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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI S. RIFAUR RAHMAN & SHRI SANDEEP SINGH KARHAIL
The captioned cross appeals for the assessment year 2015–16, has challenged the separate orders of even date 29/03/2019, passed under section 250 of the Income Tax Act, 1961 ("the Act") by the learned Commissioner of Income Tax (Appeals)–51, Mumbai, [“learned CIT(A)”], which in turn arose from the assessment order passed under section 153C r/w section 143(3) of the Act.
The assessees in the present batch of cross appeals are doctors by profession and directors of M/s Malpani Infertility Clinic Private Limited. Since pursuant to the search/survey action conducted on 26/11/2015 in the case of M/s Malpani Infertility Clinic Private Limited, proceedings under section 153C Page | 2
Smt. Anjali A. Malpani Shri Aniruddha N. Malpani A.Y. 2015–16 of the Act were initiated in case of the present assessees, therefore, these cross appeals were taken for hearing together as they involve identical issues arising from the common factual matrix and are, thus, being disposed of by way of the present consolidated order. With the consent of the parties, the cross appeal in the case of Shri Aniruddha N. Malpani is taken up as the lead case, and the decision rendered therein shall apply mutatis mutandis to the cross appeal in the case of Smt. Anjali A. Malpani.
./2019 - Shri Aniruddha N. Malpani Assessee’s Appeal – A.Y. 2015–16
In this appeal, the assessee has raised following grounds:–
“Being aggrieved by the order of the Learned Commissioner of Income-tax Appeals - 51, Mumbai, ('Ld. CIT(A)) this appeal petition is being submitted on the following grounds , which it is prayed may be considered independently without prejudice to one another.
1. In the facts and the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the Ld. AO in initiating the proceedings under section 153C of the Income-tax Act, 1961, without satisfying the conditions laid down therein. 1.1. Without prejudice to the above, the Ld. CIT(A) erred in stating that the assessee is convinced that there is no infirmity in the notice issued under section 153C of the Act.
2. In the facts and the circumstances of the case and in law, the Ld. CIT(A) erred in not treating the proceedings under section 153C as well as the order under section 143(3) r.w.s. 153C as bad in law and thereby not quashing it.
3. In the facts and the circumstances of the case and in law, the Ld. CIT(A) erred in not accepting the argument that no additions could have been made to the income of the assessee as no incriminating material pertaining to the assessee was found during the course of search. 3.1. Without prejudice to the above, the Ld. CIT(A) erred in stating that incriminating statements are also incriminating material without pointing out as to what statement of the assessee was incriminating or adverse qua the additions made during the year under consideration.
4. In the facts and the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the Ld. AO in treating the short term capital Page | 3 Smt. Anjali A. Malpani Shri Aniruddha N. Malpani A.Y. 2015–16 gain of Rs. 2,06,55,197 /- as business income. The reasons given in this regard are patently erroneous and unjustified. 4.1. Without prejudice to the above, the Ld. CIT(A) has erred in relying upon certain judgments of the Courts without putting it to the assessee and which are in fact, not applicable to facts of the present case. 4.2. Without prejudice to the above, the Ld. CIT(A) has erred in not allowing deductions of various expenditure incurred like, portfolio management charges, STT and other expenses as deduction while computing the business income.
5. The Ld. CIT(A) erred in upholding the levy of interest under section 234B and 234C of the Act.
6. The Ld. CIT(A) erred in not setting aside the action of the Ld. AO in initiating penalty proceedings under section 271(1)(c) of the Act.
7. The appellant craves leave to add, to amend, alter/delete and/or modify the above grounds of appeal on or before the final hearing.”
4. The brief facts of the case as emanating from the record are: The assessee is a doctor by profession. For the year under consideration, the assessee originally filed its return of income on 31/08/2015 declaring a total income of Rs.3,98,26,750. A search action under section 132 of the Act was carried out at the premises of M/s Malpani Infertility Clinic Private Limited. During the course of search proceedings, jewellery was found from the residential premises and locker of the directors of M/s Malpani Infertility Clinic Private Limited i.e the assessee and his wife (Smt. Anjali A. Malpani). Since the jewellery belongs to a person other than the person referred to in section 153A of the Act, proceedings under section 153C of the Act were initiated, inter-alia, in the case of the assessee. Further, notice under section 153C dated 03/10/2017 was issued and served on the assessee. In response to the aforesaid notice, the assessee filed a letter and requested that the return originally filed be treated as a return filed in response to notice issued under section 153C of the Act. Thereafter, statutory notices under sections 143(2)
Smt. Anjali A. Malpani Shri Aniruddha N. Malpani A.Y. 2015–16 and 142(1) along with a detailed questionnaire were issued and duly served on the assessee. On the basis of post-search proceedings, it was found that the assessee had short-term capital gain and long-term capital gain of Rs.2,06,55,197 and Rs.14,91,25,820, respectively, in the year under consideration. Accordingly, the assessee was asked to show cause as to why the short-term capital gain and long-term capital gain from share transactions should not be considered as business income. In response thereto, the assessee filed detailed submissions. The Assessing Officer (‘AO’) vide order dated 27/12/2017 passed under section 153C r/w section 143(3) of the Act treated the short-term capital gain and long-term capital gain as business income of the assessee and determined the total income at Rs.19,19,37,040.
