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Smart Summary

Structured Summary of the Provided Legal Opinion

Factual and Procedural Background

The materials in the opinion concern appeals and questions arising from assessments and reassessments under the Income Tax Act, primarily under Sections 153A/153C, in the aftermath of searches and requisitions (Section 132/132A). One appeal sought admission on the question whether computation of undisclosed income under Sections 153A/153C "should be confined only to the material found during the course of search proceedings." The opinion records that, in that appeal, there was no statement or averment that a search was initiated under Section 132 or that books/documents/assets were requisitioned under Section 132A; consequently the Court observed no illegality in the Tribunal's order and dismissed that particular appeal.

The opinion also contains a detailed Tribunal judgment in the matter titled "ACIT vs. PSAL India P. Ltd. ITA no.2637/Del/2010 (for A.Y. 2003-04)" and discusses the grounds of appeal taken by the revenue (enumerated grounds 1 to 7). The Tribunal and later panels considered whether assessments framed under Section 153A could lawfully include additions where (a) returns had been processed under Section 143(1)(a) and the period for issuing notice under Section 143(2) had elapsed; and (b) no incriminating documents/materials relating to the assessment year were found or seized during the search.

The case history recorded includes proceedings before assessing officers, Commissioner (Appeals), Tribunals, references to High Court decisions, a Special Bench decision, and follow-on applications for multiple assessment years (notably A.Y. 2004-05 to 2009-10). The opinion concludes by recording final appellate outcomes for the assessee's appeals for several assessment years and for one year partly allowed; the order was pronounced on 27th November, 2013 by Judicial and Accountant Members.

Legal Issues Presented

  1. Whether on the facts and circumstances the Tribunal was correct in law in holding that computation of undisclosed income under Sections 153A/153C should be confined only to material found during the course of search proceedings.
  2. Whether the Commissioner (Appeals) erred in quashing assessment made under Section 153A by holding that no document was seized during the search pertaining to the assessment year.
  3. Whether the Commissioner (Appeals) erred in interpreting Section 153A of the Income Tax Act.
  4. Whether the Commissioner (Appeals) erred in placing reliance on the second proviso to Section 153A(1) while ignoring the main section and the first proviso.
  5. Whether the Commissioner (Appeals) erred by not following CBDT Circular No.7 of 2003 dated 05/09/2003.
  6. Whether there is any precondition that documents pertaining to each assessment year under Sections 153C/153A must be found for the Assessing Officer to make an assessment under those provisions.
  7. Whether an Assessing Officer can make additions in reassessment proceedings under Section 153A after making inquiries which are not suggested by any document or asset seized during the search.

Arguments of the Parties

Appellant / Assessee (as represented in parts of the opinion)

  • The learned counsel for the appellant drew attention to Section 158BI (which disapplies certain provisions where a search is initiated under Section 132 or requisitions under Section 132A after 31st May 2003) to contest the invoking of the chapter in some contexts.
  • The assessee's position (as recorded in parts of the Tribunal's reasoning) was that where a return has been processed under Section 143(1)(a) and the time for issuing notice under Section 143(2) has elapsed, proceedings stand finally closed and cannot be reopened under Section 153A unless incriminating material is found in the search.
  • The assessee argued that, in the facts of the case, no incriminating documents related to the assessment years in question were found or seized, and therefore the Assessing Officer lacked jurisdiction to make additions not based on such material.

Revenue / Appellant before Tribunal (as recorded)

  • The revenue advanced multiple grounds challenging the Commissioner (Appeals) order, including that the CIT(A) erred in quashing assessments under Section 153A, misinterpreted Section 153A, wrongly relied on the second proviso, failed to follow CBDT Circular No.7/2003, and misunderstood the scope of documents required for each assessment year.
  • The revenue relied on High Court authority (e.g., Shri Anil Kumar Bhatia) and on the proposition that Assessing Officer has power under Section 153A to reassess and compute total income for the relevant years even if returns were processed under Section 143(1)(a).

