Conclusion: Assessment under section 153A could not be made for making addition of unexplained income if assessment was unabated which had attained finality on the date of search and no incriminating material was found as per record.
Held: AO having considered the original assessment order u/s.143(3), made addition pursuant to search conducted at assessee’s premises on account of unexplained income of Rs.75 lakhs shown as share capital including share premium in the books of the assessee u/s.68 as unexplained and passed the order u/s.153A. It was held assessment was unabated as the return of income u/s.139 filed on 30.09.2009, whereas the time limit for issue of notice u/s.143(2) was on 30.09.2010 and the date of search u/s.132 dated 06.08.2014 and at the time of search the assessment was completed. Therefore, no assessment under section 153A could be made if no incriminating material was found as per record.
FULL TEXT OF THE ITAT JUDGEMENT
The Revenue has filed appeals and the assessee has filed cross objections against the order of the CIT(A)-2, Bhubaneswar, dated 14.06.2018 & 15.06.2018 for the assessment year 2009-2010 & 2010-2011.
2. Since issues involved in all the appeals are common, therefore, they are heard and disposed off by this consolidated order.
3. Before going into the appeal of the Revenue, the ld. AR submitted that the Cross Objection is to be heard first and accordingly with the consent of ld. DR, we heard the cross objection of the assessee in the case of M/s Diamond Plaza Pvt. Ltd. in CO No.45/CTK/2018/ arising out of appeal of the Revenue in IT(SS)A No.129/CTK/2018 for the assessment year 2010-2011 along with other appeals of Revenue and cross objections of other assessee-M/s SGBL (India) Ltd. For the sake of convenience, we shall take the facts mentioned in Cross Objections of the assessee for the assessment year 2010-2011.
4. The assessee filed Cross Objection No.45/CTK/2018 for the assessment year 2010-2011 in case of M/s Diamond Plaza Pvt. Ltd. and has raised the following grounds :-
“1. That, the Ld. C.I.T.(A) erred in not accepting the claim of the assessee that there being no incriminating material found in course of search, no addition can be made in respect of unabated year in relation to the share capital and share premium.
2. That, the order of the Ld. C.I.T.(A) rejecting the above legal claim of the assessee is arbitrary and directly in contradiction with several judgments of Hon’ble High Courts and Tribunal including the decisions of Hon’ble IT AT, Cuttack in the cases of E-City Projects Lucknow P. Ltd., order dated 28.02.2018 and Midas Capital Pvt. Ltd., order dated 23.03.2018 relied upon before him.
3. That the Ld. C.I.T.(A) being Officer subordinate to Hon’ble IT AT, Cuttack Bench was duty bound to accept the authorities relied upon by the assessee and thus he erred in not having accepted the same.”
5. Brief facts of the case are that the assessee is one of the companies of SGBL Group of business concerns operating in and around Cuttack and engaged in the business of acquisition of property, real estate and other tenement on rental basis for sub letting the same to others for commercial benefit of deferential rental income. The assessee filed originally return of income on 25.09.2010 disclosing total income of Rs.15,26,487/-. Subsequently the case was selected for scrutiny and notices u/s.143(2) & 142(1) of the Act were issued. Thereafter the AO completed the assessment assessing total income at Rs.15,98,810/-making additions on account of maintenance charges and donation and passed order u/s.143(3) of the Act, dated 11.03.2013. Subsequently, a search operation u/s.132 of the Act was conducted on 06.08.2014 in the business premises of assessee companies at Cuttack and residential premises of the Directors at Neem Chauri, Saheebzada Bazar, Cuttack.
Thereafter the order u/s.127(3) of the Act was passed by the CIT, Cuttack Charge, Cuttack on 27.11.2014 and the case was centralized to the Central Circle, Cuttack and notice u/s.153A of the Act was issued on 30.04.2015 to the assessee to furnish the return of income. In response to the notice u/s.153A of the Act, the assessee filed return of income on 27.07.2015 disclosing the same income as that of original return filed on 25.09.2010. Accordingly, notices u/s.143(2) & 142(1) of the Act were issued. In response to the notice, the AR of the assessee appeared from time to time and the case was discussed. Thereafter the AO completed the assessment making addition of Rs.75,00,000/- shown as share capital including share premium in the books of the assessee u/s.68 of the Act as unexplained and passed order u/s.153A of the Act, dated 28.12.2016.
