Income Tax Appellate Tribunal - Hyderabad
M/S Engineers Syndicates India Private ... vs Dcit., Central Circle-2, Hyderabad, ... on 31 May, 2018
ITA Nos 1805 to 1808 1855 to 1857 1870 1933 and 1934
Engineers Syndicate India P Ltd Hyderabad.
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad ' A ' Bench, Hyderabad
Before Smt. P. Madhavi Devi, Judicial Member
AND
Shri S.Rifaur Rahman, Accountant Member
ITA No.1805 to 1808 & 1870/Hyd/2014
(Assessment Years: 2002-03, 2003-04, 2004-05, 2005-06, 2006-07)
M/s. Engineers Syndicate Vs Dy. Commissioner of Income
India Pvt. Ltd (presently Tax, Central Circle-2
known as Janapriya Hyderabad
Engineers Syndicate)
Hyderabad
PAN: AAACE 4560A
(Appellant) (Respondent)
ITA Nos.1855 to 1857, and 1933 & 1934/Hyd/2014
(Assessment Years: 2002-03, 2003-04, 2004-05, 2005-06, 2006-07)
Dy. Commissioner of Vs M/s. Engineers Syndicate India
Income Tax, Central Pvt. Ltd (presently known as
Circle-2, Hyderabad Janapriya Engineers Syndicate)
Hyderabad
PAN: AAACE 4560A
(Appellant) (Respondent)
For Assessee : Shri A. Srinivas
For Revenue : Shri J. Siri Kumar, DR
Date of Hearing: 02.05.2018
Date of Pronouncement: 31.05.2018
ORDER
Per Bench :
These appeals of the assessee as well as Revenue are against the common and consolidated order of the CIT (A)-I, Hyderabad, dated 30-09-2014 for the A.Ys 2002-03 to 2004-05 Page 1 of 12 ITA Nos 1805 to 1808 1855 to 1857 1870 1933 and 1934 Engineers Syndicate India P Ltd Hyderabad.
and orders dated 31.10.2014 for the A.Ys 2005-06 to 2006-07 respectively.
2. Brief facts of the case are that the assessee company, engaged in the construction business, filed its returns of income for the relevant A.Ys and the assessments for the A.Ys 2002-03 to 2005-06 were completed u/s 143(3) of the Act. The assessee had also filed returns of income for the A.Y 2006-07 on 28.11.2006 but no further proceedings were taken up by the respective AO. Thereafter, on 19.02.2008, there was a search and seizure operation u/s 132 of the Act on the business premises of its assessee and also the residential premises of the Directors and Partners. Consequent thereto, notices u/s 153A dated 24.10.2008 were issued and served on the assessee. In response to the notices, the assessee filed its returns of income. The AO asked the assessee to furnish the details of housing project(s) under section 80IB of the Act and non 80IB projects, details of expenditure etc. However, the assessee did not file any information called for by the AO.
3. Consequent to the search and seizure operation, the group cases were centralized with the Central Circle, Hyderabad and notices were issued from time to time in the case of Janapriya Properties (P) Ltd (Company), M/s. Janapriya Properties (Firm), M/s. Engineers Syndicates Pvt. Ltd and M/s. Janapriya Engineers Syndicate Ltd etc., It was observed that the huge amount of on-money, unaccounted cash were paid to various landlords for purchase of land and in some cases the receipts Page 2 of 12 ITA Nos 1805 to 1808 1855 to 1857 1870 1933 and 1934 Engineers Syndicate India P Ltd Hyderabad.
from customers were not duly recorded in the books of account. It was also observed that there were several evidences regarding the cash payments exceeding Rs.20,000/-, in violation of provisions of section 40(a)(ia), improper method of accounting in recognition of revenue etc. Therefore, it was proposed to refer the entire group of cases for Special Audit u/s 142(2A) of the Act. The assessee raised its objections to the special audit, but, the assessee was directed to get the books of account audited as per the provisions of section 142(2A) of the Act. The assessee furnished only part of the books of account before the Special Auditor and subsequently, the special audit was completed and report was submitted on 14.06.2010 stating that the report was restricted to the computation of payment of expenditure u/s 40A(3) of the Act and that no other issues/items were considered due to paucity of time. Thereafter, the assessments have been completed u/s 143(3) r.w.s. 153A of the Act.
