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TMI Blog2019 (4) TMI 675X X X X Extracts X X X X X X X X Extracts X X X X ..... dditions made by the AO while passing the assessment order under section 153A for the impugned assessment year cannot be sustained and liable to be set-aside. Coming to the merits of the additions sustained by the ld CIT(A) u/s 68 it is noted that the assessee company has received share application money of ₹ 8 lacs and ₹ 10.35 lacs as unsecured loan from M/s Jalsagar Commerce Pvt Ltd during the financial year relevant to impugned assessment year. As relying on M/S. KOTA DALL MILL VERSUS THE DEPUTY COMMISSIONER OF INCOME-TAX AND VICE-VERSA [2019 (1) TMI 344 - ITAT JAIPUR] the addition made u/s 68 towards share application money and unsecured loan from M/s Jalsagar Commerce Pvt ltd is hereby directed to be deleted. - Decided is favour of assessee. - ITA No. 1120/JP/2018 - - - Dated:- 8-4-2019 - SHRI VIJAY PAL RAO, JM And SHRI VIKRAM SINGH YADAV, AM Assessee by: Shri Vijay Goyal And Shri Gulshan Agarwal (CA) Revenue by: Shri Varindar Mehta (CIT) ORDER PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the assessee against the order of ld. CIT(A)- 2, Udaipur dated 21.08.2018 wherein the assessee has taken the following grounds of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e course of search of accommodation entry provider. Further incriminating material had been gathered by issuing commission to DCIT (Inv.) Kolkatta. 5. On the facts and in the circumstances of the case and in law the ld. CIT(A) erred in confirmation the addition of ₹ 18,35,000/- made by ld. AO u/s 68 Income Tax Act, 1961 on account of share capital and premium thereon and unsecured loan received from following parties and erroneously held that the identity, creditworthiness and genuineness of the under mentioned company is doubtful:- Name of the company from whom loan received Amount Name of alleged entry operator whose statement were relied Jalsagar Commerce Pvt. Ltd (Share capital and premium thereon) 8,00,000 Shri Anand Sharma Jalsagar Commerce Pvt. Ltd (Unsecured Loan) 10,35,000 Shri Anand Sharma 6. On the facts and in the circumstances of the case and in law the ld. CIT(A) erred in rejecting the theory of peak credit and erred in not allowing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der consideration was not pending as on the date of search and there is no incriminating material found or seized during the course of search, the AO is bound to reassess the total income as it was assessed on the original return of income. In support of his contentions, the ld. AR has relied upon the decision of Hon ble Delhi High Court in case of CIT vs. Kabul Chawla reported in 380 ITR 573 and submitted that the Hon ble High Court in that case as held that in case of completed assessment not abated by virtue of search u/s 132 of the Act, in absence of any incriminating material, the completed assessment can only be reiterated and therefore no addition could have been made to income already assessed. The ld AR has further placed reliance on the decision of the Hon ble Rajasthan High Court in case of Jai Steel (India) vs. ACIT (2013) 219 Taxman 223 and submitted that the Hon ble Jurisdictional High Court has held that the requirement of assessment or reassessment under section 153A has to be read in the context of section 132 or 132A of the IT Act, in as much as in case nothing incriminating is found on account of such search or requisition, then the question of reassessment of co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was received prior to the initiation of proceedings under section 153A and also during the pendency of proceedings under section 153A. Accordingly, during the course of assessment proceedings under section 153A, the AO conducted further enquiry about the genuineness of the transaction of share capital and unsecured loans. The assessee was duly confronted with the results of all these enquiries and information shared by the Investigation Wing. In these circumstances, it cannot be a case of addition made without any incriminating material but the AO was having sufficient material disclosing the undisclosed and unexplained cash credit introduced by the assessee in the garb of unsecured loans and share capital. Once the insurmountable evidences unearthed by the Investigation Wing Kolkata which is the basis of the additions made by the AO, the assessee was required to discharge its onus by producing the contrary evidence or by producing alleged creditors for verification. The ld. CIT D/R has further submitted that the information received from the Investigation Wing Kolkata is also the incriminating material found during the search and pertains to the assessee disclosing undisclosed inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant material on record. Undisputedly, the assessments for the assessment years 2010-11 to 13-14 were not pending on the date of search on 2nd July, 2015. Even in some of the assessment years orders under section 143(3) were passed and in other cases the assessment was completed under section 143(1) of the Act. Thus the assessments for the assessment years 2010-11 to 13-14 were not got abated by virtue of search under section 132 on 2nd July, 2015 and the AO would reassess the total income of the assessee as per the provisions of section 153A in respect of these four assessment years i.e. 2010-11 to 13-14. The proceedings under section 153A in respect of these four assessment years would be in the nature of reassessment and not in the nature of assessment as in the cases of the remaining two assessment years i.e. 2014-15 and 15-16 those were got abated by virtue of search and seizure action under section 132 of the Act on 2nd July, 2015. It is a settled proposition of law that the assessment or reassessment under section 153A in respect of the assessment years which have already been completed and assessment orders have been passed determining the assessee s total income, the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes of making additions on account of share capital. 