Income Tax Appellate Tribunal - Chandigarh
Ridhi Industries Private Limited, ... vs Asstt. Commisssioner Of Income Tax, ... on 31 October, 2017
1
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCHEs 'B', CHANDIGARH
BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER &
MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER
ITA No. 73/Chd/2017
Assessment Year: 2010-11
M/s Ridhi Industries Private Limited, Vs. The ACIT,
Mandi Gobindgrh Central Circle,
Patiala
PAN No. AABCR9200M
(Appellant) (Respondent)
Appellant By : Smt. Rajiv Datta
Respondent By : Sh. Manjit Singh
Date of hearing : 10.10.2017
Date of Pronouncement : 31.10.2017
ORDER
Per Sanjay Garg, Judicial Member:
The present appeal has been preferred by the assessee against the order of Commissioner of Income Tax-5 [hereinafter referred to as CIT(A)] Ludhiana dated 26.10.2016.
2. The assessee has taken following grounds of appeal:-
1. That the order of Ld. CIT(A) is against the facts of the case and is bad in law.
2. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in upholding the addition, which is not based on any documents / material found during the course of search.2
3. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in confirming the disallowance of Rs.
11,03,000/- on account of professional charges incurred by the appellant company for business purposes.
3. The brief facts relating to the issue under consideration are that a search operation u/s 132 of the Act was carried out on the Bhawani Group i.e Bhawani Industries (P) Limited and its Directors on 14.7.2011. During the course of search, books of account of the assessee company were found in the premises of searched assessee, therefore, assessment proceedings in the case of assessee were initiated u/s 153C of the Income-tax Act, 1961 (in short 'the Act'). During the assessment proceedings u/s 153C of the Act, the Assessing officer disallowed the expenditure of Rs. 11,03,000/- paid to M/s West End Investment and Finance Consultancy Pvt Ltd. Mumbai as professional charges, regarding which the Assessing officer observed that the assessee had failed to furnish the evidences of services obtained.
Though the assessee explained that this was advance given to that company against consultancy as the assessee company was exploring of opportunities for expanding its business outside the state of Punjab. The Company later on abandoned the project and the amount paid was claimed as expenditure. The Assessing officer, however, was not satisfied with the above explanation and added the said amount into the income of the assessee. The assessee unsuccessfully contested the appeal before the CIT(A).
4. Before us, the Ld. AR of the assessee has harped on the legal issue that no incriminating material was found against the assessee in the searched premises of Bhawani Group; only books of account of the assessee were found there but that itself did not constitute any 3 incriminating material, especially when no discrepancy was found in the books of account of the assessee either by Assessing officer of the searched person or of the Assessing officer of the assessee during the assessment proceedings. Therefore, the very initiation of assessment proceedings under section 153C of the Act against the assessee were invalid and were liable to be quashed.
5. The Ld. DR, on the other hand, has relied on the findings of the lower authorities.
6. Admittedly, no incriminating material was found in the search premises of Bhawani Group, except the books of account of the assessee.
