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Facts
The assessee, Sarthak Ispat Pvt. Ltd., an Iron and Steel business, originally filed a NIL return for AY 2012-13 but paid MAT. Its assessment was completed u/s 143(3) with a minor addition. Subsequently, the case was reopened u/s 147, and the AO made significant additions totaling Rs. 8,10,18,302/-, including undisclosed share capital, unexplained expenditure, and unverifiable interest payments. The CIT(A) upheld these additions, leading to the current appeal.
Held
The Tribunal held that the reassessment order passed by the AO u/s 147 r.w.s. 143(3) for AY 2012-13 was illegal and void-ab-initio. This was because a search and seizure operation u/s 132 was initiated against the assessee on 26.11.2019, while the reassessment proceedings (initiated on 30.03.2019 and concluded on 31.12.2019) were pending. As per the second proviso to section 153A(1) of the Income Tax Act, any pending assessment or reassessment for the relevant six assessment years abates upon the initiation of a search, and assessment must then be framed under section 153A. Consequently, the AO lacked jurisdiction to complete the section 147 assessment.
Key Issues
Whether a reassessment order passed under Section 147/143(3) is valid if a search and seizure operation under Section 132 of the Income Tax Act is initiated against the assessee during the pendency of such reassessment proceedings, leading to the abatement of the pending assessment and requiring a fresh assessment under Section 153A.
Sections Cited
250, 143(3), 147, 148, 142(1), 68, 132, 132A, 153A, 153B, 153C, 139, 149, 151, 153
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI RAVISH SOOD, JM & SHRI ARUN KHODPIA, AM
आदेश / O R D E R Per Arun Khodpia, AM:
The captioned appeal filed by the assessee is directed against the order of Commissioner of Income Tax (Appeals), Raipur-3, [in short “Ld. CIT(A)”] u/s 250 of the Income Tax Act, 1961 (in short “the Act”) dated 07.08.2024 (AY 2012-13), which in turn arises from the assessment order dated 31.12.2019, passed by Income Tax Officer, Ward-2(1), Raipur (in Short “ Ld. AO”).
Sarthak Ispat Pvt Ltd Vs. ITO-2(1), Raipur 1. The Assessing Officer erred in making addition of Rs. 3,25,00,000/- u/s 68 on account of share capital received by the appellant, disregarding and ignoring legal and cogent evidences available on record. The addition made by AO is arbitrary, baseless and not justified.
The Assessing Officer erred in making disallowance of Rs. 4,76,76,469/- on account of various expenses/purchases observing that the same were paid in cash and remained unverifiable. The disallowance made by AO is arbitrary, illegal, baseless and not justified.
3. The Assessing Officer erred in making disallowance of Rs. 6,71,136/- on account of interest expenses observing that the same were paid in cash and remained unverifiable. The disallowance is arbitrary, illegal, baseless and not justified.
4. The notice issued by AO u/s 148 is illegal, ab initio void. There was no material before the AO for formation of belief of escapement. The AO reopened the assessment without application of mind and reassessment was initiated only on the basis of Report of DDIT (Inv.), Kolkata. The reassessment proceeding was illegal and not sustainable.
5. The reassessment order passed by the AO is illegal, ab initio void, inasmuch as it has been passed contrary to mandatory requirements of law. The reassessment order is illegal, not sustainable and is liable to be quashed.
The appellant reserves the right to add, amend or alter any ground/s of appeal.