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
ACIT vs. PSAL India P. Ltd., ITA no.2637/Del/2010 Series of questions whether assessments under Section 153A can be quashed where no documents were seized for the particular assessment year; interpretation of Section 153A and provisos; compliance with Circular No.7/2003. The Tribunal considered grounds raised by the revenue and applied principles about whether incriminating material was found; the case is discussed as the vehicle for the Tribunal's analysis and formed part of the reasoning that led to quashing assessments for several years in the present matter.
Shri Anil Kumar Bhatia vs. ACIT (Delhi High Court & Tribunal references) The High Court held that Section 153A empowers the AO to make assessments for the relevant years and compute total income including undisclosed income, even where returns were processed under Section 143(1)(a); Tribunal had earlier held otherwise in certain aspects. The opinion notes the High Court's affirmation of the Assessing Officer's power under Section 153A but records that the High Court did not definitively answer whether Section 153A can be invoked where no incriminating material was found. The decision was used as part of the matrix of authorities on the scope of Section 153A.
Alcargo Global Logistics Ltd. vs. Dy. CIT, (2012) 137 ITR 287 (Mum) (Special Bench) Special Bench conclusion: where an assessment has abated the AO retains original as well as Section 153A jurisdiction and can make additions even if no incriminating material has been found; where no assessment has abated, assessment under Section 153A can be made only on the basis of incriminating material recovered during search. The Tribunal followed the Special Bench and applied its bifurcation: because in the present case the assessments had been completed (no abatement), additions could only be made on the basis of incriminating material found during the search. This principle was central to quashing several assessments.
Gurinder Singh Bawa vs. CIT (Bombay Bench, following Alcargo) Reiterated Alcargo: where assessments abate, AO may make additions even if no incriminating material found; where no abatement, additions only based on incriminating material found. The Tribunal relied on this decision (and its reasoning) in support of the proposition that, because no assessments had abated, additions not based on incriminating material found during search were invalid.
ACIT vs. Pratibha Industries Ltd. (Bombay Bench) Held that proceedings under Section 153A are linked to the search being initiated; issuance of notices under Section 153A for filing returns is valid once search occurs but fresh additions beyond those supported by material found/seized are not valid where no such material exists. The Tribunal cited this authority to support the view that issuance of notice under Section 153A is valid but that actual additions require supporting incriminating material when assessments had been completed before the search.
MGF Automobiles Ltd. vs. ACIT (ITA nos.4212 & 4213/Del/2011) Referenced in support of the assessee's case on scope of Section 153A and the requirement of material found during search for additions where assessments had been completed. Listed among authorities that the Tribunal considered as supporting the conclusion to quash assessments where no incriminating material was found.
Jai Steel (India), Jodhpur vs. ACIT (ITA no.53/2011) Another authority cited in support of the assessee's position on the limits of Section 153A assessments. Referred to by the Tribunal as one of the decisions that lend support to quashing assessments where no incriminating material was found or where procedure/limitations barred notice.
JCIT vs. M/s Spectrum Pearls and Exports P. Ltd. (ITA nos. 2107–2113/Hyd/2011) Decisions for assessment years 2003-04 to 2009-10 touching on search-related assessment principles. Included in the list of authorities relied upon by the Tribunal to support its conclusion to quash assessments for certain years.
Maxopp Investments Ltd. vs. CIT, 247 CTR 162 (Del) Principles governing disallowance under Section 14A and the correct approach to remand for fresh consideration. The Tribunal set aside the disallowance under Section 14A to the file of the Assessing Officer for fresh consideration in accordance with the Maxopp principles; the ground was remitted for fresh inquiry.

Court's Reasoning and Analysis

The opinion proceeds by examining statutory mechanics and the factual matrix in which searches, processing of returns, and time-limits for issuing notices under Section 143(2) interact with assessment powers under Section 153A (and, where relevant, Section 153C). Key analytical steps recorded in the text are summarized below:

  1. Definition of scope: The Court/Tribunal emphasized that undisclosed income under Sections 153A/153C must be computed on the basis of material found during the course of search; material which was already disclosed in a regular assessment or block assessment cannot be relied upon to arrive at undisclosed income in search assessments.
  2. Applicability of Section 158BI: Counsel for an appellant relied on Section 158BI (which excludes the chapter where a search is initiated under Section 132 or requisitions under Section 132A after 31.05.2003). The text records that, in the present appeal, there was no averment that a search/requisition was made under those sections after the specified date, and therefore Section 158BI did not render the impugned action illegal.
  3. Nature of proceedings post-143(1)(a): The Tribunal parsed the distinction between proceedings concluded under Section 143(1)(a) (processing of returns) and proceedings under Section 143(3). It recorded that once a return is filed and an intimation under Section 143(1)(a) issued and the time for issuance of notice under Section 143(2) has elapsed, those processing proceedings stand closed and cannot be reopened by issuing a notice under Section 143(2) once the statutory window is gone.
  4. Meaning of "pending" assessment for Section 153A: The Tribunal observed that Section 153A refers to a "pending" assessment or reassessment. Whether an assessment is pending depends on whether proceedings (e.g., under Section 143(3)) were pending on the date of search. If proceedings were pending/abated, those proceedings merge with Section 153A proceedings; if proceedings were complete on the date of search (no abatement), nothing merges.
  5. Consequence of abatement vs. no-abatement (Special Bench authority): Adopting the Special Bench view in Alcargo Global Logistics Ltd., the Tribunal distinguished two scenarios:
    • If assessments had abated (i.e., were pending on the search date), the AO retains original jurisdiction and can make additions even if no incriminating material is found;
    • If no assessments abated (i.e., assessments were already complete and no proceedings were pending), then a Section 153A assessment can only be made on the basis of incriminating material found during the search (books, documents, undisclosed assets found in search).
  6. Application to the facts: The Tribunal found, on the facts before it, that:
    • The returns for the relevant years had been processed under Section 143(1)(a) and the time for issuing notices under Section 143(2) had expired prior to the search date;
    • No incriminating documents bearing on the assessee's relevant years were found or seized during the search (what was found in a hard disk was characterized as confirmation of account or annexures and not books of account belonging to the assessee);
    • There was an absence of record showing that the satisfaction required to issue notices under Sections 153A/153C was properly recorded in the searched person's file at the relevant time, and procedural steps were not followed; and
    • In at least one instance, notices for a particular year were barred by limitation based on the date satisfaction was recorded.
    On these factual findings the Tribunal held the Assessing Officer lacked jurisdiction to make additions in respect of the years where no incriminating material was found and where no abatement occurred.
  7. On inquiries and additions: The Tribunal explicitly held that the Assessing Officer cannot embark on roving or fishing inquiries to make additions in Section 153A proceedings when no incriminating material relating to the assessment year was found or seized. Where no material is found on record to reassess the income of the assessee, additions should be deleted.
  8. Specific findings for A.Y. 2009-10: For A.Y. 2009-10 the Tribunal noted that no notice under Section 153C was issued; instead notices under Sections 143(2) and 142(1) were issued and assessment proceeded with additions under Section 14A and an adhoc disallowance of Rs. 15 lakhs under Section 37. The Tribunal held:
    • The disallowance under Section 14A was remitted to the AO for fresh consideration in accordance with Maxopp Investments Ltd.;
    • The adhoc disallowance of Rs. 15 lakhs was deleted as being based on surmises and conjectures, not on material; the Assessing Officer had failed to justify it properly and the assessee had produced evidence supporting the expenditure.

Holding and Implications

The opinion contains multiple dispositive statements applied to different appeals and factual permutations. The principal outcomes recorded in the text are:

  • On an appeal where there was no averment that a search was initiated under Section 132 or requisition under Section 132A: The Court observed no illegality or infirmity in the Tribunal's judgment and order and dismissed that particular appeal (reasoning included reference to Section 158BI and the requirement that undisclosed income be computed on material found during search).
  • In the matter involving ACIT vs. PSAL India P. Ltd. and related assessment years: The Tribunal quashed the assessment proceedings for the Assessment Years 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09 on grounds including that no books of account or incriminating material belonging to the assessee were found/seized, procedural requirements (satisfaction recording) were not shown to have been followed, limitation barred certain notices, and because where no assessment had abated additions could only be made on incriminating material found during the search. Consequently, the appeals of the assessee for those years were allowed.
  • For Assessment Year 2009-10: The appeal was partly allowed. The Tribunal remitted the Section 14A disallowance to the Assessing Officer for fresh consideration in line with Maxopp Investments Ltd. and deleted an adhoc disallowance of Rs. 15,00,000 as unsupportable.

Direct effect on the parties: The Tribunal's orders resulted in deletion of additions and quashing of assessment proceedings for specified years (A.Y. 2004-05 to 2008-09) in favour of the assessee, and a partial success for the assessee for A.Y. 2009-10 (remand on Section 14A; deletion of adhoc disallowance). The opinion does not purport to lay down a universally novel principle beyond applying and following existing authorities (including the Special Bench in Alcargo) about when Section 153A can be invoked to make additions absent incriminating material and the effect of abated versus non-abated proceedings.

