Income Tax Appellate Tribunal - Delhi
Pacl India Ltd., New Delhi vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'F': NEW DELHI)
BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER
And
SHRI B.C. MEENA, ACCOUNTANT MEMBER
ITA No.2637 /DEL/ 2010
(Assessment Year: 2003-2004)
ACIT, Vs. PACL India Ltd.
Central Circle-4, Room No. 318, 22, 3rd Floor, Amber
IIIrd Floor, Tower
ARA Centre, Jhandewalan Extn. Sansar Chand Road, New Delhi Jaipur
AAACP4032A
(Appellant ) (Respondent)
ASSESSEE BY: Shri D.C.Aggarwal, Adv.Ms. Sudha Gupta, Adv.
REVENUE BY : Mrs. Vibha Bhalla, C.I.T., D.R.
ORDER
PER B.C. Meena, AM :
This is the appeal emanates from the order of the CIT (A)(III) Delhi dated 03.03.2010. The revenue has taken the following grounds of appeal :-
Whether on the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in quashing the assessment made u/s 153A by holding that no document was seized during the search pertaining to this Assessment Year?
Whether on the facts and in the circumstances of the case, the CIT(A) has erred in interpreting Section 153A of the IT Act?
Whether on the facts and in the circumstances of the case, the CIT(A) has erred in placing reliance on second proviso to Section 153A(1) ignoring the main Section and the first proviso?
Whether on the facts and in the circumstances of the case, the CIT(A) has erred in law in not following the Circular No. 7 of 2003 dated 05/09/2003 issued by the CBDT.
Whether on the facts and in the circumstances of the case, the CIT(A) has erred in law by not appreciating the fact that there is no precondition that documents pertaining to each of the assessment year falling under the provisions of Section 153C/153A should be found ?
The order of the CIT (A) is perverse and not tenable in law and on facts.
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."
In this revenue's appeal the deletion of Rs. 90,19,000/- made by A.O. out of the land development expenses of Rs. 14,64,30,786/- made during the year incurred by the assessee during the year has been challenged. The brief facts of the case are as under :-
Assessee Company is engaged in the business of development of farm land and sale thereof. The land is mainly purchased in rural areas in different parts of the countries, the original return for the A.Y. 2003-04 was filed on 02.12.2003 showing NIL income but showing income 115JB at Rs. 74,80,591/-. The time period for issuance of notice u/s 143(2) expired as on 31.12.2004 before the date of the first search on 22.09.2005. As a result of search on 22.09.2005 the return was filed u/s 153A on 21.08.2006 declaring same NIL income and income u/s 115JB at Rs. 74,80,951/-. The search u/s 132 of the Act was again conducted at the premises of the Assessee Company on 25.08.2006. The notice u/s 153A was issued on 14.11.2007. The proceedings for assessment initiated u/s 153A as a result of first search were abated when the proceedings u/s 153A were initiated after the second search. In either of the two searched carried out by the department no material was found which could indicate that any part of Land Development Expenses (LDE) was not genuine. However, during the course of assessment proceedings the Ld. AO seems to have carried out some enquiries according to which his inspector has reported that 8 parties to whom Land Development Expenditure (LDE in short) was paid were not found at the given addresses. The details of these 8 parties are mentioned by him in para 5.2 of his assessment order. On this basis he came to the conclusion that LDE to the extent of Rs. 90,19,000/- claimed by the assessee were not genuine. However, no material was found in both the searches which could indicate that any part of land development expenditure was not genuine.
3. The CIT(A) has deleted the addition for the following reasons :-
"i) During the search not a single piece of evidence was found which depicts that any income which has been earned by the appellant has not been disclosed.
ii) There is no reference to any material so found while computing the income u/s 153A of the Act.
iii) Since the regular return of income was filed on 02.12.2003, this was processed u/s 143(1)(a) of the Act and as such no assessment was pending on the day of search.
iv)Once no assessment was pending the completed assessment shall not abate."
The CIT(A) has placed the reliance in deleting the addition on the following cases :-
"ITAT Jodhpur Bench in the case of Suncity Alloys (P) Ltd. V. ACIT. (2009) 124 TTJ 674(JD) ITAT Ahmedabad Bench in the case of Meghmani Organics Ltd. V. DCIT [2010] 129 TTJ 255 (AHD).
LMJ International Ltd. v. DCIT (2008) 119 TTJ (Kol.) 214 ITAT Lucknow Bench in the case of Kailash Auto Finance Ltd. v. ACIT [2009] 32 SOT 80 (LUCK).
ITAT Delhi Bench in the case of Charchit Agrawal v. ACIT 34 SOT 348 (Del.) ITAT Delhi Bench in the case of Sh. Sanjay Kumar Bhatia (ITA No. 2666 to 2672/Del/2009 dt. 01.01.2010.
Circular No. 007 of 2003 dt. 15.09.2003 of the CBDT."
While pleading on behalf of the revenue, the Ld. DR relied on the order of AO and submitted that assessee is engaged the business of purchase and sale of agriculture land. The assessee has debited land development expenses in its profit and loss account. The assessing officer to verify the genuineness of these land development expenses deputed the inspector to verify the addresses of the contractors. The inspector reported that no such concern or person were available at the given addresses. The assessing officer on the basis of this report held that the very genuineness of the expenses claimed by the assessee becomes doubtful and added the amount of Rs. 90,19,000/- to the income of assessee. The CIT(A) is not justified the deleting the addition which was made on the basis of inquiries conducted by the department. This inquiry has left a shadow of doubt in the genuineness of the expenses. Under these circumstances, the CIT appeal was not justified to delete the addition.