In its appeal before the learned CIT(A), the assessee challenged the assessment order both on jurisdictional grounds as well as on the merits of the case. The learned CIT(A) vide impugned order, inter-alia, dismissed the appeal filed by the assessee and held that the assessment for the relevant year was an abated assessment, which could be disturbed even without the basis of incriminating material unearthed during the course of search. The relevant findings of the learned CIT(A), in this regard, are as under:
“6.2 Since the assessee had challenged the validity of the assessment completed under section 143(3) r.w.s. 153C on the ground that no incriminating material was unearthed at the time of the search action the matter was remanded to the AO vide this office letter dated 10.11.2018 for necessary clarification Moreover, the AO was also directed to inform as to whether the relevant search related assessments were abated assessments or non-abated assessments This information was sought since in respect of abated assessments additions/disallowances can also be made in respect of issues which are not backed with incriminating material unearthed at the time of search action. In response, the AO submitted a remand report vide letter dated 20 12 2018 In the said remand report, the AO informed that in the case of the assessee, his claim of Long Term Capital Gain on sale of Pune plot was Page | 5
Smt. Anjali A. Malpani Shri Aniruddha N. Malpani A.Y. 2015–16 examined in the post-search investigations prior to lifting of the last prohibitory order. It was further informed that such post-search investigations were also carried out in respect of the assessee's claim of Short Term Capital Gains and exempt Long Term Capital Gains on sale of shares. These investigations were initiated on the basis of incriminating material unearthed at the time of the search action. Accordingly, the AO in the remand report submitted that the contention of the assessee that the said additions were made without the basis of any incriminating material unearthed at the time of the search action, is not correct. In the rejoinder to the remand report, the assessee submitted that the issues of Long Term Capital Gain on sale of Pune plot, Capital Gains on sale of shares etc. were examined after the conclusion of the search action which cannot be said that to be incriminating material unearthed at the time of the search action. It was further submitted that in the assessment order there is no reference to any incriminatingmaterial while making the said additions/disallowances. 6.3 I have considered the submissions and contentions of the appellant as well as the assessment order of the AO. The assessee submits that the assessment for the relevant year had already attained finality and was a non-abated assessment. Therefore, the assessee contends that the assessment for the relevant year could not have been disturbed by the AO in absence of incriminating material as held by the jurisdictional High in the case of All Cargo Global Logistics Ltd (I.T. appeal No. 1969 of 2013). 6.4 The detailed submissions/contentions of the assessee have been duly considered. On the issue as to whether the assessments which have attained finality can be disturbed in absence of seized material there are a number of decisions where this issue has been examined by the Hon’ble Courts which includes the decisions of the jurisdictional High Court in the cases of Continental Warehousing Corpn. (NhavaSheva Ltd.) (58) taxmann. com 78) and Murli Agro Products (49 taxmann.com 172), decisions of the Hon'ble Delhi High Court in the cases of Anil Kumar Bhatia (352 ITR 493) and Chetandas Lachmandas (211 taxmann.com 61) and Hon'ble Karnataka High Court in the case of Canara Housing Development Co. (49 taxmann.com 98). After analyzing all such decisions on the said issue, the Hon'ble Delhi High Court in the case of Kabul Chawla (61 taxmann.com 412), has summarized the legal position that emerges as under:- i. Once a search takes place under section 132 of the Act, notice under section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six A. Ys. 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 A Ys will have to be computed by theAOS 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 Page | 6
Smt. Anjali A. Malpani Shri Aniruddha N. Malpani A.Y. 2015–16 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 153A/C does not say that additions should be strictly made on the basis of evidence found in the course of 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 section only on the basis of seized material. v. In absence of any incriminating material, the completed assessmentcan he reiterated and the abated assessment or reassessment can be made. The word 'assess' in section 153A/C is relatable to abated proceedings (i.e.those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. In so far as pending assessments are concerned, the jurisdiction tomake the original assessment and the assessment under section 153A/C 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 153A/C 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. 6.5 From the aforesaid, it can be observed that a non-abated assessment can be interfered with by the AO while making assessment under section 143(3) r.w.s. 153A/C only on the basis of some incriminating material unearthed during the search action. Therefore, in principle, the contention of the assessee is acceptable that a non-abated assessment can only be disturbed on the basis of incriminating material unearthed during the search action. In the instant case, the return of income for the relevant year was filed on 31.08.2015 and the time limit for selecting the case for scrutiny by issue of notice under section.143(2) had not lapsed. Therefore, the assessment for the relevant year was an abated assessment which could be disturbed even without the basis of incriminating material unearthed. Accordingly, Ground No. 4 of the appeal is dismissed.”