Disposition noted in the opinion: "In the result the appeals of the assessee for all the Assessment Years 2004-05, 2005-06, 2006-07, 2007-08, 2008-09 are allowed and the appeal for the Assessment Year 2009-10 is partly allowed. Order pronounced in the Open Court on 27th November, 2013."

Additional Observations Recorded in the Opinion

  • The opinion repeatedly emphasizes that assessments under Section 153A should be triggered by incriminating material found during search unless there has been an abatement of pre-existing proceedings; the Special Bench decision in Alcargo was pivotal in articulating and distinguishing these scenarios.
  • The Tribunal criticized adhoc disallowances where they are not supported by material, holding that disallowances based on surmise and conjecture are unsustainable.
  • Procedural compliance (for example, recording of satisfaction and adherence to limitation periods) was treated as material to the validity of notices under Sections 153A/153C.

Authoritative signatures recorded: The order was signed by (I.C. Sudhir) Judicial Member and (J. Sudhakar Reddy) Accountant Member, dated 27th November, 2013, and copies were forwarded to the appellant, respondent, CIT, CIT(A), DR and guard file.

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    M/s. V.K. Fiscal Services Pvt. Ltd., New Delhi v. DCIT, New Delhi

    This appeal is preferred and sought to be admitted on the following suggested question of law. "Whether on the facts and circumstances of the case, the Tribunal is correct in law in holding that the computation of undisclosed income u/s 153A/153C of the Act should be confined only to the material found during the course of search proceedings?" In our opinion, the aforesaid question is very vague, as the undisclosed income shall be computed always on the basis of the material, which is found during the course of search. No material, which was disclosed at the time of regular assessment or block assessment period, can be relied on to arrive at the undisclosed income. The learned counsel for the appellant has drawn our attention to Section 158BI of the Income Tax Act, 1961, which reads as under: "158BI. The provisions of this chapter shall not apply where a search is initiated under Section 132, or books of account, other documents or any assets are requisitioned under Section 132A after the 31st day of May, 2003." (Emphasis ours) In this present appeal, there is no statement or averment that the search was initiated under Section 132 or books of account, other documents or any assets are requisitioned under Section 132A. Therefore, there is no illegality or infirmity in the judgment and order of the learned Tribunal warranting interference of this Court. The appeal is accordingly dismissed. 12.6. In the case of ACIT vs. PSAL India P.Ltd. ITA no.2637/Del/2010 for A.Y. 2003-04 the Delhi F Bench of the Tribunal held as follows. This is the appeal emanates from the order of the ClT (A)(III) Delhi dated 03.03.2010. The revenue has taken the following grounds of appeal :-

    1. Whether on the facts and in the circumstances of the case, the ClT{A) has erred in law and on facts in quashing the assessment made u/s 153A by holding that no document was seized during the search pertaining to this Assessment Year?

    2. Whether on the facts and in the circumstances of the case, the ClT{A} has erred in interpreting Section 153A of the IT Act?

    3. Whether on the facts and in the circumstances of the case, the ClT{A} has erred in placing reliance on second proviso to Section 153A{1} ignoring the main Section and the first proviso?

    4. Whether on the facts and in the circumstances of the case, the ClT{A} has erred in law in not following the Circular NO.7 of 2003 dated 05/09/2003 issued by the CBDT.

    5. Whether on the facts and in the circumstances of the case, the ClT{A} has erred in law by not appreciating the fact that there is no precondition that documents pertaining to each of the assessment year falling under the provisions of Section 153C/153A should be found?

    6. The order of the ClT {A} is perverse and not tenable in law and on facts.

    7. The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal. In our considered view, there is no dispute with regard to the proposition that A.O jurisdiction u/s 153A of the Act to initiate assessment/ reassessment proceedings for a years to compute the total income of the assessee including the undisclosed income action have been taken against the assessee u/s 132{1} of the IT Act. However, the question remains that when return has been processed u/s 143{1} {a} and the time period for issuing notice u/s 143{2} for selecting return for scrutiny has elapsed then what nature of proceeding commenced and concluded u/s 143{1} {a}. How these are different from the proceedings commenced and concluded u/s 143(3) of the Act. There is no doubt that once the proceeding u/s 143(3) are completed and concluded then there is nothing which will abate as per provisions of section 153A of the Act.