On the other hand, the Ld. AR submitted as under that assessee is engaged in the business of development of farm land and sale thereof. The original return of income was filed on 2.12.2003. The time period for issuing notice u/s 143(2) expired on 31st December, 2004. This period was expired prior to the first search conducted on 22.9.2005. The 2nd search was carried out on 25.8.2006 and in both the searches no incriminating material/ documents were found and seized in respect of land development expenses. While supporting the order of the CIT (A). The Ld. AR extended following arguments during the proceedings.
"(i) Carrying out search against a person u/s 132 of the Act gives jurisdiction to the AO to issue notices u/s 153A (or u/s 153C as the case may be) for 6 assessment years prior to the A.Y. in which search is carried out.
(ii) Honble Delhi High Court in CIT Vs. Anil Kumar Bhatia (2012) 24 Taxmann.com 98 (Del.) has held that A.O. is bound to issue notice to the Year of the assessee to furnish the returns for six assessment years prior to the year of the search, but at another place, in para 23 it is observed that "we are not concerned with a case where no incriminating material was found during the search conducted u/ s 132 of the Act. We therefore, express no opinion as to whether Sec. 153A can be invoked even in such a situation. That question is therefore left open". In other words, there is a clear doubt in the mind of the Hon'ble High Court as to whether AO has jurisdiction to initiate proceedings ufs 153A if no incriminating material is found in the search. Had it been an open and shut case i.e. acquiring of jurisdiction ufs 153A does not depend upon recovery and seizure of any incriminating material, Hon 'ble High Court would not have so commented.
(iii) Jurisdiction to issue notices u/s 153Afufs 153C cannot be quoted with scope of assessment under those sections. Where incriminating material relating to earning of income not declared to the department is found in the search than there is no dispute as to the jurisdiction as well as scope of assessment. Where an assessment for any particular A.Y. is pending on the date of the search than proceedings relating to that assessment will abate and scope of assessment will be wide enough to include issues emerging from abated proceedings as well as issues emerging from seized incriminating material.
(iv) The scope of expression "abate" has been elaborately discussed by Hon'ble Allahabad High Court in CIT Vs. Smt. Shaila Agrawal (2011) 16 Taxmann.com 232 (AIl.). It is held that "The word 'abatement' is preferable to something, which is pending alive, or is subject to deduction. The abatement refers to suspension or termination of the proceedings either of the main action, or the proceedings ancillary or collateral to it."
(v) The expression "pending" has also been considered in Kailash Auto Finance Ltd. Vs. ACIT (2009) 32 SOT 80 (Luck.) wherein it is observed that pending means undecided i.e. something which is not concluded. An action is considered as pending from the time of commencement of the proceedings. Thus, a legal proceeding is pending as soon as commenced and until it is concluded. A proceeding must be pending on the date of initiation of the search and before the A.O.
(vi) But where no incriminating material is found in the search relating to an A.Y. than scope of assessment will depend whether original assessment is pending or is completed. Where original assessment is pending on the date of the search than the proceedings relating to pending assessments shall abate and proceedings initiated as a result of search will be continued. The scope of assessment will cover issues arising from pending assessment and freshly initiated proceedings will cover issues which could arise from the originally pending proceedings.
(vii) Where no incriminating material is found in the search relating to an A.Y. and proceedings for that A.Y. are completed that is not pending on the date of the search than no addition on the issues which pertain to the original assessment cannot be raised like those which could be raised when such assessments were pending and abated.
(viii) If issues pertaining to regular assessment or issues which are not based on any material found in the search (as no such material was found in the search) are allowed to be raised in the completed assessment in the same way as in the pending assessment (which would merge/abate in the proceedings initiated u/s 153A) then the provision relating to pending assessment being abated, as contained in second proviso u/s 153A will become otiose. The AO will be free to raise any issue whether within the framework of seized material or outside it.
(ix) From this it follows that it is only where original assessment proceedings are pending on the date of the search, the issues outside of the scope of search material can be raised as those original assessment proceedings stand merged/abated in the proceedings u/s 153A and have to be completed considering those issues.
(x) The expression "Pending assessment" used in second proviso to section 153A refers to actual pending assessment and not to virtual or deemed or notionally "pending assessment". The concept of "assessment" has been explained by the courts (i) it includes all proceedings starting with the filing of the return or issue of notice and ending with the determination of the tax payable by the assessee (Re: CIT v. Sanjai Kumar Gupta [2005] 276 ITR 0073- (All) (ii) Section 143(1)(a) of the Income-tax Act, 1961, enjoins upon the Income-tax Officer not only a duty to assess the income of an assessee, but also a duty to determine the sum payable or refundable to the assessee on the basis of such assessment. It is, therefore, obvious, that an assessment under section 143(1) comprises computation of income and computation of tax on such income(Re: CIT vs. Swam Taneja (Miss.) [1990] 186 ITR 0348-(MP))The decision of Hon'ble Apex Court in the case of Rajesh Jhaveri Stock Brokers P. Ltd. V. CIT [2007] 291 ITR 0500-(SC) often referred to in support of the argument that intimation issued u/s 143(1)(a) is not an assessment order is really on the proposition that in intimation there is no occasion to frame an opinion by the AO and therefore action u/ s 147 cannot be prohibited on the ground that there was a change of opinion. It does not lay down the proposition that even after issue of intimation (which is also deemed as demand notice) or acknowledgment after filing of return of income assessment proceedings are pending and even if they are pending then how long they will remain pending.
