Income Tax Appellate Tribunal - Ahmedabad
The Acit, Central Circle-1(1), ... vs M/S. Amradeep Industries Ltd., ... on 13 October, 2020
आयकर अपील य अ धकरण, अहमदाबाद यायपीठ 'C' अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH, AHMEDABAD (Convened through Virtual Court) BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER आयकर अपील (एस. एस.) सं./ I.T. ( SS)A. No. 342/Ahd/2018 ( नधा रण वष / Assessment Year : 2010-11) Asst. Commissioner of बनाम/ M/s. Amradeep Income-tax Vs. Industries Ltd.
Central Circle-1(1), 24, Laxmi Chambers,
Ahmedabad Navjeevan Press Road,
Room No. 303, 3 r d Floor, Opp. Old Gujarat High
Aayakar Bhavan, Ashram Court, Ahmedabad - 380
Road, Ahmedabad - 014
380009
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AABCA8362K (अपीलाथ /Appellant) .. ( यथ / Respondent) अपीलाथ ओर से /Appellant by : Shri O. P. Sharma, Sr.D.R. यथ क ओर से / Shri Anil Kshatriya, A.R. Respondent by :
सन ु वाई क तार"ख / Date of 01/10/2020 Hearing घोषणा क तार"ख /Date of 13/10/2020 Pronouncement आदे श/O R D E R PER PRADIP KUMAR KEDIA - AM:
The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals)-11, Ahmedabad ('CIT(A)' in short), dated 12.09.2018 arising in the assessment order dated 31.03.2015 passed by the I T ( S S ) A N o . 3 4 2 / Ah d / 1 8 [ A C I T v s . M / s .
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Assessing Officer (AO) under s. 143(3) r.w.s. 153A(1)(b) of the Income Tax Act, 1961 (the Act) concerning AY. 2010-11.
2. The substantive ground of appeal raised by the Revenue reads as under:-
"1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in law and on facts is not appreciating the provisions of section 153A of the I T Act, 1961 which requires the total income to be brought under tax without any restrictions.
2. On the facts and in the circumstance of the case and in law, the Ld.CIT(A) has erred in law and on facts in holding that such assessment or reassessment u/s 153A of the I T Act, 1961 is to be restricted only to the incriminating materials found during the search.
3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.5,00,00,000/- made by the AO on account of loss on sale of shares of Amrapali Capital & Finance Services Ltd. (ACFSL).
4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts without appreciating the facts that the assessee himself admitted that the purchase and sales shown in audited books of accounts are mere unilateral book/paper entries and no actual purchase and sale transactions have been carried out as mentioned in para 5.1 of said assessment order."
3. Briefly stated, the assessee company filed its return of income for AY 2010-11 under s.139(1) of the Act on 28.09.2010 declaring total income at Rs.Nil. A search under s. 132 of the Act was conducted on Amrapali Group on 26.10.2012 where the assessee company was also covered in search action. Consequent upon search, a notice under s.153A of the Act was issued on the assessee. In response to the notice under s.153A of the Act, the assessee filed return of income declaring total income at Rs. Nil. The assessment was thereafter completed under s.143(3) r.w.s. 153A of the Act. While framing assessment under s.153A of the Act, the AO inter alia took note of loss on sale of shares of ACFSL amounting to Rs.5Crore claimed by the assessee. The AO also took note of the certain submissions made by the assessee but however found the I T ( S S ) A N o . 3 4 2 / Ah d / 1 8 [ A C I T v s . M / s .
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loss in sale of shares of ACFSL amounting to Rs.5Crore was accordingly rejected and added to the total income of the assessee.
