VIKAS GUPTA ,INDORE vs. PR. COMMISSIONER OF INCOME TAX (CENTRAL), NAGPUR, NAGPUR

The Income tax Officer, Air Intelligence Unit, Chennai Airport has intercepted Shri. Vikas Gupta at Chennai Airport, who was travelling from Bhubaneshwar to Indore via Chennai carrying cash of ` 10 lakh. The Income tax officer, AIU, Chennai has informed DDIT-1, Indore, that Shri Vikas Gupta in his statement, has stated that he is unaware of the source of the cash found.

Subsequently, on 31/03/2019, a search and seizure action was conducted under section 132 of the Act, by the DDIT (Inv.)-I, Indore, at the UG-16, MG Road, Indore, and the cash of ` 10 lakh was seized from Shri Vikas Gupta. Consequent to search action, the case of Shri Vikas Gupta was 3 Vikas Gupta ITA no.186/Nag./2024 centralised with Dy. Commissioner of Income Tax, Central Circle–1(1), Nagpur. The Assessing Officer, on 30/09/2020, has issued notice under section 153A of the Act, in response to which, the assessee, on 27/03/2021, filed return of income for the year under consideration declaring the total income of ` 5,87,870, showing the same income as shown in original return of income filed on 29/12/2016. The assessment under section 153A was completed on 23/04/2021 determining total income of ` 5,87,870.

Meanwhile, the learned PCIT, on a perusal of assessment order, found that order of assessment is erroneous inasmuch as it is prejudicial to the interests of Revenue. Hence the learned PCIT, in exercise of power conferred upon him under section 263 of the Act, assumed jurisdiction. Accordingly, a show cause notice under section 263 of the Act was issued to the assessee on 22/11/2023, in response to which the assessee furnished reply which is reproduced below:–

Considering the specific facts as discussed above and also keeping in view the provisions of Explanation 2 to section 263 of the Act as the AO has not made enquires and verification on the above issues, which should have been made, I am of the considered view that the assessment order passed by the AO u/s 143(3) dated 23.04.2021, is erroneous in so far as it is prejudicial to the interest of revenue. Accordingly, the order is set aside for framing fresh assessment. The A.O is directed to consider the specific issues as discussed above and make necessary enquiries to ascertain the income of the assessee and pass the assessment order afresh in accordance with the law, after providing an opportunity of being heard to the assessee.”

Without adverting to the merits of the case, it is apparent that the assessment year 2016–17 was clearly an unabated assessment year, because no proceedings were pending as on date of search. There was no incriminating documents which were unearthed on the basis of which addition could have been perpetuated. Hence, provisions of section 263 of the Act has got no application, as addition on account of section 68 do no emanate from any seized documents which are incriminating in nature. In this regard, we refer and rely upon the decision of the Co–ordinate Bench of the Tribunal, Kolkata Bench, in Arati Ray v/s DCIT, ITA no.778/Kol./2024, for the assess– ment year 2014–15, order dated 11/07/2024, wherein the Bench, on identical issue, held as under:–

A bare perusal of the sub section-1 would reveal that powers of revision granted by section 263 to the learned Commissioner have four compartments. In the first place, the learned Commissioner may call for and examine the records of any proceedings under this Act. For calling of the record and examination, the learned Commissioner was not required to show any reason. It is a part of his administrative control to call for the records and examine them. The second feature would come when he will judge an order passed by an Assessing Officer on culmination of any proceedings or during the pendency of those proceedings. On an analysis of the record and of the order passed by the Assessing Officer, he formed an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third stage would come. The learned Commissioner would issue a show-cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order. He may set aside the order and direct the Assessing Officer to pass a fresh order.

A perusal of sub-clause (c) of the above would contemplate that if any order, which is subject matter for revision under section 263 is challenged in appeal, then, on the items which are subject matter of appeal, no power under section 263 could be exercised by the ld. Commissioner. We may elaborate 7 Vikas Gupta ITA no.186/Nag./2024 further, for example- an assessment order was passed, it contains five issues, which were challenged before the ld. CIT(A), but ld. Assessing Officer failed to look into few issues, which may arise from the record, then inspite of the assessment order being challenged before the ld. CIT(A), the ld. Commissioner would have jurisdiction on such items, which are not subject matter of appeal in that assessment order.

