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Income Tax Appellate Tribunal, HYDERABAD BENCH ‘A, HYDERABAD
Before: SMT. P. MADHAVI DEVI & SHRI S. RIFAUR RAHMAN
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH ‘A', HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No. 494/Hyd/2017 Assessment Year: 2004-05 Yellaiah Setty, vs. Asst. Commissioner of Hyderabad. Income-tax, Central Circle – 5, PAN – AGQPS 2236 Q Hyderabad. Appellant Respondent Assessee by: Shri P. Murali Mohana Rao Revenue by: Smt. S. Narasamma Date of hearing: 31/10/2018 Date of pronouncement: 15/11/2018 O R D E R PER S. RIFAUR RAHMAN, AM:
This appeal is filed by the assessee against the order of CIT(A) - 12, Hyderabad, dated 17/10/2016 for AY 2004-05.
Brief facts of the case are, the assessee is actively involved in real estate activities along with five other partners. Search and seizure operations were conducted in the case of M/s Sri M. Sambasiva Rao and others, Hyderabad and its group of cases on 16/07/2008. Notice u/s 153A of the Income- tax Act, 1961 ( in short ‘the Act’) was issued to the assessee. In response to the said notice, the assessee filed return of income declaring an income of Rs. 1,34,900/-. In response to the notices u/s 143(2) and 142(1), the assessee furnished the details.
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2.1 AO observed that the assessee had shown an amount of Rs. 20 lakhs towards advance for sale of land in the balance sheet annexed to return of income, but, he could not adduce any evidence like copy of agreement, mode of payment, identity of the purchaser etc. inspite of availing sufficient time. The AO, therefore, presumed that the assessee did not have any evidence towards his claim of advance and, hence, treated the same as unexplained receipt in the hands of assessee and added the same to the returned income of assessee.
When the assessee preferred an appeal before the CIT(A), the CIT(A) confirmed the action of AO.
Aggrieved by the order of CIT(A), the assessee is in appeal before us raising the following grounds of appeal:
“1. The Ld. CIT(A) erred in both law and on facts in dismissing the appeal. 2. The Ld. CIT(A) ought to have appreciated that the material found during the search proceedings does not belong to assessee and that the proceeding u/s 153A cannot be initiated in the assessee's case. 3. The Ld. CIT(A) ought to have appreciated that the provisions of sec 153A can be invoked only when it is established by the AO having jurisdiction over the searched party, that, documents seized do not belong to the searched person. 4. The Ld. CIT (A) erred in confirming the assessment u/s 143(3) rws 153A, without there being any incriminating material found during the course of search proceedings. 5. The Ld. CIT(A) ought to have appreciated that there was no incriminating material found during the search proceedings and that the assessment is invalid.
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The Ld. CIT(A) ought to have appreciated the fact that addition is made on the basis of material already available on records and not on the basis of seized material. 7. The Ld. CIT(A) ought to have appreciated the fact that no addition can be made based on the loose sheets as it has no evidentiary value or validity. Further the amount of consideration paid is also disclosed by the assessee, thereby forming a part of regular item of assessment. 8. Without prejudice to grounds 1 to 7 above, the Ld. CIT(A)erred in confirming the addition of Rs.20,00,000/- made u/s 68 of the Act. 9. Without prejudice to grounds 1 to 7 above, the Ld. CIT(A) ought to have appreciated that the agreement made on 20.04.2003 has subsequently been cancelled afterwards. 10. Without prejudice to grounds 1 to 7 above, the Ld. CIT (A) ought to have appreciated the fact that affidavit for cancellation of above agreement is available with the assessee. 11. Without prejudice to grounds 1 to 7 above, the Ld. CIT (A) ought to have appreciated that the assessee has already proved the genuineness of transactions. 12. The Appellant may add or alter or amend or modify or substitute or delete and/ or rescind all or any of the grounds of appeal at any time before or at the time of hearing of the appeal.”
Before us, ld. AR submitted that no material was found during search proceedings conducted at the residence of the assessee on 16/07/2008 and the addition made during the AY consideration in respect of the receipt of Rs. 20,00,000/- based merely on the basis of information available on record submitted during the assessment proceedings, therefore, the addition made by the AO is not based on seized/incriminating material, therefore, the proceedings u/s 153A as void. He,
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therefore, pleaded to delete the addition made on this account.
The ld. DR, on the other hand, relied on the orders of revenue authorities.
