Principal Commissioner Of Income Tax, Delhi-20 v. Mr. Shiv Kumar Agarwal

$~24 *IN THE HIGH COURT OF DELHI AT NEW DELHI +ITA 231/2022 & CM APPL. 32873/2022 PRINCIPAL COMMISSIONER OF INCOME TAX, DELHI-20 ..... Appellant Through:Ms. Vibhooti Malhotra, Sr. StandingCounsel for Revenue. versus MR. SHIV KUMAR AGARWAL Through:None. ..... Respondent %Date of Decision: 28[th]July, 2022 CORAM: HON'BLE MR. JUSTICE MANMOHANHON'BLE MS. JUSTICE MANMEET PRITAM SINGH ARORA J U D G M E N T MANMEET PRITAM SINGH ARORA, J (ORAL): CM APPL. 32873/2022 Exemption allowed, subject to all just exceptions. Accordingly, this application is disposed of. ITA 231/2022 1.The present Income Tax Appeal arises out of the impugned orderdated 30[th]June, 2021 passed by the Income Tax Appellate Tribunal(hereinafter referred to as ‘ITAT’), Delhi in ITA 5280/Del/2018. The facts,in brief are that the Investigation Wing of the Income Tax Departmentconducted a search & seizure and survey operations under Section 132/133A ITA 231/2022 of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’) on 8[th]July, 2015 against M/s K.R. Pulp & Papers Ltd. and its group at variousresidential and business premises. During post-search investigations, Sh.Madho Gopal Agarwal, Managing Director of M/s K.R. Pulp & Papers Ltd.made a statement. It is the case of the Revenue that Sh. Madho GopalAgarwal, Managing Director of M/s K.R. Pulp & Papers Ltd. admitted thatundisclosed income has been routed in the books through bogus entries ofLong Term Capital Gains (LTCG) by way of sale of shares. It is also thecase of the Revenue that during the course of the search operations and post-search investigation, various incriminating documents were found andseized which disclosed that income from sale of shares of penny stockcompanies was disclosed as LTCG by its beneficiaries, and the LTCGearned by the promoters and family members has been used for personaluse. 2.In this regard reliance has been placed on the statement of Sh. MadhoGopal Agarwal recorded on oath under Section 132(4) of the Act on 3[rd]August, 2015 and letter dated 31[st]July, 2015 issued by Sh. Madho GopalAgarwal. The case was centralised as per the orders passed under Section127 of the Act and a notice under Section 153A of the Act was issued on 6[th]September, 2016, which was duly served. Upon receipt of notice theassessee filed his return for the relevant assessment year 2011-12 declaringan income of Rs. 5,41,130/- on 2[nd]March, 2017. During the year underconsideration, the assessee declared income under the head ‘income fromsalary’, ‘income from capital gains’ and ‘income from other sources’. Withrespect to the income from capital gains, the assessee submitted in his replyto state that he had purchased 400 shares of one M/s KGN Industries Ltd. forGopal Agarwal recorded on oath under Section 132(4) of the Act on 3[rd]August, 2015 and letter dated 31[st]July, 2015 issued by Sh. Madho GopalAgarwal. The case was centralised as per the orders passed under Section127 of the Act and a notice under Section 153A of the Act was issued on 6[th]September, 2016, which was duly served. Upon receipt of notice theassessee filed his return for the relevant assessment year 2011-12 declaringan income of Rs. 5,41,130/- on 2[nd]March, 2017. During the year underconsideration, the assessee declared income under the head ‘income fromsalary’, ‘income from capital gains’ and ‘income from other sources’. Withrespect to the income from capital gains, the assessee submitted in his replyto state that he had purchased 400 shares of one M/s KGN Industries Ltd. for a total consideration of Rs. 4,000/- at Rs. 10/- per share subsequentlydematerialised the shares and sold the shares on 13[th]October, 2010 i.e., inFinancial Year (FY) 2010-11 for a sum of Rs. 3,62,996/-. It is submitted thatthe assessee had earned capital gain of Rs. 3,61,496/- on the sale of the saidshares. However, LTCG of Rs. 3,61,496/- was claimed by the assessee as anexempt income under Section 10(38) of the Act. The Assessing Officer(AO) relying upon the letter dated 31[st]July, 2015 and statement by Sh.Madho Gopal Agarwal dated 3[rd]August, 2015 held that the amount of gainof Rs. 3,61,496/- is an accommodation entry, therefore, rejected the returnfiled by the assessee and treated the amount of Rs. 3,61,496/- as anunexplained credit received by the assessee under Section 68 of the Act andadded the same to the total income of the assessee. 