INDUSTRIAL MINERAL CO, 100%EOU,TUTICORIN vs. ACIT,CENTRAL CIRCLE-1, MADURAI, MADURAI

6. The CIT(A) further failed to appreciate that surmises and conjectures by the officer cannot be the basis to extend the time limit beyond the six years and hence the notice u/s.153A and the assessment framed are liable to be annulled.

7. The CIT(A) was not justified in adjudicating the various issues raised by assessee in its grounds of appeal without affording adequate opportunity and hence the order is liable to be set aside.

8. The CIT(A) ought to have seen that the assessee had to collate voluminous data for submission in the appeal proceedings and hence was not correct in concluding the appeal in haste and confirming most of the additions made in the assessment.

9. The CIT(A) ought to have seen that the order is in violation of principles of natural justice for the lack of inadequate opportunity to the assessee and is untenable in law. C. ADDITION AS UNACCOUNTED INVESTMENT IN PROPERTY :

10. The CIT(A) erred in confirming the addition of Rs.90,45,000 under sec.69B of the Act.

11. The CIT(A) failed to appreciate that the entry in the loose sheet cannot be taken as the basis to conclude that the assessee had made cash payments over and above the document value in the purchase of the immoveable property.

12. The CIT(A) further failed to appreciate that the assessing officer based on the seized loose sheet had assumed that there was on-money payment in the purchase of immoveable property at second avenue, Harrington Road and unless the contents of loose sheet is corroborated by documentary evidence, the addition u/s.69B was wholly unjustified.

13. The CIT(A) further failed to appreciate the settled law that loose sheets per se do not carry evidentiary value and the entries made therein cannot be subject matter of addition in income tax assessments and hence the wholesome reliance on the loose sheet by the officer is unsustainable in law.

14. The CIT(A) further failed to appreciate that the partner of the assessee firm had completely disowned the loose sheet as not authored by him and hence the difference between the document value and the entry in the loose sheet cannot be assumed as the unexplained investment of assessee and thus deleted the addition. D. DISALLOWANCE OF PURCHASE OF MATERIAL REPRESENTED BY RECEIPT FROM SISTER CONCERN THROUGH ARBITRATION AWARD : 15. The CIT(A) erred in confirming the addition of Rs.32 crores on account of purchase of material represented by value of the material received from a sister concern through an arbitration award.

16. The CIT(A) failed to appreciate that having not disputed the terms of arbitration award dated 13.7.2011, leading to the receipt of semi processed and processed minerals from M/s. VV Minerals and the value of materials having been duly debited to Profit & Loss a/c, there was no case for disallowance of the amount.

17. The CIT(A) further failed to appreciate that the semi processed and processed minerals received from the sister-concern was directly attributable to the award of arbitrator and that debiting the profit & loss account with the value by the assessee should be seen in the context of inter se mutual settlement amongst the contending parties and was not an isolated event and hence the assessee was fully justified in debit of the amount and the disallowance was unjustified.

18. The CIT(A) further failed to appreciate that the seized tally data were not updated with the purchase value of materials received and that the difference between this tally data and the debit in the profit & loss account filed along with the ROI cannot be impromptu considered as the unexplained investment of assessee.

19. The CIT(A) ought to have considered the terms of award by the arbitrator in the proper perspective and seen that purchase value of materials was rightly debited by assessee in the Profit & loss account and the disallowance of the amount was unjustified and unsustainable on the facts of the case. E. ADDITION OF DIFFERENCE IN NET_PROFIT_BETWEEN SEIZED TALLY ACCOUNTS AND AS PER P & L IN ROI: 20. The CIT(A) erred in confirming the addition of Rs.9,87,52,288/- arising out of the alleged difference in net profit as per seized tally accounts and net profit as per P & L account shown in return of income.

21. The CIT(A) ought to have appreciated that the difference arose due to the revaluation of closing stock as per the provisions of the I.T. Act and duly considered in the return of income filed, whereas the revaluation was yet to be incorporated in the tally accounts as on date of search and hence the addition of this difference to the net profit is unjustified on the facts of the case.

22. The CIT(A) ought to have seen that the assessee had reconciled the difference arising out of closing entries towards valuation of closing stock, forex loss and agricultural income in the proceedings before the A.O. and there was no case for addition to the net profit returned by the assessee.

23. The CIT(A) ought to have considered that the assessee was bound to value the closing stock as per the provisions of I.T.Act and having filed the return accordingly, the addition on surmises as to the higher amount available in the tally accounts cannot be the basis for the addition.

24. The CIT(A), in any view of the matter, ought to have seen that there was apparent lack of jurisdiction in invoking the provisions of sec.153A and that the additions and disallowances were made on surmises and conjectures and thus deleted the additions made in the assessment.

1.3 The grounds raised by the Revenue read as under: -

1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law.

2. The Ld.CIT(A) erred in deleting the addition of Rs.24,85,17,972/- towards disallowance of purchase of materials, Rs.12,71,95,200/- towards purchase of materials from V V. Indech Rs.5,11,80,421 towards land development expenses for AY 2012-13 stating that the disallowances were made solely on the basis of facts relating to AY 2013- 14 and not on the basis of any seized material relating to AY 2012-13. 2.1 The CIT(A) erred in failing to appreciate that Excel sheets seized as page No.34 & 35 vide Annexure:132/S&S/CHE/RR-4 dated 27/10/2018 contains the P&L account for the year ending 31/03/2012 i.e., for the AY 2012-13 and the assessee had not produced any evidence for purchase of materials debited in P&L Account & transfer from V.M.Indech and land development expenses during the search proceedings or assessment/appellate proceedings. 2.2 The CIT(A) failed to appreciate that as per the tally data seized for the AY 2012-13 net profit is Rs.62,29,81,924 as compared to net profit of Rs.17,78,00,980/- any evidence for difference in profit, thus seized tally accounts are incriminating in nature.

3. Without prejudice to the grounds raised on the merits of the case, it is submitted that the Ld.CIT(A) erred in deleting the addition of Rs.24,85,17,972/-towards disallowance of purchase of materials, Rs.12,71,95,200/- towards purchase of materials from V.V.Indech, Rs.5,11,80,421 towards land development expenses for AY 2012-13 stating for the reason that these disallowances made in the unabated assessments have no nexus with incriminating materials found and seized during the course of search. 3.1 The Ld.CIT(A) erred in failing to appreciate that as per the provisions of Sec.153A of the Act, the assessing officer has to mandatorily issue notice u/s.153A of the Act to assess or reassess the total income of each of the six assessment years immediately preceding the year in which search action u/s.132 of the Act was initiated or requisition u/s.132A was made. The Ld.CIT(A) failed to appreciate that total income of the assessee cannot be brought to tax if the scope of Section 153A is limited to only undisclosed income on the basis of seized materials 3.2 The Ld.CIT(A) erred in failing to appreciate that on the issue of addition to be made in the assessments framed u/s.153A on the basis of seized materials, the SLP filed by the Revenue has been accepted the Hon'ble Apex Court in the case of Pr.CIT Vs Gahoi Foods Pvt Ltd (117 Taxmann.com 118) and is still pending, thus the issue has not attained finality. 3.3 The Ld.CIT(A) erred in failing to appreciate that there is no express provision in the Act that the additions made in the search assessment can be made only on the basis of incriminating seized materials. 3.4 The Ld.CIT(A) erred in deleting the disallowance of Rs.42,68,93,593/- by giving narrow interpretation to the provisions of Sec.153A of the Act. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored As is evident, the subject matter of appeals is various additions which are arising out of search proceedings on the assessee.