The said books of account of the assessee were handed over / taken possession by the Assessing officer of the present assessee. However, there was nothing on record which points out any discrepancy in the books of account that may have a bearing on the determination of the total income of the assessee. The Assessing officer, however, proceeded to frame assessment afresh by way of examining the genuineness of the expenditure etc. Admittedly, in in this case return u/s 139(1) of the Act for the impugned assessment year 2010-11 was filed on 14.10.2010. The assessment in this case have become final on 30.9.2011 and no notice u/s 143(2) of the Act was issued to the assessee within the period of 6 months from the end of the financial year i.e. 31.3.2011. The assessment under normal provisions of the Act already stood conduced before the date of search on 14.7.2011. There is no satisfaction recorded by the Assessing officer that the books of account or the documents seized or 4 requisitioned, show any information or constitute any incriminating material which did not form the part of record or otherwise have a bearing for making the additions to the income of the assessee. The issue relating to the validity of assessment made under section 153A without having an y incriminating material found during the search action u/s 132 of the Act in case of completed assessments, even where the original return was processed under section 143(1) of the Act, has come into consideration before the co-ordinate Mumbai Bench of the Tribunal in the case of "The ACIT Cent. Cir. 33, Mumbai vs. Shri Jayendra P. Jhaveri" ITA Nos.2141, 2142, 2143 & 2144/M/2012 & CO Nos.248, 249, 250 & 251/M/2013 decided on 20.02.2014 (One of us being party to that order). The Tribunal has discussed the issue in detail and has made the following observations:
"8. The learned DR has also filed written submissions. To stress his point that the return processed u/s. 143(1) cannot be said to be an assessment but a mere intimation, he has relied upon the judgment of Hon'ble Supreme Court in the case of "Rajesh Jhaveri Stock Brokers P. Ltd." (2007) 291 ITR 500 (SC). His contention has been that in the case in hand the assessment was not done originally u/s. 143(3) hence the estimation in question has been rightly made u/s. 153A of the Act by the AO. He has further contended that the principal laid down by the Special Bench of the Tribunal in the case of "All Cargo Global Logistics Ltd." 137 ITD 287 can be applied to the case where the original assessment was completed u/s. 143(3) of the Act and not to the case where the return was processed u/s. 143(1) of the Act.
9. We have considered the submissions of the learned DR. So far so the reliance placed by him in the case of "Rajesh Jhaveri Stock Brokers P. Ltd." (supra) is concerned, we may observe that the issue before the Hon'ble Supreme Court in that case was regarding the reopening of the assessment u/s. 147 of the Act. The Hon'ble Supreme Court held that the proposition of law laid down by the Hon'ble Gujarat High Court in the case of 5 "Adani Exports v. Deputy CIT", (1999) 240 ITR 224 (Guj) was not applicable in that case. In the case of "Adani Exports"
(supra), where the assessment was made u/s. 143(3) of the Act, and the AO did not hold any belief that income had escaped assessment on account of erroneous computation, the re- opening u/s. 147 made merely on the basis of audit objections was held to be bad in law by the Hon'ble High Court. In the case of "Rajesh Jhaveri Stock Brokers P. Ltd." (supra), the Hon'ble Supreme Court while interpreting the provisions of section 143(1) and section 143(3) (as were in force during the relevant time period) has held that in case of assessment made u/s. 143(3), the assessment is made by the AO by applying his mind whereas in case of processing of return u/s. 143(1) of the Act, there is no application of mind by the AO and as such, if a new material comes into the knowledge of the AO and the requirements of section 147 of the Act are fulfilled, the AO is free to initiate proceedings u/s. 147 and the failure to take steps u/s. 143(3) will not render the AO powerless to initiate re- assessment proceedings even when intimation u/s. 143(1) had been issued. So the proposition of law laid down in the case of "Rajesh Jhaveri Stock Brokers P. Ltd." (supra) relates to the powers of the AO for re-opening of assessment u/s. 147in relation to the assessment proceedings conducted under section 143(1) viz-a-viz u/s 143(3) of the Act. (as were in force during the relevant period, since section 143 has been further amended vide Finance Act 2008 w.e.f 01.04.2008.) It is to be noted that powers of the AO to re-open an assessment u/s. 147 is subject to limitation of time period as prescribed u/s. 149 of the Act. So the reasonable conclusion will be that whether the return was processed u/s. 143(1) or u/s. 143(3), if the AO has a reason to believe that any income chargeable to tax has escaped assessment, he can re-open the assessment u/s. 147 by issuing notice u/s. 148 but within the time limit as prescribed u/s. 149 of the Act.