6. Aggrieved with the order of AO, the assessee preferred appeal before the CIT(A). In the appellate proceedings, the assessee reiterated the submissions made before the AO and after considering the submissions of the assessee and findings of AO, the CIT(A) allowed the appeal of the assessee and directed the AO to delete the addition. However, the CIT(A) has dismissed the additional ground raised by the assessee.
7. Now, the Revenue is in appeal against the aforesaid order of CIT(A) in directing the AO to delete the addition made u/s.68 of the Act and the assessee is in cross objection against dismissal of additional ground raised by the assessee.
8. Ld. AR submitted that the CIT(A) has erred in not accepting the claim of the assessee that there was no incriminating material found during the course of search conducted u/s.132 of the Act on 06.08.2014 and further the addition made in respect of said assessment year is not sustainable as it is unabated. Further ld. CIT(A) being the appellate authority is bound to follow the legal hierarchy of applicability of decision of higher forums but has overlooked the facts and has not considered the jurisdictional Income-tax Appellate Tribunal’s order which is squarely applicable to the assessee’s case. Further the CIT(A) is bound to accept the submissions and legal decisions relied upon, therefore, the assessee filed the cross objection. The ld. AR filed the written submissions and paper book to substantiate that no incriminating material has been found in search and in the assessment u/s.143(3) of the Act the AO has verified these facts and in the order passed u/s.153A of the Act, only addition by the AO u/s.68 of the Act was considered which was already part of the original assessment u/s.143(3) of the Act which the AO has verified. The ld. AR vehemently supported his case relying plethora of judicial decisions in his written submissions filed and the paper book and prayed for allowing the cross objections.
9. Contra, the ld. DR relied on the order of CIT(A) in respect of dismissal of additional ground and submitted that the order has been passed based on the seized material. Ld. DR also relied on the observations of CIT(A) at para 3.1 in respect of ground No.1 and the CIT(A) having considered the judicial decisions and also the coordinate bench decision relied on the decision of Hon’ble Kerala High Court and Allahabad High Court and took a decision. Ld.DR further submitted that the seized material is identified in the paper book filed by the assessee at pages 56 to 59 and the AO has passed order based on this information and prayed for allowing the appeal of Revenue and dismissal of the cross objection of the assessee.
10. We have heard the rival submissions and perused the material on record. Prima facie, the grounds taken by the assessee in its cross objection filed in the Form No.36A of the Act is with respect to no incriminating material was found in the course of search in respect of assessment of the assessee and also the decision of the coordinate bench in the case of assessee’s group concern which is applicable to the assessee. We found that the ld. AR vehemently argued on the cross objections to emphasize that no incriminating material was found during the course of search and no addition can be made. Ld. AR also emphasized by filing the paper book where the assessee in the original assessment has filed the details in respect of disputed issue of allotment of shares and share premium. The contention of ld. AR is that the CIT(A) though considered the decision of coordinate bench of the Tribunal and other judicial decisions but relied on the decisions of Hon’ble Kerala and Allahabad High Courts along with other judicial decisions has dismissed the additional ground raised by the assessee in respect of no incriminating material was found in the course of search and the assessment u/s.153A has to be completed as per the original assessment order. Ld. AR referred in the written submissions, the documentary evidence of audited accounts, Panchnama, statements and seized documents and allotment of shares and assessment order u/s.143(3) of the Act. The ld. AR demonstrated and explained that in the proceedings u/s.143(3) of the Act the AO has called for the information in respect of allotment of shares which has already been considered. In the assessment order at page 1 para 2 & 3, the AO has observed as under:-
“2. In response to statutory notices, Mr. M. Joayapuria along with Mr. B.N.Behera, Advocates, duly authorized Representatives (A/R) of the assessee appeared from time to time, explained the return and the case was discussed. During the course of hearing the A/R of the assessee produced the details viz; Audit Report, Bank Statement, Confirmation from Associated Developers confirming the debit balance of Rs.2,34,840/- shown towards deposit against rent. Details of Sundry Creditors and Sundry Debtors, Ledger Account of Rent paid, Copy of Agreement for Lease/Rent made with United Builders, Ledger Account of Maintenance Charges, Copy of TDS Certificates, Details of TDS receivable, Ledger Account of Misc. Income (Maintenance Charges Received), List of Share Allotted and etc. After taking into consideration the details/documents etc. submitted by the assessee the income is determined us under.
