Cit v. Kurele Paper Mills Pvt. Ltd., Income Tax Appellate Tribunal, Judgment, Law, casemine.com

Precedent	Rule or Principle Cited For	Application by the Court
All Cargo Global Logistics Ltd. v. CIT, 137 ITD 287 (Mumbai) (Special Bench)	The Special Bench addressed scope of assessment under s.153A including (a) treatment of abated assessments and (b) that, in other cases, assessment under s.153A is to be made on the basis of incriminating material found in the course of search.	The Tribunal relied on para 58 of the Special Bench decision to support the proposition that for non-pending (completed) assessments the scope of additions under s.153A is limited to income derived from incriminating material found during the search. The decision was treated as supportive of the assessee's position.
CIT v. Anil Kumar Bhatia (Hon'ble Delhi High Court) (2012) 211 Taxmann 453 (All.)	Interpreted scope of s.153A where incriminating material was found for completed assessments; observed AO can reopen completed assessments to take note of undisclosed income unearthed during search.	The Tribunal treated this decision as supporting the assessee's case to the extent that where no incriminating material is found for completed assessment years, additions in s.153A proceedings should be limited and cannot extend beyond income emanating from material unearthed during search. The Court relied on quoted paras (including para 20) to frame the limitation.
Filatex India Ltd. v. CIT (Hon'ble Delhi High Court)	Addressed whether recomputation of book profit in s.153A proceedings may be done dehors material found during search; in that case incriminating material and statements had resulted in additions and the High Court held additions need not be restricted to incriminating material found during search.	The Tribunal found Filatex distinguishable on its facts because incriminating material had in fact produced other additions in that case; therefore Filatex was not helpful to the revenue in the present matter and was not followed.
Canara Housing Development Co. v. DCIT (Karnataka High Court)	Observed that initiation of proceedings under s.153A requires a search under s.132, and the initiation is not dependent on undisclosed income being unearthed during the search.	The Tribunal noted this decision but regarded it as expressing a view different from the Delhi/Rajasthan High Courts. As the Tribunal was bound by the jurisdictional Delhi High Court decisions favorable to the assessee, it did not follow the Karnataka High Court view in this case.
Jaisteel (India) Jodhpur v. ACIT (Jai Steel) (Rajasthan High Court), 259 CTR 281 (Raj.)	Held that books/documents not produced in original assessment but found in search must be considered in s.153A assessments; if nothing incriminating is found then re-assessment of concluded assessment does not arise.	The Tribunal relied on this decision as supporting the proposition that where nothing incriminating is found on search, there is no scope for making additions in respect of completed assessments under s.153A.
Kusum Gupta v. DCIT (ITA No. 4873/Del/2009; order dated 28.03.2013)	Under facts where return was processed under s.143(1) and notice under s.143(2) period had expired on date of search, the assessment was not pending and addition under s.153A should be made only on basis of incriminating material found during the search.	The Tribunal cited this decision as a precedent supporting the limitation on the scope of s.153A additions for completed assessment years where no incriminating material has been found.
Shri Kabul Chawla v. ACIT (ITA No. 783/Del/2013; order dated 23.05.2014)	Tribunal decision expressing view that additions in s.153A where assessment was completed on date of search can only be made on basis of incriminating material found during search.	The Tribunal relied on this decision (Delhi Bench) as expressing a similar view and used it to bolster the conclusion favourable to the assessee.
CIT v. Musli Agro Products Ltd. (Bombay High Court), ITA No. 36 of 2009 (dated 29.10.2010)	Listed among authorities relied upon by the assessee in support of limitation on scope of s.153A additions.	The Tribunal considered this authority as part of the body of decisions relied upon by the assessee; the decision formed part of the precedent support for the Tribunal's conclusion but specific application in the text is limited to noting it as a cited authority.
Ssp Aviation Ltd. v. Deputy Commissioner of Income Tax (2012) 252 CTR (Del.) 291	In the context of s.153C, held that when seized materials belonging to a person other than the person searched are handed over, the Assessing Officer having jurisdiction must proceed against that other person under s.153A.	The Tribunal referred to this decision to explain principles concerning seized materials and jurisdiction under related provisions; it was cited in support of the reasoning about interplay of search/seized documents and subsequent proceedings.
Madugulu Venu (referenced)	Discusses the need for making fresh assessment in respect of assessment years not pending on date of search, but does not set out the scope of such assessment.	The Tribunal noted that Madugulu Venu does not address the scope issue and thus was not determinative on the present question; it was referenced as not detracting from the Tribunal's conclusion.
CIT v. Chetan Das (referenced)	Cited in the discussion in Filatex India Ltd. and referenced by parties in submissions.	The Tribunal noted its citation in the Filatex discussion and considered it within the broader judicial landscape, without deriving a separate controlling proposition from it in the present case.
Lovely Exports (P) Ltd. (mentioned by revenue)	Revenue relied on this Supreme Court decision (as per the revenue's ground) but the Tribunal observed that facts were different in the present case.	The Tribunal observed the revenue's reliance but recorded that the facts of Lovely Exports were different and, accordingly, that decision was not treated as determinative in the present matter.

