Loading judgment…
No AI summary yet for this case.
PER RAVISH SOOD, JUDICIAL MEMBER:
The present appeal filed by the revenue is directed against the order passed by the CIT(A)-3, Gurgaon, dated 30/07/2019, which in turn arises from the assessment order passed under Sec. 153A r.w.s 143(3) of the Income Tax Act, 1961 (for short ‘Act’), dated. 27.03.2015 for A.Y. 2010-11. The revenue has assailed the impugned order on the following grounds of appeal before us:
“1. Whether on the facts and in circumstances of the case, the CIT(A) is right in law in deleting the addition made by the AO u/s 2(22)(e) of the Income Tax Act, 1961 on account of deemed dividend received by the assessee by diverting the funds of the company M/s Hansa Metallic Pvt. Ltd. in which assessee is director & substantial share holder of the company.
2. It is prayed that the order of the Ld. CIT(A) be set-aside and that of the AO be restored.
3. The appellant craves leave to add or amend the grounds of appeal before the appeal is heard and disposed off.”
2. Search and seizure proceedings under section 132(1) of the Act were conducted on 14/06/2012 at the business & residential premises of M/s Hansa Tubes Pvt. Ltd. and its other group entities/associates by the Investigation wing (Income Tax), Chandigarh. The assessee namely Shri Surinder Garg was inter alia covered in the course of the aforesaid search proceedings. In compliance to the notice issued under section 153A of the Act the assessee submitted his return of income for A.Y. 2010-11 declaring a total income of Rs. 94,85,000/-.
3. During the course of the assessment proceedings it was observed by the A.O that the balance sheet of the assessee revealed an amount of Rs. 50,00,000/- as current liability under the head “Security (Rent)”. Further, on the asset side of the balance sheet the assessee had reflected under the head investment an amount of Rs. (-)2,30,00,000/- with a narration “advance against property”. Observing that the assessee was in receipt of advances from a company viz. M/s Hansa Metallic Pvt. Ltd in which he had substantial share holding, the A.O called upon him to explain as to why the same may not be assessed as deemed dividend under section 2(22)(e)of the Act in his hands. In reply, the assessee tried to impress upon the A.O that the provisions of Section 2(22)(e) were not attracted in his case. It was inter alia claimed by the assessee that as the amount received by him from the aforementioned company was in the nature of a business receipt and not an advance, therefore, the provisions of Section 2(22)(e) were not applicable. Apart from that, it was claimed by the assessee that as the impugned amount was given by way of a book entry only and there was no transfer of actual funds by the company to the assessee, therefore, the provisions of section 2(22)(e) on the said count also could not be invoked in his case. Observing that the explanation tendered by the assessee was merely an eye wash with an attempt to wriggle out of the provisions of section 2(22)(e) of the Act, the AO held a strong conviction that the amount received by the assessee was clearly in the nature of an advance within the meaning of the provisions of section 2(22)(e) of the Act. In so far the claim of the assessee that as the amount under consideration was received from the company by way of a book entry involving no actual flow of funds, therefore, the provisions of Sec. 2(22)(e) would stand excluded, the A.O did not favor with the same. Accordingly, in the backdrop of his observations recorded in the assessment order the A.O added an amount of Rs. 2,80,00,000/- [Rs. 50,00,000/- (+) Rs. 2,30,00,000/-] as deemed dividend under section 2(22)(e) of the Act in the hands of the assessee.
Aggrieved the assessee assailed the assessment order in appeal before the Ld. CIT(A). It was the claim of the assessee before the first appellate authority that as no assessment proceedings were pending in his case on the date of the search and seizure proceedings, the assessment under section 153A could thus have been made only on the basis of seized material. It was submitted by the assessee before the CIT(A) that as no incriminating material was unearthed during the course of search proceedings and the assessment proceedings in his case had remained unabated as on the said date, therefore, no additions could have been validly made in his hands. It was thus the claim of the assessee that de hors any incriminating document/ material having surfaced in the course of the search proceedings the impugned addition of Rs. 2,80,00,000/- could not have been validly made by the A.O in respect of the unabated assessment for the year under consideration.
