Jugal Kishore, Accountant Member. - The appeal being I.T.A. No. 2173/Kol./2006 filed by the assessee and the appeal being I.T.A. No. 2184/Kol./2006 by the revenue are directed against the order passed by the ld. CIT(A)-VIII, Kolkata both dated 9-10-2006 for the same assessment year 1999-2000.
2. The assessee has raised the following grounds of appeal -
1.For that the ld. CIT(A) erred in dismissing the ground challenging the action of the Assessing Officer in adding back the items of regular assessment in the proceedings under section 153C when no incriminating documents were found in respect of the disallowed amounts in the search proceedings.
2.For that the ld. CIT(A) erred in dismissing the ground challenging the validity of assessment framed under section 153C read with section 144.
3.For that the ld. CIT(A) erred in confirming the disallowance of sales tax payment amounting to Rs. 38,411.
4.For that the ld. CIT(A) erred in confirming the disallowance of donation amounting to Rs. 38,171.
5.For that the Ld. CIT(A) erred in confirming the action of the Assessing Officer in partly disallowing the deduction claimed under section 80HHC being Rs. 64,22,953.
The revenue, on the other hand, has raised the following sole ground of appeal-
"That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting provisions of brokerage and commission amounting to Rs. 1,13,75,000, the liability to pay the amount did not accrue to the assessee during the year."
3. Brief facts relating to the disposal of this case are that a search under section 132 of the Act was conducted on one Sri Jayant Kumar Jain at the Kolkata Airport, who was found in possession of cash of Rs. 86.26 lakhs, out of which Rs. 86 lakhs was seized by the Income Tax authorities. Besides a number of incriminating documents were also seized from his possession. As according to the Assessing Officer, some documents related to the assessee-company, proceedings under section 153C were also initiated against it by the department.
4. As the assessee has challenged the validity of the assessment framed under section 153C read with section 144, we first take up the legal grounds, being ground Nos. 1 & 2 of the assessee, for our consideration.
5. The ld. Counsel appearing for the assessee reiterated the stand taken before the ld. CIT(A). He submitted that since the search was conducted after 31-5-2003, new provisions relating to the assessment of search cases, being section 153A to section 153C, are applicable in the instant case. At the outset, he submitted that even under the new scheme of assessment of search cases, items of regular assessment cannot be disturbed and the items of income/expenditure which have been disclosed to the department are outside the purview of the assessment of search cases. He then took us to the provisions of section 153C and submitted that since the assessee was not searched, section 153C was applied. As per section 153C(1), the assessee company’s assessment is required to be made in accordance with the provisions of section 153A. As per the first provisio to section 153A, the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within six assessment years whereas the second proviso states that the assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate.
The ld. Counsel submitted that the old assessments/assessments attaining finality due to passage of time will hold the field as per the second proviso to section 153A and cannot be disturbed. He submitted that the first proviso is qualified by the second proviso and should be read in the light of the second proviso and the words "assess or reassess" appearing therein means computation of undisclosed income unearthed due to search action. He submitted that the words " assess or reassess" appearing in the first proviso does not mean that all the preceding assessments which have attained finality would be ripped open. He then submitted that the departmental interpretation that all preceding six years are automatically reopened and the fresh assessments are to be made once a search action under section 132 is taken would lead to absurd results and cause grave injustice when as a result of search nothing incriminating was found. The ld. Counsel also filed before us extracts from the book "Principles of Statutory Interpretation" by the Hon’ble Justice G.P. Singh and made following submissions-
(a)If out of two provisos, the later is repugnant to the earlier one, the later prevails.
(b)The provisions of one section of a statute cannot be used to defeat those of another unless it is impossible to effect reconciliation between them.
(c)The marginal note to section 153A states "assessment in case of search", indicates that only that income is required to be assessed which is hidden from the department.
The ld. Counsel also relied upon a Supreme Court judgment in the case of C.A. Abraham v. ITO [1961] 41 ITR 425 for the proposition that the word "assessment" may also mean merely "computation of income". He, also placed reliance upon Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC). Relying upon the judgments in the case of Vipan Khanna v. CIT [2002] 255 ITR 2201 (Punj. & Har.); CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 2972 (SC) and Amrinder Singh Dhiman v. ITO/AO [2004] 269 ITR 3783 (Punj. & Har.), the ld. Counsel submitted that roving enquiries are not permissible even in the case of reopened assessments. Finally, it was submitted that the whole assessment be declared a nullity as no incriminating material was found in respect of the year in question and the Assessing Officer has made roving enquiries and made additions in respect of the regular items which were already disclosed to the department.
