CONFIDENT PROJECTS (INDIA) PRIVATE LIMITED,BANGALORE vs. THE PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL), BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES “A”, BANGALORE Before Shri George George K, JM & Shri Laxmi Prasad Sahu, AM ITA No.409/Bang/2021 : Asst.Year 2011-2012 ITA No.336/Bang/2021 : Asst.Year 2012-2013 M/s.Confident Projects (India) The Principal Commissioner of Private Limited, Income-tax (Central) v. Bangalore. No.574 Park House, 8th Block Koramangala Bangalore – 560 095 PAN : AACCC7506L (Appellant) (Respondent) Appellant by : Smt.Pooja Maru, CA Respondent by : Sri.Sumer Singh Meena, CIT-DR Date of Pronouncement : 13.05.2022 Date of Hearing : 12.05.2022 O R D E R Per George George K, JM : These appeals at the instance of the assessee are directed against two orders of the Pr.CIT passed u/s 263 of the I.T.Act, both dated 19.03.2021. The relevant assessment years are 2011-2012 and 2012-2013.

“1. The order of Principal Commissioner in so far as it is against the appellant, is opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case. 2. The Learned Principal Commissioner has erred in initiating proceedings u/s 263 of the Act and passing the order u/s 263 of the Act subsequently setting aside the order

2 ITA No.336-409/Bang/2021. M/s.Confident Projects (India) Private Limited. passed u/s 153A rws 143(3) rws 153D of the Act for examining the allowability of deduction u/s 80IB of the Act, when there was no scope for making any disallowance by the Assessing Officer in the order passed by him u/s 153A rws 143(3) rws 153D of the Act, since no incriminating documents whatsoever was found during search operations u/s 132 of the Act on the appellant. The action taken by the Ld. Pro CIT, is ab-initio-void and accordingly order passes u/s 263 of the Act is liable to be quashed. 3. The Ld. Pri.CIT, erred in coming to prima-facie conclusion that the appellant is not eligible to claim deduction under section 80IB of the Act. The action of the Ld. Pri. CIT, in coming to such conclusion was not justified in the facts of the case. 4. The ld. PCIT failed to appreciate that the assessment u/s 143(3) for the AY 2012-13 was already completed verifying the 80IB claim of the appellant. 5. There is no incrementing material found during the time of search with regard to the claim of 80IB. 6. That in the facts and circumstances of the case, the order passed by Learned Assessing Officer u/s 153A rws 143(3) rws 153D of the Act was not erroneous. It is respectfully submitted that we may be permitted to add, delete and I or put forward any other grounds and fact of appeal and other related points at the time of hearing.”

3 ITA No.336-409/Bang/2021. M/s.Confident Projects (India) Private Limited. r.w.s. 153A of the I.T.Act was passed on 22.12.2017. Thereafter, Pr.CIT issued notice u/s 263 of the I.T.Act directing the assessee to explain why deduction claimed u/s 80IB of the I.T.Act for assessment years 2011-2012 and 2012-2013 should not be denied. The assessee filed objections to the show cause notice issued by the Pr.CIT. However, the Pr.CIT rejected the objections of the assessee and passed the impugned orders u/s 263 of the I.T.Act. The Pr.CIT set aside the orders passed u/s 143(3) r.w.s. 153A of the I.T.Act (order dated 22.12.2017 for both the assessment years, namely, 2011-2012 and 2012-2013) and directed the A.O. to reexamine the claim of deduction u/s 80IB of the I.T.Act.

4 ITA No.336-409/Bang/2021. M/s.Confident Projects (India) Private Limited.

“30. Thus, it is clear that the Assessing Officer while passing the order under Section 153A read with Section 143(3) of the Act, ordinarily cannot disturb the assessment / reassessment order which has attained finality, unless the materials gathered in the course of the proceedings establishes that the finalized assessments are contrary to the material unearthed during the course of 153A proceedings, as held by the Co- ordinate Bench of this Court in the case of IBC Knowledge Park (P) Ltd. supra. A concluded assessment could not be disturbed without there being any basis for doing so which is impermissible in law. Even in case of a searched person, the same reason would hold good…………………..” 6.1 The judgment of the Hon’ble Delhi High Court in the case of CIT v. Kabul Chawla reported in (2016) 380 ITR 573 (Delhi) had summarized the legal position as regards assessment u/s 153A of the Act, as follows:-

5 ITA No.336-409/Bang/2021. M/s.Confident Projects (India) Private Limited.

"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: i. Once a search takes place under Section 132 of the Act, notice under Section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six A Ys immediately preceding the previous year relevant to the A Y in which the search. takes place. ii. 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 afresh 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 153A is relatable to abated proceedings (i.e. 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 A Y on the basis of the findings of the search and any ether material existing or brought on the record of the AO. vi. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on

6 ITA No.336-409/Bang/2021. M/s.Confident Projects (India) Private Limited. 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."

