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Facts
A search and seizure operation was conducted, leading to notices under Section 153A of the Income Tax Act. The Assessing Officer disallowed exemption claimed under Section 54F of the Act. The CIT(A) allowed the appeals, holding that the assessees were entitled to the exemption.
Held
The Tribunal held that additions made by the AO under Section 153A are beyond jurisdiction and cannot be sustained if not based on incriminating material found during search, especially for completed assessments. The appeals filed by the Revenue were dismissed.
Key Issues
Whether additions made under Section 153A in respect of completed assessments are valid without incriminating material found during search, and if Section 54F exemption can be disallowed on grounds other than incriminating evidence.
Sections Cited
153A, 54F, 147, 148, 132, 132A, 47(xiiib)(f), 143(1), 139(1)
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Income Tax Appellate Tribunal, DELHI
Before: SHRI M. BALAGANESH & SH. YOGESH KUMAR U.S.
Assessee by Sh. Gautam Jain, Adv. Sh. Lalit Mohan, AR and Sh. Parth Singhal, Adv Revenue by Ms. Pooja Swaroop, CIT(DR) Date of Hearing 14/05/2025 Date of Pronouncement 30/06/2025 ORDER
PER YOGESH KUMAR, U.S. JM:
The captioned appeals and Cross Objections are filed by the Department as well as the Assessees against the orders of the Ld. Commissioner of Income Tax (appeals) (Ld. CIT(A)’ for short)-Delhi-27, dated 27/11/2019,27/11/2019 and 25/11/2019 respectively pertaining to the Assessment Year 2015-16.
The Ld. Counsel for the Assessee submitted that the Assessees will not be pressing the respective Cross-Objections, therefore, sought for dismissal of the above Cross-Objections. By recording the submission of the Ld. Assessee's Representative, C.O. No. 46/Del/2020, 49/Del/2020 and 47/Del/2020are dismissed as not pressed.
The Department in its Appeals, raised identical grounds, therefore, are reproduced as under:-
“1. The Ld.CIT(A) has erred in law and on fact in ignoring that section 153A of Income Tax Act 1961 does not over-ride the provisions of Chapter-IV-E relating to Capital Gain and section 54F of the Income Tax Act 1961.
2. The Ld.CIT(A) has erred in law and on fact in allowing relief u/s 54F of Income Tax Act 1961 by ignoring the finding of the Assessing Officer that there was no investment in purchase of property at 5, K. G. Marg, New Delhi as the assessee was residing in the same property in capacity of Director and shareholder in the companies owning this property before the agreement to sell and also after agreement when the assessee was partner in the LLPs converted from same companies.
3. The Ld.CIT(A) has erred in law and on fact that the conversion of companies owning property at 5, K. G. Marg, New Delhi into LLPs was illegal for violation of provision of Section 47(xiiib)(f) of the Income Tax Act. 1961.
4. That the grounds of appeal are with prejudice to each other.
5. That the appellant craves leave to add, amend, alter or forgo any ground(s) of appeal either before or at the time of hearing of the appeal.”
Brief facts of the case are that, a search and seizure operation u/s 132 of the Income Tax Act, 1961 ('Act' for short) was conducted by the Investigating Wing of the Department on 22/10/2016 in Sukhija Group of cases along with others cases at various residential and business premises including the premises of the Assessees herein. A notice u/s 153A of the Act was issued to the Assessees, in response the Assessees have filed their respective Return. The assessment order came to be passed on 29/12/2018 by disallowing the exemption claimed by the respective Assesseesu/s 54F of the Act. The details are as under:-
Sl No. Name Amount disallowed u/s 54F 1 HarpreetKochar 33,77,56,184 2 GrumeetKochar 32,75,96,725/- 3 GurpreetKochar 2,93,81,920/-
Aggrieved by the assessment orders dated 29/12/2018, the Assessees have preferred respective Appeals before the Ld. CIT(A). Before the Ld. CIT(A), the Assessees in their respective Appeals, apart from raising the Ground on the merits, by way of additional grounds of Appeal contended that the disallowance made u/s 54F of the Act is beyond the jurisdiction as the said disallowance was not based on any incriminating material found as a result of search. The Assessees have also relied on the Judgment of Jurisdictional High Court in the case of CIT Vs. Kabul Chawla reported in 380 ITR 573, Principal CIT Vs. MeetaGutgutia reported in 395 ITR 526 and CIT Vs. Sinhgad Technical Educational Society reported in 395 ITR 344. The Ld. CIT(A) vide orders impugned dated 27/11/2019, 27/11/2019 and 25/11/2019, allowed the Appeals of the Assessees on merits by declaring that the Assessees are entitled for exemption u/s 54F of the Act and deleted the addition made by the A.O. As against the orders of the Ld. CIT(A), the Department has preferred the captioned appeals on the identical grounds mentioned above.
The Ld. CIT(A) has not decided the legal issue regarding ‘addition made dehors the incriminating material unearthed during the search’ and decided the issue in favour of the Assessee on the merits by deleting the addition. Now the Ld. Assessee's Representative invoking the Rule 27 of Income Tax Appellate Tribunal Rules 1963 (‘Rule’ for short), submitted that the Ld. CIT(A) has not adjudicated the jurisdictional/legal ground and has not given any finding on the additional grounds of appeal of the Assessee raised before the Ld. CIT(A). The Ld. Counsel submitted that it is well settled law that, when the Ld. CIT(A) has not adjudicated the legal grounds of appeal of the Assessee and decided the Appeal in favour of the Assessee on some other grounds, in the Appeal filed by the Revenue, though the Assessee/respondent has not appealed, can support the order appealed against on any of the Grounds decided against him. The Ld. Assessee's Representative has relied on plethora of Judgments in support of the said contention.
The Ld. Counsel has also taken us through the seized documents mentioned in the order of the Ld. CIT(A) and submitted that, those seized documents are not the basis for the disallowance made by the A.O. u/s 54F of the Act, therefore, submitted that the assumption of jurisdiction by the A.O. u/s 153A of the Act itself was erroneous and making the disallowance dehors the incriminating material found during the course of search cannot be sustainable as held by the Hon'ble Supreme Court in the case of Pr. CIT(A) Vs. Abhisar Build well (P) Ltd. reported in 454 ITR 212. Thus, the Ld. Assessee's Representative sought for quashing the assessment order and also sought for dismissal of the Appeals filed by the Revenue.
We have heard both the parties and perused the material available on record. As could be seen from the orders of the Ld. CIT(A), the Assessee in the additional grounds of Appeal, specifically raised the ground that ‘the disallowance made is without jurisdiction since it is not based on any incriminating material found as a result of search on the appellant’ and relied on the Judgment of Jurisdictional High court in the case of Kabul Chawla (supra)etc. The Ld. CIT(A) has decided the appeal of the Assessee on its merits and came to a conclusion that all the requirement of Section 54F of the Act have been fulfilled by the Assessees and held that the Assessees are entitled for exemption u/s 54F of the Act and allowed the exemption claimed u/s 54F of the Act and thereby deleted the addition made by the A.O.
It is observed that the additional legal ground raised by the Assessee’s before the Ld. CIT(A) that no incriminating material seized which resulted in the addition/disallowance and the applicability of ratio laid down in the case of Kabul Chawla (supra), has been admitted by the Ld. CIT(A) and further the Ld. CIT(A) has also considered the submissions made by the Assessee on the said additional Grounds of appeal. However, the Ld. CIT(A) has not adjudicated the additional legal ground of the Assessee since issue on the merit has been decided in favour of the Assessee. The said portion of the order of the Ld. CIT(A) is extracted as under:-
“9.2.1 The additional legal ground had been raised inline with the ground no 3 taken by the appellant in the main grounds of appeal. In the interest of justice and equity, the appellant must be given full opportunity to raise any legal ground related to the issues in assessment order and various judicial precedents are liberal in admitting such additional legal grounds at any stage of proceedings. It is also observed that such admission of additional legal ground will not prejudice the interest of the revenue. Therefore, I admit these additional grounds of appeal raised on legal grounds by the appellant.