6. Mr. Sushil Kumar, ld. CIT, DR appeared for the revenue, He submitted that the provisions under section 153A replace the special procedure for assessment of search cases under Chapter XIV-B, which prescribed assessment of the block period in addition to regular assessment in respect of each assessment year included in the block period. The provisions under section 153A are quite distinct and envisages only one assessment in the aforesaid circumstances. It, however, does not mean, as rightly contended by the assessee, that if any regular assessment has been made prior to the search that will efface or lose its existence. Section 153A prescribes only reassessment in such cases once the search is initiated. The assessee is, therefore, not right in contending that completed assessment cannot be visited again or ripped open once the search is initiated. It will be clear if section 153A is carefully read. As brought out above, the requirement of issuing notice calling for returns of income and making assessment or reassessment under section 153A is only in respect of six assessment years preceding the assessment year of search. The section does not cover assessment for the assessment year of search. Assessment for the assessment year of search is contemplated only under other provisions of the Act. Accordingly, section 139, 142 or 148 govern the requirement of return of income for the assessment year of search entailing assessment either under section 143(3) or 144 or read with section 147. Thus section 153A requires an assessment if no regular assessment was made; or reassessment in case a regular assessment under section 143(3) or 144 or assessment or reassessment under section 147 was made for any of the stipulated six assessment years.
The assessment or reassessment under section 153A is thus apart from an earlier determination of total income under section 143(1) or a regular assessment under section 143(3) or 144; or assessment or reassessment under section 147. Section 153A also envisages a reassessment after assessment or reassessment under section 153A on account of an earlier search. Consequential amendments made to sections 234A and 234B make this further clear. First the relevant portion of section 234A may be seen. A plain reading of sub-section (3) of section 234A shows that it refers to a situation when notice under section 153A requiring return of income for any assessment year is issued after the determination of income under section 143(1) or the completion of a regular assessment under section 143(3) or section 144 for that assessment year based on a return filed earlier under section 139 or 142. In this regard it is important to note that as per Explanation 3 to section 234A (1), such earlier regular assessment includes even an assessment made for the first time under section 153A. In other words, even if the first assessment is made for any assessment year under section 153A, a reassessment under the same section is envisaged in case another search is initiated later in the case of same assessee. The section then refers to the amount on which interest is chargeable under the section when assessment is made under section 153A. The said amount is the amount by which the tax on the total income determined on the basis of reassessment under section 153A exceeds the tax on the total income determined earlier under section 143(1) or on the basis of the earlier regular assessment aforesaid.
Like the provisions of section 234A, section 234B also refers to an order of reassessment under section 153A presupposing an earlier determination of total income under sub-section (1) of section 143 or under regular assessment referred to in sub-section (3). In this regard it is important to note that as per Explanation 2 below sub-section (1), such earlier regular assessment includes even an assessment made for the first time under section 153A. Similarly the qualifying amount on which interest is chargeable for the aforesaid period is the amount by which the tax on the total income determined on the basis of the reassessment under section 153A exceeds the tax on the total income determined under section 143(1) or on the basis of the regular assessment aforesaid. Thus, both section 234A and section 234B presupposes an earlier determination of total income under section 143(1) or on the basis of the regular assessment under section 143(3)/144/147/153A before an assessment or reassessment is made under section 153A for the same assessment year.
Summarising his contentions, ld. CIT (DR) submitted that the section 153A clearly envisages assessment or reassessment under section 153A even if there stood at the time of initiation of search :
(i)determination of total income under section 143(1); or
(ii)an assessment either under section 143(3) or 144; or
(iii)an assessment or reassessment under section 147; or
(iv)an assessment or reassessment under section 153A,
for any assessment year falling in the stipulated period of six assessment years under the section.
He then submitted that if we carefully look at the provisions of section 153A, it requires assessment or reassessment of ‘total income’ as a result of search in contradistinction to assessment or reassessment of ‘income escaping assessment’ in section 147 or ‘assessment of undisclosed income as a result of search’ in section 158BB.
