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TMI Blog2023 (7) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... isdiction to issue notice upon the assessee u/s 148 for reopening of the assessment inspite of the fact that a search has been conducted upon the assessee under section 132? - HELD THAT:- Since in the present case, earlier scrutiny assessment under section 143(3) was made, thereafter assessment was reopened by issuance of a notice under section 148 of the Income Tax Act and again a reassessment order was passed on 18.12.2017 under section 143(3) read with section 147. Therefore, proviso to this section would puts an embargo upon the powers of AO to issue a notice upon the assessee unless he demonstrated that on account of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. In other words, the AO has to demonstrate how assessee has failed to disclose all material facts fully and truly which resulted the income escaped from taxation. The assessee itself has offered profit @ 3% and on the last contract at 3.14%. This total profit is around Rs. 2,01,96,284/-. It has been assessed to income and once it has been assessed to income, then it is to be construed that this ledger account must have been gone through by the ld. Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout any basis. The assessee itself has shown profit at 3% and 3.1% on last contract. This profit was not doubted in a scrutiny assessment as well as in a re-assessment proceeding. Then how it is to be disturbed in a one more of reassessment is not discernable from the finding. Therefore, the order of the ld. CIT(Appeals) justifying the additions computed at 6% of the contract receipt is not sustainable. - I.T.A. No. 40/GAU/2022 And I.T.A. No. 01/GAU/2023 - - - Dated:- 3-4-2023 - Shri Rajpal Yadav, Vice-President (KZ) And Dr. Manish Borad, Accountant Member For the Assessee : Shri S.K. Tulsiyan, Advocate For the Revenue : Shri N.T. Sherpa, JCIT ORDER PER RAJPAL YADAV, VICE-PRESIDENT (KZ):- The assessee and Revenue are in cross appeals before the Tribunal against the order of ld. Commissioner of Income Tax (Appeals), Central, North-East Region, Guwahati dated 30.08.2022 passed for assessment year 2013-14. 2. Grounds of appeal taken by both the appellants read as under:- Grounds of appeal by assessee: (1) That on the facts and in the circumstances of the case, the Ld. C.I.T.(A) acted illegally in having upheld initiation of reassessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (s) as prayed for. (10) That the appellant craves leave to amend, alter, modify, add to, abridge and/or rescind any or all of the above grounds in future. Grounds of appeal by Revenue:- (1) Ld. CIT(A) has erred by deleting the addition to the tune of Rs. 66,40,68,972/- under the head of cost of material consumed by not taking considering the fact of the modus operandi of booking of bogus expense by beneficiaries including the assessee and re-routing of funds through paper/shell companies explained by Shri Sanjay Kumar Drolia, Director of M/s. Silverpoint Infratech Limited in his statement on oath u/s 131 dated 25.06.2014. (2) The appellant craves the leave to add/modify/alter any or all the grounds during the course of hearing/pendency of appeal. 3. Before taking up the grounds of appeal stated above in seriatim, we deem it appropriate to note brief facts:- The assessee is a Private Limited Company engaged in the business of civil construction and maintenance of roads, rails, bridges, tunnels, ports, harbours, runways etc. It has filed its return of income electronically on 22.09.2013 declaring total income at Rs. 20,20,75,870/-. The case of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Infratech Limited in the books of ABCL Infrastructure Pvt. Limited. The assessee got contracts from three companies, namely Patel Engineering Limited, Mumbai, Coastal Projects Limited, Hyderabad; Horizon Infrastructure Limited. These were sub-contracted on back to back basis to M/s. Silverpoint Infratech Limited and accordingly payments were made to M/s. Silverpoint Infratech Limited by keeping a 3% margin. The ld. CIT(Appeals) enhanced this margin to 6.1%. Thus the assessee is aggrieved with reopening of the assessment and estimation of income on adhoc basis out of the alleged sub-contract assignment. On the other hand, Revenue is aggrieved from restriction of the addition to 6% of the gross receipts of the contract, instead of confirming the addition made by the ld. Assessing Officer. 5. In view of the above brief history, now let s take the grounds of appeal in seriatim. 6. Firstly take the grounds of appeal raised by the assessee, i.e. ITA No. 40/GAU/2022. 