9.2.2 The appellant had raised the issue that there is no seized material relevant to this disclosed transaction of claim of exemption u/s 54F by the appellant and the assessment for this year was a completed year, therefore, the ratio of above cases is squarely applicable on the facts of this case. The appellant had explained during the hearing that the seized paper referred by the AO at page 17 of the assessment order belongs to period beyond the relevant AY and is otherwise also not relevant to the transaction under consideration. He further contended that the statement of Sh. Bhupinder Singh referred in the assessment order had nothing incriminating in relation to this transaction and apart from that there is no reference to any seized material in the whole assessment order. Therefore, it was vehemently argued that the disallowance made is without jurisdiction since it is not based on any incriminating material found as a result of search on the appellant, as has been also held by the judgment of Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawla reported in 380 ITR 573. The submissions of the appellant and points raised during the hearing had been considered. As the issue had been decided, in favour of the appellant on merit, in para 8 above, the legal ground raised by the appellant is not adjudicated, as it will have only academic value.
10.In the instant case, the Ld. CIT(A) has decided the matter in favour of the Assessee and deleted the disallowance made by the A.O., however, while doing so the Ld. CIT(A) has not adjudicated the additional grounds of appeal of the Assessee on the issue of jurisdiction and making addition dehors the incriminating material by the A.O. Now, the Assessee is pressing the very same additional ground before us under Rule 27 of Appellate Tribunal Rules, 1963. There are plethora of Judgments by various High Courts and also the Coordinate Bench of the Tribunals that the respondent in the Appeal before the Tribunal even without filing an appeal can support the order appealed against on any of the grounds decided against him as per Rule 27 of the ITAT Rules.
The Judgments of various High Courts and the Tribunals are as under:-
“i) 83 ITR 223 (Bom) B.R.Bamsi vs. CIT) ii) 129 ITR 475 (All) Moralia& Sons vs. CIT iii) 220 ITR 398 (Ker) CIT vs. Cochin Refineries Ltd. iv) 176 CTR 406 (Gau) Assam Company (I) Ltd vs. CIT v) 102 ITD 189 (Del) ITO vs. Gurvinder Kaur vi) 284 ITR 80 (SC) CIT V. Varas International P.Ltd. vii) 436 ITR 616 (Bombay) Peter VazvsCIT In view of the above discussion and by following the settled principals of law laid down by the various Courts (supra), we permit the Assessee to urge the legal ground which has not been decided by the Ld. CIT(A).
During the search and seizure operation conducted u/s 132 of the Act dated 22/10/2016 on Sukhija Group of cases along with other cases at various residential and business premises included the premises of the Assessee, the security charges paid for the month of September 2016 in respect of the property bearing No. 5 K-g Marg, Delhi purchased on 01/04/2016 has been seized. The Ld. A.O. at page 16 has referred the seized document. The relevant portion of the observations of the A.O. is as under:-
“This fact also gets substantiated as during the course of search and seizure action various documents were seized, out of which one such document bearing page no. 59 of BOC-1 as per Annexure A-6 of impounding order dated 25/10/2016 which shows that payments were received by M/s Westech Securities Pvt. Ltd. for providing the facility of security guard to M/s V-John Industries (correct name is VI- john Healthcare India LLP which is engaged in manufacture of chemicals & chemical products), a concerned belonging to Kochar family).
12. The above observation of the A.O. makes it clear the incriminating document seized during the search relates to the subsequent period of acquisition of the property. The Ld. CIT(A) has also given its finding in respect of seized document said fact has been found by the Ld. CIT(A) in its order at para 8.3.2.1 at Page No. 77 &78.