(xi) We place reliance on the following judgments in support of our arguments that, no addition can be made u/s 153A or 153C, if no incriminating material is found in the search:
(a) Allcargo Global 137 ITD 287 / (2012) 18 ITR (Trib.) 106 (ITAT, Mum (SB))
(b) ACIT Vs. M/s Pratibha Industries Ltd. (ITA No. 2197 to 2199 / Mum / 2008, 2200 to 2201 / Mum / 2008, ITA No. 2202 / Mum 2008 and COs thereon order dated 19.12.2012 (a copy thereof is enclosed).
(c) CIT Vs. Priyanka Ship Breaking Co. Ltd. (2012) 26 Taxmann.com 321 (Del.) to the effect that where no link was established between accommodation entries and seized documents addition on account of undisclosed income in assessee's hands was unjustified.
(d) Gurinder Singh Bawa Vs. DCIT (2012) 28 Taxmann.com 328 (Mum) wherein it is held that, where assessments pertaining to 6 immediately preceding assessment years were complete, A.O. cannot make any addition there under unless there is any incriminating material recovered during the search.
(e) LMJ International Ltd. Vs. DCIT (2008) 22 SOT 351 (Kol)
(f) ACIT Vs. Mrs. UTtara S. Shorewala (2011) 12 Taxmann.com 460 (Mum) wherein it is held that, once revenue has accepted the stand of the assessee and had accepted the order, the A.O. was not justified in repeating the same addition in subsequent search proceedings by merely seeking to rely on statement and affidavit of the third party.
(g) S.K. Jain Vs. ACIT Bhopal in IT(SS).A.Nos 210 to 216 / Ind / 2007 dated 28.01.2010 wherein it is held that, if no incriminating material is found in the search, no addition u/s 153C can be made.
(h) CIT Vs. Anil Kumar Bhatia (2012) 24 Taxmann.com 98 (Del.)
(i) CIT Vs. Lachman Das Bhatia (2012) 26 Taxmann.com 167 (Del.) (J) ACIT v. Asha Kataria (IT.A. Nos. 3105, 3106 & 3107/Del/2011A.Yrs. : 2002-03, 2003-04 & 2006-07 dt. 20-052013)
(k) Kusum Gupta v. DCIT (ITA Nos. 4873/De12009, (2005-06) 2510(A.Y. 2003-04), 3312 (A.Y. 2004-05) 2833/Del/2011 (A.Y. 2006-07) order dt. 28-03-2013)
(xii) A gist of following decisions referred above is given as under:
(i) Gurinder Singh Bawa Vs. DCIT [2012] 28 taxmann.com 328 (Mum.):
In this case, the AO had made assessment on the information/material available in the return of income. The information regarding the gift was available in the return of income as capital account had been credited by the assessee by the amount of gift. Similar was the position in relation to addition under section 2(22)(e). The AO had not referred to any incriminating material found during the search based on which addition had been made. Therefore following the decision of the Special Bench ( supra ), we hold that the AO had no jurisdiction to make addition under section 153A . The addition made is therefore deleted on this legal ground. On merit also we do not find any case to sustain the addition. The addition made is on account of gift which is nothing but loan taken by the assessee which was converted into gift during the year. Thus source of gift was loan which the AO himself has admitted had been taken by the assessee in the year prior to 2000. Therefore, addition if any could have been made in the year of loan. Similarly, claim of the assessee and finding of CIT(A) that there was no accumulated profit has not been controverted before us. We agree with CIT(A) that current year profit has to be excluded. Therefore, there is no case for any addition under section 2(22)(e). We, therefore, dismiss the appeal of the revenue and allow the appeal filed by the assessee.
(ii) CIT Vs. Lachman Dass Bhatia [2012] 26 taxmann.com 167 (Delhi):
Both the Commissioner (Appeals) and the Tribunal have recorded a concurrent finding that there was no basis for making any addition towards low gross profit. They have found that the search on the assessee did not yield any incriminating material on the basis of which it can be said that the assessee was indulging in underinvoicing or suppression of sales. They also found that the documents on which the Assessing Officer has placed reliance, were seized from a different person and not from the assessee and that no nexus between that person and the assessee has been established beyond doubt. In such circumstances, it has been held that the seized material cannot be used against the assessee.
(iii) ACIT Vs. Mrs. Uttara S. Shorewala [2011] 12 taxmann.com460(Mum.):
In this case, the Assessing Officer had accepted the version of the assessee in the earlier assessment proceedings. However, in the proceedings, as a result of search, he proposed the addition in respect of same issues. It was held that the A.O. was not justified in repeating same additions in subsequent search proceedings by merely seeking to rely on statement and affidavit of a third party, which were nothing but reiteration of stand which he took in earlier reassessment proceedings also.
(iv) Suncity Alloys (P) Ltd. Vs. ACIT [2009] 124 TTJ 674(JD):
Assessment or reassessment made pursuant to notice under section 153A is not de novo assessment; therefore, there is no merit in ground to make a new claim of deduction or allowance during assessment/reassessment under section 153A as such where admittedly regular assessments are shown as completed assessment on date of initiation of action under section 132.