    9. In our considered opinion, section 153A referred to "pending" "assessment" or "reassessment" and not "assessment orders". The assessment may not be pending even though there is no formal order u/s 143(l)(a). The moment return is filed and acknowledgement or intimation issued, the proceedings initiated by filing the return are closed, unless they are again triggered by issuing notice u/s 143(2) of the IT Act. In the case under consideration, the period for issuing the notice u/s 143(2) elapsed. The process has attained the finality which can only be assailed u/s 148 or 263 of the IT Act. Such proceedings can never be initiated u/s 143(2) when the time period for issuing notice u/s 143(2) has expired ... The issues arises from those processed return can be raised only when some materials found against the assessee. The Hon'ble Delhi High Court in the case of Anil Kr. Bhatia sited it supra held that assessment u/s 153(A) would be similar to the orders passed in any reassessment, where the total income determined in the original assessment order and the income that has escaped assessment are clubbed together and assessed as the total income. The expiry of time for issuing notice u/s 143(2) of the Act takes away the jurisdiction of the AO for issuing notice u/s 143(2). It is jurisdictional power available with the AO to be exercised in given period. Once, it is exercised then it can be completed only by making order u/s 143(3) of the Act within the time available u/s 153(1) of the Act. Once search takes place u/s 132(1) of the Act and completion of proceeding is pending on that date then such proceedings abate. Thus, the scope of assessment u/s 153A depends upon whether any assessment or reassessment proceedings were pending or completed on the date of the search. Whenever the abated proceedings are merged with the proceedings u/s 153A then scope of assessment vide and it will cover all issues arising from the original return and issue arising on the basis of incriminating documents, and assets found and seized during the search. Wherever the proceedings are completed prior to the search then nothing merges with proceeding u/s 153A the Act and nothing abates. In such a situation, the AO has to respect the completeness of the proceedings. Admittedly, in the case of assessee, no incriminating documents were found an seized. The provisions of section 153A give power to assessing officer to assess and reassess the income. The assessing officer is empowered to make addition on account of undisclosed income or income escaped assessment. In the case under consideration, there is no incriminating material found during the course of search relating to the assessment year under consideration. The time period for issuing notice u/s 143(2) was already expired prior to the date of search. Therefore, the proceedings do not get abated by virtue of proviso to Section 153A.

    10. Therefore, the question arises whether AO can make any addition in the reassessment proceedings u/s 153(A) after making inquiries which are not suggested by any document or asset seized during the search. It depends on the nature of addition. The facts and circumstances of the assessee clearly show that no incriminating document found relating to the land development expenses debited in the books of accounts. No material was on the record on the basis which income of assessee could be further assessed by Assessing Officer. Therefore, the assessing officer has no jurisdiction to make or to resort to roving and fishing inquiries to find out whether any income has escaped assessment during these reassessment proceedings. Particularly, when there is no incriminating material found and seized during the course of search u/s 132(1) of the Act and nothing is available in record to reassess the income of assessee. In view of the above, this is not a fit case for making the addition in the year und consideration, the same are deleted. (Emphasis ours) 12.7. In the case of Kusum Gupta vs. DCIT for which one of us is a party in ITA 4873/Del/09 and other appeals order dt. March,2013, the Delhi D Bench of the Tribunal from para6 to 8 held as under.

