Assessment which attained finality cannot be disturbed unless incriminating material found during search

Contention of the Assessee

Learned counsel submitted that during the course of search and seizure action, no incriminating document, material or unaccounted assets were found from the assessee. Even for the year of search i.e. A.Y. 2008-09, no addition has been made. The assessing officer without there being any incriminating material found in the course of search relating to the deemed dividend has made the addition on the basis of information already available in the return of income.

This is also evident from the copy of panchnama and statement on oath of the assessee recorded at the time of search, the copy of which have been placed in the paper book form pages 135 to 139. Even in the assessment order there is no whisper about any material or document found at the time of search relating to the transaction of deemed dividend. The Ld. AO he has noted the facts about receiving of the payments by the assessee from M/s. Lotus investment, which was a division of M/s. La-fin Financial Services Pvt. Ltd. in which the assessee held 50% of share, from the balance sheets and records already filed along with the return of income. Since the assessment for the A.Ys. 2002-03 & 2004-05 had attained finality before the date of search and does not get abated in view of second proviso to section 153A, therefore, without there being any incriminating material found at the time of search, no addition over and above the income which already stood assessed can be made. This proposition he said, is squarely covered by the decision of All Cargo Global Logistics Ltd. Vs. DCIT reported in (2012) 137 ITD 287 (SB) (Mum). Even the Hon’ble jurisdictional (Bombay) High Court in the case of CIT Vs. M/s. MurliAgro Products Ltd. ITA No. 36 of 2009 order dated 29.10.2010, has clearly held that, once the assessment has attained finality before the date of search and no material is found in the course of proceedings u/s 132(1), then no addition can be made in the proceedings u/s 153A. This proposition has been reiterated by Hon’ble Rajasthan High Court in the case of Jai Steel(India) Vs. ACIT reported in (2013) 259 CTR (Raj) 281. Thus, the addition of deemed dividend made by the assessing officer is beyond the scope of assessment u/s 153A for the impugned assessment years.

Contention of the Revenue

On the other hand Ld. DR submitted that, the act does not envisages that the assessments which have attained finality cannot be disturbed or varied if no incriminating material is found qua the addition made. There is no concept of undisclosed income enshrined in section 153A. In support of his contention, he strongly placed reliance on the decision of ITAT Mumbai Bench in the case of Satish L. Babladi Vs. DCIT passed in ITA Nos. 1732 & 2109 order dated 19.03.2013.

Held by ITAT

From the perusal of the provision of section 153A , it is evident that, where search has been initiated u/s 132 or requisition has been made under section 132A, it is incumbent upon the assessing officer to issue notices requiring the person searched to file return of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year in which search is conducted. The assessing officer has to assess or reassess the total income in respect of each assessment year falling within six assessment years. Thus, it is statutory mandate upon the assessment officer to assess or reassess the total income on which a person can be said to be assessable under the provisions of the act. The first proviso covers the income which is to be assessed i.e. emanating not only, from the declared sources but also from any material found during the course of search. However if the assessment has already been made or finalized before the date of search, then the AO can reassess the total income on the basis of material found or gathered during the course of search over and above the income which already stood assessed. However, the second proviso carves out exception/limitation that, pending assessment or reassessment relating to any assessment year following within the period of six years on the date of search, the same gets abated. In other words, the assessments which have not attained finality and are pending on the date of search, then the same does not gets abated. The assessments which have abated, fresh determination of total income would be required which can be made on the basis of material already on record as well as material gathered during the course of search. However, the assessments which have already attained finality and does not get abated, then they have to be assessed on the same income and cannot include any time of income for which no incriminating material has been found. The reason being that the assessments which are pending and get abated, the entire income has to be determined which includes material already on record and also the material found as a result of search. However, statute has carved out the exception to those assessments which have attained finality, because those assessments does not get abated. In such a situation, the income which has already been assessed, the same cannot be disturbed unless some incriminating information or material is found suggesting that the income which already stood assessed requires to be reassessed on the basis of new material found. This proposition has been upheld and clarified by the Hon’ble jurisdictional High Court in the case of Murli Agro Products Ltd. Which makes it abundantly clear that, the assessing officer while passing the assessment order  u/s  153A  cannot  disturb the assessments/reassessment order which had attained finality, unless material gathered in the course of search establishes that the earlier assessment finalized is contrary to the fact.

This principle has again been reiterated by the Hon’ble Rajasthan High Court in the case of Jai Steel(India) Vs. ACIT reported in (2013) 259 CTR (Raj) 281.

Thus, respectfully following the aforesaid proposition by the Hon’ble High Courts, we hold that in this case, the assessment for the A.Ys. 2002-03 and 2004-05 had attained finality and admittedly there being no incriminating material found during the course of search relating to the addition made on account of deemed dividend, therefore, such an addition de hors any material found during the course of the search, cannot be roped in the assessment made u/s 153A by the assessing officer.

Now, coming to the decision of ITAT Mumbai Bench in the case of Satish L. Babladi, as relied upon Ld. DR, from the perusal of the said decision it is seen that the Tribunal has strongly relied upon the decision of Hon’ble Delhi High Court in the case of CIT Vs. Anil Kumar Bhatia reported in (2013) ITR 493 (Delhi). The Hon’ble Delhi High Court with regard to the question, as to whether any addition can be made in respect of completed assessment when no incriminating material was found has been left open to be answered. Other observations made by the Hon’ble High Court is in the form of ‘Obiter dicta’ because this specific issue has been left open. Moreover the Hon’ble jurisdictional High Court in case of Murli Agro Products Ltd. (supra) has categorically clarified that the assessment which had attained finality cannot be disturbed unless incriminating material is found in the course of search. Therefore, the decision of the Tribunal in S.L. Babladi’s case, cannot be relied upon as they have not considered the ratio and principle laid down by the Hon’ble jurisdictional High Court.

Accordingly, the addition on account of deemed dividend of Rs.1,69,68,750/- in the A.Y. 2002-03 and addition of Rs.4,62,91,123/- on account of deemed dividend u/s 2(22)(e) is deleted as same is beyond the scope of assessment u/s 153A. The additional ground thus raised by the assessee is allowed. In view of the finding given here-in­above, we are not going into the merits of the addition as discussed by the AO as well as Ld. CIT(A), as they have become purely academic.