Ita/74/2016 Of Pr. Commissioner Of Income Tax v. M/S Delco India Pvt. Ltd

[ ) $~*IN THE HIGH COURT OF DELHI AT NEW DELHI3.+ITA116/2016PR COMMISSIONER OF.INCOME TAX AppellantThrough: Mr Ashok K. Manchanda, SeniorStanding Counsel with Ms Vibhooti Malhotra,Junior Standing Counsel and Mr Aamir Aziz,Advocate.versusM/S DELCO INDIA PVT. LTD RespondentThrough: Mr Pranjal Srivastava, Advocate.WITH7.+ITA 917/2015PRINCIPAL COMMISSIONER OF INCOMETAX AppellantThrough: Mr Ashok K. Manchanda, SeniorStanding Counsel with Ms Vibhooti Malhotra,Junior Standing Counsel and Mr Aamir Aziz,Advocate.versusM/S DELCO INDIA PVT. LTD. RespondentThrough: Mr Pranjal Srivastava, Advocate.AND21.+ITA 74/2016PR. COMMISSIONER OF INCOME TAX AppellantThrough: Mr Ashok K. Manchanda, SeniorStanding Counsel with Ms Vibhooti Malhotra,Junior Standing Counsel and Mr Aamir Aziz,Advocate.versus Signature Not VerifiedDigitally SignedBy:AMULYAITA 116/2016 & Other connected matters M/S DELCO INDIA PVT. LTD. Through: Mr Pranjal Srivastava, Advocate. Respondent CORAM:JUSTICE S. MURALIDHARJUSTICE VIBHU BAKHRUORDER%10.02.2016 % CM No.3683/2016 (for condonation of delay in filing) & CMNo.3685/2016 (for condonation of delay in re-filingl in ITA 116/2016CM No.1251/2016 (for condonation of delay in filing) & CMNo.1253/2016 (for condonation of delay in re-filing) in ITA 74/2016 1. For the reasons stated in the applications, the delay in filing and in refiling the appeals is condoned. 2. ,The applications stand disposed of. ITA 116/2016ITA 917/2015ITA 74/2016 3. These appeals have been preferred by the Revenue under Section260A of the Income Tax Act, 1961 (hereafter the 'Act') against a commonorder dated 16 : June, 2015 passed by the Income Tax Appellate Tribunal(hereafter 'ITAT') in ITA Nos. 2453/DeV2013, 2925/Del/2013 and2926/Del/2013. Whereas ITA 2453/Del/2013 was filed by the Revenueagainst an order dated 22"^* February, 2013 passed by the Commissioner ofIncome Tax Appeals [hereafter 'CIT(A)] in respect of Assessment Year (AY) 2007-08, ITA 2925/Del/2013 was Assessee's cross appeal against thesaid order. ITA 2926/Del/2013 was filed by the Assessee impugning aseparate order dated 22"^^ February, 2013 passed by the CIT(A) in respect ofthe AY 2008-09. Concededly, the material facts for AY 2007-08 and 2008-09 necessary for addressing the disputes are similar and, therefore, the ITAThad proceeded to examine and decide the appeals in the context of the factsas obtaining for AY 2007-08. 4. Briefly stated, the subject controversy arises consequent to a surveyconducted under Section 133 A of the Act on the Assessee's premises on 26^''February, 2009. Apparently, the survey was conducted simultaneously withthe search and seizure operations conducted in relation to one Sh. Ram HariRam and Orchid Group. 5. It is stated that during the aforesaid survey, loose papers pertaining tothe Assessee were found and impounded. The learned counsel for theRevenue has contended that the relevant material found during the surveywas a softcopy of an account stored in the computer of the Assessee.However, the Assessment Order indicates that certain loose papers werefound and seized during the survey and the same indicated certaintransactions with one M/s Smridhi Sponge Limited pertaining to Financial 6. Based on the aforesaid loose papers, the assessments for AY 2007-08and AY 2008-09 were reopened and notices under Section 148 of the Actwere issued to the Assessee on 8* September, 2010. In response to theaforesaid notice, the Assessee filed a copy of its return for AY 2007-08,which was originally filed by it on 3V^ October, 2007 and whereby theAssessee had declared an income of Rs. 1,46,690/-. The Assessee furtherrequested that same be treated as a return in response to the notice underSection 148. 6. Based on the aforesaid loose papers, the assessments for AY 2007-08and AY 2008-09 were reopened and notices under Section 148 of the Actwere issued to the Assessee on 8* September, 2010. In response to theaforesaid notice, the Assessee filed a copy of its return for AY 2007-08,which was originally filed by it on 3V^ October, 2007 and whereby theAssessee had declared an income of Rs. 1,46,690/-. The Assessee furtherrequested that same be treated as a return in response to the notice underSection 148. 