Assessment U/s. 153A: No incriminating material found, no addition can be made

Leelavati Vijaykumar Kotecha Vs ACIT (ITAT Pune)

AO, pursuant to search and seizure conducted at assessee’s premises, framed assessment under section 153A and made addition. Assessee’s case was that regular assessment for concerned assessment year had attained finality and no incriminating material was found during search. As there was no incriminating material found during search, no addition could be made because on the date of search no regular assessment was pending.

FULL TEXT OF THE ITAT JUDGMENT 

This bunch of four appeals by the assessee are directed against the order of Commissioner of Income Tax (Appeals)-12, Pune dated 21.03.2016 common for the assessment years 2007-08, 2008-09, 2010-11, 2012-13.

2. The notice of appeal was sent to the assessee on 06.02.2018 for 28.03.2018 through RPAD. As is evident from acknowledgement card on record, the notice was duly served on the assessee. On 28.03.20 18, a request letter was received from assessee seeking adjournment on account of pre-occupation of the Counsel. On the request of assessee, the case was adjourned to 03.04.20 18. The next date of hearing was pronounced in open Court. On 03.04.20 18, neither the assessee nor any Authorized  Representative/Counsel of assessee appeared in the Court. No letter seeking adjournment has either been filed. It appears that assessee is not keen to pursue her appeals. In such circumstances, we proceed to decide these appeals with the assistance of ld. DR and material available on record.

Since, the issues involved in all the four appeals are similar and are arising from same set of facts, these appeals are taken up together for adjudication and are disposed of vide this common order.

3. The brief facts of the case common for all assessment years under appeal are : A search and seizure action was carried on Kotecha Group of Jalgaon on 08.2011. As a part of search action, the residential premise of assessee was also searched. Notice u/s. 153A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) was issued to the assessee on 18.05.20 12 which was duly served on 25.05.20 12. The assessee did not file any return of income in response to the said notice. After more than a year, the assessee vide letter dated 03.06.20 13 submitted that the return of income filed u/s. 139 of the Act be treated as return in response to the notice u/s. 153A of the Act. The assessee at belated stage of assessment i.e. on 15.01.2014 filed objections before the Assessing Officer against change of jurisdiction from Jalgaon to Nashik vide order dated 02.12.2011 passed u/s. 127 of the Act. The Assessing Officer rejected the objection raised by assessee qua change of jurisdiction and finalized the assessment vide separate orders of even date i.e. 11.03.2014 for all assessments under appeal.

4. Aggrieved by the additions made, the assessee challenged the assessment orders before the Commissioner of Income Tax (Appeals). Apart from challenging the additions on merit, the assessee also assailed change of jurisdiction u/s. 127 of the Act. The Commissioner of Income Tax (Appeals) vide combined order for assessment years 2007-08, 2008-09, 2010-11, 2012-13 rejected assessee’s challenge to change of jurisdiction u/s. 127 of the Act. However, on merits, the Commissioner of Income Tax (Appeals) granted substantial relief to the assessee and confirmed minor additions in the assessment years 2007-08, 2008-09, 20 10- 11, 2012-13. Against the additions confirmed, the assessee is in appeal before the Tribunal.

 4.1 Similar grounds have been raised by the assessee in appeals for assessment years 2007-08, 2008-09, 2010-11 and 20 12-13 challenging the validity of assessment u1s. 153A r.w.s 144 of the Act and confirming of additions by Commissioner of Income Tax (Appeals) in the absence of any incriminating material. Thus, the common legal ground raised in all the four of appeals is validity of assessment proceedings u/s. 153A r.w.s. 144 in the absence of any incriminating material. The additions confirmed by the Commissioner of Income Tax (Appeals) against which the assessee is in appeal before the Tribunal in impugned assessment years are as under.

5. Smt. Nirupama Kotru representing the Department vehemently relied on the impugned assessment orders confirming the additions. The ld. DR prayed for dismissing appeals of the assessee.

6. We have heard the submissions made by the ld. DR and have perused the orders of Authorities below. For the sake of convenience, we will decide the appeals of assessee in seriatim of assessment years.

