$~8 & 9
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA 13/2014
COMMISSIONER OF INCOME TAX (C)-I ..... Appellant
Through: Mr. N.P. Sahni, Senior Standing
Counsel with Mr. Nitin Gulati, Advocate
versus
MGF AUTOMOBILES LTD. ..... Respondent
Through: Ms. Premlata Bansal, Senior Advocate
with Mr. Sunil Magon, Advocate
with
+ ITA 14/2014
COMMISSIONER OF INCOME TAX (C)-I ..... Appellant
Through: Mr. N.P. Sahni, Senior Standing
Counsel with Mr. Nitin Gulati, Advocate
versus
MGF AUTOMOBILES LTD. ..... Respondent
Through: Ms. Premlata Bansal, Senior Advocate
with Mr. Sunil Magon, Advocate
CORAM:
HON'BLE DR. JUSTICE S.MURALIDHAR
HON'BLE MR. JUSTICE VIBHU BAKHRU
ORDER
% 13.08.2015
Dr. S. Muralidhar, J.
1. These two appeals by the Revenue under Section 260A (1) of the
ITA Nos.13 & 14 of 2014 ` Page 1 of 8
Income Tax Act, 1961 (,,Act) are directed against the common order
dated 28th June, 2013 passed by the Income Tax Appellate Tribunal
(ITAT) in ITA Nos. 4212 and 4213/DEL/2011 for the Assessment
Years (AYs) 2004-05 and 2005-06.
2. The Respondent Assessee is a company dealing in the business of
car dealership and service station. During the AY 2004-2005 it
entered into amalgamation agreement with Compact Motors Limited
(CML). Pursuant to an order passed by the High Court on 27th
September 2004, the amalgamation of CML with the Assessee was
made effective from 1st April, 2003.
3. In terms of Section 72A of the Act it was permissible for the losses
of the amalgamating company (i.e. CML) to be set off or carried
forward in the assessment of the amalgamated company (i.e. the
Assessee) subject to the fulfilment of conditions stipulated in Section
72A(2) of the Act. Relevant to the present appeals is the condition
under Section 72A(2)(b)(i) which requires the amalgamated company
to hold continuously for a minimum period of five years from the
date of amalgamation "at least three fourths of the book value of
fixed assets of the amalgamating company acquired in a scheme of
amalgamation."
4. For AY 2004-05 returns were to be filed on or before 30th October
2004. The Assessee filed its return on 30th October 2004 under
Section 139 (1) of the Act declaring Nil income. For the AY 2005-06,
ITA Nos.13 & 14 of 2014 ` Page 2 of 8
it filed its return on 27th October 2005 declaring an income of
Rs.50,04,700. The last dates by which the Revenue could resort to
Section 143(3) of the Act were 31st March, 2007 and 31st March
2008 respectively. In the return for AY 2004-05, the Assessee had set
off the losses of CML to the extent of Rs.l,65,09,929.93 against the
Assessees business income pursuant to the amalgamation as ordered
by the High Court. In the AY 2005-06, the Assessee set off the
balance unadjusted carried forward loss of the earlier year.
5. A search took place in the Assessees premises on 12th September,
2007. During the search cash of Rs.48lakhs was seized. The Court
had been shown by Mr. N.P. Sahni, learned Senior Standing counsel
for the Revenue, a photocopy of the panchnama and the inventory
prepared at the time of search. The inventory prepared includes books
of accounts, some bunch of loose papers, an external hard disk, a
computer server etc.
6. It is not in dispute that on 6th October, 2007 a major fire took place
at Mayur Bhawan which houses the offices of the Income Tax
Department. It is stated by Mr. Sahni that in the said fire whatever
was seized by the Department in the form of the books of accounts,
bunch of loose papers etc. were completely burnt and destroyed. In
other words, none of the materials seized during the search from the
premises of the Assessee could be retrieved or salvaged.
7. Consequent upon the search, the Assessing Officer (AO)
ITA Nos.13 & 14 of 2014 ` Page 3 of 8
proceeded with the assessment and passed separate assessment orders
dated 23rd December, 2009 for the two AYs in question. The AO
disallowed the set off of the losses of CML against the business
income of the Assessee for the AYs in question on two grounds. One,
since neither the Assessee nor CML was an ,,industrial undertaking
within the meaning of Section 72 A (7) (aa) of the Act. Secondly, the
Assessee failed to retain three-fourths of the book value of the fixed
assets as required by Section 72 A (2) (b) (i) of the Act since it had
during AY 2007-2008 sold the land of CML valued at Rs.37,93,375.
8. The Commissioner of Income Tax (Appeals) [CIT (A)], by orders
dated 18th July 2011 for each of the two AYs, dismissed the
Assessees appeals.