Being aggrieved, the assessee is in appeal before us.
Smt. Anjali A. Malpani Shri Aniruddha N. Malpani A.Y. 2015–16 6. During the hearing, the learned Authorised Representative (“learned AR”) submitted that in the assessment order, the short-term capital gain and long-term capital gain declared by the assessee were treated as business income and the said addition was not based on any incriminating material found during the course of search. The learned AR by referring to the provision of section 153C of the Act submitted that since on the date of recording of satisfaction under section 153C of the Act, no assessment proceedings were pending, therefore, the year under consideration is an unabated year and no addition can be made in absence of any incriminating material. The learned AR placed reliance upon the decision of the Hon’ble jurisdictional High Court in CIT Vs. Continental Warehousing Corporation (Nhava Sheva) Ltd., (2015) 374 ITR 645 (Bom.), wherein it was held that no addition can be made in respect of assessments which have become final if no incriminating material is found during the search pertaining to the same.
On the contrary, the learned Departmental Representative (“learned DR”) by vehemently relying upon the orders passed by the lower authorities submitted that search action cannot be said to be over till the last prohibitory order is issued. The learned DR submitted that the assessee’s claim of long- term capital gain on the sale of the Pune plot was examined in the aforesaid investigation prior to the lifting of the last prohibitory order and thus incriminating material was unearthed during the search proceedings. In his short rebuttal, the learned AR submitted that long-term capital gain on the sale of the Pune plot was in respect of the assessment year 2013-14 and therefore the same is not relevant for the year under consideration and in any Smt. Anjali A. Malpani Shri Aniruddha N. Malpani A.Y. 2015–16 case, no addition has been made in respect of the gain arising from the sale of aforesaid Pune plot.
We have considered the rival submission and perused the material available on record. As noted above, pursuant to the search/survey action conducted on 26/11/2015, in the case of M/s Malpani Infertility Clinic Private Limited, wherein the assessee along with his wife are directors, proceedings under section 153C of the Act were initiated. As per the satisfaction note dated 03/10/2017 for passing of information for issuance of notice under section 153C of the Act, forming part of the paper book on page no.1, it is evident that during the aforesaid search proceedings, jewellery from the residential premises and locker in the name of assessee and his wife was found. Since the jewellery found during the course of the search belongs to a person other than the person referred to in section 153A of the Act, therefore, the above information was passed on to the AO of the assessee as per the provision of section 153C of the Act. In the facts of the present case, the AO of the searched entity, as well as the assessee, is the same. Thus, notice under section 153C of the Act was issued to the assessee on the same date i.e. on 03/10/2017. It is the plea of the assessee that since the year under consideration is an unabated year, therefore, no addition could have been made in absence of incriminating material found during the course of the search.
Before proceeding further, it is pertinent to consider the relevant provisions of the Act for deciding this plea. As per section 153C of the Act, where the AO is satisfied that any money, bullion, jewellery or other valuable Page | 9
Smt. Anjali A. Malpani Shri Aniruddha N. Malpani A.Y. 2015–16 article or thing, books of accounts or documents, etc., seized or requisitioned, during the course of the search, belongs to a person other than the person referred to in section 153A, then such books of account or documents or assets, seized or requisitioned, shall be handed over to the AO having jurisdiction over such other person after recording the satisfaction that such books of accounts or documents or assets shall have a bearing on the determination of the total income of such person. As per the second proviso to section 153A(1) of the Act, any assessment or reassessment pending on the date of initiation of the search under section 132 of the Act or making of requisition under section 132A of the Act shall abate. In case of proceedings under section 153C of the Act, such a date is the date on which the books of account or documents or assets, seized or requisitioned, are received from the AO of searched person, as per the first proviso to section 153C(1) of the Act.
