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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI LAXMI PRASAD SAHU
Per Laxmi Prasad Sahu, Accountant Member These three appeals are against the DIN & Orders No.ITBA/APL/M/250/2021-22/1039097584(1), No.ITBA/APL/M/ 250/2021-22/1039097671(1), & No.ITBA/APL/M/250/2021- 22/1039097708(1) dated 27.1.2022 CIT(Appeals)-2, Panaji, for the AYs 2015-16 to 2017-18 involving similar issues and for the sake of brevity and convenience, they are disposed of together by this common order.
At the outset it is noticed that all the appeals are delayed by 483 days which has been explained by filing affidavit and ld. AR for the assessee requested for condonation of delay. After hearing both the parties and considering the reasons for delay, we are of the view that there is reasonable cause for the delay and following the judgment of the Hon'ble Apex Court in the case of Collector, Land Acquisition Vs. Mst. Katiji and Others (1987) 167 ITR 471, delay in filing the appeal is condoned.
The brief facts of the case are that the assessee filed income tax return u/s. 139(1) for all the 3 years. Search and seizure action was conducted u/s. 132 of the Act on 01.02.2017 in the business premises of Badagabettu Credit Co-operative Society Ltd., Udupi and documents were seized. In connection with this search, the residential premises of the assessee was also covered u/s. 132 on 01.02.2017 and documents seized. Consequent to the search , a survey u/s 133A was conducted in the M/s Himalaya Promoters and Developers on 01.02.2017 which is engaged in the construction of apartments. During the course of survey proceedings, voluminous evidences were unearthed related to the unaccounted investments over and above what is shown in the books, in the construction of a hotel complex in Udupi by M/s Grand De Himalaya Hotels & Resorts Pvt. Ltd. wherein the assessee is a director. A complete set of all the expenses incurred till date of survey was impounded as Annexed in a folder inventorised as A/HPD/02( page No. 1-259). The assessee was issued notice u/s. 153C of the Act dated 02.08.2018 and in response assessee filed return for all the three years, the details of income and tax paid by the assessee are as under:-
AY 2015-16 AY 2-16-17 AY 2017-18 Taxable income u/s. 139(1) 20,37,909 13,75,830 20,53,243 Income in revised return 20,37,909 - 1,65,36,001- Additional income offered during search 60,25,529 57,90,252 144,74,128 Income shown in return u/s. 153C 80,81,368 71,66,081 - Income assessed u/s. 143(3) r.w.s. 153C 80,81,368 71,66,081 165,36,001 Tax payable in 153C return after TDS 4,00,170 1,06,300 2,75,390 Tax assessed u/s. 143(3) rws 153C after 27,35,526 24,97,819 66,55,814 TDS (u/s 143(3) 4. During the assessment proceedings, the AO analyzed the statements recorded & documents seized during the search proceedings, he accepted the additional income offered by the assessee as unaccounted investment in M/s. Grand D Himalaya Hotels & Resorts Ltd. as under:-
Sl.No. AY Undisclosed income offered 1. 2015-16 60,25,529 2. 2016-17 57,90,252 3. 2017-18 1,44,74,128 TOTAL 2,62,89,909
5. The AO treated the additional income offered as unexplained investment u/s. 69 of the Act and applied section 115BBE and completed the assessment. Aggrieved, the assessee filed appeals before the CIT(Appeals), which were dismissed. Aggrieved, the assessee is in appeals before the Tribunal.
6. The assessee has filed several grounds of appeal. The assessee has also filed additional grounds as under:-
“1. The notice issued U/s 153C of the act is bad in law, on the facts and circumstances of the case.
2. The order passed under section 153C of the Act is bad in law as the appellant has been searched and the order if any ought to be passed under section 153A of the Act on the facts and circumstances of the case.
3. The authorities below failed to appreciate that it is settled position that "consent does not confer jurisdiction", on the facts and circumstances of the case.
Without prejudice and not conceding that there was no instance of unexplained investment and the reliance on the loose sheets were bad in law, the authorities below failed to appreciate the loans received through banking channels on the very same asset has not been considered, on the facts and circumstances of the case.
Without prejudice and not conceding that there was no unexplained investment by the appellant, the loose sheet was a mere projection and could not be considered as being spent, on the facts and circumstances of the case.
Without prejudice, it is submitted that there is no unexplained investment in the hand of appellant because asset was found in company books hence if there is addition to be made if any, it is in the hand of company and not in the hand of appellant 7. The appellant denies the liability to pay interest under section 234A, 234B and 234C of the Act in view of the fact that there is no liability to additional tax as determined by the learned Assessing Officer. Without prejudice the rate, period and on what quantum the interest has been levied are not in accordance with law and further are not discernible from the order and hence deserves to be cancelled on the facts and circumstances of the case.
