Income Tax Appellate Tribunal - Indore
Acit Central -Ii, Bhopal vs M/S. Shri Agrawal Education & Welfare ... on 19 October, 2022
आयकर अपील य अ धकरण, , इंदौर यायपीठ, , इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER (Conducted through Virtual Court) IT(SS)A Nos.123 to 126/Ind/2018 Assessment Years: 2009-10 to 2012-13 ACIT(Central)-II, Shri Agarwal Education & Bhopal बनाम/ Welfare Society Bhopal Vs. (Appellant / Revenue) (Respondent / Assessee) PAN: AACTS 0481 M Revenue by Shri P.K. Mitra, CIT-DR Respondent by Shri S.S. Deshpandey, AR Date of Hearing 14.10.2022 Date of Pronouncement 19.10.2022 आदे श / O R D E R Per Bench:
Feeling aggrieved by appeal-order dated 16.07.2018 passed by learned Commissioner of Income-Tax (Appeals)-3, Bhopal ["Ld. CIT(A)"], which in turn arises out of assessment-order dated 28.03.2014 passed by learned DCIT, Central, Bhopal ["Ld. AO"] u/s 153A / 143(3) of the Income-tax Act, 1961 ["the Act"] concerning Assessment-Year ["AY"] 2009-10 to 2012-13, the revenue has filed these appeals on following effective grounds:ITA No. 123/Ind/2018 for AY 2009-10:
"1. On the facts and in circumstances of the case, the Ld. CIT(Appeals) erred in deleting the addition of Rs. 6,10,000/- made by Shri Agrawal Education & Welfare society IT(SS)A No. 123/Ind/2018 & others Assessment year 2009-10 & others Assessing Officer on account of unexplained investment u/s 69 of the Income-tax Act, 1961.
2. On the facts and in circumstances of the case, the Ld. CIT(Appeals) erred in deleting the addition of Rs. 2,17,92,204/- made by the Assessing Officer on account of undisclosed investment u/s 69B of the Income-tax Act, 1961 on the basis of the DVO valuation report.ITA No. 124/Ind/2018 for AY 2010-11:
"1. On the facts and in circumstances of the case, the Ld. CIT(Appeals) erred in deleting the addition of Rs. 41,98,573/- made by Assessing Officer on account of excess income over expenditure as a matter of consequence of disallowance of exemption u/s 13(1)(d) r.w.s. 11 & 12 of the Income-tax Act, 1961 in the wake of the fact that the CIT(A) has not only confirmed but enhanced the addition from Rs. 40,800/- to Rs. 81,600/- made by the Assessing Officer on account of disallowance u/s 13 of the Income-tax Act, 1961.
2. On the facts and in circumstances of the case, the Ld. CIT(Appeals) erred in deleting the addition of Rs. 2,54,50,567/- made by the Assessing Officer on account of undisclosed investment u/s 69B of the Income-tax Act, 1961 on the basis of the DVO valuation report.
ITA No. 125/Ind/2018 for AY 2011-12:"1. On the facts and in circumstances of the case, the Ld. CIT(Appeals) erred in deleting the addition of Rs. 57,33,471/- made by Assessing Officer on account of excess income over expenditure as a matter of consequence of disallowance of exemption u/s 13(1)(d) r.w.s. 11 & 12 of the Income-tax Act, 1961 in the wake of the fact that the CIT(A) has not only confirmed but enhanced the addition from Rs. 40,800/- to Rs. 81,600/- made by the Assessing Officer on account of disallowance u/s 13 of the Income-tax Act, 1961.
2. On the facts and in circumstances of the case, the Ld. CIT(Appeals) erred in deleting the addition of Rs. 1,58,92,697/- made by the Assessing Officer on account of undisclosed investment u/s 69B of the Income-tax Act, 1961 on the basis of the DVO valuation report.ITA No. 126/Ind/2018 for AY 2012-13:
"1. On the facts and in circumstances of the case, the Ld. CIT(Appeals) erred in deleting the addition of Rs. 3,67,12,447/-made by Assessing Officer on account of excess income over expenditure as a matter of consequence of disallowance of exemption u/s 13(1)(d) r.w.s. 11 & 12 of the Income-tax Act, 1961 in the wake of the fact that the CIT(A) has not only confirmed but enhanced the addition from Rs.Page 2 of 23
Shri Agrawal Education & Welfare society IT(SS)A No. 123/Ind/2018 & others Assessment year 2009-10 & others 40,800/- to Rs. 81,600/- made by the Assessing Officer on account of disallowance u/s 13 of the Income-tax Act, 1961.
2. On the facts and in circumstances of the case, the Ld. CIT(Appeals) erred in deleting the addition of Rs. 3,09,50,309/- made by the Assessing Officer on account of undisclosed investment u/s 69B of the Income-tax Act, 1961 on the basis of the DVO valuation report.
3. On the facts and in circumstances of the case, the Ld. CIT(Appeals) erred in deleting the addition of Rs. 14,30,000/- made by Assessing Officer on account of unexplained investment u/s 69 of the Income-tax Act, 1961."
2. Heard the learned Representatives of both sides at length and perused the case-records.
3. Briefly stated the facts are such that the assessee is a society incorporated on 01.04.2000, registered u/s 12AA of Income-tax Act, 1961. A search was conducted by revenue on the assessee and other persons on 21.10.2011. Since all persons were inter-connected, they were clubbed under one umbrella-title of "Sagar Group". The assessments of assessee for AY 2009-10 to 2011-12 were made under the special provisions of section 153A r.w.s. 143(3) and assessment for AY 2012-13 was made under regular provisions of section 143(3), wherein Ld. AO made certain additions. Aggrieved by assessment-orders, the assessee filed appeals to Ld. CIT(A) and got relief. Now, aggrieved by the order of Ld. CIT(A), the revenue has come in appeals before us.