(v) DCIT Vs. Royal Marwar Tobacco Product (P.) Ltd [2009] 29 SOT 53 (AHD.)(URO):
Since no material indicating any suppressed sales for assessment years 2000-01 to 2003-04 had been found during course of search for said years, and there was no defect in books of account, Assessing Officer was not. justified, in making addition for said years on basis of material seized relating to assessment year 200405.
(vi) CIT Vs. Ani! Kumar Bhatia (2012) 24 Taxmann.com 98 (Del.) Hon'ble Delhi High Court held that A.O. is bound to issue notice to the assessee to furnish the returns for six assessment years prior to the year of the search, but at another place, in para 23 it is observed that "we are not concerned with a case where no incriminating material was found during the search conducted u/s 132 of the Act. We therefore, express no opinion as to whether Sec. 153A can be invoked even in such a situation. That question is therefore left open". In other words, there is a clear doubt in the mind of the Hon 'ble High Court as to whether proceedings u/ s 153A can still be initiated if no incriminating material is found in the search. Had it been an open and shut case i.e. acquiring of jurisdiction u/s 153A does not depend upon recovery and seizure of any incriminating material, Hon'ble High Court would not have so commented. In Anil Bhatia's case a document was found in the search which was unsigned and on the basis of which addition was made but deleted by the Tribunal on the ground that document is unsigned but Hon'ble High Court had held that once document was found in the course of the search, Sec. 153A is triggered. Once the section is triggered, it appears mandatory for the A.O. to issue notice u/s 153A calling upon the assessee to file the returns for the six assessment years prior to the year in which the search took place. From these observations, it follows that: (i) if some incriminating material is found irrespective of its effect on any particular assessment year, the A.O. gets jurisdiction to issue notice u/s 153A for all the six assessment years; (ii) if no incriminating material is found in the search, it is doubtful whether Sec. 153A can be invoked.
(vii) In this regard, we refer to para 39 - 44 from the decision of Hon'ble ITAT in the case of ACIT Vs. Mis Pratibha Industries Ltd., Mumbai (ITA Nos. 2197 - 2199,2200 -2201/M/2008) date of pronouncement 19.12.2012, in support of our contention.
39. the section starts with the non obstante phrase "Notwithstanding ... ", therefore, as soon as the search is concluded, the AO having jurisdiction over the assessee, a jurisdiction is cast upon the AO to issue notices under section 153A( 1), for the preceding six years, calling upon that person to file its returns. As soon as the notices are issued, due process of law shall begin and AO and the assessee are required to follow the same, which shall culminate with the AO to assess or reassess the total income of the searched person in all the six years in question. While casting this jurisdiction over the AO, the legislature, to remove all the difficulties with regard to the multiplicity of proceedings pending on the date of initiation of search, through 2nd Proviso, expunged all those proceedings, so that the assessee and the AO shall deal with only one type of proceedings, wherein the AO shall, as per clause (ii), assess or reassess the total income of the searched person. This barrier has been set up by the legislature only with regard to proceedings that were found pending before the AO on the date of search. Therefore, a proceeding which is pending, only those proceedings shall get abated. In other words, any proceeding that has reached its finality shall not be disturbed, as per the clarification issued by the CBDT, through Circular no. 7, dated 05.09.2003 (supra), unless there are materials found, indicating existence of income embedded in those incriminating document(s).
40. This has been explained by the Special Bench in the case of All Cargo Global Logistics Ltd. (supra) (Mum-SB), which states, "58. Thus, question NO.1 before us is answered (a) as under:
(a) In assessments that are abated, the A.O. retains the original jurisdiction as well as jurisdiction conferred on him under s. 153A for which assessments shall be made for each of the six assessment years separately;
(b) In other cases, in addition to the income that has already been assessed, the assessment under section 153A will be made on the basis of incriminating material, which in the context of relevant provisions means
(i) books of account, other documents, found in the course of search but not produced in the course of original assessment, and (i) undisclosed income or property discovered in the course of search.
Therefore what emerges is that no doubt 153A shall be initiated, and all the six years shall become subject matter of assessment under section 153A. The AO shall get the free hand, through abatement, only on the proceedings that are/is pending. It is, in these abated proceedings, AO can frame the assessment(s) afresh. But in a case or in a circumstances where the proceedings have reached finality, assessment under section 153A read with 143(3) has to be made as was originally made / assessed and in case where certain incriminating documents have been found indicating undisclosed income, then the addition shall only be restricted to those documents/incriminating material, and clubbed only to the assessment framed originally, as the law does not permit the AO to disturb already concluded issues, whether it pertained to any income or expenditure or deduction, as also observed by the Hon'ble Delhi High Court in the case of Ani[ Kumar Bhatia (supra), " 18. A perusal of Section 153A shows that it starts with a non obstante clause relating to normal assessment, procedure which is covered by Sections 139, 147, 148, 149, 151 and 153 in respect of searches made after 31.5.2003. These Sections, the applicability of which has been excluded, relate to returns, assessment and reassessment provisions. Prior to, the introduction of these three Sections, there was Chapter XIV-B of the Act, which took care of the assessment to be made in cases of search & seizure. Such an assessment was popularly known as 'block assessment' because the Chapter provided for a single assessment be made in respect of a period of a block of ten assessment years prior to the assessment year in which the search was made. In addition to these ten assessment years, the broken period up to the date on which the search was conducted was also included in what was known as 'block period'. Though a single assessment order was to be passed, the undisclosed income was to be assessed in the different assessment yeas to which it related. But all this had to be made in a single assessment order. The block assessment so made was independent of and in, addition to the normal assessment proceedings as clarified by the Explanation below Section 158BA(2). After the introduction of the group of Sections namely, 153A to 153C, the single block assessment concept was given a go-by. Under the new Section 153A, in a case where search is initiated under section 132 or requisition of books of account, documents or assets is made under Section 132A after 31.5.2008, the Assessing Officer is obliged to issue notices calling upon the searched person to furnish returns for the six assessment years immediately preceding the assessment year relevant to the previous year in which the search was conducted or requisition was made. The other difference is that there is no broken period from the first day of April of the financial year in which the search took place or the requisition was made and ending with the date of search/requisition. Under Section 153A and the new scheme provided for, the AO is required to exercise the normal assessment powers in respect of the previous year in which the search took place.