4. The AO disallowed the claim of deduction u/s 80IB(10) of the Act on the ground that though the assessee was supposed to complete the project on or before 31.03.2008, he has not obtained the completion certificate from the local authorities i.e. GHMC. Further, he also made additions u/s 68 of the Act on the ground that the assessee failed to discharge its onus of proving the genuineness of the transactions and the creditworthiness of the creditors. Further, the AO also made other disallowances u/s 40A(3) of the Act on the payments which were made in cash in excess of Rs.20,000. Aggrieved, the assessee preferred an appeal before the CIT (A), who deleted the disallowance u/s 80IB(10) of the Act by following the ITAT orders in the assessee's own case in Page 3 of 12 ITA Nos 1805 to 1808 1855 to 1857 1870 1933 and 1934 Engineers Syndicate India P Ltd Hyderabad.
the earlier A.Y 2001-02, but however, confirmed the additions made u/s 40A(3) and 68 of the Act. Aggrieved, the assessee is in second appeal before us by raising the following grounds of appeal for the A.Y 2002-03 (which are similar in other years also except for the quantum):
"1. The order of the AO is contrary to law, facts & circumstances of the case.
2. The AO. ought not to have made the additions in the assessment u/s.153A, when no fresh material was before him.
3. The Appellate Commissioner erred in concurring with the finding of the AO on the assessment made.
4. The AO. erred in disallowing an amount of Rs.23,25,827/- u/s 40A(3).
5. The Appellate Commissioner erred in confirming the above disallowance made u/s 4OA(3).
6. The AO. erred in adding an amount of Rs.1 ,93,91,192/- I u/s.68.
7. The Appellate Commissioner erred in confirming the above addition u/s.68".
5. In the ground of appeal No.2, the assessee is challenging the validity of the assessment u/s 153A of the Act when no fresh material was before the AO after completing the assessments u/s 143(3) of the Act. The CIT (A) had dealt with this issue at Para 4.2 of his order and following the decision of the Hon'ble Delhi High Court in the case of CIT vs. Anil Kumar Bhatia in ITA Nos.1626, 1632 etc., of 2010, wherein it was held that once there is a search u/s 132 of the Act, it is mandatory for the AO to issue notices u/s 153A of the Act calling upon the assessee to file returns for the six A.Ys prior to the year in which the search took place and the assess or reassess the income, without having the Page 4 of 12 ITA Nos 1805 to 1808 1855 to 1857 1870 1933 and 1934 Engineers Syndicate India P Ltd Hyderabad.
need to follow the strict provisions of complying with the strict conditions of section 147, 148 and 151 and determine the total income of the assessee, he upheld the initiation of proceedings u/s 153A of the Act.
6. The learned Counsel for the assessee submitted that there was no material found during the course of search which necessitated issuance of notices u/s 153A of the Act. Further, he also submitted that the assessments were completed u/s 143(3) of the Act for the A.Ys 2002-03 to 2005-06 by the ACIT 11(2) Bangalore. Therefore, the assessments u/s 143(3) were not abated and the assessment u/s 153A could only be made on the incriminating material found and seized during the course of search. Further, he argued that for the A.Y 2006-07, the return of income was filed on 28.11.2006 and thereafter, no notice u/s 143(2) was issued within the specified period and therefore, the presumption to be drawn is that the assessment is completed u/s 143(1) of the Act and in such circumstances also, assessment u/s 153A can be done only on the basis of the material found during the course of search. Therefore, according to him, the assessment u/s 153A done by the AO by making disallowances u/s 40(A)3 and 68 of the Act and also u/s 80IB are not sustainable.
7. Further, the learned Counsel for the assessee, without prejudice to the above argument, submitted that the issue of the deduction u/s 80IB has attained finality by the decision of the Hon'ble ITAT in the assessee's own case for the A.Y 2001-02 and the Revenue has accepted the same by not filing any appeal Page 5 of 12 ITA Nos 1805 to 1808 1855 to 1857 1870 1933 and 1934 Engineers Syndicate India P Ltd Hyderabad.
before the Hon'ble High Court of Karnataka. Therefore, according to him, the CIT (A) has rightly followed the decision of the ITAT in allowing deduction u/s 80IB of the Act in all the A.Ys and therefore, the Revenue's appeals against the order of the CIT (A) on this issue are not sustainable.