7. In Grounds No. 1, 2, 3, 7 8, the assessee has challenged validity of reopening as well as passing of the impugned order. If we divide the grievance of assessee in different compartments, then ld. Counsel for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s relevant to point out that various persons operating the company or associated with the company have from time to time admitted to use the company for proving accommodation entries in the form of bogus bills to various entities. For instance, on 25/06/2014, Shri Sanjay Kumar Drolia, S/o Shri Shyam Sundar Drolia who is a Director of M/s Silverpoint Infratech Ltd. gave a statement u/s 131 of the Act under oath to the DDIT(lnv.), U-2(3), Kolkata, in which he explained how he used M/s. Silverpoint Infratech Ltd. to provide bogus contract bills to many companies on commission basis. He explained in detail the modus operandi by which the money transferred to M/s Silverpoint Infratech Ltd. came back to the concerns of the clients .Again on 06/09/2016, Shri Sanjay Kumar Drolia stated in his deposition before the department that through entities controlled and managed by him and others, including M/s. Silverpoint Infratech Ltd, he had provided accommodation entries to various beneficiaries in lieu of commission. Similarly, Shri Manish Sureka (one of the directors of the company M/s Silverpoint Infratech Limited), in his statement recorded u/s 131 of the Act under oath by the ADIT(lnv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me day or the day after to the following four companies in their respective accounts with HDFC Bank: Sl. No. Name of the company Account No. Name of the Bank 1. ShivdhanVinimay Pvt. Ltd 00080350002756 HDFC 2. Softlink Shoppers Pvt. Ltd. 00080350002818 HDFC 3. EverstrongVintrade Pvt. Ltd. 00080350002749 HDFC 4. Tycoon Commosale Pvt. Ltd. 00080350002790 HDFC The abovementioned four companies were found to be Jamakarchi/shell companies and appear in the database of Entry Operators / Entry providing paper companies / Dummy Directors compiled by the Directorate of Income Tax (Inv.), Kolkata. All these companies are controlled by Mr. Abhishek Chokani as per the above database. In his statement u/s 132(4) of the Income-tax Act, Shri Abhishek Chokani had admitted that he was providing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd improvement, rock cutting etc. in various Highway Projects, which are works requiring heavy engineering machinery and the work was to be executed by M/s Silverpoint Infratech Limited as per terms of contract. However, in the preceding para, it has been clearly outlined that no actual work was done by the company Silverpoint Infratech Limited, nor was any sub-contract given by it to any other entity. It is thus evident that M/s Silverpoint Infratech Limited provided accommodation entry in the form of bogus sub-contract expense to the beneficiary company M/s ABCI Infrastructure Private Limited. The true nature of this transaction with M/s Silverpoint Infratech Limited was not disclosed by the assessee company M/s ABCI Infrastructure Private Limited at the time of filing of return of income as well as at the time of assessment proceeding u/s 143(3) or during the reassessment proceeding under section 147 of the Income Tax Act, 1961. 8. On the basis of the examination of the relevant records done by me and the facts as discussed above, I have reason to believe that income has escaped assessment in the case of the assessee because of failure on the part of the assessee to disclos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26.03.2021 was issued for AY 2013-14 In this connection it is submitted that pursuant to search and seizure operations, 153A/153C proceedings commences and the Ld. A.O. is required to issue notice only u/s 153A/153C of the IT Act, 1961 for the six assessment years or for ten assessment years (from the end of the assessment year relevant to the previous year in which search is conducted or requisition is made) provided the Ld. A.O. has in its possession some incriminating material or the income represented in the form of asset has escaped assessment amounting to Rs. 50 lakhs or more. In the case of the assessee, since search and seizure was conducted on 20.09.2019, the impugned assessment year (AY 2013-14) was well within the time limit for issuance of notice u/s 153A of the Act. Thus, the impugned year was the Seventh Assessment year preceding the assessment year relevant to the previous year in which a search is conducted or a requisition is made. Section 153 A of the Act specifies the procedure for assessment where a search has been initiated u/s 132 against the Assessee:- a. Under clause (a) of section 153 A( 1) of the Income Tax Act, 1961 the Assessing Officer s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. d. Further as brought out in proviso 4 to section 153A(1) the power to issue notice u/s 153A for six assessment years stands on a different footing from the power to issue notices u/s 153 A for relevant assessment years ' in as much as while issuance of notice u/s 153 A pursuant to search action u/s 132 for six assessment years prior to the assessment year relevant to the previous year in which search is conducted is mandatory, the issuance of notice for the relevant period is subject to the fulfillment of conditions laid down in the 4th proviso to section 153A of the Income Tax Act, 1961. The