19. Under the provisions of Section 153A, as we have already noticed, the Assessing Officer is bound to issue notice to the assessee to furnish returns for each assessment year falling within the six assessment years immediately preceding the assessment year relevant to the previous year in which the search or requisition was made. Another significant feature of this Section is that the Assessing Officer is empowered assess or reassess the "total income" of the aforesaid years. This is significant departure from .11 ~ the earlier block assessment scheme in which the block assessment ~ roped in only the undisclosed income and the regular assessment proceedings were preserved, resulting in multiple assessments.
Under section 153A, however, the Assessing Officer has been given the power to assessee or reassess the 'total income' of the six assessment years in question in separate assessment orders. This means that there can 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.
20. A question may arise as to how this is to be sought to be achieved where an assessment order had already been passed in respect of all or any of those six assessment years, either under Section 143(1)(a) or Section 143(3) of the Act. If such an order is already in existence, having obviously been passed prior to the initiation of the search/requisition, the Assessing Officer is empowered to reopen those proceedings and reassess the total income taking note of the undisclosed income, if any, unearthed during the search For this purpose, the fetters imposed upon the Assessing Officer by the strict procedure to assume jurisdiction to reopen the assessment under Section 147 and 148, have been removed by the non obstante clause with which sub section (1) of Section 153A opens. The time-limit within which the notice under Section 148 can be issued, as provided in Section 149 has also been made inapplicable by the non obstante clause. Section 151 which requires sanction to be obtained by the Assessing Officer by issue of notice to reopen the assessment under Section 148 has also been excluded in a case covered by Section 153A. The timelimit prescribed for completion of an assessment or reassessment by Section 153 has also been done away with in a case covered by Section 153A With all the stop having been pulled out, the Assessing Officer under Section 153A has been entrusted with the duty of bringing to tax the total income of an assessee whose case is covered by Section 153A, by even making reassessments without any fetters, if need be.
21. Now there can be cases where at the time when the search is initiated or requisition is made, the assessment or reassessment proceedings relating to any assessment year falling within the period of the six assessment years mentioned above, may be pending. In such a case, the second proviso to sub section (1) of Section 153A says that such proceedings "shall abate". The reason is not far to seek; Under Section 153A, there is no room for multiple assessment orders in respect of any of the six assessment years under consideration. That is because the Assessing Officer has to determine not merely the undisclosed income of the assessee, but also the total income' of the assessee in whose case a search or requisition has been initiated. Obviously there cannot be several orders for the sane assessment year determining the total income of the assessee in order to ensure this state of affairs namely, that in respect the six assessment years preceding the assessment year relevant to the year in which the search took place there is only one determination of the total income, it has been provided in the second proviso of sub Sub-Section 153A that any proceedings for assessment or reassessment of the assessee which are pending on the date of initiation of the search or making requisition "shall abate". Once those proceedings abate, the decks are cleared, for the Assessing Officer to pass assessment orders for each of those six years determining the total income of the assessee which would include both the income declared in the returns, if any, furnished by the assessee as well as the undisclosed income, if any, unearthed during the search or requisition. The position thus emerging is that where assessment or reassessment proceedings are pending completion when the search is initiated or requisition is made they will abate making way for the Assessing Officer to determine the total income of the assessee in which the undisclosed income would also be included but in cases where the assessment or reassessment proceedings have already been completed and assessment orders have been passed determining the assessee's total income and such orders are subsisting at the time when the search or the requisition is made, there is no question of any abatement since no proceedings are pending. In this latter situation, the Assessing Officer will reopen the assessments or reassessments already made (without having the need to fallow the strict provisions or complying with the strict conditions of Sections 147, 148 and 151) and determine the total income of the assessee. Such determination in the orders passed under Section 153A would be similar to the orders passed in any reassessment, where the total income determined in the original assessment order and the income that escaped assessment are clubbed together and assessed as the total income".
41. On going through the provisions of section 153A, clause (b) of section 153A, 2nd Proviso and the various decisions cited before us, three possible circumstances emerge on the date of initiation of search under section 132(1) of the Income Tax Act, (a) proceedings are pending; (b) proceedings are not pending but some incriminating material found in the course of search, indicating some income and/or assets not disclosed in the return and (c) proceedings are not pending and no incriminating material has been found.