8. Without prejudice to the above, the learned Counsel admitted that the assessee had agreed to the addition of Rs.5.00 lakhs u/s 69 for the A.Y 2004-05 and though the assessee has raised a ground of appeal on this issue, it does not survive because of the agreement of the assessee to the said addition.
9. The learned Counsel for the assessee also placed reliance upon the following decisions in support of his contention that where an assessment u/s 143(3) was completed before the date of search, the fresh assessment u/s 153A can be made only on the basis of the material found during the course of search:
i) CIT vs. Anil Kumar Bhatia (2013) 352 ITR 493 (Del.)
ii) CIT vs. Kabul Chawla (2016) 380 ITR 573 (Del.)
iii) CIT vs.Soumya Con.(P) Ltd (2016) 387 ITR 529 (Guj.)
iv) CIT vs. Devangi Alias Rupa (2017) 394 ITR 184 (Guj.)
v) CIT vs. Meeta Gutgutia (2017) 395 ITR 526 (Del.)
vi) CIT vs. Dipak Jashvant Lal (2017) 397 ITR 153(Guj.)
vii) CIT vs. SRS Ispat & Power Ltd (2017) 398 ITR 584(Bom.)
viii) CIT vs. Deepak Kumar Agarwal (2017) 398 ITR 586 (Bom.)
ix) CIT vs. Manoj Hora (2018) 402 ITR 175 (Del.)
10. The learned DR, on the other hand, supported the orders of the authorities below.
Page 6 of 12ITA Nos 1805 to 1808 1855 to 1857 1870 1933 and 1934 Engineers Syndicate India P Ltd Hyderabad.
11. Having regard to the rival contentions and the material on record, we find that the assessee has filed a chart showing the status of the assessments u/s 143(3) of the Act and we find that all these assessments were completed before the date of search on 9.2.2008. The assessments u/s 143(3) for the A.Ys 2002-03 and 2003-04 were completed by the ACIT-11(II) Bangalore on 31.3.2006, whereas for the A.Y 2004-05, the ACIT 11(II) Bangalore has completed the assessment u/s 143(3) of the Act on 13.11.2006 and for the A.Y 2005-06 on 26.12.2007. For the A.Y 2006-07, the return was filed on 28.11.2006 and no proceedings were taken out by the AO thereafter. U/s 153A of the Act, in the case of a search initiated u/s 132 of the Act, the AO shall issue notice to the persons searched requiring him to furnish within such period, as is specified in the notice, the return of income in respect of each A.Y falling within six A.Ys prior to search and the second proviso thereto provides that the assessment or re- assessment, if any, relating to any A.Y falling within the period of six years and for the relevant A.Y or years referred to in the sub- section, pending on the date of initiation of the search u/s 132 or making of the requisition u/s 132A of the Act as the case may be, shall abate. In the case before us, there was no assessment for any of the six A.Ys prior to the date of search, pending as on the date of search, or on the date of or making of requisition u/s 132A of the Act. Therefore, the assessments u/s 143(3) for all the six A.Ys have not been abated.
12. In such a scenario, the AO can make assessment u/s 153A only on the basis of the material found during the course of search. Admittedly, there was no material found during the Page 7 of 12 ITA Nos 1805 to 1808 1855 to 1857 1870 1933 and 1934 Engineers Syndicate India P Ltd Hyderabad.