7. The Assessee was called upon to explain the documents seized. TheAssessee responded by stating that it had no transaction with M/s SmridhiSponge Limited and the documents did not pertain to it. The Assessee alsofiled an affidavit to that effect. According to the Assessee, the saiddocument pertained to some other person who had perhaps used theAssessee's computer. Nonetheless, in order to discharge its onus, theAssessee conducted a search from the Registrar of Companies as well as theofficial site of the Income Tax Department and submitted the details of M/sSmridhi Sponge Limited as well as the names of its Directors. TheAssessing Officer (hereafter 'AO') issued a notice under Section 133(6) of the Act at the registered office of M/s Smridhi Sponge Limited calling uponthe said concern to furnish a copy of Ledger Account of the transactionsentered into with the Assessee. This notice was received back unserved withthe remarks 'Left'. The AO deciphered the relevant document concerned tobe a statement of account and on the basis made an addition ofRs.2,68,11,454/- as undisclosed income of the Assessee. According to theAO, the said document contained details of payments made outside thebooks of accounts to M/s Smridhi Sponge Limited for purchases made. TheAO thereafter estimated the sales made by adding a gross profit margin of8% on the alleged undisclosed purchases and concluded that the Assesseehad made sales of Rs.2,57,51,355/- outside its books of accounts. On theabove basis, the AO made an addition of Rs.2,68,11,454/- under Section 68of the Act as undisclosed income of the Assessee. Addition on the similarbasis was also made in respect of AY 2008-09. 8. The Assessee appealed against the assessment orders passed beforethe CIT(A). The Assessee also challenged the reopening of the proceedingsunder Section 148 of the Act. The Assessee contended that it was neverinformed of the non-service of notice under Section 133(6) of the Act. Itwas further submitted that on its part, the representative of the Assessee had visited the office of M/s Smridhi Sponge Limited and sought a confirmationfrom them as to the transaction of the Assessee. The Assessee had furtherdownloaded information regarding the overdraft facility enjoyed by M/sSmridhi Sponge Limited and also sought to produce the same beforeCIT(A). The Assessee also downloaded the Balance Sheet of M/s SmridhiSponge Limited, which disclosed the outstanding balance ofRs. 1,22,04,722/- against M/s Galaxy Exports Pvt. Ltd. The Assessee soughtto produce various documents before the CIT(A) and for the purposes filedan application under Rule 46A of the Income Tax Rules, 1962. TheAssessee also obtained a letter from the Director of M/s Smridhi SpongeLimited conforming that it had no transaction with the Assessee. 9. The CIT(A) rejected the Assessee's challenge to the reopening of theassessment and held that the notice issued under Section 148 of the Act andinitiation of re-assessments was valid. Insofar as the confirmation obtainedby the Assessee from the Director of M/s Smridhi Sponge Limited isconcerned, the CIT(A) disbelieved the same principally for the reason thatthe same, although dated ll^*" October, 2012, was not filed alongwith theapplication under Rule 46A that was filed on 22"'^ October, 2012. TheCIT(A) also observed that the confirmation was not produced on subsequent 9. The CIT(A) rejected the Assessee's challenge to the reopening of theassessment and held that the notice issued under Section 148 of the Act andinitiation of re-assessments was valid. Insofar as the confirmation obtainedby the Assessee from the Director of M/s Smridhi Sponge Limited isconcerned, the CIT(A) disbelieved the same principally for the reason thatthe same, although dated ll^*" October, 2012, was not filed alongwith theapplication under Rule 46A that was filed on 22"'^ October, 2012. TheCIT(A) also observed that the confirmation was not produced on subsequent dates of hearing but was sought to be produced on a much later date on 13^*^January, 2013. The CIT(A) further held that the AO was justified in drawinga presumption under Section 292C of the Act in respect of loose documentsfound during the survey. The CIT(A) concurred with the AO that theAssessee had not discharged its burden to rebut the presumption that thedocuments found during the survey belonged to the Assessee. 10. However, the CIT(A) did not concur with the AO's computation ofundisclosed income. Whilst the CIT(A) upheld the computation of grossprofit as computed by the AO (at Rs. 20,60,108/-), the additions made onaccount of entire sales were scaled down to the notional working capitalrequired for making the quantum of alleged undisclosed sales, which wascomputed at Rs.99,73,187/-. Thus, CIT(A) reduced the amount ofundisclosed income for AY 2007-08 to Rs. 1,20,33,295/- being the aggregatesum of gross profit and working capital. Similarly, the CIT(A) reduced theaddition made by the AO in respect of the AY 2008-09;. the CIT(A)accepted the addition of Rs. 14,33,880/- on account of profit but restrictedfurther addition to Rs.69,41,555/-, thus, computing the total addition underSection 68 at Rs.83,75,435/- for the AY 2008-09. 