    6. Having gone through the orders of the authorities below we find that the Ld. CIT(A) has decided the issue raised in the ground in favour of the assessee following his earlier order on identical issue in the case of assessee for assessment year 2004-05. In that year also the only issue raised was as to whether while assessment order making addition in framed u/S 153 A, the AO has to restrict himself only to materials found during the course of search or any other issue was also considered. It was held that where order has already been passed u/s 143(3) and if no material is found suggesting escapement of income in this assessment then no addition can be made in Section 153 A proceedings. In other words in such cases addition can only be made with reference to material found during the course of search. The Ld. CIT(A) has placed reliance on the decision of the Tribunal in the case of Shri Anil Kumar Bhatia Vs. ACIT and ors, 1 ITR (Trib) 484(Delhi) holding that the power to frame assessment u/s 153 A of the Act shall be TO THE extent of income escaping assessment to the knowledge of the Assessing Officer during the course of search. It was held that the assessment u/s 153 A of the Act shall be with reference to book of accounts, article or thing found or documents seized during the search which are not disclosed in the original assessment. It is pertinent to mention overhear that in the case of Shri Anil Kumar Bhatia and Ors, the revenue had preferred appeal before the Honble High Court against the order of the Tribunal and the issue raised before the Honble High Court was as to whether even if assessment order had already been passed in respect of any of those six assessment years, either u/s 143(1) (a) or Section 143 (3) prior to initiation of search/requisition, still Assessing Officer is empowered to reopen those proceedings u/s 153 A without any fetters and re assess total income taking note of undisclosed income, if any, unearthed during search. It was answered by the Honble High Court in affirmative and in favour of the revenue. In that case, the Honble High Court has been pleased to hold that the Assessing Officer has the power u/s 153A to make assessment for all the six years and compute the total income of the assessee, including the undisclosed income, notwithstanding that the assessee filed return before the date of search which stood processed u/s 143(1) (a) of the Act. The Tribunal had held that since the returns of income by the assessee for all the six years under consideration before the search took place were processed u/s 143 (1) (a) of the Act, the provisions of Section 153 A cannot be invoked. The Honble High Court did not agree with this, nor it agreed with the finding of the Tribunal that no material was found during the search. The Honble High Court observed in that case, that in the entire case and arguments before the departmental authorities as well as the Tribunal had proceeded on the basis that no document embodying the transaction with Mohni Sharma was recovered from the assessee. The same is not correct the reason being that in the order of the Tribunal itself it was mentioned that no document much less incriminating material was found during the search of the assessees premises, except unsigned undertaking for loan. The Honble High Court taking note of this material fact held that if it is not in dispute that the document was found in the course of the search of the assessee, then Section 153A is triggered . Once the Section is triggered, it is mandatory for the Assessing Officer to issue notices u/s 153A calling upon the assessee to file returns for the six assessment years prior to the year in which the search took place. The contention of the Ld. A.R remained that under this premises that some document was found in the course of the search of the assessees premises, the Honble High Court was pleased to justify the assessment made u/s 153 A of the Act. In other words, in absence of finding of any material during the course of search where assessment has already been framed u/s 143 (3) of the Act or return filed u/s 139 has already been processed u/s 143 (1) (a), addition can not be made in the assessment framed u/s 153 A of the Act, remained the contention of the Ld. A.R further contention of Ld. A.R remained that in the assessment year 2001-02 no material was seized from the premises of assessee during the course of search and assessment order was already framed u/s 143 93) of the Act before the search. The Tribunal in absence of any material found during the course of search or statement pertaining to the undisclosed income has deleted the addition made on account of non-genuineness of the gift as undisclosed income. The revenue had preferred appeal against the said order of the Tribunal vide ITA No. 831/2010 and the Honble High Court vide its judgment dated 16/7/2010 has approved the order of the Tribunal. The Honble High Court noted that the gifts were made by way of registered gift deeds as well as payments were made by way of account pay cheques and both the donors are income tax assesses, it cannot be said that the gifts are not genuine. We thus find that neither in the case of Anil Bhatia(Supra) decided by the Honble High Court nor in the case of assessee itself for the assessment year 2001-02 any clear ratio has been laid down by the Honb le High Court that in absence of any material found during the course of search, no addition can be made u/s 153 A of the Act where assessment has already been framed u/s 143 (3) or returned filed u/s 139 of the Act has been processed u/s 143(1) (a) of the Act. Having gone through the other decisions relied upon by the Ld. A.R. we find that in the case of Anil Kumar Bhatia & ors (Supra), the Tribunal held that in respect of an assessment u/s 153A, where processing of returns u/s 143(1) (a) stood completed in respect of returns filed in due course before search and no material is found in search thereafter, no addition can be made. In appeal preferred by Revenue against this order of the Tribunal, the Honble Delhi High Court was pleased to hold that where assessment order had already been passed in respect of all or any of those six assessment years, either u/s 143 (1) (a) or Section 143(3) prior to initiation of search/requisition, still Assessing Officer is empowered to reopen those proceedings u/s 153A without any fetters and reassess total income taking note of undisclosed income, if any, unearthed during search. The appeal was however, allowed in favour of the Revenue because the Honble High Court did not concur with the finding of the Tribunal on fact that no material was found during the search, whereas the document embodying the transaction with M was recovered from the assessee in search but the same was ignored by the Tribunal on the plea that the document was not signed by M. the Honble High Court was pleased to hold that mere fact that the undertaking was not signed by M did not absolve the assessee from the duty of satisfactorily explaining the possession of the documents. The amount was stated therein to have been advanced in cash. Thus an inference can be drawn from those decisions of the Tribunal and the Honble High Court that there is no scope of debate on the ratio that taking note of undisclosed income, if any, unearthed during the search and even if assessment order had already been passed in respect of all on any of those six assessment years, either u/s 143(1) (a) or Section 143(3) prior to initiation of search/requisition, still Assessing Officer is empowered to reopen those proceedings u/s 153 A without any fetters and reassess total income. The Ld. AR in the present case before us intends to take support of this ratio. though we agree with the contention of Ld. DR that the Honble High Court as it is evident from the contents of para no. 23 (P. 468, 211 Taxman 453) has not expressed its opinion on the issue as to whether Section 153 A can be invoked even where no incriminating material was found during the search conducted u/s 132 but at least we find that there is no dispute that provisions u/s 153A can be invoked only taking note of undisclosed income, if any, unearthed during search. We find that the issue as to whether in a case where no incriminating material was found A.O had no jurisdiction to make addition in assessment or reassessment u/s 153A, has been dealt with and adjudicated upon by the Special Bench of the Tribunal in the case of Alcargo Global Logistics Ltd. Vs. Dy. CIT (2012) 137 ITO 287 (Mum) (SB), which has been followed by the Bombay Bench of the Tribunal in the case of Gurinder Singh Bawa Vs. CIT (Supra) relied upon by the Ld. AR. The issue was referred to the Special Bench on which to the conclusion that in case where assessment has abated A.O retains original as well as Section 153 A jurisdiction and when no assessment has been abated, assessment u/s 153 A can be made only on the basis of incriminating material recovered during search. The Special Bench held in that case that Provisions of Section 153 A come into operation if a search or requisition is initiated after 31/5/2003 and on satisfaction of this condition, the AO is under obligation to issue notice to the person requiring him to furnish the return of income for six years immediately preceding the year of search. The Special Bench further held that in case assessment has abated, the AO retain s the original jurisdiction as well as jurisdiction u/s 153A for which assessment shall be made for each assessment year separately. Thus in case where assessment has abated the AO can make additions in the assessment, even if no incriminating material, has been found. But in other case3s the Special Bench held that the assessment u/s