At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the CIT taken u/s 263. The ITAT in the case of Mrs. Khatiza S. Oomerbhoy Vs. ITO, Mumbai, 101 TTJ 1095, analyzed in detail various authoritative pronounce– ments including the decision of Hon‟ble Supreme Court in the case of Malabar Industries 243 ITR 83 and has propounded the following broader principle to judge the action of CIT taken under section 263. (i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled. (ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it was only when an order is erroneous that the section will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous. (iv) If the order is passed without application of mind, such order will fall under the category of erroneous order. (v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view with which the CIT does not agree. If cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under law. (vi) If while making the assessment, the AO examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the CIT, while exercising his power under s 263 is not permitted to substitute his estimate of income in place of the income estimated by the AO. (vii) The AO exercises quasi-judicial power vested in him and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not fee stratified with the conclusion. (viii) The CIT, before exercising his jurisdiction under s. 263 must have material on record to arrive at a satisfaction. (ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the AO allows the claim on being 8 Vikas Gupta ITA no.186/Nag./2024 satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard.

In the light of above, let us examine the facts and circumstances of the appeals before us. There is no dispute to the fact that all these assessees have filed their returns within due date provided under section 139(1) of the Income Tax Act. They have disclosed the long-term capital gain assessable in their hands. Those returns have been accepted under section 143(1) of the Income Tax Act. The assessments have attained finality. No notice under section 143(2) for scrutinizing the returns have been issued upon the assessee before the search carried out. Even the time limit for issuance of such notice have already been expired before the search. During the course of search, no incriminating material was found which can authorize the ld. Assessing Officer to assess the income under section 153A of the Income Tax Act. To buttress this observation, we have taken note of the relevant part of the assessment orders in the case of each assessee in the earlier part of this order. The Hon‟ble Delhi High Court has considered the scope of section 153A in the case of CIT -vs.- Kabul Chawala (supra). The assessment years involved therein were A.Ys. 2001- 02, 2005-06 and 2006-07. In all these assessment orders, return was processed under section 143(1) and there was no scrutiny assessment. Thereafter search was carried out under section 132 of the Income Tax Act on 15.11.2007. The revenue sought to make addition on account of deemed dividend under section 2(22)(e) of the Income Tax Act.

The Hon‟ble Delhi High Court after considering host of decisions propounded following propositions in the concluding paragraph of the judgment, which read as under:- “Summary of the legal position 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. 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- 9 Vikas Gupta ITA no.186/Nag./2024 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 discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. Conclusion 38. 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, 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:- “11. As per the provisions of Section 153A, in case of a search under Section 132 or requisition under Section 132A, the AO gets the jurisdiction to assess or reassess the „total income‟ in respect of each assessment year falling within six assessment years. However, it is required to be noted that as per the second proviso to Section 153A, the assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search under Section 132 or making of requisition under Section 132A, as the case may be, shall abate. As per sub-section (2) of Section 153A, if any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything 10 Vikas Gupta ITA no.186/Nag./2024 contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub- section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner. Therefore, the intention of the legislation seems to be that in case of search only the pending assessment/reassessment proceedings shall abate and the AO would assume the jurisdiction to assess or reassess the „total income‟ for the entire six years period/block assessment period. The intention does not seem to be to re-open the completed/unabated assessments, unless any incriminating material is found with respect to concerned assessment year falling within last six years preceding the search. Therefore, on true interpretation of Section 153A of the Act, 1961, in case of a search under Section 132 or requisition under Section 132A and during the search any incriminating material is found, even in case of unabated/completed assessment, the AO would have the jurisdiction to assess or reassess the „total income‟ taking into consideration the incriminating material collected during the search and other material which would include income declared in the returns, if any, furnished by the assessee as well as the undisclosed income. However, in case during the search no incriminating material is found, in case of completed/unabated assessment, the only remedy available to the Revenue would be to initiate the reassessment proceedings under sections 147/48 of the Act, subject to fulfilment of the conditions mentioned in sections 147/148, as in such a situation, the Revenue cannot be left with no remedy. Therefore, even in case of block assessment under section 153A and in case of unabated/completed assessment and in case no incriminating material is found during the search, the power of the Revenue to have the reassessment under sections 147/148 of the Act has to be saved, otherwise the Revenue would be left without remedy.

