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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & Ms PADMAVATHY S
IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND Ms PADMAVATHY S, ACCOUNTANT MEMBER
ITA Nos.756 to 762/Bang/2021 Assessment years : 2009-10 to 2015-16 Sri M G Anand Reddy, Vs. The Assistant Commissioner Sy.No.46/1 & 46/2, of Income Tax, Yadavanahalli Village, Central Circle 2(1). Anekal Taluk, Attibele Hobli, Bengaluru. Bengaluru – 562 107. PAN: AARPA 3047J APPELLANT RESPONDENT Appellant by : Shri V. Srinivasan, Advocate Respondent by : Shri Manjunath Karkihalli, CIT(DR)(ITAT), Bengaluru. Date of hearing : 12.09.2022 Date of Pronouncement : 20.09.2022 O R D E R Per Padmavathy S., Accountant Member
ITA No. 756/Bang/2021 to 762/Bang/2021 are 7 appeals by the Assessee against 5 orders of CIT(A)-11, Bangalore, all dated 26.02.2021 in relation to AY 2009-10 to 2015-16. Since common issues are involved, these appeals were taken up together for hearing. We deem it convenient to pass a common order.
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The common issues in all these appeals and the relevant grounds are tabulated below for ease of reference -
Issues raised AY AY AY AY AY AY AY 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 General Ground 1,2,3, 1,2,3, 1,2,3, 1,2,3, 1,2,3, 1,2,3, 1,2,3, Nos. 7,11,12 7,10,11 7,10,11 7,9,10 7,9,10 7,9,10 7,9,10 Validity of the 4 4 4 4 4 4 4 search – Ground No. Addition 5 5 5 5 5 5 5 towards unaccounted sales – Ground No. Disallowance 6 6 6 N/A N/A N/A N/A u/s.10B – Ground No. Transfer Pricing 8 8 8 6 6 6 N/A adjustment – Ground No. Deficit Stock – N/A N/A N/A N/A N/A N/A 6 Ground No. Tax Credit 9 N/A N/A N/A N/A N/A N/A Interest 10 9 9 8 8 8 8 u/s.234B – Ground No. 3. The general grounds and the ground on interest u/s.234B being consequential do not warrant a separate adjudication. Ground No.4 raised challenging the validity of the search is not pressed by the ld AR during the course of hearing and the same is dismissed as not pressed.
The assessee is an individual deriving income under the head business and profession and other sources. The assessee is in the business of trading in marble and granite slabs and runs the business in the name and style of M/s. Hindustan marble and granite. A search and
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seizure operation under section 132 of the income tax act 1961 (the act) was carried out in the case of the M/s. Hindustan marble and granite and residential premises of the assessee on 25.11.2014. Thereafter a notice u/s.153A of the Act was issued on 12.08.2015 for the AY 2009-10 to AY 2014-15 and notice u/s.143(2) was issued om 23.02.2016 for AY 2015-16. The assessee filed the return of income for AY 2009-10 to AY 2014-15 in response to notice under section 153A declaring the same income offered in the original return of income filed by the assessee. There was also a search conducted by the Directorate of Revenue Intelligence (DRI) on 03.04.2012 and on 05.04.2012 in the factory premises, office premises and the residents. Based on several documents seized during the search, the DRI issued a show cause notice to the assessee on 12.08.2015 alleging that the assessee has diverted the imported stock of marble and granite into the Domestic Tariff Area (DTA) in violation of the Foreign Trade Policy (FTP). The assessing officer during the proceedings under section 153A took cognizance of the show cause notice issued by the DRI where it is stated that the marble slabs manufactured by M/s. Hindustan Granites was diverted into the domestic tariff area (DTA) in violation of foreign trade policy (FTP) and proceeded to make an addition treating the said quantum of marble slaps as unaccounted sales. The assessing officer also made a disallowance of deduction claimed under section 10B by the assessee on the ground that the assessee failed to substantiate the claim with the documentary evidences and that the export sales as shown by the assessing for the
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purpose of claiming deduction under section 10B includes Internet transfers and sales against EPCG license holder. The CIT (appeals) confirmed the additions/disallowance made by the assessing officer on the ground that the assessee did not produce any documentary evidence in support of the claim. The assessee is an appeal before the tribunal against the order of the CIT (appeals).
We shall first taken up for consideration ITA No.756 to 760/Bang/2021, relating to AY 2009-10 to 2013-14, in so far as it relates to making an addition towards unaccounted sales, disallowance u/s.10B. As the facts and circumstances in which this addition was made in these five appeals are similar and raises question with regard to scope of powers of an AO while framing assessment u/s.153A of the Act in respect of income which does not emanate from any material found in the course of search, we deem it appropriate to take up this issue for consideration for these five AYs together.
