Gujarat High Court
The Principal Commissioner Of Income ... vs Rameshbhai Jivraj Desai on 18 September, 2020
Author: J.B.Pardiwala
Bench: Vikram Nath, J.B.Pardiwala
C/TAXAP/195/2020 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 195 of 2020
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THE PRINCIPAL COMMISSIONER OF INCOME TAX
Versus
RAMESHBHAI JIVRAJ DESAI
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Appearance:
MRS MAUNA M BHATT, SENIOR STANDING COUNSEL(174) for the
Appellant(s) No. 1
for the Opponent(s) No. 1
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CORAM:HONOURABLE THE CHIEF JUSTICE MR. VIKRAM NATH
and
HONOURABLE MR. JUSTICE J.B.PARDIWALA
Date : 18/09/2020
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA)
1. This Tax Appeal under Section 260A of the Income Tax Act, 1961 (for short "the Act, 1961") is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal, Ahmedabad "C" Bench dated 17.01.2020 in IT(SS) A No. 108/Ahd/2017 for A.Y. 2009-10.
2. The Revenue proposed the following substantial question of law for the consideration of this Court:-
Page 1 of 16 Downloaded on : Sun Feb 28 12:54:56 IST 2021C/TAXAP/195/2020 ORDER "Whether the Appellate Tribunal is right in law and on facts in holding that in absence of any incriminating material related to the given assessment year found during search, assessment u/s. 153A of the Act cannot be made for that assessment year for which assessment has been concluded on the date of search and not abated? "
3. It appears from the materials on record that a search action under Section 132 of the Act, 1961 was undertaken in the group cases of Master Group in F.Y. 2012-13 on 03.01.2013. In such circumstances, in accordance with the provisions of Section 153A of the Act, 1961, a notice was issued to the assessee dated 19.11.2013. In response to the said notice, the assessee filed his return of income declaring total income of Rs. 12,74,710/-. Thereafter, the order under Section 153A read with Section 143(3) of the Act, 1961 dated 31.03.2015 came to be passed determining the total income of Rs. 5,59,10,869/-.
4. It further appears that in the course of the assessment proceedings, the Assessing Officer Page 2 of 16 Downloaded on : Sun Feb 28 12:54:56 IST 2021 C/TAXAP/195/2020 ORDER noticed that for the A.Y. 2009-10, bad debts of Rs.
94,14,513/- were written off. The auditor in his audit report stated that although the bad debts of the aforesaid amount were written off, yet no relevant records or details were furnished. In view of the same, the Assessing Officer disallowed the claim of the bad debts of Rs. 94,14,513/- and added the same to the total income of the assessee.
5. The assessee being dissatisfied with the assessment order, preferred appeal before the Commissioner of Income Tax (A). The Commissioner of Income Tax (A) confirmed the addition/disallowance and dismissed the appeal of the assessee.
6. The assessee being dissatisfied with the order of the Commissioner of Income Tax (A), preferred appeal before the Appellate Tribunal. The Appellate Tribunal allowed the appeal of the assessee.
7. Being dissatisfied with the order passed by the Page 3 of 16 Downloaded on : Sun Feb 28 12:54:56 IST 2021 C/TAXAP/195/2020 ORDER Appellate Tribunal, the Revenue is here before this Court with the present appeal.
8. We have heard Ms. Mauna M. Bhatt, the learned Senior Standing Counsel, appearing for the Revenue.
9. The Tribunal noted the following contentions raised on behalf of the assesee in its impugned order:-
"1.1 The order passed u/s. 250 on 26.12.2016 for A.Y. 2009-10 by CIT (A)-7, Abad upholding the validity of proceedings u/s. 153A of the Act as well as the addition of Rs. 3,83,40,000/- as unaccounted profit in respect of land transactions 6t bad debts of Rs. 94,14,513/- is wholly illegal, unlawful and against the principles of natural justice.
