Income Tax Appellate Tribunal - Delhi
Dcit, New Delhi vs M/S. Glensdale Enterprise Development ... on 5 January, 2018
1 ITA Nos. 973/Del/2014 & Ors
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: 'C' NEW DELHI
BEFORE SHRI G. D. AGRAWAL, PRESIDENT
AND
MS SUCHITRA KAMBLE, JUDICIAL MEMBER
I.T.A .No. 973/DEL/2014 (A.Y 2004-05)
I.T.A .No. 974/DEL/2014 (A.Y 2005-06)
I.T.A .No. 975/DEL/2014 (A.Y 2006-07)
I.T.A .No. 976/DEL/2014 (A.Y 2007-08)
I.T.A .No. 977/DEL/2014 (A.Y 2008-09)
I.T.A .No. 978/DEL/2014 (A.Y 2009-10)
DCIT Vs Glensdale Enterprise
Central Circle-11 Development Pvt. Ltd.
New Delhi 149D, Okhla Industrial Estate
New Delhi
(APPELLANT) AABCG7188B
(RESPONDENT)
Appellant by Sh. Raja Ram Sah, CIT DR
Respondent by Sh. M. P Rastogi & P N.
Shastri, AR
Date of Hearing 07.12.2017
Date of Pronouncement 05.01.2018
ORDER
PER SUCHITRA KAMBLE, JM
These appeals are filed by the Revenue against the order dated 27/11/2013 passed by CIT(A)-XXXI, New Delhi.
2. For the sake convenience we are taking up grounds of ITA No. 973/Del/2014 Assessment Year 2004-05, the grounds of appeal are as under:-
2 ITA Nos. 973/Del/2014 & Ors"1. The order of Ld.CIT(A) is not correct in law and facts.
2. On the facts and in the circumstances of the case, Ld.CIT(A) has erred in holding that order u/s 153C is void ab-initio as proceedings u/s 153C were wrongly initiated by the A.O.
3. On the facts and in the circumstances of the case, Ld.CIT (A) has erred by not appreciating that the requirement of Section 153C were fulfilled before notice u/s 153C was issued.
4. On the facts and in the circumstances of the case, Ld.CIT (A) has erred by not giving a finding on the merits of the case."
3. Facts for Assessment Year 2004-05 are taken as the same is lead matter. As per the assessment order, there was a search u/s 132 of the Income Tax Act 1961, at the premises of Mr. Dinesh Kaushal who was CFO of Tulip Telecom Ltd. as part of search & seizure operation in the Tulip Telecom group on 25/09/2009. At the said residence of Mr. Kaushal, an agreement to sell dated 05/09/2006 between the assessee (Seller) and Mr. Kaushal (purchaser) was found and seized. The AO initiated the proceedings u/s 153C against the assessee. In the assessment order, the AO noted that he had issued notice u/s 153C on 29/04/2010 and there was no compliance to the said notice. The A.O issued questionnaire u/s 142(1) on 8/12/2011 and followed with a letter dated 13/12/2011 giving final opportunity. On the appointed date (21/12/2011) the AR of the assessee submitted a written reply which was quoted by the AO at para 3 of assessment order. In the said reply the AR submitted the A.O noted in the assessment order that the AR's contentions about the time period available for completing the proceedings u/s 153C in the assessee's case was incorrect and that the assessment had to be completed by end of December 2011. The A.O completed the assessment u/s 153C/143(3) by making addition/disallowances of Rs.1,40,75,000/- on account of unexplained cash credits u/s 68 of Income Tax Act, 1961.
3 ITA Nos. 973/Del/2014 & Ors4. Being aggrieved by the same, the assessee filed appeal before CIT(A). The CIT(A) allowed the appeal of the assessee.