I.C Sudhir, J.M:— The revenue has questioned first appellate order on the following grounds:

“1. On the facts and in the circumstances of the case, the Learned CIT (Appeals) has erred in law and on facts in deleting the addition of Rs. 89,00,000 made by the Assessing Officer u/s. 68 of the Income-tax Act, 1961 on bogus share capital.

2. On the facts and in the circumstances of the case, the Learned CIT (Appeals) has erred in law and on facts in holding that no addition can be made by the Assessing Officer u/s. 153A of the Income-tax Act, 1961 by invoking the provisions of sec. 68 in the absence of incriminating material found during the search u/s. 132 of the Income-tax Act, 1961.

3. On the facts and in the circumstances of the case, the Learned CIT (Appeals) has erred in law and on facts in placing reliance on the decision of the Hon'ble Supreme Court in the case of Lovely Exports (P) Ltd. without appreciating that the facts of this case are different from the facts of the case of Lovely Exports (P) Ltd.

4. On the facts and in the circumstances of the case, the Learned CIT (Appeals) has erred in law and on facts in holding that no interest can be charged u/s. 234A of the Income-tax Act, 1961 if return of income is filed late due to non receipt of copies of the seized material.

5. On the facts and in the circumstances of the case, the Learned CIT (Appeals) has erred in law and on facts in holding that no interest can be charged u/s. 234A of the Income-tax Act, 1961 if the addition has been made in the order u/s. 153A in the absence of any incriminating material found during the search u/s. 132 of the Income-tax Act, 1961.

6. The order of the Learned CIT (Appeals) is erroneous and is not tenable on facts and in law”.

2. At the outset of hearing, both the parties were directed to advance their respective arguments on ground No. 2 which involves a legal issue going to the root of the matter regarding the validity of invocation of provisions laid down under section 153A of the Income-tax Act, 1961 in the absence of incriminating material found during the course of search under sec. 132 of the Income-tax Act, 1961.

3. Learned AR pointed out that the issue raised is fully covered by several decisions of different Benches of the ITAT as well as Hon'ble High Courts.

4. Learned CIT(DR) on the other hand placed reliance on the assessment order. She submitted that the plain reading of the provisions of sec. 153A of the Income-tax Act, 1961 does not need availability of incriminating material found during the course of search to initiate proceedings thereunder. The only requirement for initiation of proceedings under sec. 153A of the Act is the conduction of search under sec. 132 of the Act. She placed reliance on the decision of Hon'ble Delhi High Court in the case of CIT v. Anil Kumar Bhatia, (2012) 211 Taxmann 453 (All.). She submitted further that the issue before the Special Bench of the ITAT in the case of All Cargo Globle Logistic Ltd. v. CIT, 137 ITD 287 (Mumbai) (S.B), referred was regarding the validity of disallowance of deduction under sec. 80IA(4) of the Act on merit. Learned CIT(DR) contended further that the words “incriminating material” do not find mention either in section 132(1) or sec. 153A of the Income-tax Act, 1961. She also placed reliance on the following decisions: 1. Canara Housing Development Co. v. DCIT, ITA 38/2014 judgment dated 25.07.2014 (Karn. H.C); 2. Filalex India Ltd. v. CIT, ITA 269/2014, judgment dated 14.07.2014 (Del. H.C).