The CIT(A) after deliberating at length on the contentions advanced by the assessee found favour with his claim that the A.O de hors any incriminating material found in the course of the search proceedings had invalidly assumed jurisdiction and made an addition u/s 2(22)(e) in respect of the unabated assessment in his case for the year under consideration. Observing, that neither any incriminating material/evidence was found during the course of the search conducted in the case of the assessee and no assessment proceedings were pending in his case as on the date on which search proceedings were conducted, the CIT(A) drawing support from the judgment of Hon’ble Delhi High Court in the case of CIT (Central)-III Vs. Kabul Chawla 281 CTR 45 and the order of the ITAT, Chandigarh Bench in the case of M/s Mala Builders Pvt. Ltd. Vs. ACIT-CC-II in to 437/Chandi/2014, therein concluded that the impugned addition made by the AO could not be sustained and was liable to be struck down. Accordingly, the CIT(A) backed by his aforesaid observations quashed the addition of Rs. 2,80,00,000/- made by the AO under section 2(22)(e) of the Act.
The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us.
The Ld. Authorised Representative (in short ‘A.R’) for the assessee at the very outset of the hearing of the appeal submitted that an addition not emanating out of any incriminating material found during the course of search proceedings in a case where no assessment proceedings were pending on the date of search could not be validly made in the hands of an assessee. It was submitted by the ld. A.R that the issue in hand was squarely covered by the order of the ITAT, Chandigarh Bench in the case of M/s Mala Builders Pvt. Ltd. (supra). Apart from that, support was drawn by the Ld. A.R from the judgment of the Hon’ble High Court of Delhi in the case of CIT (Central)-III Vs. Kabul Chawla (supra). It was averred by the Ld. A.R that the CIT(A) relying on the aforesaid judicial pronouncements had rightly vacated the addition made by the A.O under section 2(22)(e).
Per contra, the ld. Departmental Representative (for short ‘D.R’) though supported the order of the A.O, however, he fairly admitted that the issue was squarely covered by the order of the Tribunal in the case of M/s Mala Builders Pvt. Ltd. (supra). It was submitted by the Ld. DR that the Ld. CIT(A) had vacated the addition on the jurisdictional issue itself and had not dwelled on the merits of the case.
We have heard the authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements pressed into service by them. As is discernible from the records, the addition made by the A.O while framing the assessment vide his order passed u/s 153A r.w.s 143(3), dated 27.03.2015 does neither emanate out of any incriminating material found during the course of search proceedings nor any assessment proceedings for the year under consideration were pending or stood abated on the date of the search conducted in the case of the assessee. It is in the backdrop of the aforesaid factual position that we shall deal with the validity of the order passed by the Ld. CIT(A) who had struck down the addition on the jurisdictional aspect itself. On a perusal of the order of the CIT(A), we find, that he had inter alia relied on the order passed by the ITAT, Chandigarh Bench in the case of M/s Mala Builders Pvt. Ltd. (supra), wherein involving identical facts the Tribunal had quashed the addition after drawing support from the judgment of the Hon’ble High Court of Bombay in the case of Commissioner Of Income-tax Vs. Continental Warehousing Corporation (2015) 374 ITR 645 (Bom) and that of the Hon’ble High Court of Delhi in the case of CIT Vs. Anil Kumar Bhatia 352 ITR 493. In its aforesaid order the Tribunal had observed as under:
"14. The undisputed facts in the present case are that on the date of search conducted on the assessee u/s 132 of the Act, i.e 17-03-2010, no assessment proceedings relating to the impugned year were pending. In fact the assessee had filed return filed u/s 139(1) of the Act on 29-06-2004 no notice u/s 143(2) had been issued to the assessee and on the date of initiation of search i.e. 17-03- 2010 the time limit for issuing notice u/s 143(2) had expired. Thus, on the date of search no assessment proceedings were pending. Further in the assessment made u/s 153A of the Act, the only addition made pertained to disallowance of interest u/s 24(b) of the Act in the absence of any documentary proof for claiming the same by the assessee. No incriminating material, found during the course of search, pertaining to the addition/disallowance made was referred to while making the disallowance.
The issue before us is, whether in case of assessments framed under section 153A of the Act, addition could be made in the absence of any incriminating material in those years where no assessment proceedings were pending and assessment had been made u/s I43(l)/143(3) of the Act
We are in complete agreement with the contention of the Ld.AR that the issue is no longer res integra in view of various decisions of the High Courts holding that completed assessments can be interfered with by the Assessing Officer 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.