8. The appellant craves leave to add, alter, modify, delete or substitute any or all of L the grounds at the time of hearing the appeal.
9. In the view of the above and other grounds that may be urged at the time of the hearing of the appeal, the Appellant prays that the appeal may be allowed and appropriate relief may be granted in the interest of justice and equity.” 7. The ld. AR submitted that these grounds do not involve any investigation of any facts otherwise on the record of the department and are also pure question of law. Therefore the additional grounds may kindly be admitted for the advancement of substantial cause of justice. Reliance is placed on the decision of the Hon'ble Apex Court in the case of National Thermal Power Company Limited Vs. CIT, reported in 229 ITR 383 and also on the ratio of the decision of the Hon'ble Karnataka High Court in the case of Gundathur Thimmappa & Sons Vs. CIT, reported in 70 ITR 70.
After hearing both the parties and considering the material on record, respectfully following the Hon’ble Supreme Court judgment in the case of M/s National Thermal Power Co. Ltd. Vs. CIT, 229 ITR 383 (SC), the additional grounds are admitted for adjudication.
During the course of hearing, the ld. AR first pressed the additional grounds No.3 & 8 and submitted that the AO has completed assessment on the defective return which is unsustainable in law. The assessee while filing the return in response to notice u/s. 153C calculated the tax and deducted TDS and thereafter there was some income-tax payable which was not paid by the assessee. Therefore, the return has to be treated as defective return u/s. 139(9) of the Act. In this regard, he has filed written synopsis as under:-
“ii. The appellant is preferring to argue the appeals on the limited ground of the return of income being defective and the recourse available to the assessing officer in processing a defective return of income. The remaining grounds of appeal may be deemed to be academic and not withdrawn, in the interest of justice and equity. iii. The appellant submits that the processing of a defective return as if it were a valid return is contrary to the provisions of section 139(9) of the act, which stipulates the manner in which the assessing officer is required to proceed in processing the return of income. iv. The appellant submits that the defect in the return shall be rectified by the assessee, upon intimation by the assessing officer and if the defect is not removed, the assessing officer shall treat the return as being invalid and then proceed to pass an order on best judgement. v. In the instant case the assessing officer has proceeded to pass an order stating that the returned income is accepted by listing the additional income offered and accepted the income, which is impermissible in law. vi. The assessing officer may utilise the information from the return of income and make additions to income as he deems fit. The processing of the return of income as though the return of income was a valid return, by obtaining the sanction of the Joint Commissioner of Income Tax, as stated in the order of assessment is patently erroneous and is required to be set aside as bad in law. vii. The appellant has placed reliance upon the parity of reasoning on the following decisions at the time of the hearing to buttress his contention that the defective return of income could not be processed by the assessing officer, unless it was by way of an order of best judgement U/s 144 of the act and section 292B of the Act, would not assist the revenue on the presumption that the appellant has provided consent , by participating in the assessment proceedings. a) CIT — I, Chandigarh v Harjinder Kaur, [2009] 310 ITR 71 (Punjab & Haryana) — (Para — 5) b) CIT, AP-1, Hyderabad v Bake food Products (P) Ltd, [2013] 356 ITR 690 (AP) — (Para —12 to 15) c) Durgapur Passengers Carriers Association v ITO, [2023] 150 Taxmann.com 171 (Kolkata — Trib), in dt: 20/04/2023 (Para -9) viii. In view of the above, the appellant prays that your honours hold that the return of income filed for the AY 2015-16, 2016-17 and 2017-18, without payment of taxes was defective and the order of assessment passed U/s 143(3) r.w.s 153C of the Act, is null and void. It is prayed accordingly.”
The ld. AR further submitted that for AYs 2015-16 & 2016-17, notice issued by the AO u/s. 153C is itself wrong because search was conducted u/s. 132 in the case of assessee premises and in business premises of Badagabettu Credit Co-operative Society Ltd., Udupi and there was no incriminating material recorded by the AO while framing the assessment. The AO has made addition only on the basis of search statement of the assessee on the basis of material found during the survey u/s. 133A in the case of Himalaya Promoters and Developers on 1.2.2017. It clearly shows that no incriminating material was found during the course of search in business premises of Badagabettu Credit Co-operative Society Ltd., Udupi and no satisfaction has been recorded because the assessee asked the AO for the satisfaction note, but the AO did not provide it to the assessee. He further submitted that the while issuing notice u/s. 153C, the AO has not granted 15 days time for filing the return and as per judgment of Hon’ble High Court of Karnataka in the case of CIT v. Micro Labs Ltd. 28 taxmann.com 89 (Kar) at Para 14, minimum 15 to 45 days time should be provided to the assessee for filing return of income. Therefore the notice issued is wrong and there was no proper jurisdiction assumed by the AO for making assessment, therefore the entire assessment is null and void.
