documents relating to share application money were found and seized, has not pointed out a single document which will fall within the ambit of incriminating material. He further stated that the learned CIT-DR has stated that during post-search enquiry, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 153A 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4, decided on 28th August, 2015 has held that completed assessments could only be interfered with by the AO on the basis of any incriminating material unearthed during the course of the search or requisition of the documents. In absence of any incriminating material, the AO does not have any jurisdiction to interfere in concluded assessments." 16. Having discussed the legal position held by Hon'ble Jurisdictional High Court above, let us examine the facts of the case so as to ascertain whether any incriminating material was unearthed during the course of search or requisition of documents. For the year under consideration, the assessee had filed the return of income on 1st November, 2012 declaring total income of ₹ 3,05,04,140/-. The case was taken up for scrutiny by issuance of notice u/s 143(2). From page 1 to 62, there are the details and evidences produced by the assessee during the original assessment proceedings. Paragraph 3 of the assessee's reply before the Assessing Officer, copy of which is placed at page 1 of the assessee's paper book, reads as under:- "3. Share Application Money As desired, we are enclosing herewith a list showing details of Share Appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the names of all the share applicants along with their addresses were already on record, merely because in a document those share applicants have been classified in some groups, does not mean that such document was an incriminating material indicative of any undisclosed income. For the year under consideration, the Assessing Officer has treated the share application money of M/s Anu Fashions Pvt.Ltd. ₹ 4,02,00,000/-, M/s Churu Trading Co. Pvt.Ltd. ₹ 3,00,00,000/- and M/s Daulat Finvest Pvt.Ltd. ₹ 50,00,000/-. The facts relating to M/s Anu Fashions Pvt.Ltd. are discussed at page 7 paragraph 4.9 of the assessment order. Main reason given by the Assessing Officer for not accepting creditworthiness of M/s Anu Fashions Pvt.Ltd. is the meager income shown by the said company. However, in the details discussed in the assessment order relating to M/s Anu Fashions Pvt.Ltd., there is no mention by the Assessing Officer with regard to any incriminating material. In the case of Churu Trading Co. Pvt.Ltd., the Assessing Officer, during assessment proceedings, has issued notice u/s 133(6). In response to which, the company did not furnish the requisite information. The Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 2004-05 cannot be interfered with. In view of the above, we are not going into the merit of the argument of both the sides so as to record the finding whether the assessee has discharged the onus of proving the credit in the form of share application money or not but, we uphold the order of learned CIT(A) deleting the addition of ₹ 7,52,00,000/- on the limited ground that in view of the decision of Hon'ble Jurisdictional High Court in the case of Kabul Chawla (supra) and RRJ Securities Ltd. (supra), the completed assessment cannot be interfered with. With this remark, we dismiss the Revenue's appeal in ITA No.44/Del/2012. 19. The only other ground raised in the assessee's appeal is with regard to the disallowance of ₹ 60,00,000/- made by the Assessing Officer on account of interest on borrowed money. With regard to this ground also, it was stated by the learned counsel that in the assessment u/s 153A, the Assessing Officer disallowed ₹ 60,00,000/- out of interest on the ground that the borrowed money has been utilized for acquisition of a capital asset and, therefore, interest income is to be disallowed in proportion to the investment in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment u/s 153A was completed on 30th December, 2010 at the total income of ₹ 5,87,86,122/- in which the Assessing Officer made the addition of ₹ 3,79,00,000/- in respect of share application money. The same was deleted by the learned CIT(A). Hence, this appeal by the Revenue. 25. At the time of hearing before us, learned DR stated that his arguments mainly remain the same as were advanced in assessment year 2004-05. In addition, he pointed out that for the year under consideration, the Assessing Officer made the addition in respect of share application money received from following two parties :- (i) Churu Trading Co. P.Ltd. : ₹ 2,52,00,000/- (ii) Vandana Laboratories P.Ltd. : ₹ 1,27,00,000/- 26. He stated that the issue of Churu Trading Co. P.Ltd. is already discussed in assessment year 2004-05. In respect of Vandana Laboratories P.Ltd., he referred to the assessment order page 9 and pointed out that in respect of search at the premises of Best group of cases, it was gathered that such group was taking accommodation entries mainly in the form of share capital. M/s Vandana Laboratories P.Ltd. is one of the companies which was providing accomm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessing Officer in the assessment order. 28. We have carefully considered the submissions of both the sides and have perused the material placed before us. We have already discussed at length the scope of assessment u/s 153A specially when the original assessment was already completed u/s 143(3) while deciding the Revenue's appeal for assessment year 2004-05. In the light of the above legal position as already discussed by us, let us examine whether in respect of M/s Vandana Laboratories P.Ltd., it can be said that the Revenue has found any incriminating material in the course of search. Admittedly, no incriminating material relating to M/s Vandana Laboratories P.Ltd. was found at the time of search of the assessee's premises. The details mentioned by the Assessing Officer at page 9 & 10 of his order relating to M/s Vandana Laboratories P.Ltd. are reproduced below for ready reference :- "ii. M/s Vandana Laboratories Ltd. The assessee has introduced a sum of ₹ 1,27,00,000/- as