We find that the issue first came up for consideration before the High Court of Bombay in the case of CIT Vs. M/s Murli Agro Products ltd. (supra), wherein on the issue of exercise of revisionary powers by the Commissioner of Income Tax u/s 263 of the Act, on the order passed by the Assessing Officer under section 153A, it was contended by the Revenue that the impugned order was erroneous and prejudicial to the interest of the Revenue since the Assessing Officer had only determined the undisclosed income and not the total income which is the mandate of section 153A .The Hon'ble High Court, while adjudicating the issue, dealt at length with the purpose of introduction of the new search assessment procedures, as against the earlier block assessment procedures and then went on to interpret the proviso to section 153A(1), and held that it is only pending proceedings which are abated on initiation of proceedings under section 153A of the Act. while the assessments which have attained finality cannot be disturbed unless materials gathered in the course of proceedings under section 153A of the Act established otherwise.
Thereafter, the Delhi High Court in the case of CIT Vs. Anil Kumar Bhatia 352 ITR 493, interpreted the provisions of section 153A of the Act at length, and held that as against the earlier block assessment procedure which roped in only the undisclosed income and the regular assessment proceedings were preserved, resulting in multiple assessments, under the present assessment procedures prescribed under section 153A/B/C of the Act, only one assessment order in respect of each of the six assessment years had to be passed. The Hon'ble High Court held that this was sought to be achieved in case of those assessment years where assessment proceedings were pending on the date of search by abating them and framing fresh assessment including incomes relating to incriminating material found during search. In case of those assessment years where an assessment order had already been passed under section I43(l)(a) or 143(3), those assessments could be reopened and the total income reassessed taking note of the undisclosed income if any unearthed during search, the fetters to reopening, being removed by insertion of the non- obstante clause to section 153A. The entire thrust of the judgement rested on the interpretation that there cannot be multiple assessment orders in case of search assessments under section 153A/B/C of the Act and, therefore, where assessments were pending they would abate to enable the Assessing officer to assess the total income including undisclosed income, and where assessments or re- assessments had been completed, they would not abate and the Assessing Officer would only reopen the completed assessments and include therein undisclosed income. The High Court went on to hold that such determination would be similar to orders passed in any re-assessment where the total income determined in the original assessment order and income that escaped assessment are clubbed together and assessed as total income.
The Bombay High Court in the case of CIT Vs. Continental Warehousing (supra) upheld the interpretation of the section by the Division Bench of the same Court in the case of Murli Agro (supra) and held that finalized assessments cannot be touched by resorting to the provision of section 1S3A and addition was to be made only on the basis of material unearthed during search, since 'search' and 'requisition' are the crucial words appearing in the substantive provision and proviso and they would throw light on the issue of applicability of the provision. The Court upheld the understanding of the legal provision of section 153A by the Special Bench in the I. T.A. T. in this case and further held that the Delhi High Court had in the case of Anil Kumar Bhatia also reached to the same conclusion. It also referred to the judgment of the Karnataka High Court in the case of Canara Housing Development Co. Vs. DCIT (2014) 49 Taxmann.98 and stated that even as per that judgment, the scope of enquiry in search carried under section 153A had to essentially revolve around search or requisition under section 132A of the Act.
In the case of Kabul Chawla (supra), the Delhi High Court after considering various decisions of High Courts, summarized the legal position in paragraph 37, which is reproduced below:
"37. On a conspectus of Section 153A (1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: 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 Section only on the basis of seized material." v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (Le. 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."
The Delhi High Court further reiterated the proposition laid down in Kabul Chawla (supra) in the case of CIT vs. RRJ Securities, 380 ITR 612 and Pr. CIT Vs. Lata fain in dt.29-04-2016.
On going through the above judgments, we find that the reason for upholding the proposition that addition u/s 153A, in case of earlier completed assessments, can be made only on the basis of incriminating material found during search or requisition is that: 1. Assessment u/s 153A can be framed only in cases where a search is initiated u/s 132 or Books of Accounts, other documents or any assets are requisitioned u/s 132A of the Act. Moreover notices u/s 153A(l)(a) can be issued and income assessed or reassessed of six years preceding the assessment year relevant to the previous year in which search is conducted or requisition is made. Thus the crucial words "search" and "requisition" appear in the substantive provision and the proviso, which throws light on the issue of applicability of the provision .Such assessments have a vital link with the initiation and conduct of search .Since search can be authorized only on the fulfillment of conditions enumerated in section 132,those conditions will have to be taken into account while interpreting section 153A and the interpretation arrived at is that in respect of unabated proceedings assessment has to be made on the basis of books of accounts or other documents not produced in the course of original assessment but found in the course of search and undisclosed income/property discovered in the course of search. Section 153A being enacted to a search and requisition, its construction would have to be made accordingly.