4. Aggrieved, the assessee preferred appeal before the CIT(A).
5. Before the CIT(A), the assessee also challenged jurisdictional ground for addition made within the sphere of Section 153A of the Act on legal side, apart from the challenge of the additions on merits. The CIT(A) called for remand report from the AO and rejoinder thereon from the assessee was obtained which has been referred in the first appellate order. After making reference to the various submissions and remand report etc., the CIT(A) found merit in the objection raised by the assessee by way of additional ground on jurisdictional aspects of the AO to make additions under s.153A of the Act in the circumstances, as narrated for the present case. The relevant operative para of the order of the CIT(A) is reproduced hereunder:
"4.2 I have gone though the assessment order, considered the remand report submitted by A.O. and also the afor esaid written submissi on as well as oral arguments advanced by the A.R. of the appellant. The appellant contended that during the course of search, no incriminating material was found and hence, the additions made by the AO are not based upon any incr iminating material found during the cour se of search. In the absence of any incri minating material found duri ng the course of search, additions made are not j ustified. In support of this contention, the appellant cited several binding judgement of High Courts & ITAT. In the case on of the appellant, the A.O. has merely mentioned in the order that a search u/s 132 of the Act was carried out on 26/10/2012. Ther e is no reference to any books of accounts, documents or incriminating material seized and belonging to the appellant for the assessment year under consideration. The particular of income and its r elated transactions are duly recorded i n the statutorily audited books of account filed with the returns of i ncome and the A.O. has made addition out of the same and no other addition on the basis of incriminating material or admission made by the appellant is made. In the absence of any incriminating material found, no additions can be made while making assessment u/s.153A of the Act, as the appellant had filed original return of income on 30.9.2008 and assessment proceedings were not pending on the date of search, so as I T ( S S ) A N o . 3 4 2 / Ah d / 1 8 [ A C I T v s . M / s .
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to abate. The appellant's case has been found covered by following binding judgements :-
(i) CIT Vs. Kabul Chawl a [2015] Taxcorp DT 61778 ( Del.HC)
(ii) Intas Pharm aceutical Vs. DCIT in IT (SS) A no. 807- 809/Ahd./2010 ( Ahd. I TAT)
(iii) Jay Infrastructure & Properties Pvt. Ltd, Vs. ACIT in I TA No. 2169/Ahd./2011 ( Ahd. ITAT)
(iv) Vijaykum ar D. Agrawal Vs. DCIT in I T (SS) A. No.l53- 156/Ahd./2012 ( Ahd. I TAT).
(v) PCIT Vs . Desai Cons truction Pvt. Ltd. Tax Appeal No. 24 of 2016 decided on 14/3/2016.
(vi) PCIT Vs. Dipak J. Pachal [2017] Tax Corp. 68568 ( Guj.)
(vii) CIT Vs. Khem ani Distiliaries Pvt. Ltd. in Tax Appeal No. 790 to 796 of 2010 order dat ed 22/7/2016 (Guj.)
(viii) PCIT Vs. Lata Jain in ITA No.274 of 2016 order dated 6/5/2016 (Del.)
(ix) CIT VS. Meeta Gut Gutia Pr op. M/S. Ferns "IM" Petals 395 ITR 596 (Del.)
(x) ITO Vs. Shantisur i Securities P. Ltd. in ITA No. 2481/AHD/2014 order dated 21/12/2017
(xi) Pr.CIT Vs. RSA Digi Prints in tax appeal no. 469 of 2017 order dated 06/09/2017.
Keeping in view the above judgements, additions of Rs. 5,0,00,000/- made by the AO are deleted."
The CIT(A), in conclusion, quashed the additions made towards disallowance of loss on sale of shares alleged to sham by AO on the ground that such additions are not sustainable in the absence of any incriminating material found in the course of search.
6. Aggrieved by the relief granted by the CIT(A), the Revenue is in appeal before the Tribunal to assail its action.
7. The learned DR for the Revenue referred to the order of the CIT(A) and submitted that the remand report obtained from the AO is silent on presence of incriminating material or otherwise for making additions. In the absence of any specific observation/response from the AO on the legal point raised by the assessee before the CIT(A) for the first time in the appellate proceedings, the action of the CIT(A) is not justified in assuming I T ( S S ) A N o . 3 4 2 / Ah d / 1 8 [ A C I T v s . M / s .