3. As far as the above facts are concerned, there is nothing shown to the court to persuade and hold that the above factual determination is perverse. Consequently, after considering all the facts and circumstances of the case, the Court is of the opinion that no substantial question of law arises in the impugned order of the ITAT which requires examination. The SLP filed by the revenue against the said decision of Hon ble Delhi High Court was dismissed by the Hon ble Supreme Court vide order dated 7th December, 2015. In a subsequent decision, the Hon ble Delhi High Court in the case of Principal CIT vs. Meeta Gutgutia has again analyzed this issue in para 55 to 71 as under :- 55. On the legal aspect of invocation of Section 153A in relation to AYs 2000-01 to 2003-04, the central plank of the Revenue's submission is the decision of this Court in Smt. Dayawanti Gupta (supra). Before beginning to examine the said decision, it is necessary to revisit the legal landscape in light of the elaborate arguments advanced by the Revenue. 56. Section 153A of the Act is titled Assessment in case of search o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lachman Das (supra), and Filatex India Ltd. v. CIT-IV (supra) in their application to the present case is that in both the said cases there was some material unearthed during the search, whereas in the present case there admittedly was none. Secondly, it is plain from a careful reading of the said two . decisions that they do not hold that additions can be validly made to income forming the subject matter of completed assessments prior to the search even if no incriminating material whatsoever was unearthed during the search. 32. Recently by its order dated 6th July 2015 in ITA No. 369 of 2015 (Pr. Commissioner of Income Tax v. Kurele Paper Mills P. Ltd.), this Court declined to frame a question of law in a case where, in the absence of any incriminating material being found during the search under Section 132 of the Act, the Revenue sought to justify initiation of proceedings under Section 153A of the Act and make an addition under Section 68 of the Act on bogus share capital gain. The order of the CIT (A), affirmed by the ITAT, deleting the addition, was not interfered with. 59. In Kabul Chawla (supra), the Court referred to the decision of the Rajasthan High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the entire provision would lead to an irresistible conclusion that the word assess has been used in the context of an abated proceedings and reassess has been used for completed assessment proceedings, which would not abate as they are not pending on the date of initiation of the search or making of requisition and which would also necessarily support the interpretation that for the completed assessments, the same can be tinkered only based on the incriminating material found during the course of search or requisition of documents. ' 60. In Kabul Chawla (supra), the Court also took note of the decision of the Bombay High Court in CIT v. Continental Warehousing Corpn (Nhava Sheva) Ltd. [ 2015] 58 taxmann.com 78/232 Taxman 270/374 ITR 645 (Bom.) which accepted the plea that if no incriminating material was found during the course of search in respect of an issue, then no additions in respect of any issue can be made to the assessment under Section 153A and 153C of the Act. The legal position was thereafter summarized in Kabul Chawla (supra) as under: 37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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. 61. It appears that a number of High Courts have concurred with the decision of this Court in Kabul Chawla (supra) beginning with the Gujarat High Court in Saumya Construction (P.) Ltd. (supra). There, a search and seizure operation was carried out on 7th October, 2009 and an assessment came to be framed under Section 143(3) read with Section 153A(1)(b) in determining the total income of the Assessee of ₹ 14.5 crores against declared income of ₹ 3.44 crores. The ITAT deleted the additions on the ground that it was not based on any incriminating material found during the course of the search in respect of AYs under consideration i.e., AY 2006-07. The Gujarat High Court referred to the decision in Kabul Chawla (supra), of the Rajasthan High Court in Jai Steel (India) (supra) and one earlier decision of the Gujarat High Court itself. It explained in para 15 and 16 as under: '15. On a plain reading of section 153A of the Act, it is evident that the trigger point for exercise of powers thereu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 153A of the Act is annulled in appeal or any other proceeding. 16. Section 153A bears the heading Assessment in case of search or requisition . It is well settled as held by the Supreme Court in a catena of decisions that the heading or the Section can be regarded as a key to the interpretation of the operative portion of the section and if there is no ambiguity in the language or if it is plain and clear, then the heading used in the section strengthens that meaning. From the heading of section 153. the intention of the Legislature is clear, viz., to provide for assessment in case of search and requisition. When the very purpose of the provision is to make assessment In case of search or requisition, it goes without saying that the assessment has to have relation to the search or requisition, in other words, the assessment should connected With something round during the search or requisition viz., incriminating material which reveals undisclosed income. Thus, while in view of the mandate of subsection (1) of section 153A of the Act, in every case where there is a search or requisition, the Assessing Officer is obliged to issue notice to such person to furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this court In the case of CIT v. Jayaben Ratilal Sorathia (supra) wherein it has been held that while it cannot be disputed that considering section 153A of the Act, the Assessing Officer can reopen and/or assess the return with respect to six preceding years ; however, there must be some incriminating material available with the Assessing Officer with respect to the sale transactions in the particular assessment year.' 62. Subsequently, in Devangi alias Rupa (supra), another Bench of the Gujarat High Court reiterated the above legal position following its earlier decision in Saumya Construction (P.) Ltd. (supra) and of this Court in Kabul Chawla(supra). As far as Karnataka High Court is concerned, it has in IBC Knowledge Park (P.) Ltd. (supra) followed the decision of this Court in Kabul Chawla (supra) and held that there had to be incriminating material qua each of the AYs in which additions were sought to be made pursuant to search and seizure operation. The Calcutta High Court in Salasar Stock Broking Ltd. (supra), too, followed the decision of this Court in Kabul Chawla (supra). In Gurinder Singh Bawa(supra), the Bombay High Court held that: 6. . . . . . o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1, the Assessee in Smt. Dayawanti Gupta (supra) was confronted with certain documents seized during the search. The answer was categorical and reads thus: Ans:- I hereby admit that these papers also contend details of various transactions include purchase/sales/manufacturing trading of Gutkha, Supari made in cash outside Books of accounts and these are actually unaccounted transactions made by our two firms namely M/s. Asom Trading and M/s. Balaji Perfumes. 67. By contrast, there is no such statement in the present case which can be said to constitute an admission by the Assessee of a failure to record any transaction in the accounts of the Assessee for the AYs in question. On the contrary, the Assessee herein stated that, he is regularly maintaining the books of accounts. The disclosure made in the sum of ₹ 1.10 crores was only for the year of search and not for the earlier years. As already noticed, the books of accounts maintained by the Assessee in the present case have been accepted by the AO. In response to question No. 16 posed to Mr. Pawan Gadia, he stated that there was no possibility of manipulation of the accounts. In Smt. Dayawanti Gupta(supra), by c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ta (supra), therefore, do not detract from the settled legal position in Kabul Chawla (supra) which has been followed not only by this Court in its subsequent decisions but also by several other High Courts. 71. For all of the aforementioned reasons, the Court is of the view that the ITAT was justified in holding that the invocation of Section 153A by the Revenue for the AYs 2000-01 to 2003-04 was without any legal basis as there was no incriminating material qua each of those AYs. The Hon ble Delhi High Court has concurred with the view as taken in case of Kabul Chawla (supra) as well as the decision of Hon ble Jurisdictional High Court in the case of M/s. Jai Steel India Ltd. vs. ACIT (supra). Even on the issue of addition made by the AO in the proceedings under section 153A in respect of the assessment year which was already completed on the date of search, the Hon ble High Court has held that in the absence of any material which was subsequently unearthed during the search and was not already available to the AO, the additions made by the AO on account of security deposits were rightly deleted by the ld. CIT (A). The relevant observations of the Hon ble High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eady noticed, the Assessing Officer is bound to issue notice to the assessee to furnish returns for each assessment year falling within the six assessment years immediately preceding the assessment year relevant to the previous year in which the search or requisition was made. Another significant feature of this Section is that the Assessing Officer is empowered to assess or reassess the total income of the aforesaid years. This is a significant departure from the earlier block assessment scheme in which the block assessment roped in only the undisclosed income and the regular assessment proceedings were preserved, resulting in multiple assessments. Under Section 153A, however, the Assessing Officer has been given the power to assess or reassess the 'total income' of the six assessment years in question in separate assessment orders. This means that there can be only one assessment order in respect of each of the six assessment years, in which both the disclosed and the undisclosed income would be brought to tax. 20. A question may arise as to how this is sought to be achieved where an assessment order had already been passed in respect of all or any of those six as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year relevant to the year in which the search took place there is only one determination of the total income, it has been provided in the second proviso of sub- Section (1) of Section 153A that any proceedings for assessment or reassessment of the assessee which are pending on the date of initiation of the search or making requisition shall abate . Once those proceedings abate, the decks are cleared, for the Assessing Officer to pass assessment orders for each of those six years determining the total income of the assessee which would include both the income declared in the returns, if any, furnished by the assessee as well as the undisclosed income, if