IN THE HIGH COURT OF MADHYA PRADESH
PRINCIPAL COMMISSIONER OF INCOME TAX
GAHOI DAL AND OIL MILLS
PRINCIPAL COMMISSIONER OF INCOME TAX
GAHOI FOODS PVT LTD
PRINCIPAL COMMISSIONER OF INCOME TAX
GAHOI FOODS PVT LTD
Sanjay Yadav & Vivek Agarwal, JJ
Dated: July 12, 2019
Appellant Rep by: Mr DPS Bhadouria, learned counsel
Respondent Rep by: None
Income Tax – Sections 132 & 153A
Keywords – CBDT notification no. 30/2008 Central Excise (NT) – Incriminating documents
THE assessee is engaged in the production of ‘Gutka’. The Revenue conducted search upon the assessee’s business as well as the manufacturing units. Based on the search report, notice was issued u/s 153A r/w section 143(3). During the course of assessment, the AO relying upon the notification no. 30/2008 Central Excise (NT) came to the conclusion that the assessee was engaged in unaccounted production and sale of Gutka. The AO also doubted the creditworthiness of sundry creditors. Hence, additions were made on both the accounts. When the matter reached the Tribunal, it deleted the additions for want of incriminating materials.
Having heard the parties, the High Court held that,
Whether in absence of any incriminating documents seized during the course of search, the AO is justified to make addition in non-abated assessment orders u/s 153A – NO: HC
Whether when the ITAT deletes the addition for want of incriminating documents seized during the course of search, in absence of illegality in face of records it give rise to substantial question of law – NO: HC
++ completed assessments can be interfered with by the AO while making the assessment u/s 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. This was held by the Division Bench of Delhi High Court in CIT Vs. Kabul Chawla whilst dwelling on the scope of Section 153A(1). Following such ratio, the ITAT order in appeal cannot be said to have suffered the illegality as would give rise to the proposed substantial question of law.
Revenue’s appeal dismissed
CIT Vs. Kabul Chawla – 2015-TIOL-2006-HC-DEL-IT
1. Heard on admission.
2. Common issue which arises for consideration in these batch of Appeals under Section 260A of Income Tax Act, 1961 directed against the common order dated 08.06.2018 passed by the Income Tax Appellate Tribunal Agra Bench, Agra is as to “whether in absence of any incriminating documents seized during the course of search, the Assessing Officer is justified in making the addition in non abated assessment orders under Section 153 A read with Section 143 (3) of the Act of 1961”.
3. Assessment years are 2005-2006 to 2011-2012.
4. The Tribunal was in seisin with appeals and cross appeals arising from respective orders passed by Commissioner Income Tax (Appeals). The appeals before CIT (Appeals) were directed against the addition of income by the Assessing Officer taking production on presumptive basis and working out estimated income.
5. The factum of addition not being based on any incriminating material found during the search is not disputed.
6. This aspect is borne out from the record duly taken note of by the CIT (Appeals), reproduced below :
“4.1.4. DECISION: I have carefully considered the facts of the case, the finding of the Assessing Officer, written submissions of the appellant, the remand report and the rejoinder thereon as well as the material placed on record. The impugned addition of Rs.13,74,332/- has been made by the Assessing Officer with the observation that ‘despite giving so many opportunity, the assessee company has failed to furnish the bills vouchers, name, address, PAN & nature of credits, confirmation of creditor, TDS details etc. The assessee company has only filed copy of ledger accounts of the various creditors in its books of accounts. Therefore the assessee company has failed to prove the creditors and the same is added in the total income of the assessee”. Now, in the remand report, the Assessing Officer has reported that “it is verified from the assessment record that the appellant has furnished details of all the sundry creditors for Rs.13,74,332/- including for dalali Rs.7,54,521/-. All these were furnished during assessment proceedings. It seems that due to many time barred assessments under Section 153A pending before Learned ACIT such reference has been made in the order. However in this remand these facts as mentioned by the appellant are confirmed and therefore the addition of Rs.13,74,332/- may kindly be deleted.”
