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Facts
The Revenue filed appeals against the CIT(A)'s orders deleting additions made under Section 69B concerning the cost of construction. A search operation was conducted on a group to which the assessee belonged, and the AO made additions based on a DVO's report regarding the difference in construction costs.
Held
The Tribunal held that for assessments under Section 153C, it is imperative to have found incriminating material during the search that pertains to the assessee. Since no specific incriminating material was found relating to the assessee, the additions made by the AO were not sustainable.
Key Issues
Whether additions made under Section 153C are valid in the absence of any specific incriminating material found during a search pertaining to the assessee.
Sections Cited
69B, 153C, 153A, 132, 147, 148
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Income Tax Appellate Tribunal, DIVISION BENCH, ‘B’ CHANDIGARH
Before: SHRI RAJPAL YADAV & SHRI KRINWANT SAHAY
The present two appeals are directed at the instance of Revenue against the separate orders of the ld. Commissioner of Income Tax (Appeals) [in short ‘the CIT (A)’] dated 03.01.2024 passed for assessment year 2017-18 and 2018-19.
ITA 363 & 364/CHD/2024 A.Y. 2017-18,2018-19 2
The Revenue has taken five grounds of appeal in each assessment year, however, its grievance revolves around a single issue namely, ld. CIT(A) has erred in deleting the addition of Rs.3,08,08,259/- and Rs.2,65,89,615/- made by the AO under Section 69B of the Income Tax Act on the basis of a DVO’s report.
The facts in both the assessment years are common on all vital points, therefore, for the facility of reference, we are taking the facts mainly from assessment year 2017-18.
The brief facts of the case as emerging out from the assessment order are that assessee belongs to Kewal Krishan Chhabra Group of cases, Ludhiana. A search under Section 132 of the Income Tax Act was conducted on Kewal Krishan Chhabra Group on 28.11.2018. The assessee was not covered under the search operation. The ld. AO has observed that Plaza Project. He observed that during the course of search, incriminating documents, loose papers etc. were found and seized which exhibits that assessee has incurred expenditure
ITA 363 & 364/CHD/2024 A.Y. 2017-18,2018-19 3 in cash over and above the one stated in the accounts. Hence, AO has made a reference to the DVO for determining the estimated cost of construction in its projects. The ld. DVO has submitted the report and on the basis of that report, AO has worked out a difference between the cost of construction declared by the assessee vis-à-vis estimated by the DVO. On page No. 6 of the assessment order he has made a comparison between all its figures. It emerges out that in assessment year 2017-18, assessee has declared cost of construction at Rs.6,73,75,202/- and in 2018-19 Rs.5,81,49,284/-. The Valuation Cell has determined the cost at Rs.10,16,06,600/- and Rs.8,76,93,300/- respectively. The difference between the cost has been worked out by the AO at Rs.3,42,31,398/-and Rs.2,95,44,016/- respectively in assessment year 2017-18 and 2018-19. The AO further observed since construction was supervised by the assessee, therefore, benefit of self supervision at 10% of the difference is to be given. He, accordingly, reduced the alleged difference by a sum of Rs.34,23,139/- and Rs.29,54,401/- respectively in assessment
ITA 363 & 364/CHD/2024 A.Y. 2017-18,2018-19 4 years 2017-18 and 2018-19. The balance amount of Rs.3,08,08,259/- and Rs.2,65,89,615/- has been added by the AO under Section 69B on account of unexplained investment in the total income of the assessee for these assessment years.
5. Dissatisfied with the additions, assessee carried the matter in appeal in both the years. Ld. CIT(A) has deleted the additions by way of separate orders passed on 03.01.2024.
The finding of the ld. CIT(A) in assessment year 2017-18 read as under :
FINDINGS, OBSERVATIONS & DECISION
In the light of the above submissions, documents submitted by the AR, the various grounds of appeal are adjudicated, as below :
5.1 Ground of Appeal No. 1 is of general in nature, requiring no specific comments in view of the adjudication in the succeeding grounds. 5.2 Grounds of Appeal Nos. 2 & 3: In these grounds, the AR stated that the AO has erred in initiating proceedings u/s 153C and there was no reason to believe for arriving at the conclusion that the reopening of the case u/s 153C was valid. The AR has argued that no incriminating material has been found during the search pertaining to the appellant and hence addition cannot be made. The AR relied on various case laws cited in the replies as reproduced supra. As per AR, neither there was any incriminating material pertaining to the appellant nor any such incriminating material was ever confronted to the appellant during the assessment proceedings. There is no evidence or document that is found or noticed to suggest any payment outside the books of accounts. The AO made addition on account of difference in value of immoveable property as valued by the DVO and as per books of account. 5.3 Discussion and finding on the issue of incriminating material
ITA 363 & 364/CHD/2024 A.Y. 2017-18,2018-19 5
5.3.1 Scope of section 153C of the Act It needs to be seen whether any documents relating to additions made by the AO have been seized/impounded or not and what is the legal position w.r.t. sections 153C of the Act. Before proceeding further, it is essential to have a look at the provisions of section 153C, which are reproduced as under: 153C(1) [Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section .753. where the Assessing Officer is satisfied that,— (b) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person] and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person 3i(for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and] for the relevant assessment year or years referred to in sub-section (1) of section 153A," From the reading of this section following issues emerge (i) There should be "any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (ii) There should be "(b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, (iii) And it should "relates to, a person other than the person referred to in section 153A" (iv)There should be satisfaction that these have "have a bearing on the determination of the total income of such other person" Therefore, there are conditions for initiation of action u/s153C of the Act, that there should be some seized incriminating material found from the premises of person covered u/s. 132 or 132A and it should pertain/belong to the person (in whose case, proceedings u/s 153C are initiated). Thereafter recording of satisfaction that these materials have bearing on income of the person (in whose case, proceedings u/s 153C are initiated).
ITA 363 & 364/CHD/2024 A.Y. 2017-18,2018-19 6
For taking action u/s153C of the Act, these conditions are to be prima facie satisfied. 5.3.2 In the present case, there is no mention of specific seized material, or any incriminating document found during the seajrchof person searched u/s 132 i.e. Kewal Krishan Chhabra group. Relevant part of the assessment order is reproduced as under : "The assessed belongs to Kewal Krishan Chhabra Group of cases, Ludhiana where a search and seizure operation u/s 132 of the Income Tax Act was conducted on 28:11.2018. During the search operation, various incriminating documents were found and seized from the various business and residential premises of the group. The case was transferred from ACIT, Central Circle-1, Ludhiana to DC IT; Central Circle-2, Ludhiana by order u/s 127 of the Income Tax Act, 1961 vide letter F.No. Pr.CIT(C)/LDH/JBII/Cent.40/2020-21/2348 dated 08.10.2020. Accordingly, notice u/s 153C of the Income Tax Act was issued on 30.09.2021 to file return of income in compliance to this notice."
On plain reading of this paragraph, it is seen that there is no mention of specific seized document/money/bullion/jewellery/any other valuable article, which belongs to/pertains to the appellant. The AO made addition on account of/difference in value of immoveable property as valued by the DVO and as per books of account. There is no reference of any incriminating material found during search indicating unexplained investment in immoveable properly. 5.3.3 Now this issue of scope of assessment u/s 153A of the Act has been decided by the Hon'ble Supreme Court In the case of DCIT vs. U. K. Paints (Overseas) Ltd. (2023) vide order dated 25.04.2023 in Civil Appeal No. 6634 of 2021, wherein it has been held as under:
Quote As found by the High Court in none of the cases any incriminating material was found during the search either from the Assessee or from third party. In that view of the matter, as such, the assessments under Section 153-C of the Act are rightly set aside by the High Court. As no incriminating material was found in case of any of the Assessee either from the Assessee or from the third party and the assessments were under Section 153-C of the Act, the High Court has rightly set aside the Assessment Order(s). Therefore, the impugned judgment and order(s) passed by the High Court do not require any interference by this Court. Hence, all these appeals deserve to the dismissed and are accordingly dismissed. However, so far as the prayer made on behalf of the Revenue to permit them to initiate the re-assessment proceedings is concerned, it is observed that it will be open for the Revenue to initiate the re-assessment proceedings in accordance with law and if it is permissible under the law.
ITA 363 & 364/CHD/2024 A.Y. 2017-18,2018-19 7
Unquote Hon'ble Supreme Court has referred to the decision of Hon'ble Supreme Court in the case of PCIT Central-3 vs. Abhisar Buildwell Pvt. Ltd. in Civil Appeal No. 6580 of 2021 dated 24.04.2023 (reported in 150 Taxmann.com 257 (SC) (2023), wherein the issue of scope of assessment u/s 153A has been decided by the Hon'ble Supreme Court. 5.3.4 The issue of scope of assessment u/s 153A of the Act has been decided by the Hon'ble Supreme Court in the case of PCIT Central-3 vs. Abhisar Buildwell Pvt. Ltd. in Civil Appeal No. 6580 of 2021 dated 24.04.2023 (reported in 150 Taxmann.com 257 (SC) (2023). The relevant part of this judgment of the Hon'ble Supreme Court is quoted below: Quote 14. In view of the above and for the reasons stated above, it is concluded as under: 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 fulfillment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved. The question invoked in the present set of appeals and review petition is answered accordingly in terms of the above and the appeals and review petition preferred by the Revenue are hereby dismissed. No costs." Unquote 5.3.5 Therefore, Hon'ble Apex Court has clearly laid down the scope of assessment u/s. 153A/153C and held the pre-condition of initiation of assessment proceeding u/s 153A/153C for a particular year is the existence of ITA 363 & 364/CHD/2024 A.Y. 2017-18,2018-19 8 seized material in that year. In case there is no incriminating material, AO cannot assess or reassess the income. 5.3.6 To summarize, the basic test of any document being qualified to be incriminating is that it must have some indication of undisclosed transaction/activity, which is not reflected in the books of account or return of income of the person. Therefore, any addition on the basic of this document, which is not incriminating, cannot be sustained in view of the law laid down, by the Hon'ble Supreme Court in the case of DCIT vs. U. K. Paints (Overseas) Ltd. (2023) vide order dated 25.04.2023 in Civil Appeal No. 6634 of 2021 and in the case of PCIT, Central-3 vs. Abhisar Buildwell Pvt. Ltd. reported at 150 Taxmann.com 257 (SC) (2023).
