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Facts
The Revenue appealed against a CIT(A) order for A.Y. 2014-15. A search operation led to a reassessment under Section 153A by the Delhi AO, who adopted income from a prior Section 144 assessment made by the Kolkata AO. However, the Section 144 assessment had been quashed by the CIT(A) Kolkata, and the assessee had filed a NIL return under Section 153A.
Held
The Tribunal confirmed the CIT(A)'s finding that the quashed Section 144 assessment was a nullity and its additions could not be adopted in the Section 153A assessment. Since no assessment was pending for A.Y. 2014-15 on the search date and no incriminating material was found, the AO was directed to adopt the assessee's NIL returned income.
Key Issues
Whether a quashed assessment order under Section 144 can be the basis for additions in a subsequent reassessment under Section 153A, especially when no incriminating material is found during a search.
Sections Cited
153A, 143(3), 144, 139, 132, 68, 142(1)
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Income Tax Appellate Tribunal, DELHI BENCH “B” DELHI
Before: SHRI PRADIP KUMAR KEDIA & SHRI YOGESH KUMAR US
PER PRADIP KUMAR KEDIA - A.M.: The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals)-24, New Delhi (‘CIT(A)’ in short) dated 31.12.2018 arising from the assessment order dated 31.12.2017 passed by the Assessing Officer (AO) under Section 153A/143(3) of the Income Tax Act, 1961 (‘the Act’) concerning A.Y. 2014- 15 in question.
The grounds of appeal
raised by the Revenue read as under: “1. The order of Ld. CIT(A) is not correct in law and facts.
1. 2. On the facts and circumstances of the case, the Ld. CIT(A)-24, New Delhi has erred in holding that the income earlier assessed u/s. 144 of the Act by assessing officer of Kolkata on 29.8.2016 has to be replaced by the returned NIL income of assessee in the order passed u/s. 153A by assessing officer in Delhi, for the assessment order passed by the assessing officer Kolkata has since been quashed by the CIT (A) Kolkata, in his order passed on 26.4.2018.
3. On the facts and circumstances of the case, the Ld. CIT(A)-24, New Delhi has erred in not appreciating that the order u/s. 153A r.w.s. 143(3) was passed by the assessing officer in Delhi on 31.12.2017 wherein the income assessed by assessing officer Kolkata vide order passed u/s 144 dt. 29.8.2016 was taken to proceed with, for till that time the Ld. CIT(A) Kolkata had not quashed the assessment proceedings for the want of jurisdiction on account of abatement of pending proceedings in terms with section 153A due to initiation of search & seizure action on assessee by his order which was passed on 31.12.2017.
4. On the facts and circumstances of the case, the Ld. CIT(A)-24, New Delhi has erred in not appreciating the findings of the Id. CIT(A) Kolkata & has initiated necessary action in his order passed on 31.12.2017 for the assessment order was quashed by Id CIT(A) Kolkata merely on technical ground w.r.t. abatement of pending proceeding in the light of section 153A & has not considered other grounds of appeal
relating to merit of the case & had held that the assessing officer, who has made search assessment, will intimate to the CIT(A) concerned for taking necessary action in the matter while deciding the appeal.
5. On the facts and circumstances of the case, the Ld. CIT(A)-24, New Delhi has erred in directing to start the computation of income from returned nil income & not appreciating that in spite of repeated opportunities by the assessing officer in Kolkata, the assessee failed to discharge its onus u/s. 68 of the Act w.r.t. claim of fresh receipt of share capital of Rs. 7.37 crs & unsecured loans of Rs. 4.77 crs in the company which though was incorporated on 1.11.1985 yet the A.O. had observed that its accounts filed depicted almost nil commercial activity & trading results in financials of instant assessment year.
6. The appellant craves for leave to add, amend any/all the ground of appeal before or during the course of hearing of the appeal.”
When the matter was called for hearing the learned Sr. D.R. for the Revenue relied upon the assessment order.
Per contra, the learned Counsel for the assessee submitted that; (a). A search and seizure operation were carried out in the case of the assessee on 19.02.2016. Notice under section 153A of the Act was issued on 11.10.2017. In response to notice under section 153A of the Act, the assessee company filed return of income on 30.10.2017 declaring total income at Rs. NIL. In the course of assessment proceedings under section 153A of the Act, the AO issued questionnaire and sought various details / documentary evidence relating to loans and share application money. The AO examined the same and no adverse remarks were made by the AO in the assessment order. The AO in para 4 of the assessment order also admitted that the assessee company has duly attended from time to time and made compliances by following the necessary details. The relevant para 4 of the assessment order reads as under: “Further, notice u/s 142(1) of the Act along with questionnaire was issued on 07/11/2017 fixing the date of hearing on 14/11/2017. In response, Sh. A.K. Agarwal and Sh. Nitin Singal, authorised representatives (A.Rs) of the assessee and the director of the assessee company Sh. Dhanajay Shukla, attended the proceedings from time to time and filed the necessary details. The submissions of the assessee/ARs were examined and placed on record. The assessee company is a registered non-banking finance company engaged in the business of investment and finance.”