9. The ITAT has by the impugned order dated 28th June 2013
allowed the Assessees appeals. Relying on the decision of this Court
in CIT v. Anil Kumar Bhatia (2013) 352 ITR493 (Del) and of the
Rajasthan High Court in Jai Steel (India) Jodhpur v. Asst.
Commissioner of Income Tax (2013) 36 taxmann.com 523 (Raj),
the ITAT came to the conclusion that the additions could have been
made by the AO "only if some incriminating document was found
during search." The ITAT recorded in its order that: "In the present
case it is apparent that on the date of search on 12/09/07, the
assessments for assessment year 2004-05 & 2005-06 were already
completed. There was no incriminating material found during search
for these years as is apparent from arguments of Ld. AR and from
ITA Nos.13 & 14 of 2014 ` Page 4 of 8
records and Ld. Departmental Representative did not bring to our
notice regarding any incriminating material having been found during
search." The ITAT also noted: "During proceedings before us the
bench had asked a question to Ld. AR as to whether any statement u/s
132 (4) was recorded during search to which the Ld. AR replied in
negative and Ld. Departmental Representative also showed his
ignorance about such statement. This question was asked because the
view of the Bench is that if during course of search some statement is
recorded u/s 132(4) and in that statement certain facts are recorded
from the interpretation of which Assessing Officer could conclude
that there was some undisclosed income then that statement can be
considered as incriminating material."
10. By order dated 12th May 2014 the following two questions were
framed by the Court:
(i) Did the ITAT fall into an error in deleting the
additions made in the case of the Respondent Assessee
for AYs 2004-05 and 2005-06 on the ground that no
incriminating material was found during the search
conducted in Assessee's premises on 12th September
2007, in respect of its claims?
(ii) Were the additions made by the AO which were
directed to be deleted by the ITAT and are stated to be
based on post search enquiries, warranted in the
circumstances of the case?
ITA Nos.13 & 14 of 2014 ` Page 5 of 8
11. This Court has heard the submissions of Mr. N.P. Sahni, learned
Senior Standing Counsel for the Revenue and Mrs. Prem Lata Bansal,
learned Senior counsel for the Respondent Assessee.
12. To begin with, what is striking is the fact that nowhere in the
Assessment Orders for the AYs in question has the AO noted the
stark fact that the material purportedly seized by the Revenue during
the search was completely and irretrievably destroyed in a fire that
took place on 6th October 2007 in Mayur Bhawan. While a
photocopy of the panchnama showing what was seized is available,
the material itself is not and in fact was not available with the AO
when the assessment proceedings, consequent upon the search, took
place. Further, as noted by the ITAT, no statement under Section
132(4) was recorded during the search. Therefore, there was no
material, much less any incriminating material, recovered during the
search which could form the basis of the AOs assessment order in
terms of Section 153 A of the Act.
13. Consequently, the Court is unable to appreciate on what basis the
AO has in the assessment orders for the AYs in question proceeded to
discuss the facts relating to the sale of land by the Assessee in the AY
2007-08 and conclude that the Assessee as an amalgamated company
failed to comply with the requirements of Section 72-A (2) (b) (i) of
the Act. The court enquired from Mr. Sahni whether there is any
indication anywhere in the assessment orders that the information
ITA Nos.13 & 14 of 2014 ` Page 6 of 8
regarding the land of CML having been sold by the Assessee during
the AY 2007-2008 was obtained as a result of any material gathered
during the search or any information obtained during the search. Mr.
Sahni candidly answered in the negative.
14. Mr. Sahni volunteered that it should have been possible for the
Revenue to resort to Sections 147/148 of the Act and re-opened the
assessments on the basis of the information received regarding the
sale by the Assessee of the land of CML during AY 2007-08. The
Court considers the said submission to be hypothetical since the fact
remains that the Revenue has thought it fit to resort to a search in
terms of Section 132 of the Act followed by proceedings under
Section 153A(1) of the Act. As far as the Court is concerned, in these
proceedings, it is called upon to decide the legality of the assessment
orders passed under Section 153A of the Act.
15. The inescapable conclusion therefore is that the AO proceeded to
frame assessments under Section 153 A of the Act relying on some
information not unearthed during the search. Further, whatever was
recovered during the search having been destroyed in a fire was not
available with the AO when he framed the assessments.
Consequently, the assessment orders passed with reference to Section
153 A (1) of the Act were unsustainable in law.
16. Question (i) framed by the Court is answered in the affirmative,
i.e. in favour of the Assessee and against the Revenue. Question (ii) is
ITA Nos.13 & 14 of 2014 ` Page 7 of 8
answered in the negative, i.e. by holding that additions as ordered by
the AO were not warranted in the facts and circumstances.
17. The appeals are accordingly dismissed.
S.MURALIDHAR, J
VIBHU BAKHRU, J
AUGUST 13, 2015
aj
ITA Nos.13 & 14 of 2014 ` Page 8 of 8
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