Case Law Details

Case Name : Omprakash Gupta Vs ACIT (Central)- II (ITAT Indore)
Appeal Number : IT(SS)A Nos.277 to 281/Ind/2017
Date of Judgement/Order : 28/02/2019
Related Assessment Year : 2008-09 to 2012-13
Courts : All ITAT (7639) ITAT Indore (69)

Omprakash Gupta Vs ACIT (Central)- II (ITAT Indore)

Conclusion: No addition could be made in case of concluded assessments and non abated assessments in absence of an incriminating material discovered during search.

Held:  In the assessment order,  AO observed that once search was conducted and notice was issued u/s 153A, AO was bound to issue notice to assessee to furnish return for each assessment year falling within 6 assessment years, immediately preceding to the assessment year relevant to the previous year in which search was conducted or requisition was made. Even though assessment order had been passed u/s 143(1A) or 143(3), AO required to reopen those proceedings and reassess total income taking notice of undisclosed income or during the course of search & seizure operation. Additions were made in respect of unexplained, unsecured loans, gifts, on account of foreign travel, on account of unexplained investment in shares and assessment was completed u/s 153A r.w.s. 143(3) for the relevant assessment years. It was held all the assessment years were concluded assessments and non abated assessments and any addition had to be made in respect of those assessment years, there must be an incriminating material. In the present case, there was no incriminating material and therefore, additions made by AO could not survive.

FULL TEXT OF THE ITAT JUDGEMENT

This bunch of appeals filed by different assessees are directed against orders of the CIT(A)-3, Bhopal dated 14.9.2017 for the assessment years 2008-09 to 2012-13. Since the issues are common the appeals are heard together and disposed off by way of common order for the sake of convenience and brevity. First we take up appeal filed by the assessee in IT(SS)A No.277 to 281/Ind/2017 for the A.Yrs. 2008-09 to 2012-13.

IT(SS)A Nos.277 to 281/Ind/2017:

2. The facts are in brief that there was a search conducted in the business premises of the assessee as well as on the other related concerns/business associates on 29.1.2014. Since the various concerns and individuals are interconnected and have business associations, they have been put together under one common name ‘Signature Group’. The assessee is an individual having a business income, rental income and other sources. After conducting the search, the A.O. has issued notices u/s 153A of the Income Tax Act, 1961 (hereinafter called as ‘the Act’) dated 12.9.2014 were issued to the assessee to file the return of income for assessment years 2008-09 to 2013-14. In response to the notice issued by the A.O. u/s 153A of the Act, the assessee has filed return of income for A.Yrs. 2008-09 to 2013-14 on 7.11.2014. The details of the returns of income for A.Y. 2008-09 to 2013-14 are as under:

A.Y. Date of filing of return u/s 139(1) Returned income (in Rs.) Date of filing of return by the assessee against notice u/s 153A Income declared in return u/s 153A (in Rs.) Additional income offered by the assessee
(in Rs.)
2008-09 12.1.2009 1,35,860 7.11.2014 1,35,860 Nil
2009-10 8.1.2010 3,10,380 7.11.2014 3,10,380 Nil
2010-11 04.2.2011 7,68,640 7.11.2014 7,68,640 Nil
2011-12 1.10.2011 13,33,780 7.11.2014 13,33,780 Nil
2012-13 17.11.2012 16,38,250 7.11.2014 16,38,250 Nil
2013-14 22.11.2013 8,36,860 7.11.2014 8,36,860 Nil

3. In the assessment order, the A.O. observed that once search is conducted and notice is issued u/s 153A of the Act, the A.O. is bound to issue notice to the assessee to furnish return for each assessment year falling within 6 assessment years, immediately preceding to the assessment year relevant to the previous year in which search is conducted or requisition is made. The A.O. is required to assess or reassess the total income of the aforesaid years. U/s 153A of the Act, the A.O. had been given a power to assess or reassess total income of assessment years in question in separate assessment orders. Consequently, even though assessment order had been passed u/s 143(1A) or 143(3) of the Act, the A.O. required to reopen those proceedings and reassess total income taking notice of undisclosed income or during the course of search & seizure operation. Where assessment or reassessment proceedings had already been completed and assessment orders passed, then A.O. would be competent to reopen assessment proceedings already made, even if there is no incriminating material found during the course of search. By observing the above, the assessing officer proceeded to conclude the assessment and additions were made in respect of unexplained, unsecured loans, gifts, on account of foreign travel, on account of unexplained investment in shares and assessment was completed u/s 153A r.w.s. 143(3) of the Act for the assessment years 2008-09 to 2013-14 dated 17.3.2016.

4. On appeal before the Ld. CIT(A) the assessee has submitted that the return of income for assessment year 2012-13 was filed on 7.11.2012 and as per the provisions of section 143(2) of the Act, the last date on which the notice for assessment could have been issued on 13.9.2013. All the other returns are filed on earlier date and the time limit for issue of notice u/s 143(2) of the Act in all those cases have expired. The search in the case of assessee was initiated on 29.1.2014 and all proceedings pending as on the date has abated. As the proceedings for A.Y. 2012-13 and prior years were not pending as on the date of search, the same will be deemed to have been completed were not abated. It is well settled law that in the case of completed assessments, no adhoc additions are permissible. Additions can only be made on the basis of incriminating documents seized during the course of the search. In case of the assessee, no incriminating papers were seized. Same is obvious from the fact that no addition has been made in the assessment, which may be based on nothing made in any seized paper. Ld. CIT(A) after considering the explanation of the assessee, he has observed that once the assessee participated in the assessment proceedings before the A.O., the assessee cannot claim that the issue of notice u/s 153A r.w.s. 143(3) of the Act for A.Yrs. 2008-09 to 2013-14 is not in order. Once the assessee put to notice had filed a return of income in response to the notices and has attended the assessment proceedings, it cannot be said that the issue of notice u/s 153A of the Act is not in order and the legal plea raised by the assessee rejecting the order of the A.O. is confirmed.

5. On being aggrieved, assessee filed an appeal before the Tribunal. The assessee has raised following grounds:

1. That on the facts and in the circumstances of the case of the assessee the Ld. CIT(A) was not justified in holding that the Ld. A.O. was not justified in making addition in the years where the assessment proceedings were not pending and no incriminating material was found during the course of search.

2. That on the facts and in the circumstances of the case of the assessee the Ld. CIT(A) was not justified in holding that the Ld. A.O. was not justified in making addition of Rs.3,00,000/- towards unsecured loans received treating the same as unexplained.

3. That on the facts and in the circumstances of the case of the assessee the Ld. CIT(A) was not justified in holding that the Ld. A.O. was justified in making addition of Rs.1,20,000/- towards estimated alleged unexplained expenses made on foreign tour.

4. That the assessee craves leave to add, alter, delete or modify any ground(s) of appeal during or before the hearing of the appeal.

6. The Ld. Counsel for the assessee has submitted that for the assessment years 2008-09 to 2012-13, the time limit for the issue of notice u/s 143(2) of the Act has been expired and therefore all the assessments are concluded assessments and the assessments are not pending as on the date of search, the same will be deemed to have been completed and are not abated.

7. It is also submitted that during the course of the search no incriminating material found and therefore concluded assessments cannot be reopened u/s 153A of the Act. For the above proposition he has relied on the following decisions:

1. CIT Vs. Kabul Chawla 281 CTR 85 (Delhi),

2. PCIT Vs. Meeta Gutgutia 395 ITR 296 (Delhi)

3. PCIT Vs. Soumya Constructions 387 ITR 529 (Guj.)

4. CIT Vs. Deepak Agrawal 251 Taxmann pg.22 (Bom)

5. PCIT Vs. Lata Jain 384 ITR 543 (Delhi).

8. Ld. D. R. relied on the decision of the Hon’ble Karnataka High Court in the case of Canara Housing Development company Vs. DCIT Central Circle-1, Bangalore (2014) (49 Taxman.com98) (Kar).

9. She also relied on the decision of Kerala High Court in the case of N. Gopakumar Vs. CIT(Central) (2016) 75 Taxman.com215 (Kerala).

10. Ld. D.R. further submitted that the decision in the case of CIT Vs. Vegetable Products (2016) 27 ITJ 151 (SC): (1973) 88 ITR 192 cannot be simply applied. For that she has relied on the decision of the CCV Dilip Kumar (2018) 9 SCC page 1. She has also pointed out that in all these cases, assessment was completed u/s 143(1) of the Act. Therefore, the A.O. is justified to review all the assessment years.

11. We have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below. The assessee is an individual filed returns of income for all the assessment years i.e. assessment years 2008-09 to 2012-13 and assessments are completed u/s 143(1) of the Act. Subsequently, a search action was conducted u/s 132 of the Act in the business group of the assessee and A.O. has asked the assessee to file returns of income for all the assessment years by issue of notice u/s 153A of the Act on 12.9.2014. In response to that, assessee has filed returns of income for A.Yrs. 2008-09 to 2013-14 on 7.11.2014. The case of the assessee is that the return for A.Y. 2012-13 was filed on 7.11.2012. As per section 143(2) of the Act, the last date on which notice for assessment would have been issued was 30.9.2013. All the other returns are filed on earliest date and the time limit for issue of notice u/s 143(2) of the Act in all those cases has expired. The search was initiated in the business premises of the assessee on 29.1.2014 and therefore the time limit for issue of notice u/s 143(2) of the Act is lapsed. All the assessment years from 2008-09 to 2012-13 are concluded and non abated assessments. The A.O. cannot reopen the assessments u/s 153A of the Act. In so far as the above submission is concerned from the assessment order and even from the Ld. CIT(A)’s order, there is nothing on the record which says that the additions made by the A.O. are based on any incriminating material. Even when the same was pointed out to Ld. D.R., she is not able to establish the fact that additions are based on any incriminating material, therefore we find that the additions made by the A.O. for all the years are not based on any incriminating material found during the course of search. It is only based on subsequent search by issue of notice u/s 153A of the Act calling for the various documents from the assessee additions are made. In so far as the arguments of the Ld. Counsel for the assessee in respect of concluded assessments cannot be reopened, we find that in all the assessment years from 2008-09 to 2012-13, there is no scope for the A.O to issue a notice u/s 143(2) of the Act for the reason that the time limit is already over before the date of search itself i.e. on 29.1.2014. Therefore, in our opinion, all the assessment years from 2008-09 to 2012-13 are concluded assessments and non abated assessments and any addition has to be made in respect of those assessment years, there must be an incriminating material. In the present case, there is no incriminating material and therefore, the additions made by the A.O. cannot survive.

12. This very issue has been considered by The Hon’ble Bombay High Court in the case of CIT Vs. Continental Warehousing Corporation (2015) 120 DTR (Bom) 89 and has observed that u/s 153A of the Act which enables carrying out a search or exercise of a power of requisition, assessment in furtherance thereof is contemplated. There is a mandatory issue of notice u/s 153(1A) of the Act and assess and reassess the total income of 6 assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made. That the crucial word ‘search and requisition’ appear for the substantive provision on the provisos. That would throw the light on the issue of applicability of the provision. True it is that the assessment, which has to be made in pursuance of the notice is in relation to the 6 years. An order will have to be made in that record while making the order, the income or the return of income filed for all those assessment years is to be taken into account. A reference will have to be made to the income disclosed therein. However, the scope of enquiry there of not confined essentially revolves around the search or the requisition u/s 132A of the Act as the case may be. The proviso deals with the cases where the assessment or reassessment, if any relating to assessment years falling within the period of 6 assessment years refer to in sub section 1 of section 153A of the Act were pending. If they were pending on the date of initiation of search u/s 132 of the Act or making requisition u/s 132A of the Act as the case may be, they abate. It is only binding precedence that would abate and not where there are orders made on assessment or reassessment and which are in force on the date of initiation of the search or making the requisition.

13. In the case of Commissioner of Income Tax (Central)-3 Kabul Chawla (2015) 61 Taxman.com412 (Del.), the Hon’ble Delhi High Court has considered the scope of section 132 of the Act and 153A(1) observed as under:

i. Once a search takes place under Section 132 of the Act, notice under Section 153 A(l) will have to be mandatorily issued to the person searched requiring him to tile 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 assessment orders for each of the six years. In other words there 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 material. Obviously an assessment has to be made under this Sectioa TiLysinhe 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 search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.

clusion

14. From the above decision, it is very clear that in respect of concluded assessments additions cannot be made without incriminating material.

15. The Hon’ble Delhi High Court in the case of PCIT Vs. Meeta Gutgutia 395 ITR 296 (Delhi) has held that it was only if during the course of the search u/s 132 of the Act incriminating material justifying the reopening of the assessment years for 6 previous years was found that invocation of section 153A of the Act qua each of the assessment year would justify.