1.2 The Ld. CIT(A) has grievously erred in law and or on facts in not considering fully and properly the submissions made and evidence produced by the appellant with regtard to the impugned addition.
2.1 The CIT(A) has grievously erred in law and Page 4 of 16 Downloaded on : Sun Feb 28 12:54:56 IST 2021 C/TAXAP/195/2020 ORDER on facts in confirming the validity of proceedings as well as noticve u/s. 153A dated 19.11.2013 for A.Y. 2009-10, though the conditions precedents were not fulfilled. Therefore, the notice as well as proceedings u/s. 153A(1) were wholly illegally and unlawful in view of no incriminating material found during the course of search for this year.
2.1 That in the facts and circumstances of the case as well as in law, the Ld.CIT(A) ought not to have upheld the validity of proceedings as well as notice u/s. 153A dated 19.11.2013 for A.Y.2009-10.
3.1 The Ld.CIT(A) has grievously erred in law and on facs in confirming the addition of Rs.3,83,40,000/- as unaccounted profit in respect of land transactions with M/s Raj Corporation as unaccounted profit in respect of land transactions.
3.2 The Ld.CIT(A) has grievously erred in law and on facts in holding that the appellant had failed to produce documents in respect of purchase and sale of land.
3.3 The Ld.CIT(A) has grievousl erred in law Page 5 of 16 Downloaded on : Sun Feb 28 12:54:56 IST 2021 C/TAXAP/195/2020 ORDER and on facts in holding that there was unaccounted profit and on facts in holding that there was unacco8untd profit of Rs.3,83,40,000/- in respect of lands at Tragad Village which was the diversion to the books of RJD Impex Pvt.Ltd.(correct is M/s Raja Corporation) was a sham transaction as well as explain satisfactorily the impugned amount as well as make request for admisison of additional evidence.
4.1 The Ld.CIT(A) has grievously erred in law and on facts in confirming the disallowance of bad debts/business loss of Rs.94,14,513/-.
4.2 That in the facts and circumstances of the case as well as in law, the Ld.CIT(A) ought not to have upheld the disallowance of bad debts/business loss of Rs.94,14,513/-.
It is, therefore, prayed that the additiona/disallowance of Rs.3,83,40,000/- & Rs. 94,14,513/- and validity u/s. 153A(1) upheld by the CIT(A) may kindl be deleted."
10. The Appellate Tribunal, while allowing the appeal of the assessee held as under:-
Page 6 of 16 Downloaded on : Sun Feb 28 12:54:56 IST 2021C/TAXAP/195/2020 ORDER "53. At the outset we note that the technical issue raised by the assessee in ground 1 & 2 challenging the validity of the assessment framed under section 153A of the Act is identical to the issue raised in the case of Shri Rajnibhai Jivraj Desai in ITA No. 104/AHD/2017 which has been decided by us in favour of the assessee vide paragraph No. 14 & 15 of this order. For the detail discussion please refer the relevant paragraph as discussed above. Therefore, respectfully following the same and to maintain parity with the findings, we allow the technical ground raised by the assessee in his favour withut going into the merit of the case."
11. We are of the view that the Tribunal could not be said to have committed any error in passing the impugned order waranting any interference in this appeal. As such, the question of law as proposed by the Revenue cannot be termed as a substantial question of law.