course of search, necessitating/warranting the assessment u/s 153A of the Act. In fact, the copies of the assessment orders passed u/s 143(3) of the Act for all the relevant A.Ys are filed before us and as seen therefrom, the AO therein had already considered the assessee's claim of deduction u/s 80IB of the Act and the claim of depreciation. Even in the assessments u/s 153A, AO has made additions on the basis of the material already on record. In the decisions relied upon by the learned Counsel for the assessee, the Hon'ble Courts have ruled as under:-
i) Hon'ble Bombay High Court in the case of CIT vs. SKS Ispat & Power Ltd reported in (2017) 398 ITR 583 (Bom.) held as under:
"Held, dismissing the appeals, that the scope of assessment u/s 153A was limited to the incriminating evidence found during the search and no further. Section 153A of the I.T. Act, 1961 did not make any distinction between the assessment conducted u/s 143(1) and section 143(3). The issue was no longer res integra"
ii) Hon'ble Gujarat High Court in the case of Pr.CIT vs. Dipak Jashvantlal Panchal reported in (2017) 397 ITR 153 (Guj.) has held as under:
"Section 153A of the Income-tax Act, 1961, bears the heading "assessment in case of search or requisition". The heading of the section can be regarded as a key to the interpretation of the operative portion of the section and if there is no ambiguity in the language or if it is plain and clear, then the heading used in the section strengthens that meaning. From the heading of the section the intention of the Legislature is clear, viz., to provide for assessment in case of search and requisition. When the very purpose of the provision is to make assessment in case of search or requisition, it goes without saying that the assessment has to have relation to the search or requisition. In other words, the assessment should be connected with something found during the search or requisition, viz., incriminating material which reveals undisclosed income. Thus, while in view of the mandate of sub-section (1) of section 153A of the Act, in every case where there is a search or requisition, the Assessing Officer is obliged Page 8 of 12 ITA Nos 1805 to 1808 1855 to 1857 1870 1933 and 1934 Engineers Syndicate India P Ltd Hyderabad.
to issue notice to such person to furnish returns of income for the six years preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made, any addition or disallowance can be made only on the basis of material collected during the search or requisition".
iii) Hon'ble Delhi High Court in the case of Pr.CIT vs. Meeta Gutgutia Prop. M/s.Ferns "N" Petals reported in (2017) 395 ITR 526 (Del.) held as under:
"Held, dismissing the appeals, (i) that it was only if during the course of search u/s 132 incriminating material justifying the reopening of the assessments for six previous years found that the invocation of section 153A qua each of the A.Y would be justified".
iv) Hon'ble Gujarat High Court in the case of Pr.CIT vs. Devangi alias RUPA reported in (2017) 394 ITR 184 (Guj.) held as under:
"Held, dismissing the appeal, that at the time of search, no incriminating material was found with respect to the assessment year 2001-02 to 2003-04. Only undisclosed income and undisclosed assets detected during the search could be brought to tax. Therefore, the Assessing Officer was not justified in making addition. With regard to the assessment year 2004-05, the assessment for that year was framed on the basis of the material already on record much prior to the search conducted on February 10, 2006. It was a scrutiny assessment and the assessment was framed for the assessment year 2004-05 on the basis of the material on record. In the absence of any specific incriminating material detected for the assessment year 2004-05, the Assessing Officer was not justified in making any addition".
v) Hon'ble Gujarat High Court in the case of Pr.CIT vs. Saumya Construction P Ltd reported in (2016) 387 ITR 529 (Guj.) held as under:
" Section 153A of the Income-tax Act, 1961, bears the heading "Assessment in case of search or requisition". It is well settled that the heading of the section can be regarded as a key to the interpretation of the operative portion of tile section and if there is no ambiguity in the language or if it is plain and dear, then the heading used in the section strengthens that meaning. The trigger point for exercise of powers under section 153A is a search under section 132 or a requisition under section 132A of the Act. The assessment should be connected with something found during the search or requisition, Page 9 of 12 ITA Nos 1805 to 1808 1855 to 1857 1870 1933 and 1934 Engineers Syndicate India P Ltd Hyderabad.
i.e incriminating material which reveals undisclosed income. Where an assessment has been framed earlier and no assessment or reassessment was pending on the date of initiation of search u/s 132 or making of requisition u/s 132A, while computing the total income of the assessee u/s 153A of the Act, additions or disallowances can be made only on the basis of the incriminating material found during the search or requisition".
