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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 ..... have been complied with and/or fulfilled by the Ld. A.O. (2) That the Ld. CIT(A) was wholly wrong in not considering the fact that proceeding initiated u/s 147 of the IT Act, 1961 is completely bad in law' and without jurisdiction as it is a search and seizure case and in the impugned case proceeding could have been initiated only u/s 153 A of the IT Act, 1961. (3) The Ld. CIT(A) erred in upholding the order of the Ld. A.O. as no evidence of escapement of income was found and there is no denying the fact that the impugned transaction was disclosed at the time of original assessment by the assessee while passing order u/s 143(3) of the IT Act, 1961 dated 31.03.2016, therefore as per the proviso (1) to 147 of the IT Act, 1961, the action of the Ld. A.O. in initiating the impugned proceeding is a mere change of opinion. (4) That the Ld. CIT(A) erred in not appreciating the fact that no incriminating material was ever available against the assessee. (5) That the Ld. CIT(A) estimated the net profit rate of 6% of the contract amount without any basis and is totally in contradiction to his own admission in his order that the assessee sub-contracted the impugned contract @ 3% o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment order on 30.03.2016 under section 143(3) of the Income Tax Act. The ld. Assessing Officer had determined the income of the assessee at Rs. 21,21,04,560/-. It emerges out from the record that thereafter the ld. Assessing Officer had issued notice under section 148 of the Income Tax Act and reopened the assessment. The reassessment order was passed under section 147 read with section 143(3) on 18.12.2017 determining the taxable income of the assessee at Rs. 21,92,45,159/-. In this re-assessment order, the ld. Assessing Officer has disallowed a sum of Rs. 71,40,599/- on the ground that excess depreciation was claimed by the assessee for this assessment year. The ld. Assessing Officer thereafter again issued notice under section 148 of the Income Tax Act on 26.03.2021. The ld. Assessing Officer has passed the impugned assessment order under section 147 read with section 143(3) of the Income Tax Act on 30.03.2022. The ld. Assessing Officer has observed that during the search conducted at the premises of the assessee on 20.09.2019, certain documents were found and seized. These documents were inventoried as SD ABCI 03, page 53, which according to him contains ledger account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee under section 148 for reopening of the assessment inspite of the fact that a search has been conducted upon the assessee under section 132 of the Income Tax Act; (b) whether ld. Assessing Officer was possessing any material, which can enable him to form a belief that income has escaped assessment. The answer to the second question would arise upon the finding of the first question. In case, it is held that ld. Assessing Officer was having jurisdiction to issue notice under section 148, inspite of procedure contemplated in section 153A of the Act, only then it is to be examined whether this notice fulfilled the conditions contemplated in section 147 of the Act or not. 8. Before proceeding further, we deem it pertinent to take note of the reasons recorded by the ld. Assessing Officer and the copy of which is available on pages no. 26 to 30, which read as under:- "1. The assessee company submitted its return of income for the Assessment year 2013-14 on 22/09/2013 declaring total income of Rs. 20,20,75,870/-. The case was selected for scrutiny through "CASS" and the assessment proceeding under section 143(3) of the Income Tax Act, 1961 was completed on 30/03/2016 determining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided such accommodation entries to various beneficiaries in lieu of commission. Thus, M/s. Silverpoint Infratech Limited was instrumental in providing such accommodation entries. 3. It is noticed that during the Financial Year 2012-13, the assessee company M/s. ABCI Infrastructures Pvt Ltd had paid a sum of Rs. 63,11,55,000/- to the company M/s. Silverpoint Infratech Limited through banking transactions. In the Financial Year 2012-13, the turnover of the company M/s. Silverpoint Infratech Limited reached its peak and declined thereafter. Upon examination of the Audit Report of the company M/s. Silverpoint Infratech Limited, it is noticed that M/s Silverpoint Infratech Ltd was shown to be in the business of "Civil Contractors". 4. During the course of search proceeding, Shri Budhmal Baid, Managing Director of the assessee company, was confronted on the contents of seized document SD -ABCI - 03 in his statement recorded u/s 131(1A) of the Income Tax Act, 1961 on 24/09/2019. He stated that it was a ledger account of M/s Silverpoint Infratech Ltd. in the books of M/s ABCI Infrastructures Pvt. Limited for the period 01/04/2012 to 31/03/2013. M/s ABCI Infrastructures Pvt. Ltd. had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s shown in the ITR. Salaries and Wages amount to Rs. 14 lakhs only. There are no sub-contract expenses incurred as per the ITR of the company Silverpoint Infratech Limited. The tangible assets of the said company at the end of the relevant year were worth approx. Rs. 37 lakhs only and the expense of depreciation & amortization as per the P&L Account is approx. Rs. 4 lakhs only. In addition, it was also noticed that no expenditure was incurred towards rent on plant and Machinery. All these characteristics are contradictory to the nature of business of a Civil Contractor. From the above analysis done by me, I am satisfied that the company Silverpoint Infratech Limited did not do any actual work as a "Civil Contractor" and is merely a paper entity. 