3. During the course of assessment proceedings, on going through the Audited Balance Sheet for the year ended on 31.03.2010 vis-à-vis the documents submitted it is found that, the assessee has received share premium amounting to Rs.60,00,000/- on the issue of 1,50,000 equity shares to (1) Aanuska Vanijya Pvt. Ltd., (2) Swapanpuri Tradelink Pvt. Ltd., (3) Saikat Tradelink Pvt. Ltd., (4) VRV Trading Co. Pvt. Ltd. (5) Jagdhatri Suppliers Pvt. Ltd. (6) Shivam Commotrade Pvt. Ltd. and (7) Jugantar Mercantiles Pvt. Ltd. The value of each equity share is Rs.10/- and equity share premium is Rs.40/-. In this regard, information were called for u/s.133(6) of the Income Tax Act, 1961 by issuing letters to the above parties. In reply confirmation letters have been received from all the above parties. On going through the above confirmation letters from the above seven parties, it is found that they have applied for the equity share to the assessee company and accordingly they have been allotted as per their application. It is also verified that all the transactions have been routed through bank in the mode of Cheque.”
11. Whereas in the proceedings u/s.153A of the Act, the AO having considered the original assessment order u/s.143(3) of the Act made addition on account of unexplained income of Rs.75 lakhs and passed the order u/s.153A of the Act, dated 28.12.2016. On appeal to the CIT(A), the CIT(A) considered the substantive material filed in the original assessment proceedings and in the proceedings u/s.153A of the Act and in the appellate proceedings, dealt on this disputed issue of addition of unexplained share capital at pages 5 to 9 and finally observed after consideration of the submissions of the assessee at para 4.4 page 8 has deleted the addition. Now, the question remains that the CIT(A) has not accepted the claim of the assessee that there is no incriminating document and dismissed the additional ground. The ld. AR emphasized on written submissions and raised the vital points that the appellate authority is bound by the decision of Hon’ble High Courts and to strengthen the case, ld. AR referred to the observation of the Hon’ble Supreme Court in the case of Asst. Collector of Central Excise Vs. Dunlop India Ltd. & Ors. 154 ITR 0172 (SC), wherein the Hon’ble Supreme Court has observed as under :-
“We desire to add and as was said in Cassel and Co. Ltd. v. Broome(l) we hope it will never be necessary for us to say so again that ‘in the hierarchical system of Courts’ which exists in our country, ‘it is necessary for each lower tier’, including the High Court, ‘to accept loyally the decisions of the higher tiers‘. “It is inevitable in a hierarchical system of Courts that there are decisions 11 of the Supreme appellate tribunal which do not attract the unanimous approval of all members of the judiciary But the judicial system only works if someone is allowed to have the last word and that last word, once spoken, is loyally accepted”(2). The better wisdom of the Court below must yield to the higher wisdom of the Court above. That is the strength of the hierarchical judicial system. In Cassel v. Broome, commenting on the Court of Appeal’s comment that Rookes v. Barnard(3) was rendered per incuriam Lord Diplock observed,-
“The Court of Appeal found themselves able to disregard the decision of this House in Rookes v. \ Barnard by applying to it the label per incuriam That label is relevant only to the right of an appellate court to decline to (1)  AC 1027 (2) (See observations of Lord Hailsham and Lord Dipock in Broome v. Cassell).
12. Ld. AR submitted that the issue in respect of no incriminating material was already discussed by the coordinate bench in the case of Midas Capital Pvt. Ltd. Vs. ACIT, IT(SS)A No.04&05/CTK/2018, order dated 23.03.2018 for the assessment years 2011-2012 & 2012-2013, where the decision relied on by the CIT(A) of Hon’ble Kerala and Allahabad High Court in the case of assessee’s group was considered by the coordinate bench and observed as under :-
“23. We have heard rival submissions and perused the orders of lower authorities and materials available on record. In the instant case, the assessee originally filed its return of income on 29.9.2011 for the assessment year 2011-12 and on 27.9.2012 for the assessment year 2012-13 disclosing total income at Rs. 9,56,200/-and Rs.2,95,840/- and MATY of Rs.21,90,642/-.
24. In pursuance to search conducted on 6.8.2014, proceedings u/s.153A was initiated in the case of the assessee for the assessment years under consideration. In pursuance to these proceedings, the impugned orders of assessment was passed on 28.12.2016, where, additions of Rs.9,94,50,000/- and Rs.15,00,000/- were made on account of unexplained cash credit by invoking the provisions of section 68 of the Act. It is not in dispute that the time limit of issuance of notice u/s.143(2) of the Act with reference to the original return filed by the assessee on 29.9.2011 for the assessment year 2011-12 and on 27.9.2012 for the assessment year 2012-13, respectively expired on 30.9.2012 for the assessment year 2011-12 and on 30.9.2013 for assessment year 2012-13 and no such notice was issued to the assessee by the said dates. Thus, the original return of income became final on 30.9.2011 and 30.9.2012 for the assessment years 2011-12 and 2012-13, respectively i.e. before the date of relevant search. In other words, the assessment years under consideration were not abated.