5. The learned AR submitted that both the above cited decisions support the case of the assessee on the issue. He placed reliance thereupon as well as on the following decisions:

i) Jaisteel (India) Jodhpur v. ACIT (Raj.), 259 CTR 281 (Raj.);

ii) Kusum Gupta v. DCIT ITA No. 4873.Del/2009 order dated 28.3.2013;

iii) Shri Kabul Chawla v. ACIT ITA No. 783.Del/2013 order dated 23.05.2014;

iv) CIT v. Musli Agro Products Ltd., ITA No. 36 of 2009 dated 29.10.2010 (Bom. H.C);

v) Ssp Aviation Ltd. v. Deputy Commissioner Of Income Tax, (2012) 252 CTR (Del.) 291.

6. The ld. AR submitted further that the decisions relied upon by the ld. CIT-DR having distinguishable facts are not helpful to the revenue. He submitted that the decision of Hon'ble Karnataka High Court in the case of Canava Housing Development Company (supra) was on the validity of applicable of sec. 263 of the Act under the facts of that case. The Hon'ble Delhi High Court in the case of Filatex India Ltd. (supra) the ratio laid down by the Hon'ble High Court is that in s. 153A proceedings other additions can also be made besides the addition based on the incriminating material found during the course of the search proceedings conducted u/s 132 of the Act. The other decisions are on the validity of application of the provisions laid down u/s 68 of the Act.

6.1 Above submissions have been considered and the decisions relied upon have been gone through. We find that the relevant facts of the present case are that the assessee and its group were subjected to search operations under sec. 132 of the Act. The Assessing Officer was not satisfied with the explanation of the assessee regarding the receipt of share capital of Rs. 89 lacs and added the amount under sec. 68 of the Act treating the claimed share capital as bogus. The same was questioned before the Learned CIT (Appeals) on the merits of the addition as well as the validity of proceedings initiated under sec. 153A of the Act on several basis. The assessee succeeded in its appeal before the Learned CIT (Appeals) as the Learned CIT (Appeals) has held the proceedings initiated under sec. 153A of the Act in absence of incriminating material found during the course of the search as invalid. He also deleted the addition of Rs. 89 lacs after discussing the merits of the addition. These actions of the Learned CIT (Appeals) has been questioned by the revenue before us in the present appeal on the above stated grounds.

7. Having gone through the assessment order and the material made available on record, we do not find reference of any incriminating material relevant to the addition made under sec. 68 of the Act which was found during the course of search proceedings to justify the initiation of proceedings under sec. 153A of the Act against the assessee and the assessment made in furtherance thereto under sec. 153A read with section 143(3) of the Act. The findings of the Learned CIT (Appeals) in this regard that no incriminating material was found during the course of search with respect to the completed assessment has not been rebutted by the revenue before the ITAT nor the submissions of the assessee in this regard made before the Learned CIT (Appeals) and reiterated before the ITAT has been controverted. The submissions of the assessee remained that no incriminating material whatsoever was found during the course of search operation, all the affairs of the assessee were found to be in order, no unaccounted assets, investment or expenditure was found, all the records/documents were found to be fully tallying with books of account and other records regularly kept by the assessee and found to be so during the course of the search and that this was so even in relation to issue of share capital to various persons in relation to which huge addition of Rs. 89 lacs has been made. Being convinced with this contention of the assessee and that during the course of search, no assessment was pending, the Learned CIT (Appeals) has held the assessment framed under sec. 153A of the Act as invalid. We find that an identical issue has been decided in favour of the assessee under almost similar facts and circumstances by the Special Bench of the ITAT in the case of All Cargo Global Logistics Ltd. (supra). In Para No. 58 thereof, the issue has been answered as under:

“58. Thus, question No. 1 before us is answered as under:—

(a) In assessments that are abated, the AO retains the original jurisdiction as well as jurisdiction conferred on him u/s 153A for which assessments shall be made for each of the six assessment year separately:

(b) In other cases, in addition to the income that has already been assessed, the assessment u/s 153A will be made on the basis of incriminating material, which in the context of relevant provisions means (i) books of account, other documents, found in the course of search but not produced in the course of original assessment, and (ii) undisclosed income or property discovered in the course of search.”