10. So far so, the question as to the processing of return u/s. 143(1) viz-a-viz assessment made u/s. 143(3) is concerned, it may further be observed that after processing of return u/s. 143(1) the same can be assessed u/s. 143(3) by issue of notice u/s. 143(2) subject to its issuance within the limitation period of 12 months from the end of the month in which return is furnished as per the proviso to clause (ii) of section 143(2) [as was existing at the time of relevant assessment year] . Once the limitation period as prescribed vide proviso to clause (ii) of sub section (2) of section 143 is expired, it is not open to the AO to assess the income u/s. 143(3) of the Act and the return filed by 6 the assessee u/s. 139 is deemed to be accepted, which however, can be re-opened u/s. 147 of the Act subject to the fulfillment of ingredients of section 147 and within the time period as prescribed u/s. 149 of the Act, as discussed in the preceding para. So under such circumstances if the return is processed u/s. 143(1) and not u/s. 143(3) and after the prescribed period of limitation, the same cannot be assessed u/s. 143(3) though it may be interpreted as mere intimation assessment or otherwise, but the same shall be deemed to be accepted by the AO and it will not have any different colour other than the return which is processed u/s. 143(3) of the Act. The only distinguishing feature as held by the Hon'ble Supreme Court in the case of "Rajesh Jhaveri Stock Brokers P. Ltd." (supra), would be that if to a set of facts and circumstances, the AO has applied his mind and he was of the belief that there was no escapement of income then for invoking the provisions of section 147 of the Act, he is precluded, on the basis of same facts and circumstances, to say that he has reason to believe that income of the assessee has escaped assessment. Whereas in case of returns processed u/s. 143(1), since the AO does not apply his mind, such a defense is not available to the assessee. However, that proposition of law does not help the revenue in the present case which is a case of assessment/re-assessment u/s. 153A of the Act.
11. Admittedly, in the case in hand, the return was processed u/s. 143(1) of the Act but the same has attained finality due to the expiry of limitation period of twelve months from the end of the month in which the return was filed. Hence, the assessment is deemed to be completed and not pending on the date of search on 14.08.2008. Admittedly, no incriminating material was found from the premises of the assessee during the search u/s. 132 of the Act. The Special Bench of the Tribunal in the case of "All Cargo Global Logistics Ltd."(supra), has held that assessment u/s. 153A can be made on the basis of incriminating material found during the search. The Hon'ble Rajasthan High Court in the case of "Jai Steel (India) v. ACIT" (2013) 259 CTR 281 has held that in case nothing incriminating is found on account of search or requisition, the question of reassessment of the concluded assessment does not arise. Under such circumstances, it is not open to the assessee to seek deduction or claim expenditure which has not been claimed in the original and already concluded assessment, in the case of assessment u/s. 153A in pursuance of search action. Hon'ble High Court rejected the argument of the learned counsel for assessee to the effect that once the notice u/s. 153A is issued, the assessments for six years are at large both for the AO and the assessee. It 7 has been further held by the Hon'ble High Court that the provisions of section 153A to 153C cannot be interpreted to be further innings to the AO and/or assessee beyond the provisions of section 139(return of income), 139(5) (revised return of income), 147 (income escaping assessment) and 263(revision of orders) of the Act. The Hon'ble High Court has further observed that the words "assess" or "re-assess" have been used at more than one place in the section and a harmonious construction of the entire provision would lead to an irresistible conclusion that the word 'assess' has been used in the context of abated proceedings and 'reassess' has been used for completed assessment proceedings, which would not abate as they are not pending on the date of initiation of the search or making of requisition and which would also necessarily support the interpretation that for the completed assessments, the same can be tinkered only on the basis of the incriminating material found during the course of search or requisition of documents. The Hon'ble High Court while reproducing the proposition of law laid down by the Hon'ble Supreme Court in the case of "K P Varghese v. ITO" (1981) 24 CTR 358 "that it is recognized rule of construction that a statutory proviso must be so construed, if possible, that absurdity and mischief may be avoided" has observed that if the argument of the counsel for the assessee was to be accepted, it would mean that even in case where the appeal arises out of the completed assessment has been decided by the CIT(A) or Tribunal and the High Court, on a notice issues u/s. 153A of the Act, the AO would have power to undo what has been concluded by the High Court. Any interpretation which leads to such conclusion has to be repelled and/or avoided as held by the Hon'ble Supreme Court in the case of K P Varghese (supra).
