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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI N. V. VASUDEVAN & SHRI JASON P BOAZ
Per Bench
This is a batch of seven matters; the details of which are as under:
(i) ITA No.83/Bang/2011 is an appeal by the assessee directed against the order of CIT(A)-VI, Bangalore, dated 29.11.2010 for Assessment Year 2002-03.
(ii) ITA No.817/Bang/2012 is an appeal by the Revenue directed against the order of CIT(A)-VI, Bangalore, dated 27.03.2012 for Assessment Year 2003-04.
(iii) The Cross Objections in C.O. Nos. 9 to 13/Bang/2013 are instituted by the assessee in respect of the separate orders of the CIT(A)-VI, Bangalore, for Assessment Years 2003-04 to 2007-08, all dated 27.02.2012; on account of Revenue’s appeals in ITA Nos.817 to 821/Bang/2012.
These matters are disposed off in seriatim as under:
Assessee’s appeal in ITA No.83/Bang/2011 for Assessment Year 2002-03
2.1 The grounds raised by the assessee in this appeal for Assessment Year 2002-03 are as under:
ITA No. 83/Bang/2011 ITA No. 817/Bang/2012 C. O. Nos. 9 to 13/Bang/2013
Page 3 of 12 The orders of the authorities below in so far as they are against the 1. appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
The learned CIT [A] ought to have cancelled the assessment made on the appellant pursuant to the joint warrant having regard to the binding ratio of the decision of the Hon'ble Karnataka High Court, Circuit Bench, Gulbarga in the case of LATE P.J.KUMAR in ITA Nos.6005 Et 6006/2010, which was cited before him, which has been taken cognizance of while disposing off the appeal.
The appellant denies itself liable to be assessed u/s.153A rws 143[3] of the Act under the impugned order on the ground -
(i) That the search initiated in the case of the appellant is illegal and ultra vires the provisions of Section 132[1][a], [b] and [c] of the Act;
(ii) That the search is conducted not on the basis of any prior information or material inducing any belief but purely on the suspicion and therefore, the action u/s.132[1] is bad in law [224 ITR 19 (SC)] and consequent assessment U/S.153A is null and void-ab-initio on the parity of the ratio of the decision of the Hon'ble Supreme Court in the case of AJITH JAIN reported in 260 ITR 80.
(iii) That the warrant issued in the joint names of the persons said to have been specified in the warrant is bad in law to initiate search in the individual cases of the several persons whose names are specified in the warrant although a joint warrant had to be issued in all the names of the occupants of the premises to seize their records, if warranted, which does not mean that search is initiated against each one of the occupants;
(iv) That the search is also bad in law in that separate lists of the items seized belonging to each one of the assessees, which have to be prepared in accordance with the mandatory rule 112[9] of the I.T.Rules enjoining preparation of such lists and further furnishing the same to each one of the
ITA No. 83/Bang/2011 ITA No. 817/Bang/2012 C. O. Nos. 9 to 13/Bang/2013
Page 4 of 12 assessees including the appellant, if the search were to have been considered as individually initiated against each one of the persons whose names are stated to have been specified in the warrant including the appellant;
(v) That the assessment is also bad in law since the warrant is in the joint names of certain persons and not in their individual names and therefore, the assessee against whom the warrant is issued should be considered either as AOP or BOI consisting of such persons and such assessee entity alone could be considered as assessee or person against whom search proceedings are initiated and therefore, the provisions of Section 153A could be invoked only against AOP or BOI and not against the appellant, who is a member of such AOP/B01 to make a valid assessment in its separate status as either as company/individual/firm as the case may be having regard to the ratio of the Hon'ble Karnataka High Court, Circuit Bench, Gulbarga in ITA Nos.6005 Et 6006/2010, which is binding on the authorities below
(vi) The learned A.O. has not discharged the burden of proving that there is a valid initiation of the search u/s.132[1][a], [b] in [c] of the Act, its execution and its completion in accordance with law to render the proceedings valid and to assume jurisdiction to make an assessment u/s.153A of the Act even when challenged before him and consequently, an adverse inference ought to be drawn and the assessment requires to be annulled.
The authorities below are not justified in denying the appellant the copy of the warrant and the materials inducing the belief in the existence of the condition specified in Section 132[1][a], [b] and [c] of the Act to issue the warrant and the satisfaction note recorded therein under the facts and in the circumstances of the appellant's case especially in the light of the decision of the jurisdictional high court in the case of SOUTHERN HERBALS reported in 207 ITR 55 and consequently, the assessment is bad in law and liable to be annulled.