5.3.7 In view of the above stated legal position and the facts discussed above, in view of the binding nature of the decision of Hon'ble Supreme Court in the cases of DCIT vs. U. K. Paints (Overseas) Ltd and Abhisar Buildwell Pvt. Ltd (supra), the assessment made by the AO, which is not the based on any incriminating document found during search of another person, pertaining to current year, is not found sustainable and hence deleted. 5.3.8 This decision of Hon'ble Apex Court in the case of Abhisar Buildwell Pvt Ltd has been followed by the Apex Court in the cases of 'King Buildcon Pvt. Ltd.' in Civil Appeal No. 4326/2023 and PCIT Vs. S.S. Con. Build Ltd. reported in 445 ITR 506. Therefore, this issue has now been settled. Also, Hon'ble CBDT has issued Instruction vide Instruction No. 1 dated 23.08.2023 [F No. 279/MISC./M-54/2023-ITJ] in which certain directions have been issued by the Hon'ble CBDT that how the effect to such judgment is to be given. In view of this decision in the Abhisar Buildwell case, U K Paints (Overseas ) Ltd case and in view the Instruction of the Hon'ble CBDT, AO is free to examine the possibility of taking action u/s. 147/148 of the Act subject to fulfillment of the conditions as envisaged/mentioned under sections 147/148 of the Act. Accordingly, these grounds of appeal are allowed. 5.4 Another Grounds of Appeal: Since the addition has been deleted on legal grounds, other grounds of appeal & additional grounds of appeal become infructuous and academic in nature. Hence, require no further adjudication.
6. In the result, the appeal is allowed.”
Before us, ld. CIT-DR relied upon the orders of AO. On the other hand ld. Counsel for the assessee relied upon his
ITA 363 & 364/CHD/2024 A.Y. 2017-18,2018-19 9 submissions filed before the CIT(A) as well as on the order of the CIT(A).
With the assistance of ld. Representative, we have gone through the record carefully. The assessments in both the years have been passed under Section 153C of the Income Tax Act therefore, we deem it necessary to take note of relevant part of Section 153C of the Income Tax Act, which reads as under :
153C. Assessment of income of any other person.—(1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that,— (a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153-A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years referred to in sub-section (1) of section 153-A: Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132-A in the second proviso to sub-section (1) of section 153-A shall be construed as reference to the date of receiving the books of account or ITA 363 & 364/CHD/2024 A.Y. 2017-18,2018-19 10 documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person: Provided further that the Central Government may by rules made by it and published in the Official Gazette, specify the class or classes of cases in respect of such other person, in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years as referred to in sub-section (1) of section 153-A except in cases where any assessment or reassessment has abated. (2) Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other person after the due date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132-A and in respect of such assessment year— (a) no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or (b) a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub-section (2) of section 143 has expired, or (c) assessment or reassessment, if any, has been made, before the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person, such Assessing Officer shall issue the notice and assess or reassess total income of such other person of such assessment year in the manner provided in section 153-A."
The bare perusal of this Section would reveal that if during the course of search, some incriminating material in the shape of money, bullion, jewellery, valuable articles, things, books of account, documents etc. discovered which indicate that income belonging to or pertaining to a person other than the searched person has escaped assessment then the AO of ITA 363 & 364/CHD/2024 A.Y. 2017-18,2018-19 11 the searched person would record his satisfaction demonstrating the fact that income of other person has escaped assessment. He would transmit those documents to the AO having territorial jurisdiction over such other person.
The AO of such other person would record his satisfaction and then issue notice under Section 153C of the Income Tax Act.
A perusal of the impugned assessment order would reveal that AO has not recorded any such satisfaction note. He vaguely observed that loose papers and incriminating documents were found demonstrating the fact that assessee has incurred cost in cash but not a single document or loose paper has been referred in the assessment order. The additions to the income of the assessee cannot be made on the basis of a DVO’s Report in an assessment passed under Section 153C. It should be only on the basis of the documents or evidences found during the course of search whose details have been transmitted to the AO of the present assessee by the AO of the searched person. No such procedure is discernible. Ld. First Appellate Authority has considered all these aspects and ITA 363 & 364/CHD/2024 A.Y. 2017-18,2018-19 12 thereafter deleted the additions by putting reliance upon the judgement of Hon'ble Supreme Court in the case of Abhisar Buildwell Pvt. Ltd. 454 ITR 212, taking into consideration well reasoned finding of the CIT(A), we do not find any error in the orders of the CIT(A) in both the assessment years and accordingly, both the appeals are dismissed.
In result, both the appeals of the Revenue are dismissed.
Order pronounced on 24.03.2025.