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the absence of any incriminating material outrightly without any perceptible enquiry. The learned CIT D.R. thus relied upon the action of the AO and the observations made in the assessment order and urged for upholding the assessment order.
8. In defense, the learned AR for the assessee, on the other hand, pointed out that in the light of plethora of judgments, the law is well settled that assessment in 153A proceedings are permissible only on the basis of incriminating material found in the course of search where the assessment already stood concluded and not pending at the time of search. The learned AR thus submitted that CIT(A) has rightly appreciated the law evolved by the judicial precedents and decided the issue correctly in favour of the assessee. On inquiry from the bench towards any averment made on behalf of the AO in the remand report on absence of incriminating material, the learned AR however could not demonstrate such facts to the satisfaction of the Tribunal.
9. We have carefully considered the rival submissions. The short question present for adjudication is whether it is open to the AO to disallow loss claimed on sale of shares in the current proceedings under s.153A of the Act in the context of the facts of the case. The jurisdiction to invoke the provisions of S. 153A per se is not in challenge having regard to the search action. What is in challenge is whether impugned additions/ disallowances made dehors the incriminating material is permissible as per the scheme of assessment embodied in S. 153A of the Act. It is the case of the assessee that the return of income filed prior to search under s.153A of the Act had stood concluded and was not pending at the time of search. It is thus the case of assessee that the AO was prohibited I T ( S S ) A N o . 3 4 2 / Ah d / 1 8 [ A C I T v s . M / s .
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from making additions/ disallowances unconnected to the material found in the course of search in an such unabated assessment.
9.1 In this regard, we firstly observe that assessment order is silent towards presence or otherwise of incriminating material for indulging in impugned additions of Rs.5Crore as sham loss on sale of shares. The extract of the remand report from the AO also does not answer the presence or otherwise of such incriminating materials in connection with the impugned additions/disallowance. There is no averment in the assessment order either on the point whether the assessment stood concluded on the date of search or not. In the absence of discussion on these aspects, it is a difficult proposition to determine the issue either way which is dependent on the facts in question. The CIT(A) has mechanically applied the law evolved by judicial precedents on contours of S. 153A in an abstract and generic manner.
9.2 In our considered view, the CIT(A) was under bounden duty to make suitable inquiry to find the presence or otherwise of the incriminating material and should simply ought not to have brushed aside the additions and determine the viability of additions/ disallowance upon a vague and non-descript remand report where pertinent points raised by the CIT(A) remains unanswered. The findings of CIT(A), in our view, lacks comprehension. As a matter of course and to reach to a logical conclusion, the CIT(A) ought to have repeated the inquiry on incriminating material from the AO where the remand report allegedly did not cogently address the pertaining issue raised by the CIT(A) himself at the first instance. In the hierarchy of power, the first appellate authority possesses co- terminus powers and duties in equivalence with that of AO apart from the appellate powers to adjudicate the grievance of the Assessee. These are special and exceptional attributes of the I T ( S S ) A N o . 3 4 2 / Ah d / 1 8 [ A C I T v s . M / s .
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jurisdiction of a tax appellate authority. These attributes underline the truth that the appellate authority is no different, functionally and substantially, from the assessing authority itself. In exercise of scope of its plenary powers co-terminus with the subordinate authority, the CIT(A) could have called the assessment record himself to ascertain to the alleged claim of absence of incriminating material while discharging its appellate functions. No such inquiry has been made as enjoined in law towards corroboration of assertions made by AO in support of its challenge to jurisdiction for additions.
9.3 In the same token, we are equally flummoxed by the appalling assertions made in the submissions of the assessee before AO which went unnoticed by the CIT(A). For the sake of easy reference, the submissions as reproduced in para 5.1 of the assessment order is extracted hereunder:
"(a) At the outset, it is submitted that in the audited accounts, the working used are Los s from F&O activity. However , it may be noted that the words [ F&O ] used were inadvertently written on account of copy and paste function and was a bonafide mistake. The correct words are "Loss from Share Trading". This is to emphasize the fact that mere words would not change the nomenclature of the transaction, whi ch in the instant case is share trading loss.
