Income Tax Appellate Tribunal - Cochin
M/S. Moidu'S Medicare Private ... vs The Dcit, Calicut on 10 April, 2019
1
IN THE INCOME TAX APPELLATE TRIBUNAL
COCHIN BENCH, COCHIN
BEFORE S/SHRI CHANDRA POOJARI, AM & GEORGE GEORGE K., JM
I.T.A. Nos. 62-68/Coch/2016
Assessment Years : 2006-07 to 2012-13
M/s. Moidu's Medicare Pvt. Ltd., Vs. The Deputy Commissioner of
(National Hospital), Income-tax, Central Circle-2,
Mavoor Road, Kozhikode. Kozhikode.
[PAN:AABCM 5655P]
(Assessee-Appellant) (Revenue-Respondent)
Assessee by Shri G. Surendranath Rao, CA
Revenue by Smt. A.S. Bindhu, Sr. DR
Date of hearing 28/02/2019
Date of pronouncement 10/04/2019
ORDER
Per CHANDRA POOJARI, AM:
These appeals filed by the assessee are directed against the different orders of the CIT(A)-IV, Kochi and pertain to the assessment years 2006-07 to 2012-13.
2. Since the issues raised in these appeals are common in nature, they were clubbed together, heard together and are being disposed of by this common order.
3. The first common ground raised by the assessee in ITA Nos. 62 to 68/Coch/2016 reads as follows:
I.T.A. Nos.62 to 68/Coch/2016 (2) The Commissioner of Income-tax(Appeals) is not justified in confirming disallowance only because of the jurisdictional Kerala High Court decision. The issue whether the disallowance under section 40(a)(ia) is attracted only if the amounts are remaining payable at the end of year or whether it is applicable even for amounts paid during the year has not become final and there are conflicting judgments of various high courts on the said issue.
3.1 The next common ground in ITA Nos. 64 to 68/Coch/2018 reads as follows:
(3) Without prejudice to the above arguments, the disallowance under section 40(a)(ia) is not justified when the book results are rejected and income is determined on an estimate basis. Estimation of income takes care of irregularities committed by the appellant and further addition by invoking section 40(a)(ia) amounts to punishing the assessee for a same offence on double occasion, which is not permitted by law.
3.2 The assessee has also raised common additional grounds as follows:
"The Assessing Officer should have appreciated that it is mandatory to record the satisfaction in the case of assessment of a connected person u/s. 153C. He should have known that, no incriminating documents or any money bullion, jewellery or valuable article or things or books of accounts or documents belonging to the appellant for the assessment year was seized or requisitioned. He should have appreciated that nothing has been brought on record by the Ao and no reference has been made to such material relating to the appellant for the assessment year being unearthed. In the absence of any incriminating evidence or any money, bullion, jewellery or valuable article or things etc. the assessment u/s. 153A r.w.s. 153C is not valid"
3.2 In support of the additional ground, the assessee has filed an affidavit for admission of the additional ground stating that there was an inadvertent error in not filing the above additional round on an earlier occasion. It was submitted that this was purely a legal issue and all the documents required for adjudicating the above additional ground is available on record and goes to the root of the matter. Hence, it was prayed that the additional ground may be admitted and adjudicated in the interest of justice.
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I.T.A. Nos.62 to 68/Coch/2016 3.3 We have carefully gone through the affidavit filed by the assessee. As stated by the assessee, the issue raised by the assessee in the additional ground goes to the root of the matter with regard to framing of assessments u/s. 153C of the Act in the case of searched person consequent to search u/s. 132 of the Act in the case of such other person.
4. The facts of the case are that there was a survey u/s. 133A of the Act on 31/10/2011 in the case of M/s. Kunhitharuvai Memorial Charitable Trust, Calicut. The search revealed that the assessee was receiving training charges for College of Nursing which is an institution under KMCT. A notice u/s. 153A(a) r.w.s. 153C was issued to the assessee for A.Y. 2006-07 to 2011-12 on 31/05/2012 and notice u/s. 142(1) dated 08/08/2012 was issued for A.Y. 2012-13 for furnishing the return of income. Notices were issued to the assessee on 05/06/2012 and 14/08/2012 respectively. The assessee vide letter dated 09/07/2012 informed that they could not finalize their accounts for the previous year ended 31/03/2006 till now and requested for an extension of time for furnishing the return of income till 16th August 2012. A reminder was issued on 19/09/2012 and 24/09/2012 due to non compliance to the notice u/s. 153A(a) of the Act. In response, the assessee submitted as under:
"We had been instructed to file returns of income u/s. 153A of the income Tax Act, 1961 on 4th July 2012. We wish to submit the following: We belong to a group of concerns whose chairman is Dr. K. Moidu. Search was conducted at all the concerns and residential premises. All the matters are decided upon by the chairman. Consequently, he had to wait till final decision was taken by Dr. K. 3 I.T.A. Nos.62 to 68/Coch/2016 Moidu. This caused some delay. Now he has made the decision to file all the returns of all the concerns and individuals for the above captioned years. Hence, we assure your good self we shall file the return of income before 30th November, 2012."
4.1 The assessee filed the return of income for the A.Y. 2006-07 on 06/12/2013 showing Nil income after set off of carry forward losses. On perusal of the return of income, it was found that the assessee had estimated the income at 8% of the total collection and 15% of medical check up collection. Later, it was submitted that due to under utilization of the infrastructure, there was adverse impact on the profit margin. In order to buy peace from the income tax department, the assessee admitted income from medical check up at 30%. The Assessing Officer arrived at the total collection at Rs.26,18,000/- and an amount of Rs.5,42,700/- was added to the total income for the A.Y. 2006-07.
4.2 While computing the income chargeable under the head profit and gains of business or profession, every person who was paying any interest, commission or brokerage, rent, royalty, fees for professional and technical services, payment to contractors or subcontractors for carrying out any work has to deduct tax at source at prescribed rate as per the provisions of section 40(a)(ia) of the Act. Non deduction of tax at source from such expenditure cannot be allowed in computing the total income of the assessee.
5. Against this, the assessee is in appeal before us. The contention of the AR is that initiation of proceedings u/s. 153 is not in accordance with law. According to 4 I.T.A. Nos.62 to 68/Coch/2016 him, before issue of notice u/s. 153C satisfaction note is required to be made by the AO who has passed the order u/s. 153A before the seized document has transmitted to the AO on the assessee in whose jurisdiction the present assessee falls, as the assessee is other than the searched person. Further he submitted that such satisfaction note should be recorded before the proceedings of the searched person are completed u/s. 153A of the Act and not later. According to him, no satisfaction is recorded by the AO who has passed the order u/s. 153A of the Act in case of searched person u/s. 132 of the Act.
7. The Ld. AR further submitted that recording of satisfaction by the Assessing Authority that any money, bullion, jewellery or other valuable article/thing or books of account/documents seized during search belong to the person other than the person searched is a sine qua non for initiating action under Section 153C. It was submitted that that no such satisfaction was recorded by the assessing authority before the assessment u/s. 153A read with section 153C commenced on the assessee as a connected person. The Ld. AR relied on the judgment of the Apex Court in the case of CIT vs. Calcutta Knitwears, Ludhiana, (362 ITR 673), wherein it was decided that recording of recording of satisfaction note is pre-requisite before commencing assessment proceedings in the case of the person other than the person who has been searched. The Ld. AR also relied on the CBDT Circular No. 24/2015 [F.NO.279/Misc./140/2015/ITJ], dated 31-12-Z015 in which it was mentioned that the principles as reiterated by the Supreme Court, with regard to recording of satisfaction note have to be strictly complied with and this would apply 5 I.T.A. Nos.62 to 68/Coch/2016 even if the AO of the searched person and the connected person is the same. If this condition has not been complied with all proceedings in terms of the notice u/s. 153A read with section 153C would be invalid. It was submitted that when the assumption of jurisdiction by the AO is not proper by issue of a valid notice, all consequential proceedings that follow such invalid notice would also be invalid . 7.1 The Ld. AR further submitted that for commencement of proceedings u/s 153C, the notice issued to an assessee should be based on the seized materials and issue of a valid notice is a sine-qua-non for commencement of assessment of a connected person u/s 153C. In the instant case, it was submitted that notice issued to the assessee for the year under consideration was not based on any searched materials. The notice had vaguely mentioned that "certain documents and books of account" pertaining to the assessee was seized. The fact is that nothing belonging to the assessee was seized and no specific mention as to what was seized was recorded anywhere. According to the Ld. AR when the notice u/s 153C is not based on any seized material the notice itself is invalid as was held by the Madras High court in CIT Vs, Late. J. Chandrasekhar(HUF) (338 ITR 61) (Mad). 7.2 The Ld. AR submitted that before assumption of jurisdiction, the Assessing Officer of the searched person has to be satisfied that documents or materials found during the search belong to a person other than the searched person. According to the Ld. AR, there was no mention in the assessment order as to what documents or valuables were found in the premises of the searched person that belonged to the 6 I.T.A. Nos.62 to 68/Coch/2016 assessee company. It was submitted that in the instant case, the fact that no material belonging to the assessee was unearthed during search is clear from the fact that the addition made to the income returned in the order u/s 153C was on account of addition u/s 40a(ia) due to non-deduction of tax and differential income from medical check up which was added on estimated basis. It is now settled law that proceedings under Sec 153C of the income Tax Act against a person who was not searched but is a connected person under Sec 153C cannot be initialed, unless incriminating documents or valuables belonging to such person were detected during search. The Ld. AR relied on the judgment of the Delhi High court in the case of Pepsico India Holdings Private Limited vs. ACIT (370 ITR 295 (Del). According to the Ld. AR, unless there is a clear recording that the AO is satisfied about the discovery of incriminating documents or valuables which belong to the assessee, the proceedings initiated u/s 153A read with section I53C against the assessee would be invalid. Such an assessment is clearly not sustainable as the assessing authority wrongly assumed jurisdiction under Sec. I53C as has been held by the Supreme Court in the case of Sinhgad Technical Education Society v. CIT(397 ITR 344) (SC). The Ld. AR also relied on the decision of the ITAT, Hyderabad Bench in the case of Shettys Pharmaceuticals & Biologicals Ltd. vs. DCIT (47 taxmann.com 85 (Hyderabad - Trib.) 7.3 The Ld. AR referred to para 5 of the assessment order dated 31.03.2014 wherein it was mentioned that there was a survey in the premises of the assessee. It was submitted that if the estimated additions were made on the basis of survey 7 I.T.A. Nos.62 to 68/Coch/2016 with respect to receipts from hospital collections and income from medical check-up apart from the addition made u/s 40a(ia) on account of non-deduction of income tax at source on some payments, then the AO should have proceeded against the assessee by issuing notice u/s 148 and the assessment should have been completed under section 143(3) of the Act.