1.4 The Ld. AR advanced legal arguments as well as assailed confirmation of impugned additions on merits. The Ld. CIT-DR also advanced agreements and supported the assessment as framed by Ld. AO. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. As is evident, the subject matter of cross appeals is – (i) Addition of unaccounted investment in property for Rs.90.45 Lacs; (ii) Disallowance of purchase and other expenses. 1.5 The assessee-firm is stated to be engaged in processing of beach sand and sale of beach minerals. The assessee-firm was constituted by two partners i.e., Shri S. Chandrasen and Smt. Amutha Chandrasen. The return of income as filed by the assessee on 16-11-2013 was duly scrutinized u/s 143(3). However, pursuant to search action on assessee u/s 153A on 25-10-2018, notice u/s 153A was issued to the assessee on 28-10-2020. The assessee questioned the jurisdiction of Ld. AO to issue notice beyond six years. Considering the amended 4th proviso to Sec.153A, Ld. AO rejected the legal ground of the assessee and proceeded to determine the total income of the assessee. It was noted by Ld. AO that notice u/s 153A could be issued beyond six years if the escaped income was likely to exceed Rs.50 Lacs and the said income was represented in the form of an asset including immoveable property. All these conditions were held to be fulfilled in the present case. The assessee also argued that in the absence of any incriminating material, impugned additions could not be made. However, Ld. AO referred to loose sheets as seized by the department during search on assessee and rejected this argument also.

No. Head Amount 1. Unaccounted investment in property Rs.0.90 Crores 2. Material Purchased from VV Minerals through Arbitration Rs.32 Crores 3. Purchases from VV Ind Tech Rs.12.75 Crores 4. Disallowance of balance purchases Rs.24.85 Crores 5. Disallowance of Land refilling / environment expenses Rs.5.11 Crores 6. Disallowance of bogus expenses Rs.9.87 Crores Aggrieved, the assessee assailed the impugned additions in first appeal.

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 a fresh 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 AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under section 153A only on 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. 7.2 Thereafter in the case of Saumya Construction (supra), the Gujarat High Court, while referring the decision of the Delhi High Court in the case of Kabul Chawla (supra) and after considering the entire scheme of block assessment under section 153A of the Act, 1961, had held that in case of completed assessment/unabated assessment, in absence of any incriminating material, no additional can be made by the AO and the AO has no jurisdiction to re-open the completed assessment. In paragraphs 15 & 16, it is held as under: "15.On a plain reading of section 153A of the Act, it is evident that the trigger point for exercise of powers thereunder is a search under section 132 or a requisition under section 132A of the Act. Once a search or requisition is made, a mandate is cast upon the Assessing Officer to issue notice under section 153A of the Act to the person requiring him to furnish the return of income in respect of each assessment year falling within six assessment years immediately preceding the' assessment year relevant to the previous year in which such search is conducted or requisition is made and assess or reassess the same. Since the assessment under section 153A of the Act is linked with search and requisition under sections 132 and 132A of the Act, it is evident that the object of the section is to bring to tax the undisclosed income which is found during the course of or pursuant to the search or requisition. However, instead of the earlier regime of block assessment whereby; it was only the undisclosed income of the block period that was assessed, section 153A of the Act seeks to assess the total income for the assessment year, which is clear from the first proviso thereto which provides that the Assessing Officer shall assess or reassess the total income in respect of each assessment year, falling within such six assessment years. The second proviso makes the intention of the Legislature clear as the same provides that assessment or reassessment, if any, relating to the six assessment years referred to in the sub-section pending on the date of initiation of search under section 132 or requisition under section 132A, as the case may be, shall abate. Sub- section (2) of section 153A of the Act provides that if any proceeding or any order of assessment or reassessment made under sub-section (1) is annulled in appeal or any other legal provision, then the assessment or reassessment relating to any assessment year which had abated under the second proviso would stand revived. The proviso thereto says, that such revival shall cease to have effect if such order of annulment is set aside. Thus, any proceeding of assessment or reassessment falling within the, six assessment years prior to the search or requisition stands abated and the total income of the assessee is required to be determined under section 153A, of the Act. Similarly, sub-section (2) provides for revival of any assessment or reassessment which stood abated, if any proceeding or any order of assessment or reassessment made under section 153A of, the Act is annulled in appeal or any other proceeding.

