Karnataka High Court
Sri S M Kamal Pasha vs The Deputy Commissioner Of Income Tax on 2 August, 2022
Author: P.S. Dinesh Kumar
Bench: P.S. Dinesh Kumar
I.T.A No.155/2017
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 2ND DAY OF AUGUST, 2022
PRESENT
THE HON'BLE MR. JUSTICE P.S. DINESH KUMAR
AND
THE HON'BLE MRS. JUSTICE M.G. UMA
I.T.A NO.155 OF 2017
BETWEEN:
SRI. S.M. KAMAL PASHA
#3, 4TH MAIN
JAYAMAHAL EXTENSION
BANGALORE - 560 046 ....APPELLANT
(BY SHRI. S. ANNAMALAI, ADVOCATE FOR
SHRI. M. LAVA, ADVOCATE)
AND:
THE DEPUTY COMMISSIONER
OF INCOME-TAX
CENTRAL CIRCLE - 6(3)(2)
C.R.BUILDING, QUEENS ROAD
BANGALORE - 560 001. ...RESPONDENT
(BY SHRI. K.V. ARAVIND, ADVOCATE)
THIS ITA IS FILED UNDER SECTION 260-A OF THE
INCOME TAX ACT, 1961 ARISING OUT OF ORDER DATED:
18/11/2016 PASSED IN ITA NO.445/BANG/2015 &
C.O.NO.128/BANG/2015 FOR THE ASSESSMENT YEAR
2006-2007, PRAYING TO FORMULATE THE SUBSTANTIAL
QUESTIONS OF LAW AND ETC.
THIS ITA, HAVING BEEN HEARD AND RESERVED FOR
JUDGMENT ON 26.07.2022 COMING ON FOR
PRONOUNCEMENT OF JUDGMENT, THIS DAY,
P.S.DINESH KUMAR J, PRONOUNCED THE FOLLOWING:-
I.T.A No.155/2017
2
JUDGMENT
This appeal by the assessee has been admitted to consider the questions of law framed by the assessee. However, after hearing learned Advocate for the parties, we are of the opinion that only the following question arises for consideration in this appeal:
" Whether the Tribunal was justified in law in not appreciating that there did not exist any incriminating material for issuing notice under section 153A of the Act and consequently the Tribunal ought to have quashed the assessment order and consequently passed a perverse order on the facts and circumstances of the case?"
2. We have heard Shri. S. Annamalai, learned Advocate for appellant and Shri. K.V. Aravind, learned Standing Counsel for the Revenue.
3. Brief facts of the case are, a search was conducted under Section 132 of the Income Tax I.T.A No.155/2017 3 Act, 1961 ('Act' for short) in the residential premises of the assessee. Assessing Officer issued a notice under Section 153A of the Act. In response to the notice, assessee filed his return on 04.03.2011 declaring a total income of Rs.99,33,890/-. The assessment proceedings were completed vide order dated 26.12.2011 assessing a total income of Rs.7,92,57,600/-. Assessee challenged the said order before CIT(A)1 and the same was allowed2 and the Assessment order passed under Section 153A of the Act was cancelled. Revenue challenged CIT(A)'s order before ITAT3. By the impugned order, the ITAT has allowed Revenue's appeal and dismissed cross-objections filed by the assessee.
4. Shri. Annamalai submitted that no incriminating material was found during the search. 1 Commissioner of Income Tax (Appeals) 2 Vide order dated 30.07.2014 in ITA No.477/CIT(A)-V/2011-12 dated 30.07.2014 3 Income Tax Appellate Tribunal I.T.A No.155/2017 4 Therefore, the Assessing Officer could not have disturbed the earlier Assessment order. The CIT(A) having recorded that no incriminating material was found during the search has rightly allowed assessee's appeal. The ITAT, following the decision in Canara Housing Development Company Vs. Deputy Commissioner of Income-tax, Central Circle-I(1)4, has allowed Revenue's appeal. He urged that it is settled position of law that no additions can be made in the absence of incriminating material in the assessment under Section 153A of the Act. Accordingly, he prayed for allowing this appeal.