7.4 On the other hand, the learned DR submitted that there was a there was a survey u/s. 133A of the Act on 31/10/2011 in the case of M/s. Kunhitharuvai Memorial Charitable Trust, KMCT Corporate Office, Kozhikode and documents belonging to the present assessee were found during the course of search of that person.. Therefore, notice u/s. 153A was issued for framing the assessment u/s. 153C of the Act in the case of searched person. According to the Ld. DR, the AO had complied with the requirement of section 153C in its entirety before issuing the notice and assessment order framed u/s. 153C was valid.
8. We have heard both the parties and perused the material on record. In this case, here was a survey u/s. 133A of the Act on 31/10/2011 in the case of M/s. Kunhitharuvai Memorial Charitable Trust, Calicut. The search revealed that the assessee was receiving training charges for College of Nursing which is an institution under KMCT. A notice u/s. 153A(a) r.w.s. 153C was issued to the assessee for A.Y. 2006-07 to 2011-12 on 31/05/2012 and notice u/s. 142(1) dated 08/08/2012 was issued for A.Y. 2012-13 for furnishing the return of income. Notices were issued to the assessee on 05/06/2012 and 14/08/2012 respectively. 8
I.T.A. Nos.62 to 68/Coch/2016 The assessee vide letter dated 09/07/2012 informed that they could not finalize their accounts for the previous year ended 31/03/2006 till now and requested for an extension of time for furnishing the return of income till 16th August 2012. 8.1 A reminder was issued to the assessee on 19/09/2012 and 24/09/2012 due to non-compliance of the notice u/s. 153A(a) of the Act. However, the assessee once again requested for time to file the return of income upto 30/11/2012. Finally, the assessee filed the return of income on 06/12/2012. 8.1.1 Now, in order to understand the scheme of framing the assessment in the case of search conducted u/s. 132 of the Act and documents requisitioned u/s. 132A of the Act, we have to examine the provisions of section 153A to 153D of the Act brought on Statute by the Finance Act, 2003 w.e.f. 1.6.2003. These provisions have replaced the earlier provisions relating to special procedure for assessment of search cases in section 158B to 158BI of the Act. In the instant case, the action was taken in the hands of the assessee u/s. 153C r.w.s. 153A of the Act consequent to the search conducted u/s. 132 of the Act. Therefore, provisions of section 153C stand applicable in the case of present assessee to frame the assessment. For the sake reference, we prefer to reproduce section 153A to 153C of the Act hereunder:
"153A. [(1)] Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall -
(a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139;
(b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made :9
I.T.A. Nos.62 to 68/Coch/2016 Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years:
Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this [sub-section] pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate :
Provided also that the Central Government may by rules made by it and published in the Official Gazette (except in cases where any assessment or reassessment has abated under the second proviso), specify the class or classes of cases in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made.
(2) If any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner:
Provided that such revival shall cease to have effect, if such order of annulment is set aside.
Explanation.--For the removal of doubts, it is hereby declared that,--
(i) save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to the assessment made under this section;
(ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year.
153B. (1) Notwithstanding anything contained in section 153, the Assessing Officer shall make an order of assessment or reassessment,--
(a) in respect of each assessment year falling within six assessment years referred to in clause (b) of 53[sub-section (1) of] section 153A, within a period of two years from the end of the financial year in which the last of the authorisations for search under section 132 or for requisition under section 132A was executed;10
I.T.A. Nos.62 to 68/Coch/2016
(b) in respect of the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A, within a period of two years from the end of the financial year in which the last of the authorisations for search under section 132 or for requisition under section 132A was executed :
Provided that in case of other person referred to in section 153C, the period of limitation for making the assessment or reassessment shall be the period as referred to in clause (a) or clause (b) of this sub-section or one year from the end of the financial year in which books of account or documents or assets seized or requisitioned are handed over under section 153C to the Assessing Officer having jurisdiction over such other person, whichever is later:
Provided further that in the case where the last of the authorisations for search under section 132 or for requisition under section 132A was executed during the financial year commencing [on or after the 1st day of April, 2004 but before the 1st day of April, 2010],--
(i) the provisions of clause (a) or clause (b) of this subsection shall have effect as if for the words "two years" the words "twenty-one months" had been substituted;
(ii) the period of limitation for making the assessment or reassessment in case of other person referred to in section 153C, shall be the period of twenty-one months from the end of the financial year in which the last of the authorizations for search under section 132 or for requisition under section 132A was executed or nine months from the end of the financial year in which books of account or documents or assets seized or requisitioned are handed over under section 153C to the Assessing Officer having jurisdiction over such other person, whichever is later:
Provided also that in case where the last of the authorisations for search under section 132 or for requisition under section 132A was executed during the financial year commencing [on or after the 1st day of April, 2005 but before the 1st day of April, 2009] and during the course of the proceedings for the assessment or reassessment of total income, a reference under sub-section (1) of section 92CA--
(i) was made before the 1st day of June, 2007 but an order under sub-section (3) of section 92CA has not been made before such date; or
