Rashmi Metaliks Ltd. Vs DCIT (ITAT Kolkata)
Conclusion: No addition could be made under section 153A for an unabated assessment unless incriminating materials unearthed during search qua the assessment year under consideration.
Held: Search operations was conducted u/s. 132 in the assessee’s premises and order u/s 153A/143(3) was passed assessing total income. Assessee contended that AO had no jurisdiction to disturb the original assessment completed on 30.12.2009 under section 143(3) read with section 153A in absence of any incriminating material found in course of search and when no proceedings were pending before him for the relevant assessment year. It was settled position of law that no addition could be made for an unabated assessment unless incriminating materials unearthed during search qua the assessment year under consideration.
FULL TEXT OF THE ITAT JUDGEMENT
These appeals of assessee for AYs. 2007-08 to 2013-14 as well as the appeals of Revenue for AYs 2008-09 to 20 13-14 have been filed against the separate orders of Ld. CIT(A)-20, Kolkata all dated 31.03.2016.Since issues are common and facts are identical, we dispose of all these appeals by this consolidated order for the sake of convenience.
2. All the Revenue’s appeals are time barred by three days and condonation petitions have been filed. After considering the condonation petitions and the no objection given by the Ld. AR, we condone the delay and admit the appeals for hearing.
3. First of all, we will take up the assessee’s appeal in ITA No. 24/Kol/2016 for AY 2007-08 wherein the assessee has raised the following relevant grounds of appeal:
“1. That the Ld. CIT(A) erred in dismissing the plea of the Appellant Company that the Assessing Officer had no jurisdiction to disturb the original assessment completed on 30.12.2009 under section 143(3) read with section 153A of the Act in absence of any incriminating material found in course of search and when no proceedings were pending before him for the Assessment Year 2007-08
2. That the Ld. CIT(A) erred in directing the Assessing Officer to re-examine the issue of disallowance of Rs.8,9 7,950 made under section 40(a)(ia) of the Act when no such disallowance was made in original assessment completed under section 143(3) read with section 153A of the Act and no incriminating document relating to such disallowance was found during search in case of the assessee company.
3. That the order passed by Ld. CIT(A) is against law and facts of the case and is perverse.”
4. At the outset, we will deal with the legal issue that has been raised by the assessee that consequent to the search u/s. 132 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) on 18.02.2013, in the proceedings u/s. 153A of the Act which were initiated against the assessee, no addition/disallowance could have been made unless there was any live and direct nexus with any incriminating material unearthed during the search. Since the issue raised in Ground No. 1 goes to the root of the matter, we would like to adjudicate this issue first.
5. Brief facts of the case are that the assessee company filed its original return of income on 30.10.2007 declaring total income of Rs.3,81,774/-. Search operations was conducted u/s. 132 of the Act in the assessee’s premises on 03.05.2007. Consequent to the search the order u/s 153A/143(3) of the Act was passed for AY 2007-08 on 30.12.2009 assessing total income at Rs.3,81,774/-.
6. Thereafter, second search u/s. 132 of the Act was conducted on 18.02.2013 and the Panchnama was drawn in the name of the assessee company. Subsequent thereto notice u/s 153A was issued asking the assessee to file return of income and in response the assessee filed return declaring total income of Rs.3,8 1,774/- as earlier assessed. In the order passed u/s 153A/143(3) the AO made addition on account of short deduction of TDS of Rs.8,97,950/- along with some other disallowances. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to give partial relief to the assessee by deleting all other disallowances / additions except that of Rs.8,97,950/- on account of short payment of TDS. In the impugned order the Ld. CIT(A) however noted that in the assessment order the AO had referred to several seized documents and books of accounts with reference to which the disallowances were made while framing the order for AY 2007- 08. The Ld. CIT(A) therefore held that since the disallowances made were with reference to seized material, there was no legal infirmity in the AO’s order. Aggrieved, the assessee is before us and the Revenue has not filed any appeal against the action of the Ld. CIT(A) in giving relief to the assessee on merits.
7. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the legal issue raised by the assessee before the Ld. CIT(A) was that since the assessment for AY 2007-08 was not pending on the date of search no addition / disallowance was warranted without the aid of any incriminating materials. Now before us, the assessee has agitated the legal issue. We note that the first assessment for the relevant AY 2007-08 was completed by the AO on 31.12.2009 u/s. 143(3) consequent upon search u/s 132 which was conducted against the appellant on 03.05.2007.Copy of the said assessment order is found placed at Pages 59 to 61 of the paper book. We find that the income returned for the AY 2007-08 was accepted by the AO without making any addition or disallowances. Thereafter, the second search which culminated in the impugned assessment order before us happened on 18.02.20 13 and thereafter assessment was framed u/s. 153A at Rs. 14,80,850/-. On appeal, the Ld. CIT(A) has confirmed disallowance of Rs. 8,97,950/- in respect of the short payment of TDS u/s. 40(a)(ia) of the Act, made by the AO. In order to adjudicate the legal issue before us, as stated above, we note that when the second search happened on 18.02.2013, undisputedly no assessment was pending before the AO and therefore this assessment year is an unabated assessment. Settled position of law is that no addition can be made for an unabated assessment unless incriminating materialis unearthed during search qua the assessment year under consideration. Our aforesaid finding is fortified by the decision of the Hon’ble Delhi High Court in the ITA No. 707, 709 & 713 of 2014 CIT Central-III vs. Kabul Chawla, wherein their lordships have held as under:
“Summary of legal position
37. On a conspectus of Section 153A(1) of the Act, read with provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under:
i. Once a search takes place under Section 132 of the Act, notice under Section 153 A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.
ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise.
iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the ‘total income’ of the aforementioned six years in separate will be only one assessment order in respect of each of the six AYs “in which both the disclosed and the undisclosed income would be brought to tax”.
iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment “can be arbitrary or made without any relevance or nexus with the seized Obviously an assessment has to be made under this Section only on the basis of seized material.”
v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word ‘assess’ in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word ‘reassess’ to completed assessment proceedings.
vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.
vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.
8. The Hon’ble Jurisdictional High Court in CIT vs Veerprabhu Marketing Ltd. reported in (2016) 73 taxmann.com149 (Cal) also held as under:
“We agree with the view expressed by the Delhi High Court that incriminating material is pre-requisite before power could have been exercised u/s 153(C) r.w Section 153(A). In the case before us, the AO has made a disallowance of the expenditure, which was held disclosed, for one reason or the other, but such disallowances made by the AO were upheld by the LD. CIT(A) but the Ld. Tribunal deleted these disallowance. We find no infirmity in the aforesaid Act of the Ld. Tribunal. The appeal is, therefore, dismissed”.
9. The Hon’ble Jurisdictional High Court in PCIT-2, Kolkata Vs. Salasar Stock Broking Limited (ITAT No. 264 of 2016) dated 24.08.2016 held as under:
In this case, the Honorable Jurisdictional High Court observed that the Ld. ITAT, Kolkata was of the opinion that the assessing officer had no jurisdiction u/s 153A of the I.T. Act to reopen the concluded cases when the search & seizure did not disclose any incriminating material. In taking the aforesaid view, the Ld. ITAT relied upon the judgments of Delhi High Court in the case of CIT(A) Vs. Kabul Chawla in ITA No. 707/2014 dated 28.08.2014. The Court also observed that more or less an identical view has been taken by this Bench in ITA No. 661/2008 in the case of CIT Vs. Veerprabhu Marketing Limited. Considering the above facts, the Honorable High Court did not admit the appeal filed by the Department. It held as follows:-
“Subject matter of challenge is a judgement and order dated 18th December, 2015 by which the learned Tribunal dismissed an appeal preferred by the Revenue registered as ITA No.1 775/Kol/2012 and allowed a cross-objection registered as CO-30/Kol/2013 both pertaining to the assessment year 2005-06. The learned Tribunal was of the opinion that the Assessing Officer had no jurisdiction under Section 153A of the Income Tax Act to reopen the concluded cases when the search and seizure did not disclose any incriminating material. In taking the aforesaid view, the learned Tribunal relied upon a judgement of Delhi High Court in the case of CIT[A] vs. Kabul Chawla in ITA No.707/2014 dated 28th August, 2014. The aggrieved Revenue has come up in appeal.”
….In that view of the matter, we are unable to admit the appeal. The appeal is, therefore, dismissed.”
10. We also gainfully refer to the decision of the Hon’ble Delhi High Court in the case of Pr. CIT vs. Kurule Paper Mills P. Ltd. [2016] 380 ITR 571 (Delhi) wherein it was held as follows:-
“1. The Revenue has filed the appeal against an order dated 14.11.2014 passed by the Income Tax Appellate Tribunal (ITAT) in 3761/Del/2011 pertaining to the Assessment Year 2002-03. The question was whether the learned CIT (Appeals) had erred in law and on the facts in deleting the addition of Rs. 89 lacs made by the Assessing Officer under Section 68 of the Income Tax Act, 1961 (‘ACT’) on bogus share capital. But, the issue was whether there was any incriminating material whatsoever found during the search to justify initiation of proceedings under Section 153A of the Act.
