IN HIGH COURT OF DELHI AT NEW DELHI ITA No. 512/2016 ITA No. 513/2016 ITA No. 514/2016 PR. COMMISSIONER OF INCOME TAX (CENTRAL) 3 ..... Appellant Through: Mr. Zoheb Hossain, Senior Standing Counsel for Revenue. versus DHARAMPAL PREMCHAND LTD. ..... Respondent Through: Mr. Salil Agarwal, Ms. Bina Gupta & Ms. Surbhi Kapoor, Advocates. CORAM: JUSTICE S.MURALIDHAR JUSTICE PRATHIBA M. SINGH ORDER 21.08.2017 Dr. S. Muralidhar, J.: 1. These are three appeals directed against common judgment dated 8th January 2016 passed by Income Tax Appellate Tribunal ( ITAT ) in ITA Nos. 5079-5081/Del/2013 for Assessment Years ( AY ) 2005-06, 2006-07 & 2007-08 respectively. While admitting these appeals by order dated 14th December 2016, this Court framed following question for consideration: "Whether ITAT fell into error in holding that additions made in course of proceedings under Section 153A/143(3) of Income Tax Act, 1961 were not warranted having regard to judgment of this Court in CIT v. Kabul Chawla 380 ITR 573?" ITA 512, 513& 514/2016 Page 1 of 9 2. It is not in dispute that, for AYs in question, assessments by were completed by Assessing Officer (AO) under Section 143(3) of Income Tax Act, 1961 ( Act ). 3. On 2nd January 2012 search under Section 132 of Act was carried out in Dharampal Satyapal Group, which is engaged in business of manufacturing and trading of chewing tobacco, and premium paan masala. In response to notice dated 9th January 2012 issued to it under Section 153A of Act, Assessee filed its return of income on 16th January, 2012 declaring income of Rs. 5,70,32,680/-. This was income which was declared when return was filed in first place. 4. Assessee was claiming deduction under Section 80-IB and 80-IC of Act in respect of its units located at Himachal Pradesh and Agartala. As for Noida unit of Assessee, which was not eligible for deduction under Section 80-IB and 80-IC of Act, it is stated that it was transferring silver flakes to various eligible units. 5. During course of assessment proceedings under Section 143(3) of Act, Assessee submitted certificate of Auditor in Form 10CCB claiming deduction in respect of profits of eligible units. case of Revenue is that, in Form 10CCB submitted by Assessee, no disclosure was made regarding transfer of material from Noida unit to eligible units. ITA 512, 513& 514/2016 Page 2 of 9 6. In assessment order dated 28th March 2013passed under Section 153A of Act, AO discussed in some detail report of auditor in Form 10CCB. After noting failure by Assessee to disclose in said form transaction involving transfer of silver flakes from Noida unit to other units, AO rejected said report submitted in Form 10CCB. It is important to note that, as far as assessment order of AO is concerned, it failed to discuss whether documents seized in course of search constituted incriminating material qua AYs in question or whether it reflected modus operandi adopted by Assessee which could lead to inference qua each of AYs in question even though material seized did not pertain to those AYs. 7. Before Commissioner of Income Tax (Appeals) [ CIT (A) ], question of assumption of jurisdiction under Section 153A of Act was squarely raised. In para 3.3 of order dated 21st June 2013, CIT (A) noted that perusal of reply filed before Assessing Officer shows that there are large number of documents were seized, which has nexus of for quantifying deduction u/s 80IB/80IC. CIT (A) then set out entire list of documents seized and noted that Assessee had filed explanation on said documents. It was noted that, though Assessing Officer has not referred these seized documents in assessment order but these explanations were present before Assessing Officer to arrive at conclusion that goods/raw material is purchased at head office and goods are transferred to eligible unit claiming deduction u/s 80IB/80IC. According to CIT (A), since at ITA 512, 513& 514/2016 Page 3 of 9 time of passing of assessment order under Section 153A of Act, above facts came to knowledge of AO due to seized documents, disallowance of deduction under Section 80IB/80IC was justified. CIT (A) concluded that presence of seized documents and its extracts has definitely played role to arrive at decision for disallowing deduction. 8. In further appeal filed by Assessee before ITAT, central question that arose was again whether assumption of jurisdiction under Section 153A of Act qua Assessee for AYs in question was justified. submission was made before ITAT by Department Representative [DR] that these documents are seized during course of search and are incriminating material, which was not before AO at time of making original assessment. According to DR, though dates of documents are pertaining to FY 20 10-11 but this shows modus operandi of assessee by transfer of goods and therefore assessment under Section 153A made by AO is purely on basis of seized material found during course of search. 9. ITAT took it upon itself to analyse seized material in great detail. This entire analysis is to be found in para 23 of impugned order. At end of analysis ITAT came to following conclusions in para 24: 24. Based on this we have come to conclusion that: a. None of material seized during search relates to year under appeal. ITA 512, 513& 514/2016 Page 4 of 9 b. None of material found relate to goods transfer to one unit from other for period. c. None of material relates to purchases from sister concerns. d. None of material suggest that material transferred to eligible undertaking is less than market rate. e. None of material suggest that eligible units are not carrying out manufacturing activity, which is stated by assessee. f. None of material shows that there is inflation of profit by assessee of eligible undertakings. g. None of material suggest that appropriation of profit made by assessee to drive income of eligible undertaking is incorrect. h. None of material suggest that eligible units earn 'more than Ordinary profits'. 