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Income Tax Appellate Tribunal, DELHI BENCH: ‘E’: NEW DELHI
Before: SHRI SUDHANSHU SRIVASTAVA & SHRI ANANDEE NATH MISSHRA
This appeal by the Assessee is filed against the order of Ld. CIT(A)-II, Delhi, dated 30.04.2012 for Assessment Year 2003-04. A search action U/s 132 of Income Tax Act, 1961 (for short, “The I.T. Act”) conducted in the premises of the Assessee on 27/08/2008. At the time of search, the original return filed by the Assessee U/s 139 of ITA No.-2817/Del/2012. Mahagun India Pvt. Ltd.
I.T. Act stood accepted u/s 143(1) of I.T. Act and the time prescribed for notice U/s 143(2) of I.T. Act had already expired. Thus, no assessment was pending in the case of the assessee on the date of search. After search, notice U/s 153A of I.T. Act was issued in response to which the Assessee filed return on 30.09.2009 declaring income of Rs. 12,59,090/-. The Assessee was ordered to get its accounts audited U/s 142(2A) of I.T. Act, in the assessment order dated 11.08.2011. In this regard, the Assessing Officer has stated in paragraph V. at page 3 and 4 of the Assessment Order as under:-
“V. Accordingly, vide this office letter dated 15/16-12-2010, assessee was ordered to get its accounts audited u/s 142(2A) from M/s Adesh jain & Associates, 408, Pratap Chamber, Gurudwara Raod, Karol Bagh, New Delhi and to furnish a report on such audit in the prescribed proforma duly signed and verified by the C.A. within a period of 60 days from the date of receipt of this direction. The assessee did not co-operate with the Special Auditor for conducting the special audit and as such vide letter dated 07-02-2011, the assessee was asked to show cause why prosecution proceedings u/s 276D be not initiated for failure to comply with the direction issued u/s 142(2A). The assessee intimated vide letter dated 11-02-2011 that an invitation has been extended to the special auditor to commence the special audit on 14.02.2011 and there was no mala-fide intention on the part of the assessee and it was requested that further extension of 60 days may kindly be followed. The Special Auditor vide letter dated 14.02.2011 filed on 15.02.2011 and assessee company vide letter dated 11.2.2011 filed in this office on 15.2.2011 informed that the special audit has commenced w.e.f. 14.2.2011. The extension of time was granted for 60 days up to 20-04-2011 by this office letter dated 18- 02.2011. Subsequently, another request was made by the Special Auditor on 15.04.2011 for extension to time. Vie this office letter dated 19-04-2011 further extension of 45 days were allowed to get the accounts audited. Another extension of 10 days was allowed vide letter dated 2-6-2011 and the assessee was asked to submit the report by 12-06-2011. However, the assessee submitted the special audit report on 10-06-2011.”
(2) Assessment Order u/s 153A/143(3) of I.T. Act was passed on 11.08.2011 wherein the following additions were made:-
ITA No.-2817/Del/2012. Mahagun India Pvt. Ltd.
Addition on account of non-disclosure of value 15,00,000/- Of residual rights.
2. Disallowance of compounding fee. 10,10,476/- 3. Addition u/s 43 B. 1,79,507/- (3) The Assessee filed appeal before the Ld. CIT(A), in which the following grounds were taken:-
“i. That the appellant denies its liability to be assessed at income of Rs. 39,40,070/- and accordingly denies its liability to pay tax, interest surcharge and education cess demanded thereon. ii. That having regard to the facts and circumstances of the case, Ld. AO has erred in law and on facts in framing impugned assessment order which is barred by limitation. iii. That having regard to the facts and circumstances of the case, Ld. A.O. has erred in law and on facts while making addition of Rs. 15,00,000/- on account of alleged residual roof rights in completed projects vide para 1 of the assessment order. iv. That having regard to the facts and circumstances of the case, Ld. A.O. has erred in law and on facts in making disallowance of Rs. 10,10,476/- u/s 37(1) on account of expenditure of alleged to be penal in nature vide para 2 of the assessment order. v. That having regard to the facts and circumstances of the case, Ld. A.O. has erred in law and on facts in making addition of Rs. 1,79,507/- u/s 43B of the I. T. act vide para 5 of the assessment order. vi. That in any case and in any view of the matter, action of Ld. A.O in making additions/disallowances and in framing the impugned assessment is bad in law, illegal, unjustified, barred by limitation and contrary to facts and law and that too by recording incorrect facts and findings, without giving adequate opportunity of hearing, in violation of principles of natural justice and the same deserves to be quashed. vii. That in any case and in any view of the matter action of Ld. A.O. in framing the impugned assessment order is contrary to law and facts, void ab initio, beyond jurisdiction and the same is not sustainable on various legal and factual grounds.
