Pr. Commissioner Of Income Tax -7 v. Pilot Industries Limited

Signature Not Verified $~39 to 42 & 45 IN THE HIGH COURT OF DELHI AT NEW DELHI +ITA 411/2022 PR. COMMISSIONER OF INCOME TAX -7..... AppellantThrough:Mr.Puneet Rai, Sr.Standing Counselfor the Revenue. versus PILOT INDUSTRIES LIMITED ..... Respondent Through:None +ITA 412/2022 PR. COMMISSIONER OF INCOME TAX -7..... Appellant Through:Mr.Puneet Rai, Sr.Standing Counselfor the Revenue. versus PILOT INDUSTRIES LIMITED ..... Respondent Through:None +ITA 413/2022 PR. COMMISSIONER OF INCOME TAX -7 ..... Appellant Through:Mr.Puneet Rai, Sr.Standing Counselfor the Revenue. versus PILOT INDUSTRIES LIMITED ..... Respondent Through:None +ITA 414/2022 PR. COMMISSIONER OF INCOME TAX -7..... AppellantThrough:Mr.Puneet Rai, Sr.Standing Counselfor the Revenue. versus PILOT INDUSTRIES LIMITED..... RespondentThrough:None +ITA 417/2022 PR. COMMISSIONER OF INCOME TAX -7..... Appellant Through:Mr.Puneet Rai, Sr.Standing Counselfor the Revenue. versus PILOT INDUSTRIES LIMITED Through:None ..... Respondent Date of Decision: 19[th]October, 2022 CORAM:HON’BLE MR. JUSTICE MANMOHAN HON’BLE MS. JUSTICE MANMEET PRITAM SINGH ARORA J U D G M E N T MANMOHAN, J: 1.Present income tax appeals have been filed challenging the orderdated 19[th]August, 2021 passed by the Income Tax Appellate Tribunal(‘ITAT’) in ITA No. 3257-3261/Del./2016 for the Assessment Years 2005-06 to 2009-10. 2.Learned counsel for the Appellant states that the ITAT has erredin upholding the order of the CIT(A) and deleting the additions made on account of gross profit ignoring the fact that the said additions have beenmade after rejecting the books of account which did not reflect true andcorrect state of affairs of the Assessee Company. He states that the ITAThas erred in concurring with the view of CIT(A) that no addition can bemade on the basis of the documents found during the course of searchpertaining to different assessment years. 3.He further states that the ITAT has erred in not appreciating that thestatements of Mr. Vishesh Gupta recorded under Section 132(4) of theIncome Tax Act 1961 (‘the Act’) during the course of search proceedings,intheabsenceofany othermaterial,wouldinitselfconstitute‘incriminating material’. 4.He also states that the ITAT has committed an error in overlookingthe legal position that the possession of incriminating material is pre-requisite condition only forthose assessmentyears inwhich theassessments were completed under Section 143(3) of the Act and not inthose years wherein no scrutiny assessment was carried out. 5.He submits that the ITAT has erred in relying on the judgement ofthis Court in CIT vs Kabul Chawla 380 ITR 573 (Del) without consideringthat this issue is pending before the Supreme Court.this Court in CIT vs Kabul Chawla 380 ITR 573 (Del) without consideringthat this issue is pending before the Supreme Court. 6.A perusal of the paper book reveals that both CIT(A) and ITAT havegiven concurrent findings of fact that no incriminating material orcorroborative material with respect to the statement of Mr. Vishesh Guptawas brought on record by the Department and that no assessment for theyears under considerations were pending in the case of the assessee. 7.Even,thisCourtin PrincipalCommissionerofIncomeTaxvs. Bhadani Financiers Pvt. Ltd., 2021 SCC OnLine Del 4430 has held thatvs. Bhadani Financiers Pvt. Ltd., 2021 SCC OnLine Del 4430 has held that Signature Not Verified where the assessment of the respondents had attained finality prior to thedate of search and no incriminating documents or materials had been foundand seized at the time of search, no addition could be made under Section153A of the Act as the cases of the respondents were of non-abatedassessment. 7.Even,thisCourtin PrincipalCommissionerofIncomeTaxvs. Bhadani Financiers Pvt. Ltd., 2021 SCC OnLine Del 4430 has held thatvs. Bhadani Financiers Pvt. Ltd., 2021 SCC OnLine Del 4430 has held that Signature Not Verified where the assessment of the respondents had attained finality prior to thedate of search and no incriminating documents or materials had been foundand seized at the time of search, no addition could be made under Section153A of the Act as the cases of the respondents were of non-abatedassessment. 