Case Number: ITA 674/DEL/2021
Appellant: Zoom Developers SEZ (Indore) Private Limited, New Delhi
Respondent: ACIT Central Circle-13, New Delhi
Assessment Year: 2012-13
Case Filed On: 2021-06-10
Order Type: Final Tribunal Order
Date of Order: 2023-08-25
Pronounced On: 2023-08-25
The case of Zoom Developers SEZ (Indore) Pvt. Ltd. vs. ACIT revolved around challenging the validity of assessments made under Section 153C of the Income Tax Act, 1961, and disallowances of expenditures assumed by the Assessing Officer (AO) for the assessment year 2012-13. The appellant contested the validity of the assessments and the disallowances sustained by the Commissioner of Income Tax (Appeals) [CIT(A)].
Appellant: Zoom Developers SEZ (Indore) Pvt. Ltd., represented by Shri Kapil Goel, Advocate, based at F-26/124, Sector 7, Rohini, Delhi. The appellant’s PAN is AAACZ3456E.
Respondent: Assistant Commissioner of Income Tax (ACIT), Central Circle-13, New Delhi.
The appeal was filed by Zoom Developers SEZ (Indore) Pvt. Ltd. against the impugned order dated 07.02.2020 passed by the CIT(A) – 26, New Delhi, for the quantum of assessment under Section 153C of the Income Tax Act, 1961, for the assessment year 2012-13. The appellant challenged the validity of the assessments made under Section 153C and the disallowance of assumed expenditure partly sustained by the CIT(A).
The appeal, registered as ITA No. 674/DEL/2021, was heard before the Income Tax Appellate Tribunal (ITAT) Delhi ‘H’ Bench on August 21, 2023. The bench consisted of Shri N.K. Billaiya, Accountant Member, and Shri Kul Bharat, Judicial Member.
The appellant, represented by Shri Kapil Goel, Advocate, argued that the assessments made under Section 153C were not valid as there was no incriminating material found during the search and seizure operation that had a bearing on the determination of the total income of the appellant. The appellant also challenged the disallowance of assumed expenditure made by the AO and partly sustained by the CIT(A).
The respondent, represented by Shri Sapna Bhatia, CIT-DR, contended that the assessments were valid and based on the incriminating material found during the search and seizure operation. The respondent supported the disallowance of assumed expenditure as it was necessary for the business operations of the appellant.
The ITAT considered the arguments from both sides and reviewed the relevant legal precedents and facts of the case. The tribunal noted:
“The underlying facts in the issues are identical in all these appeals. Assessment orders and orders of the first appellate authority are identically worded, though the quantum may differ. Therefore, on such concession, all these appeals are disposed of by this common order for the sake of convenience and brevity.”
The ITAT observed that the satisfaction note, which triggered the assessment proceedings under Section 153C, did not establish any co-relation with the assessment years in question. The tribunal emphasized that the validity of the assessment could not be sustained without incriminating material found during the search and seizure operation.
The tribunal further referred to the Hon’ble Supreme Court’s decision in the case of Singhad Technical Education Society, which held that assessments made without incriminating material found during the search were legally unsustainable. The tribunal also considered the relevant provisions of Section 153C and the explanatory notes provided by the CBDT Circular No. 1/2015.
The ITAT concluded that the assessments made under Section 153C were not valid as there was no incriminating material found during the search and seizure operation that had a bearing on the determination of the total income of the appellant. The tribunal directed the deletion of the disallowances made by the AO and sustained by the CIT(A).
Income Tax Appellate Tribunal, Delhi ‘H’ Bench, New Delhi
Before: Shri N.K. Billaiya, Accountant Member, and Shri Kul Bharat, Judicial Member
Order:
ITA No. 674/DEL/2021 to ITA No. 678/DEL/2021 are appeals of Zoom Developers SEZ (Indore) Pvt. Ltd preferred against the order of the ld. CIT(A) – 26, New Delhi dated 07.02.2020 pertaining to A.Ys 2012-13 to 2016-17.