ITA No. 1294/PUN/2016

A.Y. 2007-08

7. The grounds raised by assessee in appeal for assessment year 2007-08 assailing the order of Commissioner of Income Tax (Appeals) are as under:

“1) In facts and circumstance of the case and in law, the learned Assessing Officer erred in making routine additions 1 disallowances in assessment u/s 153A r.w.s. 144 in the absence of any incriminating material and without appreciating the fact that original assessment made u/s. 1 43(1)(a) which is completed on the date of initiation of search get abated.

2) In facts and circumstance of the case and in law, the learned Assessing Officer erred in passing order u/s. 153A r.w.s 144 even though no order u/s 127 was passed.

3) In the facts and circumstances of the case and in law the Assessing Officer erred in adding Rs. 1,10,000/- even though the same was explained to be generated out machine hire out charges received and even though the Appellant is not required to maintain books of accounts and therefore entries in passbook cannot be added u/s 68.

4) In the facts and circumstances of the case and in law the Assessing Officer erred in adding Rs.90,000/- even though the same was explained to be transfer of funds from the son of the Appellant Shri Anil Kotecha and even though the same was backed by bank statements of the son.

5) In the facts and circumstances of the case and in law the Assessing Officer erred in adding Rs.1,14,072/- even though the same was explained to be received from maturity of Postal Recurring Deposit and even though the Appellant is not required to maintain books of accounts and therefore cannot be added as cash credit u/s. 68.

6) In the facts and circumstances of the case and in law, the Commissioner of Income Tax(A) erred in confirming above addition by overlooking explanations submitted to him and.

7) The Assessing Officer wrongly charged interest u/s 234A, B, C and D and initiated penalty u/s.271(1)(b).

8. In ground No.1 of the appeal, the assessee has assailed validity of assessment u/s. 153A r.w.s. 144 of the Act on the ground that in the absence of incriminating material, no addition can be made when there is no pending assessment. A perusal of documents on record reveals that the assessee had filed return of income for the assessment year 2007-08 u/s. 139 of the Act on 03.12.2007. Assessment was made in the case of assessee u/s. 143(1)(a) of the Act. No notice u/s. 143(2) of the Act was issued to the assessee. Therefore, on the date of search i.e. 09.08.2011, there was no pending assessment. A perusal of assessment order and order of Commissioner of Income Tax (Appeals) show that the additions which are subject matter of appeal before Tribunal are not arising out of any incriminating material found and seized during search.

9. It is a well settled law that where no incriminating material was found during search and no assessments are pending at the time of initiation of proceedings u/s. 153A, assessments made u/s. 153A is without jurisdiction. The Hon’ble Bombay High Court in the case of CIT vs. Continental Warehousing Corporation (Nava Sheva) Ltd. 374 ITR 645 (Bom) has held that if there was no incriminating material found during search, no addition can be made where there was no pending assessments. Similar view has been taken by the Hon’ble Jurisdictional High Court in the case of CIT Vs. Gurinder Singh Bawa 386 ITR 483 (Bom).

In the instant case, we find that since the assessment for assessment year 2007-08 had attained finality and no incriminating material was found during search, assessment u/s. 153A r.w.s. 144 is without jurisdiction. Accordingly, the impugned order is set aside and ground No. 1 raised in appeal by assessee is allowed.

10. Since we have accept the appeal of assessee on the ground of jurisdiction, the other grounds raised in appeal have become infractuous and are dismissed as such.

11. In the result, appeal of the assessee for assessment year 2007-08 is allowed on the legal issue alone.

12. The assessee has raised following grounds of appeal in assessment year 2008-09:

“1) In facts and circumstance of the case and in law, the learned Assessing Officer erred in making routine additions 1 disallowances in assessment u/s 153A r.w.s. 144 in the absence of any incriminating material and without appreciating the fact that original assessment made u/s. 1 43(1)(a) which is completed on the date of initiation of search get abated.

2) In facts and circumstance of the case and in law, the learned Assessing Officer erred in passing order u/s. 153A r.w.s 144 even though no order u/s 127 was passed.

3) In the facts and circumstances of the case and in law the Assessing Officer erred in adding Rs.44,220/- and Rs. 1,00,000/- u/s.68 by way of undisclosed cash credit in the bank account even though the Appellant is not liable to maintain books of accounts and therefore, section 68 does not apply and even though the source of Rs.44,220/- was attributable to cash withdrawn from Jalgaon Janta Sahakari Bank Ltd. from time to time and thereafter the said cash was deposited in the same Bank Account and Rs. 1,00,000/- was received by cheque from Sunil R Pawar and rejected by the Assessing Officer even during the remand proceedings.