8.Consequently, the distinction between scrutiny assessment underSection 143 (3) of the Act and summary assessment under Section 143 (1)of the Act sought to be drawn by learned counsel for the appellant isirrelevant for the purposes of Section 153A of the Act. 9.Further, this Court in the case of PCIT vs Anand Kumar Jain (HUF)[2021 SCC Online Del 3174] following the judgements in PCIT v. BestInfrastructure (India) P. Ltd [2017 SCC OnLine Del 9591] and CIT v.Harjeev Aggarwal [2016 SCC OnLine Del 1512] has held that though thestatement recorded in search has evidentiary value and relevance ascontemplated under the explanation to section 132(4) of the Act, yet thesame cannot, on a standalone basis, without reference to any other materialdiscovered during search and seizure operations, empower the AssessingOfficer to frame the block assessment. The relevant extract of the aforesaidjudgement is reproduced herein below: “7. The preliminary question under consideration before us iswhetherastatementunderSection132(4)constitutesincriminating material for carrying out assessment under S.153(A) of the Act. A reading of the impugned order revealsthat the statement of Mr. Jindal recorded under Section132(4) forms the foundation of the assessment carried outunder Section 153A of the Act. That statement alone cannotjustify the additions made by the AO. Even if we accept theargument of the Revenue that the failure to cross-examinethe witness did not prejudice the assessee, yet, we discernwhetherastatementunderSection132(4)constitutesincriminating material for carrying out assessment under S.153(A) of the Act. A reading of the impugned order revealsthat the statement of Mr. Jindal recorded under Section132(4) forms the foundation of the assessment carried outunder Section 153A of the Act. That statement alone cannotjustify the additions made by the AO. Even if we accept theargument of the Revenue that the failure to cross-examinethe witness did not prejudice the assessee, yet, we discern Signature Not Verified from the record that apart from the statement of Mr.Jindal, Revenue has failed to produce any corroborativematerial to justify the additions. On the contrary we alsonote that during the course of the search, in the statementmade by the assessee, he denied having known Mr. Jindal.Since there was insufficient material to support the additions,the ITAT deleted the same. This finding of fact, based onevidence calls for no interference, as we cannot re-appreciateevidence while exercising jurisdiction under section 260A ofthe Act. Signature Not Verified from the record that apart from the statement of Mr.Jindal, Revenue has failed to produce any corroborativematerial to justify the additions. On the contrary we alsonote that during the course of the search, in the statementmade by the assessee, he denied having known Mr. Jindal.Since there was insufficient material to support the additions,the ITAT deleted the same. This finding of fact, based onevidence calls for no interference, as we cannot re-appreciateevidence while exercising jurisdiction under section 260A ofthe Act. 8. Next, we find that, the assessment has been framed undersection 153A, consequent to the search action. The scope andambit of section 153A is well defined. This court, in CIT v.Kabul Chawla,1 concerning the scope of assessment underSection 153A, has laid out and summarized the legal positionafter taking into account the earlier decisions of this court aswell as the decisions of other High Courts and Tribunals. Inthe said case, it was held that the existence of incriminatingmaterial found during the course of the search is a sine quanon for making additions pursuant to a search and seizureoperation. In the event no incriminating material is foundduring search, no addition could be made in respect of theassessments that had become final. Revenue's case ishinged on the statement of Mr. Jindal, which according tothem is the incriminating material discovered during thesearch action. This statement certainly has the evidentiaryvalue and relevance as contemplated under the explanationto section 132(4) of the Act. However, this statement cannot,on a standalone basis, without reference to any othermaterial discovered during search and seizure operations,empower the AO to frame the block assessment. Thiscourt in Principal Commissioner of Income Tax, Delhi v.Best Infrastructure (India) P. Ltd., has inter-alia held that: “38. Fifthly, statements recorded under Section132(4) of the Act do not by themselves constituteincriminating material as has been explained bythis Court in Harjeev Aggarwal” Signature Not Verified 9. In Commissioner of Income Tax v. Harjeev Aggarwal, thisCourt had held as follows: “23. In view of the settled legal position, the firstand foremost issue to be addressed is whether astatement recorded under Section 132(4) of the Actwould by itself be sufficient to assess the income, asdisclosed by the Assessee in its statement, under theProvisions of Chapter XIV-B of the Act. 24. In our view, a plain reading of Section158BB(1)oftheActdoesnotcontemplatecomputing of undisclosed income solely on thebasis of a statement recorded during the search.The words “evidence found as a result of search”wouldnottakewithinitssweepstatementsrecorded during search and seizure operations.However, the statements recorded would certainlyconstitute information and if such information isrelatable to the evidence or material found duringsearch, the same could certainly be used inevidence in any proceedings under the Act asexpressly mandated by virtue of the explanation toSection132(4)oftheAct. However,suchstatementsonastandalonebasiswithoutreference to any other material discovered duringsearch and seizure operations would