ITA No.-2817/Del/2012. Mahagun India Pvt. Ltd. viii. That having regard to the facts and circumstances of the case, Ld. A.O. has erred in law and on facts in charging interest u/s 234A and 234B of the Income Tax Act, 1961. ix. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”
(3.1) The Ld. CIT(A) disposed off the appeal vide order dated 30.04.2012. In his order, the Ld. CIT(A) upheld the assumption of jurisdiction by Assessing Officer U/s 153A of I.T. Act. The Ld. CIT(A) also upheld the extension of time limit for submission of Audit Report U/s 142(2A) of I.T. Act and dismissed the assessee’s contention that assessment was barred by limitation. Ld. CIT(A), in paragraph 7, of his aforesaid order dtd. 30.04.2012 stated that he did not find any infirmity in assuming jurisdiction by the AO, u/s 153C of the Act and consequential order framed, accordingly. The relevant portion of the order of Ld. CIT(A) is reproduced as under:-
“4 I have considered the written submissions filed by the AR, the assessment order as well as the facts of the case and the position of law. The AR submitted that since the original assessment proceedings have already concluded u/s 143(1) of the Act, and statutory time limit for issuance of notice u/s 143(2) has already expired therefore, in the absence of assessment being pending, it cannot abate. The AR also invited my attention toward the fact that no material, much less indiscriminating, has been found during the search, therefore on this ground only the impugned assessment order is liable to be quashed.
5. I am not in concurrence with the submissions made by the AR. The A.O. has rightly initiated proceedings u/s 153A against the appellant. The sei7'jre of indiscriminating material is not the condition for invoking such provisions. Further
ITA No.-2817/Del/2012. Mahagun India Pvt. Ltd. as far as abatement of pending assessment u/s 153A is concerned, the word “pending” has already been judicially considered by the constitution Bench of Hon’ble Apex Court in the case of Ghansyamdass v/s. Regional ACST 51 ITR 557 SC wherein it has been held as under:-
“The assessment proceedings must be held to the pending from the time and the said proceedings are initiated until they are terminated by a final order of assessment.
6. The Hon’ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers v/s CIT 291 ITR 500 SC has held that processing of the return u/s 143(1) does not amount to assessment and therefore intimation does not amount to an order of assessment. Therefore, in view of authoritative pronouncements, it cannot be said that the assessment is concluded on processing of return u/s 143(1) and therefore no assessment is pending which can abate. Further, the assessment under the above provisions is mandatory in all cases even if no incriminating material is found in the course of search u/s 132 requisition made u/s 132A as held by the Tribunal in the case of Rajat Tradecom India 120 ITD 48 (Indore). The provisions contained u/s 153A are plain and clear and there is no ambiguity. Therefore, the natural and ordinary meaning of the words should be adopted as held by the Hon’ble Apex Court in the following cases Taru Lata Shyam v/s. CIT 108 ITR 345. Keshavji Raoji & Co. v/s. CIT 183 ITR 1: Gum Devdutta VKSS Maryadit v/s. State of Maharashtra AIR 2001 SC 1980 and CIT v/s. Anjum M.H. Ghaswala 252 ITR (Constitution bench). It is the cardinal Rule of interpretation of statute that the words of the statute must be understood in their natural, ordinary or popular sense unless the language of the statute is ambiguous 183 ITR 1 SC (SUPRA). The constitution bench of the Hon’ble Apex court in the case of Anjuman Ghaswala (SUPRA) has held that the purposive interpretation can be resorted to only where the language of the statute is either ambiguous or conflicting or gives a meaning leading to absurdity. The language of section 153A in my opinion is simple clear and unambiguous in as much as it empowers the AO to issue notice and make
ITA No.-2817/Del/2012. Mahagun India Pvt. Ltd. assessment of specified six years where a search is initiated u/s 132 or requisition is made u/s 132A of the Act. The initiation of valid search u/s 132 or requisition u/s 132A is the only condition for invoking the provisions of section 153A. The decision of the Hon’ble Delhi High court in the case of Saraya Industries Ltd. v/s. UOI 306 ITR 189 relates to constitutional validity of the provision of section 153A and 153C on account of discrimination under Article 14 of the constitution of India and therefore, cannot be applied for resolving this issue in as much as it is the validity of search and not the character of seizure which is relevant for invoking section 153A of the Act.