The second proviso to section 153A (1) states that on initiation of proceedings u/s 153A ,the assessment/reassessment proceedings pending on the date of conducting search or making requisition u/s 132A of the Act, shall stand abated. The CBDT Circular no. 8 of 2003 dt.18-09-03, clarifies that proceedings in appeal, revision or rectification against finalized assessments/reassessments shall not abate. Reading the two together, the Courts have stated that as per section 153A, Assessments/reassessments already finalized do not abate, meaning thereby that they attain finality, which cannot be disturbed unless some incriminating materials are gathered during the course of search.
That the words "assess" or "reassess" has been used at more than one place in the section and a harmonious construction of the entire provision would lead to the conclusion that the word "assess" has been used in the context of abated proceedings and "reassess" has been used for completed proceedings which would not abate as they are not pending on the date of initiation of search or making of requisition.
We may add that that the requirement of the section is limited to opening or reopening of the cases for the purpose of making assessment or reassessment of the total income of preceding six assessment years prior to the year of search. It does not contain any provision regarding the concept of making assessment of undisclosed where assessments have already income as was there in the earlier Block assessment regime under chapter XIVB. It does not specifically contain any provision regarding the nature of addition which can be made under this section. The section has provided, for the removal of doubts, by way of insertion of Explanation at the end of the section that save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to assessment made under this section. This implies that nature of assessment or reassessment made under this section shall be governed by the normal provisions of the Act In case it is an assessment made for the first time, all provisions of assessment which are applicable to assessments made u/s 143(3) shall apply and in case it is a reassessment being made all principles of reassessment which are applicable in case of proceedings u/s 147/148 shall become applicable. Thus in cases where assessment have already been made addition to be made in proceedings u/s 153A is to be restricted to incriminating material found if any.
It is amply evident from the above that the issue is settled, with a number of decisions of the High Courts holding that in the case of completed assessments, no addition can be made in the absence of any incriminating material. Though we do agree that there are decisions of High courts which hold otherwise and state that u/s 153A , addition in case of completed assessments need not be restricted to incriminating material, but in view of the Apex court decision in CIT vs Vegetable Products Ltd.(i973) 88ITR 192 which states that where there are two reasonable constructions of a statute, the construction favouring the assessee should be adopted, we hold that in case of completed assessments under section 143(3)/143(1) of the Act, in the absence of any incriminating material found during the course of search, the Assessing Officer has no jurisdiction to make any addition under section 153A of the Act.
10. We have deliberated at length on the issue under consideration and are of the considered view that in a case where no assessment proceedings are pending on the date of the search and seizure proceedings, the assessment under section 153A can be carried out only on the basis of seized material. In a case where no incriminating material is unearthed during the course of search proceedings and the assessment proceedings remain unabated as on the said date, no additions can be validly made in the hands of the assessee. Our aforesaid view is fortified by the judgment of the Hon’ble High Court of Delhi in the case of CIT vs. Kabul Chawla (2016) 380 ITR 573 (Del). Apart therefrom, a similar view had also been taken by the Hon’ble High Court of Bombay in the case of CIT vs. Murli Agro Product (ITA No. 36/2009) (Bom) and Commissioner Of Income-tax Vs. Continental Warehousing Corporation (2015) 374 ITR 645 (Bom). In the aforementioned cases, it has been observed by the High Courts that as on the date of the initiation of search and seizure proceedings under section 132 of the IT Act, as no proceedings for the year under consideration were pending, therefore, in the absence of any incriminating evidence found during the course of search and seizure proceedings no addition/disallowance could have been made in respect of the unabated assessment of the assessee for the said year. Accordingly, in the backdrop of the aforesaid settled position of law, we are of the considered view that as on the date of the search and seizure proceedings no assessment proceedings were pending in the case of the assessee before us, therefore, in the absence of any incriminating material having been found in the course of such proceedings no addition could have been validly made in the hands of the assessee. Accordingly, respectfully following the aforesaid judgments of the Hon’ble High Courts and the order passed by the Tribunal in the case of M/s Mala Builders Pvt. Ltd. (supra), we find no infirmity in the view taken by the CIT(A) who had rightly quashed the addition made by the A.O u/s 2(22)(e) of the Act.
Resultantly, finding no merit in the appeal filed by the revenue, we herein dismiss the same.
Order pronounced in the open Court on 03/12/2020 .