12. In the aforesaid context, we may refer to and Page 7 of 16 Downloaded on : Sun Feb 28 12:54:56 IST 2021 C/TAXAP/195/2020 ORDER rely upon a decision of this High Court in the case of Principal Commissioner of Income-tax-4 vs. Saumya Construction (P.) Ltd, reported in 387 ITR 529, more particularly the observations made in Paras 15 to 19, which read thus:
"15. On a plain reading of section 153A of the Act, it is evident that the trigger point for exercise of powers thereunder is a search under section 132 or a requisition under section 132Aof the Act. Once a search or requisition is made, a mandate is cast upon the Assessing Officer to issue notice under section 153A of the Act to the person, requiring him to furnish thereturn of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made and assess or reassess the same. Since the assessment under section 153A of the Act is linked with search and requisition under sections 132 and 132A of the Act, it is evident that the object of the section is to bring to tax the undisclosed income which is found during the course of or pursuant to the search or Page 8 of 16 Downloaded on : Sun Feb 28 12:54:56 IST 2021 C/TAXAP/195/2020 ORDER requisition.However, instead of the earlier regime of block assessment whereby, it was only the undisclosed income of the block period that was assessed, section 153A of the Act seeks to assess the total income for the assessment year, which is clear from the first proviso thereto which provides that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years. The second proviso makes the intention of the legislature clear as the same provides that assessment or reassessment, if any, relating to the six assessment years referred to in the sub- section pending on the date of initiation of search under section 132 or requisition under section 132A, as the case may be, shall abate. Sub-section (2) of section 153A of the Act provides that if any proceeding or any order of assessment or reassessment made under sub- section (1) isannulled in appeal or any other legal provision, then the assessment or reassessment relating to any assessment year which had abated under the second proviso would stand revived. The proviso thereto says that such revival shall cease to have effect if such order of annulment is set aside. Thus, any proceeding of assessment or reassessment Page 9 of 16 Downloaded on : Sun Feb 28 12:54:56 IST 2021 C/TAXAP/195/2020 ORDER falling within the six assessment years prior to the search or requisitionstands abated and the total income of the assessee is required to be determined under section 153A of the Act. Similarly, sub-section (2) provides for revival of any assessment or reassessment which stood abated, if any proceeding or any order of assessment or reassessment made under section 153A of the Act is annulled in appeal or any other proceeding.
16. Section 153A bears the heading "Assessment in case of search or requisition". It is well settled as held by the Supreme Court in a catena of decisions that the heading of the section can be regarded as a key to the interpretation of the operative portion of the section and if there is no ambiguity in the language or if it is plain and clear, then the heading used inthe section strengthens that meaning. From the heading of section 153, the intention of the legislature is clear viz., to provide for assessment in case of search and requisition. When the very purpose of the provision is to make assessment in case of search or requisition, it goes without saying that the assessment has to have relation to the search or requisition. In other words, the assessment should be connected with Page 10 of 16 Downloaded on : Sun Feb 28 12:54:56 IST 2021 C/TAXAP/195/2020 ORDER something found during the search or requisition, viz., incriminating material which reveals undisclosed income. Thus, while in view of the mandate of sub-section (1) of section 153A of the Act, in every case where there is a search or requisition, the Assessing Officer is obliged to issue notice to such person to furnish returns of income for the six years preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made, any addition or disallowance can be made only on the basis of material collected during the search or requisition. In case no incriminating material is found, as held by the Rajasthan High Court in the case of Jai Steel (India), Jodhpur v. Assistant Commissioner of Income Tax(supra), the earlier assessment would have to be reiterated. In case where pending assessments have abated, the Assessing Officer can pass assessment orders for each of the six years determining the total income of the assessee which would include income declared in the returns, if any, furnished by the assessee as well as undisclosed income, if any, unearthed during the search or requisition. In case where a pending reassessment under section 147 of the Act has abated, needless to state thatthe scope and Page 11 of 16 Downloaded on : Sun Feb 28 12:54:56 IST 2021 C/TAXAP/195/2020 ORDER ambit of the assessment would include any order which the Assessing Officer could have passed under section 147 of the Act as well as under section 153A of the Act.
