DCIT CEN CIR 1(1), MUMBAI vs. ARUNKUMAR R MEHTA, MUMBAI

Date of Hearing 15/07/2019 Date of Pronouncement 06/09/2019 आदेश आदेश / O R D E R आदेश आदेश PER G.MANJUNATHA (A.M):

This appeal filed by the revenue is directed against the order of the Commissioner of Income Tax (Appeals)–47, Mumbai, dated 14/02/2018 and it pertains to the Assessment Year 2007-08. The revenue has raised the following grounds of appeal:- 1. “Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the addition of Rs. 96,52,514/- and Rs. 79,25,181/- made on account of undisclosed cash balances in HSBC account. 2. “Whether on the facts and circumstances of the case in law, the Ld. CIT(A) was justified in deleting the additions of Rs. 96,52,514/- and Rs. 79,25,181/- made on account of undisclosed cash balance in HSBC accounts without appreciating the fact that SLP has been filed by the department against the order of the Hon’ble Bombay High

Court in the case of Continental Warehousing Corporation and Murli Agro Products which have been relied upon by the Ld.CIT(A). 2. The brief facts of the case are that the assesee is an individual, derives income from salary and income from other sources, filed his return of income for AY 2007-08 on 27/08/2007, declaring total income of Rs. 18,37,040/-. A search and seizure action was carried out u/s 132 of the I.T.Act, 1961, at the resident and business premises of entities of the Rosy Blue (India) Group.

The assesee, Mr.Arun Kumar R. Mehta was also covered in the search action. Consequent to search, the case was selected for scrutiny and the assessment has been completed u/s 143(3) r.w.s.

153A of the I.T.Act, 1961 and determined total income at Rs. 1,94,14,740/- by making additions towards undisclosed cash balance in HSBC bank account, in the name of Ruby Enterprises

received by the Assessing Officer from CBDT relating to the undisclosed account maintained by the assessee with HSBC Bank, Geneva, Switzerland. During the course of search, no incriminating material, however, was found relating to the transactions reflected in the said Bank account of the assessee with HSBC Bank or any income relating thereto and this position was categorically admitted by the Assessing Officer during the course of appellate proceedings before the Commissioner (Appeals). ■ The question that arises now is whether in the absence of such incriminating material, any addition to the total income of the assessee can be made on account of the transactions reflected in the Bank account of the assessee with HSBC Bank or any income relating thereto in assessments completed under section 153A for both the years under consideration. [Para 8] ■ As per the provisions contained in section 153A, if the search or requisition is initiated after 31-03-2003, the Assessing Officer is under an obligation to initiate proceedings under section 153A for six years immediately preceding the year of search. The Assessing Officer is then required to assess or reassess the total income of the said six years and if any assessment or reassessment out of the said six years is pending on the date of initiation of the search, the same would abate, i.e. pending proceeding qua the said assessment year would not proceed thereafter and the assessment has to be made under section 153A(1)(b) of the Act read with the 1st Proviso thereunder. ■ As regards the other years for which assessments have already been completed and the assessment orders determining the assessee's total income are subsisting at the time when the search or requisition is made, the scope of assessment under section 153A is limited to reassess the income of the assessee on the basis of incriminating material found during the course of search. [Para 9] ■ At the time of hearing the revenue has contended that the processing of returns of income filed by the assessee as made by the Assessing Officer under section 143(1) could not be regarded as assessment and it is, therefore, not a case where the assessments for both the years under consideration could be said to have been completed. It was also contended that the conclusion of such alone is sufficient to give jurisdiction to the Assessing Officer to proceed against the assessee under section 153A of the Act. In support of this contention, he has relied on the decision of the Delhi High Court in the case of CIT v. Anil Kumar Bhatia [IT Appeal No. 1626 of 2010, dated 14-5-2012]. ■ It is quite clear from the question raised by the Delhi High Court that there was no distinction in the assessments completed under section 143(1) and section 143(3) for determining the scope of the proceedings under section 153A. However, the said question arose specifically for the consideration of Mumbai Bench of this Tribunal in the case of Asstt. CIT v. Pratibha Industries Ltd. [2013] 141 ITD 151/[2012] 28 taxmann.com 246 and the Tribunal held that the only logical conclusion which could be traced out by harmonizing the legislative intendment and the judicial decision was that where the assessments had already become final prior to the date of search, the total income has to be determined under section 153A by clubbing together the income already determined in the original assessments and the income that is found to have escaped assessment on the basis of incriminating material found during the course of search. ■ To arrive at this conclusion, reliance was placed by the Tribunal on the decision of Special Bench, Mumbai in the case of All Cargo Global Logistics Ltd. v. Dy. CIT [2012] 137 ITD 287/23 taxmann.com 103, wherein it was held