5. The Ld. DR relied upon the order of the Assessing Officer . The Ld. DR submitted that "a search & seizure / survey operation took place on 24/25.09.2009 in case of Tulip Group. During the search operation at residence of Shri Dinesh Kaushal, CFO of the Tulip Group, an agreement to sell in respect of an immoveable property was found and seized as per page nos. 66-69 of Annexure A-l to the Panchnama drawn at the said premises. As per the said agreement to sell, the assessee was seller. It is established practice of the Income Tax department that not everything found at the time of search is seized. Only such material is seized which is, prima- facie, incriminating in nature. The Ld. DR further submitted that incidentally, the incumbent AO of the searched person and the assessee was the same officer. However, the 'Satisfaction note' was recorded on 02.09.2011 in capacity of AO of Shri Dinesh Kaushal, in respect of documents mentioned in para 1.1, above, u/s 153C. The present AO has confirmed this fact vide his letter dated 17.06.2016. This fact can also be seen from the S atisfaction Note: The Satisfaction Note says, "on going through the documents Seized....". Undoubtedly, seized documents are in the possession of the AO of 'searched person'. The Satisfaction Note says, "there was no search warrant in the case of M/s Glensdale Enterprise Development Pvt. Ltd...". The Satisfaction Note also says, "....the case of M/s Glensdale Enterprise Development Pvt. Ltd. is covered u/s 153C...". This language would only be used by the AO of 'Searched person' because the AO of M/s Glensdale Enterprise Development Pvt. Ltd. would have referred to it as 'assessee' as per practice prevalent in the Income- Tax department. The Satisfaction Note says, " I am satisfied that the document also belong to M/s Glensdale Enterprise Development Pvt. Ltd..." Clearly, this language is used by the AO of the person in whose hands the document was 4 ITA Nos. 973/Del/2014 & Ors originally seized and there is presumption that it belongs to the said person. As per practice prevalent in the income tax department, AO would not write name of his assessee on the order-sheet because the said order-sheet would in any case remain in assessment folder of the assessee. However, in the present case, on the sheet recording 'Satisfaction Note', the name of M/s Glensdale Enterprise Development Pvt. Ltd. is recorded on the top(just below the heading 'Satifcation Note') which clearly indicate that it is not written by the AO of M/s. Glensdale Enterprise Development Pvt. Ltd. Since AO of searched person would be required to write such 'Satisfaction Note' in more than one case, therefore, the name of each 'other person' would be indicated on top of the paper to easy reference in future. The Satisfaction Note says, " As such Notices are being issued to M/s Glensdale Enterprise Development Pvt. Ltd. in accordance with the provisions of section 153A as laid down under section 153C ... It does not say , " Notices issued...". It clearly shows that the capacity of the officer recording the 'Satisfaction Note' is not that of AO of M/s. Glensdale Enterprise Development Pvt. Ltd. A cursory reading of the 'Satisfaction note' indicates that the 'Satisfaction Note' recorded by the AO of 'searched person' shows the application of mind. The relevant seized agreement to sale has been gone through and logical conclusion has been drawn. The Hon'ble SC in case of Raymond Woollen Mills Ltd Vs. Income-Tax Officer And Others [1999] 236 ITR 34 (Sc) has held that the sufficiency or correctness of the material is not a thing to be considered by the courts. This view is reaffirmed in case of Assistant Commissioner Of Income Vs Rajesh Jhaveri Stock Brokers Pvt. 291 ITR 500(SC). The hon'ble SC has stated as under:
'This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. Pvt. Ltd. [1996 (217) ITR - - " SC)] ; Raymond Woollen Mills Ltd. v. ITO [ 1999 (236) ITR 34 (SC)]."5 ITA Nos. 973/Del/2014 & Ors
The 'Satisfaction note' says that the document (agreement to sale) under question 'also belongs to' M/s Glensdale Enterprise Development Ltd. It certainly shows application of mind because an agreement to sale is not a sale deed which may be said to be belonging to the purchaser because the seller does not have any interest in the property after a sale deed is executed but in case of an agreement to sale, both the parties i.e. seller as well as buyer are having interest in the property which subject matter of the agreement to sale. The Ld. DR submitted that the CIT(A) has held in para 3.6.3/ Page No. 18 of his order for A.Y. 2004-05 that Sh. Dinesh Kaushal who is shown as purchaser in the said agreement to sale was a benami in order to circumvent laws prevailing in Himachal Pradesh. This fact was in knowledge of the AO of Sh. Dinesh Kaushal. Therefore, exclusive ownership of this documents in the hands of Sh. Dinesh Kaushal was doubtful.
