ACIT vs Vinod Kumar Garg

“11.

Through Grounds No. 6 to 7, the appellant has contested the addition of Rs. 57,63,888/- made by the AO u/s 69A of the Act on account of commission income. The brief facts of the case are that a search and seizure action u/s 132 of the Act was carried out in the case of Pankaj Kumar Group on 05/08/2015. Based on this search satisfaction u/s 153C was recorded on 13/10/2017 in the case of the appellant. According to the AO the appellant was engaged in the activities of providing bogus long term capital gain. The AO has referred to SEBI Order No. WTM/RKA/ISD/54/2015 dated 29/06/2015 in the case of 4 companies, namely, (i) ECO Friendly Food Processing Park Ltd. (ECO), (ii) Esteem Bio Organic Food Processing Limited (Esteem), (iii) Channel Nine Entertainment Limited (CNE), and (iv) HPC Biosciences Limited (HPC). According the AO these are the penny stock companies whose share price are manipulated for providing bogus long term capital gain/losses. Besides these 4 companies the AO has also mentioned 2 other companies namely (i) Alps Motors and Finance Ltd. and (ii) Goldline International Finvest Ltd. The AO retrieved the trade data of these scrips from Bombay Stock Exchange (BSE) to calculate the long term capital gain. The turnover of long-term capital gain based upon the data of BSE calculated by the AO for the year under consideration was Rs. 14,40,97,200/- . The AO estimated the commission income @ 8% i.e., Rs. 11527776/-. 50% of this amount i.e., 57,63,888/- has been added as the income of the appellant while the remaining 50% of amount of Rs. 57,63,888/- has been allocated by the AO to some other person namely Shri B K Sabharwal. In these proceedings the appellant has submitted that the addition made by the AO is erroneous. The detailed contention of the appellant has been reproduced in the earlier part of this order.

12.

In view of the above, I find that a search and seizure action u/s 132 of the Act was carried out in the case of Pankaj Kumar Group on 05/08/2015. Based on this search satisfaction u/s 153C of the Act was recorded on 13/10/2017 in the case of the appellant. As on date of issue of recording of satisfaction u/s 153C (13/10/2017) no assessment proceedings were pending for the year under consideration and the AO was not justified in making the addition without there being any incriminating material being found in search. The AO has not pointed to any incriminating seized material to justify the addition made by him. The AO has taken trade data from Bombay Stock Exchange (BSE) and applied estimated commission rate. Neither the trade data of BSE, nor the commission rate applied by him are seized material or material gathered during the course of search. This issue is now no more res-integra. The issue now stands covered in favour of the appellant by the decisions of Hon’ble Supreme Court and Delhi High Cout. In this regard following judgments are relevant to note: -

(i)

CIT vs Sinhgad Technical Education Society, 397 ITR 344 (SC) wherein Hon’ble Supreme Court has held as under:- “18. The ITAT permitted this additional ground by giving a reason that it was a jurisdictional issue taken up on the basis of facts already on the record and, therefore, could be raised. In this behalf, it was noted by the ITAT that as per the provisions of Section 153C of the Act, incriminating material which was seized had to pertain to the Assessment Years in question and it is an undisputed fact that the documents which were seized did not establish any co-relation, document-wise, with these four Assessment Years. Since this requirement under Section 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of Section 153C of the Act. Para 9 of the order of the ITAT reveals that the ITAT had scanned through the Satisfaction Note and the material which was disclosed therein was culled out and it showed that the same belongs to Assessment Year 2004-05 or thereafter. After taking note of the material in para 9 of the order, the position that emerges therefrom is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the respondent, argued that notice in respect of Assessment Years 2000-01 and 2001-02 was even time barred.”

(ii)

DCIT v. M/s U.K. Paints (Overseas) Ltd., 454 ITR 441 (SC), wherein Hon’ble Supreme Court has held as under: - “In this batch of appeals, the assessments in case of each Assessee were under Section 153-C of the Income Tax Act, 1961 (for short, `the Act’). As found by the High Court in none of the cases any incriminating material was found during the search either from the Assessee or from third party. In that view of the matter, as such, the assessments under Section 153-C of the Act are rightly set aside by the High Court. However, Shri N Venkataraman, learned ASG appearing on behalf of the Revenue taking the clue from some of the observations made by this Court in the recent decision in the case of Principal Commissioner of Income Tax, Central -3 Vs. Abhisar Buildwell P. Ltd., Civil Appeal No. 6580/2021, more particularly, paragraphs 11 and 13, has prayed to observe that the Revenue may be permitted to initiate reassessment proceedings under Section 147/148 of the Act as in the aforesaid decision, the powers of the re-assessment of the Revenue even in case of the block assessment under Section 153-A of the Act have been saved. As observed hereinabove, as no incriminating material was found in case of any of the Assessees either from the Assessee or from the third party and the assessments were under Section 153-C of the Act, the High Court has rightly set aside the Assessment Order(s). Therefore, the impugned judgment and order(s) passed by the High Court do not require any interference by this Court. Hence, all these appeals deserve to the dismissed and are accordingly dismissed. However, so far as the prayer made on behalf of the Revenue to permit them to initiate the re-assessment proceedings is concerned, it is observed that it will be open for the Revenue to initiate the re-assessment proceedings in accordance with law and if it is permissible under the law. With this, all these appeals are dismissed/disposed of.”