9. While considering the issue involved, one has to consider the object and purpose of insertion of Section 153A in the Act, 1961 and when there shall be a block assessment under section 153A of the Act, 1961. 9.1 That prior to insertion of Section 153A in the statute, the relevant provision for block assessment was under section 158BA of the Act, 1961. The erstwhile scheme of block assessment under section 158BA envisaged assessment of 'undisclosed income' for two reasons, firstly that there were two parallel assessments envisaged under the erstwhile regime, i.e., (i) block assessment under section 158BA to assess the 'undisclosed income' and (ii) regular assessment in accordance with the provisions of the Act to make assessment qua income other than undisclosed income. Secondly, that the 'undisclosed income' was chargeable to tax at a special rate of 60% under section 113 whereas income other than 'undisclosed income' was required to be assessed under regular assessment procedure and was taxable at normal rate. Therefore, section 153A came to be inserted and brought on the statute. Under Section 153A regime, the intention of the legislation was to do away with the scheme of two parallel assessments and tax the 'undisclosed' income too at the normal rate of tax as against any special rate. Thus, after introduction of Section 153A and in case of search, there shall be block assessment for six years. Search assessments/block assessments under section 153A are triggered by conducting of a valid search under section 132 of the Act, 1961. The very purpose of search, which is a prerequisite/trigger for invoking the provisions of sections 153A/153C is detection of undisclosed income by undertaking extraordinary power of search and seizure, i.e., the income which cannot be detected in ordinary course of regular assessment. Thus, the foundation for making search assessments under sections 153A/153C can be said to be the existence of incriminating material showing undisclosed income detected as a result of search.

Provided that such revival shall cease to have effect, if such order of annulment is set aside Explanation.—For the removal of doubts, it is hereby declared that,— (i) save as otherwise provided in this section, section 153-B and section 153-C, all other provisions of this Act shall apply to the assessment made under this section; (ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year."

11. As per the provisions of Section 153A, in case of a search under section 132 or requisition under section 132A, the AO gets the jurisdiction to assess or reassess the 'total income' in respect of each assessment year falling within six assessment years. However, it is required to be noted that as per the second proviso to Section 153A, the assessment or re-assessment, if any, relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate. As per sub- section (2) of Section 153A, if any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner. Therefore, the intention of the legislation seems to be that in case of search only the pending assessment/reassessment proceedings shall abate and the AO would assume the jurisdiction to assess or reassess the 'total income' for the entire six years period/block assessment period. The intention does not seem to be to re-open the completed/unabated assessments, unless any incriminating material is found with respect to concerned assessment year falling within last six years preceding the search. Therefore, on true interpretation of Section 153A of the Act, 1961, in case of a search under section 132 or requisition under section 132A and during the search any incriminating material is found, even in case of unabated/completed assessment, the AO would have the jurisdiction to assess or reassess the 'total income' taking into consideration the incriminating material collected during the search and other material which would include income declared in the returns, if any, furnished by the assessee as well as the undisclosed income. However, in case during the search no incriminating material is found, in case of completed/unabated assessment, the only remedy available to the Revenue would be to initiate the reassessment proceedings under sections 147/48 of the Act, subject to fulfilment of the conditions mentioned in sections 147/148, as in such a situation, the Revenue cannot be left with no remedy. Therefore, even in case of block assessment under section 153A and in case of unabated/completed assessment and in case no incriminating material is found during the search, the power of the Revenue to have the reassessment under sections 147/148 of the Act has to be saved, otherwise the Revenue would be left without remedy.

Approving the decision of Hon’ble Delhi High Court in the case of Kabul Chawal (380 ITR 573) as well as the decision of Hon’ble Gujarat High Court in Saumya Construction (P.) Ltd. (387 ITR 529), it was held that in respect of completed assessments / unabated assessments, no addition could be made by Assessing Officer in the absence of any incriminating material found during course of search under section 132 or requisition made under section 132A.