The total income which has been referred to in section 153A is defined in section 2(45) read with section 5. Total income means the total amount of income computed in the manner laid down in the Act, and there are no good reasons why the word "assessment" or ‘"reassessment" occurring in section 153A should be restricted in the manner suggested so as to include only escaped income or undisclosed income. Instead, it encompasses all income from whatever source. It is immaterial whether income is disclosed or not; or the source of such income is disclosed or not. It is also immaterial whether such income is based on entries recorded in regular books or entries not recorded in regular books. It is, therefore, clear that the total income assessed under section 153A means all income of whatever nature from whatever source.
The ld. CIT (DR) further submitted that in its normal sense "to assess" means "to fix the amount of tax or to determine such amount". The process of reassessment is to the same purpose and is included in the connotation of the term "assessment" as seen from section 2(8) of the Act which defines assessment as "assessment includes reassessment". Section 147 of the Act contemplates different cases in which the power to assess escaped income has been given; where there has been no assessment at all, the term "assessment" may be appropriate and where there was assessment at too low a rate or with unjustified exemptions, the term "reassessment" may be appropriate, and it may have been necessary to use two different terms to cover with clarity the different cases dealt with in the section; but this does not mean that the two terms should be treated as mutually exclusive or that the word "assessment" should be given a restricted meaning. Reliance for the meaning of the expressions ‘assessment’ and ‘reassessment’ was placed on a decision of the Apex Court in Ito, Bangalore v. K.N Guruswamy . [1958] 34 ITR 601 (Const. Bench) which was in the context of section 34 of the 1922 Act which corresponds to section 147 of the present Act.
The ld. CIT (DR) further submitted that section 153A begins with non obstante clause, "Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153". It thus specifically overrides the provisions of sections 147, 148 and 149. The assessment or reassessment referred to in section 147, notice calling for return referred to in section 148 and time-limit prescribed in section 149 for issue of notice under section 148 have, therefore, no relevance to assessment or reassessment under section 153A. This is further clear from the Explanation (i ) below section 153A which states that save as otherwise provided in this section all other provisions of this Act shall apply to the assessment made under this section. Section 153A specifically excludes the application of section 147 and some other sections stated therein and hence barring provisions of these excluded sections provisions of all other sections of the Act shall apply to assessment under section 153A.
Relying on the Supreme Court judgment in the case of R. Dalmia v. CIT [1999] 236 ITR 4801, the ld. D.R submitted that it was held therein "No doubt assessments under section 143 and assessments and reassessments under section 147 are different, but in making assessments and reassessments under section 147 the procedure laid down in sections subsequent to section 139, including that laid down by section 144B, has to be followed."
The expressions "the provisions of this Act shall, so far as may be , apply accordingly as if such return were a return required to be furnished under section 139" in section 153A(a), therefore, do not envisage that the provisions of sections 147, 148 and 149 would govern section 153A. Even in case of assessment or reassessment under section 147 what is assessed is the total income of the year including the escaped income. As pointed out earlier, the meaning of ‘assess’ or ‘reassess’ in section 147 is not restricted so as to exclude the earlier assessed income.
7. We have heard the rival submissions and carefully perused the case laws cited. The undisputed facts in the instant case is that the search action under section 132 of Act was conducted on Sri Jayant Kumar Jain, one of the director of the assessee-company, on 26-3-2004. Therefore, new provisions relating to the assessment in case of search comprising of sections 153A to 153C, which were brought on the statute book by the Finance Act, 2003 with effect from 1-6-2003, apply to the assessee’s case. These provisions replace the special procedure contained in Chapter XIV-B for assessment of search cases, whereby the undisclosed income detected as a result of search was assessed separately as the income of the Block period and such income was taxed separately at a flat rate of 60 per cent. Further, the assessee was not visited with the interest liability under sections 234A, 234B and 234C in respect of such undisclosed income detected. Section 153A under the new scheme relates to the assessment of a person searched under section 132, while section 153C prescribes the procedure of assessment of any other person whose money, jewellery or books/documents are found from the premises/possession of the searched person. Section 153C states that the assessment or reassessment of income of such other person shall be made in accordance with the provisions of section 153A.
For the sake of better appreciation, section 153A is reproduced as under-
"153A. Assessment in case of search or requisition.—Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after 31-5-2003, the Assessing Officer shall—
(a )issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139;
(b )assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made :
Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years:
Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate.