that even though all the six years shall become subject matter of assessment under section 153A as a result of search, the Assessing Officer shall get the free hand through abatement only on the proceedings that are pending. But in a case or in a circumstances where the proceedings have reached finality, assessment under section 143(3) read with section 153A(3) has to be made as was originally made and in a case certain incriminating documents were found indicating undisclosed income, then addition shall only be restricted to those documents/incriminating material. [Para 10] ■ Keeping in view the discussion made above, the additions as finally made to the total income of the assessee on account of transactions reflected in the Bank account of the assessee with HSBC, Geneva, Switzerland and income relating thereto for both the years under consideration are beyond the scope of section 153A as the assessments for the relevant years had become final prior to the date of search and there was no incriminating material found during the course of search to support and substantiate the said addition. The said additions made for both the years under consideration are therefore, deleted. [Para 11] 21. The assessee has also relied upon the decision of the Hon’ble Delhi High Court in the case of CIT vs Kabul Chawla (2016) 380 ITR 573(Del.) where the Court held as under:- ■ On a conspectus of section 153A(1), read with the provisos thereto, and in the light of the law explained in various decisions, the legal position that emerges is as under: (i) 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. (ii) 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) and the word 'reassess' to complete assessment proceedings. 33 & 4721/Mum/2017 (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 the search, no additions could have been made to the income already assessed. [Para 38] ■ The revenue's appeals are accordingly dismissed. [Para 40] 22. In another case, the ITAT Delhi Bench in the case of HBN Dairies & Allied Ltd. (2018) (96 taxmann.com 353)(Del.) had an occasion to consider identical issue in light of provision of section 153A of the Act, and held that where there is no incriminating material was found in course of search relevant to those expenses which have been added in assessment framed u/s 153A of the Act, claim raised by the assessee was to be allowed. The relevant observations of the Tribunal are as under:- ■ The short controversy is whether the loss declared by the assessee in its returns under section 153A for the assessment years 2004-05 and 2005-06 be carried forward and set off against the positive income for the assessment year 2006-07. The Accountant Member has specifically recorded in his proposed order that though no incriminating material relevant for assessment years 2004- 05, 2005-06 and 2006-07 against the assessee, were unearthed during the course of search under section 132 but incriminating material relevant for other years referred to in clause (b) of section 34 ITA Nos.3712 & 4721/Mum/2017 153A(1) were indeed unearthed. ■ He applied the judgment in the case of Smt. Dayawanti v. CIT [2016] 75 taxmann.com 308/[2017] 245 Taxman 293/390 ITR 496 to hold that even in respect of those assessment years in respect of which no incriminating materials was unearthed during search under section 132; and even if no assessments or reassessments are pending for those assessment year(s) on the date of search under section 132; there is no obstacle in making addition under section 153A provided some incriminating material in the case of the assessee for any assessment year(s) (referred to in clause (b) of section 153A(1) is unearthed as a result of search under section 132 whether by statement under section 132(4) or by way of undisclosed investment or by way of incriminating documents or in any other manner. ■ This is how, he held that the disallowance of loss claimed by the assessee for the assessment years 2004-05 and 2005-06 on the ground of claim of various expenses made by the assessee, not being fully verifiable, was in order. The Judicial Member reiterated the fact that no incriminating material or document or evidence was found during the course of search in relation to such two assessment years and, hence, the loss so claimed for carry forward and set off should be allowed against the income for the assessment year 2006-07. [Para 6] ■ It has been noticed above that search in this case was conducted on 20-11- 2009. The assessment years under consideration are 2004-05, 2005-06 and 2006-07. The assessee filed returns for these years originally under section 139 at the material time. Whereas the return for the assessment year 2004-05 was processed under section 143(1) of the Act, assessments were completed under section 143(3) in respect of the assessment years 2005-06 and 2006-07. The assessee's profit & loss account for the assessment year 2004-05 shows incurring of expenses at Rs. 95.21 lacs against which loss of Rs. 24.30 lac was computed and claimed in the return of income. The return of the assessee was processed under section 143(1) determining loss at the declared figure. Profit & Loss Account of the assessee for the assessment year 2005-06 shows incurring of expenses at Rs. 1.31 crores and the assessee filed return at a loss of Rs. 23,59,200/-. After making some disallowance, the Assessing Officer completed assessment under section 143(3) at a loss of Rs. 18.17 lacs. Insofar as the assessment year 2006-07 is concerned, the assessee filed return and the assessment