25. Further, the other related facts which have been noticed are that the assessee received Rs.9,94,50,000/- by cheques for the assessment year 2011-12 and Rs.15,00,000/- for the assessment year 2012-13 on account of sale proceeds of investment and credited in the books of account of the assessee in the relevant assessment years. The above facts were disclosed in the return of income filed on 29.9.2011 and 27.9.2012.
26. On the other hand, ld CIT DR is of the view that in a proceeding u/s.153A of the Act even in the case of unabated assessment, addition can be made dehors incriminating search material. Ld D.R. in support of his above view relied upon the following decisions.
(a) N. Gopakumar v. Commissioner of Income-tax (Central)  75 taxmann.com.215 (Kerala):
“Section 153A, read with section 132, of the Income-tax Act, 1961 – Search & seizure – Assessment in case of (Scope of) – Whether for issuance of a notice under section 153A(1)(a), it is not necessary that search on which it was founded should have necessarily yielded any incriminating material against assessee or person to whom such notice is issued – Held, yes – Whether, therefore, assessment proceedings generated by issuance of a notice under section 153A(1)(a) can be concluded against interest of assessee including making additions even without any incriminating material being available against assessee in search under section 132 on basis of which notice was issued under section 153A(1)(a) Held, yes [Paras 7 and 8] [In favour of revenue). “
(b) Commissioner of Income-tax Central, Kanpur v. Raj Kumar Arora  52 taxman.com172 (Allahabad) :
“Section 153A, read with section 143 of the Income-tax Act, 1961 – Search and seizure – Assessment in case of (Scope of assessment) – Assessment year 2000-01 – Whether Assessing Officer has power to reassess returns of assessee not only for undisclosed income, which was found during search operation but also with regard to material that was available at time of original assessment – Held, yes [Para 11] [In favour of revenue/Matter remanded]”
27. On the other hand, the AR of the assessee relied upon the following decisions:
(i) (1) CIT Vs. Continental Warehousing Corporation (Nhava Sheva) Ltd.
(2)All Cargo Global Logistics Ltd. (2015) 374 1TR 645 (Bom), where it was held that the notice u/s.153A of the Act was founded on search. If there was no incriminating material found during the search then the Tribunal was right in holding that the power u/s.153A of the Act being not expected, to be exercised routinely, should be exercised if the search revealed any incriminating material. If that was not found then in relation to the. second phase of three years, there was no warrant for making an order within the meaning of this provision, (ii) Jai Steel (India) Ltd. Vs. ACIT,  36 taxmann.com 523 (Raj.HC), wherein the Hon’ble Rajasthan High Court has held that the plea raised on behalf 0 the assessee that as the first proviso provides for assessment or reassessment of the total income in respect of each assessment year falling within the six assessment years, is merely reading the said provision in isolation and not in the context of the entire section. The words ‘assess’ or ‘reassess’ have been used at more than one place in the section and a harmonious construction of the entire provision would lead to an irresistible conclusion that the word ‘assess’ has been used in the context of an abated proceedings and ‘reassess’ has been used for completed assessment proceedings, which would not abate as they are not pending on the date of initiation of the search or making of requisition and which would-also necessarily support the interpretation that for the completed assessments, the same can be tinkered only based on the incriminating material found during the course of search or requisition of documents.
(iii) Pr.CIT Vs. Meeta Gutgutia Prop. M/s.Fems “N” Petals [2017) 395 ITR 526 (Del), wherein it was held that it is only if during the course of search u/s.132 of the Act incriminating material justifying the re-opening of the assessments for six previous years is found that the invocation of section 153A qua search of the assessment years would be justified.
iv) In case of Pr. CIT-2, Kolkata Vs. M/s Salasar Stock Broking Ltd., G.A.No.1929 of 2016 (ITAT No.264/Kol/2016), order dated 24.08.2016, the Hon’ble Kolkata High Court has held as under :-
“We are in agreement with the views expressed by the Kamataka High Court that incriminating material is a pre- requisite before power could have been exercised under section 153C read with section 153A.
