DY CIT CC-7(4), MUMBAI vs. SMT. ANJANA MODI, MUMBAI

This appeal in A.Y.2012-13 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-49, Mumbai in appeal No.10202/2019-20 dated 10/02/2021 (ld. CIT(A) in short) against the order of assessment passed u/s.153A r.w.s. 143(3)of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 11/12/2019 by the ld. Dy. Commissioner of Income Tax, Central Circle-7(4), Mumbai (hereinafter referred to as ld. AO).

Though the Revenue has raised several grounds, we find that one of the crucial grounds raised thereon is challenging the action of the ld. CIT(A) in deleting the addition made on account of unexplained investment in M/s. Global Capital Markets Ltd., together with commission expenditure thereon, in the search assessment completed u/s.153A of the Act, for want of incriminating material found during the course of search.

We have heard rival submissions and perused the materials available on record. We find that assessee is an individual deriving income from house property, capital gains and other sources. The original return of income was filed by the assessee u/s.139 of the Act on 30/10/2012 for the A.Y.2012-13 declaring total income of Rs.9,91,695/-. This return was duly processed u/s.143(1) of the Act. Subsequently, a search and seizure action was carried out in the case of Indo Count Industries Ltd and other group concerns on 01/02/2018. Consequent to the search, the case of the assessee was also centralized vide order of PCIT-31, Mumbai dated 11/05/2018. Consequently, notice u/s.153A of the Act was issued on 19/02/2019 to the assessee. In response to the said notice, the assessee filed return of income on 12/03/2019 declaring total income of Rs.9,91,700/-.

During the course of search assessment proceedings, the ld. AO observed that assessee had sold 2,00,000 shares of Global Capital Markets Ltd for Rs.47,32,500/- in May 2011. These shares were purchased by the assessee in November and December 2009 for Rs.13,43,068/-. The ld. AO categorized the scrip of Global Capital Markets Ltd as a penny stock involved in artificial price rigging thereon and accordingly treated the sale proceeds of Rs.47,32,500/- as a mere accommodation entry and sought to add the same as unexplained investment made by the assessee in the search assessment u/s.143(3) r.w.s. 153A of the Act dated 11/12/2019. The ld. AO also sought to add corresponding commission expenditure u/s.69C of the Act of Rs.2,36,625/- as an expenditure incurred for taking accommodation entry.

This addition was deleted by the ld. CIT(A) on the ground that there was absolutely no incriminating material found during the course of search for framing this addition. The relevant observation of the ld. CIT(A) is reproduced hereunder:-

Aggrieved by this, the Revenue is in appeal before us. Admittedly as on the date of search action of 01/02/2018, the assessment for the A.Y.2012-13 was concluded / unabated as time limit for issuance of notice u/s.143(2) of the Act on the original return filed on 30/10/2012 had expired. We find that there was absolutely no reference to any seized material made by the ld. AO for making addition in the hands of the assessee towards unexplained investment and unexplained expenditure u/s.69 and 69C of the Act respectively. The law is very well settled that in respect of unabated assessment on the date of search, the ld. AO in the search assessment proceedings cannot disturb the originally concluded assessment unless there is incriminating material found during the course of search relatable to such assessment year. Reliance in this regard is placed on the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs. Continental Warehousing Corporation Ltd., reported in 374 ITR 645 and also on the decision of the Hon’ble Delhi High Court in the case of CIT vs. Kabul Chawla reported 380 ITR 573.

We find that the ld. DR before us vehemently argued that the issue of absence of incriminating material was raised by the assessee for the first time only before the ld. CIT(A) and that the ld. CIT(A) ought not to have entertained the said ground and granted relief to the assessee. We are unable to persuade ourselves to accept to this argument of the ld. DR, in view of the fact that the ld. CIT(A) is admittedly having co-terminus powers with that of the ld. AO and also has power to enhancement which is statutorily provided to him. In any case, we find that this issue raised by the assessee for the first time before the ld. CIT(A) was purely a legal issue, which can be raised at any time during the pendency of proceedings, as it goes to the root of the matter.