The details of return of income filed by the assessee for AY 2009-10 to 2013-14 and the status of regular assessment proceedings are as per the details given below:
AY Date of filing Status of Due Date Remarks of return of assessment for issue of income u/s.143(3) notice u/s. (ROI) 143(2) 2009-10 29.09.2009 Completed 143(3) order dated 30.03.2013 2010-11 29.09.2009 Completed 143(3) order dated 13.03.2014 2011-12 30.09.2011 Completed 143(3) order dated 28.03.2014
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2012-13 30.03.2013 30.09.2013 No notice u/s. 143(2) issued 2013-14 30.11.2013 30.09.2014 No notice u/s. 143(2) issued 7. The submission of the ld. AR was that the above addition made by the AO in all the aforesaid assessment years are not based on any incriminating material found in the course of search of the Assessee. It is submitted that the assessing office has made the impugned addition based on the show cause notice issued by DRI which is issued after the completion of the assessee. Therefore the ld AR contended that the impugned additions cannot be said to be made based any incriminating material found during the course of search. Our attention was drawn to a decision of the Bangalore Bench of the Tribunal in the case of Yunus Zia v. DCIT, ITA Nos.126 to 130/Bang/2013 for AYs 2003-04 to 2007-08 order dated 20.3.2020 wherein the Tribunal has after analysis of the legal position come to the conclusion that where an assessment has already been completed for an AY and subsequently an assessment is made for the same AY u/s.153A of the Act, any addition u/s. 153A of the Act for that AY, cannot be made de hors incriminating material found in the course of search. In this regard, the ld AR Assessee brought to our notice that for AYs 2009-10 to 2011-12 the regular assessment u/s.143(3) is already completed and for the assessment year 2012-13 and 2013-14 the assessments are deemed to have been completed prior to the search as no notice was issued u/s.143(2) of the Act in respect of original returns filed for those years by the Assessee and therefore the AO cannot make an assessment or addition without any incriminating material. Our attention was also drawn to a recent
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decision of the Hon’ble Karnataka High Court in the case of Prl.CIT and another Vs. M/S.Delhi International Airport Pvt.Ltd. ITA No.322/2018 order dated 29.9.2021, wherein the law was explained that in unabated assessments completed prior to search, there can be no addition without material having been found in the course of search. The earlier decisions rendered by the Hon’ble Karnataka High Court and other High Courts were duly considered and there is no dispute on this aspect and the fact that the said decision is the law as of today on the subject rendered by the Hon’ble Karnataka High Court. In this regard there is also no dispute that the assessment for AY 2009-10 to 2013-14 have to be regarded as unabated assessments completed prior to search as the assessment u/s.143(3) is completed for AY 2009-10 to 2011-12 and for AY 2012-13 and 2013-14 the return filed by the Assessee has been accepted since no notice u/s.143(2) of the Act within the time limit laid down therein has been issued. It was thus contended by ld. AR that since pursuant to the return of income filed by the assessee for the AY 2012-13 and 2013-14, the acknowledgement has already been issued by the AO and since no further proceedings by issue of notice u/s. 143(2) within the time contemplated by law was issued, those assessments become final and for AY 2009-10 to 2011-12 assessment is already completed u/s.143(3). Therefore it was contended that these assessments can be disturbed only if incriminating material is found in the course of search. He highlighted the fact that both the additions made with regard to unaccounted sales and disallowance u/s.10B has no relevance
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whatsoever to any material found in the course of search. The addition made towards unaccounted sales is based on the showcause notice issued by DRI and not based on any incriminating material found during the course of search. Since the addition in question have been made without any reference to any incriminating material found as a result of search, both the additions made by the AO deserves to be deleted.
The learned DR relied on the order of the CIT(A) and submitted that the scope of assessment proceedings u/s.153A of the Act is not limited to material found in the course of search and in this regard reiterated the ratio laid down by Hon’ble Karnataka High Court in the case of Canara Housing Development Vs. DCIT (2014) 49 Taxxman.com 98 (Karn.).
We have considered the rival submissions. In the present case, the assessment in all the five AYs 2009-10 to 2013-14 have already been completed prior to the date of search in the sense that for AY 2009-10 to 2011-12, the assessment u/s.143(3) is completed and for AY 2012-13 and 2013-14, 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 abated by virtue of the second proviso to Sec.153A(1) of the Act, which provides that any assessment proceedings for any of the six
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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 some other person and which relate to the Assessee, as has been held by the Hon’ble Karnataka High Court in the case of M/S. Delhi International Airport Ltd. (supra). Since the impugned addition made towards the unaccounted sales and disallowance u/s.10B is not based on any incriminating material found during the course of search, the additions are liable to be deleted.