3.The assessee filed an appeal against the aforesaid order of the AOdated 28[th]December, 2017 before CIT(A). The assessee raised a specificground that the assessment with respect to the AY 2011-12 stood completedas on the date when notice under Section 153A of the Act was issued to theassessee. The assessee submitted that no incriminating evidence ordocument was found during the search proceedings for the relevantassessment year. The assessee further contended that the statement of Sh.Madho Gopal Agarwal recorded under Section 132(4) of the Act during thesearch proceedings does not constitute as incriminating material. Theassessee further relied upon the judgment of this Court in the case ofCommissioner of Income Tax vs. Kabul Chawla (2016) 380 ITR 573 tocontend that the order of the AO was contrary to law and liable to be setaside. However, CIT(A) relying upon the statement of Sh. Madho Gopal Agarwal confirmed the addition made by the AO and dismissed the appealvide order dated 8[th]June, 2018. The assessee being aggrieved by thedismissal filed an appeal before ITAT. The order of the ITAT is a commonorder which has been passed in respect of six assesses pertaining to samesearch. The lead appeal determined by the ITAT is in the case of Shri GopalAgarwal, however, no challenge to the said appeal is pending before thisCourt. It is stated by the learned counsel that the appeal may be in theprocess of filing or listing before the Registry. 4.The ITAT after determining the appeal of Shri Gopal Agarwal has onsame reasoning allowed the appeal of the respondent/assessee since itcontained identical grounds for challenge. The ITAT concluded that theadditions made by the AO for the assessment under consideration is notbased on any incriminating material found during the course of search fromthe premises of the assessee. The ITAT concluded that the AO had made theadditions solely relying on the disclosures made by the Managing Director,Sh. Madho Gopal Agarwal. The ITAT after finding that there was noincriminating material found as a result of the search conducted against theassessee on record, allowed the appeal and set aside the addition made bythe AO. The ITAT has relied upon the judgment of this Court in PCIT v.Anand Kumar Jain (HUF)432 ITR 384 Del and CIT v. BestInfrastructure India Pvt. Ltd reported in (2017) 397 ITR 82, Delhi whereinthis Court has held that statements recorded under Section 132(4) of the Actdo not themselves constitute as incriminating material in the absence of anycorroborative evidence. The ITAT placed reliance on para 35 of CIT v. BestInfrastructure India Pvt. Ltd. (supra) as reproduced hereinbelow:- “35. Turning to the facts of the present case, it requires to be noted ITA 231/2022 “35. Turning to the facts of the present case, it requires to be noted ITA 231/2022 that the statements of Mr. Anu Aggarwal, portions of which havebeen extracted hereinbefore, make it plain that the surrender of thesum of Rs. 8 crores was only for the AY in question and not for eachof the six AYs preceding the year of search. Secondly, when Mr. AnuAggarwal was confronted with A-1, A-4 and A-11 he explained thatthese documents did not pertain to any undisclosed income and had,in fact been accounted for. Even these, therefore, could not be said tobe incriminating material qua each of the preceding AYs.” 5.The appellant has filed the present appeal aggrieved by the aforesaidorder of the tribunal. 6.It is contended before us that the ITAT fell in error in holding thatthere was no corroborative material in support of the statement made by Sh.Madho Gopal Agarwal, in this regard, it was contended that in pursuance tothe statement made by Sh. Madho Gopal Agarwal, various other members ofthe family disclosed LTCG and did not claim exemption under Section 10(38)of the Act and paid taxes on the said amount. It was, thus, submitted that inview of the statement of Sh. Madho Gopal Agarwal and the corroborativeconduct of the other family members, the ITAT fell in error and the relianceplaced on the judgment of this Court in CIT v. Best Infrastructure India Pvt.Ltd. (supra) is erroneous. 7.The addition has been made by the AO with respect to the LTCGearned on sale of shares of M/s KGN Industries Limited. 8.We have perused the statement dated 3[rd]August, 2015 and thecontents of the letter dated 31[st]July, 2015, both authored by Sh. MadhoGopal Agarwal. There is no reference to M/s KGN Industries Ltd. in either ofthe said documents. No other material found during search pertaining to M/sKGN Industries Ltd. has been placed on record. The Revenue has not placedon record any incriminating material which was found as a result of the search conducted on the assesee herein. It is also the contention of theassessee that there was no surrender by him unlike Sh. Madho Gopal Agarwaland he, therefore, specifically disputed that any notice under Section 153A ofthe Act could have been initiated against him. The said facts are not disputedby the counsel for the Revenue. 