6.2 The Hon’ble jurisdictional High Court in the case of Pr.CIT v. M/s.Delhi International Airport Pvt. Ltd. (supra) had also referred to the judgment of the Hon’ble Delhi High Court in the case of CIT v. Kabul Chawla (supra) (Refer para 20 of the Karnataka High Court judgment). From the above judicial pronouncements, cited supra, it is clear that the assessments which are not pending and hence does not abate, the addition can be made only on the basis of incriminating material found during the course of search.

6.3 In the instant case, admittedly, there is no incriminating material found during the course of search u/s 132 of the I.T.Act and the assessment orders for the relevant assessment years, namely, A.Y. 2011-2012 and 2012-2013 had already been concluded as on the date of search. Hence, deduction u/s 80IB of the I.T.Act, which is already allowed in the assessments completed u/s 143(3) of the I.T.Act (for assessment year 2011-2012 the assessment completed vide order dated 10.05.2013 and for assessment year 2012-2013, the assessment u/s 143(3) was concluded on 14.08.2014) cannot be denied unless incriminating material is found during the course of search, warranting disallowance. Therefore, on the fact of the instant case, in an assessment completed u/s 143(3) r.w.s. 153A of the I.T.Act, pursuant to search u/s 132 of the I.T.Act, the A.O. could not have

7 ITA No.336-409/Bang/2021. M/s.Confident Projects (India) Private Limited. disallowed the claim of deduction u/s 80IB of the I.T.Act. The Pr.CIT is seeking to revise the assessment orders completed u/s 143(3) r.w.s. 153A of the I.T.Act. When the Assessing Officer u/s 143(3) r.w.s. 153A of the I.T.Act, cannot deny the claim of deduction u/s 80IB of the I.T.Act (in absence of incriminating material), the Pr.CIT in a revisionary proceeding cannot direct the AO to disallow the claim of deduction. In other words, there is no error in the assessment orders completed u/s 143(3) r.w.s. 153A of the I.T.Act (since there is no incriminating material found during the course of search pertaining to the claim of deduction u/s 80IB of the I.T.Act), warranting interference by Pr.CIT u/s 263 of the I.T.Act.

6.4 A similar view has been taken by the Bangalore Bench of the Tribunal in the case of Shri S.R.Ravishankar v. Pr.CIT in ITA No.1013/Bang/2019 (order dated 22.02.2022). The relevant finding of the Tribunal reads as follows:-

“8. As far as additional ground of appeal is concerned, we have heard the rival submissions. It is seen that the order u/s. 153A of the Act is made accepting the returned income. There was no addition made in the order u/s. 153A of the Act based on any seized materials. There was no seized material found leading to undisclosed income. It is a settled proposition that in respect of non-pending / unabated assessments, any addition can be made only on the basis of incriminating material in an assessment u/s 153A of the Act. It has been so held in the following decisions: a) CIT v. Sinhgad Technical Education Society 397 ITR 344 (SC) b) CIT Vs IBC Knowledge Park P. Ltd 385 ITR 346 (Kar) c) ACIT Vs Cornerstone Properties Pvt Ltd (ITA No. 1714 to 1717/Bang/2013) d) CIT Vs Kabul Chawla 380 ITR 573 (Del) e) Sree Lakshmi Venkateshwara Minerals v. DCIT 186 ITD 695 (Bang) (Para 31)