share application money and share premium in the name of M/s Vandana Laboratories Ltd. The summon sent to the assessee for personal attendance has not been complied with. However, before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xis Bank, Karol Bagh 223010100074777 68. Vandana Laboratories Pvt.Ltd.; 13/34, WEA, Arya Samaj Road, Karol Bagh 1. Rajesh Prasad 2. Jitender Kumar 1. ABN Amro Bank, B.K. Road 2. Standard Chartered 751481 52205031591 69. Venus Insec Pvt.Ltd.; 13/34, WEA, Arya Samaj Road, Karol Bagh 1. Ritu Saxena 2. Pramod Kumar 1. Kotak Mahindra Bank, K.G. Marg 172200002779 From the above, it is also evident that a number of paper companies have been floated to provide accommodation entries and secondly, it is also evident that M/s Vandana Laboratories (P) Ltd. is also one such company. From the above enquiries, the following facts have come to notice: (a) The company from whom the assessee has shown huge share premium and share application money is controlled by the Directors who have also stated that a large number of companies operated by them are simply for name sake as they are not carrying out any business activity. There is also an admission that these are paper entities floated for the purpose of providing accommodation entries. (b) The facts of the present case has much relevance because the case is peculiar as the person who is managing the affairs of these companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be formed that M/s Vandana Laboratories P.Ltd. is providing accommodation entries. Moreover, during the course of assessment proceedings, the Assessing Officer issued summons to M/s Vandana Laboratories P.Ltd. which was duly responded by the said company. Therefore, if Assessing Officer had any doubt that M/s Vandana Laboratories P.Ltd. is entry provider, he could have verified the same from the said company. 30. The assessee has produced before us the order of the ITAT in the case of M/s Vandana Laboratories P.Ltd. for assessment year 2003-04 vide ITA No.1789/Del/2009. It was the Revenue's appeal before the ITAT and following grounds were raised:- "1. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in deleting an addition of ₹ 70,70,000/- especially when the genuineness of transaction, creditworthiness and identity of the parties was not established. 2. On the facts and in the circumstances of the case, the ld.CIT(A) has erred in deleting an addition of ₹ 56 lacs made by the AO on account of unexplained investment u/s 69A of IT Act, 1961 ignoring the fact that the transaction was not supported by any independent evidence. 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble because no incriminating material relating to share application money from M/s Vandana Laboratories P.Ltd. was found during the course of search of the assessee's premises or during the course of post-search investigation in the case of the assessee. 33. Since, in our opinion, the addition of share application money amounting to ₹ 3,79,00,000/- is out of the purview of addition u/s 153A, we do not go into the merits of the addition made by the Assessing Officer and deleted by learned CIT(A). We, respectfully following the decision of Hon'ble Jurisdictional High Court in the case of Kabul Chawla (supra) and RRJ Securities Ltd. (supra), hold that in the absence of any incriminating material found during the course of search of assessee's premises, completed assessment cannot be interfered with. Accordingly, the order of learned CIT(A) is upheld. ITA No.46/Del/2012 - Revenue's appeal for AY 2006-07 :- 34. The only ground raised in this appeal by the Revenue reads as under:- "On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in deleting the addition of ₹ 35,00,000/- made by the Assessing Officer on account of issue of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40. Learned CIT(A) had deleted the addition. Hence, this appeal by the Revenue. 41. At the time of hearing before us, both the parties relied upon their arguments advanced while arguing the Revenue's appeal for assessment year 2004-05. 42. We have already dealt with the arguments of both the parties while deciding the Revenue's appeal for assessment year 2004-05. Let us examine the facts of this year so as to ascertain whether any incriminating material relating to Dauphin Cables (P) Ltd. and Disha Impex (P) Ltd. was found at the time of search at the assessee's premises. With regard to Dauphin Cables (P) Ltd., the Assessing Officer has discussed the facts from page 10 to 14 of the assessment order. It has been mentioned by the Assessing Officer that a detailed enquiry has been conducted by the Investigation Wing in the case of Dauphin Cables (P) Ltd. in which it was revealed that Dauphin Cables (P) Ltd. has raised money from a number of entities which were not found to be genuine. When DDIT(Investigation) asked Dauphin Cables (P) Ltd. to prove the genuineness and creditworthiness of the persons who have given share application money during the year 2002-03 and 2003-04, the party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment order nowhere indicate any incriminating material found against the receipt of share application money by the assessee from Dauphin Cables (P) Ltd. 44. In the case of Disha Impex (P) Ltd. also, the Assessing Officer has not pointed out that any incriminating material was found at the time of search in respect of share application money received from Disha Impex (P) Ltd. The Assessing Officer treated the share application money received from Disha Impex (P) Ltd. as unexplained on the ground that summon issued u/s 131A to the company was returned unserved and the assessee did not produce the director of Disha Impex (P) Ltd. Thus, there is no reference to any incriminating material found at the time of search in the assessment order. At the time of hearing before us also, the learned DR was unable to point out any incriminating material found at the time of search in respect of share application money received from Dauphin Cables (P) Ltd. or Disha Impex (P) Ltd. In view of the above, we are of the opinion that the decisions of Hon'ble Jurisdictional High Court in the case of Kabul Chawla (supra) and RRJ Securities Ltd. (supra) would be squarely applicable. Respectful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a case where the assessee has neither proved the identity of the creditor nor the creditworthiness of the creditor. He further stated that almost similar are the facts with regard to Blue Line Motors Pvt.Ltd. In the said case also, the summon issued u/s 133(1A) was received back and the assessee did not produce the director of the said company. He, therefore, submitted that the Assessing Officer rightly treated the share application money received from Churu Trading Co. P.Ltd. and Blue Line Motors Pvt.Ltd. as unexplained. He, therefore, requested that the order of the CIT(A) should be reversed and that of the Assessing Officer may be restored. 