Jai Lokenath Oil Ext... v. Deputy Commissioner ...

ORDER

N. V. Vasudevan, Judicial Member - This is an appeal by the Assessee against the order dated 10.09.2014 of CIT (A)- Central-II, Kolkata relating to AY 2009-10.

2. There is a delay of 30 days in filing the appeal by assessee. The reasons for the delay in filing the appeal has been explained by the assessee in an application filed for condonation of dely. The appeal ought to have been filed by the assessee within 60 days from the date of receipt of CIT (A)'s order i.e. 60 days from 25.09.2014. The appeal papers were prepared and dispatched by the advocate for the assessee around 17.11.2014 for assessee's signature. Since the director of the assessee's elder brother was critically ill the assessee's director could not sign the papers and send back to the counsel within the due date for filing the appeal. The director signed the relevant Appeal papers only on 23.12.2014 and thereafter handed over the same to the advocate on 24.12.2014. In the process there occurred a delay of 30 days in filing the appeal.

3. After considering the reasons for the delay in filing the appeal as stated above, we are satisfied that there was a reasonable and sufficient cause for the delay in filing the appeal by the assessee. Accordingly the same is condoned.

4. Grounds of appeal raised by the assessee read as follows :—

5. The Assessee is a company engaged in the business of rice and flour milling. There was a search and seizure operation conducted by the revenue u/s 132(1) of the Income Tax Act, 1961 (Act) in the Paul Group of cases. The Assessee was also the part of the group and was also searched on 17.01.2012. Notice u/s 153A of the Act was issued on 05.03.2013. The assessee vide letter dated 16.04.2013 requested the AO to treat the return of income filed for A.Y.2009-10 as the return filed in response to the notice issued u/s 153A of the Act for A.Y.2009-10. The assessee filed return for A.Y.2009-10 u/s 139(1) of the Act on 29.09.2009 declaring the total income of Rs.20,17,393/-.

6. It is not disputed that in the course of search no incriminating material was found. In this background the AO examined the carriage inward expenses in the profit and loss account and called upon the assessee to furnish details of the carriage inward expenses as well as TDS made on carriage inward expenses. The assessee took a stand that the TDS provision are not applicable for carriage inward expenses incurred by the ssessee. Therefore no disallowance of carriage inward expenses can be made u/s 40(a)(ia) of the Act. The AO however observed that the reply of the assessee was not satisfactory and that no documents like ledger folio were furnished. The AO therefore disallowed the entire carriage inward expenses of Rs.19,89,870/- u/s 40(a)(ia) of the Act. The AO also disallowed a sum of Rs.15,200/- which was preliminary expenses written off in the profit and loss account. The AO made the disallowance because the assessee failed to prove the nature of expenses. The AO also noticed that a sum of Rs.4,90,332/- was claimed as revenue expenditure towards electric service connection charges. According to the AO by getting the electricity service connection the assessee has acquired a benefit of enduring nature. Therefore it was a capital expenditure. The AO therefore added the aforesaid sum also to the total income of the assessee. The total income of the assessee was determined by the AO in the order passed for A.Y.2009-10 u/s 153A of the act as follows :—

7. On appeal by the assessee the CIT (A) confirmed the order of AO. Aggrieved by the order of CIT (A) the assessee has preferred the present appeal before the Tribunal.

8. The ld. Counsel for the assesee addressed the arguments on ground nos. 1 and 2. In the aforesaid grounds the plea taken by the assessee is that order u/s 153A of the Act was bad in law. This ground was not raised before AO or CIT (A). Since this is a legal ground which goes to the very jurisdiction of the AO to make the impugned additions in the assessment completed u/s 153A of the Act and since the facts necessary for deciding the legal ground are also available on record, we permit the assessee to raise the aforesaid plea the for the first time before the Tribunal.

9. The ld. Counsel for the assessee pointed out that with reference to the return of income filed by the assessee for A.Y.2009-10 u/s 139 of the Act on 29.09.2009 the AO did not issue any notice u/s 143(2) of the Act within the time required under the proviso to Sec. 143(2) of the Act namely 30.09.2010. It was his submission that on the expiry of the aforesaid period for issue of notice u/s 143(2) of the Act, the assessment for A.Y 2009-10 is deemed to have been concluded. It was further brought to our notice that the search was conducted in the case of the assessee on 17.01.2012 .and in the course of such search no incriminating documents whatsoever was found. It was submitted by the ld. Counsel for the assessee that the scope of the assessment proceedings u/s 153A of the Act in respect of an assessment which has already been completed is restricted only to making an assessment of income which are based on incriminating material found during the course of search. In other words, it was submitted that the AO has no jurisdiction to make an assessment of income which is not based on material found in the course of search, where assessment for the relevant assessment year has already been concluded prior to the date of search and where such assessments does not abate under the proviso to section 153A (1) of the Act.