ITA No. 679/DEL/2021 to ITA No. 683/DEL/2021 are appeals of M/s Startle Constructions Pvt Ltd preferred against the order of the ld. CIT(A) – 26, New Delhi dated 07.02.2020 pertaining to A.Ys 2012-13 to 2016-17.
ITA No. 688/DEL/2021 to ITA No. 692/DEL/2021 are appeals of Tyagi Portfolio Management Pvt. Ltd preferred against the order of the ld. CIT(A) – 26, New Delhi dated 07.02.2020 pertaining to A.Ys 2012-13 to 2016-17.
ITA No. 693/DEL/2021 to ITA No. 697/DEL/2021 are appeals of M/s Jaguar Equity Ltd preferred against the order of the ld. CIT(A) – 26, New Delhi dated 07.02.2020 pertaining to A.Ys 2012-13 to 2016-17.
Representatives of both sides agreed that the underlying facts in the issues are identical in all these appeals. Assessment orders and orders of the first appellate authority are identically worded, though the quantum may differ. Therefore, on such concession, all these appeals are disposed of by this common order for the sake of convenience and brevity.
In all the captioned appeals, the challenge is two-fold:
- Firstly, the assessee has challenged the validity of the assessments made under Section 153C of the Income Tax Act, 1961.
- Secondly, the assessee has challenged the ad hoc disallowance of assumed expenditure partly sustained by the CIT(A).
As mentioned elsewhere, the underlying facts in the issues are identical. We have heard the representatives of both sides on the facts of ITA No. 693/DEL/2021 for A.Y 2012-13 in the case of Jaguar Equity Ltd.
Representatives of both sides were heard at length. Case records were carefully perused. Relevant documentary evidence brought on record was duly considered in light of Rule 18(6) of the ITAT Rules.
Briefly stated, the facts of the case are that pursuant to a Warrant of Authorization, a search and seizure operation under Section 132 of the Act was conducted on 23.07.2015 and on subsequent dates at the residential as well as office premises of Shri Deepak Aggarwal, Shri Mukesh Kumar, and others group of cases based in Delhi.
The allegation was that this group was found to be a group of entry operators providing accommodation entries to beneficiaries. Various incriminating papers/documents were found and seized during the course of the search and seizure operation in the group case and statements were recorded during the course of the search and seizure operation and on subsequent dates, confirming the belief of the department that the group was involved in providing accommodation entries.
During the course of search and seizure operations, incriminating papers/documents were found related to the captioned assessees and on the basis of such impounded material, a satisfaction note was drawn on 23.03.2018 in the case of the searched person and the other person (captioned assessee) under Section 153C of the Act. The satisfaction note in the case of the “Other Person” i.e. the assessee reads as under:
[satisfaction note]
Satisfaction note in all the captioned appeals is identically worded though the name of the company, under the head “Brief Description of Documents” may be different with different quantity of shares and the amount thereof.
On the basis of the aforementioned satisfaction, the AO initiated proceedings under Section 153C of the Act and completed proceedings by making an addition on account of commission on accommodation entries on account of bogus purchases and bogus sales being 3% of the accommodation entries provided and further made disallowance on account of assumed expenditure which the assessee must have incurred in running its business of providing accommodation entries.
When the matter traveled before the CIT(A), the CIT(A) deleted the addition on account of commission on accommodation entries and partly confirmed the disallowance of ad hoc expenditure.
A satisfaction note, which triggered the assessment proceedings under Section 153C of the Act, has already been exhibited elsewhere. A perusal of the same vis a vis the assessment completed by the AO shows that what is noted in the satisfaction note has no bearing at all on the additions made by the AO.
The Hon’ble Supreme Court in the case of Singhad Technical Education Society 397 ITR 344 has held that when the seized documents did not establish any correlation document-wise with the assessment years in question, then the validity of the assessment so framed was legally unsustainable.
