DCIT - CC- 6(4), MUMBAI vs. SHRI. NARENDRA GEHLAUT, MUMBAI

This is an appeal preferred by the revenue against the order of the Ld. Commissioner of Income Tax (Appeals)-54, Mumbai dated 21.10.2021 for the assessment year 2013-14.

The grounds of appeal

Brief facts the AO noted is that the assessee had filed original return of income on 29.09.2012 declaring total income at Rs.1,87,51,412/- which was revised and the assessee declared total income of Rs.2,20,26,360/-. Later, the case of the assessee was scrutinized and the AO framed the original assessment order passed

Thereafter search u/s 132 of the Act was carried out against the Indiabulls Group on 13.07.2016 (please note: - the assessee was managing director of India-bulls estate but no warrant of authorization for search was issued in the name of the assessee). Consequently, the AO issued his notice u/s 153C of the Act dated 13.10.2017 to the assessee. And pursuant to which the assessee filed his return of income on 30.12.2017 declaring total income at Rs.2,20,26,360/-. Thereafter, AO framed the re-assessment and while doing so, took note of the additions made by predecessor AO in the original assessment order u/s 143(3) of the Act dated 29.03.2016. And he retained those additions in the re-assessment order u/s 153C r.w.s. 143(3) of the Act dated 31.12.2018 wherein he made addition on three (3) counts as under: - (Refer para 3.2 page no. 3 re-assessment order dated 31.12.2018) Sr. Nature of addition made in the original assessment Amount (Rs.) No. order dated 29.03.2016 1 Addition u/s 68 representing unproved loans 3,24,00,000 2 Addition u/s 68 treating the consideration received 8,33,30,000 on sale of shares as unexplained credits 3 Long Term Capital loss on account of forfeiture of 10,80,00,000 share warrants treating the same to be dubious and bogus

Then the AO assessed the total income of the assessee as under:

Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to delete the same and deleted the additions made by the AO on the ground that assessment for AY 2013-14 was an unabated assessment (as per second proviso of Section 153A of the Act); and since the AO has made and additions without referring to any incriminating material, he by relying upon the decision of the jurisdiction High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (2015) 374 ITR 645 and Hon’ble Supreme Court decision in the case of CIT Vs. Singhad Technical

We have heard both the parties and perused the records. We note that the assessee (individual) had undergone scrutiny assessment for the relevant assessment year (AY. 2013-14) u/s 143(3) of the Act dated 29.03.2016 wherein the total income was assessed at Rs.22,10,36,360/- (refer page no. 29 of the assessment order dated 29.03.2016) wherein the AO computed the total taxable income as under: - Income as per return Rs.10,53,06,360/- Add: (i) Addition as per 3.11 u/s 68 of the Rs.3,24,00,000/- Act (bogus unsecured loan) (ii) Addition as per para 4.11 u/s 68 of the Rs.8,33,30,000/- Act (bogus capital gain Total taxable income Rs.22,10,36,360/-

Thereafter search u/s 132 of the Act took place against M/s. India-bulls Group on 13.07.2016 and admittedly no warrant of authorization of search was issued in the name of the assessee even though he was the managing director of M/s. India-bulls Real Estate Ltd. Thereafter, the AO issued notice u/s 153C of the Act dated 13.10.2017 and framed the re-assessment u/s 153C r.w.s 143(3) of the Act dated 31.12.2018 wherein he reiterated the additions made by his predecessor vide his order dated 29.03.2016 [(i) Rs.3,24,00,000/- representing unproved loans (addition u/s 68 of the Act on sale of shares) (ii) Rs.8,33,30,000/- and (iii) long term capital loss of Rs.10,80,00,000/-]. And thereafter re-assessed the total income of the Narendra Gehlaut assessee at Rs.13,77,56,364/-. On appeal, the Ld. CIT(A) taking note that on the date of search (i.e. dated 13.07.2016) since the assessment for AY. 2013-14 was no longer pending before the AO (original assessment u/s 143(3) of the Act framed on 29.03.2016), he taking note of the second proviso to section u/s 153A of the Act held that the assessment for AY. 2013-14 was unabated. Thereafter, the Ld. CIT(A) taking note of the settled position of law that when an assessment was unabated (viz. not pending before the AO on the date of search) then the AO can make addition u/s153A/153C of the Act only on the basis of incriminating materials qua assessee qua assessment year. And the Ld. CIT(A) noted that the AO in the re-assessment u/s 153C of the Act while reiterating the additions made by his predecessor (AO) in the original assessment (dated 29.03.2016) has not mentioned about any incriminating material for making the additions. Taking note of this crucial fact, the Ld. CIT(A) based on the judicial precedents laid by the Hon’ble Supreme Court and jurisdictional High Court, deleted the additions. In this regard, we find that on the date of search, (i.e. on 13.07.2016), the assessment of assessee for AY. 2013-14 was not pending before the AO, therefore it was a non-abated assessment and therefore on the settled position of law, the AO could have only made additions with the aid of incriminating materials qua assessee qua assessment year in question i.e. AY. 2013-14. We find that AO while framing the re-assessment u/s 153C of the Act has reiterated the additions made in the original assessment u/s 143(3) of the Act dated 29.03.2016; and while doing so, the AO has not referred to any Narendra Gehlaut incriminating materials found during the search which belongs/relates to assessee. Therefore, the Ld. CIT(A) rightly deleted the additions. So, we uphold the impugned action of the Ld. CIT(A) on the strength of the judicial precedents relied upon by him in the aforesaid facts and circumstances of the case. The Ld. CIT(A) rightly took note of the decision of Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. 374 ITR 645 (Bom) wherein the High Court held as under: - “On a plain reading of section 153A, it becomes clear that on initiation of the proceedings under section 153A, it is only the assessment/reassessment proceedings that are pending on the date of conducting search under section 132 or making requisition under section 132/4 stand abated and not the assessments / reassessments already finalised for those assessment years covered under section 153A. By a Circular No. 8 of 2003, dated 19-9-2003 (See 263 ITR (St) 61 at 107) the CBDT has clarified that on initiation of proceedings under section 153A, the proceedings pending in appeal, revision or rectification proceedings against finalised assessment / reassessment shall not abate. It is only because, the finalised assessments / reassessments do not abate, the appeal revision or rectification pending against finalised assessment / reassessments would not abate. Therefore, the argument of the revenue, that on initiation of proceedings under section 153A, the assessments / reassessments finalised for the assessment years covered under section 153A stand abated cannot be accepted. Similarly on annulment of assessment made under section 153A(1) what stands revived is the pending assessment/reassessment proceedings which stood abated as per section 153A(1).”

In this regard, it is gainful to refer to decision of the Hon'ble Supreme Court in the case of CIT v/s Singhad technical education Society in Civil Appeal No.11080 of 2017 and others wherein the Hon’ble Supreme Court at paragraph 18 of the said order observed that: “In this behalf it was noted by the ITAT that as per provisions of section 153C of the act, incriminating material which was seized had to pertains to assessment years in question and it is an undisputed fact that the documents which were seized did not establish any correlation, document wise, with these for assessment years since this requirement under section 153C of the act is essential for assessment under the provision it becomes a jurisdictional defect. We find this reasoning to be logical and valid having regard to the provisions of section 153C of the Act.”

In the result, the appeal of the revenue stands dismissed. Order pronounced in the open court on this 23/09/2022.