7. Further the AR of the appellant has also argued that the proviso of section 142(2C) authorizes the AO to extend the time for completion of audit and filing of report on the request made by the appellant not on the request by the Special auditor. In the instant case, the auditor has made specific request for extension of time for furnishing the audit report as it is apparent from the impugned assessment order. Therefore, the limitation has to be reckoned by excluding only the time originally granted by the AO for producing the audit report and not the time extended by the AO on auditor’s request. Consequently, since the audit report is not furnished within the stipulated time, consequential assessment order is barred by limitation. I am not in agreement with the argument advanced by the AR on this account. Subsection (2C) authorises the Assessing Officer to fix the time within which the audit report should be furnished by the appellant from the auditor appointed by the Department under clause (2A). The proviso to sub-section (2C) authorises the Assessing Officer to extend the time for producing the audit report on application made by the appellant and if the Assessing Officer finds that the appellant has established good and sufficient reason for getting the time extended for furnishing the audit report, he should extend the time. Based on this proviso, the contention raised by the AR that once time is fixed by the Assessing Officer for the appellant to produce audit report prepared by the auditor appointed by the Department under sub-section (2A), extension of time can be granted only on request by the appellant. Since the appellant did not apply for extension of time
ITA No.-2817/Del/2012. Mahagun India Pvt. Ltd. and since extension of time in this case was applied for only by the auditor, the extension of time granted by the Assessing Officer though after obtaining approval from the Commissioner is not in terms of the proviso to sub-section (2C) and so much so, the extension of time so granted by the officer cannot be reckoned for the purpose of extending the limitation for assessment available under clause (iii) of Explanation 1 of section 153(3) of the Act, is the contention of the appellant. I am unable to agree with this contention of the appellant. In my view, the Assessing Officer under sub-section (2C) has authority to fix the time for the appellant to get the accounts audited and produce the auditor’s report from the auditor appointed by him under section 142(2A). Necessarily the Assessing Officer has to fix the time after consultation with the auditor because only the latter knows what time he requires for completing the audit entrusted to him. However, it may so happen that the auditor, for many reasons, may not be able to complete the audit or prepare the report within the time granted by the Assessing Officer and it is absolutely within his powers to request for extension of time from the Assessing Officer for completion of audit and for filing report. If the officer is convinced, he is free to extend the time initially granted under sub-section (2C). In this case, admittedly, within the time originally granted by the Assessing Officer for completion of audit and for filing report, the auditor requested the officer on April 15, 2011 and again on 2.06.2011 for further time up to June 16, 2011 and the Assessing Officer, after getting approval from the Commissioner granted time in terms of the request of the auditor. I do not consider there is any need to involve the appellant at this stage because, the Assessing Officer, who has the authority to fix the time for submission of audit report under sub-section (2C) has the inherent authority to extend the time on request by the auditor if he finds that the auditor’s request is reasonable and justified. It is pertinent to note that the Legislature has carefully avoided fixing any statutory time for filing audit report by the auditor appointed under section 142(2A) and when discretion to fix time is conferred on the officer under sub-section (2C), it obviously means that he should fix the time in consultation with the auditor and by taking into consideration all reasonable suggestions from the auditor. If the powers of the officer to fix time for filing audit report under sub-section (2C) were not left
ITA No.-2817/Del/2012. Mahagun India Pvt. Ltd. flexible or elastic, the very scheme of section 142(2A) would be frustrated and defeated, if the auditor fails to finish the work within the time originally granted by the officer under sub-section (2C). The proviso to sub-section (2C) entitles the appellant to apply for extension of time for reasons obviously attributable to him and it is for him to produce good and sufficient reason before the Assessing Officer along with application for extension of time for getting the audit done and for producing the audit report. It may so happen that the appellant or his employee may turn sick or may need more time to produce the entire books of account or to answer queries of the auditor to complete the auditing and for producing the audit report within the time originally granted by the Assessing Officer. In that event, the appellant can legitimately approach the Assessing Officer with a request for extension of time for furnishing the audit report. However, the proviso specifically authorizing the appellant to apply for and obtain extension of time from the officer for furnishing audit report does not mean that the Assessing Officer lacks the authority under sub-section (2C) to extend the time on the request from the auditor. In my view, since auditing has to be done by the auditor appointed under sub-section (2A) of section 142, the convenience of the auditor is what matters and if the auditor approaches with a request for extension of time the Assessing Officer is bound to consider the same and grant extension of time, if he is satisfied that the request is bona fide. In fact, if the auditor drags his feet and unreasonably delays the report, the officer can extend the time for furnishing report suo motu and approach the Commissioner or Chief Commissioner for appointing a substituted auditor by following the procedure under section 142(2A). I, therefore, hold that the order of the passed by assessing officers is well within the time allowed under the law. The AO to specify the period for the appellant to furnish the audit report u/s 2C includes the authority to re-fix the period, whether by extending or reducing it and it can be done su-moto or on the request of the auditor. Therefore, I do not find any infirmity in assuming jurisdiction by the A.O. u/s 153C of the Act and consequential assessment order framed, accordingly. The grounds therefore are dismissed.”
