RAIL ROAD CONSTRUCTIONS PRIVATE LIMITED ,ORISSA vs. DEPUTY COMMISSIONER OF INCOME TAX ,CENTRAL CIRCLE-1(3), HYDERABAD

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “A”: HYDERABAD BEFORE SHRI LALIET KUMAR, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA Nos. 491 & 492/Hyd/2021 Assessment Years: 2011-12 & 2012-13 Rail Road Constructions Vs. Dy. Commissioner of Pvt. Ltd., Orissa. Income-tax, Central Circle – 1(3), PAN – AABCR 8191D Hyderabad. Assessee by: Shri P. Murali Mohan Rao Revenue by: Shri T. Sunil Goutam Date of hearing: 26/04/2022 Date of pronouncement: 05/05/2022

O R D E R PER L.P. SAHU, A.M.: Both these appeals filed by the assessee are directed against CIT(A) – 11, Hyderabad’s separate orders, both dated 14/10/2021 for AYs 2011-12 & 2012-13 involving proceedings u/s 143(3) r.w.s 153A of the Income Tax Act, 1961 ; in short “the Act”. As the facts and grounds are identical in both these appeals, the same were clubbed and heard together and, therefore, a common order is passed for the sake of convenience.

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7.1 The ld. AR of the relied on the submissions made before the CIT(A), which are as under: 4. No Specific Warrant of Authorization: It is not out of place to submit that the issue of notice u/ s 153A of the Act for the year under consideration is invalid, is without jurisdiction and is bad-in-law for the following reasons. i: That warrant of authorization u/s 132 of the Act and Rule 112(1) of the IT Rules, 1962 was not issued in the name of the appellant company nor in the premises in which the business concern is situated ii. That when the warrant of authorization u/s 132 of the Act was not issued in the name of the appellant- company, the question of drawing panchanama (Preliminary as well as last panchanamma) does not arise for considering the time limit for issue of notice u/s 153A of the Act; iii. That name of the appellant company as appearing in the panchanama is not a valid one when no search u/s

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132 was conducted in the business premises of the appellant company. iv. That when warrant of authorization u/ s 132 of the Act was not issued in the name of the appellant company, the question of recording statement u/s 131 of the Act from the Directors relating to the issues of the appellant company during the, course of search conducted u/s 132 in the residential premises of the individuals, who were happened [0 be the Directors of the said appellant company, cannot and shall not evolve any power, whatsoever, as vested with thee AO for issuing notice u/s 153A of the Act; That there is no provision in the Income Tax Act to accord power to the AO La issue notice u/ s 153A of the Act in respect of the connected group cases, wherein, search u/ s 132 of the Act was conducted in one of the cases of such connected group cases; That as per provisions of the section 153A it is clearly mentioned that: "153A. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall- And wherein it was clearly observed that no notice u/ s 153A can be issued wherein no search u/ s 132 of the Act was conducted; 4.1 A Warrant is in the nature of judicial writ to carry out the search of the premises of the person. Warrant or the authorization for the search is the key document which in motion the process of search. It culminates in the assessment of income determined on the basis of

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incriminating evidence. The very sustainability or otherwise a search assessment depends on the valid issue and execution of search warrant. Further, it is submitted that assessment under section 153A need to be annulled on the very basis that as the warrant is person specific and premises specific. It should contain the reasons for authorizing the search in the name of the person and incriminating evidence against the person who is to be assessed u/s 153A of the Act. It is settled law that every person is distinctive in the judicial eyes of law. If no pendent warrant is issued against the person no proceedings u/ s 153A can be initiated. Thus, for the case under consideration there hasn't been raised any search authorization against the assessee and thus, the assessment u/s 153A need to be annulled. 4.2 From the above, it is clear that the action of the AO in issuing notice u/ s 153A of the Act for the assessment years commencing form 2010-11 to 2015-16 and the issue of notice u/s 143(2) for the assessment year 2016- 17 in the case of the appellant is invalid, is without jurisdiction and is bad-in-law. Thus, the assessments completed u/s 153A for the AYs 2010-11 to 2015-16 and the connected scrutiny assessment for the assessment year 2016-1 7, being the alleged previous year in which search u/s 132 was presumed to be conducted are invalid; are without jurisdiction and deserves to be annulled. In support of the above, reliance is placed in the following case laws. • Decision of the Hon'ble Supreme Court of India in the case of Director General of Income Tax (Inv.) vs. Spacewood Furnishers (P.) Ltd. [2015J 57 taxmann.com 292(SC) Wherein it was held as per the foot note: "Section 132 of the Income-tax Act, 1961 - Search and seizure (Warrant of authorisation) _ Whether though necessity of recording of reasons before issuing warrant of authorisation, despite amendment of rule 112(2)