8. The issue raised before the special bench was as to whether scope of assessment u/s 153A encompasses additions not based on any incriminating material found during the course of search?

9. In the case of Kusum Gupta (supra) also the return was processed u/s 143(1) of the Act and time limit for issuance of notice u/s 143(2) had expired on the date of search and it was held that no assessment was pending in that case and thus there was no question of abatement of assessment. Therefore addition in the assessment u/s 153A would be made only on the basis of incriminating material found during the search. The Delhi Bench of the Tribunal in its recent decision on the issue in the case of Shri Kabul Chawla v. ACIT, ITA No. 783.D/2013 (asstt. year 2008-09) and others vide order dated 23.5.2014 has expressed the similar view. It has also discussed the decision of Hon'ble Jurisdictional Delhi High Court in the case of Anil Kumar Bhatia (supra) while deciding the issue. The relevant para No. 8 & 9 in this regard is being reproduced as under:—

“8. We are unable to accept the contention advanced on behalf of the Revenue for the reason that if both the pending and completed assessment were to be taken on same pedestal, then there was no need to enshrine second proviso to sec. 153A(1) providing that the pending assessments within the period of six assessment years shall abate. The Hon'ble Delhi High Court in the case of Anil Kumar Bhatia (supra) dealt with a situation in which some incriminating material was found in respect of a non-pending assessment. It was in that background that the Hon'ble High Court held that sec. 153A applies if incriminating material is found even if assessments are completed. The question as to whether any addition can be made in respect of completed assessments when no incriminating material was found, was apparently left open. However, we find that there are sufficient indirect hints given by the Hon'ble Delhi High Court in the case of Anil Kumar Bhatia (supra) about not making of any addition in respect of an assessment year for which the assessment is already completed unless some incriminating material is found during the course of search. This can be seen from the. following observations of the Hon'ble High Court:—

“20. A question may arise as to how this is sought to be achieved where an assessment order had already been passed in respect of all or any of those six assessment years, either under Section 143(1)(a) or Section 143(3) of the Act. If such an order is already in existence, having obviously been passed prior to the initiation of the search/requisition, the Assessing Officer is empowered to reopen those proceedings and reassess the total income, taking note of the undisclosed income, if any, unearthed during the search.”

9. The above extracted observations of the Hon'ble High Court, which are though obiter dicta, make the point clear that where an assessment order has already been passed for a year(s) within the relevant six assessment years, then also the A.O is duty bound to reopen those proceedings and reassess the total income but by ‘taking note of the undisclosed income if any, unearthed during the search’. The expression ‘unearthed during the search’ is quite significant to denote that in respect of completed or non-pending assessments, the Assessing Officer is albeit duty bound to assess or reassess the total income but there is a cap on the scope of additions in such assessment, being the items of income ‘unearthed during the search’. In other words, the determination of ‘total income’ in respect of the assessment years for which the assessments are already completed on the date of search, shall not be influenced by the items of income other than those based on the material unearthed during the course of search. There is not and cannot be any quarrel over the proposition that the Assessing Officer has no option but to determine the total income of the assessee in respect of the relevant six assessment years. However, the scope of such determination of total income is different in respect of the years for which the assessments are pending vis-vis the years for which assessments are non-pending. In respect to the assessment years for which the original assessments have already been completed on the date of search, the total income shall be determined by restricting additions only to those which flow from incriminating material found during the course of search. If no incriminating material is found in respect of such completed assessment, then the total income in the proceedings u/s 153A shall be computed by considering the originally determined income. If some incriminating material is found in respect of such assessment years for which the assessment is not pending, then the ‘total income’ would be determined by considering the originally determined income plus income emanating from the incriminating material found during the course of search. In the other scenario of the assessments pending on the date of search which would abate in terms of second proviso to sec. 153A(1), the total income shall be computed afresh uninfluenced by the fact whether or not there is any incriminating material. In fact, this is the position which follows when we read the judgment of the Hon'ble Delhi High Court in Anil Kumar Bhatia (supra) in juxtaposition to the special bench order in the case of All Cargo Global Logistics Ltd. (supra). The other judgment relied by the Ld. DR in the case of Madugulu Venu (supra) also talks about the need for making fresh assessment in respect of the assessment years for which the assessments are not pending on the date of search but does not set out the scope of such assessment, which is the issue before use.”