Almost similar proposition of law has been laid down by the co-ordinate bench of the Tribunal Bench of the Tribunal in the case of "M/s Deepa Restaurant & Bar P. Ltd." in ITA No.1336/M/2012 decided on 05.02.2014 (one of us being the party of the said order) wherein, it has been observed that where the scrutiny assessment order u/s. 143(3) of the Act was set aside by the higher authorities that, itself, cannot be a ground for re-opening the assessment u/s. 147 of the Act on the plea that since scrutiny assessment has been annulled on the legality of notice u/s. 143(2) of the Act and the case has not been heard at any of the stage hence, there was a reason to believe that the income assessed in this case has escaped assessment. The co-ordinate Bench in the above said case has further held that such an action cannot be allowed under the 8 law as it may amount to defeating one of the statutory provisions in the grab of acting under other provisions of the statute. Once assessment u/s. 143(3) had been annulled by higher authorities on the ground of legality of notice u/s. 143(2) of the Act, re-opening u/s. 147 on that very ground would mean nothing else but the abuse of process of law. Hence, the contention of the learned DR that as the return was processed u/s. 143(1) and it was a mere intimation hence, the AO had reason to believe that income had escaped assessment and it was open to the AO to reassess the income u/s. 153A, even without any incriminating material found during the search action, is not tenable."
7 The above decision has also been followed by another co-ordinate bench of the Tribunal in the case of "Atul Barot (HUF) vs. DCIT" in ITA No.2889/M/2011 & ors. decided on 26.02.2014. Further, the Special Bench Decision in the case of "All Cargo Global Logistics Ltd." (supra) has now been approved by the Hon'ble Bombay High Court in the cases of 'All Cargo Logistics' ITA No.1969 of 2013 and 'Continental Warehousing Corporation' ITA No. 523 of 2013 reported in (2015) 279 CTR 0389 (Bombay) decided by common order, wherein, it has been held that in relation to the assessments which have already been concluded, the AO was precluded from making additions on any other issue except relating or concerning to the incriminating material found during the search action.
The AO cannot disturb the assessment order or reassessment order which has attained finality, unless the material gathered in the course of proceedings u/s 153A of the Act establishes that relief granted under the final assessment/reassessment was contrary to the fact unearthed during the course of 153A proceedings. Identical view has been taken by the Hon'ble Bombay High Court in the case of CIT Vs. Murli Agro Products Ltd. ITA No.36 of 2009 decided vide order dated 29-10-2010 and by the Hon'ble 9 Delhi High Court in the recent decision in the case of "Principal CIT Vs. Meeta Gutgutia Prop M/s Ferns 'N' Petals (supra)". We may mention here that the Hon'ble Delhi High Court has also discussed and distinguished the case of "Smt. Dayawanti Vs. CIT" in ITA 357/2015 & others dated 27.10.2016, which authority has been relied upon by the Ld. DR. It has been held that in the case of Smt. Dayawanti Vs. CIT", incriminating material was found during the search action, however, in the case of "Principal CIT Vs. Meeta Gutgutia Prop M/s Ferns 'N' Petals (supra)", no incriminating material was found during the search action, hence, the additions made by the Assessing officer were not justified.
In view of the above discussion, this issue is also found covered in favour of the assessee by the various decisions of the High Courts of Bombay & Delhi as discussed above, and is decided accordingly.
8. In view of the above the appeal of the assessee stands allowed.
Order pronounced in the Open Court on 31.10.2017 Sd/- Sd/-
( ANNAPURNA GUPTA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 31 s t Oct, 2017 Rkk Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR