Unabated assessment could not be disturbed again under section 153A in the absence of incriminating material unearthed during search

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Unabated assessment could not be disturbed again under section 153A in the absence of incriminating material unearthed during search

Short Overview : Unabated assessment could not be disturbed again under section 153A in the absence of incriminating material unearthed during search.

AO, pursuant to search conducted at assessee’s premises framed assessment under section 153A and made addition. Assessee challenged this on the ground that regular assessment for the year under consideration already stood concluded as on the date of search and no incriminating material was discovered during search.

it is held that  Unabated assessment could not be disturbed again under section 153A in the absence of incriminating material unearthed during search, therefore, addition was deleted.

Decision: In assessee’s favour.

Followed: CIT v. Vegetable Products (1973) 88 ITR 192 (SC) : 1973 TaxPub(DT) 421 (SC), CIT v. Kabul Chawla (2016) 380 ITR 573 (Del) : 2015 TaxPub(DT) 3486 (Del-HC), Pr.CIT v. Meeta Gutgutia (2017) 395 ITR 526 (Del) : 2017 TaxPub(DT) 1767 (Del-HC) and Pr.CIT v. Soumya Constructions (2016) 387 ITR 529 (Guj) : 2016 TaxPub(DT) 3466 (Guj-HC).

Referred: CIT v. Continental Warehousing Corporation (2015) 120 DTR (Bom) 89 : 2015 TaxPub(DT) 2182 (Bom-HC) and Sainath Colonisers v. Asstt. CIT (Central)-II Bhopal in IT(SS)A Nos. 289 to 291/Ind/2017, dated 28-2-2019.

IN THE ITAT, INDORE BENCH

  1. DURGA RAO, J.M. & MANISH BORAD, A.M.

Omprakash Gupta v. ACIT

IT(SS)A Nos. 277 to 281/Ind/2017, 283 to 287/Ind/2017

28 February, 2019

Appellant by: S.S. Deshpandey, Authrorised Representative

Respondent by: Ashima Gupta, Departmental Representative

ORDER

Per Bench

This bunch of appeals filed by different assessees are directed against orders of the Commissioner (Appeals)-3, Bhopal dated 14-9-2017 for the assessment years 2008-09 to 2012-13. Since the issues are common the appeals are heard together and disposed off by way of common order for the sake of convenience and brevity. First we take up appeal filed by the assessee in IT(SS)A No. 277 to 281/Ind/2017 for the assessment years 2008-09 to 2012-13.

IT(SS)A Nos. 277 to 281/Ind/2017 :–

  1. The facts are in brief that there was a search conducted in the business premises of the assessee as well as on the other related concerns/business associates on 29-1-2014. Since the various concerns and individuals are interconnected and have business associations, they have been put together under one common name ‘Signature Group’. The assessee is an individual having a business income, rental income and other sources. After conducting the search, the assessing officer has issued notices under section 153A of the Income Tax Act, 1961 (hereinafter called as ‘the Act’) dated 12-9-2014 were issued to the assessee to file the return of income for assessment years 2008-09 to 2013-14. In response to the notice issued by the assessing officer under section 153A of the Act, the assessee has filed return of income for assessment years 2008-09 to 2013-14 on 7-11-2014. The details of the returns of income for assessment year 2008-09 to 2013-14 are as under :–
A.Y. Date of filing of return under section 139(1) Returned income (in Rs.) Date of filing of return by the assessee against notice under section 153A Income declared in return under section 153A (in Rs.) Additional Income offered by the assessee (in Rs.)
2008-09 12-1-2009 1,35,860 7-11-2014 1,35,860 Nil
2009-10 8-1-2010 3,10,380 7-11-2014 3,10,380 Nil
2010-11 4-2-2011 7,68,640 7-11-2014 7,68,640 Nil
2011-12 1-10-2011 13,33,780 7-11-2014 13,33,780 Nil
2012-13 17-11-2012 16,38,250 7-11-2014 16,38,250 Nil
2013-14 22-11-2013 8,36,860 7-11-2014 8,36,860 Nil
  1. In the assessment order, the assessing officer observed that once search is conducted and notice is issued under section 153A of the Act, the assessing officer is bound to issue notice to the assessee to furnish return for each assessment year falling within 6 assessment years, immediately preceding to the assessment year relevant to the previous year in which search is conducted or requisition is made. The assessing officer is required to assess or reassess the total income of the aforesaid years under section 153A of the Act, the assessing officer had been given a power to assess or reassess total income of assessment years in question in separate assessment orders. Consequently, even though assessment order had been passed under section 143(1A) or 143(3) of the Act, the assessing officer required to reopen those proceedings and reassess total income taking notice of undisclosed income or during the course of search & seizure operation. Where assessment or reassessment proceedings had already been completed and assessment orders passed, then assessing officer would be competent to reopen assessment proceedings already made, even if there is no incriminating material found during the course of search. By observing the above, the assessing officer proceeded to conclude the assessment and additions were made in respect of unexplained, unsecured loans, gifts, on account of foreign travel, on account of unexplained investment in shares and assessment was completed under section 153A read with section 143(3) of the Act for the assessment years 2008-09 to 2013-14 dated 17-3-2016.
  2. On appeal before the learned Commissioner (Appeals) the assessee has submitted that the return of income for assessment year 2012-13 was filed on 7-11-2012 and as per the provisions of section 143(2) of the Act, the last date on which the notice for assessment could have been issued on 13-9-2013. All the other returns are filed on earlier date and the time limit for issue of notice under section 143(2) of the Act in all those cases have expired. The search in the case of assessee was initiated on 29-1-2014 and all proceedings pending as on the date has abated. As the proceedings for assessment year 2012-13 and prior years were not pending as on the date of search, the same will be deemed to have been completed were not abated. It is well settled law that in the case of completed assessments, no adhoc additions are permissible. Additions can only be made on the basis of incriminating documents seized during the course of the search. In case of the assessee, no incriminating papers were seized. Same is obvious from the fact that no addition has been made in the assessment, which may be based on nothing made in any seized paper. Learned Commissioner (Appeals) after considering the explanation of the assessee, he has observed that once the assessee participated in the assessment proceedings before the assessing officer, the assessee cannot claim that the issue of notice under section 153A read with section 143(3) of the Act for assessment years 2008-09 to 2013-14 is not in order. Once the assessee put to notice had filed a return of income in response to the notices and has attended the assessment proceedings, it cannot be said that the issue of notice under section 153A of the Act is not in order and the legal plea raised by the assessee rejecting the order of the assessing officer is confirmed.
  3. On being aggrieved, assessee filed an appeal before the Tribunal. The assessee has raised following grounds :–
  4. That on the facts and in the circumstances of the case of the assessee the learned Commissioner (Appeals) was not justified in holding that the learned assessing officer was not justified in making addition in the years where the assessment proceedings were not pending and no incriminating material was found during the course of search.
  5. That on the facts and in the circumstances of the case of the assessee the learned Commissioner (Appeals) was not justified in holding that the learned assessing officer was not justified in making addition of Rs. 3,00,000 towards unsecured loans received treating the same as unexplained.
  6. That on the facts and in the circumstances of the case of the assessee the learned Commissioner (Appeals) was not justified in holding that the learned assessing officer was justified in making addition of Rs. 1,20,000 towards estimated alleged unexplained expenses made on foreign tour.
  7. That the assessee craves leave to add, alter, delete or modify any ground(s) of appeal during or before the hearing of the appeal.
  8. The learned Counsel for the assessee has submitted that for the assessment years 2008-09 to 2012-13, the time limit for the issue of notice under section 143(2) of the Act has been expired and therefore all the assessments are concluded assessments and the assessments are not pending as on the date of search, the same will be deemed to have been completed and are not abated.
  9. It is also submitted that during the course of the search no incriminating material found and therefore concluded assessments cannot be reopened under section 153A of the Act. For the above proposition he has relied on the following decisions :–
  10. CIT v. Kabul Chawla (2016) 380 ITR 573 (Del) : 2015 TaxPub(DT) 3486 (Del-HC),
  11. PCIT v. Meeta Gutgutia (2017) 395 ITR 526 (Del) : 2017 TaxPub(DT) 1767 (Del-HC)
  12. PCIT v. Soumya Constructions (2016) 387 ITR 529 (Guj) : 2016 TaxPub(DT) 3466 (Guj-HC)
  13. CIT v. Deepak Agrawal 251 taxmann pg.22 (Bom)
  14. PCIT v. Lata Jain (2016) 384 ITR 543 (Del).
  15. Learned Departmental Representative relied on the decision of the Hon’ble Karnataka High Court in the case ofCanara Housing Development Company v. DCIT Central Circle-1, Bangalore (2014) 49 Taxman.com 98 (Kar) : 2014 TaxPub(DT) 3347 (Karn-HC).
  16. She also relied on the decision of Kerala High Court in the case ofE.N. Gopakumar v. CIT(Central) (2016) 75 Taxman.com 215 (Kerala) : 2016 TaxPub(DT) 4661 (Ker-HC).
  17. Learned Departmental Representative further submitted that the decision in the case ofCIT v. Vegetable Products (1973) 88 ITR 192 (SC) : 1973 TaxPub(DT) 421 (SC)cannot be simply applied. For that she has relied on the decision of the CCV Dilip Kumar (2018) 9 SCC page 1. She has also pointed out that in all these cases, assessment was completed under section 143(1) of the Act. Therefore, the assessing officer is justified to review all the assessment years.
  18. We have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below. The assessee is an individual filed returns of income for all the assessment years i.e. assessment years 2008-09 to 2012-13 and assessments are completed under section 143(1) of the Act. Subsequently, a search action was conducted under section 132 of the Act in the business group of the assessee and assessing officer has asked the assessee to file returns of income for all the assessment years by issue of notice under section 153A of the Act on 12-9-2014. In response to that, assessee has filed returns of income for assessment years 2008-09 to 2013-14 on 7-11-2014. The case of the assessee is that the return for assessment year 2012-13 was filed on 7-11-2012. As per section 143(2) of the Act, the last date on which notice for assessment would have been issued was 30-9-2013. All the other returns are filed on earliest date and the time limit for issue of notice under section 143(2) of the Act in all those cases has expired. The search was initiated in the business premises of the assessee on 29-1-2014 and therefore the time limit for issue of notice under section 143(2) of the Act is lapsed. All the assessment years from 2008-09 to 2012-13 are concluded and non abated assessments. The assessing officer cannot reopen the assessments under section 153A of the Act. In so far as the above submission is concerned from the assessment order and even from the learned Commissioner (Appeals)’s order, there is nothing on the record which says that the additions made by the assessing officer are based on any incriminating material. Even when the same was pointed out to learned Departmental Representative, she is not able to establish the fact that additions are based on any incriminating material, therefore we find that the additions made by the assessing officer for all the years are not based on any incriminating material found during the course of search. It is only based on subsequent search by issue of notice under section 153A of the Act calling for the various documents from the assessee additions are made. In so far as the arguments of the learned Counsel for the assessee in respect of concluded assessments cannot be reopened, we find that in all the assessment years from 2008-09 to 2012-13, there is no scope for the assessing officer to issue a notice under section 143(2) of the Act for the reason that the time limit is already over before the date of search itself i.e. on 29-1-2014. Therefore, in our opinion, all the assessment years from 2008-09 to 2012-13 are concluded assessments and non abated assessments and any addition has to be made in respect of those assessment years, there must be an incriminating material. In the present case, there is no incriminating material and therefore, the additions made by the assessing officer cannot survive.
  19. This very issue has been considered by The Hon’ble Bombay High Court in the case ofCIT v. Continental Warehousing Corporation (2015) 120 DTR (Bom) 89 : 2015 TaxPub(DT) 2182 (Bom-HC) and has observed that under section 153A of the Act which enables carrying out a search or exercise of a power of requisition, assessment in furtherance thereof is contemplated. There is a mandatory issue of notice under section 153(1A) of the Act and assess and reassess the total income of 6 assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made. That the crucial word ‘search and requisition’ appear for the substantive provision on the provisos. That would throw the light on the issue of applicability of the provision. True it is that the assessment, which has to be made in pursuance of the notice is in relation to the 6 years. An order will have to be made in that record while making the order, the income or the return of income filed for all those assessment years is to be taken into account. A reference will have to be made to the income disclosed therein. However, the scope of enquiry there of not confined essentially revolves around the search or the requisition under section 132A of the Act as the case may be. The proviso deals with the cases where the assessment or reassessment, if any relating to assessment years falling within the period of 6 assessment years refer to in sub section 1 of section 153A of the Act were pending. If they were pending on the date of initiation of search under section 132 of the Act or making requisition under section 132A of the Act as the case may be, they abate. It is only binding precedence that would abate and not where there are orders made on assessment or reassessment and which are in force on the date of initiation of the search or making the requisition.