10. The learned DR has however argued where an original assessment has not been finalized under section 143(3) of the Act, there is no question of abatement and that in the present case original assessment has been made under section 143(1) of the Act. As per the Ld. Departmental Representative the provisions of section 153A empower the Assessing Officer to assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which a search was conducted and, therefore, under these circumstances the Assessing Officer was duty bound to assess or reassess 'total income' of such assessment years, and, therefore, the impugned additions were justifiably made in the assessment made under section 143(3) r.w.s. 153A(1) of the Act.

11. The learned counsel for the Assessee on this aspect submitted that the Second proviso to sec 153A(1) of the Act contemplates that if any of the six assessments are pending on the date of initiation of the search and requisition, the same shall abate. However, there is no provision that even the completed assessment of the aforesaid six years shall abate. Therefore a distinction has been made between a pending assessment and a completed assessment. Thus it was submitted that a completed assessment becomes final unless some incriminating material is found in the course of search. It was argued that Section 153A of the Act does not authorize the making of a de novo assessment. An assessment u/s 153A of the Act is not meant to unsettle the income shown in the regular return in respect of which the assessment is complete. Section 153A of the Act does not lead to a whole exercise of assessment to be made afresh in respect of completed assessments. Therefore vide assessment u/s 153A of the Act, no new disallowance can be made by the A.O. where admittedly the regular assessments are shown as completed assessments on the date of initiation of action u/s 132. Further and very importantly, in relation to the years whose assessment is completed, it has been laid down in several judicial pronouncements that in such situation of completed assessments, assessment u/s 153A of the Act however shall be to the extent of income escaping assessment which comes to the knowledge of the AO during the course of search with reference to the valuable articles or things found or documents seized during the search which are not disclosed in the original assessment. The power given by the 1st Proviso to "assess" income for six assessment years has to be confined to the undisclosed income unearthed during search and cannot include items which are disclosed in the original assessment proceedings. When nothing incriminating is found in the course of search relating to any assessment years, the assessments for such years cannot be disturbed. Items of regular assessment cannot be added back in the proceedings U/S 153A of the Act when no incriminating documents were found in respect of the disallowed amounts in the search proceedings. A search assessment under section 153A of the Act should be evidence based. An assessment u/s 153A of the Act is not meant to unsettle the income shown in the regular return in the absence of evidence found as a result of search. It is not meant to make a roving and fishing enquiry. Section 153A of the Act is a separate and special provision that has been specially enacted to undertake search related assessments. A search u/s 132 of the Act is authorized to unearth undisclosed assets or transactions resulting in income which are not recorded in the books of account of a person. Therefore, a search puts in motion the process of assessment of the undisclosed income of a tax payer which is not disclosed to the department. Thus section 153A of the Act is limited to the assessments of income which are discovery of search.

12. In support of his contention as above, the learned counsel for the Assessee placed reliance on the decision of the Hon'ble Delhi High Court in the case of CIT v. Kabul Chawla [2016] 380 ITR 573/[2015] 234 Taxman 300/61 taxmann.com 412 and the Hon'ble Bombay High Court in the case of CIT v. Continental Warehousing Corpn. (Nhava Sheva) Ltd. [2015] 374 ITR 645/232 Taxman 270/58 taxmann.com 78 and the special Bench of ITAT in the case of All Cargo Global Logistics Ltd. v. Dy. CIT [2012] 137 ITD 287/23 taxmann.com 103 (Mum.) (SB) .

13. We have given a very careful consideration to the rival submissions. The provisions of section 153A of the Act were introduced by the Finance Act, 2003 with effect from 1-6-2003. Sec.153A of the Act lays down that in respect of searches carried out under section 132 of the Act or requisition of books and other documents made under section 132A of the Act after 31-5-2003, the Assessing Officer shall issue a notice calling upon assessee to furnish return of income in respect of six assessment years immediately preceding assessment year relevant to the assessment year in which search is conducted or requisition is made. The Assessing Officer is empowered to re- assess the total income in respect of each assessment year falling with such six assessment years.Sec.153A of the Act reads thus:

"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-

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."

14. It can be seen from the second proviso to Sec.153A(1) of the Act that any assessment proceedings for any of the six assessment years set out in Sec.153A (1) of the Act, which is pending as on the date of initiation of search u/s.132 of the Act, then such assessment proceedings would abate and the AO will make one assessment after considering the original return of income as well as materials found in the course of search. The assessment proceedings which have been completed as on the date of search u/s.132 of the Act will however continue to remain valid. Thus the former proceedings are referred to as "abated assessment proceedings" and the latter proceedings are referred to as "unabated assessment proceedings".

15. The Special Bench ITAT Mumbai, in the case of All Cargo Global Logistics Ltd. (supra) had to deal with the scope of proceedings u/s.153A of the Act. The following question was determined by the Special Bench:—

"1. Whether, on the facts and in law, the scope of assessment u/s 153A encompasses additions, not based on any incriminating material found, during the course of search"?

