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Income Tax Appellate Tribunal, HYDERABAD BENCHES “B”: HYDERABAD
Before: SHRI SATBEER SINGH GODARA & SHRI LAXMI PRASAD SAHU
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 orders dated 30/09/2021 & 13/10/2021 respectively for AYs 2015-16 & 2016-17 involving proceedings u/s 143(3) r.w.s. 153A of the Income Tax Act, 1961 ; in short “the Act on the following grounds of appeal, which are common in both the appeals except the quantum of additions:
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To dispose of these appeals, we refer to the facts in AY 2015-16. The decision taken in this appeal shall mutatis-mutandis apply to the other appeal as well.
Briefly the facts of the case are that the assessee is a company in which public are substantially interested is engaged in the business of manufacturing composite
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Polymer Insulators. A search and survey operation u/s 132 of the Act was conducted in the case of M/s Olectra Greentech Ltd, being the assessee, and its other associated companies on 09/11/2017 and the assessee was one of the persons whose premises was covered u/s 132 of the Act. Consequent upon search, a notice u/s 153A was issued to the assessee on 21/03/2018 and in response to which, the assessee filed its return of income on 02/07/2018 declaring an income of Rs. 8,47,91,090/-. After filing of return of income, the AO issued notice u/s 143(2) on 26/10/2018 and other statutory notices were issued.
3.1 During the course of assessment proceedings, the AO observed that there was a difference in the interest income offered in the financial statements and Form No. 26AS available and, therefore, such difference of interest income of Rs. 6,39,294/- was added to the returned income of the assessee.
3.2 Further, the AO observed that the assessee had debited an amount of Rs. 16,64,866/- in the P&L Account as prior period expenses. In this regard, the explanation offered by the assessee was rejected by the AO and disallowed the said amount of Rs. 16,64,866/- on the ground that the assessee was failed to substantiate its claim by way of documentary evidence.
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Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A) and before the CIT(A) he raised a legal ground and submitted that the basis of making additions by the AO was not supported by any incriminating material found during the course of search and, therefore, the assessment was not based on any supporting documents and only based on the accounts of the assessee submitted before the AO. It was submitted that no assessments were pending at the time of search. He submitted that the assessee had filed its return of income u/s 139(1) of the Act, which was processed u/s 143(1(a) of the Act.
4.1 In respect of interest income, it was submitted that the difference in the interest had been offered in subsequent years and, therefore, there is no loss to the revenue and in respect of prior period expenses, it was submitted that the in the earlier years, the assessee had not claimed any expenditure in the P&L Account and it was claimed the same as an expenditure when the expenditure was crystalized. In this regard, a detailed written submissions were furnished before the CIT(A).
4.2 The CIT(A) after considering the submissions of the assessee, confirmed the order of the AO.
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Aggrieved by the order of CIT(A), the assessee is in appeal before the ITAT.
Before us, the ld. AR of the assessee besides reiterating the submissions made before the revenue authorities, submitted that the AO has not referred to any incriminating material/documents while making additions, namely, difference in interest income and prior period expenses respectively. He submitted that if no incriminating material found during the course of search, no addition can be made in respect of unabated assessments. For this proposition, he relied on the following cases:
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6.1 Further, the ld. AR relied on the following cases: 1. PCIT Vs. Saumya Construction (P) Ltd., 81 taxman 292 (Guj. HC) 2. Trishul Hi-Tech Industries Vs. DCIT, IT(SS)A Nos. 84-86/Kol/2011 (ITAT – Kol.)
The ld. DR, on the other hand, relied on the orders of revenue authorities and submitted that as per the provisions of section 153A(1), the AO is require to issue notice for six assessment years, in which search is :- 8 -: ITA Nos.. 466 & 467/Hyd/2021 M/s Olectra Greentech Ltd.,Hyd.
conducted in any one of the year, there is no need to find any incriminating material for the unabated assessment years. When the case is opened by issuing notice u/s 153A(1), the AO is at liberty to complete the assessments for the unabated assessment years as he thinks fit. In support his arguments, he relied on the following judgments: 1. Gopal Lal Bhadruka Vs. DCIT, 346 ITR 106 (AP) 2. E.N. Gopa Kumar, [2017] 390 ITR 131 8. We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. It is observed that search was conducted on 09/11/2017 and accordingly, as per the notice issued by the AO, the assessee had filed its return of income u/s 153A of the Act on 21/03/2018. The AO made the additions on the basis of the books of account only without referring to any incriminating material found during the course of search. In respect of interest income, there was a difference in the financial statements and Form 26AS only, We find that the difference has been offered by the assessee in the subsequent assessment years, which is clear from the order of the CIT(A). In respect of prior period expenses, the assessee had debited it in P&L Account and the addition made on this count also by the AO only based on the books of account of assessee, which were audited without referring to any incriminating material found during the course of search. On both the additions
:- 9 -: ITA Nos.. 466 & 467/Hyd/2021 M/s Olectra Greentech Ltd.,Hyd. made, no incriminating material found with regard to these issues in the search operations. It clearly shows that the basis of additions is only from the books of account of the assessee. There are catena of judicial precedents wherein the issue was decided in favour of the assessee that if no incriminating material found during the course of search, no additional can be called for in respect of unabated assessment years. The judgments relied upon by the ld. AR of the assessee quoted supra support the case of the assessee. Whereas the judgments relied upon by the ld. DR quoted supra are distinguishable on the facts to the case of the assessee. In this connection, we refer to the judgment of the Hon’ble Delhi High Court in the case of Commissioner Of Income Tax Vs Kabul Chawla (2016) 380 ITR 573, wherein the Hon’ble High Court has observed as under:
“37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. 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.
:- 10 -: ITA Nos.. 466 & 467/Hyd/2021 M/s Olectra Greentech Ltd.,Hyd. 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 153 A 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 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property
:- 11 -: ITA Nos.. 466 & 467/Hyd/2021 M/s Olectra Greentech Ltd.,Hyd. discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.”
8.1 In the case of the Commissioner Of Income-Tax vs M/S. Vegetables Products Ltd, 448, 88 ITR 192, the Hon’ble Supreme Court has held as under: “………..the duty of. the Court is to read the section, understand its language and give effect to it. If the language is plain, the fact that the consequence of giving effect to it may lead to some absurd result is not a factor to be taken into account in interpreting a provision. It is for the Legislature to step in and remove the absurdity. On the other hand, if two reasonable constructions of a taxing provision are possible that construction which favours the assessee must be adopted.”
8.2 In view of the ratios laid down in the above cases, we set aside the order of the CIT(A) and direct the AO to delete the additions made i) on account of difference in interest income of 6,39,294/- and ii) on account of prior period expenses of Rs. 16,64,866/-. Accordingly, the grounds raised by the assessee on these issues are allowed.
9. As the facts and grounds in for AY 2016-17 are materially identical to (supra), following the conclusions drawn therein, we allow the grounds raised by the assessee in this appeal also.
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In the result, both the appeals of the assessee are allowed in above terms. A copy of this common order be placed in the respective case files.
Pronounced in the open court on 7th January, 2022