These cross-appeals in the case of Shri Anil Bhatia and the appeals in the case of Shri Sanjay Bhatia, have been instituted by the assessees and the Revenue against the orders of the learned Commissioner of Income-tax (Appeals)-II, New Delhi, dated March 27, 2009, in the appeals against orders framed under section 153A read with section 143(3) of the Income-tax Act, 1961 ("the Act"). Since common issues are involved in all the appeals, therefore we heard them together and deem it appropriate to dispose of them by this common order.

2. Brief facts relating to these common appeals are noted hereinafter. A search was conducted under section 132 of the Act on the assessees on December 13, 2005. Pursuant to the same, assessments for the assessment years 2000-01 to 2006-07 have been framed under section 153A read with section 143(3) of the Act.

3. The chart for various additions as made by the learned Assessing Officer and respectively disputed by the assessee and the Revenue, vis-a-vis orders of the learned Commissioner of Income-tax (Appeals) is reproduced below:

Anil Bhatia (paper book page 1)

4. In the aforesaid connection, the Revenue has disputed the stated additions as deleted by the learned Commissioner of Income-tax (Appeals) and the assessee has disputed the stated additions as sustained and/or made by the learned Commissioner of Income-tax (Appeals), in their respective grounds of appeal. Further, the assessee has also challenged before us the legal validity of the aforesaid additions made in subject assessments under section 153A of the Act.

5. Learned counsel for the assessee Shri Kapil Goel, chartered accountant, submitted as under on the legal validity of subject additions made in the assessment under section 153A of the Act :

(a)During search on the assessee's premises, no document much less incriminating material, except one unsigned undertaking for loan, was found. Reference in this regard was made to material available on record in subject assessment orders and the learned Commissioner of Income-tax (Appeals) orders.

(b)That on the basis of the aforesaid factual position, additions made in the assessment years 2000-01 to 2005-06, deserve to be deleted as

(i)no corresponding seized material much less incriminating material was found in the course of search for subject additions;

(ii)relevant income-tax returns for the said years were filed prior to the search in normal course, suo motu disclosing the particulars of subject additions, which stood accepted under section 143(1) of the Act ; and

(iii)returns having been accepted under section 143(1), no assessment as such could be said to be "pending" on the date of initiation of search and have "abated" in light of the contextual and harmonised reading of the second proviso to section 153A(1). (Reference invited to returns filed and assessments made in this regard as per paper book).

(c)That assessment as contemplated under section 153A is not a de novo assessment and additions made therein, have to be necessarily, restricted to undisclosed income unearthed during search.

(d)That as per the Supreme Court ruling in Manish Maheshwari v. Asst. CIT [2007] 289 ITR 341 , the present provisions of section 153A leading to six years' assessment, being drastic in consequences needs to be interpreted most strictly and wherever possible to the favour of the assessee.

(e)That since the longest arm of the Revenue, being search action under section 132 of the Act, stands exercised in present case, assessment under section 153A needs to be made on the basis of hidden assets/un accounted money, incriminating material unearthed during search. For this reliance is placed on the decision of the Allahabad High Court in the case of Dr. R.M. L Mehrotra ¹ (case law paper book pages 15 to 18).

(f)That assessment under section 153A on the basis of search action under section 132, cannot and should not be equated to regular/normal scrutiny assessment under section 143(3).

(g)That power of review being not available to the same authority under the Act in normal circumstances must/should not be allowed in the present provisions of section 153A where last weapon in arsenal of the Department (search) stood used, as otherwise it would allow roving and fishing enquiries in search based assessment, which is not the legislative intent.

(h)That the aforesaid legal position stands accepted in the following orders of the Income-tax Appellate Tribunal, in context of section 153A assessments :

(i)The Ahmedabad Bench of the Income-tax Appellate Tribunal ruling in Meghmani Industries and Organics (case law paper book pages 19 to 64)—(to which one of us (AM) has been a party) ;

(ii)The Jodhpur Bench of the Income-tax Appellate Tribunal ruling in Suncity Alloys (case law paper book pages 1 to 14) ; and

(iii)The Kolkatta Bench of the Income-tax Appellate Tribunal ruling in LMJ International Ltd. v. Dy. CIT [2008] 119 TTJ (Kol.) 214.