11. Being aggrieved by the CIT(A)'s order restricting the addition under Section 68 to Rs. 1,20,33,295/- instead of Rs.2,68,11,454/- as computed bythe AO, the Revenue preferred an appeal before the ITAT. The ITATexamined the records and found that on the Assessee on being confrontedwith the seized documents had responded by stating that it had never enteredinto any transaction with M/s Smridhi Sponge Limited. Further, the(Assessee had immediately undertaken a search through internet and hadcollected the details about M/s Smridhi Sponge Limited which included itsoffice address, company registration number, PAN number and particularsof its Directors and forwarded the same to the AO. In addition, since thedocument contained a reference to Galaxy, the Assessee had also madeenquiries and had provided the details of Galaxy Exports Pvt. Ltd. and itsDirectors. Further, the .Assessee had also provided the bank accountsmaintained by Galaxy Exports Pvt. Ltd. with Punjab National Bank,Jamshedpur Branch from which two cheques mentioned in the impoundeddocuments had been encashed. 12. The Assessee requested the AO to undertake the necessary enquiryfrom banks and other sources, the particulars of which were provided by theAssessee. The ITAT also observed that the Assessee had provided thedetails of the balance sheet, auditor's report etc. of M/s Smridhi Sponge Limited and also pointed out that the final accounts of M/s Smridhi SpongeLimited disclosed transactions with Galaxy Exports which was a companydealing in iron ore. Subsequently, the Assessee had also produced a letterfrom the Director of M/s Smridhi Sponge Limited conforming that thecompany did not have any transaction with the Assessee. 12. The Assessee requested the AO to undertake the necessary enquiryfrom banks and other sources, the particulars of which were provided by theAssessee. The ITAT also observed that the Assessee had provided thedetails of the balance sheet, auditor's report etc. of M/s Smridhi Sponge Limited and also pointed out that the final accounts of M/s Smridhi SpongeLimited disclosed transactions with Galaxy Exports which was a companydealing in iron ore. Subsequently, the Assessee had also produced a letterfrom the Director of M/s Smridhi Sponge Limited conforming that thecompany did not have any transaction with the Assessee. 13. The ITAT observed that despite the.information being provided by theAssessee, the AO had not made the efforts to make the necessary enquiriesbut had rested content with his notice under section 133(6) of the Act beingreturned unserved. The ITAT held that in the given facts and circumstances,the AO was required to make further enquiries but it appeared that the AOwas reluctant to do so. Although the AO had been provided the details ofM/s Smridhi Sponge Limited, he had made no efforts to obtain the necessaryinformation from the AO of M/s Smridhi Sponge Limited which was athriving company. 14. Insofar as the provisions of Section 292C of the Act are concerned,the ITAT held that Section 292C provides that where a document is found inpossession of a person during search or survey, a presumption can be drawnthat it belongs to such person, however, the said presumption is rebuttableand the Assessee can rebut the same. The ITAT noted that in the given facts. the Assessee had asserted that it did not have any dealing with M/s SmridhiSponge Limited and had filed an affidavit to that effect. Further, in order torebut the presumption, the Assessee had provided all necessary details forthe AO to make the necessary enquiries. The Assessee had also produced thefinal accounts of M/s Smridhi Sponge Limited from official sites which didnot indicate that the Assessee had any dealing with M/s Smridhi SpongeLimited. The ITAT also noted that the seized documents indicated itsdealings with 'Galaxy' and the Assessee on its part had provided evidence toshow that the cheques disclosed in the document had been encashed fromthe bank accoupt of one Galaxy Exports Pvt. Ltd. Further, the Assessee hadalso provided details of Galaxy Exports Private Limited. Thus, given thestand of the Assessee, it had done all that it was in its power to do. 15. On the other hand, the AO had not produced any corroborativeevidence which would indicate that the Assessee's denial of dealings withM/s Smridhi Sponge Limited was false. Accordingly, the ITAT concludedthat no addition could be made on the basis of the documents seized duringthe survey. 16. The Revenue has projected the following questions of law (for AY2007-08):- i. "Whether on the facts and in the circumstances of the case,the Ld. ITAT has erred in not setting aside the deletion ofRs. 1,47,78,159 ordered by the CIT(A) and in furtherdeleting the Gross Profit addition of Rs.20,60,108/- andRs.99,73,187 on account of Capital requirements which hadbeen sustained by the Ld. CIT(A), out of total addition ofRs.2,68,11,454/-, made by the AOon the basis of theimpounded documents.the Ld. ITAT has erred in not setting aside the deletion ofRs. 1,47,78,159 ordered by the CIT(A) and in furtherdeleting the Gross Profit addition of Rs.20,60,108/- andRs.99,73,187 on account of Capital requirements which hadbeen sustained by the Ld. CIT(A), out of total addition ofRs.2,68,11,454/-, made by the AOon the basis of theimpounded documents. i. "Whether on the facts and in the circumstances of the case,the Ld. ITAT has erred in not setting aside the deletion ofRs. 1,47,78,159 ordered by