“It is observed that this seized paper relate to the bill of security charges paid for the month of September, 2016. The appellant became owner of this property on 01.04.2016 and this paper relates to the later period of the year. As per the details submitted by the appellant, this payment has been made from the capital account, Sh. AchinKochar, son of Gurmeet Kaur, with the partnership firm M/s Maja Healthcare Division which is engaged in manufacturing & sale of products in the brand name of V-John. The appellant has further stated that the VI-John Healthcare India LLP stated by the AO in the order has been incorporated on 25.10.2017. The appellant has filed the capital account of Sh. AchinKochar in the books of Maja Healthcare Division along with the audited balance sheet of Maja Healthcare Division. It is observed from this capital account that these cash payments of security guards have been debited from the month of June, 2016 onwards regularly and the last payment in this F.Y. was made on 11.03.2017. The opening and closing balances of Sh. AchinKochar tally with the audited balance sheet of Maja Healthcare Division. On the basis of these facts, it emerges that: • These payments belong to the period after the ownership of property has been transferred to the appellant, as is evident from the seized paper. • These payments have been debited to the personal capital account of nephew of the appellant with partnership firm M/sMaja Healthcare Division.”
13. The Ld. A.O. while making the disallowance, at Para 1.3 relied on the statement of Sh. Bhupinder Singh Kochar. The CBDT vide instruction F. No. 286/2/2003-IT clarified that addition cannot be made only on the basis of statement recorded during search without bringing any evidence to support the statement. As could be seen from the statement of Mr. Bhupinder Singh, even there is no details of any investment by family members and no details have been brought on record by the AO in the assessment order. Therefore, the mere statement of Sh. Bhupinder Singh Kochar cannot be construed as ‘incriminating material found during the search’.
14. Even in the assessment order, the A.O. specifically mentioned at Page No. 2 that ‘during the course of assessment proceedings it is notice that the Assessee has claimed exemption u/s 54F of the Act amounting to Rs.xxxx”. Thus, it is clear that that the claim of exemption u/s 54F of the Act has been claimed by the respective Assessees came to the notice of the A.O. only during the course of assessment proceedings and the disallowance made u/s 54F of the Act was not based on the document found during the course of the search.
The Jurisdictional High Court in the case of Kabul Chawla reported in 380 ITR 573 and Pr. CIT Vs. Meeta Gutgutia reported in 395 ITR 526 has laid down the ratio that, the completed assessments can be interfered with by the Assessing Officer while making assessment under section 153A of the Act only on the basis of some incriminating material unearthed during course of search which was not produced or not already disclosed or made known in course of original assessment. The Hon'ble Supreme Court has affirmed the said view of the Jurisdictional High Court in the case of Abhisar Buildwell (P) Ltd. (supra) wherein the Hon'ble Supreme Court held as under:-
“11. As per the provisions of Section 153A, in case of a search under Section 132 or requisition under Section 132A, the AO gets the jurisdiction to assess or reassess the ‘total income’ in respect of each assessment year falling within six assessment years. However, it is required to be noted that as per the second proviso to Section 153A, the assessment or re-assessment, if any, relating to any assessment year falling within the period of six assessment years 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. As per sub-section (2) of Section 153A, 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 Commissioner. Therefore, the intention of the legislation seems to be that in case of search only the pending assessment/reassessment proceedings shall abate and the AO would assume the jurisdiction to assess or reassess the ‘total income’ for the entire six years period/block assessment period. The intention does not seem to be to re-open the completed/unabated assessments, unless any incriminating material is found with respect to concerned assessment year falling within last six years preceding the search. Therefore, on true interpretation of Section 153A of the Act, 1961, in case of a search under Section 132 or requisition under Section 132A and during the search any incriminating material is found, even in case of unabated/completed assessment, the AO would have the jurisdiction to assess or reassess the ‘total income’ taking into consideration the incriminating material collected during the search and other material which would include income declared in the returns, if any, furnished by the assessee as well as the undisclosed income. However, in case during the search no incriminating material is found, in case of completed/unabated assessment, the only remedy available to the Revenue would be to initiate the reassessment proceedings under sections 147/48 of the Act, subject to fulfilment of the conditions mentioned in sections 147/148, as in such a situation, the Revenue cannot be left with no remedy. Therefore, even in case of block assessment under section 153A and in case of unabated/completed assessment and in case no incriminating material is found during the search, the power of the Revenue to have the reassessment under sections 147/148 of the Act has to be saved, otherwise the Revenue would be left without remedy.