42. When we tread to trace the correct and logical answers to the above circumstances, circumstance (a) is answered by the Act itself, that is, since the proceedings are still pending, all those pending proceedings are abated and the AO gets a free hand to make the assessment. Circumstance (b) has been answered by the Courts, interpreting 2nd Proviso along with clause (b) to section 153A, wherein the Hon'ble Delhi Court observes and hold, "where the assessment or reassessment proceedings have already been completed and assessment orders have been passed determining the assessee's total income and such orders are subsisting at the time when the search or the requisition is made, there is no question of any abatement since no proceedings are pending. In this latter situation, the Assessing Officer will reopen the assessments or reassessments already made (without having the need to fallow the strict provisions or complying with the strict conditions of Sections 147, 148 and 151) and determine the total income of the assessee. Such determination in the orders passed under Section 153A would be similar to the orders passed in any reassessment, where the total income determined in the original assessment order and the income that escaped assessment are clubbed together and assessed as the total income". But when we come to third circumstance i.e. circumstance (c), we find that this has been left unanswered. Para 23 of the judgment, the Hon'ble Delhi High Court mentions that the issue is left open.
43. This, has been explained in the graphic made below and the relevant portion is in italics therein.
This can be explained through this graphic :
Search | 153A for six years I
----------| ------------------- | ------------------------------
I | Assessment pending Assessmen not pending
1-(1) 1- (2)
153A read with 143(3) to be framed, |
as per the provisions |
-------------------------------I -------------
|
IMaterial found Material not found
| - (2A) | - (2B)
Assessment to be Assessment under section
Framed: assessing 153A to be framed only
Income unearthed in as per original asst.
Search + originally whether under section
Assessed income. 143(1) or 143(3)
Assessment: under
Section 153A/143(3)
44. To answer the question, as to what shall be the assessment of total income, where there is/are no pending proceedings and no incriminating material, we have to trace out the logical conclusion, by harmonising the legislative intendments and the judicial decisions, as held by the Hon'ble Supreme Court of India in the case of K P Varghese (supra), wherein it was observed, so as to achieve the obvious intention of the Legislature and produce a rational construction. When we look into the decision of the Hon'ble Delhi High Court in Anil Kumar Bhatia's case (supra), we find that the Hon'ble Court has pointed out that in case where there is no abatement, total income has to be determined by clubbing together the income already determined in the original assessment order and the income that escaped assessment (situation 2A in the graphic). In the circumstance, what we are dealing in instantly, there are finalized assessment proceedings and no incriminating material indicating any escaped income (situation 2B in the graphic). Taking a cue from the decision of Hon'ble Delhi High Court in the case of Anil Kumar Bhatia (supra) we can tread on the same premise and hold that on clubbing, what remains is the income originally determined or assessed (i.e. income originally determined + Zero = income originally determined - as there was no incriminating material)."
(VIII) In ACIT v. Asha Kataria (I.T.A. Nos. 3105, 3106 & 3107/Del/2011A.Yrs. 2002-03,2003-04 & 2006-07 dt. 20-05-2013): ITAT Delhi bench held as under:
"29. We have carefully considered the submissions and perused the records. We find that the value of the property in this case as reflected in the registered sale deed was Rs. 33,00,000/-. Reference u/ s. 142A was made to the DVO by the Assessing Officer. DVO determined the value of the property at Rs. 63,74,700/- as against Rs. 33,00,000/ - shown by the assessee. Hence, there was difference of Rs. 30,74,700/-. This was added to the income of the assessee. However, Ld. Commissioner of Income Tax (A) deleted the addition as there was no evidence of adverse material regarding payment of under hand consideration. Similarly, no other incriminating material was found during the course of search. In our considered opinion, Ld. Commissioner of Income Tax (A) is correct in this regard. Addition in this case has been made pursuant to search on the basis of Valuation Report of the DVO. It has been settled that in case of search in the absence of any incriminating material found during search, no addition can be made on the basis of Report of the DVO. In this regard, the case laws referred by the assessee are germane and support the case of the assessee. We may further refer to the following case laws:-
a) C.I.T. vs. Abhinav Kumar Mittal [2013] 351 ITR 20 (DHC) Held, dismissing the appeal, that there was no material found in the search and seizure operations, which would justify the Assessing Officer's action in referring the matter of the District Valuation Officer for his opinion on valuation of the properties. Therefore, the valuation arrived at by the District Valuation Officer would be of no consequence. In any event, the Tribunal had also, on facts, held that the District Valuation Officer's valuation was based on incomparable sales, which is not permissible in law.
b) C.I.T. vs. Mahesh Kumar (2011) 196 Taxman 415 (DHC) Where no evidence could be gathered that assessee had invested more than value declared in registered sale deed of plots purchase and, comparable instances taken by the Valuation Officer were situated for way, addition made under section 69 on account of unexplained investment with respect of purchase of said plots was not justified.
30. From the above, it is evident that in the absence of any evidence that the assessee has invested more than value declared in the registered sale deed of property purchased, the addition in this regard on the basis of Valuation Report by the DVO is not sustainable.
31. Furthermore, we find that in this case the assessment was made u/ s. 153A of the 1. T. Act. Hence, reliance upon the decision of the Special Bench in the case of All Cargo Global Logistics Ltd. (Supra) is also germane and supports the case of the assessee. As expounded in this case assessment u/ s. 153A can be made only on the basis of incriminating material found during the course of search."