was completed under section 143(3) determining Nil income, but charging tax under section 115JB on book profit of Rs. 10,90,440/-. Thus, it is evident that the assessments for the assessment years 2004-05 to 2006-07 stood completed on the date of search on 20-11-2009. [Para 7] ■ At this juncture, it is significant to note that when a search is conducted, there can be two types of assessment, namely, completed assessments and non- completed or pending assessments. Assessment years having completed assessments mean the years for which either the assessments stood completed by the Assessing Officer under section 143(3) or section 144 before the date of search or the years for which the regular assessments were not taken up after the filing of the returns by the assessee and further that the time limit for issuing notice under section 143(2) stood expired on the date of search. [Para 8] ■ As per the scheme under the Act, a return filed by the assessee is first processed by the Assessing Officer under section 143(1)(a) in which total income is computed after making the specified adjustments. As per clause (b), tax and interest, if any, is computed on the basis of the total income computed under clause (a). Clauses (d) and (e) of section 143(1) provide that an intimation shall be sent to the assessee specifying the sum determined to be payable by, or the amount of refund due to, the assessee and the amount of refund due to the assessee in pursuance of the determination under clause (c) shall be granted to the assessee. Processing of the return under section 143(1) and the consequential issuing of intimation is construed as passing of the assessment order except where a notice under section 143(2) is issued for a scrutiny assessment under section 143(3) of the Act. ■ In a case, where notice under section 143(2) is issued, the processing of return under section 143(1) and the consequential issuance of intimation does not amount to passing of the assessment order because the assessment order, in such circumstances, is passed after due scrutiny under section 143(3) of the Act. There can be only one assessment order for one year. The crux of the matter is that where no notice under section 143(2) is issued within the permissible maximum time, the issuance of intimation on processing the return under section 143(1), is construed as completion of assessment. However, where such notice is issued, the intimation issued under section 143(1)(a) loses the character of an assessment order, which in that case, is passed under section 143(3) after thorough scrutiny. To sum up, an assessment is termed as completed on the passing of an order under section 143(3) of the Act, but, in a case, where a return has been filed by the assessee, which is processed under section 143(1), but no further notice under section 143(2) is issued and the same cannot be issued because of the time limit setting in, the intimation sent to the assessee under section 143(1) is also treated as a completed assessment for this purpose. [Para 9] ■ Au contraire, the assessment years having non-completed or pending assessments mean the years for which the assessments were pending on the date of search which are abated in terms of the express provisions of the second proviso to section 153A. This will also embrace the years in respect of which the time limit for issuing notice under section 143(2) is still available with the Assessing Officer as on the date of search. [Para 10] ■ Adverting to the extant factual matrix, it is seen that the assessment years under consideration fall in the category of 'completed assessments' and not the 'pending assessments' abating on the date of search. [Para 11] ■ Once a search takes place under section 132, the assessee is obliged to file returns for the six assessment years immediately preceding the previous year relevant to the assessment year in which the search took place. Insofar as the completed assessments as on the date of the search are concerned, the same are to be repeated as increased by certain additions based on incriminating material found during the course of search. In other words, if no incriminating material is found during the course of search, then, the amount of total income determined under the earlier completed assessments, is to be adopted in such fresh assessments under section 153A without making any further addition. [Para 12] ■ It is, seen that whereas the judgment in CIT v. Kabul Chawla [2015] 61 taxmann.com 412/234 Taxman 300/[2016] 380 ITR 573 (Delhi) clearly lays down that in the absence of any incriminating material found during the course of search, no fresh addition can be made in respect of completed assessments, the judgment in the case of Smt. Dayawanti (supra) is peculiar to its facts inasmuch as the addition in that case was based on the assessee's statement made at the time of search admitting: 'additional income in respect of business carried on outside the books of account in connection with production and sale of gutka. It was not a case in which no incriminating material was found. Rather the assessee's statement given at the time of search confirming the carrying on of business outside the books of account was extrapolated to the earlier years as well. [Para 14] ■ Turning to the facts of the instant case, it is seen that the Assessing Officer has not disallowed any specific amount of expenses on account of any incriminating material found at the time of search. It is pertinent to note that the assessee incurred expenses of Rs. 95.21 lacs for the