4. Since all captioned appeals emanate from a single consolidated appeal-order as well as assessment-order, they were heard together and are being disposed by this consolidated order for the sake of convenience.
Ground No. 2 of all assessment-years:
5. This ground is identical in all years. In this Ground, revenue claims that the Ld. CIT(A) has erred in deleting the addition made by AO on account of undisclosed investment u/s 69B on the basis of valuation report of Departmental Valuation Officer (DVO).
Page 3 of 23Shri Agrawal Education & Welfare society IT(SS)A No. 123/Ind/2018 & others Assessment year 2009-10 & others
6. Fact qua this issue are such that during assessment-proceeding, Ld. AO observed that the assessee has made investment in construction of building of Sagar Institute of Science and Technology (SISTec-R), Ratibadi, Bhopal. In order to ascertain the exact quantum of such investment, Ld. AO made a reference dated 06.08.2013 to Departmental Valuation Officer (DVO), whereupon the DVO submitted his report dated 11-12-2013 estimating the cost of construction. Ld. AO observed that there were differences in the value of construction as declared by assessee and as estimated by DVO, the year-wise differences were as under:
F.Y A.Y. Declared by the Estimated by valuation cell Assessee 2008-09 2009-10 85,66,920/- 3,03,59,124/-
2009-10 2010-11 1,01,44,402/- 3,55,94,969/-
2010-11 2011-12 ' 62,47,714/- 2,21,40,411/- 2011-12 2012-13 1,21,67,141/- 4,31,17,450/- 2012-13 2013-14 4,09,49,173/- 14,51,14,118/- Total 7,79,75,350/- 27,63,26,072/-
7. When the Ld. AO confronted the assessee about the differences, the assessee submitted that it is a society running educational institutions; its accounts are audited; it had maintained complete records of construction expenses for various items; and that all expenses are fully supported by proper bills and vouchers. Therefore, in absence of any specific defect or evidence, it was against the law to assume the difference of the amount recorded in the books of accounts and the amount mentioned in the valuation-report of DVO as undisclosed income of the assessee. Ld. AO, however, rejected assessee's contentions and made additions for various assessment years on account of undisclosed investment with the following observations:-Page 4 of 23
Shri Agrawal Education & Welfare society IT(SS)A No. 123/Ind/2018 & others Assessment year 2009-10 & others "14.11 The reply of the assessee has been considered and found to be not acceptable on the basis of following reasons:-
i. During the course of assessment proceedings the assessee has not submitted any material evidence, which substantiate his claim. The assessee has also not submitted construction account before the assessing officer.
ii. As per the report of DVO, Bhopal, the assessee society has made total investment of Rs. 13,12,11,954/- from A.Y. 2009-10 and A.Y. 2012-13, in the construction of college building in the name of Sagar Institute of Science & Technology (SISTec-R), Ratibada, Bhopal. However, as per the books of accounts the assessee has shown investment is Rs. 3,70,26,177/-, therefore the assessee has made investment of Rs. 9,41,85,777/- outside the books of account. The year wise difference in investment in construction of building as per the DVO report is as under:-
A.Y. Declared by the Estimated by Difference (In Rs.) Assessee (In Rs. ) valuation cell (In Rs.) 2009-10 85,66,920/- 3,03,59,124/- 2,17,92,204/-
2010-11 1,01,44,402/- 3,55,94,969/- 2,54,50,567/-
2011-12 ' 62,47,714/- 2,21,40,411/- 1,58,92,697/-
2012-13 1,21,67,141/- 4,31,17,450/- 3,09,50,309/-
Tota 3,70,26,177/- 13,12,11,954/- 9,41,85,777/-
iii. During the course of assessment proceedings, the assessee has not shown any detail of investment in the construction of above college building. Therefore, the assessee has made investment of Rs. 9,41,85,777/- in A.Y. 2009-10 to 2012-13 outside the books of accounts.
iv. The reference to DVO, Bhopal made by this office is accordance with the law. Section 131(1)(d) of the I.T.Act, 1961 empower the assessing officer to issuing commission to Valuation Officer to inspect the property and submit actual cost of investment. Plain reading of section 131(l)(d) is as under:-
"131(1) The Assessing Officer, Deputy Commissioner (Appeals), Joint Commissioner, Commissioner (Appeals), Chief Commissioner or Commissioner and the Dispute Resolution Panel referred to in Page 5 of 23 Shri Agrawal Education & Welfare society IT(SS)A No. 123/Ind/2018 & others Assessment year 2009-10 & others clause (a) of sub-section (15) of section 144C shall, for the purposes of this Act, have the same powers as are vested in a court under the Code of Civil Procedure, 1908 (5 of 1908), when trying a suit in respect of the following matters, namely:--
(a) discovery and inspection.
(b) enforcing the attendance of any person, including any officer of a banking company and examining him on oath;
(c) compelling the production of books of account and other documents; and
(d) issuing commissions.
14.12 In view of the above, it is established and held that the assessee society has made undisclosed investment of Rs. 9,41,85,777/- from A.Y. 2009-10 and A.Y. 2012-13, in the construction of college building in the name of Sagar Institute of Science & Technology (SISTec-R), Ratibada, Bhopal. The above investment not recorded in the books of account of assessee. The provision of section 69B states that wherein the financial year immediately preceding the assessment year the assessee has made investment which are not recorded in books of accounts, if any maintained by him for any source of income, and the assessee offers no explanation about the nature and source of investment or the explanation offered by him is not in the opinion of the AO satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.