4) In the facts and circumstances of the case and in law, the Commissioner of Income Tax(A) erred in confirming above addition by overlooking explanations submitted to him and.

5) The Assessing Officer wrongly charged interest u/s 234A, B, C and D and initiated penalty u/s.271(1)(b).

13. In ground No. 1 of appeal, the assessee has challenged assessment made u1s. 153A r.w.s 144 on the similar lines as is in assessment year 2007-08. The assessee has filed return of income u1s. 139 on 26.11.2008. The assessment was completed u1s. 143(1)(a). Thus, on the date of search no assessment was pending. Nothing has been brought on record to show that the assessment was pending or addition was made on the basis of incriminating material found during search. Since the facts in assessment year 2007-08 & assessment year 2008-09 are similar, the findings given by us in assessment year 2007-08 mutatis-mutandis would apply in assessment year 2008-09 as well. For the reasons given while deciding the appeal of assessee in assessment year 2007-08, the ground No.1 raised in appeal for assessment year 2008-09 is allowed.

14. Since we accept the appeal of assessee on legal ground, the other grounds raised in appeal have become infractuous and are dismissed as such. In the result, appeal of the assessee for assessment year 2008-09 is

15. In the result, appeal of the assessee for assessment year 2008-09 is allowed.

16. The assessee has raised following grounds of appeal in assessment year 20 10-11:

“1. In the facts and circumstances of the case and in law, the learned Assessing Officer erred in passing the assessment order without having jurisdiction because, no opportunity of being heard was granted to the Appellant u/s. 127 and also disregarding the objections raised u/s. 292BB in this regard.

2. In facts and circumstance of the case and in law, the learned assessing officer erred in passing order u/s. 153A r.w.s. 144 even though no order u/s 127 was passed.

Without prejudice to the above and alternatively under protest:

3. On facts and circumstance of the case and in law, the learned Assessing Officer erred in making routine additions/disallowances in assessment u/s 153A r.w.s. 144 in the absence of any incriminating material and without appreciating the fact that original assessment made u/s 143(1)(a) which is completed on the date of initiation of search get abated.

4. In the facts and circumstances of the case and in law the Assessing Officer erred in adding Rs.47, 12,511/- being advance received from Dipesh from sale of shares of Tapi Pre-stressed Products Ltd. u/s. 68 by way of undisclosed cash credit in the bank account even though the Appellant is not liable to maintain books of accounts and therefore, section 68 does not apply and even though the source of Rs.47, 12,511/- was attributable to advance received from Dipesh as above said and the said explanation was rejected by the Assessing Officer even during the remand proceedings.

5. In the facts and circumstances of the case and in law, the Commissioner of Income Tax(A) erred in confirming above addition by overlooking explanations submitted to him and.

6. The Assessing Officer wrongly charged interest u/s. 234A, B, C and D and initiated penalty u/s 271(1)(b).”

17. In ground No. 1 and 2 of appeal, the assessee has assailed transfer of jurisdiction u/s. 127 of the Act. The Commissioner of Income Tax (Appeals) dismissed the objections raised by assessee against change of jurisdiction by observing as under:

“3.3 At the fag end of the assessment proceedings, Appellant objected to the order u/s 127 vide letter dated 15.1.2014 filed by speed post and received in  the office of AO on 20.1.2014. In response to this, AO vide a letter dated 21.1.2014 informed that communication regarding objection to order u/s. 127 passed by the superior authority must be addressed to the office of CIT-II, Nashik. Thereafter, Appellant chose not to file any objection before the CIT-II, Nashik and continued to participate in the assessment proceedings. Appellant was in knowledge of order u/s. 127 since December 2011 and kept mum till 15.1.2014. Thereafter, rather than approaching the office of the CIT-II, Nashik, objected was raised before the AO who was not competent authority to decide the issue.

3.4 In this manner, Appellant neither filed any objection to the order passed by the CIT u/s 127 before the office of CIT-II, Nashik and nor it was challenged by way of writ petition. Appellant continued his participation in the assessment proceedings. Moreover, order passed u/s. 127 of the Act is not appealable before the CIT(A). Hence, appeal on this ground is not maintainable and therefore treated as dismissed.”