the CIT(A) and in furtherdeleting the Gross Profit addition of Rs.20,60,108/- andRs.99,73,187 on account of Capital requirements which hadbeen sustained by the Ld. CIT(A), out of total addition ofRs.2,68,11,454/-, made by the AOon the basis of theimpounded documents.the Ld. ITAT has erred in not setting aside the deletion ofRs. 1,47,78,159 ordered by the CIT(A) and in furtherdeleting the Gross Profit addition of Rs.20,60,108/- andRs.99,73,187 on account of Capital requirements which hadbeen sustained by the Ld. CIT(A), out of total addition ofRs.2,68,11,454/-, made by the AOon the basis of theimpounded documents. ii. WHETHER on the facts and in the circumstances of thecase, the ITAT was justified in law in not taking propercognizance of provisions of Section 292C of the IncomeTax Act, 1961 in correct perspective, as the evidence wasimpounded not only from the premises of the assessee, butfrom the Computer of the assessee?case, the ITAT was justified in law in not taking propercognizance of provisions of Section 292C of the IncomeTax Act, 1961 in correct perspective, as the evidence wasimpounded not only from the premises of the assessee, butfrom the Computer of the assessee? iii. WHETHER on the facts and in the circumstances of thecase, the ITAT was correct in holding that the heavy onuscast upon the assessee by virtue of the provisions of sectionstood discharged by the assessee by simply denying anyconnection with the information found on its computer andthen by reference to certain internet based generalinformation, despite the facts that the evidence impoundedu/s 133A was based on some documents found in thecomputer system of the assessee?case, the ITAT was correct in holding that the heavy onuscast upon the assessee by virtue of the provisions of sectionstood discharged by the assessee by simply denying anyconnection with the information found on its computer andthen by reference to certain internet based generalinformation, despite the facts that the evidence impoundedu/s 133A was based on some documents found in thecomputer system of the assessee? iv. Whether the order of the Ld. ITAT(A) not restoring theaddition of Rs. 1,47,78,159 deleted by the CIT(A) andfurther deleting the additions amounting to Rs. 1,20,33,295,which had been confirmed by the Ld. CIT(A), on the basisof the impounded documents, is highly erroneous, perverseand is not tenable on facts and in law."addition of Rs. 1,47,78,159 deleted by the CIT(A) andfurther deleting the additions amounting to Rs. 1,20,33,295,which had been confirmed by the Ld. CIT(A), on the basisof the impounded documents, is highly erroneous, perverseand is not tenable on facts and in law." The questions of law proposed in the appeal relating to AY 2008-09 (ITA 917/2015) are similarly worded. iv. Whether the order of the Ld. ITAT(A) not restoring theaddition of Rs. 1,47,78,159 deleted by the CIT(A) andfurther deleting the additions amounting to Rs. 1,20,33,295,which had been confirmed by the Ld. CIT(A), on the basisof the impounded documents, is highly erroneous, perverseand is not tenable on facts and in law."addition of Rs. 1,47,78,159 deleted by the CIT(A) andfurther deleting the additions amounting to Rs. 1,20,33,295,which had been confirmed by the Ld. CIT(A), on the basisof the impounded documents, is highly erroneous, perverseand is not tenable on facts and in law." The questions of law proposed in the appeal relating to AY 2008-09 (ITA 917/2015) are similarly worded. 17. Section 292C of the Act, inter alia, provides that where any books ofaccounts or other documents are found in possession or control of anyperson in the course of search under Section 132 or survey under Section133 A of the Act, it may be presumed that such books or documents belongto such person. Undisputedly, such presumption is rebuttable. It is notdisputed that the Assessee had clearly denied having any dealing with M/sSmridhi Sponge Limited and had also filed an affidavit to that effect. TheITAT found, as a matter of fact, that the Assessee on its part had made thenecessary enquiries and also provided final accounts of M/s Smridhi SpongeLimited; confirmation from the Director of M/s Smridhi Sponge Limited;details of the bank accounts; final accounts; Director's Report; PANNumber etc. which sufficiently discharged the burden cast on the Assessee.The ITAT also found that the Assessee had provided the necessaryinformation for the AO to make the requisite enquiries from M/s SmridhiSponge Limited as well as M/s Galaxy Exports Pvt. Ltd. In our view, nointerference with the order of the ITAT is called for under Section 260A ofthe Act since the findings of the ITAT are essentially factual. Further, wefind no infirmity with the findings returned by the ITAT and in any eventthe same cannot be held to be perverse by any stretch. 18. In the circumstances^ no substantial question of law arises and theappeals are, accordingly, dismissed. S. MURALIDHAR, J FEBRUARY 10, 2016/RK VIBHU BAKHRU, J