It would be pertinent to understand the scheme of assessment under Section 153C of the Act. Relevant provisions of the Act read as under:
“Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151, and section 153, where the Assessing Officer is satisfied that:
- any money, bullion, jewelry, or other valuable article or thing, seized or requisitioned, belongs to, or
- any books of account or documents, seized or requisitioned, pertain to, or any information contained therein, relates to
a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years referred to in sub-section (1) of section 153A.
Provided that in the case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to sub-section (1) of section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person:
Provided further that the Central Government may by rules made by it and published in the Official Gazette, specify the class or classes of cases in respect of such other person, in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years as referred to in sub-section (1) of section 153A except in cases where any assessment or reassessment has abated.
Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other person after the due date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year:
- no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or
- a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub-section (2) of section 143 has expired, or
- assessment or reassessment, if any, has been made, before the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person, such Assessing Officer shall issue the notice and assess or reassess the total income of such other person of such assessment year in the manner provided in section 153A.
The above provision needs to be read with Circular No. 1/2015 dated 21.01.2015 by the CBDT being explanatory notes to the provisions of the Finance [No. 2] Act, 2014 and the same reads as under:
“45. Assessment of income of a person other than the person who has been searched 45.1 Section 153C of the Income-tax Act relates to the assessment of income of any person other than the person in whose case search has been initiated or requisition is made. The provisions contained in sub-section (1) of section 153C of the Income-tax Act, before its amendment by the Act, provided that notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151, and section 153 of the said Act, where the Assessing Officer is satisfied that any money, bullion, jewelry, or other valuable article or thing or books of account or documents seized or requisitioned belong to any person, other than the person referred to in section 153A of the said Act, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess the income of such other person in accordance with the provisions of section 153A of the Income-tax Act.
45.2 Section 153C of the Income-tax Act has been amended to provide that notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151, and section 153 of the said Act, where the Assessing Officer is satisfied that any money, bullion, jewelry, or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to any person, other than the person referred to in section 153A of the said Act, then books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess the income of such other person in accordance with the provisions of section 153A if he is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to in sub-section (1) of section 153A of the Income-tax Act.
45.3 Applicability:-This amendment takes effect from 1st October 2014.”
In light of the above, we are of the considered opinion that, even after the amendment, the AO can proceed only on the basis of incriminating material which has a bearing on the determination of the total income of such other person. Nowhere in the Satisfaction Note has it been mentioned that the said description of shares is related to the alleged business of providing accommodation entries by the captioned assessees.
In light of the decision of the Hon’ble Supreme Court [supra] we are of the considered view that the additions/disallowances, devoid of any incriminating material found during the course of search, cannot validate the assessment orders framed under Section 153C of the Act.
The ld. DR relied upon certain judicial decisions in his synopsis, which in our opinion, are not relevant to the facts of the case at hand. The decision of the Hon’ble Supreme Court in 1991 SCR 627 is on prima facie belief does not condition the final outcome and the AO is not bound by the reasons recorded. This judgment is on the reopening of the assessment by issue of notice under Section 148 of the Act.
The question before us is whether the assessment order framed under Section 153C of the Act has any bearing on the impounded material considered as incriminating and exhibited elsewhere in the form of a satisfaction note triggering proceedings under Section 153C of the Act.
This question has been answered by the Hon’ble Supreme Court [supra] and further supported by the amendment in the relevant provision of the Act as explained by the Circular by the CBDT mentioned elsewhere.
Considering the facts in totality, additions/disallowances made by the AO are devoid of any incriminating material. Therefore, such assessment orders cannot be sustained and deserve to be quashed.
Since we have quashed the assessment order, we do not find it necessary to dwell into the merits of the case.
All the captioned appeals by the assessee are allowed on the challenge of the validity of the assessment order.
In the result, all the captioned appeals of the assessee are allowed.
The order is pronounced in the open court on 25.08.2023.
[KUL BHARAT]
Judicial Member
[N.K. BILLIAIYA]
Accountant Member
Dated: 25th August 2023
Zoom Developers SEZ (Indore) Pvt. Ltd. vs. ACIT: Challenging Assessment and Disallowances, 2023
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