9.On the date of search, admittedly, the assessment with respect to theAY under consideration 2011-12 admittedly stood completed. Since noassessment was pending for the relevant AY 2011-12 on the date of searchand no incriminating material was found during the course of search, the issueis covered in favour of the assessee by the judgment of this Court in the caseof Commissioner of Income Tax v. Kabul Chawla (supra) and PrincipalCIT vs. Meeta Gutgutia (2017) 395 ITR 526. The relevant paragraphs arereproduced hereinbelow:- “10. The ITAT, therefore, concluded that since no assessment waspending for the relevant assessment year 2010-11 on the date ofsearch and no incriminating material was found during the course ofsearch, the issue is covered in favour of the assessee by the judgmentof this Court in the case of Commissioner of Income Tax vs. KabulChawla (2016) 380 ITR 573 and Principal CIT vs. Meeta Gutgutia(2017) 395 ITR 526 as well as by the orders of the ITAT in the groupcases of Madho Gopal Agarwal and M/s Kapis Impex LLP (supra). 11. A predecessor Division Bench of this Court in Kabul Chawla(supra) has held that if no incriminating material is found during thecourse of the search in respect of an issue, then no addition inrespect of such an issue can be made in the assessment underSections 153A and 153C of the Act. The legal position summarized inthe subsequent decision of Meeta Gutgutia (supra) is reproducedhereinbelow:- "37. On a conspectus of Section 153A(1) of the Act, readwith the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal positionthat emerges is as under: 11. A predecessor Division Bench of this Court in Kabul Chawla(supra) has held that if no incriminating material is found during thecourse of the search in respect of an issue, then no addition inrespect of such an issue can be made in the assessment underSections 153A and 153C of the Act. The legal position summarized inthe subsequent decision of Meeta Gutgutia (supra) is reproducedhereinbelow:- "37. On a conspectus of Section 153A(1) of the Act, readwith the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal positionthat 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 mandatorilyissued to the person searched requiring him to file returnsfor six AYs immediately preceding the previous year relevantto the AY in which the search takes place. ii. Assessments and reassessments pending on the date of thesearch shall abate. The total income for such AYs will haveto be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers inrespect of the six years previous to the relevant AY in whichthe search takes place. The AO has the power to assess andreassess the 'total income' of the aforementioned six years inseparate assessment orders for each of the six years. In otherwords there will be only one assessment order in respect ofeach of the six AYs "in which both the disclosed and theundisclosed income would be brought to tax". iv. Although Section 153 A does not say that additionsshould be strictly made on the basis of evidence found in thecourse of the search, or other post-search material orinformation available with the AO which can be related tothe evidence found, it does not mean that the assessment"can be arbitrary or made without any relevance or nexuswith the seized material. Obviously an assessment has to bemade under this Section only on the basis of seizedmaterial." v. In absence of any incriminating material, the completedassessment can be reiterated and the abated assessment orreassessment can be made. The word 'assess' in Section 153A is relatable to abated proceedings (i.e. those pending onthe date of search) and the word 'reassess' to completedassessment proceedings. vi. Insofar as pending assessments are concerned, thejurisdiction to make the original assessment and theassessment under Section 153A merges into one. Only oneassessment shall be made separately for each AY on thebasis of the findings of the search and any other materialexisting or brought on the record of the AO. vii. Completed assessments can be interfered with by the AOwhile making the assessment under Section 153 A only onthe basis of some incriminating material unearthed duringthe course of search or requisition of documents orundisclosed income or property discovered in the course ofsearch which were not produced or not already disclosed ormade known in the course of original assessment."” 10.In this view of the matter there is no infirmity in the order passed bythe ITAT. In the aforesaid facts, no substantial questions of law arise forconsideration. Accordingly, the present appeal is dismissed. MANMEET PRITAM SINGH ARORA, J JULY 28, 2022/msh MANMOHAN, J ITA 231/2022