(b). The AO while completing the assessment under section 153A r.w. Section 143(3) of the Act has not made any independent addition. She has merely adopted the income as per earlier order passed under section 144 of the Act dated 29.08.2016. The earlier order passed under section 144 dated 29.08.2016 however stood quashed by CIT(A) vide appeal order dated 26.04.2018. Consequently, the addition made by the AO under section 153A of the Act as attributable to section 144 order also do not survive in tandem.
(c). The CIT(A) after due consideration of the factual matrix, has granted relief and substituted the assessed income under section 144 by the returned income filed originally under section 139 of the Act for any interference.
(d). The CIT(A) substituted the income assessed under section 144 of the Act by returned income on the ground that assessment order passed under section 144 of the Act stands quashed and therefore, the additions made in section 144 proceedings could not be adopted under section 153A of the Act. The relevant operative para of the order of the CIT(A) reads as under:
“5.1 I have considered the material on record including written submissions of the AR of the appellant filed in course of appellate proceedings. I have perused the assessment order u/s 153A/143(3) of the Act passed by the AO. I have also considered the remand reports dated 14.12.2018 & 24.12.2018 of the AO and the rejoinder of the AR of the appellant thereon. 5.2 Ground Nos. 1 & 2 of appeal are bunched together with Ground No. 3 for proper adjudication. On careful consideration, I do hold that by virtue of provisions of section 153A the AO gets the jurisdiction of assessment / reassessment over the assessee. However, these provisions do not provide the AO with power to make addition on any issue in respect of the year for which no assessment is pending as on date of search and in respect of which no incriminating material has been found during the course of search. In the instant case no assessment proceedings were pending for AY 2014-15 as on date of search (19.02.2016). It is fully established that no incriminating material was found during the course of search action. 5.3 On perusal, I find that in the instant case return of income for AY 2014- 15 was filed by the appellant on 30.09.2014 declaring NIL income. The assessment u/s 144 of the Act was completed vide order dated 29.08.2016 at total income of Rs.12,14,67,270/- after making addition of share application money and unsecured loan. The AO made the addition as above ex-parte holding that despite notices given, no compliance was made by the appellant. Further, it is noticed that a search and seizure operation u/s 132 of the Act was conducted on the appellant on 19.02.2016. As per second proviso to section 153A, assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years (preceding the assessment year relevant to the previous year in which search is conducted) pending on the date of initiation of search u/s 132 shall abate. Since date of search in the case of the appellant was 19.02.2016 the assessment for AY 2014-15 pending as on date of search 19.02.2016 stood abated. Thus, the AO could not have carried further the proceedings for AY 2014-15 and pass any assessment order. However, it is noticed that the assessment order u/s 144 of the Act for AY 2014-15 was passed on 29.08.2016 subsequent to the date of search i.e. 19.02.2016. 5.4 Against the assessment order u/s 144 of the Act passed by AO for AY 2014-15, the appellant company filed appeal before CIT(A)-2, Kolkata who vide his appellate order dated 26.04.2018 held that the assessment order 29.08.2016 framed u/s 144 of the Act is null and void and hence quashed. 5.5 On perusal of the assessment order u/s 153A/143(3) of the Act it is noticed that the AO has assessed income by adopting income as per order u/s 144 of the Act. The appellant has contested vide Ground No. 3 of the appeal that the AO erred in adopting the earlier assessed income of Rs.
12,14,67,970/- u/s 144 of the Act while assessing income u/s 153A/143(3) of the Act. 5.6 On due consideration I find that the additions on account of share application money and unsecured loan were made by the AO in assessment order u/s 144 of the Act, on the ground that there was no compliance by the appellant to various notices issued from time to time. However, there is no such case of non-compliance by the appellant in the proceedings u/s 153A of the Act. It is clear that the AO has not made any adverse findings with regard to share application money and unsecured loan of the appellant in order passed u/s 153A of the Act, which has been contested in the instant appeal before me. The AO has not made any addition in the order passed u/s 153A of the Act. The AO has merely adopted the earlier assessed income as per order u/s 144 in computation of income in the assessment order. Since the assessment order u/s 144 stands quashed by CIT(A)-2, Kolkata, I hold that the income earlier assessed u/s 144 of the Act has to be replaced with the income returned by the appellant. Accordingly, it is held that NIL income as per original return filed by the appellant u/s 139 of the Act has to be adopted instead of Rs. 12,14,67,270/- as per order u/s 144 of the Act. Accordingly, Ground Nos. 2 & 3 of appeal are allowed while Ground No. 1 being devoid of merit stands dismissed.”
The order of the CIT(A) is self-explanatory and does not call for any further elaboration. The CIT(A) in our view, has rightly substituted the figures adopted by the AO as assessed under section 144 of the Act with the returned income on the ground that the assessment order passed under section 144 of the Act do not survive and is a nullity. We completely agree. The additions made in section 144 proceedings do not survive and thus the assessed income under section 153A cannot be inflated to this extent.
In the result, appeal filed by the Revenue is dismissed.
Order pronounced in the open Court on 28/11/2024.