If the submission on behalf of the Revenue that in case of search even where no incriminating material is found during 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.

For the reasons stated hereinabove, we are in complete agreement with the view taken by the Delhi High Court in the case of Kabul Chawla (supra) and the Gujarat High Court in the case of Saumya Construction (supra) and the decisions of the other High Courts taking the view that no addition can be 11 Vikas Gupta ITA no.186/Nag./2024 made in respect of the completed assessments in absence of any incriminating material”

In view of the above position of law, a short question before us is, whether scope of assessment under section 153A could be enhanced to include re- computation of long-term capital gain qua those assessments, which are unabated. The assessments in each appellant‟s case have attained finality. It is pertinent to note that in paragraph no. 4.1 of the impugned order in the case of each assessee, ld. PCIT has observed that assessment orders under section 153A were passed without making necessary inquiry, verification, investigation on the issue. The ld. PCIT further observed that reliance placed by the assessees on the judgment of the Hon‟ble Supreme Court in the case of PCIT -vs.- Abhisar Buildwell (P) Ltd. (supra) is misplaced. According to the ld. PCIT, the factum of the difference in sale consideration, vis-à-vis valuation of the property for the purpose of stamp duty valuation ought to be considered as an incriminating aspect, which would not come to the light if search or consequential search assessment had not taken place. The ld. PCIT thereafter made reference to section 50C of the Income Tax Act. We have considered this finding of the ld. PCIT, but these findings are not in consonance with the proposition of law laid down by the Hon‟ble Supreme Court in the case of Abhisar Buildwell (P) Ltd. Had the assessees have not disclosed long-term capital gain in their regular returns of income and then a discovery of this factum was unearthed during the course of search. The situation would be different. The ld. PCIT has not made reference to any seized material found during the course of search. He is of the view that the subject matter of a regular assessment, which would have taken under section 143(3) after issuance of a notice u/s 143(2) ought to have been considered in this search assessment under section 153A, but this proposition harbored by the ld. PCIT is contrary to the position of law laid down by the Hon‟ble Supreme Court. It is pertinent to note that section 48 of the Income Tax Act contemplates mode of computation of long-term capital gain. It provides that from the full value of the consideration received or accrued to an assessee on transfer of capital assets, the cost of acquisition, cost of any improvement and any expenditure incurred in connection with the transfer are to be debited. This expression “full value of the consideration” is to be deemed equivalent to the amount on which stamp duty was paid. This deeming fiction is provided under section 50C of the Income Tax Act. Sub-clause (2) of section 50C further authorizes the ld. Assessing Officer that in case, an assessee disputes about deeming of the full sale consideration equivalent to the amount on which stamp duty was paid, then, he would make a reference to the DVO for determining the fair market value. Now this exercise was required to be conducted in a regular assessment under section 143(3), but that assessment attained finality. The factum of transfer of capital asset was brought to the notice of the revenue by all these assessees, therefore, it is not a new discovery of fact during the course of search, which can authorize the ld. Assessing Officer to carry out the exercise contemplated in section 50C of the Income Tax Act. The ld. PCIT has misread and misconstrued the position of law laid down by the judgment of the Hon‟ble Supreme Court. This issue does not fall within the ambit of assessment under section 153A of the Income Tax Act. For buttressing our finding, we have made reference to the assessment orders. The ld. Assessing Officer has duly observed that neither there was any incriminating material nor there is any adverse mentioned in the appraisal report for taking this action. The ld. Assessing Officer has recorded a categorical finding that no incriminating material was found during the course of search. Therefore, no addition could

In the result, assessee’s appeal stands allowed. Order pronounced in the open Court on 21/03/2025