We do not find any infirmity in the order of Commissioner of Income Tax (Appeals) in rejecting assessee’s challenge to change of jurisdiction u/s. 127 of the Act. Even otherwise, the order passed u/s. 127 is not appealable. Accordingly, ground No. 1 and 2 raised in appeal for assessment year 2010-11 is dismissed being devoid any merit.

18. In ground No. 3 of appeal, the assessee has assailed assessment order passed u/s. 153A r.w.s. 144 being without any jurisdiction, as assessment was made without there being any incriminating material. A perusal of the records reveal that the assessee had filed return of income for assessment year 2010-1 1 on 16.11.2010. The assessment was processed u/s. 143 (1)(a) of the Act before the date of search i.e. 09.08.2011. Admittedly, on the date of search no assessment proceedings were pending. However, we observe that there was still time for issuance of notice u/s. 143(2) of the Act. As per second proviso to section 153A, the assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to under section 153A is pending on the date of initiation of the search under section 132, shall abate. Thus, on the date of search, there was still some time with the department for issuance of notice u/s. 143(2) of the Act. Therefore, it cannot be said that in the assessment year under consideration, no assessment was pending or it is a case of non abated assessment. Hence, the plea of assessee that in the absence of incriminating material, assessment made u/s. 153A r.w.s. 144 is without any jurisdiction sans merit. Accordingly, ground No. 3 raised in appeal by assessee is dismissed.

19. In ground No. 4, the assessee has assailed addition of Rs.47,12,51 1/- on merits.

The plea of the assessee before Authorities below is that the assessee has received amount as advance from Shri Deepesh Kotecha for selling share of Tapi Pre-stressed Ltd. The findings of Commissioner of Income Tax (Appeals) on this issue are as under:

“The appellant submitted that amount of Rs 47,12,511 was received as advance from Mr. Deepesh for selling shares of Tapi Pre-stress Ltd. In support appellant filed confirmation of Deepesh Motilal Kotecha stating that he had given advance of Rs 47,12,511 vide cheque dated 2.4.2009 against the purchase of 69,500 shares held by appellant. Appellant had failed to furnish the confirmation during the course of assessment proceedings as well as at the time offiling application for admission of additional evidences. At the fag end photocopy of confirmation was filed. It was also ascertained that no share transfer had taken place till the date offiling the confirmation although advance was received around 7 years back. Neither money was refunded nor shares were transferred. Moreover, confirmation filed does not include details like PAN or the other details like Bank Statement to show the creditworthiness of Mr. Deepesh Kotecha. In the circumstances, Xerox copy of confirmation is not found credible. For the appellant’s failure to furnish satisfactory evidences regarding the transaction claimed by the appellant the cash credit of Rs. 47,12,511 remains unexplained and addition made by AO to that extent is upheld.”

There is no material on record to contradict the findings of Commissioner of Income Tax (Appeals). Accordingly, ground No. 4 raised in appeal by assessee is dismissed being devoid of any merit.

20. The ground No. 5 raised of appeal is general in nature and hence, requires no. adjudication.

21. In ground No. 6, the assessee has assailed charging of interest u/s. 234A, 234B, 234C and 234D and initiation of penalty proceedings u/s. 271(1)(b) of the Act.

Charging of interest u1s. 234A, 234B, 234C and 234D is consequential and mandatory; hence, the objection raised by assessee is dismissed. In so far as assailing of initiation of penalty proceedings u1s. 271(1) (b) is concerned, the issue is premature at this stage, therefore, the same is dismissed.

22. In the result, appeal of the assessee for assessment year 2010-11 is dismissed.

23. The assessee has raised following grounds of appeal in assessment year 2012-13:

“1. In the facts and circumstances of the case and in law, the learned Assessing Officer erred in passing the assessment order without having jurisdiction because, no opportunity of being heard was granted to the Appellant u/s. 127 and also disregarding the objections raised u/s. 292BB in this regard.

2. In facts and circumstance of the case and in law, the learned assessing officer erred in passing order u/s. 1 53A r. w. s.144 even though no order u/s 127 was passed.