6. The Ld. AR submitted details of returns filed for Assessment Year 2004- 05 till 2009-10 which are as follows:-
Asst.Year Filed on Acknowledgement Remarks 1. 2004-05 20-10-2014 1222000366 Notice invalid 2. 2005-06 30-10-2005 1222000807 Asst. Completed 3. 2006-07 31-03-2008 2011900923 Asst. Completed 4. 2007-08 01-04-2008 1255000046 Asst. Completed 5. 2008-09 31-01-2009 675825930310309 Asst. Completed 6. 2009-10 26-09-2009 9162091260909 Pending
The Ld. AR further submitted that the satisfaction note dated 02.09.2011 is not in accordance with the satisfaction as contemplated u/s 153C of the IT Act.
The very agreement dated 05.09.2006 basically belongs to Dinesh Kaushal itself. Dinesh Kaushal did not disclaim the ownership of that very agreement.
6 ITA Nos. 973/Del/2014 & OrsHence the same cannot be said and imagined to be belonging to the assessee and the satisfaction note as prepared by the Revenue is not proper in terms of provision of Section 153C of the IT Act and accordingly the assumption of jurisdiction as made by the AO is illegal. The Ld. AR relied upon the decision of the Hon'ble Delhi High Court in case of Pepsico India Holding Pvt. Ltd Vs. ACIT 370 ITR 295. The Ld. AR submitted the important dates as under:-
"Date of search on Dinesh Kaushal 24.09.2009 Date of recording of satisfaction U/s 153C of the IT Act 02.09.2011
As per the first proviso to Section 153C of the IT Act, date of search would be the date of receiving the documents by the AO of the third person, i.e. the assessee. Hence in the instant case, the date of search is 02.09.2011. The Ld.AR relied upon the Hon'ble CIT vs. RRJ Securities Ltd. 380 ITR 612 (Del). The Ld. AR further submitted that Assessment Year 2004-05 is beyond the period of six years, hence the notice issued for Assessment Year 2004-05 is illegal and no assessment can be made u/s 153C of the IT Act. On the date of search, i.e. 02.09.2011, the assessments for the Assessment Years 2005-06 to 2008-09 were already completed and not pending. Hence the completed assessment cannot be abated in view of the second proviso to Section 153A of the IT Act unless some incriminating material is found during the course of search for that year.
7. The Ld. AR further submitted that in the absence of any incriminating material, no addition can be made. The very agreement dated 05.09.2006 with Dinesh Kaushal, was not an incriminating material because the same was duly reflected in the books of account and was admitted by the AO in Assessment Year 2007-08. The AO has not made any addition based on such agreement dated 05.09.2006 found at the residence of Dinesh Kaushal which shows that there was no incriminating material found during the course of search. The AO 7 ITA Nos. 973/Del/2014 & Ors has not made any addition based on the seized material. All the credits, which have been mentioned in the books of account and have been treated by the AO as unexplained u/s 68 of the IT Act, basically represent the trade advances received against the construction contract which has been completed in Assessment Year 2010-11 and have been offered for assessment in Assessment Year2010-11 because the assessee being a construction contractor following the project completion method, which is a recognized method, as already held in the following cases.