The brief facts of the case are that the assessee is a Private Limited Company engaged in the business of Iron and Steel. For the AY 2012-13 original Return of Income was filed by the assessee on 20.09.2012 declaring total income at Rs. NIL, however, taxes have been paid under the provisions of Minimum Alternate Tax (in short “MAT”), subsequently, the case of assessee was selected for scrutiny and assessed u/s 143(3) of the Act on 14.11.2014 and an addition of Rs.2,50,000/- under various Sarthak Ispat Pvt Ltd Vs. ITO-2(1), Raipur heads have been made, however, the total income assessed of the assessee remain at NIL and the taxes are computed under the provisions of MAT. Later on, the case of assessee has been reopened u/s 147 of the Income Tax Act, 1961, after obtaining prior approval from the Pr. Commissioner of Income Tax-1, Raipur, accordingly, statutory notices u/s 148 and section 142(1) are issued. After deliberations, the assessment was completed with certain additions, (i) on account of undisclosed income received by the assessee in the guise of share capital and share premium for Rs.3,25,00,000/-; (ii) Due to discrepancies found during the Search & Seizure procedure, in absence of any explanation furnished by the assessee on account of unexplained expenditure rooted through or not in the books of account of the assessee for Rs.4,76,76,469/- and (iii) another addition doubting the genuineness of the interest payment of Rs. 6,71,136/- in cash to Shri Rajendra Kumar, which was debited in the books of assessee but unverifiable due to the non-submission on the part of assessee. With the aforesaid additions, the assessed total income of the assessee has been determined at Rs. 8,10,18,302/-.
3.1 Aggrieved with the aforesaid additions, the assessee preferred an appeal before the Ld. CIT(A), wherein there was no prosecution on behalf of the assessee, therefore, after deliberating on merits of the issues based 3.2 Aggrieved with the aforesaid order of Ld. CIT(A), wherein additions made by Ld. AO are confirmed in toto, assessee carried the matter by way of an appeal before us, the same is under consideration in the present case.
At the outset, Shri Subhash Agrawal, Adv. Authorized Representative of the assessee (in short “Ld. AR”), referring to ground no. 5 of the appeal in Ld. AO u/s 143(3) r.w.s. 147 is illegal, bad in law and liable to be quashed. It was the submission that the case of assessee was reopened on 30.03.2019, while the reopening assessment was under process and finally completed on 31.12.2019, there was a Search & Seizure action u/s 132 of the Act conducted in the business and residential premises of the Sarthak Group of cases along with premises of the assessee on 26.11.2019. After referring to the aforesaid dates of events, Ld. AR submitted that as per provisions of 2nd proviso to subsection (1) of section 153A, the assessment or re-assessment, if any, relating to any assessment year falling within the period of 6 assessment years referred Sarthak Ispat Pvt Ltd Vs. ITO-2(1), Raipur to in this [sub-section] pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate. With such assertions, it was the submission by Ld. AR that in case of an assessee, who was subjected to search operations u/s 132 of the Act, if any assessment or re-assessment is undergoing when the search proceedings are initiated, the assessment or reassessment pending on the date of search shall be suspended and the total income for such pending assessment year will have to be computed by the Assessing Officer as a fresh exercise under the provisions of section 153A. Accordingly, in present case as the reopening assessment u/s 147 which was initiated by issuance of notice u/s 148 on 30.03.2019 and was pending on the date of initiation of search i.e., on 26.11.2019, which was finally concluded on 30.12.2019, was an illegal assessment as the same stands abated and the Assessing Officer left with no jurisdiction to continue the assessment u/s 147, as the assessment for such year needs to be framed under the provisions of section 153A of the Act, consequently the order passed u/s 147 r.w.s. 143(3) dated 30.12.2019 was illegal, bad in law and without assumption of jurisdiction, therefore, liable to be quashed.
Per contra, Shri S. L. Anuragi, CIT-DR, vehemently supported the order of revenue authorities and requested to sustain the same.
Sarthak Ispat Pvt Ltd Vs. ITO-2(1), Raipur 6. We have considered the rival submissions, perused the material available on record and the contentions raised by the Ld. AR. Before us, the main question raised by the Ld. AR is that “Whether the order passed u/s 143(3) r.w.s. 147 dated 31.12.2019 for the AY 2012-13 in the case of assessee was illegal, void-ab-initio, as the same has been passed contrary to the mandatory requirement of law”, our answer to this query would be “YES”. The reason for such an answer has been spelt out in the Act itself, wherein the provision of section 153A(1) are clearly stating that in case of search u/s 132, all the pending assessment or re-assessment stands abate. The relevant provisions applicable in the present case is extracted hereunder for the sake of interpretation:
153A. [(1)] Notwithstanding anything contained in section 139, section 147, section 148 , section 149, section 151 and section 153 , in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall— (a ) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made :
Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years:
Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this [sub-section] pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate.
[(2) If any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner:
Provided that such revival shall cease to have effect, if such order of annulment is set aside.] Explanation.—For the removal of doubts, it is hereby declared that,— (i ) save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to the assessment made under this section; (ii ) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year.
6.1 In view of 2nd proviso to section 153A(1), admittedly, as the reopening assessment u/s 147 for AY 2012-13 was pending on the date of search in the present case and the relevant year was falling within 6 assessment years as prescribed u/s 153A. The pending proceedings accordingly, should have been suspended immediately when the search proceedings are initiated, and the assessment for the AY 2012-13 was to be completed under the provisions of section 153A(1). This issue is discussed by the Hon’ble Delhi High Court in the case of CIT(Central)- III Vs Kabul Chawla, reported in 380 ITR 573 (Delhi), wherein the legal position of section 153A(1) has been summarized by the Hon’ble Delhi High Court in the following manner: Summary of the legal position 37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153 A(1) will have to be mandatorily issued to the person searched requiring him to file returns 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". (Emphasis supplied by us) 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.
Sarthak Ispat Pvt Ltd Vs. ITO-2(1), Raipur 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.
6.2 In terms of clause (ii) and (iii) of para 37 of the aforesaid order in the case of Kabul Chawla (supra), which was further affirmed by the Hon’ble Apex Court in the case of PCIT, Central-3 Vs Abhisar Buildwell (P.) Ltd., reported in (2023) 149 taxmann.com 399. Hon’ble Apex Court has concluded their findings in the following para:
In view of the above and for the reasons stated above, it is concluded as under: (i) that in case of search under section 132 or requisition under section 132A, the AO assumes the jurisdiction for block assessment under section 153A; (ii) all pending assessments/reassessments shall stand abated; (iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the 'total income' taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and (iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under section 132 or requisition under section 132A of the Act, Sarthak Ispat Pvt Ltd Vs. ITO-2(1), Raipur 1961. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved.
The question involved in the present set of appeals and review petition is answered accordingly in terms of the above and the appeals and review petition preferred by the Revenue are hereby dismissed. No costs 6.3 In backdrop of aforesaid judgments and the principal of law laid down by the Hon’ble Apex Court, it can be concluded that all pending assessments/reassessments, which falls within the period of 6 assessment years as prescribed under the provisions of section 153A on the date of search shall stand abate and 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". Accordingly, the assessment would be framed u/s 153A only by cancelling / suspending the proceedings for assessment or re-assessment u/s 143(3) or 143(3) r.w.s. 147 of the Act, pending on the date of search. In view of such observations, we are of the considered view that the order passed u/s 147 r.w.s. 143(3) dated 30.12.2019 has been passed without authority of law, as the same would stand abated, as soon as the search proceedings are initiated against the assessee, since the relevant AY i.e., AY 2012-13 falls Sarthak Ispat Pvt Ltd Vs. ITO-2(1), Raipur within 6 years covered by the provisions of section 153A, consequently, we are of the firm conviction that the order passed u/s 147 r.w.s. 143(3) dated 30.12.2019 cannot sustained in the eyes of law, therefore, the same has been held as bad in law and at nullity, thus, quashed.
Since we have quashed the assessment on the basis of legal ground raised by the Ld. AR on behalf of the assessee assailing the validity of re- assessment passed by the Ld. AO in contravention of mandatory provisions of law, therefore, we refrain from adverting to and deal with the other contentions, may it be on merits or legality, raised by the assessee in the present appeal, the same, therefore, are left open.
Order pronounced in the open court on 11/02/2025.
Sd/- Sd/- (RAVISH SOOD) (ARUN KHODPIA) �ाियक सद� / JUDICIAL MEMBER लेखा सद� / ACCOUNTANT MEMBER रायपुर/Raipur; िदनांक Dated 11/02/2025 Vaibhav Shrivastav Sarthak Ispat Pvt Ltd Vs. ITO-2(1), Raipur आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ� / The Appellant- Sarthak Ispat Pvt. Ltd. 1. 2. ��थ� / The Respondent- ITO-2(1) 3. The Pr. CIT, Raipur (C.G.) िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, रायपुर/ DR, ITAT, 4. Raipur गाड� फाईल / Guard file. 5.