5. Shri. Aravind, opposing the appeal placed strong reliance on Canara Housing and submitted that once the proceedings are initiated under Section 153A of the Act, the legal effect is, in case where the Assessment order is passed, it 4 (2014) 49 Taxmann.com 98 (Karnataka) I.T.A No.155/2017 5 stands re-opened and in the eye of law there is no order of assessment.
6. Adverting to Section 153A of the Act, he submitted that once the proceedings are initiated under this provision, the Assessing Officer is required to assess or re-assess the total income of six assessment years. He further submitted that the ITAT has rightly followed the order passed by the jurisdictional High Court and hence, it does not call for any interference.
7. We have carefully considered rival contentions and perused the records.
8. The Authority in Canara Housing relied upon by the ITAT has been considered by this Court in Commissioner of Income-Tax, Bengaluru Vs. IBC Knowledge Park Pvt. Ltd.5 and Principal Commissioner of Income Tax Vs. Delhi International 5 (2016) 69 Taxmann.com Kar, I.T.A No.155/2017 6 Airport Pvt. Ltd.6. It has also been considered by the Delhi High Court in Commissioner of Income-Tax (Central-III) Vs. Kabul Chawla7.
9. In IBC Knowledge Park, it is held as follows:
" 54. On a consideration of the relevant sections as well as judicial precedent referred to above, what emerges is that, Section 158BD of the Act deals with undisclosed income of a third party. However, insofar as the incriminating material of the searched person or other person detected during the course of search is concerned, the same can be considered during the course of assessment. Further, such incriminating material must relate to undisclosed income which would empower the Assessing Officer to upset or disturb a concluded assessment of the other person. Otherwise, a concluded assessment would be disturbed without there being any basis for doing so which is impermissible in law. Even in case of a searched person, the same reason would hold good as in case of any other person. As observed by us, detection or the existence of incriminating material is a must for disturbing the assessment already made and concluded. But, at the same time, such can be at three stages: one, at the stage when 6 ITA No.322/2018 & connected cased decided on 29.09.2021.7
(2016) 380 ITR 573 (Delhi) I.T.A No.155/2017 7 the re-assessment is initiated, the second, at the stage during the course of re-assessment and third, at a stage where the re-assessment is altered by a different assessment in respect of searched person or in respect of third party. In this regard, reference may be made to the decision of Apex Court in case of M/s. Calcutta Knitwear (supra) and based on the said decision, the CBDT has also issued circular dated 31.12.2015 vide No.24/2015. "
10. In Kabul Chawla, it is held as follows:
" 37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under:
i. Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.
ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise.
iii. The AO will exercise normal assessment powers in respect of the six years previous to the I.T.A No.155/2017 8 relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax".
iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material."
v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings.
vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section I.T.A No.155/2017 9 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.
vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment."
(Emphasis Supplied)
11. In Delhi International Airport Pvt. Ltd., this Court, in addition to the above, has exhaustively considered other authorities on the point and answered the substantial question of law in favour of the assessee and against the Revenue. We may record that the substantial question of law raised in ITA No.354 and 355/2018 supra (Delhi International Airport) reads as follows:
" Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in I.T.A No.155/2017 10 law in holding that incriminating material is necessary condition for proceedings under Section 153A of the Act by following the judgment of this Court in the case of CIT v/s Lancy Constructions? "
12. The substantial question of law framed in this appeal and the one recorded hereinabove, are identical.
13. Having given our anxious consideration, we are in respectful agreement with the authorities in IBC Knowledge Park Pvt. Ltd., Kabul Chawla and Delhi International Airport Pvt. Ltd. In view of the above, the following:
ORDER
(a) Appeal is allowed.
(b) The substantial question of law is answered in favour of the assessee and against the Revenue.
(c) The order passed by the ITAT in ITA No.445/Bang/2015 dated 18.11.2016 is set-aside I.T.A No.155/2017 11 and the order in I.T.A No.477/CIT(A)-V/2011-12 dated 30.07.2014 passed by CIT(A) is restored.
No costs.
Sd/-
JUDGE Sd/-
JUDGE SPS