CIT vs. Deepak Kumar Agarwal (Bombay High Court)

The High Court had to consider the following two substantial questions of law in an appeal filed by the department:

“6.1 Whether on the facts and in the circumstance of the case and in law, the Hon’ble ITAT was justified in holding that assessment u/s. 153A can be made only on the basis of incriminating material found in the search and no other issue can be taken following the Special Bench order in the case of “All Cargo Global Logistics Ltd.”, when the SB decision of Hon’ble ITAT, Mumbai has been disapproved by Hon’ble Karnataka High Court in the case of Canara Housing Development Co. Vs. DCIT (unreported)?

6.2 Whether on the facts and in the circumstances of the case and in law, the Hon’ble ITAT was justified in deleting the addition made u/s.68 of the IT Act of unexplained gift received, which could not be proved to be genuine by the assessee, by not going into the merits of the case, but by holding that only income related to incriminating documents found during the search u/s. 132 of the IT Act can be considered in assessment u/s. 153A of the IT Act and it is beyond the scope of section 153A of the IT Act, 1961?”

HELD by the High Court dismissing the appeal:

(i) At the outset, and since heavy reliance is placed by the Revenue on the Supreme Court judgment in Rajesh Jhaveri Stock Brokers Private Limited [2007] 291 ITR 500 (SC), it would be proper to note the facts in the same.

(ii) There, the Assistant Commissioner of Income Tax challenged the correctness of the decision rendered by a Division Bench of the Gujarat High Court. That Division Bench judgment allowed the Writ Petition/Special Civil Application of the assessee.

(iii) The respondent assessee, a private limited company, filed its return of income for the assessment year 20012002 on October 30, 2001, declaring total loss of Rs.2,70,85,105/. That return was proposed under Section 143(1) of the IT Act accepting the loss returned by the respondent. A notice was issued under Section 148 of the IT Act on the ground that the claim of bad debts as expenditure was not acceptable. On 12th May, 2004, a return of income declaring the loss at the same figure as declared in the original return was filed by the respondent assessee under protest. A copy of the reasons recorded was furnished by the Revenue on the request of the assessee sometime in November, 2004. The assessee raised various objections, both on jurisdiction and the merits of the subject matter recorded in the reasons. The Revenue disposed of these objections on 4th February, 2005 holding that the initiation of reassessment proceedings was valid and it had jurisdiction to undertake such an exercise. The notice under Section 148 of the IT Act dated 12th May, 2004 was challenged by the respondent assessee.

(iv) That Writ Petition was allowed and hence, the Revenue was in Appeal.

(v) Mr. Ahuja’s argument overlooks this factual aspect and when he relies upon the observations of the Hon’ble Supreme Court, and particularly in paragraph 13, he forgets that they were made in the context of a challenge to the notice under Section 148 of the IT Act. The Supreme Court, in paragraph 13 of this judgment, noted that intimation under Section 143(1)(a) was given without prejudice to the provisions of Section 143(2). Though technically this intimation issued was deemed to be a demand notice issued under Section 156, that did not per se preclude the Assessing Officer to proceed under Section 143(2). The right preserved was not taken away. The Hon’ble Supreme Court referred to the period between April 1, 1989 and March 31, 1998, and the second proviso to Subsection (1) Clause (a) of Section 143 and its substitution with effect from 1st April, 1998. The sending of intimation between 1st April, 1998 and 31st May, 1999 under Section 143(1)(a) was mandatory. That requirement continued until the second proviso was substituted by the Finance Act, 1997, which was operative till 1st June, 1999.

(vi) The Hon’ble Supreme Court therefore, relied upon these amendments and, tracing their history, held that the intimation under Section 143(1)(a) cannot be treated to be an order of assessment. That is how it referred to the Division Bench Judgment of the High Court at Delhi and explained the legal position. There was thus no assessment under Section 143(1)(a) and therefore, the question of change of opinion did not arise. A reference to Section 147 therefore, was made in the context of the Assessing Officer being authorized and permitted to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. Before us, such is not the position, and even if this judgment of the High Court had been brought to the notice of the Division Bench deciding the Continental Warehousing Corporation and All Cargo Global Logistics (supra), there would not have been any difference.

