The order of the Bench was delivered by
Sudhanshu Srivastava, Judicial Member-
These are a group of five appeals filed by the department and the corresponding C.O.s filed by the assessee. Since the issues involved were common, they were heard together and are being disposed of through this common order.
2. At the outset, the ld. AR sought to file revised grounds for the C.O.s filed by the assessee which we accept and take on record. Since all the appeals and C.O.s have identical issues, it was agreed by both the parties that I.T.A. No. 4026/Del/2014 and its corresponding C.O. bearing no. 92/Del/2016 will be taken as the lead case. Accordingly, I.T.A. 4026 and C.O. 92 are taken as the lead case.
3. The grounds of appeal in ITA No.4026/D/2014 are as under:-
“1. On the facts and in the circumstances of the case, the CIT (A) has erred in deleting the addition of Rs. 1,51,78,387/- made by AO on account of derived benefit in terms of section 2(24)(iv) of the Income Tax Act, 1961.
2. On the facts and in the circumstances of the case, the CIT (A) has erred in deleting the addition of Rs. 3,28,86,898/- made by AO being income of minor on account of derived benefit in terms of section 2(24)(iv) of the Income Tax Act, 1961.
3. The order of the CIT (A) is erroneous and is not tenable on facts and in law.
4. The appellant craves leave to add, alter or amend any/ all of the grounds of appeal before or during the course of the hearing of the appeal.”
3.1 Grounds in Cross Objection No. 92/Del/2017 are as under:-
(i) That on facts and circumstances of the case, the Ld. CIT(A) was not justified in upholding the validity of notice u/s 153A even though the same is based on search in the case of third party and not in the case of assessee as no incriminating material was found in the case of assessee.
(ii) That in absence of any incriminating material, the notice u/s 153 A and consequential assessment proceedings are against the scheme of the Act.
(iii) That even otherwise, the assessment being based on material found during search at premises of third party and in absence of recording of any satisfaction in terms of provisions of section 153C, the assessing officer has failed to satisfy the jurisdictional requirement and as such the entire assessment is null and void.
3. That in any case, the Ld. CIT(A) has failed to appreciate that in absence of abatement of regular assessment proceedings, it is not open to assume jurisdiction u/s 153 A de hors any incriminating material as the same is- impermissible under the law and against the object and spirit of section 153A of the Act.
4. That orders of lower authorities are illegal and without jurisdiction.”
4. It was also submitted by the ld. AR that the issue of validity of notice u/s 153A and the consequential assessment was germane to the entire issue and, therefore, the assessee should be first allowed an opportunity to argue on the C.O.s taking the legal grounds and if it is felt thereafter by the Bench, the departmental appeals and the arguments on merit can be heard.
5. The Ld. CIT DR agreed to the proposition of the ld. AR. Accordingly, we proceed to hear the C.O.s of the assessee first and thereafter arguments on merits will be heard, if it is so felt.
6. Brief facts of the case are that a search and seizure operation u/s 132 of the Income Tax Act, 1961 was carried out on 21.01.2011 in the M/s Dharampal Satyapal group of cases. During the year under consideration, the return of income in the case of Shri Rajiv Kumar i.e. the assessee in ITA 4026 and CO 92 was filed declaring an income of Rs. 72,85,091/-. The assessee had income from salary, house property, income from business/ profession, income from capital gain and income from other sources. Further on 28.4.2004, the assessee had received 1,34,907 shares of M/s Dharampal Satyapal Ltd. of Rs. 10/- face value at the price of Rs. 10/- per share from M/s Global Ltd., a company where his wife was a Director and was also holding 11.24% of the shares. The assessee was also holding 16.27% shares of M/s Baba Global Ltd. The Assessing Officer was of the opinion that the book value of shares of M/s Dharampal Satyapal Ltd., as on the date of transfer was much higher, and since the wife of the assessee was a Director in M/s Baba Global Ltd, the benefit obtained by the assessee was in the nature of income as defined under section 2(24)(iv) of the Income Tax Act. Therefore, the assessee was issued a show cause notice to explain why the benefits obtained by the assessee from M/s Dharampal Satyapal Ltd. and M/s Baba Global Ltd. not be treated as income u/s 2(24) of the Act.