14.13 Thus the reading of the said section clearly stipulates that the onus lies on the assessee to explain the nature and source of investment to the satisfaction of the assessing officer. Thus, the assessee has to establish the true nature of the investment and the known source of income to make investment with corroborative evidence. Reliance is also placed on the decision of the MP High Court in the case of Commissioner of Income-tax v. Omprakash Bagria (HUF) (287ITR 523) wherein it upheld the reference made to the valuation officer in respect of construction of building u/s 142A and accordingly unexplained investment so determined was confirmed u/s 69B of the Act.
14.14 to 14.16 XXX 14.17 In the case of Smt. Amor Kumar Surana vs CIT (226 ITR 344), the Rajasthan High Court had observed that the AO after obtaining the valuation report of the plot of land, had issued notice to the assessee to show cause as to why the value the plot of land in question should not be taken as per the valuation report and on the basis of comparable Page 6 of 23 Shri Agrawal Education & Welfare society IT(SS)A No. 123/Ind/2018 & others Assessment year 2009-10 & others cases. The assessee had not given any reason as to why the property had been sold to the assessee for roughly half the prevalent market rate. In the absence of that the only inference that could be drawn was that the assessee had, in fact, concealed the actual consideration paid to the seller. The addition made by the AO was therefore held to be justified under section 69B of the Act.
14.18 Thus, after considering the evidences placed on record and valuation report submitted by the DVO, Bhopal and the non-submission of satisfactory explanation on the source of such investments and following the cited cases (supra), I am to hold that the investment in construction of college building in the name of Sagar Institute of Science & Technology (SISTec-E), Ratibada, Bhopal., which is not recorded in the books of account of assessee society is treated as undisclosed investment and deemed income from undisclosed sources u/s 69B of the Act. Therefore the amount shown in below mentioned table is hereby added to the income of assessee as undisclosed investment u/s 69B of the Act for A.Y. 2009-10 and 2012-13:-
A.Y. Undisclosed investment
(In Rs.)
2,17,92,204/-
2009-10
2,54,50,567/-
2010-11
2011-12 1,58,92,697/-
2012-13 3,09,50,309/-
9,41,85,777/-
Total
Penalty proceedings u/s 271(l)(c) for A.Y. 2009-10 and 2010-11 and u/s 271AAA for A.Y. 2011-12 and 2012-13 are hereby initiated."
8. During first-appeal, the assessee challenged the addition made by Ld. AO on several grounds including two-fold legal objections, viz. (i) The reference made by Ld. AO to DVO without rejecting books of accounts was beyond the scheme of section 142A as applicable at the relevant time and therefore illegal; and (ii) the impugned addition had been made without having any incriminating-material which again is beyond the scheme of section 153A and therefore illegal.
Page 7 of 23Shri Agrawal Education & Welfare society IT(SS)A No. 123/Ind/2018 & others Assessment year 2009-10 & others
9. Regarding 1st legal objection that the reference made by Ld. AO to DVO without rejecting books of accounts was beyond the scheme of section 142A and therefore illegal, the assessee relied upon several judicial rulings, the leading being the direct authority by Hon'ble Supreme Court in Sargam Cinema Vs. CIT (2010) 328 ITR 513 (SC), wherein it was categorically held thus:
"3. In the present case, we find that the Tribunal decided the matter rightly in favour of the Assessee in as much as the Tribunal came to the conclusion that the assessing authority could not have referred the matter to the Departmental Valuation Officer (DVO) without the books of account being rejected. In the present case, a categorical finding is recorded by the Tribunal that the books were never rejected. This aspect has not been considered by the High Court. In the circumstances, reliance placed on the report of the DVO was misconceived.
4. For the above reasons, the impugned judgment of the High Court is set aside and the order passed by the Tribunal stands restored to the file. Accordingly, the Assessee succeeds."
The assesse also relied upon Goodluck Automobile Pvt. Ltd. 359 ITR 306 (Guj), wherein it was held that the rejection of books of accounts should precede reference to DVO and, therefore, report of DVO cannot form the foundation for rejection of books of accounts. The Gujarat High Court held that once it was apparent from the records that while making the reference to DVO, the Assessing Officer had not rejected the books of account, then the reference made to DVO was not in consonance with the provisions of law and hence such reference was invalid. Ld. CIT(A) accepted the assessee's contention with following observations:
Page No. 64 of order of Ld. CIT(A):
"Conclusion:
As discussed earlier in this case, reference u/s 142A of the Act was made on 06.08.2013 (i.e. prior to amendment) which was made even before filing of return of Income on 12.08.2013 and without examining the books of accounts maintained regularly by the assessee. In the books, expenditure incurred on each and every day with regard to construction have been recorded and supporting bills and vouchers have been maintained by the assessee which Page 8 of 23 Shri Agrawal Education & Welfare society IT(SS)A No. 123/Ind/2018 & others Assessment year 2009-10 & others were subjected to audit. The basic and primary contention of the appellant that Id AO has not rejected the books of accounts before making reference to DVO is found true. On perusal of reference letter it is seen that column no 2(c) pertaining to rejection of books of accounts is left blank. It is also apparent from the assessment order itself which has no findings about the books of accounts maintained by the assessee were not found reliable or they were not maintained in a regular manner. This is undisputed that the said books of accounts have also not been rejected u/s 145 of the Act. Therefore, in view of the ratio laid down by Apex Court in the case of Sargam Cinema case (supra) as well as many others decisions delivered by various high courts holding that without rejecting the books of accounts u/s 145 of the Act, the AO cannot refer the matter of valuation to the Departmental Valuation Officer. Thus, in absence of rejection of books of accounts, the reference made to DVO is invalid and unsustainable in law and therefore, consequently any addition made on the basis of such invalid reference are also unsustainable in law. It is evident from record that the assessee had maintained regular books of accounts and bills/Vouchers in support of cost of construction of building and Id AO did not point out any defect therein. As observed by Id AO in para 14 of assessment order, the said reference was made to ascertain the exact quantum of investment in construction of college building without referring to any incriminating/seized material in this regard. In view of above, reference to DVO without rejection of books of accounts is held as invalid and unsustainable in law and hence, any addition made based on such valuation report obtained by invalid and unlawful reference is also unsustainable. Hence, grounds 3 is allowed and decided in favour of the assessee."
