THE PR. COMMISSIONER OF INCOME TAX, RAJKOT 1 vs. M/S BACKBONE ENTERPRISE LTD.

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TAXAP/360/2020HC GujaratGJHC24053262202003 December 2020Bench: HONOURABLE THE CHIEF JUSTICE MR. JUSTICE VIKRAM NATH,HONOURABLE MR. JUSTICE J.B.PARDIWALA4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the Tax Appeal filed by the Revenue. The Court found that the ITAT's reliance on the High Court's decision in PCIT Vs. Saumya Construction was justified in the context of the facts of the present case. Therefore, the appeal was dismissed on the proposed questions of law. Separately, the Court noted that it did not agree with the ITAT's observation in para-11 of its order, which suggested no differentiation in legislative intent between assessments under Section 143(1), 143(3), and 147. The Court found substance in the Revenue's submission that there are distinct differences between assessments under Section 143(1) and Section 143(3). However, this disagreement with the ITAT's observation was stated to have no bearing on the dismissal of the Tax Appeal on the grounds raised.

What were the facts?

The Revenue, represented by the Principal Commissioner of Income Tax, Rajkot, filed a Tax Appeal before the High Court of Gujarat at Ahmedabad. The appeal challenges an order passed by the Income Tax Appellate Tribunal (ITAT), Rajkot Bench, for Assessment Year 2006-07. The core of the dispute revolves around the validity of additions/disallowances made under Section 153A of the Income Tax Act, 1961, in the absence of incriminating documents or evidence found during a search or requisition. The ITAT had relied on a previous High Court decision in PCIT Vs. Saumya Construction to address this preliminary issue. The Revenue argued that the ITAT's reliance was misplaced and that the assessment under Section 153A should not be contingent on finding such evidence.

What were the issues?

1. Whether the Appellate Tribunal erred in holding that additions/disallowances under Section 153A must be based on incriminating documents or evidence gathered during a search or requisition, when Section 153A only requires the initiation of a search or requisition (Section 153A of the Income Tax Act, 1961). 2. Whether the Appellate Tribunal was justified in ignoring the provisions of Section 153A, which mandates the Assessing Officer to assess or reassess the total income for preceding assessment years upon initiation of a search under Section 132 (Section 153A and Section 132 of the Income Tax Act, 1961). 3. Whether the Appellate Tribunal erred in not considering the scope of "total income" as defined in Section 2(45) read with Section 5 of the Act, while holding that no addition/disallowance can be made on issues not based on recovered documents or evidence (Section 2(45) and Section 5 of the Income Tax Act, 1961). Assessee's Arguments: The judgment does not record any arguments made by the assessee (M/s Backbone Enterprise Ltd.). Revenue's Arguments: The Revenue contended that the ITAT erred in requiring incriminating documents for additions under Section 153A and that the Tribunal ignored the express provisions of Section 153A. The Revenue also argued that the ITAT's observation in para-11 regarding the lack of differentiation in legislative intent between assessments under Sections 143(1), 143(3), and 147 was incorrect and that there are fine distinctions between Section 143(1) and Section 143(3).

Which sections of the Income-tax Act were involved?

Section 260A,Section 153A,Section 132,Section 2(45),Section 5,Section 143(1),Section 143(3),Section 147

AI-generated summary — verify with the full judgment below

C/TAXAP/360/2020 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 360 of 2020 ========================================================== THE PR. COMMISSIONER OF INCOME TAX, RAJKOT 1 Versus M/S BACKBONE ENTERPRISE LTD. ========================================================== Appearance: MRS MAUNA M BHATT(174) for the Appellant(s) No. 1 for the Opponent(s) No. 1 ========================================================== CORAM: HONOURABLE THE CHIEF JUSTICE MR. VIKRAM NATH and HONOURABLE MR. JUSTICE J.B.PARDIWALA

Date : 03/12/2020

ORAL ORDER (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) 1. This appeal under Section 260A of the Income Tax Act, 1961 (for short “the Act, 1961”) is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal, Rajkot Bench, Rajkot dated 27th November, 2019 in the ITA No. 125/RJT/2015 for the A.Y. 2006-07. The Revenue has proposed the following three questions of law for the consideration of this Court. “(A) Whether the Appellate Tribunal has erred in law and on facts in holding that the addition and/or disallowance made during assessment under section 153A of the Act should be based on incriminating documents or evidences gathered during a search or from a requisition when the only requirement in section 153A is initiation of a search or making a requisition and not presence of relevant Page 1 of 4

C/TAXAP/360/2020 ORDER evidences/documents? (2) Whether the Appellate Tribunal was justified in ignoring the express provisions of section 153A of the Act which upon initiation of a search under section 132 requires the Assessing Officer to assess or reassess the “total income” in respect of each assessment year falling within such six assessment years immediately preceding the assessment year relevant to the previous year in which the search was initiated? (3) Whether the Appellate Tribunal has erred in law and on facts in not considering the scope of the term “total income” as defined in section 2(45) read with section 5 of the Act while holding that no addition/disallowance can be made on issues other than those based on documents or evidences recovered during a search or from a requisition?” 2. We have heard Mr. M.R. Bhatt, the learned Senior Counsel appearing for the Revenue. 3. It appears that the Appellate Tribunal has placed reliance on the decision of this High Court in the case of PCIT Vs. Saumya Construction reported in 387 ITR 529 for the purpose of addressing the preliminary issue whether the assessment could have been framed under Section 153A of the Act, 1961 in respect of the concluded proceedings in the absence of incriminating materials found during the course of search. Page 2 of 4

C/TAXAP/360/2020 ORDER 4. We are of the view that having regard to the facts of this particular case, the reliance placed on the decision of this Court in the case of Saumya Construction could be said to be justified. In such circumstances, this Tax Appeal fails and is hereby dismissed. 5. At this stage Mr. Bhatt, the learned Senior Counsel appearing for the Revenue invited our attention to certain observation made by the Appellate Tribunal in para-11 of the impugned judgment. In para-11, the Tribunal has observed that as such, there is no differentiation found in the intent of the Legislature to discriminate whether the assessments were originally framed under Section 143(1) or Section 143(3) or Section 147 of the Act. According to Mr. Bhatt, this observation made by the Appellate Tribunal is not the correct proposition of law. Mr. Bhatt tried to explain fine distinction between the nature of the assessment under Section 143(1) and Section 143(3) respectively of the Act. Prima facie, we find substance in what has been pointed out by Mr. Bhatt to us. Section Page 3 of 4

C/TAXAP/360/2020 ORDER 143(1) and Section 143(3) are quite independent, the nature of assessment also differs. 6. In such circumstances, we may only say that we do not agree with such observation made by the Tribunal in para-11 as pointed out by Mr. Bhatt. Such observation has, as such, no bearing while dismissing the Tax Appeal on the proposed questions of law. (VIKRAM NATH, CJ) (J. B. PARDIWALA, J) A. B. VAGHELA/A.M.PIRZADA Page 4 of 4

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