8 ITA No.336-409/Bang/2021. M/s.Confident Projects (India) Private Limited. proceedings under section 153A of the Act held that once there is a search all past assessment orders will not subsist and it is only the order passed u/s.153A of the Act that will survive. The Hon’ble Karnataka High Court in the case of IBC Knowledge Park (2016) 385 ITR 346 (Karn.), after considering the decision in the case of Canara Housing Development Co., (supra) took the view that any proceedings under section 153C of the Act additions cannot be made without there being incriminating material found during the course of search based on which the addition is made. Recently, the Hon’ble Karnataka High Court in the case of M/s. Delhi International Airport Pvt. Ltd., ITA No.322/Bang/2018, judgment dated 29.09.2021 considered all the decisions on the point viz., the decision in the case of Canara Housing Development Co., (supra), IBC Knowledge Park (supra) and other decision of various High Courts, the Court held even in the context of section 153A of the Act, there cannot be an addition in a concluded assessment prior to the search unless such additions are justified by any material found in the course of search. The following were the relevant observations of the Hon’ble High Court: “30. Thus, it is clear that the Assessing Office: while passing the order under Section 153A read with Section 143[3] of the Act, ordinarily cannot disturb the assessment/reassessment order which has attained finality, unless the materials gathered in the course of the proceedings establishes that the finalized assessments are contrary to the material unearthed during the course of 153A proceedings, as held by the Coordinate Bench of this Court in the case of IBC Knowledge Park (P) Ltd., supra. A concluded assessment could net be disturbed without there being any basis for doing so which is impermissible in law. Even in cast of a searched person, the same reason would hold good. As observed in Canara Housing Development Company supra, the Assessing Officer is empowered to assess or reassess the total income of six assessment years i.e., the income which was returned in the earlier return, the income which was unearthed during search and also any income which was not disclosed in the earlier return or which was not unearthed during the search by separate assessment orders but in our considered view the completed assessments should be subject to the safeguards provided in IBC Knowledge Park (P) Ltd. supra. "54. On u consideration of the relevant sections as well as judicial precedent referred to above, what emerges is that, Section 158BD of 'the API deals with undisclosed income of a third party. However, insofar as the incriminating material of the searched person or other person detected during the course of search is concerned, the same can be considered during the course of assessment. Further, such incriminating material must relate to undisclosed income which would empower the Assessing Officer to upset or disturb a concluded assessment of the other person. Otherwise, a concluded assessment would be disturbed without there being any basis for doing so which is impermissible in law. Even in case of a searched person,

9 ITA No.336-409/Bang/2021. M/s.Confident Projects (India) Private Limited. the same reason would hold good as in case of any other person. As observed by us, detection or the existence of incriminating material is a must for disturbing the assessment already made and concluded. But, at the same time, such am be at three stages: one, at the stage when the reassessment is initiated, the second, at the stage during the course of reassessment and third, at u sage where the reassessment is altered by a different assessment in respect of searched person or in. respect of third party. In this regard, reference may be made to the decision of Apex Court in case of M/s. Calcutta Knitwear (supra) and based on the said decision, the CB DT has also issued circular dated 31.12.2015 vide No.24/ 2015.The relevant extract of the circular for ready reference can be extracted as under: ‘……………………..” As regards the pending assessments are concerned only one assessment shall be made separately for each assessment year on the basis of the income unearthed during search and any other material existing or brought on the record of the Assessing Officer. Even in the absence of any incriminating material abated assessment or reassessment could be done. The returns filed under Section 139 of the Act gets replaced by the returns filed under Section 153A[1] of the Act. Pending proceedings in appeal, revision/application shall not abate subsequent to initiation of Section 153A proceedings. Further, recording of satisfaction under Section 153A may not be necessary unlike Section 153C of the Act which mandates recording of satisfaction.” 10. In view of the above proposition and considering the facts of the present case, the learned assessing officer himself could not have added any amount invoking section 50C of the Act and the assessing officer could not have disturbed the carry forward of capital loss while framing assessment u/s. 153A of the Act, as no material whatsoever was found in the course of search warranting an enquiry into these aspects in an assessment u/s.143(3) read with sEc.153A of the Act. Hence, the order u/s. 153A in not doing so cannot be said to be erroneous and prejudicial to the interests of the revenue. In the assessment order made u/s. 153A of the Act dated 30.11.2016 for AY 2011- 12, no reference is made to any seized materials and the income assessed in original assessment order dated 28.06.2013 was reiterated. Hence, the learned assessing officer could not have made any addition in 153A order for the assessment year 2011-12 in respect of capital gains as there were no incriminating seized materials suggesting that the capital gains has been wrongly computed. Hence, provisions of section 263 of the Act cannot be invoked to revise of order u/s 153A of the Act. On this short point we allow the appeal of the assessee and quash the impugned order u/s.263 of the Act. In view of the aforesaid conclusion, the other issues raised by the assessee in the grounds of appeal, do not require any adjudication and hence not adjudicated.” 6.5 In the light of the aforesaid reasoning and the ITAT order

10 ITA No.336-409/Bang/2021. M/s.Confident Projects (India) Private Limited. in the case of Shri S.R.Ravishankar v. Pr.CIT (supra), we quash the impugned orders u/s 263 of the I.T.Act, since the assessment orders passed u/s 143(3) r.w.s. 153A of the I.T.Act cannot be stated to be erroneous.

Order pronounced on this 13th day of May, 2022.

Sd/- Sd/- (Laxmi Prasad Sahu) (George George K) ACCOUNTANT MEMBER JUDICIAL MEMBER Bangalore; Dated : 13th May, 2022. Devadas G* Copy to : 1. The Appellant. 2. The Respondent. 3. The Pr.CIT(Central), Bangalore. 4. The Addl.CIT, CR-1, Bangalore. 5. The DR, ITAT, Bengaluru. 6. Guard File. Asst.Registrar/ITAT, Bangalore