49. Learned counsel for the assessee, on the other hand, pointed out that during assessment proceedings, vide letter dated 15th December, 2010, the assessee produced the confirmation from Churu Trading Co. P.Ltd. It has also furnished the bank statement of Churu Trading Co. P.Ltd., copy of their income tax return, copy of their audited balance sheet, copy of share application form, memorandum and articles of association of the said company, copy of said company's details with ROC and list of directors of the company. He also stated that when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n money received from M/s Churu Trading Co.(P) Ltd., we have already filed confirmation in the form of confirmed copy of account for financial year 2007-08, copy of their bank statements from where they have made the payment to us indicating source of making payment, copy of their audited annual accounts for financial year 2007-08, copy of share application forms, M/A and proof of filing I.T. return for Assessment Year 2008-09, status report as per ROC site etc. The whole share application money of ₹ 10,50,00,000/- was received through account payee cheque only and credited to our bank account. Out of the whole share application money, ₹ 1,00,00,000/- was refunded through account payee cheque and balance remains outstanding as at 31.03.2008 & 31.03.2009. 02. M/s Blue Line Motors (P) Ltd. In support of share application money received from M/s Blue Line Motors (P) Ltd., we have already filed confirmation in the form of confirmed copy of account for financial year 2007-08, copy of their bank statement from where they have made payment to us indicating source of making payment, copy of their audited annual accounts for financial year 2007-08, copy of share applicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. In those circumstances, the respondent could not do anything further. In the premises, if the Tribunal came to the conclusion that the respondent had discharged the burden that lay on it, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such arose. The High Court was right in refusing to state a case." 52. Hon'ble Jurisdictional High Court in the case of Rakam Money Matters Pvt.Ltd. (supra) held as under:- "13. It is not in dispute that extensive material was produced by the assessee in the present case to prove the identity, genuineness and creditworthiness of the companies who had subscribed to its shares. Among the materials produced were the income tax returns and the PAN card details of the eight companies. Even if the Directors of these companies did not respond to the summons issued by the AO, it was not impossible for the AO to make proper enquiries to ascertain the genuineness of these entities and satisfy himself of their creditworthiness. As pointed out by the CIT(A), the AO failed to make any effo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation letters from the companies, their PAN number, copy of bank statements, affidavits and balance sheet. Thereafter the Assessing Officer had asked the assessee to produce the said Directors/parties. Assessee expressed its inability to produce them. The Assessing Officer did not consequent thereto conduct any inquiry and closed the proceedings. This is a case where the Assessing Officer has failed to conduct necessary inquiry, verification and deal with the matter in depth specially after the affidavit/confirmation along with the bank statements etc. were filed. In case the Assessing Officer had conducted the said enquiries and investigation probably the challenge made by the Revenue would be justified. In the absence of these inquiries and non-verification of the details at the time of assessment proceedings, the factual findings recorded by the Assessing Officer were incomplete and sparse. The impugned order passed cannot be treated and regarded as perverse. The appeal is dismissed as no substantial question of law arises." 55. That the above decisions of Hon'ble Jurisdictional High Court and Hon'ble Apex Court would be squarely applicable to the facts of the assessee's c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of Rakam Money Matters Pvt.Ltd. also, the director of the shareholder companies did not respond to the summon issued by the Assessing Officer. However, Hon'ble Jurisdictional High Court held that if the Assessing Officer did not make proper enquiries on the basis of income tax returns and PAN details of share applicant companies, the addition for unexplained credit cannot be sustained. In the case of the assessee, the facts are identical. The assessee produced confirmation, income tax return, balance sheet and bank statement of share applicant companies. The Assessing Officer did not make any effort to examine those evidences produced by the assessee. Therefore, the above decision of Hon'ble Delhi High Court would be squarely applicable. 58. Similar views are expressed by their Lordships in the case of Vrindavan Farms (P) Ltd. (supra). In the said case also, the assessee produced permanent account numbers, confirmations, bank statement, balance sheet and certificate of incorporation of share applicant companies. The Assessing Officer, without undertaking any investigation on these documents, made addition on the ground that those companies had very low income. H ..... X X X X Extracts X X X X X X X X Extracts X X X X
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