(ii) is made on or after the 1st day of June, 2007, the provisions of clause (a) or clause (b) of this sub-section shall, notwithstanding anything contained in clause (i) of the second proviso, have effect as if for the words "two years", the words "thirty-three months" had been substituted:11
I.T.A. Nos.62 to 68/Coch/2016 Provided also that in case where the last of the authorisations for search under section 132 or for requisition under section 132A was executed during the financial year commencing on the 1st day of April, 2009 or any subsequent financial year and during the course of the proceeding for the assessment or reassessment of total income, a reference under sub-section (1) of section 92CA is made, the provisions of clause (a) or clause (b) of this sub-section, shall, notwithstanding anything contained in clause (i) of the second proviso, have effect as if for the words "two years", the words "three years" had been substituted:
Provided also that in case where the last of the authorisations for search under section 132 or for requisition under section 132A was executed during the financial year commencing [on or after the 1st day of April, 2005 but before the 1st day of April, 2009] and during the course of the proceedings for the assessment or reassessment of total income in case of other person referred to in section 153C, a reference under sub-section (1) of section 92CA--
(i) was made before the 1st day of June, 2007 but an order under sub-section (3) of section 92CA has not been made before such date; or
(ii) is made on or after the 1st day of June, 2007, the period of limitation for making the assessment or reassessment in case of such other person shall, notwithstanding anything contained in clause (ii) of the second proviso, be the period of thirty-three months from the end of the financial year in which the last of the authorisations for search under section 132 or for requisition under section 132A was executed or twenty-one months from the end of the financial year in which books of account or documents or assets seized or requisitioned are handed over under section 153C to the Assessing Officer having jurisdiction over such other person, whichever is later:
Provided also that in case where the last of the authorisations for search under section 132 or for requisition under section 132A was executed during the financial year commencing on the 1st day of April, 2009 or any subsequent financial year and during the course of the proceeding for the assessment or reassessment of total income, in case of other person referred to in section 153C, a reference under sub- section (1) of section 92CA is made, the period of limitation for making the assessment or reassessment in case of such other person shall, notwithstanding anything contained in clause (ii) of the second proviso, be the period of thirty-six months from the end of the financial year in which the last of the authorisations for search under section 132 or for requisition under section 132A was executed or twenty-four months from the end of the financial year in which books of account or documents or assets seized or requisitioned are handed over under section 153C to the Assessing Officer having jurisdiction over such other person, whichever is later.
Explanation.--In computing the period of limitation for the purposes of this section,--12
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(i) the period during which the assessment proceeding is stayed by an order or injunction of any court; or
(ii) the period commencing from the date on which the Assessing Officer directs the assessee to get his accounts audited under sub-section (2A) of section 142 and--
(a) ending with the last date on which the assessee is required to furnish a report of such audit under that subsection; or
(b) where such direction is challenged before a court, ending with the date on which the order setting aside such direction is received by the Commissioner, or
(iii) the time taken in reopening the whole or any part of the proceeding or in giving an opportunity to the assessee of being re-heard under the proviso to section 129; or
(iv) in a case where an application made before the Settlement Commission under section 245C is rejected by it or is not allowed to be proceeded with by it, the period commencing from the date on which such application is made and ending with the date on which the order under subsection (1) of section 245D is received by the Commissioner under sub-section (2) of that section; or
(v) the period commencing from the date on which an application is made before the Authority for Advance Rulings under sub-section (1) of section 245Q and ending with the date on which the order rejecting the application is received by the Commissioner under sub-section (3) of section 245R; or
(vi) the period commencing from the date on which an application is made before the Authority for Advance Rulings under sub-section (1) of section 245Q and ending with the date on which the advance ruling pronounced by it is received by the Commissioner under sub-section (7) of section 245R; or
(vii) the period commencing from the date of annulment of a proceeding or order of assessment or reassessment referred to in sub-section (2) of section 153A till the date of the receipt of the order setting aside the order of such annulment, by the Commissioner; or
(viii) the period commencing from the date on which a reference or first of the references for exchange of information is made by an authority competent under an agreement referred to in section 90 or section 90A and ending with the date on which the information requested is last received by the Commissioner or a period of one year, whichever is less, or (ix) [***] 13 I.T.A. Nos.62 to 68/Coch/2016 The following clause (ix) shall be inserted after clause (viii) in the Explanation to section 153B by the Finance Act, 2013, w.e.f. 1-4-2016 :
(ix) the period commencing from the date on which a reference for declaration of an arrangement to be an impermissible avoidance arrangement is received by the Commissioner under sub-section (1) of section 144BA and ending on the date on which a direction under sub-section (3) or sub-section (6) or an order under sub-section (5) of the said section is received by the Assessing Officer, shall be excluded :
Provided that where immediately after the exclusion of the aforesaid period, the period of limitation referred to in clause (a) or clause (b) of this 67[sub- section] available to the Assessing Officer for making an order of assessment or reassessment, as the case may be, is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to be extended accordingly.