    153 A can be made on the basis of incriminating material which in the context of relevant provisions means books of account and other documents found in the course of search but not produced in the course of original assessment and undisclosed income or property disclosed during the course of search. In the present case, the assessment had been completed under summary scheme u/s 143(1) and time limit for issue of notice u/s 143(2) had expired on the date of search. Therefore, there was no assessment pending in this case and such a case there was no question of abatement. Therefore, addition could be made only on the basis of incriminating material found during search.

    7. Following the decision of Special Bench in the case of Alcargo Global Logistic Ltd. (Supra) and ors, the Bombay Bench of the Tribunal in the case of Gurinder Singh Bawa (Supra) held that in search assessment pertaining to six immediately preceding assessment years which abet due to pendency, Assessing Officer can make additions even if no incriminating materials is found during search, but when all assessments are complete and no assessment has abated, Assessing Officer can only made addition on the basis of either incriminating material found during search or undisclosed income/property disclosed during search. In that case the assessment framed u/s 153A was quashed as being made without jurisdiction since the said assessment u/s 153A was made on the basis of material available in return of income and there was no reference to any incriminating material found during the search and since no assessment was abated.

    8. The Bombay Bench of the Tribunal in the case of ACIT vs. Pratibha Industries Ltd. (supra) has held that proceedings u/s 153A are linked to the search having been initiated on the person, not with the documents found and seized. The documents so found and seized, may become useful to the Assessing Officer for making an assessment of total income u/s 153A r.w.s. 143(3), held by the Tribunal. In other words as per this decision where search ahs been conducted, issuance of notice u/s 153A for filing return is valid action but in such assessment no fresh addition than those made in the assessment attains finality, can be made in absence of material found and seized in search. This decision is thus supports the case of the assessee. 12.8. The following case laws also support the case of the assessee. (a) MGF Automobiles Ltd. vs. ACIT in ITA nos.4212 and 4213/Del/2011 for Assessment Year 2004-05, 2005-06, order dt. 28th June,2013. (b) Jai Steel (India), Jodhpur vs. ACIT, ITA; no.53/2011 and others vide judgement dt. 24th May,2013. (c ) JCIT; vs. M/s Spectrum Pearls and Exports P.Ltd. in ITA; nos. 2107 to 2113/Hyd/2011 for AYs 2003-04 to 2009-10 order dt. 4.4.2012.