The Special Bench held as follows:

"53. The question now is - what is the scope of assessment or reassessment of total income u/s 153A(1)(b) and the first proviso? We are of the view that for answering this question, guidance will have to be sought from section 132(1). If any books of account or other documents relevant to the assessment had not been produced in the course of original assessment and found in the course of search in our humble opinion such books of account or other documents have to be taken into account while making assessment or reassessment of total income under the aforesaid provision. Similar position will obtain in a case where undisclosed income or undisclosed property has been found as a consequence of search. In other words, harmonious interpretation will produce the following results :—

16. It is thus clear from the aforesaid ruling of the Special Bench that where assessments have already been completed u/s.143(3) of the Act before initiation of search u/s.132 of the Act, those assessments will attain finality. The exception would be that if books of accounts or other documents were not produced in the course of original assessment but found in the course of search or where undisclosed income or undisclosed property is discovered in the course of search, then the unabated assessment will not attain finality to the extent of material found in the course of search which will have a bearing on the conclusions arrived at in the unabated assessment. The Hon'ble Delhi High Court in the case of Kabul Chawla (supra) and the Hon'ble Bombay High Court in the case of Continental Warehousing Corporation (supra) has also taken the same view as was taken by the special Bench of ITAT in the case of Allcargo Global Logistics (supra).

17. It is not in dispute before us that with respect to the additions made during the course of assessment proceedings u/s.153A of the Act, there was no incriminating material found at the time of search and that the AO while concluding the assessment u/s.153A of the Act. It is also not disputed that for A.Y.2006-07 the assessee filed her return of income u/s 139 of the Act on 29.09.2001 declaring total income of Rs. 20,17,393/-. No notice u/s 143(2) of the Act was issued for making the assessment u/s 143(3) of the Act within the period laid down in the proviso to section 143 (2) of the Act namely 30.09.2010. Therefore, assessment proceedings stood completed and that in any case on the date of search i.e. on 17.01.2012 the assessment for the impugned assessment year 2009-10 was not pending. Therefore the acceptance of the return of income amounts to an assessment and such assessment did not abate in terms of the Second Proviso to section 153A(1) of the Act. It is the plea of the learned counsel for the Assessee that the impugned additions made by the Assessing Officer could not have been made in the impugned assessment proceedings as they are not based on any material seized or found during the course of search at the business premises of the assessee.

18. We are of the view that the proposition canvassed by the learned counsel for the Assessee finds support from the various decisions cited by him. We therefore hold that the scope of the proceedings u/s.153A in respect of assessment year for which assessment have already been concluded and which do not abate u/s.153A of the Act, that the assessment will have to be confined to only incriminating material found as a result of search.

19. The next aspect to be considered is as to when returns of income filed u/s.139 of the Act are shown to have been accepted without an intimation u/s.143(1) of the Act or without any notice issued u/s.143(2) of the Act within the time limit contemplated by the proviso thereto, can be said to be assessment proceedings concluded that have not abated u/s.153A of the Act. Section 153A of the Act, uses the expressing "pending assessment or reassessment". When a return is filed and when neither an acknowledgement or intimation u/s.143(1)of the Act is issued nor a notice u/s.143(2) of the Act is issued within the time limit laid down in the proviso to Secc.143(2) of the Act, the proceedings initiated by filing the return are closed. In the present case, the period for issuing the notice u/s 143(2) elapsed. Therefore the process has attained the finality which can only be assailed u/s 148 or 263 of the Act. It can thus be concluded that making of an addition in an assessment under section 153A of the Act, without the backing of incriminating material, is unsustainable even in a case where the original assessment on the date of search stood completed by absence of issue of intimation under section 143(1) of the Act or by not issuing notice u/s.143(2) of the Act within the time limit laid down in the proviso to Sec.143(2) of the Act, results in an assessment proceedings and where such assessment proceedings are completed prior to the date of search then they do not abate in terms of the Second Proviso to section 153A(1) of the Act.

20. In the light of the discussion above, our conclusion is that in the present case, the issue dealt with by the AO in the assessment order u/s.153A of the Act, could not and ought not to have been examined by the AO in the assessment proceedings u/s.153A of the Act as the said issue stood concluded with the assessee's return of income being accepted prior to the date of search and no notice having been issued u/s.143(2) of the Act within the time limit laid down in that section. Such assessment did not abate on the date of search which took place on 17.01.2012. In respect of assessments completed prior to the date of search that have not abated, the scope of proceedings u/s.153A of the Act has to be confined only to material found in the course of search. Since no material whatsoever was found in the course of search, the additions made by the AO in the order of assessment for both the Assessment years could not have been subject matter of proceedings u/.s.153A of the Act. Consequently, the said various additions made in the orders of Assessment ought not to have or could not be made by the AO. Gr.No.1 raised by the Assessee in both the appeals are accordingly allowed.

21. In view of the above conclusions, the other grounds of appeal raised by the Assessee on merits, do not require any consideration.

22. In the result, the appeal is allowed.

tanvi