ITA No.-2817/Del/2012. Mahagun India Pvt. Ltd.
(3.2) The Ld. CIT(A) deleted the aforesaid addition of Rs. 15 lacs but confirmed the aforesaid disallowance of Rs. 10,10,476/-.
(3.3) The Assessee is now in this present appeal before us, against the aforesaid order dated 30.4.2012 of the Ld. CIT(A). The grounds taken by the Assessee in this appeal in Income Tax Appellate Tribunal (ITAT) are as under:-
“1. That the order passed by the Ld. Assessing Officer and confirmed by Ld. CIT(A) is not only bad in law but also against the facts of the case.
The Ld. CIT(A) is erred under the law while holding that AO has a valid jurisdiction u/s 153A of the Act.
3. The Ld. CIT(A) is erred under the law while holding that the special auditor appointed u/s 142(2A) of the Act has implied authority to seek extension of time for completing the audit an consequential furnishing of report.
4. That the Ld. CIT(A) is erred under the law while holding that the order framed by AO u/s 153A is not barred by limitation inspite of the Special Auditor report not being received on time.
5. That the CIT(A) has erred under the law and facts while confirming the order of Ld. AO with regard to disallowance of Rs. 10,10,476/- u/s 37(1), being expenses incurred by the appellant in the regular course of business.
6. That any other grounds of appeal may be added/deleted or amended at the time of hearing.” Therefore, it is prayed as under: a) The entire assessment proceedings may please be declared as null and void in view of provisions contained u/s 153-A, of the Act. Or alternatively, b) The disallowance u/s 37(1) of the act as made by the AO may please be allowed or c) Any other suitable order as your honour may deem fit may please be passed.”
ITA No.-2817/Del/2012. Mahagun India Pvt. Ltd.
(3.4) As can be inferred from perusal of grounds of appeal; the quantum addition in dispute is the aforesaid disallowance of Rs. 10,10,476/-.
(4) At the time of hearing, the Ld. Counsel for Assessee submitted that the aforesaid addition of Rs. 10,10,476/- was not based on any incriminating material found at the time of search, in the case of the Assessee. The Ld. Counsel for the Assessee further submitted that no material, much less any incriminating material, had been found during search in the case of the Assessee, for Assessment Year 2003-04. He further submitted that the original return filed U/s 139(1) of I.T. Act had been accepted u/s 143(1) of I.T. Act and no assessment was pending at the time of search, and furthermore that the time limit for notice u/s 143(2) in respect of return filed u/s 139(1) of I.T. was already barred by limitation at the time of search. In view of these facts, the Ld. Counsel for Assessee contended that the matter is squarely covered in favour of the Assessee by the order of Jurisdictional Delhi High court in the case of Kabul Chawla vs. CIT (2016) 380 ITR 573 (Delhi). The Ld. Counsel for Assessee also made submissions on the merits of aforesaid addition of Rs. 10,10,476/-. The Ld. CIT(DR) has also made detailed submissions both on applicability of the ratio in the case of Kabul Chawla (supra) and on merits of the addition. In particular, she highlighted that a lot of incriminating material was found in the case of the Assessee for Assessment Year 2005-06 and there was surrender of undisclosed income also for A.Y. 2005-06. Although, she contended that seized material pertaining to one Assessment Year can also be relied upon to draw inference that there can be similar transactions
ITA No.-2817/Del/2012. Mahagun India Pvt. Ltd. throughout the period of six years covered by 153A of I.T. Act, she failed to establish that the aforesaid addition of Rs. 10,10,476/- made in the case of Assessee in this year was similar to, or was in consonance with any addition made in the case of the Assessee, in any other year covered by Section 153A of I.T. Act. She also failed to establish that aforesaid addition was based on any incriminating material found in the case of the Assessee either for this year or for any other year covered by Section 153A of I.T. Act. On perusal of the Assessment Order dated 11/08/2011 U/s 153A/143(3) of I.T. Act and on further perusal of order dated 30.04.2012 of Ld. CIT(A), it is found that nowhere it is the case of Revenue or a finding of Ld. CIT(A) that the aforesaid addition of Rs. 10,10,476/- is based on any incriminating material found in the case of the Assessee either for this year or for any other Assessment Year covered by Section 153A of I.T. Act. She also placed reliance on the following case laws: i. CIT, Central-I vs. Manish Build Well (P.) Ltd. [2011] 16 taxmann.com 27 (Delhi) ii. Keshav Mills Co. Ltd. vs. CIT [1965] 56 ITR 365 (SC) iii. Goetze India Ltd. vs. CIT 284 ITR 323 (SC)/2006-TIO:-198-SC-IT. iv. National Thermal Power Company Ltd. vs. CIT [1998] 229 ITR 383 v. GKN Driveshafts (India) Ltd. vs. Income-tax Officer [2002] 125 Taxman 963 (SC) vi. Filatex India Ltd. (2014-TIOL-1325-HC-DEL-IT) vii. Anil Kumar Bhatia 24 Taxmann.com 98 viii. Indu Lata Rangwala 2016-TIOL-967-HC-DEL-IT ix. E.N. Gopakumar vs. CIT (Central) [2016] 75 taxmann.com 215 (Kerala) x. Continental Warehousing Corporation (Nhava Sheva) Ltd. [2015] 64 taxmann.com 34 (SC) xi. CIT vs. Chetan Das Lachman Das [2012] 25 taxmann.
ITA No.-2817/Del/2012. Mahagun India Pvt. Ltd.
(4.1) We have heard both sides carefully and attentively. We have also perused all the material on record. We find that the case of Kabul Chawla vs. CIT (supra) relied upon by Ld. Counsel for Assessee was considered in the case of the HBN Dairies & Allied Ltd. Vs. ACIT and in accordance with the majority view of the Members of ITAT Delhi Benches, Delhi, the issue was decided in favour of the Assessee vide order dated 25.04.2018 read with order dated 24.05.2018 in 1394 & 1395/Del/2013 for Assessment Years 2004-05, 2005-06 & 2006-07 respectively. The relevant portion of the aforesaid order dated 25.04.2018 is reproduced as under:-
2. Before proceeding with the matter, it is relevant to note that both the learned Members, apart from differing on the merits of the case, also could not be in unison in making reference u/s 255(4) of the Act. The ld. JM, being the senior Member, proposed the following question for reference to the Third Member: - “Whether, in the absence of recovery of any incriminating material during the course of search against the assessee, when assessments have already completed, authorities below were justified in invoking section 153A of the I.T. Act for the purpose of making additions by disallowing claim of losses and brought forward of losses qua each of assessments under appeals i.e 2004- 05, 2005-06 and 2006-07?
On the other hand, the ld. AM proposed the following two questions:- “(a) Whether, when we are presented with two precedents of equal strength from higher court(s), and specially when the earlier precedent has already been considered in the later one; harmonious reading of precedents requires that both precedents are treated by us with equal respect; that the distinguishable facts of the two precedents are appreciated; and that the precedent which is closer to facts of the case before us, is preferred by us for our guidance? (b) Whether, additions can be made in assessments u/s 153A of I.T. Act even for those assessment years in respect of which no incriminating material was unearthed during search u/s 132 of I.T. Act even if no assessments or reassessments are pending for those assessment year(s) on the date of search u/s 132 of I.T. Act; provided some incriminating material in the case of the assessee
ITA No.-2817/Del/2012. Mahagun India Pvt. Ltd. for any assessment year(s) { referred to in clause (b) of section 153A(1) of Income Tax Act} is unearthed as a result of search u/s 132 of I.T. Act whether by way of statement u/s 132(4) of I. T. Act or by way of undisclosed investment, or by way of incriminating documents, or in any other manner?”
I have gone through the relevant material on record and considered the rival submissions in so far as understanding the difference of opinion between the two Members is concerned. In my considered view, the controversy on this issue gets properly reflected through following question: - “Whether on the facts and in the circumstances of the case and as per law, the ld. CIT(A) was justified in upholding the additions made by the AO 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?”