(vii) The argument before the Income Tax Appellate Tribunal in this case was that the order passed by the Commissioner of Income Tax, Mumbai, confirming the assessment order under Section 143(3) read with Section 153A of the IT Act is both, bad in law and on facts. No addition could have been made while completing assessment under Section 153A of the IT Act in the case of completed assessment if no undisclosed income was determinable from the material found as a result of search.

(viii) As far as the addition under Section 68 on account of unexplained gifts received from the family members of Mr. B. R. Agarwal, the arguments have been noted.

(ix) The Special Bench order in the case of All Cargo Global Logistics Ltd. (supra) has been referred in the impugned order at the internal page 8 (running page 70 of the paper book).

(x) The relevant paragraphs of the same have been reproduced.

(xi) The Tribunal concluded that the arguments relating to the validity of the notice under Section 153A and though that provision could have been invoked in the given facts and circumstances, but the additions made by the Assessing Officer were in the absence of any incriminating material. Therefore, they are not sustainable and they came to be deleted.

(xii) We do not think that any view other than the one taken by the Division Bench of this Court in the case of The Commissioner of Income Tax, CentralIV vs. M/s. SKS Ispat & Power Limited [Income Tax Appeal Nos. 1874 of 2014 and 58 of 2015] dated 12th July, 2017 or the reported judgment in Continental Warehousing Corporation and All Cargo Global Logistics [2015] 374 ITR 645 (Bom) can be taken.

(xiii) Once we are of the firm view that the question no.1 proposed by the Revenue is already answered by this Court in a series of judgments, and particularly referred above, then we do not think that we should allow Mr. Ahuja to argue that these judgments are rendered in ignorance of the binding judgment of the Hon’ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers Private Limited (supra). After having noted the context and the factual backdrop in which the decision in the case of Rajesh Jhaveri was delivered and having distinguished it, we do not see how the question can be proposed by the Revenue as a substantial question of law. It is not a substantial question of law as the issue is already answered by this Court.

(xiv) Even with regard to the unexplained gifts received by the assessee allegedly and the additions made under Section 68 of the Act, the Tribunal has relied upon its order in the case of Govind Agarwal (HUF) vs. DCIT (ITA No.8917/M/2010) decided on 16th May, 2013 for the assessment year 20052006.

(xv) There as well, reliance was placed on All Cargo Global Logistic Ltd. (supra) and equally, the conclusion that has been reached that once there is no incriminating material in support of the addition and brought on record by the Revenue, then, the earlier view of this Court binds the Revenue even on this addition. Thus, even this question cannot be termed as substantial question of law in the light of the two judgments of this Court in Continental Warehousing Corporation and All Cargo Global Logistics (supra) followed by M/s. SKS Ispat & Power Limited (supra).

(xvi) As a result of the above discussion and the question being common to all the Appeals, we dismiss all the Appeals of the Revenue. There will be no order as to costs.

(xvii) In dismissing the same, we also take notice of the reliance on the Division Bench judgment of the Calcutta High Court. The Calcutta High Court was considering the case of the assessee introducing share capital and most of the share applicants were from rural areas of Burdwan District in West Bengal. The Assessing Officer proceeded to verify the genuineness of such huge share capital introduced. He issued summons under Section 131 of the IT Act to several shareholders. They appeared and during their examination, the Assessing Officer found the materials based on which he added the total amount of Rs.29,54,000/under the head “Income from undisclosed sources” under Section 68 of the IT Act. The Commissioner deleted this addition but the Tribunal upheld the order of the Assessing Officer. That is how, the assessee approached the High Court. The concurrent finding of fact is that no one could form an opinion that the subscribers to the share capital had any income exigible to income tax. In other words, such persons from rural background having no taxable income, could not have subscribed to the share capital of the assessee company. It is in these circumstances that the whole deal was found to be not genuine but bogus. We do not see how this judgment has any relevance because the view taken by the Calcutta High Court is essentially on facts.

(xviii) Therefore, we are of the opinion that the Appeals of the Revenue are without any merit. They are dismissed, but in the circumstances, there will be no order as to costs.