(iii)

PCIT v. Index Securities (P) Ltd, 157 DTR 20 (Del) wherein Hon’ble Delhi High Court has held as under:-

“31.

As regards the second jurisdictional requirement viz., that the seized documents must be incriminating and must relate to the AYs whose assessments are sought to be reopened, the decision of the Supreme Court in Commissioner of Income Tax-III, Pune v. Sinhgad Technical Education Society (supra) settles the issue and holds this to be an essential requirement. The decisions of this Court in CIT-7 v. RRJ Securities (2016) 380 ITR 612 (Del) and ARN Infrastructure India Limited v. ACIT [2017] 34 ITR 569 (Del) also hold that in order to justify the assumption of jurisdiction under Section 153C of the Act the documents seized must be incriminating and must relate to each of the AYs whose assessments sought to be reopened. Since the satisfaction note forms the basis for initiating the proceedings under section 153C of the Act, it is futile for Mr. Manchanda to contend that this requirement need not be met for initiation of the proceedings but only during the subsequent assessment.

32.

In the present case, the two seized documents referred to in the Satisfaction Note in the case of each Assessee are the trial balance and balance sheet for a period of five months in 2010. In the first place, they do not relate to the AYs for which the assessments were reopened in the case of both assessees. Secondly, they cannot be said to be incriminating. Even for the AY to which they related, i.e. AY 2011-12, the AO finalized the assessment at the returned income qua each Assessee without making any additions on the basis of those documents. Consequently even the second essential requirement for assumption of jurisdiction under Section 153C of the Act was not met in the case of the two Assessees.

33.

This Court does not consider it necessary to examine the merits of the case as far as the deletions by the CIT(A) of the additions made by the AO under Section 153C of the Act are concerned. In any event, a detailed analysis has been undertaken by the CIT(A) of the materials produced by the Assessee which justified the deletion of such additions. Even on this score, no interference is warranted with the impugned order of the CIT(A).”

(iv)

CIT v. RRJ Securities,380 ITR 612 (Del) wherein Hon’ble Delhi High Court has held as under:-

“29.

It was contended on behalf of the Revenue that the hard disk contained data pertaining to the Assessee and, therefore, it was rightly held that the hard disc belong to the Assessee. Concededly, this contention would not be sustainable in view of the principles laid down by this Court in Pepsico India Holdings (P.) Ltd. v. Asstt. CIT [2015] 370 ITR 295/228 Taxman 116 (Mag.) [2014] 50 taxmann.com 299 (Delhi) with regard to the interpretation of the words "belongs to" in Section 153C of the Act. The hard disk was recovered from the computer belonging to M/s B.K. Dhingra & Co. which contained soft copies of working papers and balance sheet pertaining to the Assessee for its income tax filing. It has been contended that B.K. Dhingra is a Chartered Accountant and had the data pertaining to the Assessee in his professional capacity. Merely because such data pertained to the Assessee (who claims to be a client of M/s B.K. Dhingra and Co.) the hard disk could not be stated to belong to the Assessee.

30.

It is not disputed that the said hard disk also did not contain any incriminating material as the data on the hard disc only supported the return filed by the Assessee. This apart, as the hard disc did not belong to the Assessee, in our view, proceedings under Section 153C of the Act could not be initiated on the basis of the said disk.

33.

The record slip belongs to the Assessee and, therefore, the action of the AO of the searched persons recording that the same belongs to the Assesseecannot be faulted. However, the question then arises is whether the AO of the Assessee was justified in taking further steps for reassessing the income of the Assessee in respect of the assessment years for which the assessments were concluded and in respect of which the seized document had no bearing. In our view, the same would be clearly impermissible as the seized material now available with the AO, admittedly, had no nexus with those assessments and was wholly irrelevant for the purpose of assessing the income of the Assessee for the years in question. Merely because a valuable article or document belonging to an Assessee is seized from the possession of a person searched under Section 132 of the Act, does not mean that the concluded assessments of the Assessee are necessarily to be reopened under Section 153C of the Act. In our view, the concluded assessments cannot be interfered with mechanically and solely for the reason that a document belonging to the Assessee, which has no bearing on the assessments of the Assessee for the years preceding the search, was seized from the possession of the searched persons.