(2) The authorisation referred to in clause (a) and clause (b) of sub-section (1) shall be deemed to have been executed,--
(a) in the case of search, on the conclusion of search as recorded in the last panchnama drawn in relation to any person in whose case the warrant of authorisation has been issued;
(b) in the case of requisition under section 132A, on the actual receipt of the books of account or other documents or assets by the Authorised Officer.
153C. Assessment of income of any other person -
(1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A :
Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to [sub-section (1) of] section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person:14
I.T.A. Nos.62 to 68/Coch/2016 Provided further that the Central Government may by rules made by it and published in the Official Gazette, specify the class or classes of cases in respect of such other person, in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made except in cases where any assessment or reassessment has abated.
(2) Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other person after the due date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year--
(a) no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or
(b) a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under subsection (2) of section 143 has expired, or
(c) assessment or reassessment, if any, has been made, before the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person, such Assessing Officer shall issue the notice and assess or reassess total income of such other person of such assessment year in the manner provided in section 153A.
8.2 From a plain reading of these sections, we find that section 153A is procedural section which deals with the mode of assessment. A notice u/s. 153A of the Act can only be issued to such person where a search is initiated u/s. 132 of the Act or books of account or other documents or any assets are requisitioned u/s. 132A of the Act after 31st day of May, 2003, requiring him to furnish within such period as may be specified in the notice, return of income in respect of each assessment year following within six assessment years immediately preceding the assessment year 15 I.T.A. Nos.62 to 68/Coch/2016 relevant to the previous year in which search is conducted or requisitioned is made. Thereafter assessment would be framed as per the provisions of section 143 of the Act. Section 153C deals with the situation where the AO is satisfied that any money, bullion, jewellery or other valuable articles or things or books of account or documents seized or requisitions belongs or belong to a person other than the person referred to in section 153A of the Act, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that the Assessing Officer shall proceed against each of such other person and issue such other person notice and assess or re-assess income of such other person in accordance with the provisions of section 153A of the Act, meaning thereby that action u/s. 153C of the Act always depends upon the action u/s. 153A of the Act upon some other person. The AO of such person in whose case search was conducted is satisfied that the money, bullion, jewellery or other valuable articles or things or books of account or documents seized or requisitioned belong to some other person, he after forming the belief to that extent regarding the same shall hand over the relevant material to the concerned AO having jurisdiction over such other person. In other words, we say that before initiating proceedings u/s 153C, the AO who has initiated proceedings for completion of assessment u/s. 153A of the Act should be satisfied that there is no undisclosed income which has been traced out when a person was searched u/s. 132 of the Act or the books of account were requisitioned u/s. 132A of the Act. Thus, in contrast to the provisions of section 148 of the Act where recording a reason in writing are sine qua non. Under Section 153C the existence of 16 I.T.A. Nos.62 to 68/Coch/2016 cogent and demonstrative material is germane to the assessing officers' satisfaction in concluding that the seized documents belong to a person other than the searched person is necessary for initiation of action under Section 153C of the Act. The bare reading of the provision of section 153C indicates that the satisfaction note could be prepared by the assessing officer either at the time of initiating proceedings for completion of assessment of a searched person under Section 153A of the Act or during the stage of the assessment proceedings. It does not mean that after completion of the assessment, the assessing officer who has passed the assessment order u/s. 153A in the case of searched person cannot prepare the satisfaction note to the effect that there exists income tax belonging to any person other than the searched person in respect of whom a search was made under Section 132 or requisition of books of accounts were made under Section 132A of the Act. In other words, the person who has passed the order in the case of the searched person u/s. 153A of the Act is required to record the satisfaction note before completion of assessment u/s. 153A of the Act.
8.3 The contention of the assessee is that satisfaction is said to have been recorded by the AO who has passed the order u/s. 153A of the Act in the case of the assessee and it is also satisfaction note to that effect that there exists income- tax belonging to any person other than the searched person in respect of whom search was made u/s. 132 of the Act or requisition of books of account were made u/s. 132A of the Act. The satisfaction note is to be recorded by the AO who has initiated proceedings for completion of assessment u/s. 153A of the Act and also it 17 I.T.A. Nos.62 to 68/Coch/2016 should be recorded. It is also to be noted that for the purpose of s. 153C a satisfaction note is sine qua non and must be prepared by the AO before he transmits the record to the other AO who has jurisdiction over such other person. The satisfaction note could be prepared at either of the following stages:
(a) At the time of or along with initiation of proceedings against the searched person u/s. 153A of the Act;
(b) Along with the assessment proceedings u/s. 153A of the Act;
(c) Immediately after the assessment proceedings are completed u/s. 153A of the Act of the searched person.