10. We, thus, find that the decision of the Hon'ble Jurisdictional Delhi High Court in the case of Anil Kr. Bhatia (supra) supports the case of the assessee that in absence of incriminating material found during the course of search an addition u/s 153A of the Act cannot be made in the assessment framed thereunder. The decisions relied upon by the ld. CIT, DR in the cases of Canara Housing Development Company v. DCIT (supra) of Hon'ble Karnataka High Court and Filatex India P. Ltd. v. CIT (supra) of Hon'ble Delhi High Court having distinguishable facts are not applicable in the present case. In the case of Filatex India Pvt. Ltd. (supra), the question raised on the applicability of provisions u/s 153A was as under: “whether the Tribunal erred on facts and in law in not holding that recomputation of book profit, dehors any material found during the course of search in the order passed u/s 153A of the Act was without jurisdiction, being outside the scope of proceedings under that section?” The other question was, “whether on the facts and circumstances of the case, the Tribunal erred in law in upholding the action of the AO in denying set off, of book loss unabsorbed depreciation relatable to earlier assessment year in terms of clause (III) of Explanation 1 to section 115JB of the Act?” The relevant facts of that case noted in para no. 2 of the decision are that the AO in the proceedings u/s 153A of the Act, had made several additions, relying upon the incriminating material found in the course of search, which was conducted on 18.1.2006 and subsequent dates. In this paragraph of the decision it has been perused from the impugned order of the Tribunal that incriminating material including statement of Sanjay Agarwal, GM (Marketing) have resulted in additions, which have been upheld. The Hon'ble High Court has been pleased to note in this paragraph as “it is not the case of the appellant - assessee that initiation of proceedings u/s 153A was bad or unwarranted in law as no incriminating material was found during the search. The contention raised by the appellant - assessee is that the addition, which is the subject matter of questions no. (II) and (III), was/is not justified in the assessment order u/s 153, as no incriminating material was found concerning the addition u/s 115JB of the Act.” The Hon'ble High Court has rejected this contention of the assessee with this finding that u/s 153A of the Act, the additions need not to be restricted or limited to the incriminating material, which was found during the course of search. Thus, it is clear from the facts of this case before the Hon'ble High Court that several additions relying upon the incriminating material found in the course of search were made by the AO in the assessment proceedings u/s 153A of the Act and addition u/s 115JB was made by the AO in absence of incriminating material concerning this addition. This addition was questioned by the assessee on the basis that there was no incriminating material found concerning the addition made in the assessment u/s 153A of the Act, which has been rejected by the Hon'ble High Court with the above finding. It was held by the Hon'ble High Court that there cannot be multiple assessments, once sec. 153A of the Act is applicable. Section 153A(1) postulates one assessment; putting the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which search was conducted or requisition was made.

11. In para no. 3 of the judgment the Hon'ble Delhi High Court while discussing the cited decisions in the cases CIT v. Chetan Das, (2012), 254 CTR (Del) 292 and CIT v. Anil Kr. Bhatia, (2012), 2010-11 Taxman 453 (Del) cited by the ld. AR of the assessee appellant, has noted certain observations made and findings given by the Hon'ble Court therein. Thereafter in para no. 4 of the judgment, the Hon'ble High Court has held as under: “The first question, we notice was not raised by the appellant before the AO, CIT(A) and before the Tribunal. The appellant claims that the contention being legal can be raised at any stage. We have examined sec. 153A of the Act and find that the submission/contention has no merit”.

11.1 When we peruse the facts of the case in the case of Filatax India Ltd. and the question raised therein it comes out that in that case admittedly during the course of search incriminating material including statements were found and resulted in additions and the addition made u/s 115JB of the Act was not based upon any incriminating material. Thus, the question raised before the Hon'ble High Court was as to whether the Tribunal has erred in law in not upholding that recomputation of book profit, dehors any material found during the course of search in the order based u/s 153A of the Act was without jurisdiction, being outside the scope of proceedings under that section. The Hon'ble High Court after discussing the issue in detail has been pleased to decide the question against the assessee and has upheld the addition made u/s 115JB of the Act. Thus, having distinguishable facts this cited the decision in the case of Filatax India Ltd. (supra) is not helpful to the revenue.