conditions so laid down, fulfillment of which can only lead to issuance of notice u/s 153A for the relevant assessment years are as under:- (i) The search must have been initiated u/s 132 on or after 01.04.2017, (ii) He must have in his/her possession books of account or other documents or evidence, (iii) Such books of accounts, or documents or evidence unearthed during the search, reveals that the income, represented in the form of an asset/assets, has escaped assessment, (iv) This undisclosed income in the form of an asset/assets that has/have escaped a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.03.2021 for AY 2013-14 is bad in law and without jurisdiction. Further, attention is sought to the amendments brought by the Finance Act, 2022 which says that the Ld. A.O. shall serve notice u/s 148 of the Act when a search is initiated u/s 132 or books of account, other documents or any assets are requisitioned under section 132A on or after 1st day of April, 2021. Thus, when a search is initiated after 01.04.2021, then the Ld. A.O is required to serve notice u/s 148 of the Act and thus the old provisions of section 153 A stands abolished. Therefore, in the instant case of the assessee since search took place on 20.09.2019, the Ld. A.O. can issue notice only u/s 153A of the Act for six assessment years and for the relevant years (only when incriminating documents are unearthed during the course of search) not exceeding ten assessment years. Therefore, the impugned notice issued by the Ld. A.O. u/s 148 of the Act is completely beyond jurisdiction. Now let us discuss the definition of asset which is defined in Explanation 2 to Fourth Proviso of section 153A(1) of the IT Act, 1961. Explanation 2:- for the purpose of the fourth proviso, asset shall include immovable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Limited was actually a bogus entry provider because ultimately M/s. Silverpoint Infratech Limited has transmitted these sums to six paper companies. He put emphasize on the observations of the ld. Assessing Officer in the notice issued under section 148 of the Income Tax Act. 11. We have duly considered the rival contentions and gone through the record carefully. Before we embark upon an enquiry as to what is the true procedure contemplated in the Income Tax Act when search is conducted on the premises of an assessee, we think it appropriate to bear in mind certain basic points of the scheme of search of assessment provided in the Income Tax Act. Though the present Income Tax Act came into existence in 1961 but without referring to very old provision, we observe that vide Finance Act, 1995 (22 of 1995), a new Scheme was introduced of assessment of undisclosed income determined as a result of search. Under this Scheme, the undisclosed income deducted as a result of search initiated after June 30, 1995 is assessed separately as the income of a designated period (Block) consisting of ten previous years prior to the previous year in which the search was conducted and also the peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which such search is conducted or requisition is made [and for the relevant assessment year or years] : Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years and for the relevant assessment year or years]: Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years [and for the relevant assessment year or years] referred to in this [sub-section] pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate .. [Provided also that no notice for assessment or reassessment shall be issued by the Assessing Officer for the relevant assessment year or years unless (a) the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more in the relevant assessment year or in aggregate in the relevant assessment years; (b) the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... words, notice could be issued for seven years including the year in which search was conducted. However, this power to assess or reassess income under section 153A is not unfettered as brought out in the 2nd proviso to section 153A(1), wherein it is provided that assessment or re-assessment relating to any assessment year falling within six assessment years and for the relevant assessment year or years pending on the date of the initiation of search under section 132 or requisitioned under section 132A, as the case may be, shall abate. Thus it has been provided that the assessment or re-assessment not pending on the date of initiation of search would remain unabated and cannot be disturbed except in case where incriminating material indicating otherwise has been found in the course of search. This view has been expressed by all the Benches of the Tribunal across India and affirmed unanimously by majority of the Hon ble High Courts. The Hon ble Delhi High Court in the case of CIT vs.- Kabul Chawla reported in 61 taxmann.com 412 has propounded the following legal position:- 37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of th ..... 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 . 