In the case before us, the assessing officer has made disallowances of the expenditure, which were already disclosed, for one reason or the other. But such disallowances were not contained under section 153C read with section 153A. The disallowances made by the assessing officer were upheld by the CIT(A) but the learned Tribunal deleted those disallowances.
In that view of the matter, we are unable to admit the appeal. The appeal is, therefore, dismissed.”
28. We find that none of the decision relied upon by either of the parties are of jurisdictional High Court. It is a well settled position of law that when there are conflicting decisions of High Courts none of which is the jurisdictional High Court, then the decision in favour of the assessee should be followed. For this, we derive support from the decision of Hon’ble supreme Court in the case of CIT vs. Vegetable Products Ltd. 88 ITR 192 (SC). Therefore, we are of the considered view that in an assessment made u/s.153A of the Act for an assessment year for which assessment has not been abated, then the jurisdiction of the Assessing Officer to make addition in such an assessment, is confined to such incriminating search material and no addition dehors the search material can be made.
29. In the instant case, we find that during the course of the relevant search only tally data of the assessee company was found which shows that the assessee has received cash credit from (i) Runicha Merchants Pvt Ltd., (ii) Sankalp (iii) Scope Vyapar, Event Developers Pvt ltd.,(v) Scope Vyapar, Harman Hire Purchase Pvt Ltd.(vi) Scope Vyapar Sarwati Vincom Ltd., (vi) Scope Alfha Properties Pvt Ltd., (vii) Signet Vinimay Pvt Ltd., (viii) Signet Country Wide Tradecom Pvt Ltd., (ix) Srijan Vypar Pvt Ltd., (x) Srijan Vyapar Caplin Marketing pvt Ltd., (xi) Srijan Tantia Agrochemicals Pvt Ltd.,(xii) West Line, Economy Advisory Services Pvt Ltd., (xiii)Winall Vinimay Pvt Ltd., (xiv) Winall Electro Cock Fuels Pvt Ltd and (xv) Yogiraj aggregating to Rs.9,94,50,000/- for the assessment year 2011-12 and Rs.15,00,000/- for the assessment year 2012-13.
30. In the instant case, we find that the addition was made by the Assessing Officer on the sole ground that amount received on sale of investment of Rs.9,94,50,000/- for the assessment year 2011-12 and Rs.15,00,000/- for the assessment year 2012-13 were unexplained cash credit of the assessee. Thus, there is not reference to any search material by the Assessing Officer based on which such additions were made in the hands of the assessee. Therefore, we set aside the orders of lower authorities and delete the addition of Rs.9,94,50,000/- for the assessment year 2011-12 and Rs.15,00,000/- for the assessment year 2012-13, respectively and allow the grounds of appeal of the assessee.”
13. Ld. AR further explained that the assessment is unabated as the return of income u/s.139 of the Act filed on 30.09.2009, whereas the time limit for issue of notice u/s.143(2) of the Act is on 30.09.2010 and the date of search u/s.132 of the Act dated 06.08.2014 and at the time of search the assessment was completed and no incriminating material was found as per record.
14. Therefore, we having considered the facts of the case and also the observations of both the lower authorities and the decision of the coordinate bench of the Tribunal referred above, are of the substantive opinion that the assessment is unabated and the Tribunal is bound by the judicial precedence and, hence, applying the ratio of decision to the present case, we allow the cross objections filed by the assessee.
15. Now, we shall take up appeal of the Revenue in IT(SS)A No.129/CTK/2018 for the assessment year 2010-2011. Since we have allowed the cross objection of the assessee as referred in the above paras, accordingly, the appeal of the revenue has become infructuous and is dismissed.
16. The issues involved in appeals of Revenue in the case of another assessee i.e. M/s SGBL (India) Ltd. in IT(SS)A Nos.130 & 131/CTK/2018 along with cross objections of the assessee in CO Nos.43&45/CTK/2018 for the assessment years 2009-2010 & 2010-2011, are similar to the case of M/s Diamond Plaza (P) Ltd. in IT(SS)A Nos.129/CTK/2018 and CO No.45/CTK/2018 for the assessment year 2010-2011. Therefore, applying our observations made in the above appeal for the assessment year 2010-2011 in case of assessee-M/s Diamond Plaza(P) Ltd., we dismiss the appeals of Revenue in IT(SS)A Nos.130&131/CTK/2018 and allow the cross objections of the assessee in CO Nos.45&44/CTK/2018 for the assessment years 2009-2010 & 2010-2011.
17. In the result, appeals of the Revenue are dismissed and the cross objections of the assessee are allowed.
Order pronounced in the open court on 05/12/2018.