The authorities below have erred in law in holding the appellant 4. is not entitled to question the validity of the search in the course of the assessment proceedings and failed to appreciate that the search
ITA No. 83/Bang/2011 ITA No. 817/Bang/2012 C. O. Nos. 9 to 13/Bang/2013
Page 5 of 12 proceedings u/s.132 are in aid of ultimate assessment and a statutory appeal is provided against such assessment and therefore the issue of validity of search is an adjudicatory and justiciable issue, which had to be adjudicated by the A.O. to assume jurisdiction to make a valid assessment.
The authorities below failed to appreciate that a valid search is a sine qua non for making a valid assessment u/s.153A of the Act on the parity of the ratio of the decision of the Hon'ble Supreme Court in the case of AJITH JAIN reported in 260 ITR 80.
The authorities below ought to have preferred the ratio of the decision of the jurisdictional High Court in the case of VENKAT REDDY reported 66 ITR 212 ® 240 and the decision of the Rajasthan High Court in the case of CHITRA DEVI SONI reported in 214 CTR 119, which is quoted with approval by the jurisdictional High Court in the case of T.S.CHANDRASHEKAR reported in 17 DTR 194 in preference to the decision of the Hon'ble Delhi High Court in the case of M.B.LAL reported in 279 ITR 298, which turned on the peculiar facts obtaining in the said case, which is not subsequently followed by the Hon'ble Delhi High Court.
For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs as the learned CIT[A] despite citing the binding decision of the Hon'ble Karnataka High Court, Circuit Bench, Gulbarga in the case of P.J.KUMAR in ITA Nos.6005 Et 6006/2010 has not cancelled the assessment faithfully following the binding decision.
2.2 At the outset of the hearing, the learned AR for the assessee submitted at the Bar, before the Bench, that the assessee is not pressing all the grounds raised in this appeal and therefore this appeal may be dismissed. In view of the assessee not pressing all the grounds raised by it in this appeal at Sl. Nos.1 to 8 (supra) and consequently, requesting that its appeal for Assessment Year 2002-03 be
ITA No. 83/Bang/2011 ITA No. 817/Bang/2012 C. O. Nos. 9 to 13/Bang/2013
Page 6 of 12 dismissed, these grounds are rendered infructuous and we dismiss all the aforesaid grounds 1 to 8 (supra) as not pressed.
In the result, the assessee’s appeal for Assessment Year 2002-03 is dismissed.
Revenue’s appeal in ITA No.817/Bang/2012 for Assessment Year 2003-04
4.1 In this appeal for Assessment Year 2003-04, the Revenue has raised the following grounds:
1.1 The Ld. C.I.T (Appeals) erred in deleting the speed money amounting to Rs.23, 34,026/- through port labourers. 1.2 The Ld. C.I.T (Appeals), failed to appreciate the fact that, the assessee has failed to prove that whole of such expenditure said to have been incurred in the interest of business expediency. 1.3 The Ld. C.I.T (Appeals), failed to appreciate the fact that, the assessee has failed to prove that the payment of so called speed money to the Port Labourers, who are also employees of New Mangalore Port Trust governed by the Central Civil Services Conduct Rules. 1.4 The Ld. C.I.T (Appeals) failed to appreciate the fact that the decision of the Hon'ble High Court of Karnataka in the case of M/s Konkan Marine Agencies was accepted by the Department only on the monitory limit and not on principle. 1.5 The Ld. C.I.T (Appeals) failed to appreciate the fact the in the case Sri Maddi Venkataraman and Co. (p) Ltd. v. CIT reported in 229 ITR 534 (1998), the Hon'ble Supreme Court has clearly stated that any payment for infraction of law cannot be allowed. 2. The Ld. CIT(A) erred in law in deleting the disallowance of Rs. 3,08,752/- made u/s. 37(1) of the I.T.Act as the expenditure incurred towards tipper mamool by the assessee was prohibited by law and opposed to public policy.
ITA No. 83/Bang/2011 ITA No. 817/Bang/2012 C. O. Nos. 9 to 13/Bang/2013
Page 7 of 12 3. That on the facts and circumstances of the case and in law, the Ld. CIT (Appeals) erred in deleting the addition made as unexplained expenditure of Rs.6,92,500/-. 4. For these and such other grounds that may be urged at the time of hearing the orders of Ld. C.I.T (A) may be set aside and that of assessing officer may be resorted.