37.

As expressly indicated under Section 153C of the Act the assessment or reassessment of income of a person other than a searched person would proceed in accordance with the provisions of Section 153A of the Act. The concluded assessments cannot be interfered with under Section 153A of the Act unless the incriminating material belonging to the Assessee has been seized.”

(v)

Saksham Commodities Ltd. vs. ITO, 464 ITR 1 (Del) wherein Hon’ble Delhi High Court has held as under:-

“52.

The decisions which hold that an assessment is liable to be revised only if incriminating material be found, even if rendered in the context of Section 153A, would clearly govern the question that stands posited even in the context of Section 153C. It would be relevant to recall that the Division Bench in Kabul Chawla had observed that in the absence of any incriminating material, a completed assessment may be reiterated and the abated assessment or reassessment be concluded. The importance of incriminating material was further underlined in Kabul Chawla with the Court observing that completed assessments could be interfered with, only if some incriminating material were unearthed. This aspect came to be reiterated in RRJ Securities when the Court held that it would be impermissible to either reopen or reassess a completed assessment which may not be impacted by the material gathered in the course of the search and which may have no plausible nexus. The aforesaid position also comes to the fore when one reads para 17 of ARN Infrastructure and which annulled an action aimed at reopening assessments for years to which the incriminating document which was found did not relate.

53.

Sinhgad Technical Education Society also constitutes a binding precedent in respect of the aforesaid proposition as would be evident from the Supreme Court noticing that the material disclosed pertained only to AY 2004-05 or thereafter and that consequently the Section 153C action initiated for AYs’ 2000-01 to 2003-04 would not sustain. It was this position in law as enunciated in that decision which came to be reiterated by our Court in Index Securities.

54.

In any case, Abhisar Buildwell, in our considered opinion, is a decision which conclusively lays to rest any doubt that could have been possibly harboured. The Supreme Court in unequivocal terms held that absent incriminating material, the AO would not be justified in seeking to assess or reassess completed assessments. Though the aforesaid observations were rendered in the context of completed assessments, the same position would prevail when it comes to assessments which abate pursuant to the issuance of a notice under Section 153C. Here too, the AO would have to firstly identify the AYs' to which the material gathered in the course of the search may relate and consequently it would only be those assessments which would face the spectre of abatement. The additions here too would have to be based on material that may have been unearthed in the course of the search or on the basis of material requisitioned. The statute thus creates a persistent and enduring connect between the material discovered and the assessment that may be ultimately made. The provision while speaking of AYs' falling within the block of six AYs' or for that matter all years forming part of the block of ten AYs', appears to have been put in place to cover all possible contingencies. The aforesaid provisions clearly appear to have been incorporated and made applicable both with respect to Section 153A as well as Section 153C ex abundanti cautela. Which however takes us back to what had been observed earlier, namely, the existence of the power being merely enabling as opposed to a statutory compulsion or an inevitable consequence which was advocated by the respondents. …..

56.

We also bear in mind the pertinent observations made in RRJ Securities when the Court held that merely because an article or thing may have been recovered in the course of a search would not mean that concluded assessments have to “necessarily” be reopened under Section 153C and that those assessments are not liable to be revised unless the material obtained have a bearing on the determination of the total income. This aspect was again emphasised in para 38 of RRJ Securities with the Court laying stress on the existence of material that may be reflective of undisclosed income being of vital importance. All the aforenoted judgments thus reinforce the requirement of incriminating material having an ineradicable link to the estimation of income for a particular AY.”

(vi)

Mukesh Chandra Agarwal v. DCIT, W.P. (C) 6162/2023 (Del) dated 4.9.2024 wherein Hon’ble Delhi High Court has held as under:-

2.

From the Satisfaction Note dated 24 December 2021 which has been drawn by the Jurisdictional Assessing Officer , we find that the following material was taken note of as warranting assessment being undertaken under Section 153C for AYs 2014-2015 to 2020-2021. That Satisfaction Note is reproduced hereinbelow:

3.

As it manifest from the aforesaid, the satisfaction rested on transactions which were dated 21 April 2014, 26 August 2015 and 30 May 2019. None of those transactions pertained to the AYs in question.