  20. In the case ofCIT (Central)-3 Kabul Chawla (2015) 61 Taxman.com 412 (Del.) : 2015 TaxPub(DT) 3486 (Del-HC), the Hon’ble Delhi High Court has considered the scope of section 132 of the Act and 153A(1) observed as under :–
  21. From the above decision, it is very clear that in respect of concluded assessments additions cannot be made without incriminating material.
  22. The Hon’ble Delhi High Court in the case ofPCIT v. Meeta Gutgutia (2017) 395 ITR 526 (Del) : 2017 TaxPub(DT) 1767 (Del-HC) has held that it was only if during the course of the search under section 132 of the Act incriminating material justifying the reopening of the assessment years for 6 previous years was found that invocation of section 153A of the Act qua each of the assessment year would justify.
  23. In the case ofPr. CIT v. Soumya Constructions (2016) 387 ITR 529 (Guj) : 2016 TaxPub(DT) 3466 (Guj-HC) the Hon’ble Gujarat High Court has observed that the addition was based on statement of the third person and not based on any incriminating material found during the course of search, therefore the addition deleted by the Tribunal was upheld.
  24. In the case ofPCIT v. Lata Jain (2016) 384 ITR 543 (Del) (supra), the Hon’ble Delhi High Court has held that the Tribunal was right in holding that there had to be incriminating material recovered during the course of search qua the assessee in each year for the purpose of framing an assessment under section 153A of the Act.
  25. From the above all the decisions, it is very clear that the assessing officer to make an addition under section 153A of the Act and there must be incriminating material available to the assessing officer during the course of the search. Unless there is an incriminating material, the concluded/non abated assessments cannot be disturbed again under section 153A of the Act.
  26. In so far as Kerala High Court decision in the case ofE.N. Gopakumar (supra) the Hon’ble Kerala High Court has held that even without there being any incriminating material, the assessing officer is empowered to make an addition under section 153A of the Act. The same view has been expressed by the Hon’ble Karnataka High Court in the case of Canara Housing Development Company (supra).
  27. In the above circumstances, whether the decision of the Hon’ble Supreme Court in the case ofCIT v. Vegetable Products (supra) has to be applied or not. The learned Departmental Representative has submitted that the decision held in CIT v. Vegetable Products (supra) cannot be applied in each and every case in the light of the decision of CCV Dilip Kumar (supra). In the present case, the assessee has filed all the returns before conducting the search and the time limit to issue notice under section 143(2) of the Act already lapsed and a search is conducted and no incriminating material is found. The assessing officer called for books of accounts and other relevant documents and assessment is completed under section 153A read with section 143(3) of the Act.
  28. There are many decisions in favour of the assessee, which says that “once assessments are concluded without incriminating material, additions cannot be made by reopening under section 153A of the Act. There are two decisions, one is of Hon’ble Kerala High Court in the case ofE.N. Gopakumar (supra) and the second one is of Hon’ble Karnataka High Court in the case of Canara Housing Development Company v. DCIT Central Circle-1, Bangalore (supra) in favour of the revenue in which it was held that no incriminating material is necessary to reopen the assessments and to make an addition. In the present case, decisions of Hon’ble Delhi, Gujarat and Bombay High Courts are in favour of the assessee. The decisions of Hon’ble Kerala High Court and Karnataka High Court are against the assessee. We find that after examining the facts and circumstances of the case, the judgment of the Hon’ble Supreme Court in the case of Vegetable Products (supra) has to be followed. The Hon’ble Supreme Court in the above case has held that “if two reasonable constructions of a taxing provisions are possible, then that construction, which favours the assessee must be adopted.”
  29. In the interest of justice, the decision of the Hon’ble Supreme Court in the case ofVegetable Products (supra) has to be followed. Therefore, we respectively following the decision of Hon’ble Delhi High Court in the case of Kabul Chawla (supra), Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (supra) and also Hon’ble Gujarat High Court in the case of PCIT v. Meeta Gutgutia (supra), we hold that no addition can be made in respect of concluded assessments under section 153A of the Act unless there is any incriminating material found during the course of search. We would like to make it clear that where the assessment is completed under section 143(1) or 143(3) of the Act unless assessing officer has a time to issue notice under section 143(2) of the Act, assessing officer cannot make an addition under section 153A of the Act, unless there is an incriminating material found during the course of the search.
  30. The coordinate bench of the Tribunal in the case ofSainath Colonisers v. ACIT (Central)-II Bhopal in IT(SS)A Nos. 289 to 291/Ind/2017, dated 28-2-2019 has considered the similar issue and has held that if there is no incriminating material found during the course of search and the time limit for issue of notice under section 143(2) of the Act expires, no addition can be made under section 153A of the Act. For the sake of convenience relevant portion of the order is extracted hereunder :–