(IX) In Kusum Gupta v. DCIT (ITA Nos. 4873/DeI2009, (2005-06) 2510(A.Y. 2003-04), 3312 (A.Y. 2004-05) 2833/Del/2011 (A.Y. 2006-07) order dt. 28-032013): ITAT Delhi bench also held as under:
"10. On perusal of the assessment order for the year under consideration and others in question in the appeals before us, we find substance in the contention of Ld. AR that no incriminating material found or statement recorded during the course of search was there to suggest even prima facie that some undisclosed income was there to attract the invocation of the provisions laid down u/ s 153A of the Act for the addition as per the decision of Special Bench of the Tribunal on the issue in the case of Alcargo Global Logistics Ltd. Vs. DCfT (Supra). As discussed above the ratio laid down is that when no assessment has been abated, addition in the assessment u/ s 153A can be made only on the basis of incriminating material recovered during search. Respectfully following this decision of the Special Bench of the Tribunal we hold that in the A. Y. involved in the appeal since assessment has been abated, addition made in the assessment u/ s 153A, in absence of incriminating material recovered or statement recorded during the search, showing non-genuineness of gifts was beyond jurisdiction, hence addition so made at Rs. 20,00,000/- on account of non-genuineness of the gift which was not made in the original assessment u/ s 153(3) of the Act, was rightly deleted by the Ld. CIT(A) without commenting on merits of it. The same is upheld. The ground is accordingly rejected."
In view of above submissions, it is prayed that, legally, no addition can be made as no incriminating material has been found in the search regarding non genuineness of LDE, therefore, sanctity of assessment completed on the return filed on 02-122003 should be upheld as the time period for issuance of notice u/s 143(2) expired before the date of the search on 22-09-2005."
7. After hearing both the sides on the issue and taking into consideration, records available the following facts emerges as undisputed. The regular return of income was filed on 2.12.2003 and the same was processed u/s 143(1)(a) of the Act. The time period for issuing notice u/s 143(2) of the IT Act for selecting case for security expired on 31.12.2004. The first search was conducted on the premises of assessee on 22.9.2005 and the 2nd search was conducted on 25.8.2006 and in both the searches, no incriminating material, document, unaccounted assets and bogus of accounts were found and seized relating to land development expenses debited in profit and loss account for the year. The both searches on assessee did not yield any incriminating material on the basis of which it can be said that assessee was indulgent in debiting bogus land development expenses in its books of account. There is no reference of any material found in the search for making assessment u/s 153A of the Act. Thus the basic controversy before us remains about the scope of assessment u/s 153(A) when the return has been accepted u/s 143(1)(a) and time period for issuing notice u/s 143(2) has elapsed.
8. In our considered view, there is no dispute with regard to the proposition that A.O has the jurisdiction u/s 153A of the Act to initiate assessment/ reassessment proceedings for all the six years to compute the total income of the assessee including the undisclosed income where action have been taken against the assessee u/s 132(1) of the IT Act. However, the question remains that when return has been processed u/s 143(1) (a) and the time period for issuing notice u/s 143(2) for selecting return for scrutiny has elapsed then what nature of proceedings commenced and concluded u/s 143(1) (a). How these are different from the proceedings commenced and concluded u/s 143(3) of the Act. There is no doubt that once the proceedings u/s 143(3) are completed and concluded then there is nothing which will abate as per provisions of section 153A of the Act.
9. In our considered opinion, section 153A referred to "pending" "assessment" or "reassessment" and not "assessment orders". The assessment may not be pending even though there is no formal order u/s 143(1)(a). The moment return is filed and acknowledgement or intimation issued, the proceedings initiated by filing the return are closed, unless they are again triggered by issuing notice u/s 143(2) of the IT Act. In the case under consideration, the period for issuing the notice u/s 143(2) elapsed. The process has attained the finality which can only be assailed u/s 148 or 263 of the IT Act. Such proceedings can never be initiated u/s 143(2) when the time period for issuing notice u/s 143(2) has expired. Hon'ble ITAT, Mumbai C Bench in the case of ACIT Vs. Pratibha Industrialist Ltd. reported in 23 ITR Tribunal 766 Mumbai has also held as under :-
"Although by proceedings initiated under section 153A all six years shall become subject matter of assessment under section 153A the Assessing Officer shall have a free-hand, through abatement, only on the proceedings that are pending, to frame the assessments afresh. But in a case where the proceedings have reached finality, assessment under section 153A read with section 143(3) and certain incriminating documents have been found indicating undisclosed income, the addition shall only be restricted to those documents or incriminating material, and clubbed only to the assessment framed originally, as the law does not permit the Assessing Officer to disturb issues already concluded. Where on the date of initiation of search under section 132 or requisition of books, no proceeding is pending, but in the search, material is found indicating incriminating material, the Assessing Officer embarks on a jurisdiction, wherein he has to club the two sets of incomes, the returned income and the unearthed income and arrive at the total income.
All CARGO GLOBAL LOGISTICS Ltd. Vs. Dy. CIT [2012] 18 ITR (Trib) 106 (Mumbai) [SB] and CIT Vs. ANIL KUMAR BHATIA [2013] 352 ITR 493 (Delhi) followed.
Where in the search operation, no incriminating material is found and there are no proceedings pending before the Assessing Officer, the Assessing Officer has to issue notices under section 153A, asking the searched person to file its returns. But since there are no proceedings pending before him, the second proviso stops the Assessing Officer to proceed further, because proceedings cannot abate and since there is no material, no further jurisdiction is embarked on him. Where no proceedings are pending and no incriminating material has been found on clubbing, what remains is the income originally determined or assessed."