7. As a part of further investigation in the case, during the course of assessment proceeding u/s 153A in the case of M/s ABCI Infrastructure Private Limited, the assessee furnished before me the work order given by M/s ABCI Infrastructure Private Limited to Silverpoint Infratech Limited. Upon examination of the said work order by me, it was found that para 4 of the Terms & Conditions states regarding "Obligation of Silverpoint Infratech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the true nature of the transaction as discussed in the preceding paras was not disclosed by the assessee. The facts discussed in the preceding paras are such that the true colour of the transaction could not be discovered by the AO with any amount of due diligence at the time of assessment. It is only after the information in this regard was received from the investigation wing and further inquiry, examination and investigation were conducted by me that it came to light that the transaction discussed in the preceding paras was nothing but accommodation entry taken in the form of bogus sub-contract expenses. 9. The ld. Counsel for the assessee while impugning the findings of both the authorities took us through section 153A, 147 and 148 of the Income Tax Act. He contended that basically construction/ interpretation of sections 147 /148 is not in much dispute under the present question, but it is very much necessary to explain the scope of section 153A for assessment of the income of the assessee in this assessment year, in this connection he filed a written submission and placed on record a very lucid and exhaustive note. We deem it appropriate to take note relevant part of his su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessment year relevant to the previous year in which search was conducted. b. Under clause (b) of section 153A the Assessing Officer shall then assess, or reassess the total income of the Assessee for each of these 6 AYs and the relevant assessment year or years. Here also the expression "relevant period" was introduced only by Finance Act, 2017 w.e.f. 01.04.2017. Prior to 01.04.2017 the power to assess or reassess the income pursuant to search was restricted to six assessment years prior to the assessment year relevant to previous year in which search was conducted. However this power to assess or reassess income u/s 153A is not unfettered as brought out in the 2nd proviso to section 153A(1) wherein it is stated that assessment or reassessment relating to any assessment year falling within six assessment years and for the relevant assessment year or years "pending on the date of initiation of search under section 132 or requisition under section 132A, as the case may be, shall abate" clearly stating that assessments or reassessments not pending on the date of initiation of search remains unabated and cannot be disturbed except in cases where incriminating material indica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fillment of the aforementioned conditions, it is only then that notice(s) u/s 153(1)(a) can be issued for the "relevant assessment years'' i.e., the period beyond six assessment years but not beyond ten assessment years prior to the assessment year relevant to the previous year in which search was conducted. Thus, applying the above principle to the facts of the instant case, it can be seen that since search and seizure operation was carried out in the assessee's premises on 20.09.2019, the Ld. A.O. is mandatorily required to issue notice only u/s 153A for the six assessment years i.e. AY 2014-15 to 2019-20 and for relevant years i.e. for AY 2011-12, 2012-13 and AY 2013-14 only if any such incriminating material was found during the course of search and seizure. Therefore, in the case of the instant case of the assessee, since AY. 2013-14 falls within the definition of relevant assessment year, the Ld. A.O. could have issued notice u/s 153A only if some incriminating material was found during the course of the said search and seizure operations. Thus, assessments in the case of search particularly in case of unabated years has to be restricted to materials found during the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o section 153 A( 1) of the Act. By specifically referring to the expression "Undisclosed Asset", the Legislature has impliedly excluded other items of income viz., liabilities/credits, unexplained expenditure etc. Hence from he above discussion, it is clear that section 153A of the Act can be invoked only if the Assessing Officer comes to a positive conclusion that he has in his possession documents or information revealing an Undisclosed asset of the assessee qua the assessment year (7th to 10th) which is valued Rs. 50 lakhs or more. In the instant case of the assessee, the impugned document based on which the Assessing Officer had issued notice u/s 148 of the Act, admittedly pertains to an item of expense (i.e. Sub-contract paid). As discussed earlier, the undisclosed expense, undisclosed revenue, undisclosed loans/liabilities are not in the nature of an Asset and therefore these items fall outside the scope of the fourth proviso to section 153 A(1) of the Act. In view of the above facts, it is thus clear that since the impugned year is a relevant assessment year, notice could have been issued only u/s 153A of the Act. However for the impugned assessment year even notice u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined under section 143(3)/147 of the Income Tax Act (as the case may be). 12. The Parliament vide Finance Act, 2003 (32 of 2003) has discontinued the block assessment provision contained in Chapter 14B (sections 158B to 158BH) and introduced a new Scheme under sections 153A, 153B, 153C etc. for the purpose of issue in hand. Section 153A is the relevant provision therefore, it is imperative upon us to take note of this provision. The relevant part of this section reads as under:- In this connection attention is sought to the provisions of section 153A (1) of the IT Act, 1961 which reads as under: "Assessment in case of search or requisition. 153A. [(I)] Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall- (a)issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourth proviso, "asset" shall include immovable property being land or building or both, shares and securities, loans and advances, deposits in bank account. 13. A perusal of this section would indicate that where a search has been conducted under section 132 of the Income Tax Act upon the assessee, then the assessment of the income has to be determined under section 153A of the Income Tax Act. Under Clause (a) of section 153A of the Income Tax Act, 1961, ld. Assessing Officer shall issue notices to the assessee requiring him to furnish within such period as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years prior to the assessment year relevant to the previous year in which search was initiated and for the relevant assessment year or years. This expression relevant assessment year or years has been added by the Finance Act, 2017 with effect from 01.04.2017. Prior to 01.04.2017, the ld. Assessing Officer was required to issue notice under section 153A for only six years prior to the assessment year relevant to the previous year in which search was conducted. 14. Under Clause (a) of Section 153A, the ld. Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 153 A 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 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 asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer must have in his possession books of account or other documents or evidences; (c) Such books of account or documents or evidence unearthed during the search should reveal that income represented in the form of an asset/assets has escaped assessment; (d) This undisclosed income in the form of an asset or assets that has escaped assessment amount to or likely to amount of 50 lakh rupees or more in the relevant assessment year or in aggregate in the relevant assessment years. In other words, there must be a search that should resulted into discovery of evidence in the shape of books of account or other documents exhibiting the embedded asset/assets, which is an escaped income and the value of such income is more than 50 lakh rupees. It can be in one year or in the remaining three years. In other words, it can be available in one relevant year in aggregate in the relevant assessment years. 17. Thus after the search under section 132 of the Income Tax Act on any assessee. Section 153A comes into play leading to:- (a) Academic issuance of a notice under section 153A for six assessment years prior to the assessment year relevant to the previous year in which search was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he present case, since conditions stipulated in 4th proviso to section 153A could not be fulfilled, therefore, even no notice under section 153A could be issued. Presumably the ld. Assessing Officer was aware that notice under section 153A will not be sustainable and, therefore, did not issue. But alternatively there is no mechanism that notice under section 148 was to be issued. Thus the notice is invalid and void ab initio. On the strength of this show-cause notice if assessment is made, it deserves to be quashed. 19. Though adjudication of rest of the grounds of appeal would be an academic one. But the kind of revenue involved in the present appeal, it will certainly lead to higher appellate forum, therefore, for the purpose of completeness of finding of fact, we deem it appropriate to take up other grounds of appeal, which were raised before us. 20. Without getting ourselves influenced by our finding on the first fold of grievance, let us assume, for the sake of argument that no notice under section 153A was required to be issued but only under section 148, then we have to appreciate whether conditions for reopening the assessment are available or not. In this connection, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ld. Assessing Officer has to demonstrate how assessee has failed to disclose all material facts fully and truly which resulted the income escaped from taxation. 23. Though before us, ld. Counsel for the assessee has filed a very detailed submission on this point also and relied upon a large number of decisions starting from the judgment of the Hon'ble Supreme Court in the case of ITO, Calcutta & Ors -vs.- Lakhmani Mewal Das (1976) 103 ITR 437 (SC), judgment of the Hon'ble Supreme Court in the case of Kelvinator India Limited (supra), judgment of the Hon'ble Calcutta High Court in the case of Peerless General Finance And Investment Co. Limited - vs.- DCIT & Ors. reported in (2005) 273 ITR 16 (Cal.) and a number of other decisions from different Hon'ble High Courts. We may make a reference of the Hon'ble Delhi High Court decisions in the case of CIT -vs.- SFIL Stock Broking Limited reported in 325 ITR 285 (Del.), Pr. CIT - vs.