16. In the case of Principal CIT Vs. Soumya Constructions 387 ITR 529 (Guj.) the Hon’ble Gujarat High Court has observed that the addition was based on statement of the third person and not based on any incriminating material found during the course of search, therefore the addition deleted by the Tribunal was upheld.

17. In the case of PCIT Vs. Lata Jain 384 ITR 543 (Del) (supra), the Hon’ble Delhi High Court has held that the Tribunal was right in holding that there had to be incriminating material recovered during the course of search qua the assessee in each year for the purpose of framing an assessment u/s 153A of the Act.

18. From the above all the decisions, it is very clear that the A.O. to make an addition u/s 153A of the Act and there must be incriminating material available to the A.O. during the course of the search. Unless there is an incriminating material, the concluded/non abated assessments cannot be disturbed again u/s 153A of the Act.

19. In so far as Kerala High Court decision in the case of E.N. Gopakumar (supra) the Hon’ble Kerala High Court has held that even without there being any incriminating material, the A.O. is empowered to make an addition u/s 153A of the Act. The same view has been expressed by the Hon’ble Karnataka High Court in the case of Canara Housing Development Company (supra).

20. In the above circumstances, whether the decision of the Hon’ble Supreme Court in the case of CIT Vs. Vegetable Products (supra) has to be applied or not. The Ld. D.R. has submitted that the decision held in CIT Vs. Vegetable Products (supra) cannot be applied in each and every case in the light of the decision of CCV Dilip Kumar (supra). In the present case, the assessee has filed all the returns before conducting the search and the time limit to issue notice u/s 143(2) of the Act already lapsed and a search is conducted and no incriminating material is found. The A.O. called for books of accounts and other relevant documents and assessment is completed u/s 153A r.w.s. 143(3) of the Act.

21 .There are many decisions in favour of the assessee, which says that “once assessments are concluded without incriminating material, additions cannot be made by reopening u/s 153A of the Act. There are two decisions, one is of Hon’ble Kerala High Court in the case of E.N. Gopakumar (supra) and the second one is of Hon’ble Karnataka High Court in the case of Canara Housing Development Company Vs. DCIT Central Circle-1, Bangalore (supra) in favour of the revenue in which it was held that no incriminating material is necessary to reopen the assessments and to make an addition. In the present case, decisions of Hon’ble Delhi, Gujarat and Bombay High Courts are in favour of the assessee. The decisions of Hon’ble Kerala High Court and Karnataka High Court are against the assessee. We find that after examining the facts and circumstances of the case, the judgement of the Hon’ble Supreme Court in the case of Vegetable Products (supra) has to be followed. The Hon’ble Supreme Court in the above case has held that “if two reasonable constructions of a taxing provisions are possible, then that construction, which favours the assessee must be adopted.”

22. In the interest of justice, the decision of the Hon’ble Supreme Court in the case of Vegetable Products (supra) has to be followed. Therefore, we respectively following the decision of Hon’ble Delhi High Court in the case of Kabul Chawla (supra), Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (supra) and also Hon’ble Gujarat High Court in the case of PCIT Vs. Meeta Gutgutia (supra), we hold that no addition can be made in respect of concluded assessments u/s 153A of the Act unless there is any incriminating material found during the course of search. We would like to make it clear that where the assessment is completed u/s 143(1) or 143(3) of the Act unless A.O. has a time to issue notice u/s 143(2) of the Act, A.O. cannot make an addition u/s 153A of the Act, unless there is an incriminating material found during the course of the search.

23. The coordinate bench of the Tribunal in the case of Sainath Colonisers Vs. ACIT (Central)-II Bhopal in IT(SS)A Nos.289 to 291/Ind/2017 dated 28.2.2019 has considered the similar issue and has held that if there is no incriminating material found during the course of search and the time limit for issue of notice u/s 143(2) of the Act expires, no addition can be made u/s 153A of the Act. For the sake of convenience relevant portion of the order is extracted here under:

8. We observe that the assessee has filed regular return of income u/s 139 of the Act for Assessment Year 2008-09 to 2010-11 on 30.9.08, 31.3.2010 and 12.10.2010 after claiming deduction u/s 80IB(10) at Rs.8,92,452/-, Rs.2,66,948/- and Rs.2,44,417/-respectively. The time limit for issuance of notices u/s 143(2) of the Act stood expired in relation to the assessment year 2008-09 to 2010-11 much before the date of conducting the search i.e. 29.1.2014 and therefore these three assessment years falls under the category of unabated/non abated assessments. Now in the given facts Ld. Counsel for the assessee has relied few judgments and Ld. Departmental Representative has relied to few judgments in its favour. However, the Hon’ble Apex Court in the case of CIT V/s Vegetable Products Ltd 88 ITR 192 has “held that if two reasonable construction of a taxing provisions are possible, then that construction which favours the assessee must be adopted”. In the light of above judgment of Hon’ble Apex Court we have gone through the judgments referred and relied by both the parties and are inclined to follow the view taken by Hon’ble courts on the issue in question before us favouring the assessee.

9. The Hon’ble High Court of Gujarat in the case of PCIT Vs. Desai Construction (supra) confirmed the view taken by the Tribunal upholding the contention of the assessee that as no incriminating material was found during the course of search which could have enabled the Assessing Officer to re-examine its claim for deduction u/s 80IB which was part of the assessment prior to the search and such assessment unabated. Similarly Hon’ble High Court of Bombay in the case of Continental Warehousing Corporation and All Cargo Global Logistics Ltd (Supra) confirmed the view taken by the Special Bench of I.T.A.T. Mumbai Bench decided in favour of assessee dismissing the revenue’s appeal holding that there was no incriminating material found during the course of search, the Tribunal was right in holding the power conferred u/s 153A 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”.

10. Similar view was also taken by the Hon’ble High Court of Delhi in the case of Kabul Chawla (2015) 61 taxmann 412.

11. We therefore in the given facts and circumstances of the case and respectfully following the judgments referred and relied by the Ld. Counsel for the assessee are of the considered view that no addition/disallowance was called for Assessment Year 2008-09 to 2010-11 as no incriminating material was found during the course of search at the premises of the assessee as the time limit of issuance of notice u/s 143(2) of the Act stood expired much before the date of conducting search u/s 132 of the Act. Accordingly all the three appeals of the assessee are allowed.”

24. In so far as the arguments of the Ld. D.R. in respect of following the ratio of the Hon’ble Supreme Court in the case of Vegetable Products (supra), the Ld. D.R. by relying on the decision in the case of CCV Dilip Kumar (supra) has submitted that the ratio laid down in the case of Vegetable Products (supra) cannot be applied. We find that in the case of CCV Dilip Kumar (supra) has considered the exemption provisions and held that exemption provisions has to be considered strictly and in a case of ambiguity view which favours the revenue must be adopted. Therefore, the above decision relied by the Ld. D.R. has no application to the ratio laid down by the Hon’ble Supreme Court in the case of Vegetable Products (supra). Therefore, argument of the Ld. D.R. is rejected.

25. In view of the above, the order passed by Ld. CIT(A) is reversed and the appeals filed by the assessee are allowed.

26. In the result, the appeals filed by the assessee in ITA Nos.277 to 281/Ind/2017 are allowed.

ITA Nos. 283 to 287/Ind/2017:

27. These appeals for assessment years 2009-10 to 2012-13 are concluded and non abate assessments. The A.O. has no time to issue notice u/s 143(2) of the Act and until and unless there is an incriminating material found during the course of search no addition can be made. Nowhere in the assessment order shows that additions are based on the incriminating material even in the order of the Ld. CIT(A). Additions are only made during the course of assessment proceedings by calling the assessee for various details such as books of accounts various documents and assessment was completed. Therefore once the assessments are concluded/non-abated, addition cannot be made unless there is an incriminating material found during the course of search. This legal aspect has already been considered by us in the above appeals in IT(SS)A No.277 to 281/Ind/2017. In view of our decision above the same is to apply in to to in all the other present appeals also. We therefore, in view of our decision in those appeals, the orders of the Ld. CIT(A) are reversed and the appeals filed by the assessee are allowed.

28. In the result, all the appeals filed by the different assesses are allowed for all the assessment years 2008-09 to 2012-13 in ITA Nos.277 to 281/Ind/2017 & 283 to 287/Ind/2017.

Order was pronounced in the open court on 28.02.2019.

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