any, unearthed during the search or requisition. The position thus emerging is that the search is initiated or requisition is made, they will abate making way for the Assessing Officer to determine the total income of the assessee in which the undisclosed income would also be included, but in case where the assessment or reassessment proceedings have already been completed and assessment orders have been passed determining the assessee's total income and such orders subsisting at the time when the search or the requisition is m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nings for the AO and/or assessee beyond provisions of Sections 139 (return of income), 139(5) (revised return of income), 147 (income escaping assessment) and 263 (revision of orders) of the Act. 26. The plea raised on behalf of the assessee that as the first proviso provides for assessment or reassessment of the total income in respect of each assessment year falling within the six assessment years, is merely reading the said provision in isolation and not in the context of the entire section. The words 'assess' or 'reassess' have been used at more than one place in the Section and a harmonious construction of the entire provision would lead to an irresistible conclusion that the word 'assess' has been used in the context of an abated proceedings and reassess has been used for completed assessment proceedings, which would not abate as they are not pending on the date of initiation of the search or making of requisition and which would also necessarily support the interpretation that for the completed assessments, the same can be tinkered only based on the incriminating material found during the course of search or requisition of documents. 27. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequently, it is held that it is not open for the assessee to seek deduction or claim expenditure which has not been claimed in the original assessment, which assessment already stands completed, only because a assessment under Section 153A of the Act in pursuance of search or requisition is required to be made. In the case in hand, the transactions of unsecured loans as well as introduction of capital by the partners were duly recorded in the books of account and available with the AO. Further, during the course of search under section 132 of the Act on 2nd July 2015 no material much less incriminating material was either found or seized to disclose any undisclosed income on account of unsecured loans or partners capital received by the assessee firm. The AO has proposed to make the addition on account of unsecured loans and partners capital under section 68 being unexplained cash credit solely on the basis of the information received from Investigation Wing Kolkata. It is pertinent to note that the said information was available with the AO prior to the search conducted under section 132 of the Act in case of the assessee on 2nd July, 2015. Therefore, even the sole basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee firm have been duly considered. However, even the very elaborate and case laws loaded submissions of the assessee are totally off the mark. Against the self-speaking facts of the very nature of the activities of the so called partner s providing huge partner s capital in the most uninterested manner and providing huge unsecured loans without any collateral or other security, the emphasis of the assessee firm in its submissions has been on seeking protection under various judicial decisions even without having any fact coherence. The submissions made by the assessee are completely devoid of merit in the light of the following facts and circumstances; a. The department has very sound basis to treat, the receipts of unsecured loan and partner s capital from the above mentioned companies as bogus and in genuine. The findings of this office and Investigation report of the Investigation Directorate Kolkata are not based on any presumption, assumption, guess or bare suspicion. Where the nature and source of a receipt, whether it be of money or other property, cannot be satisfactorily explained by the assessee, it is open for the revenue to hold that it is the income of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 68 of the I.T. Act provides for charging to income tax on any sum credited in the books of the assessee maintained for any previous year if the assessee offers no explanation about the nature and source thereof or the explanation offered is not, in the opinion of the Assessing Officer, satisfactory. It places no duty upon the Assessing Officer to point to the source from which the money was received by the assessee. Where an assessee fails to prove satisfactorily the source and the nature of certain amount of credit during the accounting year, the Income-tax Officer is entitled to draw the inference that the receipt are of an assessable nature. Thus, the assessee is unable to discharge its burden of proof by failing to establish lender s identity, forget the genuineness of transactions and creditworthiness of the lender. Hence, the unsecured loans and partner s capital shown to have been received from various Kolkata Based Companies and other Companies remained unexplained. In the circumstances, I am left with no option than to tax the entire unexplained credits by way of partner s capital and Unsecured loans received from the persons mentioned in para 5 above as unexplained ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (The decisive words used in the provisions are to 'assessee or reassess the total income'). The A.O. is thus duty bound to determine the 'total income' of the assessee for such six assessment years and it is obvious that 'total income' refers to the sum total of income in respect of which a person is assessable. The total income therefore will cover not only the income emanating from declared sources or any material placed before the Assessing Officer but from all sources including the undisclosed ones, or based on the unplaced material before the AO. 3.2.3 The concept of assess or reassess and shall abate as contemplated u/s 153A is under hot judicial debate. I find that legally, this issue is very contentious in view of the divergent views of the various authorities. The appellant has tried to highlight most of them. However, it is equally pertinent to mention here that the Department has not accepted the decisions of Hon'ble Mumbai High Court in the case of M/s All Cargo Global Logistics as well as Continental Warehousing (Nhava Sheva) Ltd., and SLP has been filed before the Hon'ble Supreme Court. The Hon'ble Supreme Court has grante ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... survey under section 133A of the Act. Therefore, even if the information/report of the Investigation Wing Kolkata is considered as a relevant evidence, the same cannot be regarded as incriminating material unearthed during the course of search and seizure under section 132 of the IT Act in case of the assessee. The requirement for making the addition under section 153A in the assessment year where the assessment was not pending on the date of search and the proceedings are in the nature of reassessment is essentially the incriminating material disclosing undisclosed income which was not disclosed by the assessee. In the case in hand, the AO himself has not claimed any incriminating material found during the search and seizure in the case of the assessee. Accordingly, in the facts and circumstances of the case and in view of the binding precedents on this issue in which the SLP filed by the revenue was also dismissed by the Hon ble Supreme Court and following the earlier decision in case of KDM (Supra), the additions made by the AO while passing the assessment order under section 153A for the impugned assessment year cannot be sustained and liable to be set-aside. 8. Now, coming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is a possibility of bogus accommodation entry routed through another intermediary company M/s.Jalsagar Commerce Pvt. Ltd., it requires a definite link of the transactions from M/s.Royal Crystal Dealers Pvt. Ltd. to M/s.Jalsagar Commerce Pvt. Ltd. and then the loan to the assessee. Once the chain of transactions and flow of money from one entity to another entity and finally to the assessee has not been established, then the addition made merely on suspicion, how so strong it may be, is not sustainable. On the contrary, when the assessee produced all the relevant record which contains their financial statements, bank accounts statement of loan creditor, return of income, assessment orders framed under section 143(3), confirmation of the loan creditor, then a proper examination could have very well established the link, if any, in providing the accommodation entry from one entity to another and finally to the assessee. However, no such link was found in the documents and financial statements of these companies, rather in the bank account statement of loan creditor M/s. Jalsagar Commerce Pvt. Ltd. there was no suspicious transaction of receiving any entry or any deposit of an equal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principle as well as the directions of the CBDT issued under the Circulars that during the course of investigation, the department should concentrate and focus on collecting documentary evidence disclosing undisclosed income instead of obtaining the statement and then support of their claim merely on the basis of the statement. Therefore, the statements recorded by the DDIT Kolkata are also not based on any documentary evidence so as to have an evidentiary value for sustaining the additions made by the AO. The entire report of the Investigation Wing is based on statements recorded during survey and search. Once the assessee has produced the documentary evidence and particularly the financial statements of the loan creditors, their bank account statement, then in the absence of any discrepancy or fault in these financial statements or in the bank account statement to reflect that the transactions in question are nothing but bogus accommodation entries, the addition made by the AO is not sustainable as it is merely on the basis of surmises and conjectures and not on any tangible material disclosing the non-genuineness of the transactions. The AO has not disputed the transactions rout ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,50,50,860 87,27,72,318 0 All these details were before the AO as all these assessment years were passed by the AO pursuant to the search and seizure action under section 132 of the IT Act. Thus it is clear that for the assessment year 2015-16 there was Nil balance on account of loan taken from M/s. Jalsagar Commerce Pvt. Ltd. and the entire loan was already repaid by the assessee. We further note that it is not the case of repayment of loan after the search action on 2nd July, 2015 but there is a regular repayment of loan for each year as it is evident from the details reproduced above. Therefore, the transactions of taking loan and repayment cannot be treated as bogus once the assessee has been regularly repaying the loan amount and small balance was there at the end of the year. Once there was no balance at the end of the year on the loan account, then the addition cannot be made by treating the loan taken and repaid as bogus transaction. Apart from these facts, the assessee has also made the payment of interest which was also subjected to TDS. This shows the genuineness of the transactions and all these trans ..... X X X X Extracts X X X X X X X X Extracts X X X X
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