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TMI Blog2021 (5) TMI 256X X X X Extracts X X X X X X X X Extracts X X X X ..... al to disprove these transactions. Additions cannot be made based on inferences. - Decided in favour of assessee. - IT(SS)A No. 45/Kol/2019 - - - Dated:- 7-5-2021 - Shri J. Sudhakar Reddy, Hon ble Accountant Member And Shri A.T. Varkey Hon ble Judicial Membe For the Assessee : Shri Miraj D. Shah, AR For the Revenue : Shri John Vincent Donkupar Langstieh, CIT ORDER PER J. SUDHAKAR REDDY, HON BLE AM: This is an appeal filed by the assessee directed against the order of Commissioner of Income Tax (Appeals) -20, Kolkata dated 14.08.2019 passed u/s 250 of the Income Tax Act, 1961 the Act for the assessment year 2012-13. The facts of the case are brought out by the Ld. CIT(A) which is extracted below: The appellant is an individual who mainly derives her income from salary and investment activity. The original return of income for the A.Y. 2012-13 was filed on 10.07.2012 disclosing a total income of ₹ 2,42,822/-. The return was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred as the Act ) on 06.02.2013 resulting in a refund of ₹ 570/-. On 03.02.2017, a search and seizure operation u/s 132(1) and a survey as well u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f appeal; the appellant has challenged the assessment order passed by the AO u/s 153A of the Act, both on Jurisdictional as well as on merits of the addition made in the said order. Further, as stated above, vide the additional ground of appeal filed during the course of this appellate proceeding, the appellant had taken a new ground and challenged the validity of proceeding qua the non-receipt of notice issued by the AO u/s 143(2) of the Act. This additional ground filed by the appellant is purely legal in nature and goes into the root of the entire assessment proceeding. This additional ground is hereby accepted and also same will be adjudicated prior to the regular grounds taken by the appellant in grounds of appeal. 2. The Ld. Commissioner of Income Tax (Appeals) for the various reasons given in his order rejected the various contentions of the assessee and confirmed the order of assessment. 2.1. Further aggrieved the assessee is in appeal before us on the following grounds: a. That the Ld. CIT(A) erred in upholding the order u/s 143(3) read with section 153A of the Income Tax Act, 1961 passed by Ld. AO which is bad in law as well as on the facts and circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -examine the person cited as witness by the Revenue was allowed and these statements of these persons were illegally used by the AO against the assessee. 3.3. The learned counsel submitted that the Assessing Officer has not made any independent enquiries or conducted any investigations, either with the seller of the shares or with the stock exchange. He submitted that the conclusions of the Assessing Officer are based on borrowed investigation report of the investigation wing of the Department which was not confronted to the assessee. He submitted that the most important function of the AO of enquiry and investigation cannot be outsourced and that the report given by the Investigation Wing to them, at best is information and material based on which the AO has to made necessary and reasonable enquiries and collect evidence to support his conclusions. 3.4. For this proposition, he relied on the following case laws: Anirudhsinhji Karansinhji Jadeja Anr. Vs. State of Gujara (1995) 5 SCC 302. 3.5. For this proposition that no addition can be made in a search an assessment u/s 153A of the Act when no incriminating material is found during the course of search, he relied o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. John Vincent Donkuper Langstieh, on the other hand opposed the contentions of the assessee. He submitted that the Assessing Officer at para 4.2 of the assessment order has referred to the seized documents Id Mark SFGO/9 (page 01 to 41) and argued that these are incriminating material. He submitted that even otherwise there is no requirement for the Assessing Officer to have incriminating material found and seized during the course of search, to enable him to make additions in an assessment which is not abated u/s 153A of the Act. For this argument he relied on the order of the ld. CIT(A) para-3.5 onwards and case law mentioned therein. 4.1. He distinguished the decision relied upon by the assessee and supported the following finding of the ld. CIT(A) which is extracted below: 3.30 In view of the above discussion and analysis I am of the view that addition or disallowance can be made by the AO in unabated assessment years also without any incriminating material. However since the jurisdictional High court has decided this issue in favour of the assessee in case of Salasar Stock Broking Pvt. Ltd. (Supra) therefore, Hon court can only again readjudicate on this iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the same the earlier recorded entries/earlier admitted documents and evidence shall have no force as genuine evidence. If it were held not to be so, then the purpose of 153A would be defeated as it would fail to prevent the mischief, which if sought fo prevent just because the entries were already recoded in the books or some documents had already been accepted. Hence applying the Hayden's rule of mischief, the mere fact that such entries are recorded in the books of accounts or some fabricated or colourful documents have already been accepted as correct, will not prevent such material or entry from being incriminating, if the circumstances suggest otherwise. 3.33 Assistance or reference may also be drawn from the definition of the term undisclosed income' as given in the clause (ii) of 271AAB (c) which defines it as any income based on entry in books of accounts wholly or partly false and would not have been found to be so, had the search not been conducted . This clearly implies that any entry even recorded in the books, which is found to be wholly or partly false along with having a bearing on determination of income based on evidence gathered during search, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xamine the statement of entry operator i.e. Anil Kumar Khemka, no addition can be made by the AO as the same amounts to violation of natural justice. A perusal of assessment record shows that the Assessee has never asked for cross examination of Shri Anil Kumar Khemka. I would also like to mention that, addition in the present case had been made by the AO not solely on the basis of the statement of entry operator. In the present case the AO has made a detailed investigation and did a pain staking factual analysis. It is only on the basis of these analysis and investigation, the AO has recorded multiple adverse findings against the alleged capital gain transaction. In case of GTC Industries Limited, 65 ITD 380 of Mumbai bench of Tribunal has held that where statements of witnesses were only secondary and of subordinate material used to buttress main matter connected with amount of additions, it had to be held that there was no denial of principle of natural justice if witnesses were not allowed to be cross examine by the assessee. In case of Soman Sun Citi vs. JCIT (ITAT Mumbai) S. 69C Bogus Purchases (100% disallowance confirmed): It was held that The right of cross- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s follows. 6. A search and seizure operation was conducted on the assessee on 03.02.2017 and was concluded on 05.03.2017 as is evident from the Panchanama. The assessee had filed his return of income for AY 2012-13 on 10.07.2012. This return of income was processed u/s 143(1) of the Act. No statutory notice u/s 143(1) of the Act was issued to the assessee. Thus the assessment for the including A.Y. 2012-13 has not abated. 6.1. We shall not consider the argument of the assessee that no incriminating material was found or seized during the course of search and seizure operation. 6.2. The Assessing Officer as well as the ld. CIT(A) relied on the seized material ID Mark SFGO/9 (Page 01 to 41). The case of the Revenue is that these papers are incriminating material. The assessee argues that this is not incriminating material as she has all of them disclosed to the Revenue and as these documents are official document which form part of the original books of account. 6.3. We have perused the copies of this seized material ID Mark SFGO/9 (Page 01 to 41) which is placed at page 31 of the Paper Book. This is listed for ready reference: Sl. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in an unabated assessment u/s 153A of the Act, when there is no incriminating material found is laid down by various High Courts and Benches of ITAT as follows: A) The Hon ble Delhi High Court in the case of Pr. CIT vs. Meeta Gutgutia 395 ITR 526 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 or requisition . It is connected to Section 132 which deals with 'search and seizure'. Both these provisions, therefore, have to be read together. Section 153A is indeed an extremely potent power which enables the Revenue to re-open at least six years of assessments earlier to the year of search. It is not to be exercised lightly. It is only if during the course of search under Section 132 incriminating material justifying the re-opening of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in Jai Steel (India) v. Asstt. CIT [2013] 36 taxmann.com 523/219 Taxman 223. The said part of the decision in Kabul Chawla (supra) in paras 33 and 34 reads as under: '33. The decision of the Rajasthan High Court in Jai Steel (India), Jodhpur v. ACIT (supra) involved a case where certain books of accounts and other documents that had not been produced in the course of original assessment were found in the course of search. It was hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 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 thereunder is a search under section 132 or a requisition under section 132A of the Act. Once a search or requisition is made, a mandate is cast upon the Assessing Officer to issue notice under section 153A of the Act to the person, requiring him to furnish the return of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ens 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 sub-section (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 returns of income for the six years preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made, any addition' or disallowance can be made only on the basis of material collected during the search or requisition, in case no incriminating material is found, as held by the Rajasthan High Court in the case of Jai Steel (India) v. Asst. CIT (supra), the earlier assessment would have to be reiterated, in case where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. . . . . . once an assessment has attained finality for a particular year, i.e., it is not pending then the same cannot be subject to tax in proceedings under section 153A of the Act. This of course would not apply if incriminating materials are gathered in the course of search or during proceedings under section 153A of the Act which are contrary to and/or not disclosed during the regular assessment proceedings. 63. Even this Court has in Mahesh Kumar Gupta (supra) and Ram Avtar Verma (supra) followed the decision in Kabul Chawla (supra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 contrast, there was a chart prepared confirming that there had been a year-wise non-recording of transactions. In Smt. Dayawanti Gupta (supra), on the basis of material recovered during search, the additions which were made for all the years whereas additions in the present case were made by the AO only for AY 2004-05 and not any of the other years. Even the additions made for AYs 2004-05 were subsequently deleted by the CIT (A), which order was affirmed by the ITAT. Even the Revenue has challenged only two of such deletions in ITA No. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court dismissing the Revenue s Special Leave Petition against the aforementioned judgment in Pr. CIT v. Meeta Gutgutia Proprietor Ferns N Petals (supra) on merits. The said order is reported as Pr. CIT v. Meeta Gutgutia (2018) 257 Taxman 441 (SC). B) The Hon ble Calcutta High Court in the case of CIT, Kolkata-III vs. Veerparabhu Marketing Limited [2016] 73 taxmann.com 149 (Calcutta) similar view was upheld: 8. We are in agreement with the views expressed by the Karnataka High Court that incriminating material is a pre-requisite before power could have been exercised under section 153C read with section 153A. 9. In the case before us, the assessing officer has made disallowances of the expenditure, which were already disclosed, for one reason or the other. But such disallowances were not contemplated by the provisions contained under section 153C read with section 153A. The disallowances made by the assessing officer were upheld by the CIT(A) but the learned Tribunal deleted those disallowances. C) The Hon ble Calcutta High Court in the case of PCIT-2, Kolkata vs. M/s. Salasar Stock Broking Limited (ITAT No. 264 of 2016) dated 24.08.2016 similar view was uph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no reason to disturb the Commissioners orders. 15. The Hon'ble Apex Court held as under:- According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply Staled that cross ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king channels. Demat statements demonstrate that the transactions had taken place on the platform of NSE. STT has been paid on these transactions. This proves the genuineness of its transactions. The Assessing Officer has no evidence or adverse material to disprove these transactions. Additions cannot be made based on inferences. This bench of the Tribunal has considered similar cases in the following orders: (i) Meena Devi Gupta Others vs ACIT ITA Nos. 4512 4513/Ahd/2007 (Ahmedabad ITAT). (ii) Manish Kumar Baid ITA 1236/Kol/2017 (Kolkata ITAT). (iii) Mahendra Kumar Baid ITA 1237/Kol/2017 (Kolkata ITAT). This Bench of the Tribunal came to a conclusion that in such circumstances the additions are not maintainable. 6.12. The Hon ble Calcutta High Court has in cases having similar facts upheld the contentions of the assessee that no addition can be made. A) In the case of CIT vs. Dhawan Investment and Trading Company Ltd. (1999) 238 ITR 486(Cal.) it was held as follows: 7. In appeal the Commissioner of Income-tax (Appeals) has also agreed with the action adopted by the Income-tax Officer. According to the Commissioner of Income-tax (Appeals) it appears tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were sold, is basically a question of fact. The identity of the parties through whom the shares were purchased and to whom the shares were sold is disclosed. Even the broker through whom the shares were purchased was produced. The payment was received by an account payee cheque and the payment was also made by the account payee cheque when the shares were purchased. The identity of the share brokers and the person through whom the shares were purchased and shares were sold is not disputed. Merely because the assessee could not produce a broker through whom the shares were sold or the person to whom the shares were sold, it does not affect the genuineness of shares in case when the assessee came with a fact and disclosed the identity of the persons from whom the shares were purchased and sold. If the assessee failed to produce those persons, that alone does not affect the genuineness of transactions. Summons can be issued under section 131 to compel them to appear before the ITO or the Assessing Officer. But that has not been done. One more factor has been highlighted by the Assessing Officer that the delivery of shares is on 9-11-1982, when the sale was on 22-10-1982. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see does not disentitle the assessee for claim of loss in a genuine transaction of shares. Considering the aforesaid facts and our view expressed in the case of CIT v. Carbo Industrial Holdings Ltd. [2000] 244 ITR 422 (Cal), we answer question No. 1 whether the finding of the Tribunal is based on material, in the affirmative and whether this finding of the Tribunal is perverse, we answer it in the negative, i.e., in favour of the assessee and against the Revenue. E) The Calcutta High Court in the case of CIT vs. Kundan Investment Ltd. 263 ITR 626 the Court held: We may deal with the loss in share transaction first. The grounds disallowing share loss by the AO affirmed by the Commissioner of Income Tax(Appeals) were those that out of the four blocks of shares delivery of three blocks were received after five months and the price was also paid after five months, but were immediately sold at a loss. The other grounds were that the share broker only in respect of one group was produced but the other share brokers did not appear despite notice. The books of accounts of the share broker, who appeared, also show some discrepancies in the entries made. On these grounds this trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen relied on the decision in CIT v. Currency Investment Co. Ltd. In this case, it was held that merely because the assessee could not produce the broker through whom the shares were sold, the same did not affect the genuineness of the transaction when the assessee disclosed the identity of persons from whom the shares were purchased and to whom sold. Even when two views are possible, if the view taken by the learned Tribunal is possible, it cannot be said to be perverse. Having regard to the proposition of law as discussed above and the facts and circumstances of the case, we find that in the present case, the view taken by the learned Tribunal cannot be said to be erroneous or perverse. Therefore, we answer the question No. 3 in the negative in favour of the assessee. 7. Applying the proposition of law laid down in all the case law referred above to the facts of the case, we find that the addition in question is bad in law. 8. In view of the above discussion, we allow the grounds of the assessee and delete the additions made. 9. In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 7th May, 2021. - - TaxTMI - TMITax - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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