11.2 So far as, the decision of Hon'ble Karnataka High Court in the case of Canara Housing Development Company (supra) relied upon by the ld. CIT DR is concerned, the issue raised before the Hon'ble High Court was regarding validity of revisional order passed u/s 263 of the Act by the ld. CIT partly upheld by the Tribunal and during that course the Hon'ble High Court has also been pleased to discuss the decision in the cases of CIT v. Anil Kumar Bhatia (supra) and the decision of Special Bench of the Tribunal in the case of Allcargo Hon'ble Logistics Ltd. (supra). It has been observed by the Hon'ble High Court that the condition precedent for application of sec. 153A is that there should be a search u/s 132 and initiation of proceedings u/s 153A is not dependent on any undisclosed income being unearth during the such search. The Hon'ble Rajasthan High Court in the case of Jai Steel (supra) has been pleased to hold that if any books of accounts or other documents relevant to the assessment had not been produced in the course of original assessment and found in the course of search, such books of accounts or other documents have to be taken into consideration while assessing or re-assessing the total income under the provisions of sec. 153A of the Act. Even any undisclosed income or undisclosed property has been found after the conclusions of the search, same would also be taken into consideration. The requirement of assessment or re-assessment under the said section has to be read in the context of sections 132 or 132A of the Act, in much as, in case nothing incriminating is found on account of such search or requisition, then the question of re-assessment of the concluded assessment does not arise, which would require more reiteration and it is only in the context of the abated assessment under second proviso which is required to be assessed.

12. In the case of Ssp Aviation Ltd. v. Deputy Commissioner Of Income Tax (supra) where the validity of assessment framed u/s 153C was challenged it was held that if the AO is satisfied that any money, bullion, Jewellery or other valuable article or thing or books of account or documents seized in the course of the search belongs to a person other than the person who was searched, then such assets or books of accounts or documents shall be handed over by him to the AO having jurisdiction over such other person. Once, that is done, the AO having jurisdiction over such other person shall proceed against him for making an assessment or reassessment of his income in accordance with the provisions of sec. 153A. The petitioner therein was not searched u/s 132 of the Act, however, some documents belonging to it were found during the search carried out in the premises of Puri Group of Companies.

13. We, thus, find that the ratio laid down by the Hon'ble Delhi High Court and Hon'ble Rajasthan High Court in the above cited and discussed decisions supports the case of the assessee that in absence of incriminating material found during the course of search no addition can be made u/s 153A of the Act where the original assessment was already framed on the date of search. The Hon'ble Karnataka High Court in the case of Canara Housing Development Company (supra) has, however, been pleased to express different view however, as per the established proposition of law, we are bound to follow the decision of Hon'ble Jurisdictional Delhi High Court and since, the Hon'ble Karnataka High Court and the Hon'ble Rajasthan High Cout have expressed different views on the issue, the view favourable to the assessee is to be followed. We, thus, reiterate that in absence of incriminating material found during the course of search no addition can be made in a case where original assessment was already framed on the date when search took place.

14. We thus find that the first appellate order on the issue is fully supported by the above discussed decisions relied upon by the learned AR especially when it is undisputed fact of the present case that no incriminating material was found during the course of search against the assessee and on the date of search, no assessment based on the return of income originally filed was pending. We, thus, do not find any reason to interfere with the first appellate order in this regard. The same is upheld. The ground No. 2 is accordingly rejected.

15. The remaining grounds questioning action of the Learned CIT (Appeals) in deleting the addition of Rs. 89 lacs made by the Assessing Officer under sec. 68 of the Act and charging of interest of interest under sec. 234A and 234B of the Income-tax Act, 1961 have now become academic, hence, do not need adjudication.

16. In the result, the appeal is dismissed.

Order pronounced in the open court on 14/11/2014

I.T.A No. 3761.Del/2011 (Assessment Year 2002-03)

Cit v. Kurele Paper Mills Pvt. Ltd.

Structured Summary of the Opinion (I.C. Sudhir, J.M.)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Assessee's Arguments (Learned Authorized Representative)

Revenue's Arguments (Learned CIT (DR))

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Cit v. Kurele Paper Mills Pvt. Ltd.

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