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with effect from 1-101975, has been repeatedly stressed upon by Supreme Court so as to ensure accountability and responsibility in decision making process, this, by itself, would not confer in assessee a right of inspection of documents or to a communication of reasons for belief at stage of issuing of authorization - Held, yes - Whether it is only at stage of commencement of assessment proceedings after completion of search and seizure, if any, that requisite material may have to be disclosed to assessee - Held, yes" 4.3 It is, therefore, requested the Ld. Commissioner of Income Tax (Appeals) to treat the notice issued u/s 153A as invalid, and thereby the completion of assessment u/s 143(3) r.w.s. 153A di: 29-12-2017 is invalid and deserves to be annulled for this assessment as well as for the other assessment years viz., 2011-12 to 2015-16 and assessment year 2016-17. 4.4 Without prejudice to the above, it is to submit that when no search u/s 132 was conducted in the business premises of the appellant-company and as such the provisions of section 153-A of the Act are not applicable, the issue of statutory notice ul s 143(2) on 04.08.2016 is invalid, is without jurisdiction and thereby the assessment completed ul s 143(3) r.w.s 153A on 29-12-2017 is, thus, invalid, and is without jurisdiction 5. Proceedings u/s.153A of the Act are void as no incriminating material was found (Ground No. 2.3J: Books of accounts do not form part of incriminating material:- 5.1 In this regard it is to submit that the Assessing Officer has completed the assessment u/s 143(3) r.w.s 153A which does not stand valid since no incriminating/ impound material was found during the course of search proceedings in the premises of the

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assessee company for the relevant year under consideration. Further, it is clearly evident from the observation of the assessment order that the Ld. Assessing Officer has not referred/relate or mentioned to any kind of incriminating material that was found during the course of search and the addition is made based on financial statements belonging to the appellant in making the additions. As the search proceedings did not yield to any incriminating material relating to the assessee, the AO is not justified in making the addition for the assessment year under consideration. 5.2 Further, the addition made in the hands of assessee for the relevant year is merely on the basis of information available on record which has been submitted during the assessment proceedings and filing of return of income. It is pertinent to mention here that the disallowance of expenses/provisions in the hands of assessee made in the assessment are merely based on the financials of the assessee which were filed before the AO during the course of scrutiny and not found during the course of search proceedings. Such return of income cannot be equated with an incriminating material based on which additions can be made. No incriminating material was found during the search proceedings basing on which any additions are made for the year under consideration. 5.3 It will be precise to note that if any books of account or other documents to be considered as incriminating material they should not have been disclosed or produced or evaded by the assessee from the eyes of the law. Furthermore, to submit that the disclosure of Assets and liabilities, income and expenditures made in the return of income and the filing of return of income by the appellant reflects indirectly the soul of books of accounts. In addition to that in a case where the books of accounts for the relevant assessment year were duly audited u/ s 44AB

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of the Income tax Act, 1961 by a Chartered Accountant and the books of accounts were properly maintained by the appellant; the facts get more authenticity of about being true and fair in nature. Thus, return of income is more of a same the due reflection of books of accounts and in the present case the appellant has filed the return of income after duly complying with all of the provisions of the Act. 5.4 It is relevant to the search assessment proceedings that something germane need to be found in the course of search, such as other documents or deed or charter have to be taken into account while making assessment or reassessment of total income under the provisions of 132 r.w.s 153A of the Act. Similar position will obtain in a case where undisclosed income or undisclosed property has been found as a consequence of search. In other words, harmonious interpretation will be that the assessment will be made on the basis of other documents or deeds not found or produced in the course of original assessment but found in the course of search, and undisclosed income or undisclosed property discovered in the course of search. 5.5 Concluded Assessments: Further, in the case of the appellant, for the AY 2011- 12, no incriminating material was found during the course of alleged search proceedings, whereas the AD has made certain additions basing on the return of income which is not permissible to make such additions in the assessment to be completed u/ s 153A of the Act, as the assessment in the case was originally completed u/s 143(1) and the AD has to stop in these proceedings and restrict himself to the income already concluded proceedings for the year, whether u/s 143{l) & 143(3) of the Act. 5.6 Thus, when no incriminating material was found at the time of search, no addition can be made in the

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assessment basing on the return of income filed. Further, it would be necessary to address the preliminary issue of whether the addition could be framed u/ s. 153A of the Act in respect of a concluded proceeding without the existence of any incriminating materials found in the course of search. The scheme of the act provides for abatement of pending proceedings as on the date of search. It is not in dispute that the assessment for the Asst Year 2011-12 was originally completed u/s 143(1) of the Act and hence it falls under concluded proceeding, as on the date of search. Therefore, the Assessing Officer, has to stop short in these proceedings and restrict himself to the income already determined/ assessed in the already concluded proceedings for the year(s), whether under section 143(1) or 143(3). • Decision in case of All Cargo Global Logistics Ltd. Vs. DCIT, 147 TTJ 513 wherein it was held that: “in the assessments that are pending, the AD retains original jurisdiction as well as jurisdiction conferred on him u, s 153.4 for which assessments shall be made for each of these assessment years separately. In respect of other cases, in addition to income that has already been assessed, the assessment u/ s 153A will be made on the basis of incriminating material, which in the context of relevant provisions means, aJ books of account, other documents found in the course of search which were not produced in the course of original assessment and b) undisclosed income or property disclosure in the course of search." • The Hon'ble ITAT, Bench 'F, New Delhi in case of ACIT us. PACL India Ltd., Jaipur in ITA No.2637/DEL/2010: Wherein it was held that: "10. Therefore, the question arises whether AO can make any addition in the reassessment proceedings u/ s 153(A) after making inquiries which are not suggested

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by any document or asset seized during the search. It depends on the nature of addition. The facts and circumstances of the assessee clearly show that no incriminating document found relating to the land development expenses debited in the books of accounts. No material was on the record on that basis which income of assessee could be further assessed by Assessing Officer. Therefore, the assessing officer has no jurisdiction to make or to resort to roving and fishing inquiries to find out whether any income has escaped assessment during these reassessment proceedings. Particularly, when there is no incriminating material found and seized during the course of search u/ s 132(1 J of the Act and nothing is available in record to reassess the income of assessee. In view of the above, this is not a fit case for making the addition in the year under consideration, the same are deleted." • M/s Midwest Gold Limited vs. DCIT in ITA No. 1288 to 1293/H/2014 : Where in it has been held as under: "After considering the rival contentions, we do not see any reason to differ from the order of Ld. CIT(A). Clearly there is no incriminating material found in the course of search. As per provisions of section 153C, the proceedings can be initiated only where the A.D. is satisfied that any money, bullion, jewellery or other valuable article or thing or books of accounts or documents seized or acquisitioned belonging to a person other than the person referred in section 153A (i.e., person searched), then the proceedings can be initiated on other person. As there is already finding that no incriminating material had been found pertaining to assessee, very issuance of notice under section 153C itself is bad. Therefore, the consequential proceedings also become bad in law. Accordingly, following the Coordinate Bench decisions on the issue as relied upon by Ld. CIT (A) in his order and also taking support from Special Bench (however, given in the context of section 153A which may not directly

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apply to the proceedings under section 153Cj, we are of the opinion that there is no merit in Revenue contention. Accordingly, all the grounds raised by Revenue in three years are dismissed". • The decision in case of Gurinder Singh BawaVs. DCIT [2012J 28 taxmann.com 328 (Mum.}where In it was held as under: Where in it has been held as under: "In this case, the AO had made assessment on the information/ material available in the return of income. The information regarding the gift was available in the return of income as capital account had been credited by the assessee by the amount of gift. Similar was the position in relation to addition under section 2(22){e). The AO had not referred to any incriminating material found during the search based on which addition had been made. Therefore following the decision of the Special Bench ( supra ), we hold that the AO had no jurisdiction to make addition under section 153A. The addition made is therefore deleted on this legal ground. " • DCIT Vs. Royal Marwar Tobacco Product (P.) Ltd [2009J 29 SOT 53 (AHD.)(URO) It is, therefore, requested the Ld. CIT(Appeals) to hold that the assessment completed u/ s 153A is invalid, is without jurisdiction and to annul the assessment for the assessment year under consideration. 5.7 Further, it would be necessary to address the preliminary issue of whether the addition could be framed u/ s. 153A of the Act in respect of a concluded proceeding without the existence of any incriminating materials found in the course of search. The scheme of the act provides for abatement of pending proceedings as on the date of initiation of search. It is not in dispute that the assessment for the Asst Year 2011-12 las originally completed u/ s 143(1) of the Act and hence it

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falls under concluded proceeding, as on the date of search. 5.8 It is submitted that, since the regular return of income was filed on 28.09.2011, and the same was processed u/s 143(l)(a) of the Act and as such no assessment was pending as on the day of alleged search i.e. as on 20-07-2015. Further, no notice u/» 143(2) was issued before the expiry of time limit. As no such notice was issued within the stipulated time, the proceedings in the appellant's case were not pending as on the date of alleged search. In a case where a return is filed and is processed u/s 143(1)(a) and no notice u/s 143(2) thereafter is served on the assessee within the stipulated period of 6 months as envisaged in the proviso, the assessment proceedings under section 143 would come to an end and the matter becomes final. Thus, the proceedings for assessment stands terminated. In the appellant's case, the return of income was processed u/s 143(1) and demand was issued. Thus, the proceedings for assessment stands terminated. 5.9 Also, the validity or other-wise of the issuance of notice u/s 153A of the Act for the year under consideration is to be considered basing on the following facts. On going through the provisions of section 153A, clause(b) of section 153A, 2"d proviso, three possible circumstances emerge on the date of initiation of search u/ s 132(1) of the I. T. Act, 1961 viz., (i) proceedings are pending; (ii) proceedings are not pending but some incriminating material found in the course of search, indicating some income and / or assets not disclosed in the return and (iii) proceedings are not pending and no incriminating material has been found. In the appellant's case under consideration, no proceedings were pending on the date of search and no incriminating material was found. Since the assessment was completed u/s 143(l){a) long back determining the appellant's total income and such orders were

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subsisting at the time when the alleged search u/s 132 was stated to be made on 20.07.2015. there is no question of any abatement since no proceedings were pending. In support of the above, reliance is placed in the following decisions. • The Hon'ble ITAT, Bench 'F', New Delhi in case of ACIT vs. PACL India Ltd., JaipurinITA No.2637/DEL/2010. Wherein it was held that: "10. Therefore, the question arises whether AO can make any addition in the reassessment proceedings u/ s 153(A) after making inquiries which are not suggested by any document or asset seized during the search. It depends on the nature of addition. The facts and circumstances of the assessee clearly show that no incriminating document found relating to the land development expenses debited in the books of accounts. No material was on the record on that basis which income of assessee could be further assessed by Assessing Officer. Therefore, the assessing officer has no jurisdiction to make or to resort to roving and fishing inquiries to find out whether any income has escaped assessment during these reassessment proceedings. particularly, when there is no incriminating material found and seized during the course of search u/ s 132(1) of the Act and nothing is available in record to reassess the income of assessee. In view of the above, this is not a fit case for making the addition in the year under consideration, the same are deleted. " 5.10 As can be seen from the jurisdictional ITAT as well as other courts, it is an established position of law that no additions can be made to the income of the appellant u/s 153A of the Act without there being any incriminating material found during the course of search. Therefore, we humbly request your good selves to kindly consider the submissions of the appellant and