8. We have heard both the parties and perused the material available on record. The contention of the Ld. AR that the satisfaction note is not in accordance with the satisfaction as contemplate u/s 153C of the I.T Act appears prima facie correct as the agreement dated 5/9/2006 belong to the Dinesh Kaushal himself and at no point of time Dinesh Kaushal disclaimed the ownership of that very agreement and, therefore, the same cannot be imagined to be belonging to the assessee on the mere assumption. The Assessing Officer cannot say that the document belongs to the assessee. The Ld. DR's contention that the CIT(A) has not given categorical finding that the additions pertaining to the amounts appearing in the books of the accounts of the assessee, the list of additions received from his customers and details like confirmations from such parties and verifications by the assessee was asked by the Assessing Officer which is a normal assessment proceedings. There is a finding given by the CIT(A) that all these additions added by the Assessing Officer are that of the sale consideration received as advance by the assessee. The assessee is following project completion method and the advances was properly taken in profit and loss amount during the previous year relevant to the Assessment Year 2010-11. The proceedings u/s 153 C were initiated because of the agreement to sale found at the residence of CFO of Tulip Telecom Ltd. The A.O has not mentioned that the agreement reflects that there 8 ITA Nos. 973/Del/2014 & Ors was any unaccounted transaction or unaccounted payments/receipts the business activities of the assessee in-fact was confirmed by the said agreement and all the documents were before the Assessing Officer during the regular assessment proceedings. Thus, there was no incriminating material or document found in respect of Section 153C proceedings. The Ld. DR's contentions that it is an established practice of the Income Tax Department that not everything found at the time of search and cease. Only such material is seized which is prima facie incriminating in nature. The Revenue cannot simply rely on their departmental Endeavour practice, they have to strictly follow the statute while conducting the search adhering to Section 153C. If the practice is supported by law/statute then it can be allowed but if the material which is relevant to the assessee's escapement of income has not been seized then merely on the surmises or conjectures that cannot be called as incriminating material which was properly demonstrated by the assessee during his regular assessment. The CIT(A) has given proper finding and allowed the appeal of the assessee. The CIT(A) held as under:-
"3.6.1. I have considered the arguments of the AR and the facts of the case. From the assessment order it is noted that the AO has not made any additions to the total income based on the seized document on the basis of which proceedings were initiated under section 153G of the Act. The additions pertain to the credits appearing in the books of accounts of the assessee held as unexplained. The AO has asked the appellant to provide the list of advances received from his customers and to file details like confirmations from such parties and also to produce them for verification by him. Thus, the AO has proceeded with normal assessment proceedings by asking the appellant to establish the credits appearing in the books of accounts in accordance with provisions of section 68 of the act. Due to the circumstances explained in the earlier-paragraphs, the AO has held that the appellant has failed to substantiate the advances received from the customers and added the same to the total income. All these advances added by the AO are nothing but the sale consideration 9 ITA Nos. 973/Del/2014 & Ors received as advance by the appellant. The appellant, who is in the business of real estate (developing land and building houses/cottages at Kasauli, Himachal Pradesh), has followed project completion method and the advances have been taken to P&L during the Previous Year relevant to assessment year 2010-11 as per the accounting method followed by it.
3.6.2. In the assessment order for assessment year 2007-08, the AO has given a finding that the advances received from Mr Dinesh Kaushal as per the seized document (agreement to sell) has been duly accounted by the appellant in its books of accounts and that the advances from Mr. Kaushal stood |explained. The relevant paragraph 6 on page 2 out of the assessment order on this aspect is reproduced below:
6. ......... However it is pertinent to mention here that in the case of the assessee company an action under section 153C was taken on the basis of an agreement found and seized from the premises of one Sri Dinesh Kaushal in the course of search in which it was noticed that in November 2006 he had paid an amount of Rs.