Briefly stated, the facts of the case are that a search and seizure operation u/s 132 of the Act was carried out in HBN group on 20.11.2009. This group is engaged in diverse businesses ranging from dairy development and marketing of dairy products; real estate development; home loan finance and running a broadcast channel, namely, CNEB through various companies. Notice was issued u/s 153A of the Act to the assessee, inter alia, for the three years under consideration. In response, the assessee filed returns of income u/s 139 read with section 153A of the Act on 10.02.2011 declaring Nil income for such years. In the computation of income, the assessee declared loss of Rs.23,05,880/- for the assessment year 2004-05; loss of Rs.23,59,200 for the assessment year 2005- 06; and as against some positive business income for the assessment year 2006- 07, it claimed set off of the amount of brought forward losses for the assessment years 2003-04, 2004-05 and 2005-06. The Assessing Officer completed assessments on 29.12.2011 determining Nil income for the assessment year 2004-05; Nil income for the assessment year 2005-06; and total income of Rs.52,49,283/- for the assessment year 2006-07. In other words, he did not allow the carry forward of the losses for the assessment years 2003-04, 2004-05 and 2005-06 and as the sequitur, did not permit the set off of such brought forward losses against the positive income for the assessment year 2006-07. The assessee remained unsuccessful before the ld. CIT(A) as well. Aggrieved thereby, it came up before the Tribunal contending that such losses should be allowed to be carried over for set off against the positive income for the assessment year 2006-07. The contention of the assessee for carry forward was based on the premise that no incriminating material was found during the course of search in relation to these assessment years and, hence, the Assessing Officer was not within his power to disallow the loss claimed in the returns of income for these years. The ld. AM, who passed the draft order first, noticed that the Assessing
ITA No.-2817/Del/2012. Mahagun India Pvt. Ltd.
Officer disallowed the loss claimed by the assessee for the assessment years 2004-05 and 2005-06 on the ground that claim of various expenses was not verifiable. In the absence of such details furnished before the ld. CIT(A) as well as the Tribunal, he approved the action of the authorities below. He, however, did not approve the view point of the Revenue in not allowing set off of loss for the assessment year 2003-04 against the income for the assessment year 2006- 07 and for this limited purpose, remitted the matter to the file of Assessing Officer for fresh adjudication. The ld. JM did not concur with the view canvassed by the ld. AM in not allowing the loss for the assessment years 2004-05 and 2005-06. He opined that since no incriminating material was found during the course of search in respect of expenses claimed as deduction and, hence, the loss so determined was eligible for carry forward to be set off against the income for assessment year 2006-07. That is how, the matter has been placed before me for adjudication as third Member.
I have heard both the sides and perused the relevant material on record. The short controversy is whether the loss declared by the assessee in its returns u/s 153A of the Act for the assessment years 2004-05 and 2005-06 at Rs.23,05,880/- and Rs.23,59,200/- respectively be carried forward and set off against the positive income for the assessment year 2006-07. The ld. AM has specifically recorded on page 15 of 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 u/s 132 of the IT Act; but incriminating material relevant for other years referred to in clause (b) of section 153A(1) of the IT Act were indeed unearthed.” He considered the judgments of the Hon'ble Delhi High Court in the case of Kabul Chawla vs. CIT (2016) 380 ITR 573 (Delhi) and Smt. Dayawanti through Smt. Sunita Gupta & Anr. VS. CIT & Anr. (2017) 390 ITR 0496 (Delhi) and thus observed on pages 19 and 20 of his proposed order that when two precedents of equal strength from higher courts are available, ‘the precedent which is closer to the facts of the case’ should be preferred. Ex consequenti, he applied the judgment in the case of Smt. Dayawanti (supra) to hold that : ‘even in respect of those assessment years in respect of which no incriminating materials was unearthed during search u/s 132 of the IT Act; and even if no assessments or re-assessments are pending for those assessment year (s) on the date of search u/s 132 of the IT Act; there is no obstacle in making addition u/s 153A of the IT Act provided some incriminating material in the case of the assessee for any assessment year (s) (referred to in clause (b) of section 153A(1) of the Income-tax Act) is unearthed as a result of search u/s 132 of the IT Act whether by statement u/s 132(4) of the IT Act 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 ld. JM reiterated the fact that no incriminating material or document or evidence was found during the course of search in relation to such two
ITA No.-2817/Del/2012. Mahagun India Pvt. Ltd. assessment years and, hence, the loss so claimed for carry forward and set off should be allowed against the income for the A.Y. 2006-07.
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 u/s 139 at the material time. Whereas the return for the assessment year 2004-05 was processed u/s 143(1) of the Act, assessments were completed u/s 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 lac against which loss of Rs.24.30 lac was computed and claimed in the return of income. The return of the assessee was processed u/s 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 crore and the assessee filed return at a loss of Rs.23,59,200/-. After making some disallowance, the Assessing Officer completed assessment u/s 143(3) on 30.11.2007 at a loss of Rs.18.17 lac. In so far as the assessment year 2006-07 is concerned, the assessee filed return and the assessment was completed u/s 143(3) on 02.12.2008 determining Nil income, but charging tax u/s 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.
At this juncture, it is significant to note that when a search is conducted, there can be two types of assessment years, 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 AO u/s 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 u/s 143(2) stood expired on the date of search.