17. In the facts of the present case, a search came to be conducted on 07.10.2009 and the notice was issued to the assessee under section 153A of the Act for assessment year 2006-07 on 04.08.2010. In response to the notice, the assessee filed return of income on 18.11.2010. In terms of section 153B, the assessment was required to be completed within a period of two years from the end of the financial yearin which the search came to be carried out, namely, on orbefore 31st March, 2012. Here, insofar as the impugned addition is concerned, the notice in respect thereof came to be issued on 19.12.2011 seeking an explanation from the assessee. The assessee gave its response by reply dated 21.12.2011 calling upon the Assessing Officer to provide copies of statements recorded on oath of Shri Rohit P. Modi and Smt. Pareshaben K. Modi during the search as well as the copies of the documents upon which the department placed reliance for the purpose of making the proposed addition as well as the copy of the explanation given by Shri Rohit P. Modiand Smt. Pareshaben K. Modi Page 12 of 16 Downloaded on : Sun Feb 28 12:54:56 IST 2021 C/TAXAP/195/2020 ORDER regarding the on-money received, copies of the assessment orders in case of saidpersons and also requested the Assessing Officer to permit him to cross-examine the said persons. The Assessing Officer issued summons to the said persons, however, they were out of station and it was not known as to when they would return.In this backdrop, without affording any opportunity to the assessee to cross-examine the said persons, the Assessing Officer made the addition in question.
18. In this case, it is not the case of the appellant that any incriminating material in respect of the assessment year under consideration was found during the course of search. At therelevant time when the notice came to be issued under section153A of the Act, the assessee filed its return of income. Muchlater, at the fag end of the period within which the order under section 153A of the Act was to be made, in other words, when the limit for framing the assessment as provided under section 153 was about to expire, the notice has been issued in the present case seeking to make the proposed addition of Rs.11,05,51,000/- on the basis of the material which was not found during the course of search, but on the basis of a statement of Page 13 of 16 Downloaded on : Sun Feb 28 12:54:56 IST 2021 C/TAXAP/195/2020 ORDER another person. In the opinion of this court, in a case like the present one, where an assessment has been framed earlier and no assessment or reassessment was pending on the date of initiation of search under section 132 or making of requisition under section 132A, while computing the total income of the assessee under section 153A of the Act, additions or disallowances can be made only on the basis of the incriminating material found during the search or requisition. In the present case, it is an admitted position that no incriminating material was found during the course of search, however, it is on the basis of some material collectedby the Assessing Officer much subsequent to the search, that the impugned additions came to be made.
19. On behalf of the appellant, it has been contended that if any incriminating material is found, notwithstanding that in relation to the year under consideration, no incriminating material is found, it would be permissible to make additions and disallowance in respect of all the six assessment years. In the opinion of this court, the said contention does not merit acceptance, inasmuch as, the assessment in respect of each of the six assessment years is a Page 14 of 16 Downloaded on : Sun Feb 28 12:54:56 IST 2021 C/TAXAP/195/2020 ORDER separate and distinct assessment. Under section 153A of the Act, an assessment has to be made in relation to the search or requisition, namely, inrelation to material disclosed during the search or requisition. If in relation to any assessment year, no incriminating material is found, no addition or disallowance can be made in relation to that assessment year in exercise of powers under section 153A of the Act and the earlier assessment shall have to be reiterated. In this regard, this court is in complete agreement with the view adopted by the Rajasthan High Court in the case of Jai Steel (India), Jodhpur v. Assistant Commissioner of Income Tax (supra). Besides, as rightly pointed out by the learned counsel for the respondent, the controversy involved inthe present case stands concluded by the decision of this courtin the case of Commissioner of Income-tax-1 v.
Jayaben Ratilal Sorathia(supra) wherein it has been held that while it cannot be disputed that considering section 153A of the Act, the Assessing Officer can reopen and/or assess the return with respect to six preceding years; however, there must be some incriminating material available with the Assessing Officer with respect to the sale transactions in the particular assessment year. "
Page 15 of 16 Downloaded on : Sun Feb 28 12:54:56 IST 2021C/TAXAP/195/2020 ORDER
13. In view of the aforesaid, this appeal fails and is hereby dismissed.
(VIKRAM NATH, CJ) (J. B. PARDIWALA, J) NAIR SMITA V./A.M.PIRZADA Page 16 of 16 Downloaded on : Sun Feb 28 12:54:56 IST 2021