2. The Court finds that the order of the CIT(Appeals) reveals that there is a factual finding that “no incriminating evidence related to share capital issued was found during the course of search as is manifest from the order of the AO.” Consequently, it was held that the AO was not justified in invoking Section 68 of the Act for the purposes of making additions on account of share capital.
3. As far as the above facts are concerned, there is nothing shown to the court to persuade and hold that the above factual determination is perverse. Consequently, after considering all the facts and circumstances of the case, the Court is of the opinion that no substantial question of law arises in the impugned order of the ITAT which requires examination.
4. The appeal is, accordingly, dismissed.”
11. It is noted that the Department had filed a Special Leave Petition in S.L.P (C) No-34554 of 2015 before the Hon’ble Apex Court against the above judgment of the Delhi High Court which has since been dismissed. The relevant extracts reported in 380 ITR (st) 64-Ed is as follows:
The Hon ’ble Apex court dismissed the special leave petition filed by the department. The relevant Para as mentioned in the ITR is reproduced as under.
“Their Lordships MadanB.Lokur and S.A.Bobde JJ dismissed the Department’s special leave petition against the judgment dated July 06,2015 of the Delhi High Court in I. T.A No 369 of 2015, whereby the High Court held that no substantial question of law arose since there was a factual findin, that no incriminatin, evidence related to share capital issued was found durin, the course of search and that the assessin, officer was not justified in invokin, section 68 of the Act for the purpose of makin, additions on account of share capital”
12. In the light of the aforesaid ratio laid down by the Hon’ble High Courts, wherein, the Hon’ble High Court held that in the absence of any incriminating materials, the completed assessment cannot be disturbed. We note that in respect of the disallowance made u/s 40(a)(ia) the Ld. CIT(A) did not uphold it on merits and against which the Revenue is not in appeal before us. In the circumstances the material issue to be decided is whether AO was permitted to make the disallowance merely because the AO was authorized to frame the assessment for the year under consideration u/s 153A of the Act. We note that for making this disallowance the AO has only taken note of the TAN details available in the ITS data for FY 2006-07 relevant to AY 2007-08 and found that TDS amount of Rs.20, 150/- had not been paid by the company. Based on such information the AO issued show cause notice to the assessee and thereafter made the disallowance. We therefore find that the only information on the basis of which the addition was made was ITS data for the FY 2006-07 and nothing else. The said ITS data for the relevant year was available to the AO even at the time of original assessment dated 31.12.2009 and therefore it was not a case that any new and incriminating material was unearthed as a consequence of the second search carried out against the assessee u/s 132 in February 2013. We therefore find merit in the contention of the Ld. AR that no incriminating material was found against the assessee which was unearthed qua this assessment year for making the impugned disallowance. In terms of the law laid by the Hon’ble jurisdictional High Court in Veerprabhu Marketing Ltd. (supra) Pr. CIT Vs. Salasar Stock Broking Ltd. (supra)as also the decisions of theHon’ble Delhi High Court in the cases of Kabul Chawla (supra)and Pr. CIT Vs. Kurele Paper Mills Pvt. Ltd. (supra) which has since been upheld by the Hon’ble Supreme Court; we are of the considered view that no addition or disallowance was permissible while framing the assessment u/s 153A since no incriminating material was found in relation to the disallowance made in the unabated assessment for AY 2007-08. The Ld. CIT, DR fairly conceded that in respect of the disallowance u/s 40(a)(ia) no incriminating material was found in the course of second search. In light of this factual and legal position we therefore allow the Ground No. 1 of the assessee’s appeal. Consequently the disallowance of Rs.8,97,950/- made u/s 40(a)(ia) is held to be legally unsustainable. Even otherwise we find that in the impugned order passed by the Ld. CIT(A); the AO was directed to re-verify the relevant facts from the TAN details and thereafter pass a speaking order. It was brought to our attention that in the order passed u/s 251, after examining the relevant facts, the AO did not retain the disallowance. Therefore even on merits we find the disallowance of Rs.8,97,950/- to be factually untenable. Accordingly Ground No. 2 of the assessee’s appeal is allowed.
13. We find that the Ground No. 1 involved in AY 2007-08 is also involved in the subsequent AYs 2008-09 to 2011-12. A bird’s eye view about this factual position for these years (AY 2008-09 to 20.11.2012) are as follows:
