IMTIAZ FAROOQI,HYDERABAD vs. DEPUTY COMMISSIONER OF INCOME TAX ,CIRCLE-1(3) , HYDERABAD

Learned CIT(A) did not agree with the contentions raised by the assessee and recorded that the execution of warrant makes it obligatory on the part of the learned Assessing Officer to initiate proceedings under section 153A of the Act, there is no mention of the seized material by the legislature in section 153A of the Act and, therefore, anything which is not to be found in the legislature as to the availability of incriminating material cannot be read into the same. On this premise, learned CIT(A) held that non-availability of incriminating material cannot be a limiting factor on the jurisdiction of the learned Assessing Officer.

Assessee, therefore, preferred these appeals on many grounds, but the main plank of argument of the learned AR is that when there is no incriminating material found during the search in case of a concluded assessment, no addition could be made. According to him, authorities below failed to appreciate the difference between the abated and un-abated assessments and the well settled principle under section 153A of the Act that the jurisdiction to make assessment for a concluded assessment is limited to incriminating material found during the course of search. In support of his contentions, he placed reliance on the latest decision of the Hon'ble Apex Court in the case of PCIT vs. Abhisar Buildwell P. Ltd. [2023] 149 taxmann.com 399 (SC).

Per contra, learned DR submits on behalf of the Revenue that section 153A of the Act does not limit the jurisdiction of the learned Assessing Officer to make the addition to the seized material alone and on the other hand, it is the bounding duty of the learned Assessing Officer to initiate proceedings under section 153A of the Act, the moment the search warrant is executed. According to the learned DR, there is no room from interpretation of this aspect and no discretion is left with the learned Assessing Officer to initiate or not initiate proceedings under section 153A of the Act in case of a search or, to limit his power to assess basing on the incriminating material alone. Learned DR placed reliance on several decisions reported in support of his contentions, namely, Gopal Lal Bhadruka vs. DICT (2012) 27 taxmann.com 167 (AP), E.N. Gopakumar vs. CIT (2016) 75 taxmann.com 215 (Ker), CIT vs. Raj Kumar Arora (2014) 52 taxmann.com 172 (All), Suman Poddar vs. ITO, SLP No. 26864/2019, dt. 22/11/2019 (SC), Suman Poddar vs. ITO, dt. 17/09/2019 (Del), Suman Poddar vs. ITO, dt. 25/07/2019 (ITAT, New Delhi), Krishna Devi vs. ITO, ITA No. 6356/Del/2019, dt. 04/01/2022, SEBI vs. Rakhi Trading Pvt. Ltd., Civil Appeal No. 1969 of 2011, 08/02/2018 (SC), Anandtex International P. Ltd., vs. ACIT, ITA No. 2476/Del/2018, dt. 24/02/2022. He also placed reliance on the decision reported in B. Kishore Kumar vs. DCIT [2014] 52 taxmann.com 449 (Madras) against which, the SLP was dismissed by the Hon’ble Apex Court. Learned DR tried to make a distinction between the assessments concluded under section 143(3) of the Act and 143(1) of the Act, to say that the concluded assessment means only such assessment, which is terminated by the order passed under section 143(3) of the Act. Learned DR further submitted that there is incriminating material available in this case in the form of the statement made by the assessee.

We have gone through the record in the light of the submissions made on either side. Insofar as the facts and figures are concerned, there is not much dispute. For the assessment year 2010-11 assessee filed the return of income on 22/11/2010 and assessment under section 143(3) of the Act was complete by order dated 28/1/2013, whereas the search and seizure operation under section 132 of the Act took place on 20/7/2015. There is no doubt that the assessment was concluded as on the date of search, since no assessment proceedings were pending as on the date qua the assessment year. It is also not the case of the Revenue that any incriminating material was found during the search that was considered by the learned Assessing Officer, but made the assessment. Assessment order reads that from the bank accounts of the assessee the learned Assessing Officer noted the amounts received from Sh. Vamsheedhar and Sh. Sreenivasa Sivakumar. Basing on certain information the learned Assessing Officer describes the modus operandi of the assessee.

Further matter, even before the learned CIT(A) also the Revenue did not plead that there was any incriminating material which formed the basis for the additions, that too in a concluded assessment. Neither in the assessment order nor in the first appellate order, there is any reference to any of the seized material qua the additions. That is the reason why, perhaps, the learned CIT(A) resorted to stating that the execution of warrant makes it obligatory on the part of the learned Assessing Officer to initiate proceedings under section 153A of the Act, there is no mention of the seized material by the legislature in section 153A of the Act and, therefore, anything which is not to be found in the legislature as to the availability of incriminating material cannot be read into the same. For the sake of completeness, we reproduced hereunder the observations and findings of the learned CIT(A) which read that,- The ground no. 2 and 3 mention that there is no incriminating material on record to make the addition in the case of the appellant. It is important to note that the execution of warrant makes it obligatory on the part of the Assessing Officer to initiate proceedings u/s. 153A for the 6 years and scrutiny proceedings for the Search year as per the provision u/s. 153A(1). It is also important to note that initiation of Search proceedings results in an automatic initiation of notice u/s 153A and there is no mention of the seized material by the legislature in the Section 153A. Further, there is no mention of the concept of undisclosed income in Section 153A as it was in the case of Section 158B. The procedure for Search assessments has been introduced in the form of Section 153A and the Section 158B and others as mentioned in Chapter XIV-B which was a special procedure is no longer applicable. The Section 1588 to 158BI had the concept of undisclosed income and which was further based on documents or incriminating material. The legislature has introduced the new provision u/s 153A w.e.f. 01.06.2003 which mandates assessment for the stipulated years without drawing any satisfaction and only on the basis of initiation of Search action u/s 132. The concept of undisclosed income has been made consciously absent as can be seen on the comparison of both the provisions and procedure, the same thus implies that the Assessing Officer is mandated to complete assessment for 6 years as per law and is not bound or limited to undisclosed income or seized material. Anything which is clearly absent in the provision and importing the same without any reference or justification is completely arbitrary and beyond the scope of the provision, especially when the concept of abatement of pending proceedings have been provided in the Act. There is no mention that whatever has been seized has to be only used in the proceedings u/s 153A, once there is nothing of this sort mentioned, then it is only an imaginary belief that the reliance has to be only placed on seized material. The Assessing Officer is duty bound to issue notice for 6 years, irrespective of seizure. It is also mentioned that all pending proceedings of the above years shall abate and the proceedings are to be initiated afresh u/s. 153A. The above implies that once a Search warrant is executed, the assessment as provided u/s. 153A is mandatory and all other assessment years pending for those years shall abate. Thus, if there was a notice u/s. 148 issued in any of the above years prior to the date of issue of notice u/s. 153A (obviously the reasons as are, prior to Search, are not based on seized material) then the reasons so recorded leading to any addition in the reopened years naturally has to be made u/s. 153A, as the proceedings u/s 148 has abated and therefore seized material cannot be a limiting factor of Assessing Officer's jurisdiction to assess u/s 153A. The section 153A(2) makes it further explicit that in case of 153A getting annulled then the pending proceedings u/s. 148 or any other section will revive. Thus, it is clear that the pending proceedings which were not based on seized material are to be merged for the assessment years mentioned u/s. 153A and the assessment has to be made considering the same to be an open proceedings based on seized material and any other material. The section 153A does not limit the jurisdiction of the Assessing Officer to the seized material rather it very clearly provides from the abatement of pending proceedings as a kind of assessment

which could be made based on records and seized material or either. It is very clear that the parliament did not desire that two proceedings for the two assessment years to be continued in the case of any appellant causing hardship and also confusion. Therefore it has been very clearly provided that the pending assessment proceedings to abate and only one proceeding to continue as provided u/s. 153A. The above also implies that if there is any subsequent information received pending the completion of assessment proceedings u/s. 153A or information other than seized material available before the initiation of notice u/s. 153A for which the Assessing Officer was contemplating issue of notice u/s. 148 would also merge with the proceedings u/s. 153A. Otherwise, it would be an exercise of initiating u/s. 148 and then issuing u/s. 153A and dropping the initiated proceedings u/s. 148 which would be a just unnecessary paper work. However, the above discussion has been made just for explanation, the section 153A is very clear and it is an obligation on the part of the Assessing Officer to initiate proceedings without any discretion or judgment. It is mandatory on the part of the Assessing Officer to initiate the proceedings as provided u/s. 153A as it is mentioned the Assessing Officer shall in the said section, which leaves no room for interpretation. Thus, the Assessing Officer is empowered and rather obliged to make additions as a regular assessment also while completing the assessment proceedings u/s 153A. Further, the appellant has admitted additional income of Rs.13 crores in the statement given u/s 132(4) of IT Act which is part of Search proceedings. This itself is a prima facie evidence for initiation of proceedings u/s 153A. It is not disputed that the admission of additional income made in the statement u/s 132(4) can be retracted or the appellant can offer bonafide explanation for the same at a later point of time and the same will be adjudicated on merits accordingly. But the fact that such an admission was made in the statement u/s 132(4) itself is enough evidence for initiating proceedings u/s 153A. It is also important to note that during the course of Search proceedings, the appellant could not explain bank credits and thus was confronted and not giving a bonafide explanation itself is incriminating in nature and further, the appellant also confirmed the same by filing an affidavit with regard to undisclosed income. It is also a matter of fact that the appellant admitted these incomes in response to notice u/s 153A and only retracted to a certain extent. Thus, there was enough incriminating material on record. In view of the same, the additions made on the basis of material available on record, including incriminating material, were very well under the ambit of 153A and therefore the ground no. 2 and 3 are dismissed accordingly.