56,00,000/- to the assessee company on account of advance for purchase of property. As per details available, the Amount advanced is reflected in the books of the assessee company!) therefore out of the total amount of Rs. 1,55,10,762/- .amount of Rs. 56,00,000/- is considered as explained and for the balance amount, it is considered that the assessee company has not been able to discharge its onus to prove the credits appearing in its books of accounts, "
3.6.3. The proceedings under section 153C were initiated because of the agreement to sell found at the residence of CFO of Tulip telecom Ltd. As per the agreement the appellant company undertook sell a piece of land along with residential house at ' Kasauli in Himachal Pradesh. In the satisfaction note made before issuing notice under section 153C, the 10 ITA Nos. 973/Del/2014 & Ors AO has not mentioned that, the agreement there is any tax angle to the transaction found in the agreement or that it reflects any unaccounted transaction or that there is any unaccounted payments / receipts in the said agreement. Thus it is an agreement entered between the seller and buyer in the course of the normal business activity of the appellant company. As per the submissions made to the AO, the appellant company is in the business of developing the- land owned by individual owners by constructing retention walls, approach parts, leveling of land by filling and compaction etc. which is required on the lands situated on a hill slopes. It emerges that as per the revenue laws prevailing in the State of Himachal Pradesh, only a person who is originally from Himachal Pradesh could own a piece of land in that state and the promoter of Tulip group made investment in the land at Himachal Pradesh through their _CFO who happens to be a native of Himachal Pradesh. It is not the AO's case that any extra amount was paid by Mr Dinesh Kaushal. No addition has been made on such grbunds in any of the assessment years. Thus the agreement to sell as such does not by itself show that the transaction between the appellant and Mr Dinesh Kaushalwas resulted in any undisclosed income.
3.6.4. I find that the action of the AO in initiating proceedings under section 153C cannot be sustained. The document in question is a normal document which is entered between any similarly placed two parties involving a land developer and his customers. The document evidences receipt and payment of amounts which are not alleged to be outside the books of accounts of the appellant. The document per se does not show that there was any undisclosed income. The AO has not alleged of any cash transaction or any payments / receipts over and above what was reflected in the document. There is no addition made on account of this agreement in the hands of the appellant on account of this transaction reflected in the agreement. Thus the facts show that this transaction was very much explained by the person who has been searched by the Dept. 11 ITA Nos. 973/Del/2014 & Ors In such a situation, I'm of the view that proceedings under section 153C could not have been initiated validly.
3.6.5. Even the satisfaction note is completely silent about the reason for initiating such proceedings. In the satisfaction note' the AO states that the document "also" belongs to "M/s Glensdale Enterprises Development private limited." It is noted that for initiating proceedings under section 153C the AO is required to be satisfied with the fact that a particular document belongs to some other person than the person in whose case search has taken place. There is already much debate on the issue as to what is the meaning of the word "belong" given in S.153C of the Act. However, the section does not appear to be meant for the cases where the document "also belongs to" some other person. Further, by this logic it should appear that the document belonged to the person who was searched and then it also belonged to another person who was not searched. In such a case, there must be some undisclosed income in the hands of the searched person. No such finding is there in the assessment order of the person searched. The section does not talk about the dual ownership of the document: The satisfaction of the AO that the document also belongs to the appellant" cannot be a proper satisfaction for issuing notice under section 153C. By noting that the document also belongs to the appellant, the AO has given a finding that the document belongs to some other person and also the appellant. However, he does not say that there is any tax angle to the whole transaction reflected in the document under reference. Even though there is no mention under section 153C that the document should show evasion of tax or presence of undisclosed income (so to say it should be incriminating), the higher appellate for a have interpreted that the document referred to in section 153C should be an incriminating document. The whole purpose of proceedings under section 153 A is to assess or reassess the income after an action u/s 132 or 132A. If the search findings show that proceedings mentioned under section 153A needed to be taken up in the case, of some other person who 12 ITA Nos. 973/Del/2014 & Ors has not been searched, then the AO should proceed to do so after satisfying himself that the seized document belonged to that other person. In the instant case the document under reference is an agreement containing the name of two parties namely the appellant - a land developer and the search a person - a customer. Neither in the satisfaction note nor in any of the statements nor also in the Assessment order, is there any allegation of unaccounted payments. In a situation of this kind, I do not consider that the AO could have validly initiated proceedings under section 153C.