assessment year 2004-05. What the Assessing Officer has done is to disallow loss of Rs. 23.05 lacs simply on the ground that the expenses incurred by the assessee were not fully verifiable. It is not even a case of disallowing any particular amount of expense for whatever reason. Thus, it is manifest that only a part of the expenses, representing loss of Rs. 23.05 lacs, were disallowed and that too, on the ground that complete details in respect of the expenses incurred were not furnished by the assessee during the course of proceedings under section 153A of the Act. Similar is the position for the assessment year 2005-06 in which the assessee incurred expenses of Rs. 1.31 crores and claimed loss of Rs. 23.59 lacs. The Assessing Officer, in the proceedings under section 153A, reduced such loss to Rs. Nil, thereby implying that only a part of the expenses to the extent of the amount of loss, was disallowed for non-furnishing of necessary details in support of expenses. The crux of the matter is that only a part of the expenses representing loss for the assessment years 2004-05 and 2005-06 was disallowed and not allowed to be carried forward for set off against the income for assessment year 2006-07 simply on the ground that expenses were not fully verifiable since complete details were not furnished during the course of assessment proceedings. [Para 15] ■ Admittedly, assessments for the assessment years 2004-05 and 2005-06 stood completed on the date of search. The amount of loss finally determined for the assessment year 2004-05 in the original assessment was Rs. 23,05,880/-. Similarly, the amount of loss finally determined by the Assessing Officer in the original assessment order passed under section 143(3) on 30-11- 2007 for the assessment year 2005-06 was Rs. 18,17,685/-. In the fresh assessments under section 153A, the Assessing Officer was authorized to repeat the originally assessed income (loss) plus fresh additions, if any, based on the incriminating material found at the time of search. ■ Admittedly, no incriminating material was found in respect of the assessment years under consideration. There is no reference whatsoever to any incriminating material found during the course of search casting shadow of doubt on the genuineness of such expenses. Since these expenses were claimed as deduction in the original returns and the Assessing Officer accepted the loss so declared except for making some modification for the assessment year 2005-06, the Assessing Officer was supposed to restrict his exercise of completing assessments under section 153A only to the amount of income/loss determined originally. It was not open to him to venture to re-examine the details in respect of expenses in assessment proceedings under section 153A read with section 143(3) for the patent reason that, admittedly, no incriminating material in respect of such expenses was found during the course of search. [Para 16] ■ The contention of revenue that there was some incriminating material for subsequent years and the same should be considered to have bearing on the disallowance of loss for the two years under consideration, is incapable of acceptance for more than one reason. Firstly, the existence of an incriminating material for the relevant year is sine qua non for making any disallowance of expenses in respect of the completed assessments. [Para 17] ■ Secondly, it is not even a case in which some incriminating material indicating recording of bogus expenses in the subsequent years was found, which could have reflection on the years in question. The revenue has not drawn attention of the bench towards any part of the statement under section 132(4) of the assessee, which suggests, even remotely, that the assessee was booking bogus expenses in its books of account for the succeeding years, so as to extrapolate the same to the years under consideration. The trump card of the department's case is the ratio of Smt. Dayawanti (supra), which could have been applied only if the revenue had established the recording of some bogus expenses by the assessee in later years, so as to enable it to draw an adverse inference for the current years. This is absent in the facts and circumstances of the case. Thus, it is vivid that the ratio decidendi in the case of Smt. Dayawanti (supra) does not apply to the facts of the case. In the absence of any material, the genuineness of expenses incurred by the assessee, and that too partly to the extent of losses claimed, could not have been disturbed by the Assessing Officer in the assessment under section 153A. [Para 17] ■ Thus, it is apparent that between the two judgments of Kabul Chawla (supra) and Smt. Dayawanti (supra), the facts and circumstances of the instant case are fully covered by the ratio in the case of Kabul Chawla (supra), which view has been reiterated by the Delhi High Court in a more recent decision in Principal CIT v. Meeta Gutgutia [2017] 82 taxmann.com 287/248 Taxman 384/395 ITR 526 (Delhi). In view of the foregoing discussion, the view canvassed by the Judicial Member in holding that the amount of determined loss for the assessment years 2004-05 and 2005-06 be allowed to be carried forward for set off against the income for the assessment year 2006-07 is correct. The question proposed is, therefore, answered in negative by holding that the Commissioner (Appeals) was not justified in upholding the additions made by the Assessing Officer for the years of completed assessments, which were not based on any incriminating material found during the course of