Explanation.—For the removal of doubts, it is hereby declared that,—
(i )save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to the assessment made under this section;
(ii )in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year."
8. A reading of section 153A reveals apparent contradiction in the first proviso and the second proviso. The first proviso provides that the assessment or reassessment shall be done by the Assessing Officer in respect of each assessment year falling within six assessment years preceding the year of search. The second proviso, on the other hand, provides that the assessment/reassessment pending on the date of search shall abate. In other words, the assessments which are not pending, shall hold the field. The assessee contends that the concluded assessments cannot be disturbed by the Assessing Officer and even under the new scheme, only undisclosed income detected in the course of search can be added and charged to tax. The department, on the other hand, vehemently contends that once a search is conducted, the preceding six years assessment of the searched person and any other person whose valuables and/or books, or documents are found during search are ripped open and the assessments/reassessments shall be framed afresh.
9. As the issue under consideration is new and no direct legal precedents are available on the point, we take aid from the principles of statutory interpretation and also from a judgment of the Hon’ble Jharkahnd High Court in the case of Abhay Kumar Shroff v. CIT [2007] 290 ITR 1141, where the new provisions of assessments of search cases have fallen for consideration although in a different context.
10. The basic principle of interpretation of a statute is that where the words of a statute are clear, plain or unambiguous, the Courts should give effect to that meaning irrespective of consequences. As we have seen above, the language of section 153A is not unambiguous and is not susceptible to only one meaning. In the circumstances, the principle of literal construction is of no help. We, therefore, would like to take recourse to other guiding rules like rule of harmonious construction, regard to consequences, rules relating to provisos and the external aids like contemporanea expositio.
11. One of the salutary rule is rule of harmonious construction. According to this rule, a statute must be read as a whole and one provision of the Act should be construed with reference to other provisions in the same Act so as to make a consistent enactment. Hon’ble Supreme Court in the case of Raj Krushna Bose v. Binod Kanungo AIR 1954 SC 202 at page 203 held that it is the duty of the courts to avoid "ahead on clash" between two sections of the same Act and whenever it is possible to do so to construe provisions which appear to conflict so that they harmonise. It was further held by the Privy Council in Mohammad Sher Khan AIR 1922 PC 17 that the provisions of one section of a statute cannot be used to defeat those of another "unless it is impossible to effect reconciliation between them".
In King v. Dominion Engineering Co. Ltd. AIR 1947 PC 94 (at page 95), it was held that if out of two provisos, the later is repugnant to the earlier one, the later prevails.
12. The meaning of assessment/reassessment does not always mean taking recourse to the whole procedure laid down in the Act for computing the tax liability. The Hon’ble Supreme Court in the case of C.A. Abraham (supra) has held as under-
"The expression ‘assessment’, as has often been said, is used in the Income-tax Act with different connotations. In Commissioner of Income-tax v. Khemchand Ramdas the Judicial Committee of the Privy Council observed:
"One of the peculiarities of most Income-tax Acts is that the word ‘assessment’ is used as meaning sometimes the computation of income, sometimes the determination of the amount of tax payable and sometimes the whole procedure laid down in the Act imposing liability upon the taxpayer. The Indian Income-tax Act is no exception in this respect. . . ."
Further, the Hon’ble Supreme Court in the case of Parashuram Pottery Works Co. Ltd. (supra), has held in the context of reopening of assessments that stale issues should not be reiterated beyond a particular stage and lapse of time must induce repose in and set at rest judicial and quasi-controversies as it must in other spheres of human activity.
13. In view of the above discussions, it is possible to effect reconciliation of the two provisos appended to section 153A by restricting the meaning of the term "assess or reassess" appearing in the first proviso. After the search, in our considered opinion, the total income of the assessee is to be recomputed on the basis of the undisclosed income unearthed during search and the same is to be added with the regular income assessed under section 143(3) or computed under section 143(1) for each of the six preceding assessment years. Where any prepaid taxes are there, the same are required to be given credit for computing the further tax payable by the assessee. The assessee is also required to pay interest under sections 234A and 234B on the tax due on the basis of new calculation. Where nothing incriminating is found in the course of search relating to any assessment years, the assessments for such years cannot be disturbed in our considered view.