As per the scheme under the Act, a return filed by the assessee is first processed by the A.O. u/s 143(1)(a) of the Act 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 u/s 143(1) and the consequential issuing of Intimation is construed as passing of the assessment order except where a notice u/s 143(2) is issued for a scrutiny assessment u/s 143(3) of the Act. In a case, where notice u/s 143(2) is issued, the processing of return u/s 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
ITA No.-2817/Del/2012. Mahagun India Pvt. Ltd. u/s 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 u/s 143(2) is issued within the permissible maximum time, the issuance of Intimation on processing the return u/s 143(1) of the Act, is construed as completion of assessment. However, where such notice is issued, the intimation issued u/s 143(1)(a) loses the character of an assessment order, which in that case, is passed u/s 143(3) after thorough scrutiny. To sum up, an assessment is termed as completed on the passing of an order u/s 143(3) of the Act, but, in a case, where a return has been filed by the assessee, which is processed u/s 143(1), but no further notice u/s 143(2) is issued and the same cannot be issued because of the time limit setting in, the Intimation sent to the assessee u/s 143(1) is also treated as a completed assessment for this purpose.
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 u/s 143(2) is still available with the AO as on the date of search.
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. Both the ld. Members have considered the judgment of the Hon'ble jurisdictional High Court in the case of Kabul Chawla (supra). The facts of that case are that a search was carried out u/s 132 on 15.11.2007 on BPTP Ltd., a leading real estate developer operating all over India and some of its group companies including the premises of the assessee, who owned and controlled the group. No assessment proceedings were pending for the assessment years 2002-03, 2005-06 and 2006-07 as on the date of the search. The assessments for such assessments years had already been made u/s 143(1) of the Act. The assessee filed returns for the three assessment years declaring certain income. The assessments were completed u/s 153A for the concerned assessment years making additions, inter alia, on account of low household withdrawals and deemed deduction u/s 2(22)(e) of the Act. It was submitted before the ld. CIT(A) that no evidence was found during the course of search so as to warrant an addition u/s 2(22)(e) of the Act. The ld. CIT(A) held that the additions need not be restricted only to the seized material. The Tribunal concluded that: ‘If some incriminating material is found in respect of such assessment years for which the assessment is not pending, then, the total income would be determined by considering the originally determined income plus income emanating from the incriminating material found during the course of search’. That is how, the additions made u/s 2(22)(e), which were not based on any incriminating material found during the course of search, were held to be unsustainable in law and, hence, deleted. The Hon'ble High Court approved the view taken by the Tribunal. It summarized the legal position in para 37 of its judgment as under:-
ITA No.-2817/Del/2012. Mahagun India Pvt. Ltd.
“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 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.”
ITA No.-2817/Del/2012. Mahagun India Pvt. Ltd.
It is evident from the above judgment that once a search takes place u/s 132 of the Act, 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. In so far 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 u/s 153A without making any further addition.
The ld. AM has preferred the judgment in Dayawanti (supra) over Kabul Chawla (supra) by finding it more closer to the facts of the present case. In the case of Dayawanti (supra), a search and seizure operation was carried out on 22.03.2006. The assessee, along with other family members, surrendered Rs.3.5 crore at the time of search as additional income in respect of `business carried on outside the books of account’ in connection with production and sale of gutka. She further admitted in her statement not to have any source of income or any bank account. She still further admitted to being proprietor only on record and, in fact, Shri Anup Gupta looked after all the operations along with the help of other family members. Notice u/s 153A was issued requiring the assessee to furnish returns. In response, she filed a photo copy of the return earlier filed u/s 139(1) declaring gross profit of Rs.7.30 lac on sales of Rs.69.28 lac, yielding gross profit rate of 10.55%. Since no proper books of account were presented, the Assessing Officer rejected the book version u/s 145 and estimated the sales at Rs.1 crore. He applied GP rate of 20% and determined total income at Rs.45.90 lac as against the declared income of Rs.2.42 lac. The CIT (A) reduced the gross profit rate to be applied at 12%. Some additions were sustained and others were deleted. The Tribunal rejected the plea of the assessee that since no material was recovered during the course of search, finalized assessments for the periods covered by the block years could not be reopened. The assessee relied on the judgment in the case of Kabul Chawla (supra) and argued that since no incriminating material was found, no additions could be made in respect of the completed assessments. The Hon'ble High Court dismissed the appeals on the ground that the additions were not baseless as these were based on the inferences drawn by the Assessing Officer. It further held that if the element of guess work has some reasonable nexus with the statement recorded and documents seized, then, the additions can be sustained. 14. It is, thus, seen that whereas the judgment in Kabul Chawla (supra) 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
ITA No.-2817/Del/2012. Mahagun India Pvt. Ltd. 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.