8.4 Thus, the condition precedent for issuing notice u/s. 153C and assessing or re-assessing income of such other person is that, the money, bullion, jewellery or other valuable articles or things or books of account or documents seized or requisitioned should belong to such other person. If the said requirement is not satisfied recourse cannot be made to the provisions of section 153C of the Act. Thus, the provisions contained u/s. 153C of the Act can only be invoked where there was satisfaction by the AO having jurisdiction over the person searched or requisitioned u/s. 132A during the course of assessment proceedings. Therefore, the proceedings u/s. 153A of the Act always precede the proceedings u/s. 153C of the Act and without recording satisfaction note by the Assessing Officer initiating proceedings for completion of assessment u/s. 153A of the Act cannot be proceeded u/s. 153C of the Act in the case of such other person not searched. Same view was 18 I.T.A. Nos.62 to 68/Coch/2016 taken by the Supreme Court in the case of CIT vs. Calcutta Knitwears, Ludhiana in civil appeal Nos. 3958 of 2014 (SLP) (C) No. 10542 of 2011 dated 12th March, 2014. Further it was also held by the Supreme Court in the case of Manish Maheswari vs. JCIT (289 ITR 341) as under:
"Held, Sec. 158BD provides for taking recourse to a block assessment in terms of s. 158BC in respect of any other person, the conditions precedent wherefor are : (i) satisfaction must be recorded by the AO that any undisclosed income belongs to any person, other than the person with respect to whom search was made under s. 132; (ii) the books of account or other documents or assets seized or requisitioned had been handed over to the AO having jurisdiction over such other person; and (iii) the AO has proceeded under s. 158BC against such other person. The conditions precedent for invoking the provisions of s. 158BD, thus, are required to be satisfied before the provisions of Chapter XIV-B are applied in relation to any person other than the person whose premises had been searched or whose documents and other assets had been requisitioned under s. 132A.
The impugned notice does not record any satisfaction on the part of the AO. Documents and other assets recovered during search had not been handed over to the AO having jurisdiction in the matter. No proceeding under s. 158BC had been initiated. There is, thus, a patent non-application of mind. A prescribed form had been utilized. Even the status of the assessee had not been specified. It had only been mentioned that the search was conducted in the month of November, 1995. No other information had been furnished. The provisions contained in Chapter XIV-B are drastic in nature. It has draconian consequences. Such a proceeding can be initiated, it would bear repetition to state, only if a raid is conducted. When the provisions are attracted, legal presumptions are raised against the assessee. The burden shifts on the assessee. Audited accounts for a period of ten years may have to be reopened. As the AO has not recorded his satisfaction, which is mandatory; nor has he transferred the case to the AO having jurisdiction over the matter, the impugned judgments of the High Court cannot be sustained."
8.5 In the present case, there was a search u/s. 132 of the Act in M/s. Kunhitharuvai Memorial Charitable Trust, Calicut which revealed that the assessee received training charges from College of Nursing which is an institute under KMTC. It was also noted that during the course of search, the assessee had not filed return 19 I.T.A. Nos.62 to 68/Coch/2016 of income from assessment year 2006-07 onwards. It received income from IP and OP collections, dialysis, advertisement, X-rays, Lab, CT scan, MRI, income from hospital canteen in addition to the training charges received from KMCT. Consequently, notice u/s. 153A(a) r.w.s 153C was issued to the assessee. It was therefore, a prima facie proof that condition of section 153C was satisfied before invoking the jurisdiction in the case of the assessee. The assessee had not raised this issue before the Assessing Officer. The additional ground raised by the assessee is not arising out of the impugned order of the authorities below. The assessee must have brought on record the Panchanama from the date of search till the date on which prohibitory orders were lifted in the case of the searched parties, statement recorded u/s. 132(4) of the searched parties, the order sheet entries made by the concerned Assessing Officer in respect of searched parties and order sheet entries made by its Assessing Officer and also if any statement recorded from the present assessee to show that the initiation of proceedings u/s. 153C was not proper. It involves investigation of facts which have not been brought on record by the assessee. In the present case, the assessee brought on record only one Panchanama recorded from M/s. Kunhitharuvai Memorial Charitable Trust, Kozhikode dated 01/11/2011 which is a searched party. In these circumstances, the assessee should have raised this ground at the earliest before the authorities below. No facts or material has been brought on record by the assessee in support of the additional ground of appeal. Since additional ground is raised by the assessee, therefore, the assessee shall have to prove that the same is fit for admission. The onus on the assessee was not discharged in this case. The 20 I.T.A. Nos.62 to 68/Coch/2016 challenge to notice issued u/s. 153A(a) r.w.s. 153C of the Act was not made before the authorities below. The assessee had filed the return of income before the Assessing Officer on 06/12/2012 for all the assessment years. It cannot be said that material and evidence connected with invoking the jurisdiction u/s. 153C of the Act are the internal record of the Department and the assessee could not lay hands on the same. All the materials connected with the assessments u/s. 153C are part of record of the Assessing Officer which the assessee could have asked for or get copy of the same by making a request in accordance with rule. The failure on the part of the assessee to do the needful will not support the assessee's case. In other words, the assessee has not brought on record all the facts necessary for adjudication of the issue. The latches on the part of the assessee is to be viewed as a factor against the assessee. From the judgment of the Supreme Court in the case of National Thermal Power Corporation Ltd. vs. CIT (229 ITR 383), the following principles emerge regarding the right of the parties to raise a new plea for the first time before the Tribunal:
a) It is the discretion of the Tribunal to admit or not to admit a new ground to be raised before it.
b) If the Tribunal is required to consider only the question of law arising from the facts which are on record in the assessment proceedings. Such question should be allowed to be raised.
c) That the proceedings before the tax authorities are for correctly assessing the tax liability of an assessee in accordance with law.21
I.T.A. Nos.62 to 68/Coch/2016 8.6 In our opinion, the additional ground raised by the assessee cannot be admitted for adjudication in view of not bringing the facts on record. The assessee cannot be permitted to raise this issue before the Tribunal for the first time and thereby, change the very basis of assessment. In the facts and circumstances of the case, we are of the view that it would be proper not to exercise the discretionary power vested with the Tribunal in favour of the assessee by permitting them to raise this issue before the Tribunal for the first time. We also place reliance on the judgment of the Jurisdictional High Court in the case of Dr. R.P. Patel vs. CIT (225 CTR 378). In view of this, the additional ground raised by the assessee is rejected.