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quash the assessment order passed u/s 143(3) r.w.s 153A of the Act for the A Y 2011-12.” 7.2 Further, the ld. AR of the assessee submitted that there was no search in the premises of the assessee and merely assessment framed u/s 153A for the reason that search was conducted in the case of Shri Imtiaz Farooqi, with whom the assessee has business dealings and, therefore, the issue of notice u/s 153A to the assessee is invalid. He submitted that when the warrant of authorization u/s 132 of the Act was not issued in the name of the assessee company, the question of drawing panchanama does not arise. He submitted that name of the appellant company as appearing in the panchanama is not a valid one when no search u/s 132 was conducted in the business premises of the appellant company. He submitted that when warrant of authorization u/ s 132 of the Act was not issued in the name of the appellant company, the question of recording statement u/s 131 of the Act from the Directors relating to the issues of the appellant company during the, course of search conducted u/s 132 in the residential premises of the individuals, who were happened to be the Directors of the said appellant company, cannot and shall not evolve any power, whatsoever, as vested with thee AO for issuing notice u/s 153A of the Act. He submitted that there is no provision in the Income Tax Act to accord power to the AO for issue notice u/ s 153A of the Act in respect of the connected group cases, wherein,

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search u/ s 132 of the Act was conducted in one of the cases of such connected group cases. In this connection, he referred to the provisions of section 153A wherein it is clearly mentioned that "153A. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall- And wherein it was clearly observed that no notice u/ s 153A can be issued wherein no search u/ s 132 of the Act was conducted;” 7.3 In support of assessee’s case, the ld. AR of the assessee relied on the following cases:

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has a business relation and dealing with Shri Imtiazh Farooqi, therefore, the AO issued notice u/s 153A requesting the assessee to furnish return of income, against which assessee filed computation with total income of Rs. 92,90,980/- manually in response to the notice issued u/s 153A on 20/06/2016, hence, the assessee was covered u/s 132 of the I.T. Act. The search was conducted in the bank locker of the assessee , therefore, there was a valid search in the case of the assessee. He relied on the following case law:

8.1 Further, the ld. DR relied on the judgment of the Hon’ble AP High Court in the case of Gopal Lal Bhadruka Vs. DCIT, [2012] 27 taxmann.com 167.

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(J) Once a search takes place under section 132, notice under section 153A(1) will have to be mandatorily issued to the person searched 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. (iJ) 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 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 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 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)

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and the word 'reassess' to complete 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 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 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. [Para 37] • The present appeals concern assessment years 2002- 03, 2005-06 and 2006-07. On the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during search, no addition could have been made to the income already assessed.”

9.1 On going through the judgments including the judgment in the case of Gopal Lal Bhadruka (supra) relied upon by the ld. DR, it is observed that while framing the assessment, the AO can take into consideration the material other than what was available during search operation for making an assessment of undisclosed income of assessee. On careful reading of para Nos. 9 & 10 in the case of Gopal Lal Bhadruka (supra), on money was received in the hands

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of assessee and held that there was sufficient evidence to show that the true sale proceeds had been suppressed and on money was received in respect of transactions. Therefore, the case law relied upon by the ld. DR is distinguishable on facts to the present case.

9.3 In view of the above observations, we set aside the order of the CIT(A) and since no incriminating material was unearthed during search, no additions could have been made to income already assessed. Therefore, we direct the AO to delete the additions made by the AO on the assessment framed u/s 153A of the Act.

Sd/- Sd/- (LALIET KUMAR) (L. P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated: 5th May, 2022.

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kv Copy to : 1 M/s Rail Road Constructions Pvt. Ltd., C/o P. Murali & Co., CAs, 6-3-655/2/3, 1st Floor, Somajiguda, Hyderabad – 82 2 DCIT, Central Circle – 1(3), Hyderabad 3 CIT(A) – 11, Hyderabad 4 Pr. CIT(Central), Hyderabad. ITAT, DR, Hyderabad. 5 Guard File. 6