For AY 2009-10 to 2011-12, the assessee raised grounds (Ground no.8) pertaining to the transfer pricing adjustment made during the course of regular assessments. The ld AR submitted that though these additions do not emanate from the orders under appeal here, this ground is raised since the assessing office while passing
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order u/s.143(3) r.w.s.153A had adopted the assessed income from regular assessment as the starting point.
We heard the parties. The addition made towards transfer pricing adjustments contended here is not arising out of the orders appealed before the Tribunal. Therefore we dismiss this ground with a direction to the assessing officer give effect to the orders passed by the appellate authorities in the appeal proceedings relating to the original assessment.
For assessment year 2009-10 the assessee raised a ground (Ground 9) contending the tax credit of Rs.22,23,680 paid by the assessee during regular assessment. We in this regard direct the assessing officer to verify and allow the tax credit accordingly.
We will now take up ITA No.761 and 762/Bang/2021, relating to AY 2014-15 and 2015-16 for adjudication. In these assessment years similar addition relating unaccounted sales to the income declared in the return of income filed u/s.153A of the Act was made by the AO. These additions in these two AYs will not fall within the ambit of the ratio laid down by the Hon’ble Karnataka High Court in the case of M/S.Delhi International Airport Ltd. (supra). Therefore we will adjudicate these two appeals based on merits.
In the assessment for AY 2014-15 and 2015-16, the assessing officer has made the addition towards unaccounted sales by holding that the assessee has diverted the imported stock of marbles and
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granites in violation of the FTP and sold the same in the DTA instead of re-exporting the said material after processing for which concessional rate of duty was prescribed. The assessing officer based on based on the show cause notice issued by DRI dated 12.08.2015 tabulated the deviations as given in the show cause notice and arrived at the assessable value of the transaction at Rs.180,56,39,456 on which he applied the gross profit ratio to arrive at the addition.
The learned AR submitted that the search by the income tax department was conducted on 25.11.2014. During the course of search no incriminating material was found by the revenue. It is also submitted that the entire addition of unaccounted sales is based on material found by DRI and on the basis of show cause notice issued by DRI. This according to the learned AR does not culminate into any findings since the show cause notice issued by DRI is only an allegation and not final finding by DRI. The learned AR brought to our attention that the show cause notice has not been actioned by DRI till date and therefore the issue of diverting the marble slabs manufactured into DTA in violation of FTP has not reached finality and still continues to be only an allegation. The learned AR also submitted that the revenue has simply taken the show cause notice as the basis for making the addition without any application of mind on their part or on the basis of any material found during the course of search. The learned AR for the submitted that the allegation of DRI is only the removal of marble slabs manufactured into the DTA in violation of FTP and the same cannot be assumed as a removal made for sales
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which are unaccounted. It is the submission of the learned AR that even assuming that the assessing officer has made the addition based information received under section 132A, the procedure as contained in the said section has not been complied with and therefore contended that the addition should be deleted.
The learned DR submitted that at the time of search the show cause notice was not available since the DRI issued a show cause notice post the search and therefore the same has been taken into consideration by the assessing officer during the proceedings under section 153A which were pending at the time of receipt of show case notice. The material received from DRI according to the learned DR is a valid material which is incriminating nature. It is also the submission of the learned DR that the material received before the conclusion of the search can be used by the revenue for making additions in the proceedings under section 153A.