6.1 It was the contention of the assessee that there was no benefit or perquisite obtained by the assessee or his family members either from M/s Dharampal Satyapal Ltd. or from M/s Baba Global Ltd. It was submitted by the assessee that the shares which were initially held in M/s D.S. Foods Ltd. should not be treated as income u/s 2(24) of the Act. It was submitted by the assessee that the shares were initially held in M/s D.S. Foods Ltd. which got merged with M/s Dharampal Satyapal Ltd. as per the merger scheme of M/s D.S. Foods Ltd. approved by the Hon’ble Delhi High Court. It was further submitted that the shares held in M/s D.S. Foods Ltd. were also the shares in a closely held company. Similarly, the shares in M/s Dharampal Satyapal Ltd. were also shares in a closely held company. It was also submitted before the Assessing Officer that these shares were not freely transferable and that there were several restrictions in relation to these shares. It was also submitted that there was no market value of these shares as they were of a closely held company and that these shares were still held by the assessee and his family members and were not capable of being sold, much less at the alleged value of Rs. 123.54 per share as computed by the Assessing Officer. It was also submitted that these shares had been transferred as a measure of restructuring and not as a benefit or perquisite to anybody.
6.2 The Assessing Officer, however, did not agree to the contentions of the assessee and proceeded to add Rs. 1,51,78,387/- by calculating the benefit at Rs. 112.51 per share u/s 2(24(iv) of the Income Tax Act, 1961. Similarly, another addition of Rs. 3,28,86,898/- was made by clubbing the alleged benefit received from such transfer by the minor daughter and son of the assessee.
6.3 On a similar footing, an addition of Rs. 3,75,85,433/- was made in the case of Smt. Rita Kumari, another assessee in this bunch of appeals.
6.4 Under similar circumstances, addition of Rs. 1,84,92,818/- was made in the case of Shri Ravinder Kumar and another amount of Rs. 1,90,14,190/- was made in the case of Shri Ravinder Kumar being income of minor on account of derived benefit in terms of section 2(24)(iv) and clubbed u/s 64 of the Act.
6.5 Further, the Assessing Officer also made an addition of Rs. 1,90,14,190/- in the case of Shri Ritesh Kumar and of Rs. 1,90,14,190/- in the case of Shri Raghav Kumar under similar circumstances.
6.6 All these assessees approached the first appellate authority who deleted the additions in the case of all the five assessees by holding that no benefit u/s 2(24)(iv) can be said to have been obtained by purchase of unquoted shares at face value under a business re-arrangement between the family members and approved by the Hon'ble Delhi High Court and combined with the fact that the shares could not be sold to outsiders. 6.7 The ld. CIT(A), however, dismissed the assessees’ legal ground regarding the validity of proceedings u/s 153A.
7. Now, before the ITAT, the assesses are challenging the validity of the proceedings u/s 153A by way of C.O.s and all the five appeals preferred by the department challenge the deletion by the ld. CIT(A).
8. The Ld. AR submitted that while making the additions, the Assessing Officer has not made reference to any incriminating material found during the search regarding transfer of shares. It was also submitted that the Assessing Officer has not made any reference to the Panchnama while completing the assessment u/s 153A of the Act and accordingly, as per the settled law, no addition u/s 153A could have been made in such a circumstance. It was also submitted that the returns of income had already been filed prior to the date of search in all the cases and they were processed u/s 143(1) of the Act. It was further submitted that in the relevant assessment year, the shares were only acquired and were not sold and therefore on this count also, no benefit could be said to have been accrued to the assessees. Ld. AR also emphasised the fact that the share transfers were pursuant to a restructuring of the family business in terms of a scheme approved by the Hon'ble Delhi High Court. Our attention was drawn to the order of the Hon'ble Delhi High Court approving the merger (placed at pages 77-92 of the paper book) in support of his contention. Ld. AR also referred to pages 93-95 of the paper book containing the Memorandum of Understanding reached between family members which mentioned the manner of the share transfers in detail. Ld. AR pointed out that as per the Memorandum of Understanding, it was evident that the Memorandum was entered into on 9.1.2003 and, therefore, even if the contention of the department was to be accepted that some benefit had been derived by the assessees, the benefit would have accrued in assessment year 2004-05 and not 2005-06 i.e. the year under appeal. Ld. AR placed reliance on the judgment of the Hon'ble High Court of Delhi in the case of Pr. CIT Central-I, Delhi vs Shri Mahesh Kumar Gupta in I.T.A. 810/2016 wherein vide judgment dated 22.11.2016, the Hon'ble Delhi High Court had dismissed the department’s appeal on an identical issue. The ld. AR re-emphasised the fact that all the documents related to transfer of shares were already on record and that no new incriminating material found during the course of search was relied upon by the Assessing Officer while making the said additions.
9. In response, the ld. CIT DR submitted that in this case, the search was conducted in the case of group companies and it was a settled law that material found during search in the case of the company could be used against the directors. Ld. CIT DR also argued that given the circumstances of the case, broad interpretation should be given to the facts of the case. Ld. CIT DR also referred to the provisions of section 2(24)(iv) and submitted that under this section, even future benefits are covered. She also referred to page 4 of the assessment order and submitted that during the assessment proceedings, the assessee had cooperated in determination of the share value and had offered the value of Rs. 95.67 per share as the book value. She also submitted that the case laws relied upon by the ld. CIT (A), while deleting the addition, were factually different and, therefore, his reliance on the same was misplaced.