4.2 At the outset, it is observed that the tax effect involved in this appeal is below Rs.20 lakhs. The CBDT, with a view to reduce unnecessary litigation on their part, has issued a Circular No. 3/2018 dated 11th July, 2018, wherein they have revised the monetary limits for filing of appeals by the Department before the Income Tax Appellate Tribunal, High Courts and Supreme Court. Insofar as the Tribunal is concerned, the monetary limit specified therein is Rs.20 lakhs and the concerned authority has to withdraw its appeal or it need not press the same if tax effect in that appeal is less than Rs.20 lakhs. It is further specified that the tax effect indicated therein is applicable to all pending appeals, though they are filed by the Revenue prior to the issuance of the said circular. It was also clarified that the Assessing Officer has to calculate the tax effect separately for every assessment year in respect of the disputed issue/s in the case of every assessee. If, in the case of an assessee, the disputed issue arises in more than one year(s), appeal(s) can be filed in respect of such assessment year(s) in which tax effect in respect of the disputed issue exceeds the monetary limit specified. In other words, if there are a number of years, if the tax effect is less than the specified limit in one year, appeal cannot be filed or the same has to be withdrawn for that year, for want of tax effect. However, an exception is made to this direction with regard to a combined order passed by the first appellate authority. If in one of the years the tax effect is more than Rs.20 lakhs and the Revenue decides to file an appeal, in respect of other years covered by the said order also, Revenue is eligible to file appeal, even though the tax effect in each of those years is less than Rs.20 lakhs. It was also clarified that merely because the appeal is dismissed for want of tax effect, it does not come in the way
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Page 8 of 12 of the Department in filing appeal for other years(s), and it does not mean that the Department has acquiesced the issue.
4.3 The above circular was specifically made applicable to all pending appeals. In the present case, the tax effect on the addition in dispute, which was deleted by the CIT(A) by the impugned order is indisputably below 20lakhs.
4.4 The Legislature in its wisdom has introduced section 268A of the Income Tax Act, 1961, whereby the Board is empowered to issue orders/instructions/directions to the income-tax authorities, fixing the monetary limits for the purpose of regulating the filing of appeals. In the light of the circular dated 11.07.2018, issued by the CBDT in exercise of the powers conferred in it by subsection (1) of section 268A, we are of the view that the appeal filed herein should not have been pressed by the Revenue. The Learned Departmental Representative fairly admitted that the Revenue effect in this appeal is less than the prescribed limit in para-3 of the above circular issued by the CBDT. Having regard to the circumstances of the case, we dismiss the appeal of the Revenue.
4.5 However, the Revenue is at liberty to move appropriate application/petition in case it is found that the case is covered by one of the exception(s) carved out in the said Circular.
In the result, the appeal filed by the Revenue for Assessment Year 2003-04 is dismissed.
Assessee’s Cross Objections in C.O. Nos. 9 to 13/Bang/2013 for Assessment Years 2003-04 to 2007-08
ITA No. 83/Bang/2011 ITA No. 817/Bang/2012 C. O. Nos. 9 to 13/Bang/2013
Page 9 of 12 6.1 In these Cross Objections for Assessment Years 2003-04 to 2007-08, the assessee has raised identical grounds. We, therefore, extract hereunder only the grounds raised for Assessment Year 2003-04:
The orders of the authorities below in so far as they are against the Cross-objector/respondent are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case. 2. The respondent-assessee denies itself liable to be assessed u/s.153A rws 143[3] of the Act under the impugned order on the ground - (i) That the search initiated in the case of the respondent-assessee is illegal and ultra vires the provisions of Section 132[1][a], [b] and [c] of the Act; (ii) That the search is conducted not on the basis of any prior information or material inducing any belief but purely on the suspicion and therefore, the action u/s.132[1] is bad in law [224 ITR 19 (SC)] and consequent assessment U/S.153A is null and void- ab-initio on the parity of the ratio of the decision of the Hon'ble Supreme Court in the case of AJITH JAIN reported in 260 ITR 80 and the decision of the Hon'ble jurisdictional High Court in the case of RAMAIAH REDDY reported in 339 ITR 210. (iii) That the warrant issued in the joint names of the persons said to have been specified in the warrant is bad in law to initiate search in the individual cases of the several persons whose names are specified in the warrant although a joint warrant had to be issued in all the names of the occupants of the premises to seize their records, if warranted, which does not mean that search is initiated against each one of the occupants; (iv) That the search is also bad in law in that separate lists of the items seized belonging to each one of the assessees, which have to be prepared in accordance with the mandatory rule 112[9] of the I.T.Rules enjoining preparation of such lists and further furnishing the same to each one of the assessees including the respondent-assessee, if the search were to have been considered as individually initiated against each one of the persons whose names are