6. In reply to the aforesaid legal submissions, the learned Departmental representative without controverting the basic factual position as posed by the learned authorised representative, relying upon the Delhi Bench of the Income-tax Appellate Tribunal rulings in Ms. Shyam Lata Kaushik v. Asst. CIT [2008] 306 ITR (AT) 117 and Shivnath Rai Harnarain (India) Ltd. v. Deputy CIT [2008] 304 ITR (AT) 271 (Delhi) submitted before us that : (a) there is no condition to ascribe/correlate the additions in 153A assessments with incriminating material, and (b) on a plain interpretation of section 153A (particularly, the first proviso to section 153A(1)), the assessment stipulated thereunder is a complete de novo assessment.

7. In rejoinder, the learned authorised representative distinguished these rulings stating that the same do not discuss the scope and implication of section 153A assessment vis-a-vis the second proviso thereto, particularly with reference to the phrase "pending" and "abate". It was further submitted that these decisions have been considered by the Income-tax Appellate Tribunal, Ahmedabad Bench in the case of Meghmani Organics (supra).

8. We have considered the rival submissions and perused the record carefully. We find ourselves in complete agreement with the submission of the learned authorised representative, on legal point, in view of analysis/ reasoning following next.

9. We quote hereinbelow section 153A of the Act, for the sake of ready reference :

"153A. Assessment in case of search or requisition.—(1) 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 the 31st day of May, 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 sub-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.

(2) If any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner :

Provided that such revival shall cease to have effect, if such order of annulment is set aside.

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."

10. We now analyse the various decisions on the subject and as relied on by Shri Goel.

The Jodhpur Bench of the Income-tax Appellate Tribunal in Suncity (supra) as relied on by the learned authorised representative, in the context of allowability of new claims in the return filed pursuant to section 153A notice, inter alia, held as under :

(i)That the submission of the assessee's counsel as to the scope of 153A assessment being de novo in nature is not acceptable and submission of the learned Departmental representative that the scope of 153A assessment is qua search material deserves to be accepted ;

(ii)that pending assessments within meaning of section 153A(1) shall be :

(a)where the return is filed in accordance with section 139, the same is neither processed under section 143(1) nor any section 143(2) notice is issued for the same ;

(b)where section 143(2) notice has been issued and assessment thereon is still pending on search date ;

(iii)that issuance of notice under section 153A for all six assessment years also does not entail altogether a fresh exercise of making fresh assessment.

(iv)that necessarily only undisclosed income after defraying expenses for earning the same is taxable, when interpreted in the specific context of section 153A.

11. In the Ahmedabad Bench of the Income-tax Appellate Tribunal in Meghmani Industries Ltd. and Meghmani Organics Ltd. ( supra) the following ratio is available :

"Learned counsel, Shri Soparkar, senior advocate submitted that a search was conducted by issue of warrant of authorisation in the name of the assessee. During the course of search not a single piece of evidence was found which depicts that any income which has been earned by the assessee has not been disclosed. There is no reference to any materials so found while computing the income under section 153A of the Act. Merely because search is conducted, the assessment which has become final cannot be reagitated on a difference of opinion. In the original assessments deduction claimed under sections 80HHC and 80-IA were the subject-matter of dispute. The appeals were pending before the learned Commissioner of Income-tax (Appeals). As per the first proviso to section 153A, though the Assessing Officer can assess or reassess total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted, as per the second proviso, the original assessments which were pending had been abated. This means that the assessments which are not pending shall not abate. The power under section 153A of the Act should, therefore, be with reference to assessment or reassessment of pending assessments or qua the materials found during the course of search. Since admittedly nothing was found during the search to suggest that any income has escaped assessment, the Assessing Officer does not have any jurisdiction for framing assessment under section 153A of the Act. Reliance was placed on the following decision :

LMJ International Ltd. v. Deputy CIT [2008] 119 TTJ (Kol.) 214 :

'The learned Departmental representative, Shri K. Sridhar on the other hand relied upon the appellate order. He submitted that the jurisdiction for framing assessment under section 153A of the Act is derived on a conduct of search under section 132 of the Act. Since a search warrant was issued in the name of the assessee, the assessments shall be framed under section 153A of the Act notwithstanding anything contained in sections 139, 147, 148, 149, 151 and 153 of the Act. The Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years. Therefore, jurisdiction is validly assumed. What can be the subject-matter of dispute is only the addition/disallowances made therein, but not the power to frame assessment under section 153A of the Act. Reliance was placed on the following cases.