not empowerthe AO to make a block assessment merelybecause any admission was made by the Assesseeduring search operation.25. (…) However, as stated earlier, a statement onoath can only be recorded of a person who is foundin possession of books of accounts, documents,assets, etc. Plainly, the intention of the Parliamentis to permit such examination only where the booksof accounts, documents and assets possessed by aperson are relevant for the purposes of theinvestigationbeingundertaken.Now,iftheprovisions of Section 132(4) of the Act are read inthe context of Section 158BB(1) read with Section Signature Not Verified Signature Not Verified 158B(b) of the Act, it is at once clear that astatement recorded under Section 132(4) of the Actcan be used in evidence for making a blockassessment only if the said statement is made in thecontext of other evidence or material discoveredduring the search. A statement of a person, which isnot relatable to any incriminating document ormaterial found during search and seizure operationcannot, by itself, trigger a block assessment. Theundisclosed income of an Assessee has to becomputed on the basis of evidence and materialfoundduringsearch. Thestatementrecordedunder Section 132(4) of the Act may also be usedfor making the assessment, but only to the extentitisrelatabletotheincriminatingevidence/materialunearthed orfound duringsearch. In other words, there must be a nexusbetweenthestatementrecordedandtheevidence/material found during search in order tofor an assessment to be based on the statementrecorded.” (emphasis supplied) 10.Though,theissueinvolvedin Kabul Chawla (supra) hasbeenchallenged and is pending adjudication before the Supreme Court, yet thereis no stay of the said judgment till date. 11.Consequently, in view of the judgments passed by the Supreme Courtin Kunhayammed and Others vs. State of Kerala and Another, (2000) 6SCC 359 and Shree Chamundi Mopeds Ltd. Vs. Church of South IndiaTrust Association CSI Cinod Secretariat, Madras (1992) 3 SCC 1, theissue qua Section 153A of the Act is covered by the judgment passed bythis Court in Bhadani Financiers Pvt. Ltd. (supra) and Kabul Chawla(supra). Signature Not Verified 12.Also, both the appellate authorities below have recorded concurrentfindings of facts that while calculating the GP ratio, the Assessing Officerhas compared the purchase of scrap of desi led with the sale of finishedgoods without considering that the assessee is dealing in different types ofitems such as led, tin, selenium, arsenic etc. and that each of these itemshave different qualities having wide price fluctuation and therefore theAssessing Officer has erred in making a comparison between incomparableproducts. The relevant findings of the ITAT on merits in one of the cases isreproduced herein below: “37. The assessee has earned the gross profit for assessment year2005-06 at 9.53%, 2006 – 07 at the rate 7.30%, 2007 – 08 at the rate6.81%, 2008 – 09 at the rate of 6.5% and assessment year 2009 – 10at the rate of 6.66%. These gross profit rates are excluding theadditional income offered by the assessee. The facts also placedbefore us shows that for assessment year 2011 – 12 onwards the grossprofit rate of the company is better than earlier years. The learnedassessing officer has enhanced the gross profit rate for all these yearsto 24.38% and made the addition.The allegations of the learnedassessing officer is that as per the seized documents the gross profitrate of the assessee is much higher than what has been disclosed bythe assessee. The seized materials pertain to assessment year 2010 –11. The learned assessing officer has recorded that instances ofpurchase and sales are found in the tally software and documentsseized during the search. The learned assessing officer computed theaverage of the gross profit rate of the several instances which are alsostated in the chart reproduced in the order passed by the CIT – A. TheAO computed the gross profit rate at 24.38%, which is derived on thebasis of two gross profit rates of 11% and 37.76%, calculated by theAO on the basis of instances of sales and worked out an average of24.38%. Assessee has submitted that the assessing officer hascompared the purchase of scrap of Desi led with the sale of finishedgoods i.e. refined led. It is undisputed that the company is dealing indifferent types of items such as led, tin, selenium, aresnic etc. Naturally even under each of these items there are so manyqualities having wide price fluctuation therefore, naturally thiscannot be any justification of adopting a uniform gross profitrate. Further, in case of large quantities the gross profit earnedtherein is naturally less compared to smaller quantity sold. This isalso demonstrated by assessee before CIT – A and therefore the CIT –A has held that the assessing officer has made a comparisonbetween two incomparable products and of different lots oftrading. The fact also shows that in subsequent to the completion ofassessment for assessment year 2005 – 06 to assessment year 2011 –12 the assessing officer has accepted the gross profit ratio of theassessee ranging between 8.22% to 11.85%. 