Considered the rival submissions and perused the material on record. The contention of the assessee is that unless and until there is incriminating material relating to the assessee found during the course of search, there cannot be any assessment under section 143(3) read with section 153A as far as the assessment concluded u/s 143(3) is concerned. In this connection, he relied on the decision of coordinate bench of this Tribunal in the case of M/s Engineers Syndicate India Pvt. Ltd. in ITA Nos. 1805 to 1808 & 1870/Hyd/2014, vide order dated 31/05/2018 (wherein both the Members are party), wherein the coordinate bench has held as under:
“11. Having regard to the rival contentions and the material on record, we find that the assessee has filed a chart showing the status of the assessments u/s 143(3) of the Act and we find that all these assessments were completed before the date of search on 9.2.2008. The assessments u/s 143(3) for the A.Ys 2002-03 and 2003-04 were completed by the ACIT-11(II) Bangalore on 31.3.2006, whereas for the A.Y 2004-05, the ACIT 11(II) Bangalore has completed the assessment u/s 143(3) of the Act on 13.11.2006 and for the A.Y 2005-06 on 26.12.2007. For the A.Y 2006-07, the return was filed on 28.11.2006 and no proceedings were taken out by the AO thereafter. U/s 153A of the Act, in the case of a search initiated u/s 132 of the Act, the AO shall issue notice to the persons searched requiring him to furnish within such period, as is specified in the notice, the return of income in respect of each A.Y falling within six A.Ys prior to search and the second proviso thereto provides that the assessment or re- assessment, if any, relating to any A.Y falling within the period of six years and for the relevant A.Y or years referred to in the sub- section, pending on the date of initiation of the search u/s 132 or making of the requisition u/s 132A of the Act as the case may be, shall abate. In the case before us, there was no assessment for any of the six A.Ys prior to the date of search,
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pending as on the date of search, or on the date of or making of requisition u/s 132A of the Act. Therefore, the assessments u/s 143(3) for all the six A.Ys have not been abated. 12. In such a scenario, the AO can make assessment u/s 153A only on the basis of the material found during the course of search. Admittedly, there was no material found during the course of search, necessitating/warranting the assessment u/s 153A of the Act. In fact, the copies of the assessment orders passed u/s 143(3) of the Act for all the relevant A.Ys are filed before us and as seen therefrom, the AO therein had already considered the assessee's claim of deduction u/s 80IB of the Act and the claim of depreciation. Even in the assessments u/s 153A, AO has made additions on the basis of the material already on record. In the decisions relied upon by the learned Counsel for the assessee, the Hon'ble Courts have ruled as under:- i) Hon'ble Bombay High Court in the case of CIT vs. SKS Ispat & Power Ltd reported in (2017) 398 ITR 583 (Bom.) held as under: "Held, dismissing the appeals, that the scope of assessment u/s 153A was limited to the incriminating evidence found during the search and no further. Section 153A of the I.T. Act, 1961 did not make any distinction between the assessment conducted u/s 143(1) and section 143(3). The issue was no longer res integra" ii) Hon'ble Gujarat High Court in the case of Pr.CIT vs. Dipak Jashvantlal Panchal reported in (2017) 397 ITR 153 (Guj.) has held as under: "Section 153A of the Income-tax Act, 1961, bears the heading "assessment in case of search or requisition". The heading of the section can be regarded as a key to the interpretation of the operative portion of the section and if there is no ambiguity in the language or if it is plain and clear, then the heading used in the section strengthens that meaning. From the heading of the section the intention of the Legislature is clear, viz., to provide for assessment in case of search and requisition. When the very purpose of the provision is to make assessment in case of search or requisition, it goes without saying that the assessment has to have relation to the search or requisition. In other words, the assessment should be connected with something found during the search or requisition, viz., incriminating material which reveals undisclosed income. Thus, while in view of the mandate of sub-section (1) of section 153A of the Act, in every case where there is a search or requisition, the Assessing Officer is obliged to issue notice to such person to furnish returns of income for the six years preceding the
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assessment year relevant to the previous year in which the search is conducted or requisition is made, any addition or disallowance can be made only on the basis of material collected during the search or requisition". iii) Hon'ble Delhi High Court in the case of Pr.CIT vs. Meeta Gutgutia Prop. M/s.Ferns "N" Petals reported in (2017) 395 ITR 526 (Del.) held as under: "Held, dismissing the appeals, (i) that it was only if during the course of search u/s 132 incriminating material justifying the reopening of the assessments for six previous years found that the invocation ofsection 153A qua each of the A.Y would be justified". iv) Hon'ble Gujarat High Court in the case of Pr.CIT vs. Devangi alias RUPA reported in (2017) 394 ITR 184 (Guj.) held as under: "Held, dismissing the appeal, that at the time of search, no incriminating material was found with respect to the assessment year 2001-02 to 2003-04. Only undisclosed income and undisclosed assets detected during the search could be brought to tax. Therefore, the Assessing Officer was not justified in making addition. With regard to the assessment year 2004-05, the assessment for that year was framed on the basis of the material already on record much prior to the search conducted on February 10, 2006. It was a scrutiny assessment and the assessment was framed for the assessment year 2004-05 on the basis of the material on record. In the absence of any specific incriminating material detected for the assessment year 2004-05, the Assessing Officer was not justified in making any addition". v) Hon'ble Gujarat High Court in the case of Pr.CIT vs. Saumya Construction P Ltd reported in (2016) 387 ITR 529 (Guj.) held as under: " Section 153A of the Income-tax Act, 1961, bears the heading "Assessment in case of search or requisition". It is well settled that the heading of the section can be regarded as a key to the interpretation of the operative portion of tile section and if there is no ambiguity in the language or if it is plain and dear, then the heading used in the section strengthens that meaning. The trigger point for exercise of powers under section 153A is a search under section 132 or a requisition under section 132A of the Act. The assessment should be connected with something found during the search or requisition, i.e incriminating material which reveals undisclosed income. Where an assessment has been framed earlier
