By TIOL News Service

NEW DELHI, APRIL 28, 2017: THE ISSUE BEFORE THE COURT IS - Whether the seized material must have some nexus or relevance to the additions sought to be made and must be relevant for the belief formed regarding income having escaped assessment. YES is the verdict.

Facts of the case:

During the subject year, a search took place in the case of Minda Group and one Mr. Santosh Kumar Jain, who was stated to be an entry operator. In his statement, Mr. Jain is purported to have accepted that he was engaged in providing accommodation entries to the group companies of Mr. Ashok Minda. He admitted that he was a Director of several companies of which five were ATN International Limited; Silicon Valley Infotech Limited, Blue Chip India Limited; Amluckie Investment Co. Ltd. and Bahubali Properties Limited. He also admitted that previously his staff members and his friends were Directors of Dhansafal Vyapar Pvt. Ltd., Whiteline Barter Ltd. and Arihant Ltd. and in that way he was related to Minda Group of Companies. As far as the Assessees in question were concerned, only one of the above named companies, Bahubali Properties Limited, was a shareholder in the Assessee companies. In his assessment order in the case of Sunny Infra Projects Limited for the AY 2010-11, the AO noted that to facilitate independent verification of the receipt of the share capital and share premium, notices u/s 133(6) were issued to the Principal Officer of each of the investor companies to furnish their response along with bank accounts, minutes of meetings, details of PAN cards, names and addresses of Directors etc. The AO then came to the conclusion that the replies submitted were not satisfactory as to the identity, genuineness and creditworthiness of the investment. The AO observed that it was gathered during the post-search proceedings that Sunny Infra Projects Limited was a paper company run by Mr. Santosh Kumar Jain and that the share capital and share premium "inducted during the year was nothing but unaccounted business income of Ashok Minda Group of Companies which had been routed by entry operator through various bogus companies."

After the search concluded and during the course of assessment, a letter was received from the DCIT, Central Circle-II, Kolkata stating that the statement of Mr. Santosh Kumar Jain was again recorded on 27th February, 2014 in which he retracted from his earlier statement given on 10th January, 2012 during the course of search. It is stated by the AO that "Mr. Santosh Kumar Jain had stated that during the search he was under tremendous pressure when he has admitted that he had provided accommodation entry to Minda Group of companies." The AO rejected the said retraction and proceeded to make additions to the taxable income of Assessees. On appeal, the CIT(A) concurred with the AO and sustained the additions. On further appeal, the ITAT held that AO did not have any lawful and valid jurisdiction for initiation of proceedings and issuance of notice u/s 153C.

On appeal, the HC held that,

++ this Court considers it necessary only to address the issue as to whether what was recovered during the search could be considered to be incriminating material qua each of the Assessees. In that view of the matter, the Court is not answering the other aspects concerning the validity of the initiation of the proceedings u/s 153C and, in particular, whether the material which may be relevant to the year of the search could justify the re-opening of the assessment for the assessments of the earlier years as was done in the present case. It is important to note that in case of each of these Assessees, returns were filed for the AYs in question. The returns were picked up for scrutiny and the assessment was finalised u/s 143(3) for each of the Assessees for each of the AYs in question. Notice u/s 153C was issued to each of the Assessees nearly two years after the actual search of the Minda Group. The copy of the Satisfaction Note prepared by the AO of the Assessee refers to the 'incriminating' documents/papers which were seized during the search and seizure action in the case of the Minda Group. These documents are copies of the balance sheet abstracts and company's general profile, balance sheet, profit and loss account, auditor's account, copies of income tax returns and copy of trial balances. Apart from the above, there was no other material referred to that could give rise to the belief about income having escaped assessment. Each of the above documents was already available with the AO when the initial assessments were finalised u/s 143(3). The Court enquired from Revenue's counsel whether, in fact, there was any new or fresh material which could form the basis for the AO for re-opening the assessments. He submitted that the trial balances were not available earlier. However, he could not deny that it is these very trial balances that led to the preparation of the balance sheet, which were already available with the AO and that there was no new information contained in the trial balance which justified the additions;

++ consequently, the Court is of the view that the above documents could not constitute incriminating material which could justify the making of the additions in exercise of the powers u/s 153C. It has been repeatedly stressed by this Court in several judgments including CIT v. Anil Kumar Bhatia - 2012-TIOL-641-HC-DEL-IT; CIT v. Kabul Chawla - 2015-TIOL-2006-HC-DEL-IT; Dayawanti through Legal Heir Sunita Gupta v. CIT - 2016-TIOL-2751-HC-DEL-IT and CIT-VII v. RRJ Securities Limited - 2015-TIOL-2539-HC-DEL-IT that the seized material must have some nexus or relevance to the additions sought to be made and must be relevant for the belief formed regarding income having escaped assessment. As far as the present cases are concerned, the documents and material seized are only the balance sheet, audit reports etc., which did not reflect any income that was not already disclosed when the assessments were finalised initially u/s 143(3). This by itself is sufficient to delete the additions sustained by the CIT(A). Consequently, the ITAT was not in error in ordering such deletion.

(See 2017-TIOL-810-HC-DEL-IT)