With regard to yet another argument advanced by the ld. DR that the original assessment was framed only u/s.143(1) of the Act and hence, the same would not tantamount to framing of assessment at all. Reliance in this regard was placed by the ld. DR on the decision of the Hon’ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers reported in 291 ITR 500 and in the case of Zuari Estate Development & Investment Co. Ltd., reported in 63 Taxmann.com 177 (SC). We find that these decisions were rendered in the context of re-assessment proceedings u/s.147 of the Act and hence, not applicable in search assessment proceedings as is the case before us. The ld. DR by placing reliance on the aforesaid decisions tried to drive home the point that since 143(1) proceedings cannot be termed as an assessment, there is no question of unabated assessment and hence, the ld. AO was justified in making the impugned additions in the search assessment completed u/s.153A of the Act for the year under consideration. He also placed reliance on the following decisions in support of his contentions:-  CIT Vs. St. Francis Clay Decor Tiles 70 taxmann.com 234 (Ker) (2016)  E.N. Gopakumar Vs. CIT 75 taxmann.com 215 (Ker)(2016)  CIT Vs. Raj Kumar Arora 52 taxmann.com 172 (All)(2014)  PCIT Vs. Param Dairy Ltd. 133 taxmann.com 148 (SC)(2021) wherein the Hon'ble Apex Court has granted SLP and issued notice against the decision of Hon'ble Delhi HC wherein it is held that completed assessments can be interfered with by the AO while making assessment u/s 153A only on the basis of some incriminating material unearthed during the course of search which was not produced or not already disclosed or made known in the course of original assessment.  PCIT Vs. Gaurav Arora 133 taxmann.com 293 (SC)(2021) wherein the Hon'ble Apex Court has granted SLP and issued notice against the decision of Hon'ble Delhi HC

We find that in some of the years that went up to the Hon’ble Bombay High Court in the case of Continental Warehousing Corporation Ltd., assessments were indeed completed only u/s.143(1) of the Act. Moreover, the aspect of the return not getting selected for scrutiny is certainly not in the control of the assessee and it is purely the prerogative of the income tax department whether to select the case for scrutiny or not. Hence, once the requisite time limit for issuance of scrutiny notice u/s.143(2) of the Act had expired, the assessee would be justified in entertaining a honest belief that assessment for the concerned assessment year had been completed by the Assessing Officer. Infact, the Hon’ble Delhi High Court in the case of Kabul Chawla reported in 380 ITR 573 had elaborately dealt this aspect of assessment getting completed u/s.143(1) of the Act and concluded that even for such assessment, no addition could be framed in 153A proceedings unless there is incriminating material found during the course of search relatable to such assessment year. The said decision also covers all the decisions relied upon by the ld. DR before us. It is also pertinent to note that the Special Leave Petition (SLP) preferred by the Revenue before the Hon’ble Supreme Court against the decision of the Hon’ble Delhi High Court in the case of Kabul Chawla referred to supra had been dismissed by the Hon’ble Apex Court which is reported in 380 ITR (ST)4 (SC). Though SLP has been granted by the Hon’ble Apex Court in some of the cases referred to supra on the impugned issue of existence of incriminating material found during search for framing addition in respect of unabated assessment , we find that as on date, the issue is squarely covered in favour of the assessee in Continental warehousing corporation referred supra. Hence we are bound to follow the same and decide the issue before us.

In view of the aforesaid detailed observations, we have no hesitation in confirming the order of the ld. CIT(A) and dismiss the appeal of the Revenue on the legal issue. The ground No.4 raised by the Revenue is dismissed. Since the relief is granted to the assessee on the legal issue, the issues raised on merits by the Revenue are left open as adjudication of the same would be academic in nature.

In the result, appeal of the Revenue is dismissed.