38. The claim of the DR that when the assessee has not produced thebooks of accounts before the assessing officer as well as before thelearned CIT – A, the CIT – A could not have deleted the addition, wefind that the only addition made by the assessing officer is withrespect to the gross profit rates of the assessee as per books ofaccounts and the gross profit rates derived on the basis of instancesfound from tally software during the course of search. Theassessing officer has not disturbed the book results but has made anaddition of the gross profit, which the assessee should have earnedaccording to him based on the incriminating documents found forsubsequent years for the impugned years. The CIT – A as also notdeleted the addition on that basis but for the reason that thecomparison made by the assessing officer of different material ofdifferent lots sold at different time. The DR has agreed that the AOhas computed the gross profit by taking transactions of the nearbydates. However, it is not denied that the learned assessing officerhas taken the highest rate of sales as well as lowest rates ofpurchases for computing the additional gross profit that shouldhave been earned by the assessee. -The assessee has produced the copies of the paper book, which areplaced before the learned CIT-A wherein he has verified the detailsof the material sold, quantity sold with respect to the various billsplaced in those paper books and found that the comparison of thegross profit made by the learned assessing officer is not comparable. 39.Another argument of the DR is that the subsequent year’sacceptance of the book results by the AO cannot help the case of theassessee in deleting the addition in those years, which are in appeal.We find that the subsequent years assessments are also completedu/s 143 (3) of the act and no addition has been made by the learnedassessing officer. Admittedly in subsequent years there was noseized material available and the learned assessing officer has notextrapolated the gross profit in subsequent years, which he did forthe impugned years in the appeal, however the acceptance of thesubsequent years gross profit shows that the books of accountsprepared by the assessee are acceptable. The gross profit ratio of thesubsequent years is also not of much difference compared to theyears in this appeal. In view of this we do not find any infirmity inthe order of the learned CIT-A in deleting the addition on accountofsuppressedgrossprofit, whichwasnotbasedonanyincriminating material found during the course of search for therespective years and because of erroneous comparison made by thelearned assessing officer. (emphasis supplied) 13.The appellate authorities below also noted that for the AssessmentYear 2005- 06 to Assessment Year 2008- 09, there is no evidence availablewith respect to suppression of the gross profit by obtaining bogus purchasebills by the assessee and that the Assessing Officer has merely relied uponthe documents seized during the course of search for Financial Year 2010-11 and 2011-12 even when the present batch of cases pertains to theAssessment Years 2005-06 to 2009-10. (emphasis supplied) 13.The appellate authorities below also noted that for the AssessmentYear 2005- 06 to Assessment Year 2008- 09, there is no evidence availablewith respect to suppression of the gross profit by obtaining bogus purchasebills by the assessee and that the Assessing Officer has merely relied uponthe documents seized during the course of search for Financial Year 2010-11 and 2011-12 even when the present batch of cases pertains to theAssessment Years 2005-06 to 2009-10. 14.The Supreme Court in the case of Ram Kumar Aggarwal & Anr.vs. Thawar Das (through LRs), (1999) 7 SCC 303 has reiterated that underSection 100 of the Code of Civil Procedure the jurisdiction of the HighCourt to interfere with the orders passed by the Courts below is confined to Signature Not Verified hearing on substantial question of law and interference with finding ofthe fact is not warranted if it involves re-appreciation of evidence. Further,the Supreme Court in State of Haryana & Ors. vs. Khalsa Motor Limited& Ors., (1990) 4 SCC 659 has held that the High Court was not justified inlaw in reversing, in second appeal, the concurrent finding of fact recordedby both the Courts below. The Supreme Court in Hero Vinoth (Minor) vs.Seshammal, (2006) 5 SCC 545 has also held that “in a case where from agiven set of circumstances two inferences of fact are possible, the onedrawn by the lower appellate court will not be interfered by the High Courtin second appeal. Adopting any other approach is not permissible.” 15.Consequently, this Court is of the view that no substantial question oflaw arises of consideration in the present appeals and accordingly, the sameare dismissed. MANMOHAN, J MANMEET PRITAM SINGH ARORA, J OCTOBER 19, 2022KA/AS