I-T - Whether assumption of jurisdiction by AO u/s 153C is legally sustainable where assessee was not one of entities that was subjected to search and seizure operation u/s 132 - NO: HC
By TIOL News Service
NEW DELHI, JAN 05, 2016: THE issue is - Whether the assumption of jurisdiction by the AO against the assessee u/s 153C is sustainable, where the assessee was not one of the entities that was subjected to search and seizure operation u/s 132. NO is the answer.
Facts of the case
The core of SVP Group of companies consisted of four companies, namely, SVP Builders India Ltd., SVP Developers (India) Pvt. Ltd., SVP Liquors India Limited and Five Vision Promoters Pvt. Ltd, which were engaged in the business of construction of residential, commercial and business complexes as well as in sale and purchase of lands. It was found that the aforesaid four companies had received share capital from 106 companies during the AYs 2003-04 to 2009-10. It is the case of the Revenue that the aforesaid four companies had been charging on-money on sale of flats and shops which was not accounted for in the regular books of accounts. According to the Revenue, usually this on-money was taken in cash and was routed back into the Group companies in the form of share application/unsecured loans, share capital, etc. These funds were further invested by the SVP Group of companies to purchase lands for new projects as well as for booking bogus expenses, as site development charges, for inflating the cost of construction. The assessment order records that a notice u/s 153C as well as u/s 142(1) was issued by the Asst CIT. In response to the said notices, the Assessee had filed its returns. Subsequently, notices were also issued u/s 143(2) as well as 142(1). According to the AO, the said notices were not fully complied with. However, this is disputed by the Assessee and the paper book filed by the Assessee in these proceedings indicates that the notices were responded to. Thereafter, the AO passed assessment orders in respect of each of the AYs assessing the amounts credited in its books as income u/s 68. The AO observed in the assessment orders that the details with regard to sources of investment in unquoted shares alongwith the name and addresses of the investors were called for but the same were not complied with. The AO further recorded that even in instances where details were filed, the same were incomplete and without the addresses of the investors. The AO also adverted to certain facts relating to other companies and held that the Assessee Company was only involved in receipts of share application money and other funds and transmitting the same to other un-quoted companies as investment in their share capital. According to the AO, the Assessee did not carry on any genuine business activity but was involved only in money laundering.
On appeal, the CIT(A) called for a remand report on the submissions made by the Assessee. The AO submitted the remand report, inter alia, enclosing a satisfaction note recorded by him. The Assessee disputed that the documents referred to in the satisfaction note belonged to the Assessee. The CIT(A) observed that the balance sheet of the Assessee did not reflect any physical assets and the Assessee was not engaged in any actual business activity. The shares sold and purchased by the Assessee were not saleable in the open market and were not tradable commodities. It is further observed that the profit or loss shown from the activity of sale and purchase of shares by private limited companies was a "fake attempt to give semblance of genuineness of a functional company". He therefore concluded that the Assessee was only a conduit for transferring money to SVP Group and based on the aforesaid conclusion, directed deletion of the addition made by the AO with a direction to add the same in the hands of the beneficiaries. In addition to the above, the CIT(A) gave further directions for proceeding u/s 277A r/w/s 278B on account of helping the SVP Group of companies to evade tax by acting as a name lender and creating evidences on paper to give a genuine colour to illegal transactions.
Having heard the parties, the High Court held that,
++ the principal controversy involved in the present appeals relates to the question of assumption of jurisdiction by the AO u/s 153C. Admittedly, the Assessee was not one of the entities that was subjected to search and seizure operation u/s 132. The assessments were also framed u/s 153C, although the assessments order reflect that the assessments were framed u/s 143(3)/153A(b). Further, the orders passed by the CIT(A) indicates the same to be a typographical error. It is to be noted that Section 153C provides for assessment/reassessment in cases where assets/documents have been found during the search and seizure operations and the same do not belong to the searched person(s);
++ the second issue involved in these appeals is whether the documents seized during search conducted u/s 132 on SVP Group of companies belonged to the Assessee. It is seen that the facts and the issues involved are similar in all material aspects to the facts and issues involved in Pr. Commissioner of Income Tax v. Nikki Drugs & Chemicals Pvt. Ltd. Thus, for the reasons stated in CIT v. Nikki, we find no infirmity with the view of the ITAT that the proceedings u/s 153C were without jurisdiction.
(See 2016-TIOL-28-HC-DEL-IT)