As noted above, in the present case, the satisfaction under section 153C of the Act was recorded by the AO of the searched entity on 03/10/2017 and on the very same date notice under section 153C of the Act was issued to the assessee, therefore, the cut-off date for the purpose of the first proviso to section 153C(1) r/w second proviso to section 153A(1) of the Act is undoubtedly on 03/10/2017. In the present case, it is an admitted fact that the assessee filed its return of income on 31/08/2015. Further, the time period for issuing notice under section 143(2) was also available till 30/09/2016, being six months from the end of the financial year in which the return was furnished. Since no proceedings under section 143(2) of the Act were initiated, therefore, the scrutiny proceedings for the year under consideration were Smt. Anjali A. Malpani Shri Aniruddha N. Malpani A.Y. 2015–16 already time-barred when the satisfaction note was recorded on 03/10/2017. As there was no pending assessment proceeding, which could have abated on 03/10/2017, therefore, the assessment year under consideration is an unabated year.
Therefore, now it needs to be examined whether there was any incriminating material found during the course of the search, which lead to the addition made in the assessment order. In the present case, the AO passed the assessment order assessing the total income of the assessee at Rs.19,19,37,040, after treating the short-term capital gain and long-term capital gain earned by the assessee during the year as business income. As noted above, in the satisfaction note recorded under section 153C of the Act, it is mentioned that during the course of search proceedings, jewellery was found from the residential premises and locker of the assessee and his wife, consequent to which proceedings under section 153C of the Act was initiated, inter-alia, in the case of the assessee. However, it is evident from the record that no addition was made in the hands of the assessee in respect of the jewellery found/seized during the course of the aforesaid search. Thus, the addition made vide order passed under section 153C r/w section 143(3) of the Act is not based on any incriminating material found during the course of the search, rather the same is apparently after going through the material i.e. return of income and computation of income, already available on record. The said fact is also evident from the perusal of the remand report dated 20/12/2018 filed by the AO before the learned CIT(A), forming part of the paper book from pages no. 158-165, wherein the AO has mentioned that Smt. Anjali A. Malpani Shri Aniruddha N. Malpani A.Y. 2015–16 during the course of the post-search investigation, it was found that the assessee has short-term capital gain and long-term capital gain. There is no mention of any incriminating material found during the search and rather reliance is placed on CBDT guidelines to support the conclusion that the same is in the nature of business income. As regards the other comments from the appraisal report, which are mentioned in the remand report, we find that either the same do not pertain to the year under consideration or no addition has been made in the assessment order in the hands of the assessee. The existence of any incriminating material is also not evident from the perusal of the assessment order. Thus, in view of the above findings and respectfully following the decision of the Hon’ble jurisdictional High Court in Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra), in absence of any incriminating material in the present case, we direct the AO to delete the addition made in the assessment order passed under section 153C r/w section 143(3) of the Act. As a result, grounds no. 3 and 3.1, raised in assessee’s appeal are allowed.
Grounds no. 1, 1.1, and 2 were not pressed during the course of the hearing. Therefore, these grounds are dismissed as not pressed.
Grounds no. 4, 4.1, and 4.2 are rendered infructuous, in view of our findings in respect of grounds no. 3 and 3.1.
Ground no.5, raised in assessee’s appeal, is pertaining to the levy of interest under sections 234B and 234C of the Act, which is consequential in nature. Therefore, ground no.5 is allowed for statistical purposes.
Smt. Anjali A. Malpani Shri Aniruddha N. Malpani A.Y. 2015–16
Ground no.6 is pertaining to the initiation of penalty proceedings, which is premature in nature and therefore is dismissed.
In the result, the appeal by the assessee is partly allowed for statistical purposes. ./2019 - Shri Aniruddha N. Malpani Revenue’s Appeal – A.Y. 2015–16
In its appeal, the Revenue has raised the following grounds:–
“On the facts and circumstances of the case and in the law, the Ld CIT(A) erred in holding the gain from sales of shares and securities which were held for more than a year as Long term capital gain instead of business income by relying on the CBDT circular No 06/2016 dated 29.02.2016 even though the AO, in the assessment order, had clearly pointed out that the above circular is not applicable in assessee's case.”
In view of our findings rendered in assessee’s appeal, the question of taxability of income as long-term/short-term capital gain or business income is rendered infructuous. Accordingly, the sole ground raised by the Revenue is dismissed.
In the result, the appeal by the Revenue is dismissed. ./2019 - Smt. Anjali A. Malpani Assessee’s Appeal – A.Y. 2015–16
In its appeal, the assessee has raised the following grounds:–
“Being aggrieved by the order of the Learned Commissioner of Income-tax Appeals - 51, Mumbai, ('Ld. CIT(A)') this appeal petition is being submitted on the following grounds, which it is prayed may be considered independently without prejudice to one another.
Smt. Anjali A. Malpani Shri Aniruddha N. Malpani A.Y. 2015–16 1. In the facts and the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the Ld. AO in initiating the proceedings under section 153C of the Income-tax Act, 1961, without satisfying the conditions laid down therein. 1.1. Without prejudice to the above, the Ld. CIT(A) erred in stating that the assessee is convinced that there is no infirmity in the notice issued under section 153C of the Act.
2. In the facts and the circumstances of the case and in law, the Ld. CIT(A) erred in not treating the proceedings under section 153C as well as the order under section 143(3) r.w.s. 153C as bad in law and thereby not quashing it.
3. In the facts and the circumstances of the case and in law, the Ld. CIT(A) erred in not accepting the argument that no additions could have been made to the income of the assessee as no incriminating material pertaining to the assessee was found during the course of search.
In the facts and the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the Ld. AO in treating the short term capital gain of Rs. 4,32,03,384/- as business income. The reasons given in this regard are patently erroneous and unjustified. 4.1. Without prejudice to the above, the Ld. CIT(A) has erred in relying upon certain judgments of the Courts without putting it to the assessee and which are in fact, not applicable to facts of the present case. 4.2. Without prejudice to the above, the Ld. CIT(A) has erred in not allowing deductions of various expenditure incurred like, portfolio management charges, STT and other expenses as deduction while computing the business income.
5. The Ld. CIT(A) erred in upholding the levy of interest under section 234B and 234C of the Act.
The Ld. CIT(A) erred in not setting aside the action of the Ld. AO in initiating penalty proceedings under section 271(1)(c) of the Act.
7. The appellant craves leave to add, to amend, alter/delete and/or modify the above grounds of appeal on or before the final hearing.”
21. In the hands of Smt. Anjali A. Malpani, the addition was made by the AO on an identical factual basis and even the satisfaction note dated 03/10/2017 is also identically worded, therefore, in absence of any incriminating material found during the course of the search, the AO is directed to delete the addition made in the assessment order passed under section 153C r/w section 143(3) of the Act, in view of the decision of the Hon’ble jurisdictional High Court in Smt. Anjali A. Malpani Shri Aniruddha N. Malpani A.Y. 2015–16 Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra). As a result, ground no. 3, raised in assessee’s appeal is allowed.
22. Grounds no. 1, 1.1, and 2 were not pressed during the course of the hearing. Therefore, these grounds are dismissed as not pressed.
23. Grounds no. 4, 4.1, and 4.2 are rendered infructuous, in view of our findings in respect of ground no. 3.
24. Ground no.5, raised in assessee’s appeal, is pertaining to the levy of interest under sections 234B and 234C of the Act, which is consequential in nature. Therefore, ground no.5 is allowed for statistical purposes.
25. Ground no.6 is pertaining to the initiation of penalty proceedings, which is premature in nature and therefore is dismissed.
In the result, the appeal by the assessee is partly allowed for statistical purposes. ./2019 Revenue’s Appeal – A.Y. 2015–16
In its appeal, the Revenue has raised following grounds:–
“On the facts and circumstances of the case and in the law, the Ld CIT(A) erred in holding the gain from sales of shares and securities which were held for more than a year as Long term capital gain instead of business income by relying on the CBDT circular no.06/2016 dated 29.02.2016 even though the AO, in the assessment order, had clearly pointed out that the above circular is not applicable in assessee's case.”
In view of our findings rendered in assessee’s appeal, the question of taxability of income as long-term/short-term capital gain or business income is Page | 15
Smt. Anjali A. Malpani Shri Aniruddha N. Malpani A.Y. 2015–16 rendered infructuous. Accordingly, the sole ground raised by the Revenue is dismissed.
In the result, the appeal by the Revenue is dismissed.
To sum up, the appeal by both assessees are partly allowed for statistical purposes, while the Revenue’s appeals are dismissed. Order pronounced in the open Court on 24/01/2023.