10. Regarding 2nd legal objection that the impugned addition had been made without having any incriminating material which is beyond the scheme of section 153A and therefore illegal, Ld. CIT(A) relied upon several judicial rulings including the decision of Hon'ble Delhi High Court in CIT Vs. Kabul Chawla (2016) 2 ITJ Online 869 (Trib. - Delhi) : (2016) 380 ITR 573 : (2015) 281 CTR 45 : (2015) 234 Taxman 300 and accepted the assessee's contention with following conclusion:
Page No. 140 of order of Ld. CIT(A):
"Conclusion:
Respectfully following the binding precedent on this issue, in absence of any incriminating material found during the search and seizure Page 9 of 23 Shri Agrawal Education & Welfare society IT(SS)A No. 123/Ind/2018 & others Assessment year 2009-10 & others operation and the impugned additions towards unexplained investment in college building and purchase of lands being, additions of regular nature cannot be made in search assessment and therefore, are not sustainable in the eyes of law and hence deserves to be deleted. Hence, on this count also ground # 1 & 2 in all the years are decided in the favour of the assessee and shall be treated as allowed."
11. Before us, learned Representatives of both sides made a lengthy submission on both points. We first deal with 1st legal objection which involves interpretation of section 131(1)(d) and 142A of the Income-tax Act, 1961. With the able assistance of learned Representatives of both sides, we are able to understand the legislative history of these sections. It is observed from submissions that initially there was no specific provision in Income-tax Act, 1961 to enable the assessing authorities to make reference to DVO for ascertaining value / cost of investment, etc. However, the Assessing Authorities used to make reference u/s 131(1)(d) but such action was held be non-maintainable in Amiya Bala Paul 130 taxmann 511 (SC). Thereafter, the Union Legislature introduced section 142A in Income-tax Act, 1961 by Finance Act, 2004, which again generated a new controversy as to whether the Ld. AO can make a reference to DVO without rejecting books of accounts of assessee or not? The matter travelled upto Hon'ble Supreme Court in Sargam Cinema (supra) wherein, relevant paragraph of decision re-produced earlier, the apex court categorically held that the assessing authority cannot make a reference to DVO without rejecting books of assessee. Thereafter, the Legislature again substituted a new version of section 142A w.e.f. 01.10.2014 whereby sub-section (2) in the section reads as under:
"The Assessing Officer may make a reference to the Valuation Officer under sub-section (1) whether or not he is satisfied about the correctness or completeness of the accounts of the assessee"
Learned Representatives fairly admitted that the latest version of sub-section (2), as reproduced above, which empowers the assessing authority to make reference to DVO without rejecting books of accounts, is effective from 01.10.2014 and not retrospectively. The effect of this legislative wisdom, as Page 10 of 23 Shri Agrawal Education & Welfare society IT(SS)A No. 123/Ind/2018 & others Assessment year 2009-10 & others accepted by the learned representatives, is that the Assessing Officer was precluded from referring any matter to the DVO without the books of accounts being rejected by him and it is only after 01.10.2014 that sub- section (2) of section 142A empowers the Assessing Officer to make reference without rejecting books of account.
12. Now we are in a position to consider the implications in assessee's case. We observe that the Ld. AO has not rejected books of assessee. We further observe that the Ld. AO made reference to DVO on 06.08.2013 and DVO submitted report on 11.12.2013. Thus, the events of making reference to DVO have taken place before 01.10.2014 and that too without rejecting books of account. In such a situation, we suffice it to say that the Ld. AO was not justified to make a reference in the light of decision of Hon'ble Supreme Court in Sargam Cinema (supra) and the provision of sub-section (2) of section 142A. Thus, we find no infirmity in the order of the Ld. CIT(Appeals) on this aspect.
13. Now we turn to 2nd legal objection to the effect that the addition had been made in the proceeding of section 153A without having any incriminating material seized during the course of search and therefore the additions is illegal. We observe that Ld. CIT(A) has carefully analysed the factual aspects and in the light of judicial precedents, allowed the contention of assessee for all years. We too observe that the legal-position is directly covered by the decision of Hon'ble Jurisdictional High Court of Madhya Pradesh in the case of PCIT Vs. Gahoi Dal & Oil Mills (2021) 11 ITJ Online 314 (MP), ITA No. 21, 31 & 32 of 2019, order dated 12.07.2019, wherein relying upon the decision of Hon'ble Delhi High Court in CIT Vs. Kabul Chawla (2016) 2 ITJ Online 869 (Trib. - Delhi) : (2016) 380 ITR 573 : (2015) 281 CTR 45 : (2015) 234 Taxman 300, the Hon'ble jurisdictional High Court has dismissed the revenue's appeal by holding that no addition can be made u/s 153A in a non-abated assessment year in absence of incriminating material found during search. The relevant paras of the decision are reproduced below:
Page 11 of 23Shri Agrawal Education & Welfare society IT(SS)A No. 123/Ind/2018 & others Assessment year 2009-10 & others "8. Dwelling on the scope of sub-section (1) of Section 153A of the Act, a Division Bench of Delhi High Court in CIT Vs. Kabul Chawla (2016) 2 ITJ Online 869 (Trib. - Delhi) : (2016) 380 ITR 573 : (2015) 281 CTR 45 : (2015) 234 Taxman 300 observed:
"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 total income for such AYs will have to be computed by the AOs as a fresh exercise.
iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and 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. In so far as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or 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."
9. We are in respectful agreement with the view expressed.
10. In the given facts of present case as no incriminating documents during course of search are found, the order in appeal cannot be said to Page 12 of 23 Shri Agrawal Education & Welfare society IT(SS)A No. 123/Ind/2018 & others Assessment year 2009-10 & others have suffered the illegality as would give rise to the proposed substantial question of law.
11. Consequently, appeals fail and are dismissed. No costs."
14. However, Shri P.K. Mitra, Ld. CIT-DR, representing the revenue filed a Written-Submission and also made Oral-Submission at length. We have given a peaceful hearing to his submissions and would like to record the crux of his submission very briefly. Ld. CIT-DR, with all respect to the Hon'ble Courts, submitted that according to him there had been a change in the scheme for assessment of search cases from time to time. He submitted that in the case of searches conducted upto 31.05.2003, scheme of "Block- assessment" prescribed under Chapter-XIV-B consisting of section 158B to 158BH was applicable, but in respect of searches conducted after 31.05.2003, a new scheme prescribed u/s 153A to 153D is applicable. Ld. DR would further explain that while in older scheme u/s 158B to 158BH, there was assessment only of "undisclosed income", the newer scheme u/s 153A to 153D prescribes assessment of "total income including undisclosed income". He would further submit that due to this material change, the present scheme u/s 153A to 153D is a "full-fledged" type of assessment wherein the concept of "incriminating material" is not applicable because the AO has power to assessee full power to assess total income, which may or may not be based on incriminating material. According to him, in the present case of assessee where assessment had been made by Ld. AO u/s 153A and not u/s 158BC, the addition made, even without having incriminating material, must be viewed as legal.
15. We observe that the Hon'ble jurisdictional High Court in Gahoi Dal & Oil Mills (supra) has clearly held that in absence of incriminating material, addition cannot be made in an assessment of unabated year u/s 153A. Ld. CIT-DR is not able to demonstrate any decision of Hon'ble Supreme Court holding against the decision of Hon'ble jurisdictional High Court. In fact, having made his own submission as recorded in foregoing paragraph, Ld. CIT-DR himself agreed to the decision of Hon'ble jurisdictional High Court with full respect.
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16. At this stage, we would also like to mention that in their later decision in the case of Pr. CIT and ors. Vs. Meeta Gutgutia, Prop. Ferns 'N' Patels and Ors. (2017) 395 ITR 526 (Delhi), the Hon'ble Delhi High Court reiterated with approval their observations in Kabul Chawala's case (supra) that completed assessments could be interfered with by AO while making assessment u/s 153A only on basis of incriminating material unearthed during course of search. If in relation to any assessment year, no incriminating material was found, no addition or disallowance could be made in relation to that assessment year in exercise of powers u/s 153A and earlier assessment should have to be reiterated. This later decision of Hon'ble Delhi High Court has also been affirmed by Hon'ble Supreme Court by dismissing Revenue's SLP in PCIT vs. Meeta Gutgutia (2018) 96 taxmann. Com 468 (SC).
17. In view of above discussion, respectfully following the decision of Hon'ble jurisdictional High Court in Gahoi Dal & Oil Mills (supra), we are of the view that in the present appeal, the addition made by Ld. AO without having any incriminating material, is beyond the purview of section 153A and, therefore, clearly unsustainable.
18. Thus, in principle we agree with the conclusion made by Ld. CIT(A) that the addition made without incriminating material is illegal. But we have a slight modification in the conclusion of Ld. CIT(A) for the reason that the representatives of both sides agreed that in the present appeals, AY 2009-10 to 2010-11 fall under the category of "unabated assessment-years" since the search was initiated on 21.10.2011 and no assessment was pending on that date and the time-limit for issuance of notices u/s 143(2) had also expired by then. But, however, AY 2011-12 is akin to "abated assessment-year"
because the time-limit for giving scrutiny-notice u/s 143(2) had not expired on the date of search. Further, AY 2012-13 is a "regular assessment-year".
Therefore, the ratio of the decision shall help assessee in AY 2009-10 & 2010-11, but not in AY 2011-12 & 2012-13. It appears that the Ld. CIT(A) has not taken care of this aspect and incorrectly went on deciding that the Page 14 of 23 Shri Agrawal Education & Welfare society IT(SS)A No. 123/Ind/2018 & others Assessment year 2009-10 & others benefit is available for all years. Hence, we modify the conclusion of Ld. CIT(A) by concluding that the benefit of decisions shall be available to the assessee for AY 2009-10 & 2010-11 but not for AY 2011-12 & 2012-13. Learned Representatives of both sides agreed to this modification.
19. In the final result, we find that Ld. CIT(A) has rightly deleted the additions of unexplained investment in construction made by Ld. AO on the basis of DVO report. We do not find any infirmity in the action of Ld. AO. Accordingly, there is no merit in the Ground No. 2 of revenue and we are inclined to dismiss Ground No. 2 of all years.
Ground No. 1 of AY 2009-10 and Ground No. 3 of AY 2012-13:
20. In these Grounds, the revenue claims that the Ld. CIT(A) has erred in deleting the addition made by AO on account of undisclosed investment u/s
69.
21. Apropos these grounds, the precise facts are very short. Ld. AO observed that the assessee purchased a land situated at Khasra No. 159 & 158/2, Gram Sikandarabad, admeasuring 1.50 acres for a sum of Rs. 7,50,000/- on 15.07.2008 and another land situated at Khasra No. 135 & 136, Gram Sikandarabad, admeasuring 2.89 acres for a sum of Rs. 32,50,000/- on 04.02.2012. In both cases, Ld. AO observed that the market values of respective lands were Rs. 13,60,000/- and Rs. 46,80,000/-. Ld. AO made a view that the assessee has purchased lands for consideration lesser than market values which could not have happened. Accordingly, Ld. AO computed difference of Rs. 6,10,000/- and Rs. 14,30,000/- respectively for AY 2009-10 and 2012-13 and made additions treating the same as unexplained investment u/s 69 of the Act.
22. During first-appeal, the assessee challenged these additions by raising two-fold objections, viz. (i) The additions are notional and have been made on presumption basis ignoring the consideration actually paid by assessee which is very much mentioned in the registered-deed and hence illegal; and Page 15 of 23 Shri Agrawal Education & Welfare society IT(SS)A No. 123/Ind/2018 & others Assessment year 2009-10 & others
(ii) the impugned addition had been made without having any incriminating- material which again is beyond the scheme of section 153A and therefore illegal.
23. During first-appeal, Ld. CIT(A) considered the 1st objection of assessee in the light of several judicial rulings, which are mentioned in his order, and finally accepted the same by holding as under:
Page No. 131 of order of Ld. CIT(A):
"Conclusion:
In view of the above discussion and following the ratio laid down in case laws discussed above, Ld. AO was not at all justified in adopting the value determined by Stamps Valuation Authority as actual purchase consideration presumed as paid as purchase cost without bringing any tangible or positive material on record. Impugned addition have been made on presumptive basis that assessee must have paid purchase consideration as determined by Stamps Valuation Authority as per guideline value which is not the actual consideration. Also during the relevant period "deeming fiction" enshrined in sec 56(2)(vii) & (x) was not in operation, therefore the same cannot be pressed into service for the purpose of making addition. In view of above discussion and case laws relied upon, action of A.O. is held not to be sustainable on facts and in law. Hence, the addition of ....... Rs. 6,10,000/- in A.Y. 2009-10 and Rs. 14,30,000/- in A.Y. 2012-13 made by AO is found to be based solely on speculation, conjunctures and surmises. Therefore, I hereby order to delete the impugned additions."
24. Regarding 2nd legal objection that the impugned addition had been made without having any incriminating material which is beyond the scheme of section 153A and therefore illegal, Ld. CIT(A) relied upon several judicial rulings including the decision of Hon'ble Delhi High Court in CIT Vs. Kabul Chawla (2016) 2 ITJ Online 869 (Trib. - Delhi) : (2016) 380 Page 16 of 23 Shri Agrawal Education & Welfare society IT(SS)A No. 123/Ind/2018 & others Assessment year 2009-10 & others ITR 573 : (2015) 281 CTR 45 : (2015) 234 Taxman 300 and accepted the assessee's contention with following conclusion:
Page No. 140 of order of Ld. CIT(A):
"Conclusion:
Respectfully following the binding precedent on this issue, in absence of any incriminating material found during the search and seizure operation and the impugned additions towards unexplained investment in college building and purchase of lands being, additions of regular nature cannot be made in search assessment and therefore, are not sustainable in the eyes of law and hence deserves to be deleted. Hence, on this count also ground # 1 & 2 in all the years are decided in the favour of the assessee and shall be treated as allowed."
25. Before us, learned Representatives of both sides made a lengthy submission on both points. Regarding 1st objection of assessee, we observe that the Ld. AO has made addition on the basis of difference in "actual purchase price" and "valuation made by stamps authority". We observe that except this, there is no evidence or basis available to the lower authorities for making this addition. On a careful reading of section 69, we observe that the said section empowers the assessing authority to make addition where unexplained expenditure is found but then the unexplained expenditure has to be real and not notional. Had there been any evidence in the possession of revenue authorities which could establish that the assessee has paid on- money beyond what is mentioned in the registered-deed, Ld. AO would have been within power to treat the difference as income of assessee but this is not so in present case. Ld. AO does not have any evidence whatsoever by which it can be said that the assessee has expended a single penny beyond the consideration mentioned in registered-deed. Therefore, the addition is notional and baseless. We also observe that realising the absence of provision, the Parliament has introduced newer section 56(2)(vii) & (x) but those sections were even not applicable to the assessment-years involved in Page 17 of 23 Shri Agrawal Education & Welfare society IT(SS)A No. 123/Ind/2018 & others Assessment year 2009-10 & others present appeals. Therefore, we are in agreement with the conclusion taken by Ld. CIT(A) that additions were not sustainable for these very reasons.
26. Regarding 2nd objection, our discussions in Para No. 13 to 18 shall apply mutadis mutandis. Accordingly, we modify the conclusion of Ld. CIT(A) by holding that the benefit of decisions shall be available to the assessee for AY 2009-10 but not for AY 2012-13. Learned Representatives of both sides agreed to this modification.
27. In the final result, we find that Ld. CIT(A) has rightly deleted the additions of unexplained investment in land made by Ld. AO on the basis of market value u/s 69 of the act. We do not find any infirmity in the action of Ld. CIT(A). Accordingly, there is no merit in the Ground No. 1 of AY 2009-10 and No. 3 of AY 2012-13 of revenue and we are inclined to dismiss these Grounds.
Ground No. 1 of AY 2010-11, AY 2011-12 and AY 2012-13:
28. In these Grounds, the revenue claims that the Ld. CIT(A) has erred in deleting the addition made by Assessing Officer on account of excess income over expenditure as a matter of consequence of disallowance of exemption u/s 13(1)(d) r.w.s. 11 & 12 of the Income-tax Act, 1961 in the wake of the fact that the CIT(A) has not only confirmed but enhanced the addition from Rs. 40,800/- to Rs. 81,600/- made by the Assessing Officer on account of disallowance u/s 13(1)(d) of the Income-tax Act, 1961.
29. The precise facts qua these grounds are such that during search- proceeding, on the basis of statement of one Shri Ramesh Kumar Yadav, the authorities found that Shri Ramesh Kumar Yadav was a security-guard receiving annual salary of Rs. 40,800/- from one school run by society but his services were in fact being utilized by the members of society (Shri Sudhir Agarwal and Smt. Archana Agarwal) for their personal benefit, which is a violation of section 13(1)(d) of the act. Finding so, Ld. AO went on concluding that the entire benefit of section 11 / 12 claimed by the Page 18 of 23 Shri Agrawal Education & Welfare society IT(SS)A No. 123/Ind/2018 & others Assessment year 2009-10 & others assessee-society is forfeited and the whole income of Rs. 41,98,573/-; Rs. 57,33,471/- and Rs. 3,67,12,447/- for AY 2010-11, 2011-12 and 2012-13 respectivley is taxable. Ld. AO made assessments accordingly.
30. During first-appeal, Ld. CIT(A) perused the seized-material and observed that there was one more security guard named Shri Birpal Singh, who also received a salary of Rs. 40,800/- from the assessee-society but his services were also utilized by the same members of society. Thus, Ld. CIT(A), after giving notice of enhancement to the assesse, increased addition to Rs. 81,600/- (Rs. 40,800/- + Rs. 40,800/-). While deciding appeal, Ld. CIT(A) sustained addition of Rs. 81,600/- but, however, deleted the addition of Rs. 41,98,573/-; Rs. 57,33,471/- and Rs. 3,67,12,447/- made by Ld. AO on account of denial of exemption u/s 11 / 12. In short, Ld. CIT(A) held that the value of benefit i.e. Rs. 81,600/- alone shall be taxable but the entire exemption of section 11 / 12 cannot be denied to the assessee. Now, the grievance of revenue is that the Ld. CIT(A) ought to have confirmed the whole addition of Rs. 41,98,573/-; Rs. 57,33,471/- and Rs. 3,67,12,447/- made by Ld. AO.
31. We observe that the Ld. CIT(A) has elaborately considered the legal issue as to whether the whole exemption u/s 11 or 12 is lost because of violation of section 13(1)(d) or only relevant income qua the benefit extended to members, has to be taxed in the light of legal provisions as well judicial rulings. Therefore, it would be better to reproduce the relevant paragraphs of the appeal-order of Ld. CIT(A) as under:
Page No. 98 of the order of Ld. CIT(A):
"Findings:
9.5 I have duly considered the facts of this case inter alia arguments advanced by the appellant. These grounds have two parts one is related to addition of Rs. 40,800/- on salary paid to guard u/s 13(2) (d) {AO wrongly used sec 13(1 )(d)} by treating it as personal benefit to member trustee (specified person). On this point, enhancement notice u/s 251 (2) has been given for enhancement of Page 19 of 23 Shri Agrawal Education & Welfare society IT(SS)A No. 123/Ind/2018 & others Assessment year 2009-10 & others addition by same amount i.e. Rs. 40,800/- i.e. salary paid to another guard. So, issue is related to Rs. 81,600/- in each year pertaining to salary paid to two guards by the assessee treated as personal benefit to member trustee. Another aspect is consequential to first part. Ld AO disallowed the entire exemption claimed u/s 11 & 12 of the Act due to operation of section 13(1)(d) {correct section 13(2)(d)} of the Act. With regard to first aspect, it is seen that the contention of the appellant that services of two guards was provided to the trustee in lieu of his services rendered for the trust and since no other benefit/remuneration/fees was given to Shri Sudhir Agarwal, salary paid to guards should be allowed as deduction. I find the argument self-defeating and devoid of any merit. Provision of section 13(2) (d) is very clear which says that if services of trust are made available to specified person without adequate remuneration or other compensation, then such sum shall be "deemed to have been used" for the benefit of specified person. Admittedly these services were provided by assessee trust to Shri Sudhir Agarwal, without any payment and for free, hence, such expenses are hit by the provision of section 13 of the Act. There is no documentary evidence or otherwise to presume that such services were made available to the specified person in lieu of his service to assessee trust, so argument remained to be theoretical, nothing more. Therefore, in view of categorical provision of disallowance of Rs. 40,800/- added by Id AO in each year i.e. A.Y. 2008-09 to A.Y. 2012-13 is upheld. Further, on similar grounds, this disallowance is farther enhanced by Rs.40,800/- (salary paid To another ground). So, total addition of Rs. 81,600/- in A.Y. 2008-09 to A.Y.2012-13 is sustained. Ground # 5 for A.Y 2008-09, Ground # 9 for A.Ys 2009- 10 to 2012-13 is treated partly disallowed because salary to guard is confirmed and exemption u/s 11 & 12 is allowed as discussed In forthcoming paras.