15. Thus the scope of section 153A has been explained by the Hon ble High Courts in a manner that income could only be determined on the basis of incriminating material found during the course of search. The Hon ble jurisdictional High Court has also concurred with the view of the Hon ble High Court in the judgment of Pr. CIT vs.- Salasar Stock Broking [ITAT No. 264 of 2016, G.A. No. 1929 of 2016 (Calcutta High Court)]. 16. Coming back to the remaining part of section 153A, it is pertinent to note that expression relevant assessment year introduced by Finance Act, 2017 has been defined in Explanation 1 to Section 153A(1). According to this Explanation, the expression relevant assessment years means assessment year relevant to the previous year in which search was conducted, which falls beyond six assessment years but not later than ten assessment years from the end of the assessment year relevant to the previous year in which the search was conducted. In other words, the scope of six years originally in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 18. Let us examine the facts of the present case in view of the above proposition. There is no dispute that search was conducted on the premises of the assessee on 20.09.2019. The ld. Assessing Officer was mandatorily required to issue notice only under section 153A for six assessment years i.e. A.Y. 2014-15 to 2019-20 and for the relevant years i.e. for A.Ys. 2011-12, 2012-13 and 2013-14 only if any such incriminating material was found during the course of search and seizure, thus in the case of the present assessee, the assessment year before us is part of the relevant assessment year provided by Finance Act, 2017. In other words, A.Y. 2013-14 would be considered under relevant assessment year for issuance of a notice under section 153A if conditions provided in 4th proviso are fulfilled. The notice could have been issued under section 153A only if some incriminating material was found during the course of search and seizure operations. In the present case, no incriminating material was found. The ld. Assessing Officer in the reasons for reopening has made reference to a ledger account that is seized documents inventorized as SD ABCI 03, page 53. According to the ld. Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : 21. Ld. Counsel for the assessee while taking us through the above provision has submitted that this section provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. 22. A bare perusal of the above provision would reveal that before issuance of a notice under section 148 of the Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e material coming to the notice of Income Tax Officer and the formation of belief that there has been escapement of income of the assessee. 24. Now let us look into the opinion possessed by the ld. Assessing Officer for forming the belief that an assessment which was passed under section 143(3) and thereafter reassessed under section 147 required to be reopened again. The perusal of the reasons extracted supra would reveal that the allegation of the ld. Assessing Officer is that during the course of search, a document was found inventorized as SD ABCI 03 page 53. Now this document cannot be an incriminating document because it is part of a ledger account in the books of the assessee. Ledger account of one company namely M/s. Silverpoint Infratech Limited is available. This ledger must have been processed during the scrutiny assessment or at the most reassessment proceedings. At this stage, it is pertinent to observe that the assessee got different contracts, which were assigned to M/s. Silverpoint Infratech Limited back to back after retaining the commission, the details of such contract contained in this ledger are as under:- 25. A perusal of the table would indicate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey to the assessee. The reference to the four companies is only in the context that in the data-base of the Income Tax Department, these companies are entry providers therefore, if M/s. Silverpoint Infratech Limited has transmitted any money to those companies, then it is to be construed that all transactions of any person connected or not would be considered as bogus. It is very farfetched inference of the Department for harboring belief that income of the assessee has escaped assessment. 