9. The first common ground of appeals in ITA Nos. 62-68/Coch/2016 reads as under:
(2) The Commissioner of Income-tax(Appeals) is not justified in confirming disallowance only because of the jurisdictional Kerala High Court decision. The issue whether the disallowance under section 40(a)(ia) is attracted only if the amounts are remaining payable at the end of year or whether it is applicable even for amounts paid during the year has not become final and there are conflicting judgments of various high courts on the said issue.
9.1 The facts of the case are that in these assessment years, the assessee made various payments without deduction of tax in respect of IP and OP collections, advertisement, dialysis, X-rays, Lab, CT scan, MRI, income from hospital canteen in addition to the training charges received from KMCT. In view of this, the Assessing Officer invoked the provisions of section 40(a)(ia) of the Act. On appeal, the CIT(A) observed that non deduction of TDS leads to disallowance u/s. 40(a)(ia) 22 I.T.A. Nos.62 to 68/Coch/2016 of the Act. He also relied on the judgment of the Jurisdictional high Court in the case of Thomas George Muthoot vs. CIT (287 CTR 101) wherein it was held that as per section 40(a)(ia) of the Act, once it is found that there was failure to deduct tax at source, the fact that the recipient had subsequently paid tax would not absolve the payee from the consequences of disallowance.
9.2 Against this, the assessee is in appeal before us. The Ld. AR submitted that tax is deductible u/s. 193, 194A, 194C, 194H and 194J either at the time of payment or at the time of giving credit to the recipient. However, section 40(a)(ia) is applicable only in respect of TDS defaults if amount is payable. If amount is actually paid and tax is not deducted under the above section 40(a)(ia) is not applicable. Default with reference to actual payment of expenditure would not entail disallowance.
9.3 The Ld. DR relied on the order of the lower authorities.
9.4 We have heard the rival submissions and perused the record. Reliance is placed on the judgment of the Supreme Court in the case of Palam Gas Service vs. CIT (394 ITR 300) wherein it was held as under:
"Under section 194C of the Income Tax Act, 1961, it is the statutory obligation of a person making payment to a sub-contractor to deduct tax at source at the rates specified therein at the time of credit of such sum to the account of the contract or at the time of payment thereof, whichever is earlier Section 200 of the Act imposes further obligation on the person deducting tax at source, to deposit it with the Central Government or as the Board directs within the prescribed time. A conjoint reading of the these two sections would suggest that a person, who is paying to the contractor, 23 I.T.A. Nos.62 to 68/Coch/2016 is supposed not only to deduct tax at source on the payment whether credited in the account or actual payment made, but also to deposit that amount to the credit of the Central Government within the stipulated time. The time within which the payment is to be deposited with the Central Government is mentioned in rule 30(2) of the Income Tax Rules, 1962. The liability to deduct tax at source is mandatory.
Section 40(a)(ia) of the Act relates not only to ossessees who follow the mercantile system but also assessees who follow the cash system. Section 40(a) is applicable irrespective of the method of accounting followed by an assessee. Therefore, by using the term "payable" the Legislature included the entire accrued liability. If the assessee follows the mercantile system of accounting, then the moment the amount is credited to the account of the payee on accrual of liability, tax deduction at source is required to be made but if the assessee follows the cash system of accounting, then on making payment tax deduction at source has to be made as the liability is discharged by making payment. The provisions of deduction of tax at source are applicable both in the situation of actual payment as well as of the credit of the amount. It follows that section 40(a)(ia) covers not only those cases where the amount is payable but also when it is paid.
When the entire scheme of obligation to deduct the tax at source and paying it over to the Central Government is read holistically, it cannot be held that the word 'payable' occurring in section 40(a)(ia) refers only to those cases where the amount is yet to be paid and does not cover the cases where the amount is actually paid. Once the section mandates a person to deduct tax at source not only on the amounts payable but also when the sums are actually paid to the contractor, any person who does not adhere to this statutory obligation has to suffer the consequences which are stipulated in the Act itself.
The assessee was engaged in the business of purchase and sale of liquefied petroleum gas cylinders. The main contract of the assesses for carriage of liquefied petroleum gas was with the Indian Oil Corporation. The assessee received the total freight payments from the Corporation to the tune of Rs.32,04,140 and in turn, got the transportation of liquefied petroleum gas done through three persons, to whom it made payment for freight amounting to Rs.20,97,689. These payments were made to sub- contractors without deduction of tax at source as required under section 194C of the Income-tax Act, 1961. On account of the assessee's failure to do so the Assessing Officer disallowed the freight expenses in terms of the provisions of section 40(a)(ia) of the Act. The Commissioner (Appeals) upheld the order as did the Appellate Tribunal, on further appeal, and the High Court. On appeal to the Supreme Court:
Held, that the view of the High Court was correct."24
I.T.A. Nos.62 to 68/Coch/2016 Thus, it was held that section 40(a)(ia) of the Act covers not only those cases where the amount is payable but also when it is paid.