“8. We observe that the assessee has filed regular return of income under section 139 of the Act for assessment year 2008-09 to 2010-11 on 30.9.08, 31-3-2010 and 12-10-2010 after claiming deduction under section 80IB(10) at Rs. 8,92,452, Rs. 2,66,948 and Rs. 2,44,417 respectively. The time limit for issuance of notices under section 143(2) of the Act stood expired in relation to the assessment year 2008-09 to 2010-11 much before the date of conducting the search i.e. 29-1-2014 and therefore these three assessment years falls under the category of unabated/non abated assessments. Now in the given facts learned Counsel for the assessee has relied few judgments and learned Departmental Representative has relied to few judgments in its favour. However, the Hon’ble Apex Court in the case of CIT v. Vegetable Products Ltd. (1973) 88 ITR 192 (SC) : 1973 TaxPub(DT) 421 (SC) has “held that if two reasonable construction of a taxing provisions are possible, then that construction which favours the assessee must be adopted”. In the light of above judgment of Hon’ble Apex Court we have gone through the judgments referred and relied by both the parties and are inclined to follow the view taken by Hon’ble courts on the issue in question before us favouring the assessee.

  1. The Hon’ble High Court of Gujarat in the case ofPCIT v. Desai Construction(supra) confirmed the view taken by the Tribunal upholding the contention of the assessee that as no incriminating material was found during the course of search which could have enabled the assessing officer to re-examine its claim for deduction under section 80IB which was part of the assessment prior to the search and such assessment unabated. Similarly Hon’ble High Court of Bombay in the case of Continental Warehousing Corporation and All Cargo Global Logistics Ltd. (supra) confirmed the view taken by the Special Bench of I.T.A.T. Mumbai Bench decided in favour of assessee dismissing the revenue’s appeal holding that there was no incriminating material found during the course of search, the Tribunal was right in holding the power conferred under section 153A being not expected to be exercised routinely, should be exercised if the search revealed any incriminating material. If that was not found then in relation to the second phase of three years, there was no warrant for making an order within the meaning of this provision”.
  2. Similar view was also taken by the Hon’ble High Court of Delhi in the case ofKabul Chawla (2015) 61 Taxman.com 412 (Del.) : 2015 TaxPub(DT) 3486 (Del-HC).
  3. We therefore in the given facts and circumstances of the case and respectfully following the judgments referred and relied by the learned Counsel for the assessee are of the considered view that no addition/disallowance was called for assessment year 2008-09 to 2010-11 as no incriminating material was found during the course of search at the premises of the assessee as the time limit of issuance of notice under section 143(2) of the Act stood expired much before the date of conducting search under section 132 of the Act. Accordingly all the three appeals of the assessee are allowed.”
  4. In so far as the arguments of the learned Departmental Representative in respect of following the ratio of the Hon’ble Supreme Court in the case ofVegetable Products(supra), the learned Departmental Representative by relying on the decision in the case of CCV Dilip Kumar (supra) has submitted that the ratio laid down in the case of Vegetable Products (supra) cannot be applied. We find that in the case of CCV Dilip Kumar (supra) has considered the exemption provisions and held that exemption provisions has to be considered strictly and in a case of ambiguity view which favours the revenue must be adopted. Therefore, the above decision relied by the learned Departmental Representative has no application to the ratio laid down by the Hon’ble Supreme Court in the case of Vegetable Products (supra). Therefore, argument of the learned Departmental Representative is rejected.
  5. In view of the above, the order passed by learned Commissioner (Appeals) is reversed and the appeals filed by the assessee are allowed.
  6. In the result, the appeals filed by the assessee inITA Nos. 277 to 281/Ind/2017 are allowed.

ITA Nos. 283 to 287/Ind/2017 :–

  1. These appeals for assessment years 2009-10 to 2012-13 are concluded and non abate assessments. The assessing officer has no time to issue notice under section 143(2) of the Act and until and unless there is an incriminating material found during the course of search no addition can be made. Nowhere in the assessment order shows that additions are based on the incriminating material even in the order of the learned Commissioner (Appeals). Additions are only made during the course of assessment proceedings by calling the assessee for various details such as books of accounts various documents and assessment was completed. Therefore once the assessments are concluded/non-abated, addition cannot be made unless there is an incriminating material found during the course of search. This legal aspect has already been considered by us in the above appeals inIT(SS)A No. 277 to 281/Ind/2017. In view of our decision above the same is to apply in to to in all the other present appeals also. We therefore, in view of our decision in those appeals, the orders of the learned Commissioner (Appeals) are reversed and the appeals filed by the assessee are allowed.
  2. In the result, all the appeals filed by the different assesses are allowed for all the assessment years 2008-09 to 2012-13 inITA Nos. 277 to 281/Ind/2017 & 283 to 287/Ind/2017.

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