We have heard the rival submissions and produced the material on record. We notice that the assessing officer issued the notice under section 153A on 12.08.2015 which is the same day as that of the show cause notice issued by DRI. The assessing officer has tabulated the deviations in the marble slabs manufactured which are considered to be diverted into DTA according to the DRI to arrive at the assessable value of the marble slabs at Rs.180,56,39,456 and has apportioned the amount based on the turnover of the assessee for each of the assessment years. The assessing office then applied the profit ratio on
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the amount so apportioned to make the additions in each of the years. Though the search was conducted on 24.11.2014, the assessing officer issued a notice under section 153A on the same date when the show cause notice was issued by DRI. It is an admitted fact that during the course of search by the revenue no incriminating material was found and that the entire addition in the order under section 143(3) r.w.s.153A is based on the show cause notice issued by DRI. Therefore whether the show cause notice issued by DRI after the date of search but before the conclusion of the proceedings can be used for making the addition is the issue for our consideration. In the given case the assessing officer has used the material that is not seized during the course of such under section 132 but has used a material which is coming to his possession post the search. It is the contention of the ld AR that if the assessing officer invoked section 132A of the Act, then the procedure laid down in the said section should have been followed Before we proceed further we will look at the provisions of section 132A which is extracted below –
“132A. (1) Where the Principal Director General or Director General or Principal Director or Director or the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, in consequence of information in his possession, has reason to believe that— (a) any person to whom a summons under sub-section (1) of section 37 of the Indian Income-tax Act, 1922 (11 of 1922), or under sub-section (1) of section 131 of this Act, or a notice under sub-section (4) of section 22 of the Indian Income-tax Act, 1922, or under sub-section (1) of section 142 of this Act was issued to produce, or cause to be produced, any books of account or other documents has omitted or failed to produce, or cause to be produced, such books of account or other documents, as required by such summons or notice and the said books of account or other documents have been taken into custody by any officer or authority under any other law for the time being in force, or
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(b) any books of account or other documents will be useful for, or relevant to, any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act and any person to whom a summons or notice as aforesaid has been or might be issued will not, or would not, produce or cause to be produced, such books of account or other documents on the return of such books of account or other documents by any officer or authority by whom or which such books of account or other documents have been taken into custody under any other law for the time being in force, or (c) any assets represent either wholly or partly income or property which has not been, or would not have been, disclosed for the purposes of the Indian Income-tax Act, 1922 (11 of 1922), or this Act by any person from whose possession or control such assets have been taken into custody by any officer or authority under any other law for the time being in force, then, the Principal Director General or Director General or Principal Director or Director or the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may authorise any Additional Director, Additional Commissioner, Joint Director, Joint Commissioner, Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income-tax Officer (hereafter in this section and in sub- section (2) of section 278D referred to as the requisitioning officer) to require the officer or authority referred to in clause (a) or clause (b) or clause (c), as the case may be, to deliver such books of account, other documents or assets to the requisitioning officer. Explanation.—For the removal of doubts, it is hereby declared that the reason to believe, as recorded by the income-tax authority under this sub-section, shall not be disclosed to any person or any authority or the Appellate Tribunal. (2) On a requisition being made under sub-section (1), the officer or authority referred to in clause (a) or clause (b) or clause (c), as the case may be, of that sub-section shall deliver the books of account, other documents or assets to the requisitioning officer either forthwith or when such officer or authority is of the opinion that it is no longer necessary to retain the same in his or its custody. (3) Where any books of account, other documents or assets have been delivered to the requisitioning officer, the provisions of sub-sections (4A) to (14) (both inclusive) of section 132 and section 132B shall, so far as may be, apply as if such books of account, other documents or assets had been seized under sub-section (1) of section 132 by the requisitioning officer from the custody of the person referred to in clause (a) or clause (b) or clause (c), as the case may be, of sub-section (1) of this section and as if for the words "the authorised officer" occurring in any of the aforesaid sub-sections (4A) to (14), the words "the requisitioning officer" were substituted.”
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From the plain reading of the section it is clear that the assessing officer in consequence of information in his possession he has a reason to believe, has the power to requisition books of accounts or any other document which will be useful to the proceedings u/s.153A. In the present case, as already mentioned, there is no incriminating material found during the course of search and therefore the addition made cannot be construed as made using material found during search u/s.132. If the contention of revenue is to be accepted that the material i.e. the show cause notice issued by the DRI can be used as basis for making the addition, then the assessing officer out to have requisitiond for such material u/s.132A which is not the case here. The revenue has not brought on record of having complied with the procedure u/s.132A and therefore we see merit in the argument of the ld AR. Further the document relied on by the AO is a show cause notice alleging the removal of marble slabs into DTA and is not a concluded finding that the marble slabs are sold without recording it in the books. We are unable to appreciate that the AO has not conducted any further enquiry on the allegations contained in the show cause notice of DRI but has proceeded to consider the same as incriminating material warranting the addition. There can be no presumption based on a document has come to the notice of the AO since nothing incriminating is found during the course of search in support of the alleged removal of marble slabs into DTA. In view of the above discussion we hold that the addition made by the assessing officer towards unaccounted sales is
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not sustainable and therefore delete the said additions. This issue is allowed in favour of the assessee.
The assessee raised ground (Ground No.6) for AY 2014-15 with regard to the Transfer Pricing adjustment made interest on delayed receivables. During the course of hearing the ld AR did not press for this ground and the same is dismissed as not pressed.
In AY 2015-16, the assessee raised a ground (Ground No.6) pertaining to the addition made by the assessing officer towards the difference in stock between books of accounts and physical stock. During the course of hearing the ld AR did not press for this ground and the same is dismissed as not pressed.
In the result, the appeals by the assessee are partly allowed. Pronounced in the open court on this 20th day of September, 2022.
Sd/- Sd/- ( N V VASUDEVAN ) ( PADMAVATHY S ) VICE PRESIDENT ACCOUNTANT MEMBER Bangalore, Dated, the 20th September, 2022 /Desai S Murthy /
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Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order
Assistant Registrar ITAT, Bangalore.