9.5 In view of the above judgment of the Supreme Court in the case of Palam Gas Service, cited supra, we do not find any infirmity in the order of the CIT(A) on this issue. This ground of appeals of the assessee is rejected.
10. The next common ground in ITA Nos. 64 to 68/Coch/2018 reads as follows:
(3) Without prejudice to the above arguments, the disallowance under section 40(a)(ia) is not justified when the book results are rejected and income is determined on an estimate basis. Estimation of income takes care of irregularities committed by the appellant and further addition by invoking section 40(a)(ia) amounts to punishing the assessee for a same offence on double occasion, which is not permitted by law.
10.1 The main contention of the assessee is that the Assessing Officer cannot invoke the provisions of section 40(a)(ia) of the Act when the income of the assessee was estimated. It was submitted that once the income was estimated, it take care of the irregularities committed by the assessee and further addition by invoking the provisions of section 40(a)(ia) of the Act leads to double addition. 10.2 The ld. DR submitted that this ground was a fresh ground which was not at all raised before the lower authorities. Hence, it shall be dismissed. 10.3 We have heard the rival submissions and perused the record. The fact that the assessee failed to deduct tax on various payments was noted by the CIT. The 25 I.T.A. Nos.62 to 68/Coch/2016 fact that the entries are shown in the books of the assessee whose income had already been computed on the basis of the estimate but not on the return filed by the assessee, that does not prevent the ITO from invoking the provisions of section 145 of the Act for estimation of income and provisions of section 40(a)(ia) of the Act. In the case of CIT vs. Devi Prasad Vishwanath Prasad (72 ITR 194), the Supreme Court discussed the applicability of section 68 and held that on rejection of books of account, business income estimated, addition towards unexplained cash credit is to be separately added. It was observed thus:
"There is nothing in law which prevents the ITO in an appropriate case in taxing both the cash credit, the source and nature of which is not satisfactorily explained and the business income estimated by him under section 13 of the IT Act, after rejecting the books of account of the assessee as unreliable ..... Whether in a given case the ITO may tax the cash credit entered in the books of account of business, and at the same time estimate the profit must, however, depend upon the facts of each case ..... Where there is an unexplained cash credit, it is open to the ITO to hold that it is income of the assessee and no further burden lies on the ITO to show that that income is from any particular source. It is for the assessee to prove that even if the cash credit represents income it is income from a source which has already been taxed."
10.4 In the case of Kale Khan Mohammed Hanif vs. CIT (50 ITR 1), the Supreme Court held that the ITO having assessed the income of the assessee on a percentage basis was also justified in treating the unexplained cash credit as profits from an undisclosed source. The entries found in the books of account of the business must be referable to the income of the business which had been computed on the basis of estimate without accepting the return filed by the assessee which amounts to double taxation of the same income. The Court ruled thus: 26
I.T.A. Nos.62 to 68/Coch/2016 "The question would seem to suggest that because the income from a disclosed source has been computed on the basis of an estimate and not on the basis of the return filed in respect of it, an income represented by a credit entry in the books of account of that source cannot be held to be income from another and undisclosed source. We do not see why it cannot be so held ..... if the income is treated as one from an undisclosed source which the question postulates, it is not treated as income of the disclosed source which had previously been assessed to tax and, therefore, there is in such a case no double taxation. It is not a case where the income sought lo be taxed was held to be undisclosed income of a disclosed source, the income of which source had previously been taxed on the basis of an estimate ..... the question whether income represented by an entry in the books of a business is income of that business or of another business would have to be decided on the facts which showed the business to which it belonged. But quite clearly, the answer to that question would not depend on whether the income from the first mentioned business had been computed on the basis of a return filed or of an estimate of the income made by the taxing authorities Therefore, it cannot be said that the taxing authorities were precluded from treating the amounts of the credit entries as income from undisclosed sources simply because the entries appear in the books of a business whose income they had previously computed on a percentage basis."
10.5 Thus, there is nothing in law which prevents the Assessing Officer to invoke the provisions of section 145 of the Act for estimation of income and provisions of section 40(a)(ia) of the Act. We do not find any infirmity in the order of the Assessing Officer and the same is concerned. Hence, this ground of appeals of the assessee are dismissed.
11. In the result, all the appeals filed by the assessee are dismissed.
Order pronounced in the open Court on this 10 th April, 2019 sd/- sd/-
(GEORGE GEORGE K.) (CHANDRA POOJARI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Place: Kochi
Dated: 10th April, 2019
27
I.T.A. Nos.62 to 68/Coch/2016
GJ
Copy to:
1. M/s. Moidu's Medicare Pvt. Ltd., (National Hospital), Mavoor Road, Kozhikode.
2. The Deputy Commissioner of Income-tax, Central Circle-2, Kozhikode.
3. The Commissioner of Income-tax(Appeals)-IV, Kochi.
4. The Commissioner of Income-tax, Central, Kochi.
5. D.R., I.T.A.T., Cochin Bench, Cochin.
6. Guard File.
By Order (ASSISTANT REGISTRAR) I.T.A.T., Cochin 28