10. The ITAT SMC bench, Mumbai in ITA no. 786 and 787 Mumbai 2013 in its order dated 8.5.2013 has held as under :-
"I have heard rival submissions and considered them carefully. After examining the submissions and the case laws, I found that the assessee deserves to succeed in its appeal for both of the years. I noted that the assessment for assessment year 2002-03 was completed under section 143(3) and for assessment year 2001-02, the assessment was completed under section 143(1). During the assessment proceeding for assessment year 2002-03, assessee filed details of gift received in the shape of gift deeds, bank statements, confirmations and acknowledgement of income tax return filed by the donor. Thereafter the assessment under section 143(3) was completed and no addition on account of gift received by the assessee was made. It clearly shows that the AO was satisfied in respect to gift received by the assessee. Similarly, for assessment year 2001-02, the assessee has enclosed all the details of the gift along with return and the same was processed under Section 143(1) and thereafter no proceeding was initiated either by issuing notice under Section 143(2) or 148 within the stipulated period of time. Now, during the assessment proceeding under Section 153A, the assessee was required to produce the donor once again, in my considered view, is not justified or tenable in the eyes of law. This very issue has been decided by the Special Bench of the Tribunal in case of ALL Cargo Global Logistics Ltd. (supra). The Special Bench of the Tribunal has answered the question in the following manner :-
"(a) In assessments that are abated, the AO retains the original jurisdiction as well as jurisdiction conferred on him u/s 153A for which assessments shall be made for each of the six assessment years separately;
(b) In other cases, in addition to the income that has already been assessed, the assessment u/s 153A will be made on the basis of incriminating material, which in the context of relevant provisions means- (i) books of account, other documents, found in the course of search but not produced in the course of original assessment. And (ii) undisclosed income or property discovered in the course of search."
12. From the finding of the Special Bench, it becomes clear that in case of assessment already completed, no addition can be made further while completing the assessment under Section 153A, if there is no incriminating material, which in the context of relevant provision, means - (i) books of account, other documents, found in the course of search but not produced in the course of original assessment, and (ii) undisclosed income or property discovered in the course of search.
13. In the present case, neither any incriminating material was found nor any other material or document along with books of accounts were found, which were not produced before the AO while completing the assessment originally. For assessment year 2001-02, no incriminating material was found or any other documents were found, which suggests that the assessee has concealed particular of income. Therefore, in view of the observation made by the Special Bench, no addition can be made while completing the assessment under Section 153A, if there no fresh material or documents was found during the course of search."
The issues arises from those processed return can be raised only when some materials found against the assessee. The Hon'ble Delhi High Court in the case of Anil Kr. Bhatia sited it supra held that assessment u/s 153(A) would be similar to the orders passed in any reassessment, where the total income determined in the original assessment order and the income that has escaped assessment are clubbed together and assessed as the total income. The expiry of time for issuing notice u/s 143(2) of the Act takes away the jurisdiction of the AO for issuing notice u/s 143(2). It is jurisdictional power available with the AO to be exercised in a given period. Once, it is exercised then it can be completed only by making order u/s 143(3) of the Act within the time available u/s 153(1) of the Act. Once search takes place u/s 132(1) of the Act and completion of proceeding is pending on that date then such proceedings abate. Thus, the scope of assessment u/s 153A depends upon whether any assessment or reassessment proceedings were pending or completed on the date of the search. Whenever the abated proceedings are merged with the proceedings u/s 153A then scope of assessment is vide and it will cover all issues arising from the original return and issue arising on the basis of incriminating documents, and assets found and seized during the search. Wherever the proceedings are completed prior to the search then nothing merges with proceding u/s 153A of the Act and nothing abates. In such a situation, the AO has to respect the completeness of the proceedings. Admittedly, in the case of assessee, no incriminating documents were found and seized. The provisions of section 153A give power to assessing officer to assess and reassess the income. The assessing officer is empowered to make addition on account of undisclosed income or income escaped assessment. In the case under consideration, there is no incriminating material found during the course of search relating to the assessment year under consideration. The time period for issuing notice u/s 143(2) was already expired prior to the date of search. Therefore, the proceedings do not get abated by virtue of proviso to Section 153A.
10. Therefore, the question arises whether AO can make any addition in the reassessment proceedings u/s 153(A) after making inquiries which are not suggested by any document or asset seized during the search. It depends on the nature of addition. The facts and circumstances of the assessee clearly show that no incriminating document found relating to the land development expenses debited in the books of accounts. No material was on the record on that basis which income of assessee could be further assessed by Assessing Officer. Therefore, the assessing officer has no jurisdiction to make or to resort to roving and fishing inquiries to find out whether any income has escaped assessment during these reassessment proceedings. Particularly, when there is no incriminating material found and seized during the course of search u/s 132(1) of the Act and nothing is available in record to reassess the income of assessee. In view of the above, this is not a fit case for making the addition in the year under consideration, the same are deleted.
In the result, revenue appeal is dismissed.
Order pronounced in Open Court 20 June, 2013.
Sd/- Sd/-
(R.P.Tolani) (B.C. Meena)
Judicial Member Accountant Member
Binita Rukhaiyar
Date:...20 June , 2013
Copy forwarded to
Appellant
Respondent
CIT
CIT (A)
CIT (ITAT), New Delhi
PAGE 32
ITA No.2637/ Del/ 2010