27. The ld. Counsel for the assessee has brought to our notice the following submissions:- In regard to the above attention of your Honours is sought to the following submission: (viii) There is no finding of the Ld. A.O. that the corresponding works/contracts which were awarded to the assessee by Coastal projects Ltd/ M/s Patel Engineering Ltd / M/s Horizon Infrastructure Ltd were not actually completed. (ix) Further, the Ld. A.O. failed to appreciate that there is not only an immediate and back to back contracting and subcontracting of the corresponding contracts qua M/s Coastal Projects Ltd/ M/s Engineering Ltd/ M/s Horizon Infrastructure Ltd and the sub-contracting of these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, as follows by the Hon'ble Apex Court at page 319: We have perused the review petition and find that the tax effect in this case is above Rs. 1 crore, that is, Rs. 6,59,27,298/-. Ordinarily, therefore, we would have recalled our order dated 17th September, 2018, since the order was passed only on the basis that the tax effect in this case is less than Rs. 1 crore. However, on-going through the judgments of the Commissioner of Income-tax, the Income-tax Appellate Tribunal and the High Court, we find that on the merits a disallowance of Rs. 19,39,60,866 was based solely on third party information, which was not subjected to any further scrutiny. Thus, the Commissioner of Income-tax (Appeals) allowed the appeal of the assessee stating: Thus, the entire disallowance in this case is based on third party information gathered by the Investigation Wins of the Department, which have not been independently subjected to further verification by the Assessing Officer who has not provided the copy of such statements to the appellant, thus denying opportunity of cross-examination to the appellant, who has prima facie discharged the initial burden of substantiating the purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more, it is also a matter of fact that all the aforesaid statements of the third parties were recorded behind the back of the Appellant and therefore these statements could not be the basis for making the impugned disallowance. It is evident that in the case on hand, the work awarded to the Appellant by the three (03) contract awarding parties was subcontracted by the Appellant to M/s Silverpoint Infratech Limited. Purportedly based on some statements, the AO had inferred that the entire work carried out by M/s Silverpoint Infratech Limited was bogus. Except for these statements, there is no other material or enquiry which would even remotely suggest that the Assessing Officer had applied his mind to the facts of the matter . 28. In the above submission, ld. Counsel for the assessee has demonstrated as to how superficial information was available with the Revenue and it does not goad the ld. Assessing Officer to harbor belief that income has escaped assessment on account of failure of the assessee to disclose all material facts fully and truly in respect of the assessment of its income. The ld. Assessing Officer has observed that in the data-base of the Income Tax Departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company, namely entry providing company. Therefore, this transaction of the assessee is to be treated as bogus and the gross amount is to be taxed. 30. On appeal, ld. CIT(Appeals) did not accept this finding of the ld. Assessing Officer. He was of the view that only income embedded in assignment of these contracts, are to be assessed as income of the assessee. The assessee has offered income @ 3% and @ 3.14% on the last contract. The ld. CIT(Appeals) adopted ad hoc rate at 6%. 31. With the assistance of ld. Representative, we have gone through the record carefully. While taking note of the submission of the ld. Counsel of the assessee on the earlier issue and noticed in paragraph no. 27, we are of the view that there is no evidence with the revenue to harbor such a belief. 32. Let us evaluate the evidence possessed by the revenue. As far as the first part is concerned, it is only ledger account of M/s. Silverpoint Infratech Limited in the books of assessee. Thereafter ld. Assessing Officer has made reference to statements of Shri Sanjay Kumar Drolia and others recorded in 2014 and 2016. Now in the proceeding, the statements were not known. The assessee was not given the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rlier. According to the assumption of the ld. Assessing Officer, no notice required to be issued under section 153A, therefore, he cannot take action under any other section in this A.Y. (b) Notice issued under section 148 of the Income Tax Act is concerned, it is without any sufficient reason for forming the opinion that income has escaped assessment. (c) On merit, the addition of the gross contract receipt cannot be made without even determining whether the projects for which contracts were received by the assessee were completed or not. There is no evidence with the Revenue to demonstrate that this whole transaction is bogus and the total money was retained by the assessee. Thus gross addition cannot be made. (d) The addition whether 6% is sustainable or not. As far as this question is concerned, the rate adopted by the ld. CIT(Appeals) at 6% of the contract receipts is concerned, it is unsustainable because the ld. CIT(Appeals) has not assigned any specific reason as to why the method of accounting or books of account of the assessee are not acceptable inspite of the fact that in two rounds of scrutiny assessment, such accounts were not doubted. 34. In view of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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