Ms. Shyam Lata Kaushik v. Asst. CIT [2008] 306 ITR (AT) 117 (Delhi)

Shivnath Rai Harnarain (India) Ltd. v. Deputy CIT [2008] 304 ITR (AT) 271 (Delhi)

Held—From a plain reading of the aforesaid provisions it is clear that where a search initiated under section 132 or books of account are requisitioned under section 132A of the Act, the Assessing Officer shall issue notice and assess or reassess the total income of six assessment years immediately preceding the assessment relevant to which the search is conducted. As per the first proviso to section 153A the Assessing Officer is empowered to frame assessment or reassessment. However, as per the second proviso the assessment or reassessments which are pending on the date of initiation of charge shall abate. Therefore, what abates are only the pending assessment or reassessment and not the completed assessments. In such a situation the power to frame assessment under section 153A of the Act shall be to the extent of income escaping assessment coming to the knowledge of the Assessing Officer during the course of search. Sub- section (2) of section 153A of the Act inserted by the Finance Act with retrospective effect from June 1, 2003 dispels the doubt of the Department as to what will happen if the original assessment abates and if the proceeding initiated under section 153A(1) is annulled. As per sub-section (2) of section 153A of the Act the original assessment stands revived. Harmonious reading of the provisions of sub-section (1) read with the first and the second provisos to section 153A of the Act and sub-section (2) to section 153 of the Act makes it clear that only pending assessment or reassessments shall abate and not all the assessments comprising of the period mentioned in section 153A(1)(b) of the Act. Even if the proceedings under section 153A(1) of the Act are to be annulled, the original assessment stands revived. This shows that there can be duality of the assessment for the same assessment year. The assessments or reassessments which are not pending on the date of search but pending before the appellate authority will also survive. The assessments under section 153A of the Act shall be with reference to the valuable articles or things found or documents seized during the year during the search which are not disclosed in the original assessment. Even as per the speech of the hon'ble Finance Minister and the Circular No. 7 of 2003 issued by the Central Board of Direct Taxes the appeal proceedings are not to abate . . .

10. The decisions relied on by the learned Departmental representative are distinguishable on facts. In the said cases the Tribunal have given a finding that 'it is not the complaint of the assessee that any income, which is already subjected to assessment under section 143(3) or under section 148 of the Act completed prior to the search in respect of six assessment years referred to in section 153A(b) of the Act and in the second proviso to section 153A, has also been included in the assessment framed under section 153A of the Act'. However, in the present case the Assessing Officer has recomputed deduction under sections 80HHC and 80-IA of the Act by reducing the claim thereof. The Assessing Officer was not competent to do so in assessment under section 153A of the Act. We, therefore, cancel the assessment framed under section 153A of the Act for all the years."

12. Hence, it is seen that the decisions which are now relied upon by the learned Departmental representative were also considered in the case of Meghmani Organics Ltd. ( supra) and were distinguished on facts.

13. The Kolkatta Bench of the Income-tax Appellate Tribunal in LMJ International Ltd. v. Deputy CIT [2008] 119 TTJ (Kol.) 214 held as under :

"A reading of section 153A reveals apparent contradiction in the first proviso and the second proviso. The 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 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. 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. 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. 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, 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 . . . This meaning when articulated in the context of section 148, more appropriately fits in context of section 153A."