(b) The investment in shar es of ACFSL has been converted into stock in trade as on 01.04.2010 and therefore treated as loss on sale of such shares has been treated as business loss duri ng the year.
(c) It is further submitted that the entries of purchase and s ale as shown in the audited accounts on which pr ofit of Rs.5,02,25,000/- has been shown are mer e unilateral book/paper entries and no actual purchase and sale tr ansactions have been carried out. That apart, it may be noted that no purchase and sales bi lls are available in support of the said transactions.
(d) It may be noted that the entire transaction is merely a unilateral book entry in the books of account of the company and is shown i n 2 to 3 entries only which is highly illogical and itself suggests that it is nothing more than a book entry and not a regular business activity which would other wise involve series of purchase and sale transactions.
3. The investment in the shares and subsequent sale is justified on valuation report based on future growth as well as net worth of the I T ( S S ) A N o . 3 4 2 / Ah d / 1 8 [ A C I T v s . M / s .
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company and non-achievement of the projected growth due to non- viability of the same.
In view of the above f acts and more particularly the fact that the entire transaction is merely a unilateral book ent ry of purchase and s ale as stated above, in case your honour proposes to disallow the loss, the consequential profit al so should be ignored."
9.4 A bare glance of the submissions, it can be noticed that the Assessee himself has discredited the entries pertaining the purchase and sale transactions of shares in its books. The submissions remains un-repudiated to our understanding. It is thus observed that the assessee has come forward to make an inexplicable and strange admission that certain profits arising on sale of shares amounting to Rs.5,02,25,000/- have been introduced in the books unilaterally as book / paper entries without any supporting material. This assertion has a direct impact to the impugned loss in controversy. We are at loss to understand as how such acquiescence, if true indeed, would not ipso facto taint the books of accounts of the assessee co. found at the time of search and would not constitute as incriminating material in itself for the matter to fall within the sweep of S. 153A of the Act? Ostensibly, the presence of incriminating material can not be ordinarily seen in isolation but has to be appreciated in conjunction with books maintained by the Assessee Co. Needless to say, the distraught fact of insertion of sham transactions by concocting the books in a cavalier manner has omnibus implications and blemishes the state of affairs of the Assessee and make it susceptible.
9.5 This apart, as per the submissions recorded above, the impugned loss claimed Rs.5 Crores on sale of ACFSL shares in controversy is stated to be wrongly claimed in books as 'derivative transaction' by the assessee and consequently characterized as 'business loss' as per the scheme of the Act. On the contrary, the loss arising on ordinary share transaction, needs to be tested on the I T ( S S ) A N o . 3 4 2 / Ah d / 1 8 [ A C I T v s . M / s .
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touchstone of deeming fiction embedded in Explanation to Section 73 of the Act to determine whether the impugned loss is speculative in nature and thus to be treated on a different tangent. As per the averments of the Assessee by way of it submissions, the share trading transactions have the attributes of ordinary transactions in contrast to derivative transactions enjoying a different legal status in view of exceptions carved out in S. 43(5) of the Act. Hence, the issue needs to be examined by the CIT(A) from this perspective as well which may call for some factual verifications.
9.6 As narrated, the controversy involved is complex and cannot be stereotyped by applying the judicial precedents summarily in the wake of very peculiar facts existing in the present case as narrated above. The Assessee has claimed lack of economic substance in the share transactions arising on purchase and sale of shares as recorded in the books. In our view, the plea of assessee towards absence of any incriminating material in the light of such an aggravating written statement cannot obfuscate reality. The CIT(A) ought to have examined these crucial aspects with a degree of objectivity by making inquiries and verification in this regard in accordance with law. We thus see obscure merits in the first appellate order in challenge.
