No addition could be made in case of unabated assessment under section 153A(1)(b) unless such assessment is based upon incriminating documents seized/impounded during the course of search

Short Overview : In case of unabated assessment under section 153A(1)(b), unless such assessment was based upon incriminating documents seized/impounded during the course of search, no addition could be made under section 153A.

AO framed assessment under section 143(3) and subsequently, a search action under section 132 was conducted at premises of assessee, pursuant to which proceedings under section 153A(1)(b) came to be initiated. In response to notice under section 153A, assessee filed return of income. Proceedings culminated into assessment order under section 153A(1)(b) determining total income after disallowing interest under section 36(1)(iii). CIT(A) held that no addition could be made de hors the incriminating material seized during the search in the case of unabated assessment framed under section 153A. Tribunal upheld the order of CIT(A).

it is held that : It is settled legal position that in case of unabated assessment under section 153A(1)(b), unless such assessment was based upon incriminating documents seized/impounded during the course of search, no addition could be made. Therefore no infirmity can be found in order passed by Tribunal in dismissing the appeal of Revenue.

Decision: In assessee’s favour.

Referred: Pr. CIT v. Saumya Construction Pvt. Ltd. (2016) 387 ITR 529 (Guj) : 2016 TaxPub(DT) 3466 (Guj-HC), DCIT v. Arvind Joshi & Co. [IT(SS)A No. 122, 123 and 124/Ahd/2016, dt. 11-7-2018]

IN THE GUJARAT HIGH COURT

HARSHA DEVANI & A. P. THAKER, JJ.

Pr.CIT v. Arvind Joshi and Co.

R/Tax Appeal No. 1394, 1395 & 1396 of 2018

12 February, 2019

Appellant by: Mauna M Bhatt (174)

Harsha Devani, J.

All these appeals under section 260-A of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) arise out of a common order dated 11-7-2018 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench “D”, Ahmedabad (hereinafter referred to as “the Tribunal”) in IT (SS) A No.122, 123 and 124/Ahd/2016, and the issue involved in all the appeals is also common, and hence, the same were taken up for hearing together and are decided by this common judgment.

2. The appellant-revenue has challenged the above referred order passed by the Tribunal by proposing the following two questions, stated to be substantial questions of law :–

“(A) Whether the order of Hon’ble Tribunal is right in law and on facts in deleting the addition made in assessment order under section 153A(1)(b) of the Act?

(B) Whether the Hon’ble Tribunal has erred in law and on facts upholding the order of learned Commissioner (Appeals) while observing that the unabated assessments cannot be made under section 153A of the Act unless it is based on the incriminating documents seized/impounded during the search operations whereas the assessments were made under section 153A of the Act on the basis of report of Special Auditor’s report made under section 142(2A) of the Act wherein the Special Auditor had considered the incriminating documents seized/impounded during the course of search proceedings?”

3. The assessment years are 2006-07, 2007-08 and 2008-09 respectively. For the sake of convenience, reference is made to the facts of Tax Appeal No.1394 of 2018.

3.1 In this case, the assessee filed its return of income declaring total income at Rs. 39,63,985. The assessing officer framed assessment under section 143(3) of the Act determining the total income at Rs. 39,63,985. Subsequently, a search action under section 132 of the Act came to be conducted at the premises of the assessee, pursuant to which proceedings under section 153A(1)(b) of the Act came to be initiated. In response to the notice under section 153A of the Act, the assessee filed return of income on 2-7-2013 declaring total income at Rs. 39,63,985. The proceedings culminated into assessment order dated 20-11-2014 under section 153A(1)(b) of the Act determining the total income at Rs. 44,09,219 after disallowing interest of Rs. 4,45,234 under section 36(1)(iii) of the Act.

3.2 Being aggrieved, the assessee carried the matter in appeal before the Commissioner (Appeals), who deleted the additions made on account of disallowance section 36(1)(iii) of the Act, holding that no addition could be made de hors the incriminating material seized during the search in the case of unabated assessment framed under section 153A of the Act. The revenue carried the matter in appeal before the Tribunal, but did not succeed.

4. Mrs. Mauna Bhatt, learned senior standing counsel for the appellant, submitted that the issue whether no addition de hors the incriminating material seized during search can be made or sustained in the unabated assessment framed under section 153A of the Act, has not reached finality. It was submitted that the assessments were made under section 153A of the Act on the basis of the Special Auditor’s report made under section 142(2A) of the Act, wherein the Special Auditor had considered the incriminating documents seized/impounded during the course of search proceedings and hence also, the Commissioner (Appeals) was not justified in setting aside the addition and the Tribunal was not justified in upholding the same.

5. This court has considered the submissions advanced by the learned senior standing counsel for the appellant.

6. The facts as emerging from the record are that in all the three assessment years under consideration, assessment under section 143(3) of the Act had been carried out and subsequently, proceedings under section 153A of the Act were undertaken. Therefore, this is not a case where pending the proceedings had abated on account of initiation of proceedings under section 153A of the Act.

7. The Commissioner (Appeals), inter alia, placed reliance upon a decision of this court in the case of Principal Commissioner of Income Tax v. Saumya Construction Pvt. Ltd., (2016) 387 ITR 529 (Guj) : 2016 TaxPub(DT) 3466 (Guj-HC), wherein the court has held that an assessment under section 153A in the case of unabated assessment should be connected with something found during the course of search or requisition, namely, incriminating material which reveals undisclosed income. The Tribunal has concurred with the view adopted by the Commissioner (Appeals) and has dismissed the appeal.

8. In the facts of this case, it is an admitted position that scrutiny assessment under section 143(3) of the Act had been carried out in respect of each of the assessment years under consideration. The assessing officer while framing assessment under section 153A(1)(b) of the Act, has not relied upon any incriminating material found during the course of search. Since the main plank of the submissions advanced during the course of hearing are that the assessment had been made under section 153A of the Act on the basis of the Special Auditors report made under section 142(2) of the Act, wherein he had considered the incriminating documents seized/impounded during the course of search proceedings, the learned senior standing counsel was called upon to produce the Special Auditors’ report. A perusal of such report indicates that when the Special Auditors had called upon the assessee to furnish explanation of seized/impounded papers/documents to the assessing officer in assessment proceedings, the assessee stated that such material was submitted to the Auditors due to oversight and requested the Auditors not to take cognizance of the said explanation or comment upon the same for the reason that the same was meant for consideration by the assessing officer in exercise of his powers of assessment and would fall outside the ambit of the task of audit. The assessee had stated that commenting upon the explanation would amount to not only overstepping the audit assignment, but would also be taken as an unwarranted attempt to influence the quasi-judicial authority, and hence, would be unlawful. In view of the above, the Special Auditors have not placed reliance upon the material found during the course of search in the report submitted by them. Thus, in actual fact the Special Auditors in the report under section 142(2A) of the Act have not considered the incriminating documents seized/impounded during the course of the search proceedings and hence, the submission made on behalf of the revenue that the Special Auditors have considered the documents seized/impounded during the course of search proceedings, lacks any factual basis.

9. In the opinion of this court considering the fact that it is settled legal position that in case of unabated assessment under section 153A(1)(b) of the Act, unless such assessment is based upon incriminating documents seized/impounded during the course of search, no addition can be made, no infirmity can be found in the impugned order passed by the Tribunal in upholding the order passed by the Commissioner (Appeals). In the absence of any legal infirmity in the impugned order, the same does not give rise to any question of law, much less, a substantial question of law, warranting interference.

10. The appeals, therefore, fail and are, accordingly, summarily dismissed.