Insofar as the contention of the Revenue as to the statement of the assessee recorded under section 132(4) of the Act is concerned, in the case of Commissioner of Income Tax v. Harjeev Aggarwal, the Hon'ble Delhi High Court held that a Director's statement during a search, admitting unaccounted income, does not automatically constitute incriminating material. Furthermore, in PCIT vs. Best Infrastructure (India) Pvt. Ltd., (397 ITR 82), [2017] 84 taxmann.com 287 (Delhi), the Delhi High Court reiterated that statements recorded under Section 132(4) do not, by themselves, serve as incriminating material. The court emphasized that these statements must be supported by independent evidence to be admissible for making assessments.

It is clear, therefore, that in view of the decisions of the Hon’ble jurisdictional High Courts in the cases of CIT vs. Shri Ramdass Motor Transport (1999) 12 Taxman 300 (Andhra Pradesh) and CIT vs. Naresh Kumar Agarwal [2015] 53 taxmann.com 306, followed by the Hon’ble Delhi High Court in the cases of CIT vs. Harjeev Aggarwal [2016] 70 taxmann.com 95 (Delhi) and PCIT vs. Best Infrastructure (India) (P.) Ltd. (supra), a statement of assessee at the time of search on standalone basis has no evidentiary value and cannot be acted upon to fasten any liability on the assessee.

Coming to the main aspect of fastening the liability on the assessee in the shape of additions pursuant to the search and seizure operations, in the preceding paragraphs we found that no assessment proceedings were pending as on the date of search and no incriminating evidence was found during the search. On the aspect of jurisdiction of the learned Assessing Officer to make any addition in the absence of any incriminating material to be found in such search and seizure operations, though the divergent views taken on this aspect are brought to our notice by both the counsel, the Hon'ble Supreme Court put a quietus to the issue by the decision in the case of PCIT vs. Abhisar Buildwell P. Ltd. (supra). While in complete agreement with the view taken by the Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawla, (2015) 61 taxmann.com 412 (Delhi) and the Hon'ble Gujarat High Court in the case of PCIT Vs. Saumya Construction (2016) 387 ITR 529 and the decisions of the other Hon'ble High Courts taking the view that no addition can be made in respect of the completed assessments in absence of any incriminating material, Hon’ble Apex Court concluded that- i) that in case of search under Section 132 or requisition under Section 132A, the AO assumes the jurisdiction for block assessment under section 153A; ii) all pending assessments/reassessments shall stand abated; iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the ‘total income’ taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132A of the Act, 1961. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under Sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved.

This decision applies to the facts of the case on all fours and respectfully following the same, we hold that since no incriminating material was found in the case of assessee for the relevant assessment years, the concluded assessments cannot be disturbed, and the addition made by the learned Assessing Officer and sustained by the learned CIT(A) cannot be upheld. Appeal of the assessee shall stand allowed.

For the assessment year 2011-12, the return was filed on 30/04/2012 and it was processed under section 143(1) of the Act on 09/07/2012. No notice was issued under section 143(2) before the permissible period, namely, six months before the end of the Financial Year in which the return was filed, which happens to be 30/09/2013, by which date the assessment process reaches an end. It is, therefore, clear that as on the date of the search on 20/07/2015, no assessment proceedings are pending and it is the case of non-abated assessment.

All other facts are identical to the assessment year 2010-11 and, therefore, following the view taken in the preceding paragraphs based on the binding precedent of the Hon'ble Apex Court in the case of Abhisar Buildwell P. Ltd (supra), we hold that in the absence of any incriminating material, no addition qua this assessment year could be made and accordingly, this appeal also stands allowed.

In the result, both the appeals are allowed. Order pronounced in the open court on this the 19th March, 2025.