Without prejudice to the above and alternatively under protest:

3. On facts and circumstance of the case and in law, the learned Assessing Officer erred in making routine additions / disallowances in assessment u/s 153A r.w.s. 144 in the absence of any incriminating material and without appreciating the fact that original assessment made u/s 143(1)(a) which is completed on the date of initiation of search get abated.

4. In the facts and circumstances of the case and in law the Assessing Officer erred in adding Rs. 1,65,900/- being cash found from locker of the Appellant by way of income from cash credit u/s. 68 even though the source of 1,65,900/- was attributable to past savings of the Appellant who is a senior citizen and the said explanation was rejected by the Assessing Officer even during the remand proceedings.

5. In the facts and circumstances of the case and in law, the Commissioner of Income Tax(A) erred in confirming above addition by overlooking explanations submitted to him and.

6. The Assessing Officer wrongly charged interest u/s. 234A, B, C and D and initiated penalty u/s 271(1)(b).”

24. The ground No. 1 and 2 raised in appeal by assessee in assessment year 2012-13, are identical to ground No. 1 and 2 raised in assessment year 2010-11. The findings given by us in assessment year 2010-11 would mutatis-mutandis apply to appeal for assessment year 20 12-13 as well. For the detailed reasons given in assessment year 2010-11, the ground No. 1 and 2 raised in appeal for assessment year 2012-13 are dismissed.

25. In ground No. 3 of appeal, the assessee has assailed the order of Authorities below in making addition/disallowance u/s. 153A r.w.s. 144 of the Act in the absence of any incriminating material. As pointed earlier, search was carried on 09.08.2011 i.e. in the period relevant to assessment year under The assessee filed return of income u/s. 139 of the Act on 03.06.2013 i.e. after the date of search. The entire proceedings were open before the Assessing Officer. Therefore, the plea of assessee that in the absence of any incriminating material, no addition/disallowance could have been made is without any merit. Accordingly, the contentions of assessee are rejected. In the result, ground No. 3 raised in appeal by assessee is dismissed.

26. In ground No. 4, the assessee has assailed addition of Rs. 1,65,9001- cash seized during assessment proceedings from locker No.98 of United Western Bank Ltd. Navi Peth, Jalgaon. The plea of the assessee before Authorities below is that the cash in the locker is from accumulated savings on which tax has been duly paid. The Commissioner of Income Tax (Appeals) confirmed the addition by observing as under:

“59.3 Brief facts are that during the course of search of locker No.98 with United Western Bank Ltd. at Navi Peth, Jalgaon, cash of Rs. 1,65,900 was found in the locker. Appellant contended that amount was her savings out of the tax paid income. Appellant failed to furnish any evidence to justify the cash balance being recorded in any of the books of accounts. Therefore, amount of Rs. 1,65,900 was added u/s 69A of the Act. During the course of appellate proceedings the appellant reiterated her submissions. Appellant does not maintain any cash book and there is no corroborative evidence to explain the source of cash found in the locker. It has been noted that appellant was investing in FDRs and keeping deposits in the group concerns. Only possible source of cash could be from hiring of machines. For want of cash book, it is not possible to ascertain as to what was cash left with the appellant after meeting out business and personal expenditure. Therefore no interference with the finding of AO is called for. Addition made by the AO of Rs 1,65,900 is upheld and ground raised by the appellant is dismissed.”

We do not find any infirmity in the order of Commissioner of Income Tax (Appeals) in confirming the addition. There is no material on record contrary to the findings of Commissioner of Income Tax (Appeals). Accordingly, the findings of Commissioner of Income Tax (Appeals) are confirmed and ground No. 4 raised in appeal by assessee is dismissed.

27. The ground No. 5 raised in appeal by assessee is general in nature and hence, requires no adjudication.

28. In ground No. 6, the assessee has assailed charging of interest u/s. 234A, 234B, 234C and 234D and initiation of penalty proceedings u/s. 271(1)(b) & (c) and 271 AAA of the Act.

Charging of interest u/s. 234A, 234B, 234C and 234D is consequential and mandatory; hence, the objection raised by assessee is dismissed. In so far as challenge to initiation of penalty proceedings u/s. 271(1) (b) & (c) and 271 AAA is concerned, the same is premature, therefore, the same is dismissed.

29. In the result, appeal of the assessee for assessment year 2012-13 is dismissed.

30. To sum up,

Order pronounced on Thursday, the 26^th day of April, 2018.