10. We have heard the rival submissions and carefully perused the relevant material placed on record. It is undisputed that the transfer of shares was done in pursuance to a restructuring of the family business and scheme of restructuring was duly approved by the Hon'ble Delhi High Court. The order u/s 394 of the Companies Act 1956 was passed by the Hon'ble Delhi High Court on 7.8.2003. It is also undisputed that the shares transferred were amongst the family members of the family held companies and no shares were sold to the outsiders. It is also undisputed that the buyers/assessees are not at liberty to transfer the shares so acquired to third parties outside the family concern and in case these shares are required to be transferred, the sellers would have a pre-emptive right to buy back the said shares. It is also undisputed that the Memorandum of Understanding as well as the sanction of scheme of merger relates back to the FY 2003-04.
10.1 Further, a perusal of the assessment orders reveal that while making the impugned additions, the Assessing Officer has only mentioned the date of search but has not referred to any incriminating material found during the course of search which could be the foundation of these additions. There is not even a whisper of any incriminating material having been found and relied upon by the department relating to these additions on account of perceived benefits u/s 2(24)(iv) of the Act. There are a plethora of decisions in which the Hon'ble High Courts have held that there can be no valid assessment u/s 153A/153C of the Act in absence of any incriminating material. We find that the reliance of the ld. AR on the judgment of the Hon'ble Delhi High Court in the case of Shri Mahesh Kumar Gupta (supra) is well placed and squarely covers on the issue. In this case, the ITAT had concluded, based upon the material available, that the search and seizure operations had not yielded any fresh material warranting addition u/s 153A of the Act and, therefore, could not clothe the CIT(A) with the authority to add the amount on the basis of a fresh appraisal of the existing material that formed part of the original assessment. Hon'ble Delhi High Court adjudicated the issue in Para 4 and 5 of the said judgment which is being reproduced for a ready reference:-
“4. There is no dispute that the search and seizure proceedings in this case did not result in anything, therefore, material either in the form of books of account or other documents related to the issue of deemed dividend under Section 2(22) of the Act. The amounts paid were in fact originally declared in the assessment returns of the assessee. The CIT, therefore, had opportunity to exercise his powers as it were on the basis of returns as filed originally and validly under Section 263 of the Act.
5. In the circumstances in the absence of any material disclosing that the issue of deemed dividend had been wilfully derived or had been deemed or otherwise withheld from the assessment an addition under Section 153A was warranted - based on the proposition taught by this Court in judgment dated 28.08.2015 in ITA 707/2014 titled: CIT vs Kabul Chawla. Therefore, we concur with the ITAT’s opinion in this regard. The search and seizure proceedings in such cases are undoubtedly meant to bring to tax amount that are to be determined on the basis of materials seized in the course of such searches; permitting anything over and above that would virtually amount to letting the Revenue have a third or fourth opinion as it were. Searches - to quote the view of Attorney-General (NSW) vs Quin (1990) HCA 21 in another context are “not the key which unlocks the treasury” of the Revenue’s jurisdiction in regard to matters that had attracted attention in the regular course of assessment.”
10.2 In the appeals before us, it is not the case of the department that any material disclosing the issue of transfer of shares was withheld from the assessment and was found and seized during the course of search. It is also not the case of the department that any other incriminating material which could point out to such transfer of shares was unearthed during the course of search and was subsequently relied upon by completing the assessment u/s 153A. In such a circumstance, respectfully applying the ratio of the judgment in the case of Pr. CIT Central vs Mahesh Kumar Gupta (supra) as well as of CIT vs Kabul Chawla in I.T.A. 707/2014 of the Hon'ble Delhi High Court, we hold that proceedings u/s 153A were against the scheme of the Act in case of all the assessees. We also hold that the ld. CIT (A) was not justified in upholding the validity of the proceedings u/s 153A. We are of the considered opinion that it was not open for the Assessing Officer to assume jurisdiction u/s 153A de hors any incriminating material. Accordingly, we quash the proceedings u/s 153A in case of all the five assessees and accordingly allow the C.O.s of all the five assessees.
10.3 As the C.O.s of the assessees have been allowed, the departmental appeals challenging the deletion of the impugned additions become in fructuous and the same are dismissed as such.
11. In the final result, the C.O.s of the assessees are allowed and the appeals of the department are dismissed.
The order pronounced in the open court on 30th August, 2017.