search relating to such years and consequently denying the benefit of carry forward and set off of the resultant loss in subsequent year. [Para 18] 23. The Ld. DR has drawn our attention to the decision of the Hon’ble Kerala High Court in the case of E. N. Gopukumar vs CIT [2016] 75 taxmann.com 215 (Kerala) where the Hon’ble High Court has held as under:- ■ In so far as the issue as to whether it is necessary that incriminating materials should be unearthed in a search under section 132 to sustain a notice issued under section 153A(1)(a), it is opined that for the issuance of a notice under section 153A(1)(a), it is not necessary that the search on which it was founded should have necessarily yielded any incriminating material against the assessee or the person to whom such notice is issued. [Para 7] ■ Section 153A is a provision which deals with assessment in case of search or requisition. The activation of a search is not something which is regulated by any limit as to period of time. Even if returns are filed and regular assessments are concluded, search on premises could always be made, if the authority concerned is satisfied that action ought to proceed in that line. Once that is done, section 153A(1)(a) authorises the issuance of notice calling for filing of returns. ■ Once a return is filed in answer to such a notice, the Explanation to section 153A provides, among other things, that all provisions of the Act will apply to the assessment made under section 153A of the Act. This is the manner in which the provisions in sections 153A, 153B and 153C would regulate. Once that is done, it is well within the jurisdiction of the assessing authority to proceed with any lawful modes of assessment as prescribed in the Act. ■ The Statute nowhere makes it conditional that the department has to unearth some incriminating material to conclude some method against the assessee in events where the assessment is triggered by a notice under section 153A(1)(a) of the Act. This means that even when such notice is triggered following a search, the assessment proceedings can be concluded in any manner known to law, including under section 143(3) or even section 144 of the Act, if need be. Therefore, the assessment proceedings generated by the issuance of a notice under section 153A(1)(a) can be concluded against the interest of the assessee including making additions even without any incriminating material being available against the assessee in the search under section 132 on the basis of which the notice was issued under section 153A(1)(a) of the Act. [Para 8] ■ In the case in hand, the assessing authority had, upon receipt of the returns in answer to the notice under section 153A(1)(a) of the Act, given an opportunity to the assessee to interact with the officer and thereafter he was required to place a cash flow statement. All that followed thereafter is the assessing authority carrying out an exercise of acting on the cash flow statement and concluding the assessment by determining the amounts on a meaningful and appropriate application of the cash flow statement by rearranging the entries thereof. That activity carried out by the assessing authority, though to a larger extent, was found against by the Commissioner (Appeals), has found disapproval at the hands of the Tribunal which is the last fact finding authority. The decision of the Tribunal cannot be critisised as unreasonable, perverse or unavailable on the face of record. ■ In the result, these appeals are dismissed. [Para 9] 24. We, further noted that n analysis of judgments discussed hereinabove, although divergent views had come from different High Courts on the issue, but majority of the Hon’ble High Court including jurisdictional High Court of Bombay division Bench in the case of CIT vs Murali Agro Products Ltd.(supra) had ruled in favour of the assessee. The Hon’ble Supreme Court has dismissed SLP filed by the Department in the case of Pr. CIT vs Meeta Gutgutia (supra), where it was categorically held that invocation of section 153A to reopen conclude assessments of assessment years earlier to year of search was not justified in absence of incriminating material found during the course of search qua each such earlier assessment year. It is settled law when there are contradicting judgments of different High Courts, the decision which is in favour of the assessee needs to be considered in view of the decision of the Hon’ble Supreme Court in the case of CIT vs M/s Vegetables Products (India) Ltd(1973) 88 ITR 192. Further, judicial discipline demands that lower courts in the jurisdiction of any High Court is bound to follow the ratio laid down by the jurisdictional High Court, accordingly, by following the judicial discipline and also considering majority view of various High Courts, including the decision of the Hon’ble Delhi High Court in the case of CIT vs Kabul Chawla, where the SLP has been dismissed, we are of the considered view that the AO was erred in making additions towards peak balance lying in the HSBC Bank account, Geneva in the name of Ruby Enterprises Inc. and White Cedar Investment Ltd. as unexplained money u/s 69A of the Act, in the hands of the assessee. The Ld. CIT(A) without appreciating the facts has simply rejected legal ground taken by the assessee. Hence, we reverse the findings of the Ld. CIT(A) and deleted additions made by the AO towards peak balance lying in HSBC Bank, Geneva as unexplained money u/s 69A of the Act, in the hands of the assessee.

Order pronounced in the open court on this 06 /09/2019