3.6.6. The Hon'ble jurisdictional ITAT (F-Bench), in the case of ACIT Central Circle- IV Vs PACL India Ltd. (ITA No. 267/ Del/ 2010) has held on 20/06/2013 that when no incriminating documents were found during the search, the AO cannot make any addition by making roving and fishing inquiries while making assessment u/s' 153A. Similarly in the case of ACIT Vs Asha Kataria (ITA No. 3105, 3106 and 3107/ Del/2011), the Hon'ble 'A' bench of jurisdictional ITAT, on 20/05/2013, has held that "as expounded in the case of Allcargo Global Logistics Ltd. Vs DCIT 137 ITD 287 (SB) assessment u/s 153 A can be made only on the basis of incriminating material found during the course of search." Again Hon'ble E Bench of ITAT New Delhi, in the case of MGF Automobiles Ltd. Vs ACIT Central Cirlce-05 (ITA No. 4212 and 4213/ Del/ 2011) has held that in the case where assessment or reassessment was not pending as on the day of search and which did not abate, the AO is required to pass assessment order u/s 153A as per the original assessment whether u/s 143(1) or 143(3). All the three decision cited above have taken into account the decision of the Hon'ble High Court of Delhi in the case of CIT VS Anil Kumar Bhatia (2012) 211 Taxman 453 (Del) and the decision of special bench of Hon'ble ITAT in the case of Allcargo Global Logistics Ltd. (Supra).
3.6.7. Considering the above factors it has to be held that the proceedings under section 153C have been wrongly invoked and the proceedings 13 ITA Nos. 973/Del/2014 & Ors are'void ab-initio. Therefore the order is hereby held to be void ab-initio for- incorrect assumption of jurisdiction u/s 153C of the IT Act 1961.
3.6.8. As regards the appellant's request for admission of additional evidences is concerned, I'm of the view that even though the AO issued notice under section 153C of the act on 02/09/2011 as reported by the AO in the remand report, there appears to be some typographical error in mentioning the notice under section 153C as dated 29.04.2010 in the assessment order. Irrespective of that, it is noted that the AO has asked the appellant to lead evidences with regard to advances received from customers only in the middle of December. 2011 and he -completed the assessment on 27th of December 2011. In the given circumstances the same does not amount to providing proper and adequate opportunity of being heard by the AO. However as the assumption of jurisdiction itself has been found to be faulty and the order itself has been held to be void ab-initio by following the decisions of jurisdictional Tribunal, which has taken into consideration the decision of the jurisdictional High Court of Delhi, no purpose will be served in dealing with the other issues relating to merit.
3.7. In the result appeal is allowed."
There is detailed finding given by the CIT(A). Therefore, there is no need to interfere in order of the CIT(A). In all the other appeals, grounds as well as the contentions of the Ld. DR and Ld. AR are same. Therefore, the appeals filed by the Revenue are dismissed for all the assessment years.
14 ITA Nos. 973/Del/2014 & Ors10. In the result, all the appeals filed by the Revenue are dismissed.
Order pronounced in the Open Court on 5th January, 2018.
Sd/- Sd/-
(G. D. AGRAWAL) (SUCHITRA KAMBLE)
PRESIDENT JUDICIAL MEMBER
Dated: 05/01/2018
R. Naheed *
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI
Date
1. Draft dictated on 07/12/2017 PS
2. Draft placed before author 11/12/2017 PS
3. Draft proposed & placed before .2017 JM/AM
the second member
4. Draft discussed/approved by JM/AM
Second Member.
5. Approved Draft comes to the PS/PS
Sr.PS/PS 5.01.2018
6. Kept for pronouncement on PS
7. File sent to the Bench Clerk 5.01.2018 PS
15 ITA Nos. 973/Del/2014 & Ors
8. Date on which file goes to the AR
9. Date on which file goes to the
Head Clerk.
10. Date of dispatch of Order.