The ld. AR further submitted that for AY 2017-18, AO has issued notice on 31.07.2018 as compulsory manual selection u/s. 143(2). Later on, another notice No. ITBA/AST/S/143(2)/2018- 19/1010914328(1) dated 09.08.2018 u/s. 143(2) under CASS was issued to the assessee for limited scrutiny of : (i) Cash deposit during the year, and (ii) Cash withdrawals. Thereafter notice No. ITBA/AST/F/142(1)/2018-19/1011927080(1) dated 04.09.2018 u/s. 142(1) was issued. Again on 27.09.2018, notice No. ITBA/AST/S/143(2) 1/2018-19/1012625912(1) u/s. 143(2) was issued for the same AY 2017-18 against the return filed on 07.11.2017 under CASS. The revenue has issued 3 notices for an assessment year on the return filed on 07.11.2017. The assessee filed return u/s. 139(1) & 139(5) and AO has completed the assessment only on the basis of declaration made by the assessee during the course of search and seizure survey action leaving the notice u/s. 143(2) dated 09.08.2018 for limited scrutiny. Even in the questionnaire issued u/s. 142(1) on 04.09.2018, the AO has not asked any question about the subject matter of limited scrutiny. If the AO wanted to convert the limited scrutiny to full scrutiny, he should have obtained requisite approval from the competent authority. He further argued that the revised return filed on 12.09.2018 has not been considered by the AO for issuing notice u/s. 143(2) also. The ld. AR further submitted out of the three notices issued to the assessee which is favorable to the assessee, only the notice dated 09.08.2019 should be considered as a valid notice and other notices should be treated as non-est.
The ld. DR relied on the orders of the lower authorities and submitted that the AO completed the assessment on the basis of documents found during the course of search as well as survey proceedings and additional income was offered by the assessee, which was retracted before the CIT(Appeals) and the ld. CIT(Appeals) has rightly dealt with the issue. The ld. DR further submitted that the AO has completed the assessment u/s. 153C on the basis of material found during the survey proceedings of other business organization for the AY 2015-16 & 2016-17and for AY 2017-18 the AO has completed the assessment u/s. 143(3) and for all the years, the AO has taken the difference of investments made by the assessee into the partnership firm which is within the purview of law.
Considering the rival submissions, we note that the assessee has filed return of income u/s. 139(1) and has also filed return in pursuance to notice u/s. 153C showing tax payable after adjusting TDS on the total tax payable. The assessee also filed revised return for the two years as per the above table. Accordingly, AO completed the assessments. The ld. AR contested before us that the return filed by the assessee is defective and the assessment made on the defective return cannot be sustained. On going through the details of return and tax payable given in the Table at para 3 (supra), it is noticed that the assessee has not paid the entire tax which was due as per the calculation made by the assessee himself.
Section 140A of the Act reads as under:-
140A. (1) Where any tax is payable on the basis of any return required to be furnished under section 115WD or section 115WH or section 139 or section 142 or section 148 or section 153A or, as the case may be, section 158BC, after taking into account,— (i) the amount of tax, if any, already paid under any provision of this Act; (ii) any tax deducted or collected at source; (iii) any relief of tax or deduction of tax claimed under section 90 or section 91 on account of tax paid in a country outside India; (iv) any relief of tax claimed under section 90A on account of tax paid in any specified territory outside India referred to in that section; and (v) any tax credit claimed to be set off in accordance with the provisions of section 115JAA or section 115JD, the assessee shall be liable to pay such tax together with interest payable under any provision of this Act for any delay in furnishing the return or any default or delay in payment of advance tax, before furnishing the return and the return shall be accompanied by proof of payment of such tax and interest76. Explanation.—Where the amount paid by the assessee under this sub-section falls short of the aggregate of the tax and interest as aforesaid, the amount so paid shall first be adjusted towards the interest payable as aforesaid and the balance, if any, shall be adjusted towards the tax payable.
The assessee has filed return u/s. 153C and as per the above provisions of section 140A, therefore he is not required to pay entire tax before filing return of income.