If the submission on behalf of the Revenue that in case of search even where no incriminating material is found during the course of search, even in case of unabated/completed assessment, the AO can assess or reassess the income/total income taking into consideration the other material is accepted, in that case, there will be two assessment orders, which shall not be permissible under the law. At the cost of repetition, it is observed that the assessment under Section 153A of the Act is linked with the search and requisition under Sections 132 and 132A of the Act. The object of Section 153A is to bring under tax the undisclosed income which is found during the course of search or pursuant to search or requisition. Therefore, only in a case where the undisclosed income is found on the basis of incriminating material, the AO would assume the jurisdiction to assess or reassess the total income for the entire six years block assessment period even in case of completed/unabated assessment. As per the second proviso to Section 153A, only pending assessment/reassessment shall stand abated and the AO would assume the jurisdiction with respect to such abated assessments. It does not provide that all completed/unabated assessments shall abate. If the submission on behalf of the Revenue is accepted, in that case, second proviso to section 153A and sub- section (2) of Section 153A would be redundant and/or re- writing the said provisions, which is not permissible under the law.
For the reasons stated hereinabove, we are in complete agreement with the view taken by the Delhi High Court in the case of Kabul Chawla (supra) and the Gujarat High Court in the case of Saumya Construction (supra) and the decisions of the other High Courts taking the view that no addition can be made in respect of the completed assessments in absence of any incriminating material.
In view of the above and for the reasons stated above, it is concluded as under:
i) that in case of search under Section 132 or requisition under Section 132A, the AO assumes the jurisdiction for block assessment under section 153A; ii) all pending assessments/reassessments shall stand abated; iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the ‘total income’ taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132A of the Act, 1961. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under Sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved.
The question involved in the present set of appeals and review petition is answered accordingly in terms of the above and the appeals and review petition preferred by the Revenue are hereby dismissed. No costs.”
In the present case, the Assessment Year 2015-16 were non- abated assessment on the date of search i.e. 22/10/2016 u/s 132(1) of the Act since no assessment pending on the date of search. For the sake of convenience the details are produced as under:-
No Particulars Harpreet Kochar Gurmeet Kochar Gurpreet Kochar 16 i) Assessment Years 2015-16 2015 ii) Date of filing of 30.09.2015 31/08/2015 31.08.2015 return u/s 139(1) of the Act iii) Section of Original 143(1) 143(1) 143(1) Assessment iv) Date of order 1.12.2015 20.10.2015 27.05.2016
As per the second proviso to Section 153A of the Act, the assessment made prior to search had not abated, therefore, the disallowance made by the A.O. u/s 54 F of the Act is beyond the scope of the assessment framed u/s 153A/143(3) of the Act. As observed earlier, the A.O. has not referred any of the documents found during the course of search while making the impugned disallowance and by relying on the documents procured during the assessment and the statements recorded during the course of search the A.O., framed the assessment. Since, the disallowance made u/s 54F of the Act is dehors any incriminating material found during the course of search, by applying the well settled principal of law laid down by the Hon'ble the contentions raised by the Assessee under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963. Thus, we are of the opinion that the addition made by the A.O. is beyond jurisdiction and cannot sustain in the eyes of law, accordingly the additions are deserves to be deleted.
Ordered accordingly.
Since we have held that the additions made by the A.O. are without jurisdiction, the Appeals by the Revenue challenging the orders of the Ld. CIT(A) have become in-fructuous.
In the result, the Appeals filed by the Revenue in No. 940/Del/2020 are dismissed.