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and no assessment or reassessment was pending on the date of initiation of search u/s 132 or making of requisition u/s 132A, while computing the total income of the assessee u/s 153A of the Act, additions or disallowances can be made only on the basis of the incriminating material found during the search or requisition". vi) Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawla reported in (2016) 380 ITR 573 (Del.) held as under: "The legal position that emerges on a perusal of section 153A and section 132 of the Income-tax Act, 1961, is as under: (i) Once a search takes place under section 132 of the Act, notice under section 153A(l) will have to be mandatorily issued to the person in respect of whom search was conducted requiring him to file returns for six assessment years immediately preceding the previous year relevant to the assessment year in which the search takes place. (ii) Assessments and reassessments pending on the date of the search shall abate. The total income for such assessment years will have to be computed by the Assessing Officers as a fresh exercise. (iii) The Assessing Officer will exercise normal assessment powers in respect of the six years previous to the relevant assessment year in which the search takes place. The Assessing Officer has the power to assess and reassess the "total income" of the 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 assessment years in which both the disclosed and the undisclosed income would be brought to tax. (iv) Although section 153A 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 Assessing Officer 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 the seized material. (v) In the 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) In so far 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 assessment year on the basis of the findings of the search and any other material existing or brought on the record of the Assessing Officer. (vii) Completed assessments can be interfered with by the Assessing Officer while making the assessment under section 153A only on the basis of
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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. Held accordingly, that the matter related to the assessment years 2002-03, 2005-06 and 2006-07. On the date of the search the assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed" 13. We find that in almost all the above decisions, the decision of the Hon'ble Delhi High Court in the case of Anil Kumar Bhatia (cited Supra) was considered and in the case of Kabul Chawla, the Hon'ble Delhi High Court observed as under:- 9. The Assessee then appealed to the ITAT. One of the issues considered by the ITAT was whether the completed assessment on the date of the search would stand on the same footing as the pending assessments which in terms of the second proviso to Section 153A(1) of the Act would abate. It was noticed that in Anil Kumar Bhatia (supra), this Court had left open the question whether in order to frame an assessment in terms of the first proviso to Section 153A(1) of the Act in respect of those AYs for which the assessments had already been completed, there was a requirement that some incriminating material should be unearthed during the search. Nevertheless there were some observations in Anil Kumar Bhatia (supra), which would indicate that the AO would be able to reopen the assessments for those years for which the assessment already stood completed at the time of the search, only if some incriminating material was unearthed during the search. The ITAT concluded "if no incriminating material is found in respect of such completed assessments then the total income in the proceedings under Section 153A(1) of the Act shall be computed by considering the originally determined income. If some incriminating material is found in respect of such assessment years for which assessment is not pending, then the total income would be determined by considering the originally determined income plus (+) income emanating from the incriminating material found during the course of search." 14. Thus, the underlying principle laid down in all the above case laws is that without any incriminating material found during the course of search, no additional income can be brought to tax in the
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assessment u/s 153A of the Act even where earlier assessments were concluded u/s 143(3) of the Act. The facts and circumstances of the case before us are similar to the above cases. Respectfully, following the above case laws on the issue, we hold that the assessments u/s 153A for all the A.Ys are not sustainable and they are accordingly set aside. Since, the assessments have been set aside, the other grounds against the merits of the additions are not adjudicated at this stage as it would only result in an academic exercise.”
As the issue under consideration is materially identical to that of the above decision, following the decision therein, we hold that the assessment made u/s 143(3) rws 153A is not sustainable and accordingly set aside. Since the assessment made u/s 153A itself is set aside, the other grounds against the merits of the addition is not adjudicated at this stage as it would only result in an academic exercise.
In the result, appeal of the assessee is allowed. Pronounced in the open court on 15th November, 2018.
Sd/- Sd/- (P. MADHAVI DEVI) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated 15th November, 2018 kv Copy forwarded to: 1. Shri S. Yellaiah, C/o P. Murali & Co., CAs, 6-3-655/2/3, 1st Floor, Somajiguda, Hyderabad – 82 2. ACIT, Central Circle – 5, Hyd. 3. CIT(A) - 12 Hyderabad 4. Pr. CIT (Central), Hyderabad 5. The DR, ITAT, Hyderabad 6. Guard File