    13. Applying the above case laws to the facts of the case, we have to necessarily quash the assessment proceedings for Assessment Year 2004-05, 2005-06, 2006-07, 2007-08, 2008-09 on the following grounds. (a) No books of accounts belonging to the assessee were found and seized in the premises of the other person. What was found was in the hard disk was only a confirmation of account that an attached annexures. Such documents cannot be said to be books of accounts or documents belonging to the assessee. (b) The Revenue has not produced the record of the searched person to demonstrate that satisfaction was recorded during the course of assessment proceedings in the case of M/s Global Reality Ventures P.Ltd. On the date of recording of satisfaction, first notice u/s 153 was issued. There is no indication whatsoever, that the assessment proceedings in the case of Global Reality Ventures P.Ltd. were in progress or not, at that point of time and that the A.O. during the course of that proceedings recorded this satisfaction. The procedure contemplated under the Act was not followed. (c ) The satisfaction is recorded on 23rd July,2010. The relevant A.Y. would be 2011-12. The six preceding AYs relevant to this A.Y. would be 2005-06/2006- 07/2007-08/2008-09/2010-11. Thus the notice issued u/s 153C for the A.Y. 2004-05 is clearly barred by limitation. (d) Even otherwise, as there is no incriminating material found during the course of search, the A.O. should have dropped the proceedings initiated u/s 153C of the Act. (e) As there is no dispute that no assessment or reassessment has abated in this case for the reason that, the date of search which in the case on hand would be 25.3.2010, by virtue of First Proviso to S.153C, i.e. the date of passing an order u/s 127 transferring the cases of the assessee to the present Assessing Officer no assessment or reassessment was pending. When no assessment has abated, the question of making any addition or making disallowance which are not based on only material found during search is bad in law.

    14. For the A.Y. 2009-10 no notice u/s 153C was issued. Notices u/s 143(2) and 142(1) were issued on 6.9.2010 and assessment was completed by making additions u/s 14A and also making an adhoc disallowance of Rs.15 lakhs u/s 37. 14.1. After hearing rival contentions; we hold as follows. The disallowance u/s 14A is set aside to the file of the A.O. for fresh consideration in accordance with the principles laid down in the decision of Honble Jurisdictional High Court in the case of Maxopp Investments Ltd. vs. CIT, 247 CTR 162(Del). In the result this ground is set aside for statistical purposes. 14.2. Ground no.2 is against the adhoc disallowance of Rs.15 lakhs. The reason given by the A.O. is as follows. As per the provisions of the Section 37 all expenses incurred for the purpose of business is allowable expenditure. The main requirement is that the expenditure should have been incurred wholly and exclusively for the purpose of business. Business expenses are expenses that are incurred for carrying on of ;business activities. In the case at hand, the assessee has failed to prove the justification of above expenses and such a meteoric rise in expenses comparing with the income has been a subject matter of enquiry. But the assessee has also not furnished any detail in this regard. Therefore, at this stage, it is very difficult to pin ;point the exact expenditure. Keeping in view the above facts of the case and limitation in the matter, an amount of Rs.15,00,000/- is disallowed and added to the income of the assessee for the year. The Ld.Commissioner of Income Tax (Appeals) confirmed the addition in a cryptic manner. We are unable to uphold this adhoc addition, as it is not based on any material. The disallowance has been made based on ;surmises and conjectures. The Assessing Officer has not justified the disallowance in a proper manner. The assessee has produced all evidences in support of this expenditure. Thus we delete the same and allow this ground.

    15. In the result the appeals of the assessee for all the Assessment Years 2004-05, 2005-06, 2006-07, 2007-08, 2008-09 are allowed and the appeal for the Assessment Year 2009-10 is partly allowed. Order pronounced in the Open Court on 27th November,2013. Sd/- Sd/- (I.C. SUDHIR) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: the 27th November,2013 *manga Copy of the Order forwarded to:

    1. Appellant; 2.Respondent; 3.CIT; 4.CIT(A); 5.DR; 6.Guard File By Order Asst. Registrar

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    M/s. V.K. Fiscal Services Pvt. Ltd., New Delhi v. DCIT, New Delhi
    (Nov 27, 2013)