9.6 Without prejudice to the main contention that provision of section 13 are not applicable, Id. AR has put forth alternative contention that even it is held that said expense (salary to guard) is disallowed then also denial of exemption should be limited only to the extent of income which was violative of section 13(1)(d) of and not the total denial of exemption. I have given my thoughtful consideration to this contention and observed that there is no doubt that assessee trust was engaged in charitable activities by way of imparting education covered under the definition of charitable activities defined u/s 2(15) of Income Tax Act. This fact is not even disputed by the Id. AO. As held by Hon'ble Madras High Court in the case of CIT v/s Working Women Forum (supra) that denial of exemption should only to be to the extent of the income which is violative of section 13( 1) (d) of the Act and not to the total denial of exemption u/s 11 of the Act. Similar views have been expressed in the case of OIT (Exemption) v/s Sheth Magatlal Gagalbhai Page 20 of 23 Shri Agrawal Education & Welfare society IT(SS)A No. 123/Ind/2018 & others Assessment year 2009-10 & others Foundation Trust, Mumbai (supra) by holding that only the non- exempt portion of income would fall in the net of tax because of violation of section 13( 1) (d) of the Act, and tax shall be charged on such income or part there of as the case may be, at the maximum marginal rate. It does not refer to the entire income being subjected to maximum marginal rate. This interpretation is also supported by Circular no 387 dated 6th July 1984 wherein vide para no. 28.6 it was clarified that where a trust contravenes section 13(1)(d) the maximum marginal rate of income tax will apply only to that part of income which has forfeited exemption under the said provision and not to the entire income. Further, Id.AR has also placed reliance on the decision of Lokmanya Tilak Jankalyan v/s ACIT [ITA no 384/Nag/2012] by ITAT Nagpur wherein it was held that if there is default by a society u/s 13(1)(c)/13(2) + en it would not result into complete denial of exemption u/s 11/12 qua .ne entire receipts of assessee society but denial of exemption should be restricted qua the amount to which default is restricted. On the basis of above cited case laws, as held by !TAT Delhi Bench in the case of ADIT v/s Institute of Human Development in ITA No. 5503/De1/2012 vide order dated 10.10.2012 that issue is no more res integra and disallowance to be restricted only qua amounts to which violation u/s 13(1)(c)/13(2) is attracted and the exemption in respect of other income cannot be forfeited. It is held that"
"As far as ground no. 1 is concerned, the short point of consideration is that if there is default by a society registered u/s 13(l)(c)/13(2), whether that results in denying exemption u/s 11/12 qua the entire receipts of assessee society or to be restricted qua the amount to which default is attracted. We find that this issue is no more res integra and is covered by the decisions of various High Courts and the ITAT, holding that disallowance is to be restricted only qua amounts to which violation u/s 13(l)(c)/ 13(2) is attracted and the exemption in respect of other income cannot be forfeited.
Respectfully following the ratio decidendi of various case laws discussed above and CBDT Circular No. 387 dated 06.07.1984, I hereby order the Id. AO to restrict the disallowance of exemption qua the expenses incurred for the personal benefit of member trustee i.e. Rs. 81,600/- each year representing salary paid to two guards deputed at the residence of Shri Sudhir Agrawal. Thus, decision of Id. AO to treat the entire surplus of income over expenditure as income under normal provision is reversed. Instead only Rs. 81,600/- should be denied of exemption and should be brought to tax and rest of the surplus should be considered for exemption u/s 11 of the Act. AO should pass the order accordingly after following the relevant provision applicable to this case.Page 21 of 23
Shri Agrawal Education & Welfare society IT(SS)A No. 123/Ind/2018 & others Assessment year 2009-10 & others Ground of appeal # 7 for A.Ys 2010-11,2011-12 & 2012-13 is allowed.
We find that the Ld. CIT(A) has passed a well-reasons order holding that the entire exemption u/s 11 / 12 is not lost. We do not find any infirmity in the order of Ld. CIT(A). Hence the same is uphold and Ground No. 1 of AY 2010- 11, 2011-12 and 2012-13 is dismissed.
32. In the final result, all these appeals of Revenue are dismissed.
Order pronounced as per Rule 34 of I.T.A.T. Rules, 1963 on 19/10/2022.
Sd/- Sd/-
(SIDDARTHA NAUTIYAL) (B.M. BIYANI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Indore
दनांक /Dated : 19.10.2022
Patel/Sr. PS
Copies to: (1) The appellant
(2) The respondent
(3) CIT
(4) CIT(A)
(5) Departmental Representative
(6) Guard File
By order
UE COPY
Sr. Private Secretary
Income Tax Appellate Tribunal
Indore Bench, Indore
Page 22 of 23
Shri Agrawal Education & Welfare society
IT(SS)A No. 123/Ind/2018 & others
Assessment year 2009-10 & others
1. Date of taking dictation
2. Date of typing & draft order placed before the Dictating Member
3. Date on which the approved draft comes to the Sr. P.S./P.S.
4. Date on which the fair order is placed before the Dictating Member for pronouncement
5. Date on which the file goes to the Bench Clerk
6. Date on which the file goes to the Head Clerk
7. Date on which the file goes to the Assistant Registrar for signature on the order
8. Date of dispatch of the Order Page 23 of 23