M/S. BARBEQUE NATION HOSPITALITY LTD.,,BENGALURU vs. PRINCIPAL COMMISSIONER OF INCOME-TAX, (CENTRAL), BENGALURU

The assessee is a company engaged in the business of operating casual dining restaurants chain in India. The assessee filed the return of income for the AYs under consideration as per details given below:-

There was a search in the premises of the assessee on 10.1.2018 in connection with the search proceedings in the group case of M/s. MRG Hospitality Group. Accordingly, notice u/s. 153A of the Act was issued on 5.2.2019 to the assessee requiring the assessee to file the return of income. In response, the assessee filed return of income on 30.3.2019 admitting a total income of RS.92,59,600 for AY 2012-13, Rs.5,10,21,920 for AY 2013-14 and Rs. 26,74,86,570 for AY 2015-16. The AO completed the assessments u/s. 143(3) r.w.s. 153A accepting the income returned by the assessee for the AY 2012-13. In AY 2013- 14 the AO made addition with respect to certain inadmissible expenses, depreciation on goodwill. In AY 2014-15, similar additions were made by the AO. Subsequently, the PCIT initiated the revisionary proceedings for the reason that the AO did not verify the details with respect to the following items-

Expenditure claimed as fees paid to Sayajji Hotels Ltd. on which tax was not deducted. 5. The PCIT issued show cause notice to the assessee in this regard for which the assessee made submissions. The PCIT did not accept the contentions of the assessee and to extent of the above two items the PCIT treated the order of assessment as erroneous and prejudicial to the interests of the revenue and therefore set aside the order of assessment passed by the AO by invoking clause (a) to Explanation 2 to section 263. The assessee is in appeals before the Tribunal aggrieved by the order of the PCIT.

Before us, the ld. AR submitted that as on the date of search the assessment proceedings for the AYs 2013-13 and 2013-14 have been completed as per details given below and consequently as per the provisions of 2nd proviso to section 153A of the Act, the same are unabated assessments.

The ld AR also submitted that for AY 2015-16 the return of income was filed on 25.9.2015 and the time limit for issue of notice u/s. 143(2) of the Act expired on 30.9.2016 and therefore AY 2015-16 also is unabated. The ld. AR further submitted that the reasons for invoking the provisions of section 263 are not emanating out of any incriminating material found during the course of search and that it is a settled position of law that in respect of unabated assessment years, no addition can be made in the absence of any incriminating material. The ld. AR relied on the following decisions in this regard:-

The ld. DR relied on the order of the PCIT.

We have heard the rival submissions and perused the material on record. In the present case, the assessment in AYs 2012-13 and 2013- 14 have been completed u/s.143(3) is completed prior to the date of search i.e. 10.01.2018 and for AY 2014-15 the return filed by the Assessee was accepted and no notice u/s.143(2) of the Act was issued within the time limit laid down under those provisions to make an assessment u/s.143(3) of the Act within the time contemplated in law. The proceedings for these Assessment years were not pending and did not abate by virtue of the second proviso to Sec.153A(1) of the Act, which provides that any assessment proceedings for any of the six assessment years set out in Sec.153A (1) of the Act, which is pending as on the date of initiation of search u/s.132 of the Act, such assessment proceedings would abate and the AO will make one assessment after considering the original return of income as well as materials found in the course of search. The assessment proceedings which have been completed as on the date of search u/s.132 of the Act will however continue to remain valid. Thus the former proceedings are referred to as “abated assessment proceedings” and the latter proceedings are referred to as “unabated assessment proceedings”. Therefore the scope of making assessment of total income u/s.153A of the Act in an unabated assessment proceedings is limited and can be only of assessing income that is not disclosed which is detected or which emanates from material found in the course of search of the Assessee, as has been held by the Hon’ble Karnataka High Court in the case of M/S. Delhi International Airport Ltd. (supra).

In assessee’s case the assessment is completed u/s.143(3) r.w.s. 153A and as per the ratio laid down by the Hon’ble High Court the scope of making additions by the AO is restricted only to income that is not disclosed which is detected or which emanates from material found in the course of search which are incriminating. The impugned issue of assets written off and the expenditure claimed without TDS for which the PCIT has invoked the revisionary power are not arising out of incriminating material and have already been disclosed in the financials of the assessee. The AO therefore could not have made any addition towards the same. We therefore are of the considered view that treating the order of assessment passed u/s.143(3) r.w.s 153A as erroneous on this ground is not tenable and that the PCIT is not correct in invoking the revisionary powers u/s.263. Accordingly the order passed u/s.263 by the PCIT is quashed.

Since the additional ground no.2 is allowed in favour of the assessee the rest of the grounds have become academic.

In the result, all three appeals by the assessee are partly allowed Pronounced in the open court on this 19th day of December, 2022.