4.1.5. The addition of Rs.13,74,332/- on account of unproved sundry creditors has been made with general observations without bringing any material on record. The fact that it is not based on any incriminating document or material found or seized during search proceedings is evident from record. Further, the fact that the addition is based on conjectures and surmises and not based on any corroborative material placed on record is evident from the remand report. It is a case where the appellant had furnished the requisite details regarding the sundry creditors during assessment proceedings, but the Assessing Officer has not recorded proper findings and made the addition in a casual manner. Therefore, the addition made by the Assessing Officer on account of unproved sundry creditors at Rs.13,74,332/- is deleted.”
In I.T.A.No.31/2019 & I.T.A.No.32/2019
“6. It is seen that the assessee company is engaged in production of ‘Gutka’. The assessing Officer, mainly relying upon Notification No.30/2008 Central Excise (NT) dated 01.07.2008 and statement of Shri Gulzarilal Gupta dated 07.10.2010 has come to conclusion that the assessee was engaged in unaccounted production and sale of ‘Gutka’. On going through the written submissions and assessment carefully, following facts/points have been observed by me:-
(i) The appellant is maintaining regular books of account. The books of account are audited under Section 44AB. The Auditor has not made any qualifying remark about the production/sale recorded by the appellant in its books of account. The Assessing Officer has not pointed out any defect/deficiency in the books of account maintained by the appellant. The Assessing Officer has also not rejected book results u/s 145(3).
(ii) As search u/s 132(1) was carried out on 07.10.2010 at the various premises of the assessee and its group concerns/persons. However, no document/loose paper showing unaccounted production, suppression of sale or out of books purchases was found either at the premises of appellant or its directors. There is no other positive evidence to show that the assessee used 10 machines during the period relevant to A.Y. 2005-06, 06-07 and 07-08 and 8 machines during the period relevant to A.Y. 2008-09 for making unaccounted production of the ‘Gutka’.
(iii) The appellant has explained that ‘Gutka’ is exciseable goods and the Excise Department has accepted the production recorded by the appellant in its books of account. Every year the Excise Department conducts audit at the premises of the appellant and there is no order from Excise authorities stating that the assessee has suppressed production. The Excise authorities accepted the production declared by the appellant in its books of account.
(iv) The appellant has further explained that the sales tax/Commercial Tax department has also accepted the turnover declared by the appellant its books of account.
(v) The Assessing Officer has relied heavily on notification No.30/2008-Central Excise (NT) dated 01.07.2008 issued by Government of India, Ministry of Finance, Department of Revenue wherein Pan Masala Packing Machine [Capacity, Determination and Collection of Duty] Rules 2008 have been notified. As per these rules, the Govt. of India has notified the quantity of notified goods deemed to be produced by use of one operating packaging machine per month. The Assessing Officer has worked out unaccounted production on the basis of deemed production notified by these rules for the purpose of levying Excise duty.
I have gone through the notification carefully. At the beginning of the notification itself it has clearly mentioned that the Pan Masala Packing Machine [Capacity, Determination and Collection of Duty] Rules 2008 shall come into force on the first day of July, 2008. In other words, these rules are relevant for the F.Y. 2008- 09 and subsequent F.Yrs. These rules have no relevance or applicability to the F.Y. 2004-05, 05-06, 06-07, & 07- 08. As far as the F.Y. 08-09, 09-10 & 2010-11 are concerned, the Assessing Officer has accepted the production declared by the appellant and no addition in respect of any unaccounted production/sale has been made by the A.O.
Further, these rules speak about the quantity of deemed production for the purpose of levying Excise Duty. I am of the considered opinion that by no stretch of any imagination, the deemed production worked out for the purpose of levying Excise duty on the basis of Notification No.30/2008 dated 01.07.2008 referred above, actual production or actual turnover of the appellant can be worked out. This notification is relevant only for the purpose of computing Excise duty on the basis of deemed production per machine given in the notification.