10. Mr. Zoheb Hossain, learned Senior Standing Counsel for Revenue, placed considerable reliance on decision of Division Bench of this Court in Smt. Dayawanti Gupta v. CIT [2017] 390 ITR 496 (Del) where it was held that material seized which is relevant to one particular AY is sufficient to infer certain modus operandi adopted by Assessee for all AYs in question, although there may not be specific incriminating material qua each of AYs. He submitted that subsequent decision of this Court in Principal Commissioner of Income Tax v. Meeta Gutgutia Prop. M/s Ferns n Petals [2017] 395 ITR 526 (Del), which takes contrary view, is inconsistent with said decision and, therefore, entire issue should be ITA 512, 513& 514/2016 Page 5 of 9 referred to larger Bench of this Court. Mr Hossain further submitted that although seized material may have pertained only to FY 2010- 11, since it could lead to inference regarding same modus operandi adopted by Assessee, for all AYs in question, it constituted sufficient incriminating material to justify assumption of jurisdiction under Section 153A of Act. 11. In reply, Mr. Salil Agarwal, learned counsel appearing for Assessee, pointed out that decision in Smt. Dayawanti Gupta v. CIT (supra), in fact, did not contradict decision of this Court in Commissioner of Income Tax v. Kabul Chawla [2015] 380 ITR 573 (Del). He pointed out that although appeal by Revenue against said decision in Kabul Chawla is pending before Supreme Court, there is no stay of said judgment and, therefore, as far as this Court is concerned, decision in Commissioner of Income Tax v. Kabul Chawla (supra) is still good law. That decision explicitly holds that there has to be incriminating material to justify assumption to jurisdiction under Section 153A of Act qua each of AYs for which assessment is sought to be reopened. Mr Aggarwal submitted that, in present case, even de hors this question, ITAT has analysed material seized and in fact found it to be not incriminating even for FY 2010-11. That being position, further question as to whether such material could constitute incriminating material with respect to other AYs simply did not arise. 12. Indeed, Court finds that de hors question whether material seized, which admittedly pertains to FY 2010-11, can ITA 512, 513& 514/2016 Page 6 of 9 constitute sufficient material to reopen assessments for other AYs in question, it is seen that, even for FY 2010-11, ITAT, after undertaking detailed analysis, found that what was seized was not incriminating material. categorical factual findings by ITAT, which have not been shown by Revenue to be perverse, are inter alia that material seized does not show inflation of profit of eligible undertakings; or that eligible undertakings are not carrying out manufacturing activities or that material transferred to eligible undertakings is less than market value and that "none of material relates to purchases from sister concerns." All of this is de hors fact that material pertains only to FY 2010-11. 13. If, even for FY 2010-11, what was seized did not constitute incriminating material, then essential jurisdictional fact for justifying assumption of jurisdiction under Section 153A of Act did not exist. Learned counsel for Assessee is therefore right in submitting that, in view of above factual findings of ITAT, further question as to whether said material was sufficient to reopen assessments for other AYs, with which these appeals are concerned, does not really arise. 14. Nevertheless, Court is of view that decision of this Court in Commissioner of Income Tax v. Kabul Chawla (supra), which has been reiterated in Principal Commissioner of Income Tax v. Meeta Gutgutia Prop. M/s Ferns "N" Petals (supra), is still good law as far as this Court is concerned. As explained in Principal Commissioner of Income Tax v. Meeta Gutgutia Prop. M/s Ferns n Petals (supra), ITA 512, 513& 514/2016 Page 7 of 9 decision of this Court in Smt. Dayawanti Gupta v. CIT (supra) is not contrary to ratio of decision of this Court in Commissioner of Income Tax v. Kabul Chawla (supra). This Court has, in Principal Commissioner of Income Tax v. Meeta Gutgutia Prop. M/s Ferns n Petals (supra), explained factual background and circumstances under which decision in Smt. Dayawanti Gupta v. CIT (supra) was rendered and how in peculiar facts of that case that it was held that material seized for one particular AY could lead to inference regarding modus operandi of Assessee for other AYs. Further, as pointed out in Principal Commissioner of Income Tax v. Meeta Gutgutia Prop. M/s Ferns n Petals (supra), facts in Smt. Dayawanti Gupta v. CIT (supra) were that Assessees themselves made statements under Section 133A admitting to not maintaining proper books of accounts and admitting that documents seized during course of search could pertain even to other AYs. These distinguishing features do not exist in present case and were not also present in Principal Commissioner of Income Tax v. Meeta Gutgutia Prop. M/s Ferns n Petals (supra). In present case too there was no incriminating material seized qua each of AYs assessments for which were sought to be reopened. Consequently, Court perceives no conflict in these decisions that warrants reference of issue to larger Bench. 15. For above reasons, question framed is answered in negative i.e. against Revenue and in favour of Assessee. ITA 512, 513& 514/2016 Page 8 of 9 16. appeals are accordingly dismissed. S. MURALIDHAR, J. PRATHIBA M. SINGH, J. AUGUST 21, 2017 b nesh ITA 512, 513& 514/2016 Page 9 of 9 Pr. Commissioner of Income-tax (Central)-3 v. Dharampal Premchand Ltd