M/S PNG TRADING PRIVATE LIMITED,CHANDIGARH vs. DCIT, CHANDIGARH

The AO, thereafter, observed that Investigation Wing has carried out a search upon the office premises of one Shri Tarun Goyal, Chartered Accountant at 13/34, WEA Arya Samaj Road, Karol Bagh, Delhi. According to the AO, Shri Tarun Goyal was engaged in providing accommodation entries to various concerns in the shape of bogus share application money, loan etc. On the strength of alleged information, he confronted the assessee as to why share application money received by it, be not treated as bogus and ultimately made an addition of Rs.1,09,50,000/-. The AO further made an addition of Rs.3,28,500/- for commission paid by the assessee @ 3% for arranging such bogus entries.

The appeal to the CIT(A) did not bring any relief to the assessee.

Before us, ld. Counsel for the assessee has submitted that assessee has filed its regular return of income. No notice under Section 143(2) was issued for scrutinizing those returns. Thus, assessment for assessment year 2005-06 as well as 2006-07 attained finality before the search carried & 239/CHD/2015 & ITA Nos. 831 & 832/CHD/2018 A.Y.2005-6 & 2006-07 5 out at the premises of the assessee on 17.09.2010. During the search, no incriminating material was found which can authorize the AO to make additions. He further submitted that page No. 4 of Annexure A-3 has been used by the AO which has been reproduced on page 3 of the assessment

The ld. CIT DR on the other hand relied upon the orders of Revenue Authorities. She was unable to controvert the submissions made by the ld. Counsel for the assessee. She could not drew our attention towards any specific document which was found during the course of search and exhibits & 239/CHD/2015 & ITA Nos. 831 & 832/CHD/2018 A.Y.2005-6 & 2006-07 6 alleged bogus share application money received by the assessee. She drew our attention towards the finding of the CIT(A) in paragraph No. 6.1.

We have duly considered the rival contentions and gone through the record carefully. There is no dispute with regard to the fact that before the search, time limit to issue notice under Section 143(2) for scrutinizing the returns of assessment year 2005-06 as well as 2006-07 has expired.

During the course of search, no incriminating material was found. Thus, both these assessments are unabated and they attained finality. Additions could not be made by the AO without discovery of any incriminating material during the course of search.

The Hon’ble Delhi High Court in the case of CIT Vs Kabul Chawla (2015) 61 taxman.com 412, after considering host of decisions propounded following propositions in the concluding paragraph of the judgment, which read as under:-

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. 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 & 239/CHD/2015 & ITA Nos. 831 & 832/CHD/2018 A.Y.2005-6 & 2006-07 8 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 discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. Conclusion

The present appeals concern AYs, 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 the search, no additions could have been made to the income already assessed.

The question framed by the Court is answered in favour of the Assessee and against the Revenue.

The appeals are accordingly dismissed but in the circumstances no orders as to costs”.

This judgment and other judgments on this school of thought have fallen for consideration of the Hon’ble Supreme Court, in the case of Abhisar Buildwell Pvt.Ltd., who concurred with the Hon’ble Delhi High Court as well as Hon’ble Gujrat High Court. The relevant part of the finding of the Hon’ble Supreme Court in this aspect reads as under:-

If the submission on behalf of the Revenue that in case of search even where no incriminating material is found during & 239/CHD/2015 & ITA Nos. 831 & 832/CHD/2018 A.Y.2005-6 & 2006-07 10 the course of search, even in case of unabated/completed assessment, the AO can assess or reassess the income/total income taking into consideration the other material is accepted, in that case, there will be two assessment orders, which shall not be permissible under the law. At the cost of repetition, it is observed that the assessment under Section 153A of the Act is linked with the search and requisition under Sections 132 and 132A of the Act. The object of Section 153A is to bring under tax the undisclosed income which is found during the course of search or pursuant to search or requisition. Therefore, only in a case where the undisclosed income is found on the basis of incriminating material, the AO would assume the jurisdiction to assess or reassess the total income for the entire six years block assessment period even in case of completed/unabated assessment. As per the second proviso to Section 153A, only pending assessment/reassessment shall stand abated and the AO would assume the jurisdiction with respect to such abated assessments. It does not provide that all completed/unabated assessments shall abate. If the submission on behalf of the Revenue is accepted, in that case, second proviso to section 153A and sub- section (2) of Section 153A would be redundant and/or re- writing the said provisions, which is not permissible under the law.

Now we take ITA 239/CHD/2015. We find that there is no disparity on facts in the present case. In assessment year 2006-07, addition of Rs.25,00,000/- with the aid of Section 68 has been made. We find that except variation in the quantum, no other variation is available rather both the assessment orders are verbatim same and same material has been used as cut and paste. Thus, facts of assessment year 2005-06 are fully covered on this year also. Accordingly, we delete the addition of Rs.25,00,000/-.

The ld. AO has imposed penalty under Section 271(1)(c) of the Act by way of a separate order of even date i.e. 15.02.2016. The AO has imposed a penalty of Rs.39,28,310/- and Rs.8,41,500/- in assessment year 2005-06, 2006-07 respectively. These penalties have been imposed on unexplained additions made to the total income of the assessee in both these years.

Since we have already deleted the additions made to the income of the assessee, therefore, there is no foundation to visit the assessee with the penalty on account of concealment of income. Accordingly, both these appeals are allowed and penalties imposed upon the assessee in assessment year 2005-06 and 2006-07 are deleted.

In the result, all four appeals are allowed.