14. The construction that the department seeks to place on the impugned provisions would lead to serious hardship, inconvenience, injustice, absurdity and anomaly. Suppose in the course of a search, nothing incriminating was found. Does this mean that an honest citizen be unduly harassed by facing automatic reopening of the concluded assessments merely because there was search action against him ?
The absurdity of the construction get all the more pronounced when say, no incriminating material is found relating to the "other person" but the material found indicates disclosed income. Suppose, loan confirmation relating to loans duly disclosed in the return of income of Mr. A are found at the time of search in the premises of Mr. B. Should the assessments of Mr. A be reopened for all the six preceding years merely because search action has been initiated against B ?
Courts have held that in selecting out of different interpretations, the courts shall adopt that which is just, reasonable and sensible rather than that which is none of those things. The following words of Max Radin were quoted with approval in the case of Brij Gopal v. State of M.P. [1978] MPLJ 70 page 75-
"It is true that the consideration of consequences of a decision has at all times been a controlling factor in the judicial process. Those courts who declare vigorously that they are completely indifferent to the consequences of what they decide and would decide as they do though the heaven fell, merely mean that they do not believe that the consequences will be seriously harmful. If they meant what they said, and acted on it, they would be taking a long step towards the destruction of our judicial system."
15. We may also refer to CBDT Circular No. 7 of 2003, dated 5-9-2003 [263 ITR (St.) 62] explaining the scope and effect of new assessment procedures in search cases, i.e., sections 153A to 153C.
Para 65.5 of the said circular reads as under :—
"65.5 The Assessing Officer shall assess or reassess the total income of each of these six assessment years. Assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search under section 132 or requisition under section 132A, as the case may be, shall abate. It is clarified that the appeal, revision or rectification proceedings pending on the date of initiation of search under section 132 or requisition shall not abate. Save as otherwise provided in the proposed section 153A, section 153B and section 153C, all other provisions of this Act shall apply to the assessment or reassessment made under section 153A. It is also clarified that assessment or reassessment made under section 153A shall be subject to interest, penalty and prosecution, if applicable. In the assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year."
A reading of the above mentioned circular clearly indicates that the appeal, revision etc. arising out of earlier assessments shall not abate. In other words, there is no merger of the earlier assessments with the assessments done under the new scheme, i.e., section 153A or 153C.
16. The Hon’ble Jharkhand High Court in the case of Abhay Kumar Shroff (supra), has held recently that there shall be assessment of undisclosed income of six assessment years preceding that in which search was conducted under the new scheme of assessment. [Emphasis supplied].
17. The Ld. CIT(DR) has mainly relied upon the literal construction of the provision. We have elaborately dealt with the issue and for the reasons stated hereinbefore, we are unable to subscribe to this view. The ld. CIT(DR) has also referred to the provisions of sections 234A and 234B wherein section 153A has been inserted after new scheme of search assessments was brought in the statute book. A careful perusal of the said provisions reveals that the amendment enables the department to levy interest under sections 234A and 234B on the undisclosed income unearthed during search. The amendment made in sections 234A and 234B does not help the case of the department. The ld. CIT (DR) has also submitted that section 153A requires assessment/reassessment of "total income" which means total amount of income computed in the manner laid down in the Act. In our opinion, the manner of computation suggested by us is not inconsistent with the provisions of the Act.
The ld. CIT(DR) has also contended that section 153A starts with non obstante clause and excludes application of sections 147 and 148 relating to reopening of assessments. We agree with the ld. DR. But at the same time, the scheme of the Act is very clear- the regular assessments are made in terms of sections 139, 142 and 143, concluded assessments can be reopened as per sections 147 and 148 in case the Assessing Officer has "reasons to belief" that the income chargeable to tax has escaped assess-ment and the provisions of sections 153A to 153C can be resorted to for the assessment of undisclosed income in search cases. All the three proce-dures of assessment operate in different fields and have different pur-poses to be fulfilled altogether.
18. In view of the elaborate discussion made, we allow ground Nos. 1 & 2 of the assessee. The additions made by the Assessing Officer, being all relating to regular items are hereby deleted. Since we have allowed the appeal on legal grounds, we are not inclined to deal with the merit of additions, though arguments were made on merit as well.
19. In the result, the appeal of the assessee is allowed and the revenue’s appeal is hereby dismissed.