Further, section 139(9) of the Act is as under:-
“139(9) Where the Assessing Officer considers that the return of income furnished by the assessee is defective, he may intimate the defect to the assessee and give him an opportunity to rectify the defect within a period of fifteen days from the date of such intimation or within such further period which, on an application made in this behalf, the Assessing Officer may, in his discretion, allow; and if the defect is not rectified within the said period of fifteen days or, as the case may be, the further period so allowed, then, notwithstanding anything contained in any other provision of this Act, the return shall be treated as an invalid return and the provisions of this Act shall apply as if the assessee had failed to furnish the return : Provided that where the assessee rectifies the defect after the expiry of the said period of fifteen days or the further period allowed, but before the assessment is made, the Assessing Officer may condone the delay and treat the return as a valid return. Explanation.—For the purposes of this sub-section, a return of income shall be regarded as defective unless all the following conditions are fulfilled, namely :— 62-63(a) the annexures, statements and columns in the return of income relating to computation of income chargeable under each head of income, computation of gross total income and total income have been duly filled in; (aa) [***] 62-63(b) the return is accompanied by a statement showing the computation of the tax payable on the basis of the return; (bb) 62-63the return is accompanied by the report of the audit referred to in section 44AB, or, where the report has been furnished prior to the furnishing of the return, by a copy of such report together with proof of furnishing the report; (c) 62-63the return is accompanied by proof of— (i) the tax, if any, claimed to have been deducted or collected at source and the advance tax and tax on self-assessment, if any, claimed to have been paid : Provided that where the return is not accompanied by proof of the tax, if any, claimed to have been deducted or collected at source, the return of income shall not be regarded as defective if— (a) a certificate for tax deducted or collected was not furnished under section 203 or section 206C to the person furnishing his return of income; (b) such certificate is produced within a period of two years specified under sub-section (14) of section 155; (ii) the amount of compulsory deposit, if any, claimed to have been made under the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 (38 of 1974*); 64[(ca) the return is accompanied by the proof of payment of tax as required under section 140B, if the return of income is a return furnished under sub-section (8A);] (d) where regular books of account are maintained by the assessee, the return is accompanied by copies of— (i) manufacturing account, trading account, profit and loss account or, as the case may be, income and expenditure account or any other similar account and balance sheet; (ii) in the case of a proprietary business or profession, the personal account of the proprietor; in the case of a firm, association of persons or body of individuals, personal accounts of the partners or members; and in the case of a partner or member of a firm, association of persons or body of individuals, also his personal account in the firm, association of persons or body of individuals; (e) where the accounts of the assessee have been audited, the return is accompanied by copies of the audited profit and loss account and balance sheet and the auditor's report and, where an audit of cost accounts of the assessee has been conducted, under section 233B65 of the Companies Act, 1956 (1 of 1956), also the report under that section; (f) where regular books of account are not maintained by the assessee, the return is accompanied by a statement indicating the amounts of turnover or, as the case may be, gross receipts, gross profit, expenses and net profit of the business or profession and the basis on which such amounts have been computed, and also disclosing the amounts of total sundry debtors, sundry creditors, stock-in-trade and cash balance as at the end of the previous year: 66[Provided that the Board may, by notification in the Official Gazette, specify that any of the conditions specified in clauses (a) to (f) to the Explanation shall not apply to such class of assessees or shall apply with such modifications, as may be specified in such notification.]”
It is clear from the above section that first the AO has to consider the return as defective and then he will have to issue notice for removing the defect. The assessee cannot himself claim that the return filed by him is defective. Therefore, the arguments advanced by the assessee in this regard are rejected.
The ld. AR raised the issue that the AO has not allowed the period of 15 days for filing return of income in the light of the judgment of the Hon’ble High Court of Karnataka in the case of Micro Labs Ltd. (supra). This argument is not sustainable because there is specific provision in section 158BC of the Act for issuing notice and time of 15 days shall be granted to the assessee for filing return of income, but in section 153A/153C of the Act, there is no such minimum time requirement under the Act for allowing time to the assessee for filing return of income. Section 153A(1)(a) of the Act states as under:-
153A. (1)] Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall— (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made : Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years: Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this sub-section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate : Provided also that the Central Government may by rules8 made by it and published in the Official Gazette (except in cases where any assessment or reassessment has abated under the second proviso), specify the class or classes of cases in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made. (2) If any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the 9[Principal Commissioner or Commissioner: Provided that such revival shall cease to have effect, if such order of annulment is set aside. Explanation.—For the removal of doubts, it is hereby declared that,— (i) save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to the assessment made under this section; (ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year.