- G And G Pharma India Limited reported in 384 ITR 147 (De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmission basis. In subparagraph 3 of the reasons, this factum has been mentioned. Thereafter ld. Assessing Officer has referred this factum as on 06.09.2016. It is to be appreciated that the first date of statement i.e. 25.06.2014 is prior to scrutiny assessment passed in the case of the assessee under section 143(3) on 30.03.2016. If this information was possessed by the Revenue in 2014, then why, while assessing the income of the assessee from assignment of sub-contract of the above projects was accepted by the Revenue. It could have been enquired at that point of time and assessee could be show-caused that it is a bogus profit shown by you, the assessee could have been confronted to explain why the total contract value should not be looked into. As far as the second statement is referred on 06.09.2016 is concerned, it is also prior to the reassessment order passed on 18.12.2017, then how it can be construed a fresh information came to the possession of the ld. Assessing Officer after the reassessment order, which can help the ld. Assessing Officer to form a belief that income has escaped assessment. The ld. Assessing Officer thereafter alleged that M/s. Silverpoint Infratech Lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... / confirming party between the contract awarding parties (i.e. M/s Coastal Projects Ltd / M/s Patel Engineering Ltd / M/s Horizon Infrastructure Ltd) on One hand AND M/s Silverpoint Infratech Private Limited on the other hand. (xii) Further it is submitted that the AO had not averred or given any finding that the corresponding Revenue Earned by the Appellant from M/s Coastal Projects Ltd / M/s Patel Engineering Ltd / M/s Horizon Infrastructure Ltd was bogus revenue. In-fact the AO had accepted the revenue earned by the Appellant. It was also accepted by the learned Assessing Officer that the corresponding contract revenue was received by the Appellant through/in its bank and further TDS was also deducted by the contract awarding parties. (Copy of bank statement showing the same is enclosed with this submission) Hence, the major facts being on record, it was the responsibility of the learned Assessing Officer to have conducted proper enquiries in this regard. Merely placing reliance on the statements recorded by the officer of the Investigation Wing cannot justify the action of the Assessing Officer. It is settled law that the addition cannot be made solely based on third party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h have not been shown to be perverse and, therefore, dismissed the appeal stating that no substantial question of law arises from the impugned order of the Income-tax Appellate Tribunal. In these circumstances, the Review Petitions are dismissed." Further from a from a perusal of the statement of various persons as relied upon by the Assessing Officer (as per Para 7 supra), it is further evident that no specific information was received against the Appellant and the name of the Appellant was nowhere referred in the corresponding Statement referred and relied upon by the AO The AO had failed to bring on record any material which would even remotely prove any direct or even indirect acquiescence of the Appellant with the following parties, being the parties to whom M/s Silverpoint Infratech Limited had made payments: M/s. Argo Trade and Commerce M/s. Wilson Projects M/s. Elegant Constructions The AO had failed to bring on record any material which would further establish or even remotely prove any direct or even indirect acquiescence of the Appellant with the following parties, being the parties to whom the parties referred in the preceding paras had made payments, name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of assessment and accordingly assessment order also. 29. The next fold of dispute is whether any addition deserves to be made or not. We have discussed the facts in earlier paragraphs. In paragraph no. 24 of this order, we have noticed details of certain projects, which were received by the assessee. These projects were assigned to M/s. Silverpoint Infratech Limited on back to back basis by retaining a profit margin. These details are available in the regular books of account of the assessee and the assessee has declared a profit of Rs. 2,01,96,284/- out of these contracts. The details of such profit have also been noticed by us in paragraph no. 24 of this order. The case of the Revenue is that assignment of this contract to M/s. Silverpoint Infratech Limited is to be disbelieved. The gross amount received by the assessee is to be taxed as unexplained income of the assessee. For harboring this belief, the ld. Assessing Officer has recorded the finding that M/s. Silverpoint Infratech Limited is engaged in providing accommodation entries. It has further made payments to six-seven companies, which are branded as bogus entities engaged in providing accommodation. The ld. Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue to say that contracts assigned by the assessee is a bogus transaction. 33. As far as the finding of the ld. CIT(Appeals) is concerned, that income is to be re-determined out of these contracts on ad hoc basis. It is pertinent to note that assessee has been maintaining regular books of account. Section 145 of the Income Tax Act provides the method of accounting required to be adopted by an Assessing Officer. Sub-clause (3) of this section would contemplate if the ld. Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, then he may reject the method of accounting or books of account, only thereafter he would proceed to estimate the income. No such steps have been taken by the authorities. The quantification at 6% is without 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. In vie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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