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 lac for the assessment year 2004-05. What the Assessing Officer has done is to disallow loss of Rs.23.05 lac 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 lac, 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 u/s 153A of the Act. Similar is the position for the assessment year 2005-06 in which the assessee incurred expenses of Rs.1.31 crore and claimed loss of Rs.23.59 lac. The Assessing Officer, in the proceedings u/s 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.
Admittedly, assessments for the A.Ys. 2004-05 and 2005-06 stood completed on the date of search. The amount of loss finally determined for the A.Y. 2004-05 in the original assessment was Rs.23,05,880/-. Similarly, the amount of loss finally determined by the AO in the original assessment order passed u/s 143(3) on 30.11.2007 for the assessment year 2005-06 was Rs.18,17,685/-. In the fresh assessments u/s 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 AO was supposed to restrict his exercise of completing assessments u/s 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 u/s 153A read with section 143(3) of the Act for the patent reason that, admittedly, no ITA No.-2817/Del/2012. Mahagun India Pvt. Ltd.
incriminating material in respect of such expenses was found during the course of search.
The contention of the ld. DR 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. The Hon’ble Supreme Court in CIT VS. Sinhgad Technical Education Society (2017) 397 ITR 344 (SC) has accentuated the relevance of the incriminating material pertaining to the relevant year alone, though in the context of section 153C of the Act. In that case, it has been held that where the incriminating material was found to be pertaining to a particular year, there was no valid satisfaction for the other years. 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 ld. DR has not drawn my attention towards any part of the statement u/s 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 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 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 u/s 153A of the Act. Be that as it may, it is further relevant to note that the operation of the judgment in the case of Dayawanti (supra) has been stayed by the Hon'ble Supreme Court vide its judgment dated 03.10.2018, a copy of which has been placed on record.
Thus, it is apparent that between the two judgments of Kabul Chawla (supra) and 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 Hon'ble Delhi High Court in a more recent decision in Principal CIT vs. Meeta Gutgutia (2017) 395 ITR 526 (Del). In view of the foregoing discussion, I agree with the view canvassed by the ld. JM 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. The question proposed is, therefore, answered in negative by holding that the ld. CIT(A) was not justified in upholding the additions made by the AO for the years of completed assessments, which were not based on any incriminating material found during the course of search relating to such ITA No.-2817/Del/2012. Mahagun India Pvt. Ltd.
years and consequently denying the benefit of carry forward and set off of the resultant loss in subsequent year.”
(4.1.1) We have already noted that although the Ld. CIT (DR) appearing for Revenue contended that seized material pertaining to one Assessment Year can also be relied upon to draw inference that there can be similar transactions throughout the period of six years covered by 153A of I.T. Act, she failed to establish that the aforesaid addition of Rs. 10,10,476/- made in the case of Assessee in this year was similar to, or inconsonance with any addition made in the case of the Assessee, in any other year covered by Section 153A of I.T. Act. She also failed to establish that aforesaid addition was based on any incriminating material found in the case of the Assessee either for this year or for any other year covered by Section 153A of I.T. Act. On perusal of the Assessment Order dated 11/08/2011 U/s 153A/143(3) of I.T. Act and on further perusal of order dated 30.04.2012 of Ld. CIT(A), it is found that nowhere it is the case of Revenue that the aforesaid addition of Rs. 10,10,476/- is based on any incriminating material found in the case of the Assessee either for this year or for any other Assessment Year covered by Section 153A of I.T. Act. Respectfully following the decision of ITAT Delhi Benches, Delhi in the aforesaid case of HBN Dairies & Allied Ltd. Vs. ACIT in 1394 & 1395/Del/2013 for Assessment Years 2004-05, 2005-06 & 2006-07 respectively, in which, by majority of the Members of ITAT, the issue was decided in favour of Assessee; we also decide this issue before us in the present appeal, in favour of the Assessee and hold that the Ld. CIT(A) was not justified
ITA No.-2817/Del/2012. Mahagun India Pvt. Ltd. in confirming the aforesaid addition of Rs. 10,10,476/- made by the Assessing Officer.
Accordingly, the aforesaid addition is hereby deleted.
(4.2) Since the addition of Rs. 10,10,476/- is already deleted by us, the other issues raised by the Assessee in the grounds of appeal are academic in nature and need not be adjudicated. We therefore decline to express any opinion on the other issues raised by the Appellant in this appeal. In the result, appeal of the Assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 09/10/2018