14. The Lucknow Bench of the Income-tax Appellate Tribunal in Kailash Auto Finance Ltd. v. Asst. CIT [2009] 32 SOT 80 , on connotation of "pending" with reference to returns filed under section 139 held as under :

". . . From the above definitions/concepts of the term ‘pending’, an authority is required statutorily to complete a proceeding when it is pending before him. Thus, unless authority/court, by operation of law, is required to conclude the proceedings it could not be said to be pending before it. If we examine the nature of the proceedings before the Assessing Officer (commenced by filing the return) in the light of the above definitions, we find that a return filed by an assessee and processed by the Assessing Officer could not be said to be pending before him as he is not statutorily required to conclude those proceedings, it would have been a different matter if after filing of the return of income, the Assessing Officer does not process the return. Such return which has commenced a proceeding before the Assessing Officer would be said to be pending, but when return is processed or even where acknowledgement of return is treated as intimation, in that situation, the Assessing Officer is not required to conclude the assessment proceedings necessarily. Therefore, it could not be said that a proceeding is pending because of the return filed by the assessee . . ."

15. The hon'ble Supreme Court in case of Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1, inter alia, held as under (page 10) :

"It has been said that the taxes are the price that we pay for civilisation. If so, it is essential that those who are entrusted with the task of calculating and realising that price should familarise themselves with the relevant provisions and become well-versed with the law on the subject. Any remissness on their part can only be at the cost of the national exchequer and must necessarily result in loss of revenue. At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasijudicial controversies as it must in other spheres of human activity."

16. From the aforesaid analysis of judicial precedents, we are of the considered view that since for all the assessment years in consideration, processing returns under section 143(1)(a) stood completed, for returns filed in due course before search, and no material being found in search thereafter, no addition can be made for agricultural income, gifts, unexplained deposit as stated in chart (supra).

17. As regards, solitary addition of Rs. 1,50,000 relating to alleged unexplained/unaccounted loan to Mohani Sharma (Anil Bhatia case) and consequential addition of presumed/alleged interest thereon of Rs 27,000 in the assessment years 2003-04 to 2006-07, after analysing the subject document carefully, recovered from search, we are of the view that same does not bear signature of the assessee nor Mohani Sharma (alleged borrower) has Smt. Mohani Sharma been ever examined by the authorities below. Therefore, it lacks corroboration and cannot be made the sole basis to make subject additions. In this connection, we do not find merit in submission of the learned Departmental representative that the assessee should have produced Mohani Sharma or an irrebutable presumption needs to be drawn for unaccounted income emerging therefrom. It is well settled that an unsigned document which is stated to have been never acted upon right from the beginning, cannot be presumed to contain undisclosed/unaccounted income. Further, on the basis of legal principle that no notional income, which should have been earned and is not earned, can be taxed. Notional interest added in stated years is hereby deleted. We accordingly delete these additions and reverse the findings of the learned Commissioner of Income-tax (Appeals).

18. As regards the assessment year 2006-07 (in regular assessment), in Anil Bhatia case, since notional interest (Rs. 27,000) stands deleted as per paragraph 14 and agricultural income (Rs. 36,474) is to be deleted on ground of consistency. Thereafter, only addition which remains is of gift from real brother-in-law (Rs. 5,18,731 Bhimsen Bhotra).

19. The learned authorised representative in this connection drew our attention to paper book page 10 (submissions before the Commissioner of Income-tax (Appeals)) and page 12/13 (draft of gift from relative) and accordingly reiterated the same. The learned Departmental representative in reply stated mere gift from relative without occasion cannot be treated as genuine.

20. We find that gift in subject year stands covered by section 56(2)(v), relationship being undoubted by the learned Departmental representative, which exempts gifts from relatives. Accordingly, after applying section 56(2)(v), we delete the same.

21. As regards the assessment year 2006-07 in Sanjay Bhatia case, solitary addition is of agricultural income Rs. 35,229 is to be deleted on the ground of consistency.

22. As regards the Revenue's appeal in the assessment year 2000-01, since we have decided the same on legal ground in favour of the assessee, the same becomes infructous/academic. However, after finding that said foreign exchange loss of Rs. 13,89,095 pertains to genuine import of hinge and revenue in character, we do not find any error in the conclusion of the learned Commissioner of Income-tax (Appeals) on the same.

23. In the result, all the appeals of the assessees are allowed and that of the Revenue is dismissed.

24. Pronounced in the open court on January 1, 2010.