1. 1. Delay condoned.

2. We do not find any merit in this petition. The special leave petition is, accordingly, dismissed.

3. Pending application stands disposed of.

In all these decisions, it has been held that in respect of unabated assessment, the additions are to be strictly based on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search and undisclosed income or undisclosed property discovered during search.

6. In the present case, the Ld. CIT(A) has rendered factual findings that addition of purchases of Rs.24.85 Crores, addition of purchases made from VV Ind. Tech for Rs.12.75 Crores and Land Development expenses for Rs.5.11 Crores are not supported by any incriminating material as found during the course of search. During hearing, nothing has been shown to us to rebut these findings. Therefore, respectfully following the ratio of aforesaid binding judicial decisions, we confirm the adjudication of Ld. CIT(A) on all these issues. The corresponding grounds as raised by the revenue stand dismissed.

7. So far as the issue of purchase of material from M/s VV minerals for Rs.32 Crores is concerned, we find that it is undisputed fact that the assessee has received certain material based on arbitration award and memorandum of settlement (MOS) between the Managing Partner and his brothers as per the directions of competent court. The Ld. CIT(A) has rendered a finding that the dispute was resolved through arbitration award dated 13-07-2011 which was awarded by a former judge of the Supreme Court and MOS was signed by the parties to the dispute which was part and parcel of the arbitration award. Pursuant to the same, the assessee was in receipt of semi-processed minerals and processed minerals from VV Minerals during the year on giving effect to the said arbitration award. The value of the same was debited as purchase of material. The Ld. AO has merely doubted the valuation thereof and the claim has been held to be non-genuine. However, we find that the material has duly been received by the assessee as per arbitration award and the value has been recorded as per the award. The material received by the assessee constitute its trading stock and used in trading operations. Therefore, the same has correctly been debited in the Profit & Loss Account and we seen no reason for disallowance of the same. The right arising to the assessee to the extent of Rs.32 Crores stood extinguished by receipt of material from the other party and therefore, it could not be said that no cost was associated with the acquisition of the stock. In our considered opinion, the expenditure has been debited pursuant to legally valid arbitration award. Accordingly, the claim of the assessee is to be accepted. We order so. The corresponding grounds as raised by the assessee stand allowed.

8. The addition of net profit difference of Rs.9.87 Crores primarily arises from valuation of closing stock. In the seized material, the stock has been valued at Rs.21.13 Crores whereas in the final accounts, the assessee has valued the stock at Rs.11.09 Crores which explain the discrepancy in profit to the extent of Rs.10.04 Crores. It is noteworthy that no discrepancy in physical stock has been pointed out by Ld. AO. In the audited books, the assessee has revalued its stock and reflected correct stock in its books of accounts based on generally accepted accounting principles. In our considered opinion, in the absence of any discrepancy in physical stock, the impugned addition merely based on valuation could not be sustained since the lower valuation of stock in this year would have direct impact on the profitability of subsequent year. Therefore, it is mere valuation difference only and the same could not be sustained in the absence of any positive material on record indicating that the stock value was deliberately reduced so as to suppress the profits. A small discrepancy in the profit has arisen due to treatment of forex losses. The assessee has explained that foreign exchange gains and forex losses were considered together and the net amount was shown in the income tax return whereas in tally accounts, the same gains were separately shown as ‘other income’ and losses were separately shown as ‘expenses’. Therefore, the discrepancy to that extent is otherwise fully explained by the assessee. Finally, on the given set of facts, we delete the impugned addition of Rs.9.87 Crores and allow the corresponding grounds as raised by the assessee.

10. The issue of applicability of 4th proviso to Sec.153A, in our considered opinion, has adequately been dealt with by lower authorities in their respective orders. We concur with the same and reject the legal grounds as raised by the assessee.