9.7 These glaring facts do raise concern on the objectivity with which the task has been performed by the CIT(A). However, in the absence of cogent facts available in this regard, we are not dwelling any further on the aspect and leave the question entirely open for determination of the CIT(A) afresh in accordance with law after making necessary inquiries and verifications as may be considered expedient. We thus set aside the appellate order passed by the CIT(A) in entirety and remit the matter back to the file of the CIT(A) for re-consideration of the whole issue in an orderly manner I T ( S S ) A N o . 3 4 2 / Ah d / 1 8 [ A C I T v s . M / s .
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in accordance with law and without any fetters after granting proper opportunity of hearing to the assessee.
10. At this juncture, we may hasten to add that Section 254(1) of the Act defines the powers of the Tribunal in widest possible terms. Where it is found that a non-taxable item is taxed or a permissible deduction is denied, there is no reason to prevent assessee from raising grievance before the Tribunal in this regard. By the same token, the ITAT is under solemn duty to set the facts right and in perspective to determine the correct position of taxability on a given issue. The aspects of alleged hoax transactions and camouflaging of books is integral to determine the presence of incriminating material. The ITAT can venture into examination of such an integrally connected critical aspect of the matter to determine the sustainability of additions/ disallowance. This view is fortified by the decision of the Hon'ble Karnataka High Court in the case of Fidelity Business services India Pvt. Ltd. vs. ACIT (2018) 95 taxmann.com 253 (Kar.). Similar view has been expressed by the Hon'ble Delhi High Court in the case of CIT vs. Jansampark Advertising and Marketing Pvt. Ltd. (2015) 56 taxmann.com 286 (Del.). The Hon'ble Delhi High Court in this case observed that where the AO failed to discharge its obligation to conduct a proper inquiry to take the matter to logical conclusion, it is also the obligation of the first appellate authority and indeed that of ITAT to have ensured that effective inquiry is carried out on the subject matter of appeal. Likewise, the Hon'ble Bombay High Court in ITO (TDS) vs. Thyrocare Technology Ltd. (Bom) Income Tax Appeal No.53 of 2016 & Ors. judgment dated 11.09.2017 also similarl y observed that once the Tribunal was obliged in law to examine the matter and re-appreciate all the factual materials, then it should have performed that duty satisfactorily and in terms of powers conferred by law. The Aurangabad Bench of the Hon'ble Bombay I T ( S S ) A N o . 3 4 2 / Ah d / 1 8 [ A C I T v s . M / s .
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High Court in the case of CIT vs. Chalisgaon People's Co-op. Bank Ltd. (Tax Appeal No. 31 of 2005 & Ors. judgment dated 23.03.2015) has also underlined the need for appropriate enquiry on the factual aspects to determine the issue. It observed that it was obligatory on the part of fact finding authorities to make inquir y and arrive at a finding. Thus, the solemn duty requires us to direct the CIT(A) to examine the whole issue in accordance with law after taking note of crucial aspects on purported sham nature of share transactions, if any. The matter is remanded back to the file of CITA(A) accordingly.
11. In the result, the appeal of the Revenue is allowed for statistical purposes.
This Order pronounced on 13/10/2020
Sd/- Sd/-
(MAHAVIR PRASAD) (PRADIP KUMAR KEDIA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad: Dated 13/10/2020
Tru e Co p y
S. K. SINHA
आदे श क त!ल"प अ#े"षत / Copy of Order Forwarded to:-
1. राज व / Revenue
2. आवेदक / Assessee
3. संबं-धत आयकर आयु/त / Concerned CIT
4. आयकर आय/
ु त- अपील / CIT (A)
5. 3वभागीय 6त6न-ध, आयकर अपील"य अ-धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड< फाइल / Guard file.
By order/आदे श से, उप/सहायक पंजीकार आयकर अपील"य अ-धकरण, अहमदाबाद ।