vi) Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawla reported in (2016) 380 ITR 573 (Del.) held as under:
"The legal position that emerges on a perusal of section 153A and section 132 of the Income-tax Act, 1961, is as under: (i) Once a search takes place under section 132 of the Act, notice under section 153A(l) will have to be mandatorily issued to the person in respect of whom search was conducted requiring him to file returns for six assessment years immediately preceding the previous year relevant to the assessment year in which the search takes place. (ii) Assessments and reassessments pending on the date of the search shall abate. The total income for such assessment years will have to be computed by the Assessing Officers as a fresh exercise. (iii) The Assessing Officer will exercise normal assessment powers in respect of the six years previous to the relevant assessment year in which the search takes place. The Assessing Officer has the power to assess and reassess the "total income" of the six years in separate assessment orders for each of the six years. In other words, there will be only one assessment order in respect of each of the six assessment years in which both the disclosed and the undisclosed income would be brought to tax. (iv) Although section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post search material or information available with the Assessing Officer which can be related to the evidence found, it does not mean that the assessment can be arbitrary or made without any relevance or nexus with the seized material. Obviously, an assessment has to be made under this section only on the basis of the seized material. (v) In the absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word "assess" in section 153A is relatable to abated proceedings (i.e., those pending on the date of search) and the word" reassess" to completed assessment proceedings. (vi) In so far as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under section 153A merges into one. Only one assessment shall be made separately for each assessment year on the basis of the findings of the search and any other material existing or brought on the record of the Assessing Officer. (vii) Completed assessments can be interfered with by the Assessing Officer while making the assessment under section 153A only on the basis of some Page 10 of 12 ITA Nos 1805 to 1808 1855 to 1857 1870 1933 and 1934 Engineers Syndicate India P Ltd Hyderabad.
incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.
Held accordingly, that the matter related to the assessment years 2002-03, 2005-06 and 2006-07. On the date of the search the assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed"
13. We find that in almost all the above decisions, the decision of the Hon'ble Delhi High Court in the case of Anil Kumar Bhatia (cited Supra) was considered and in the case of Kabul Chawla, the Hon'ble Delhi High Court observed as under:-
9. The Assessee then appealed to the ITAT. One of the issues considered by the ITAT was whether the completed assessment on the date of the search would stand on the same footing as the pending assessments which in terms of the second proviso to Section 153A(1) of the Act would abate. It was noticed that in Anil Kumar Bhatia (supra), this Court had left open the question whether in order to frame an assessment in terms of the first proviso to Section 153A(1) of the Act in respect of those AYs for which the assessments had already been completed, there was a requirement that some incriminating material should be unearthed during the search. Nevertheless there were some observations in Anil Kumar Bhatia (supra), which would indicate that the AO would be able to reopen the assessments for those years for which the assessment already stood completed at the time of the search, only if some incriminating material was unearthed during the search. The ITAT concluded "if no incriminating material is found in respect of such completed assessments then the total income in the proceedings under Section 153A(1) of the Act shall be computed by considering the originally determined income. If some incriminating material is found in respect of such assessment years for which assessment is not pending, then the total income would be determined by considering the originally determined income plus (+) income emanating from the incriminating material found during the course of search."
14. Thus, the underlying principle laid down in all the above case laws is that without any incriminating material found during the course of search, no additional income can be brought Page 11 of 12 ITA Nos 1805 to 1808 1855 to 1857 1870 1933 and 1934 Engineers Syndicate India P Ltd Hyderabad.
to tax in the assessment u/s 153A of the Act even where earlier assessments were concluded u/s 143(3) of the Act. The facts and circumstances of the case before us are similar to the above cases. Respectfully, following the above case laws on the issue, we hold that the assessments u/s 153A for all the A.Ys are not sustainable and they are accordingly set aside. Since, the assessments have been set aside, the other grounds against the merits of the additions are not adjudicated at this stage as it would only result in an academic exercise.
15. In the result, the assessee's appeals for all the A.Ys are partly allowed. Consequently, the Revenue's appeals against the relief granted by the CIT (A) u/s 80IB(10) for all the A.Ys are dismissed.
Order pronounced in the Open Court on 31st May, 2018.
Sd/- Sd/-
(S.Rifaur Rahman) (P. Madhavi Devi)
Accountant Member Judicial Member
Hyderabad, dated 31st May 2018.
Vinodan/sps
Copy to:
1 M/s. Engineers Syndicate India Pvt. Ltd (presently known as Janapriya Engineers Syndicate), 8-2-120/86, Plot No.11 & 12, Keerthi and Pride Towers, Road No.2, Banjara Hills, Hyderabad 500034 2 Dy.CIT, Central Circle-2 Hyderabad 3 CIT (A)-I, Hyderabad 4 CIT - Central, Hyderabad 5 The DR, ITAT Hyderabad 6 Guard File By Order Page 12 of 12