ITA No. 83/Bang/2011 ITA No. 817/Bang/2012 C. O. Nos. 9 to 13/Bang/2013
Page 10 of 12 stated to have been specified in the warrant including the respondent-assessee; (v) That the assessment is also bad in law since the warrant is in the joint names of certain persons and not in their individual names and therefore, the assessee against whom the warrant is issued should be considered either as AOP or BOI consisting of such persons and such assessee entity alone could be considered as assessee or person against whom search proceedings are initiated and therefore, the provisions of Section 153A could be invoked only against AOP or BOI and not against the respondent- assessee, who is a member of such AOP/BOI to make a valid assessment in its separate status as either as company/individual/firm as the case may be, which position came to be accepted and retrospective amendment was brought about which is violation of article 20 of the Constitution. (vi) The learned A.O. has not discharged the burden of proving that there is a valid initiation of the search u/s.132[1][a], [b] Et [c] of the Act, its execution and its completion in accordance with law to render the proceedings valid and to assume jurisdiction to make an assessment u/s.153A of the Act even when challenged before him and consequently, an adverse inference ought to be drawn and the assessment requires to be annulled. 3. The learned A.O. is not justified in denying the respondent- assessee the copy of the warrant and the materials inducing the belief in the existence of the condition specified in Section 132[1][a], [b] and [c] of the Act to issue the warrant and the satisfaction note recorded therein under the facts and in the circumstances of the respondent-assessee's case especially in the light of the decision of the jurisdictional high court in the case of SOUTHERN HERBALS reported in 207 ITR 55 and consequently, the assessment is bad in law and liable to be annulled. 4. The learned A.O. has erred in law in holding the respondent- assessee is entitled to question the validity of the search in the course of the assessment proceedings and failed to appreciate that the search proceedings s.132 are in aid of ultimate assessment as per the ratio of the decision of the Hon'ble jurisdictional High Court in the case of VENKAT REDDY
ITA No. 83/Bang/2011 ITA No. 817/Bang/2012 C. O. Nos. 9 to 13/Bang/2013
Page 11 of 12 reported in 66 ITR 212 @ 240 and a statutory appeal is provided against such assessment and therefore the issue of validity of search is an adjudicatory and justiciable issue, which had to be adjudicated by the A.O. to assume jurisdiction to make a valid assessment.
The learned A.O. failed to appreciate that a valid search is a sine qua non for making a valid assessment u/s.153A of the Act on the parity of the ratio of the decision of the Hon'ble Supreme Court in the case of AJITH JAIN reported in 260 ITR 80 and the decision of the Hon'ble jurisdictional High Court in the case of RAMAIAH REDDY reported in 339 ITR 210. 6.The finding of the learned A.O. that the validity of search could not be questioned by relying upon several decisions is erroneous and is contrary to the decision of the jurisdictional High Court in the case of RAMAIH REDDY reported in 339 ITR 210 and therefore, the assessment requires to be cancelled.
For the above and other grounds that may be urged at the time of hearing of the Cross-Objection, your Respondent/Cross- Objector humbly prays that the appeal filed by the appellant A.O. in respect of the relief granted by the CIT [Appeals] may be dismissed and grounds of the Cross-Objection may be allowed and Justice rendered.
6.2 In the course of hearing before the Bench, the learned AR for the assessee submitted that the assessee is not pressing the grounds raised in the Cross Objections for Assessment Years 2003-04 to 2007-08 and therefore the Cross Objections may be dismissed. In view of the assessee not pressing all the identical grounds raised in its Cross Objections at Sl. Nos.1 to 7 (supra) for Assessment Years 2002-03 to 2007-08, the said grounds are rendered infructuous and we dismiss the Cross Objections preferred by the assessee for Assessment Years 2002-03 to 2007-08 as not pressed.
In the result, the assessee’s Cross Objections for Assessment Years 2002- 03 to 2006-07 are dismissed.
ITA No. 83/Bang/2011 ITA No. 817/Bang/2012 C. O. Nos. 9 to 13/Bang/2013
Page 12 of 12 8. To sum up, the assessee’s appeal for Assessment Year 2002-03; the assesee’s Cross Objections for Assessment Years 2002-03 to 2007-08 and Revenue’s appeal for Assessment Year 2003-04 are all dismissed.
Pronounced in the open court on this 17th day of January, 2019.
Sd/- Sd/- (N. V. VASUDEVAN) (JASON P BOAZ) Vice President Judicial Member Bangalore. Dated: 17.01.2019. /NS/* Copy to: 1. Appellants 2. Respondent 3. CIT 4. CIT(A) 5. DR 6. Guard file By order
Assistant Registrar, ITAT, Bangalore.