4.

We in this regard bear in mind the following pertinent principles which we had come to enunciate in Saksham Commodities Limited v. Income Tax Officer, Ward 22(i), Delhi & Anr . The relevant paragraphs of the said decision are reproduced below:-

5.

Mr. Maratha, learned counsel for the respondent has however drawn our attention to a Show Cause Notice which refers and alludes to material gathered from a laptop found and seized from the residence of an individual. He specifically draws our attention to the following recitals as appearing in the SCN dated 18 February 2023:

“1.

During the course of search and seizure operation, several ledgers maintained with regard to various cash payments have been obtained from accounts maintained in the name “Anarkali Complex” in Tally found in folder named DATA 24 in the laptop of Sh. Sunil Kumar Gupta found and seized from the residence of Sh. Sunil Kumar Gupta, at 3584/4, Narang Colony, Gali No. 4 Tri Nagar Delhi (Path: F:\SKGR A32\SUNIL KUMAR GUPTA HP LAPTOP\ EXTRACTED DATA\Tally\[root].1\Local Disk\ANARKALI\BACKUP\DATA24\ DATA24).

2.

Copy of the relevant ledgers extracted from the laptop found and seized from the residence of Sh. Sunil Kumar Gupta at 2584/4, Narang Colony, Gali No. - 4, Tri Nagar, Delhi are enclosed with this notice. Further, during the course of search and seizure proceedings statement of Sh. Sunil Kumar Gupta was also recorded wherein he has accepted that he has noted these transaction 20/30 years before of its actual date of occurrence to disguise the authority in case of any investigation/enquiry. The relevant part of the statement of Sh. Sunil Kumar Gupta is reproduced as under:”

6.

We however note that the material which is referred to the aforesaid SCN is neither noticed, examined nor considered in the satisfaction note. In view of the aforesaid, we find ourselves unable to sustain the action under Section 153C.

7.

The writ petitions are consequently allowed and the impugned notices dated 28 December 2021 issued under Section 153C and all consequential proceedings arising therefrom are hereby quashed.

13.

Upon careful consideration of the entire gamut of facts and circumstances of the case and the case laws cited above, I am of the considered view that the AO is not justified in making the additions in the assessment order passed u/s 153C of the Act as the same are not in accordance with the incriminating material found in a search on searched person. Therefore, I find that the said additions are not sustainable in law and as such are liable to be deleted. I hold accordingly.

14.

Even otherwise, there is merit in the submission of the appellant that the addition of Rs. 57,63,888/- made by the AO is without any basis and that there is no evidence to support the addition made by the AO. There is no documentary evidence brought on record by the AO about any such transactions carried out by/through the appellant or any such commission income. In the assessment order, the AO has referred to statements of certain persons, however in those statements, there is no reference to details of any transactions for suggesting any income in the hands of the appellant. In para 6.5 of the assessment order, the AO has mentioned about certain inquiries from certain brokers, which were done in July 2015, prior to the date of search in case of Pankaj Kumar Group on the basis of which the proceedings u/s 153C of the Act were initiated against the appellant and, in any case, in none of these inquiries there is any reference to the appellant or any alleged commission income earned by the appellant.

15.

In para 6.6 of the assessment order, the AO has made certain analysis of the hard disks stated to be seized from Shri Pankaj Kumar. There is no name of the appellant in any of the seized paper. There is no statement of any person on the contents of the seized hard disks. The AO has not been able to establish any connection of the appellant with the hard disk. As mentioned in para 4 of the assessment order the entire case of the AO is based upon some SEBI 0rder No. WTM/RKA/ISD/54/2015 dated 29/06/2015. In this regard the appellant has pointed out that this SEBI order was only an Interim order and final order has been passed by the SEBI on 08/12/2023 and it has been held by the SEBI that, upon inquiries no adverse observation/finding has been found against the appellant, the copy of the SEBI Order has been reproduced in the preceding part of this order.

16.

As the very basis (i.e., SEBI order) on which the AO has made the addition does not survive, there remains no justification for sustaining the addition made by the AO. In view of the above factual and legal position, the addition of Rs. 57,63,888/- made by the AO is liable to be deleted on this count as well. Hence, the addition of Rs. 57,63,888/- made by the AO is hereby deleted.

17.

Since the addition has been the deleted on merits and also on legal grounds on the basis of a decisions of Hon’ble Supreme Court and Hon’ble Delhi High Court, the other grounds raised by the appellant remain of academic interest only and therefore the same are not being adjudicated upon in this order. 18. In the result, the appeal is allowed.”