From the above section, it is clear that there is no specified time prescribed to be allowed to assessee in the notice u/s. 153A of the Act for filing return of income. Therefore, the judgment relied on by the assessee in the case of Micro Labs Ltd. (supra) is not applicable to the present case. Therefore, this argument of the assessee fails.
The next argument of the assessee is that the notice has been issued u/s. 153C and assessment completed is without valid jurisdiction. We note that notice for AY 2015-16 was issued on 02.08.2018 vide No.ITBA/AST/S/153C/2018-19/1010758880(1) dated 02.08.2018 and for AY 2016-17 vide notice No.ITBA/AST/ S/153C/2018-19/1010758883(1) dated 02.08.2018 respectively u/s. 153C of the Act. In the peculiar case of the assessee, the search was conducted on 01.02.2017 at the business premises of Badagabettu Credit Co-op. Society Ltd., Udupi and search was also conducted at assessee’s residential premises and statements were recorded u/s. 132(4) of the Act. Simultaneously on the same day, survey proceedings u/s. 133A took place at the business premises of partnership firm, Himalaya Promoters & Developers, Udupi. Notice was issued to the assessee u/s. 153C of the Act and the assessee filed return in response. During the course of statement recorded in pursuance of search, the assessee offered additional undisclosed income of Rs.2,62,89,909 for all the three assessment years which has been considered by the AO in his assessment order and no further addition is made, except the return filed in response to notice u/s. 153C of the Act by the assessee. It clearly shows that there is no incriminating material found during the search in Badagabettu Credit Co-operative Society Ltd., Udupi. During the assessment proceedings, the assessee asked for satisfaction recorded by the AO before issuing notice u/s. 153C, but the AO did not provide the satisfaction note to the assessee. It clearly shows that there was no incriminating material on the basis of which notice u/s. 153C is issued. The separate Panchanama must have been drawn in case of search & seizure operation in the name of the assessee.
The additions made by the AO are only on the basis of statements recorded during the course of search proceedings in the case of the assessee, therefore, the AO should have issued notice after the search conducted in the case of the assessee u/s. 153A instead of notice u/s. 153C of the Act. In view of this, the AO has completed the assessment without jurisdiction for want of valid notice. Therefore the assessment framed for AYs 2015-16 & 2016-17 has no legs to stand. Accordingly, the appeals of the assessee for these two assessment years are allowed on the legal issue.
For the AY 2017-18, we note from pages 203 to 237 of PB, that the assessee has been issued three notices on three different dates i.e., on 31.07.2018, 09.08.2018 and 27.09.2018 on the return filed by the assessee bearing Acknowledgement No.296410511071117 dated 07.11.2017. The first notice was issued manually and the other two notices were issued under CASS. Notice dated 09.08.2019 was for limited scrutiny of (i) Cash deposits during the year, & (ii) cash withdrawals only; and in other notices, there is no reason of selection of scrutiny. Considering the notice issued u/s. 143(2) through CASS dated 09.08.2018 for limited scrutiny, on going through the assessment order, we note that the AO has not considered these two points of limited scrutiny for making addition. The AO has accepted the income offered by the assessee on the basis of search statement. If the AO wanted to travel beyond the limited scrutiny, he should have obtained permission from higher authorities for converting the limited scrutiny into full scrutiny as per CBDT guidelines/notifications in this matter. Further the arguments made by the ld. AR of the assessee is that the after filling of the revised return no notice u/s 143(2) has been issued to the assessee is not sustainable, there is no need to issue separate 143(2) notice on the basis of revised return filed by the assessee if the AO has issued notice earlier and our this view is supported by the judgement of Hon’ble Delhi High Court in the case of Vinod Kumar Khatri vs. DCIT in dated 23.11.2015. On further perusal of the revised computation of income placed at pages 135 to 140 of PB, and further at page 136 of PB, we note that the assessee has offered income of Rs.1,62,65,593 including the additional income offered during the search of Rs.1,44,74,128 under the head profit & gains of business or profession. Since we have considered the notice u/s. 143(2) dated 09.08.2018 and the AO has not made any addition on the issue of limited scrutiny, therefore, this income has to be considered under the business income as offered by the assessee and should not be treated as undisclosed income u/s. 69. Accordingly, we hold that tax should be computed as per revised return filed by the assessee. shall be accepted and tax should be computed accordingly.
The grounds for all the assessment years which were not argued by the assessee are left open.
In the result, the appeals of the assessee are partly allowed. A common order passed shall be kept in respective case files.
Pronounced in the open court on this 22nd day of September, 2023.