(vi) At paragraph No.4.33 of the assessment order, the Assessing Officer has relied upon the declaration forms in Form No.1 filed by the appellant in the O/o the Dy. Commissioner of Central Excise, Gwalior during the F.Y. 2008-09 to 2010-11. As the Assessing Officer himself has mentioned in assessment order that these forms have been filed in respect of F.Y. 2008-09 to 2010-11 hence I am of the considered opinion that these declaration forms have no relevance to the production of Gutka in F.Y. 2004-05, 2005-06, 2006-07 & 2007-08. As far as the production of the F.Y. 2008-09, 09-10 & 2010-2011 is concerned, the A.O has also accepted the production declared by the appellant. Hence I am of the considered opinion that these declaration forms have no relevance as far as the production of the F.Y. 2004-05, 05-06, 06- 07 & 07-08 is concerned.
(vii) It has been explained by the appellant that the machinery found during the course of search were all recorded in the books of account and no unaccounted investment in the machinery has been found by the department.
(viii) The Assessing Officer has also relied upon the statement dated 10.01.2013 of Shri Gulzarilal Gupta I have gone through the statement carefully. In reply to Q. No.1 itself, Shri Gulzarilal Gupta has stated that he had been working in the appellant company as Director only since June, 2009. The appellant has also mentioned in the written submission that Shri Gulzarilal Gupta was appointed as Director only on 09.05.2009. In support of its claim, the appellant has filed copy of Form No.32 filed with the Registrar of Companies for appointment of Shri Gulzarilal Gupta, as Director. The Notification No.30 dated 01.07.2008 had already come into force when Shri Gulzarilal Gupta joined the assessee company at Gwalior. He was not a Director in the company during the F.Y. 2004-05, 05-06, 06-07 & 07-08, therefore, I agree with the contention of the appellant that the statement made by Shri Gulzarilal Gupta in respect of any activities of the Financial Year 2004-05, 05-06 & 07-08 has no relevance. No addition to income in respect of F.Y. In which he was not Director in the appellant company can be made on the basis of his statement. As far as the F.Y. 2008-09, 09- 10 & 10-11, the period during which Shri Gulzarilal Gupta was Director, is concerned, the Assessing Officer has accepted the production. No addition in respect of any unaccounted sale/production has been made in the F.Y. 09-10 & 10-11.
(ix) In the assessment order the Assessing Officer has not given the working, explaining how he has arrived at the sales price per pouch and production cost per pouch, adopted by him, for the purpose of computing undisclosed income in the form of profit on suppressed sale.
7. In view of the facts discussed above in clause No. (i) to (ix) of para No.6, I am of the considered opinion that the addition in respect of unaccounted production/sale and profit on such production/sale has been made by the A.O in a mechanical manner without any basis. The income has been estimated merely on the basis of imagination, presumption and suspicion. The addition based on imagination, presumption and suspicion. Cannot be sustained. I am of the considered opinion that the addition made by A.O is uncalled for any unwarranted, hence the addition made by the A.O is hereby deleted.”
7. Section 153 A (1) of the Act stipulates :
“(1) Assessment in case of search or requisition.— Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall –
(a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139;
(b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made :
Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years.
Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate.
Provided also that the Central Government may by rules made by it and published in the Official Gazette (except in cases where any assessment or reassessment has abated under the second proviso), specify the class or classes of cases in which the assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made.
Provided also that no notice for assessment or reassessment shall be issued by the Assessing Officer for the relevant assessment year or years unless –
(a) the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more in the relevant assessment year or in aggregate in the relevant assessment years ;
(b) the income referred to in clause (a) or part thereof has escaped assessment for such year or years ; and
(c) the search under section 132 is initiated or requisition under section 132A is made on or after the 1st day of April, 2017.”
8. Dwelling on the scope of Sub-section (1) of Section 153 A of the Act, a Division Bench of Delhi High Court in CIT Vs. Kabul Chawla; (2016) 380 ITR 573 = 2015-TIOL-2006-HC-DEL-IT 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) Insofar 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 have suffered the illegality as would give rise to the proposed substantial question of law.
11. Consequently, appeals fail and are dismissed. No costs.