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Facts
A search operation was conducted on M/s. SRS Group in 2012, leading to initiation of Section 153C proceedings against the assessee (a third party) in 2014 for assessment years 2008-09 to 2012-13. The Assessing Officer made disallowances for freight charges under Section 37(1) and expenses related to exempt income under Section 14A, which the assessee challenged, arguing the assessments were invalid for AY 2008-09 and that additions were not based on incriminating material.
Held
The Tribunal held that the assessment for AY 2008-09 was void ab-initio as it fell outside the statutory six-year block period under Section 153C. For all assessment years, the additions made for disallowances were unsustainable, as the department failed to demonstrate that they were based on any incriminating material found during the search and seizure operation, relying on Supreme Court precedents.
Key Issues
1. Validity of assessment for AY 2008-09 under Section 153C based on the relevant block period. 2. Sustainability of additions made in assessments under Section 153C without reference to incriminating material found during search.
Sections Cited
153A, 153C, 143(3), 132, 37(1), 14A, Rule 8D, 133A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH: ‘B’ NEW DELHI
Before: SHRI SAKTIJIT DEY, VICE- & SHRI NAVEEN CHANDRA
order dated 30.01.2018 of learned Commissioner of Income Tax (Appeals)-2, Gurgaon, pertaining to assessment years 2008-09, 2009-10, 2010-11, 2011-12 and 2012-13. to 2664/Del/2018 AYs: 2008-09 to 2012-13
At the outset, learned counsel appearing for the assessee raised certain pertinent issues challenging the validity of the impugned assessment order and also sustainability of the additions made. It is the say of the assessee before us that insofar as assessment year 2008-09 is concerned, the Assessing Officer could not have proceeded to frame assessment under section 153A/153C read with section 143(3) of the Income-tax Act, 1961 (in short ‘the Act’), as, it is outside the block of six assessment years, in terms with section 153C of the Act. Without prejudice to the aforesaid submission, it has been submitted before us that the additions made in the assessment orders are not based on any incriminating material found as a result of search and seizure operation.
Before we proceed to decide these issues, it is necessary to briefly discuss the relevant facts. The assessee is a resident corporate entity deriving income from business and profession. As stated by the Assessing Officer, a search and seizure operation under section 132 of the Act was carried out in the business/office premises of M/s. SRS Group of cases on 09.05.2012. Pursuant to such search and seizure operation, to 2664/Del/2018 AYs: 2008-09 to 2012-13 proceedings under section 153C were initiated against the assessee after recording of satisfaction on 18.09.2014. In response to the notices issued under section 153C of the Act, the assessee filed its return of income. In course of assessment proceedings, the Assessing Officer noticed that the assessee had claimed expenses towards freight charges. In some of the assessment years under dispute, the Assessing Officer further noticed that the assessee had earned exempt income by way of dividend. Insofar as expenses incurred towards freight charges, the Assessing Officer has alleged that the assessee could not produce the requisite bills and vouchers. Accordingly, he disallowed such expenses by invoking the provisions contained under Explanation to section 37(1) of the Act. Further, the Assessing Officer also disallowed expenses under section 14A read with Rule 8D in the assessment years, wherein, the assessee had earned dividend income. Accordingly, he completed the assessments for all the assessment years under dispute.
Against the assessment orders so passed, the assessee preferred appeals before learned first appellate authority, inter alia, on the ground that additions having been made without any to 2664/Del/2018 AYs: 2008-09 to 2012-13 incriminating materials, are unsustainable. The first appellate authority, however, did not find merit in the submissions of the assessee. He observed that as per the remand report of the Assessing Officer, the additions made in the assessment years were based on seized materials. Thus, ultimately, he sustained the additions made by the Assessing Officer.
Before us, learned counsel appearing for the assessee reiterated the stand taken before the departmental authorities. He submitted, as far as assessment year 2008-09 is concerned, in terms with proviso to section 153C of the Act, it falls beyond the block of six years, hence, the Assessing Officer could not have proceeded to frame the assessment under section 153C of the Act.
In support of such proposition, he relied upon the decision of the Hon’ble Supreme Court in case of CIT Vs. Jasjit Singh, 458 ITR 437 (SC). Without prejudice, he submitted that none of the additions made by the Assessing Officer are based on any incriminating material found as a result of search and seizure operation.
Drawing our attention to the observations of Assessing Officer, learned counsel submitted that, though, the departmental to 2664/Del/2018 AYs: 2008-09 to 2012-13 authorities have made general observations that large number of seized materials were found during search and seizure operation in case of third parties, however, while making additions, no specific reference has been made to any seized materials. Further drawing our attention to the paper-books filed by the Department, learned counsel submitted that no seized material has been furnished to establish that the additions have been made based on seized materials. He submitted, in respect of another group entity, while deciding identical issue arising out of same search and seizure operation, the Tribunal has deleted similar additions on the reasoning that they are not based on any incriminating material found during search and seizure operation. In this context, he drew our attention to the orders passed by the Tribunal in case of M/s. Frontier Commercial Co. Ltd. Vs. DCIT, dated 14.02.2020 in assessment year 2009-10 and in ITA No. 7347 & 7348/Del/2017, dated 26.07.2023 in assessment years 2011-12 and 2012-13.
Thus, he submitted, when it is established on record that the additions made are not based on any incriminating material found as a result of search in respect of unabated assessments, to 2664/Del/2018 AYs: 2008-09 to 2012-13 such additions have to be declared as unsustainable. In support of such proposition, he relied upon a decision of the Hon’ble Ltd., (2023) 294 Taxman 70.
Learned Departmental Representative submitted, both the Assessing Officer and the first appellate authority have observed that in course of search and seizure operation, large numbers of incriminating materials were found. Therefore, it is a fact on record that the additions are based on incriminating material.
We have considered rival submissions in the light of decisions relied upon and perused the materials on record.
Though, in the cause title of the assessment orders, the Assessing Officer has mentioned that the orders have been passed under section 153A of the Act, however, in paragraph 2, he himself has stated that proceedings were initiated under section 153C read with section 153A of the Act. This presupposes that no search and seizure operation was carried out in case of the assessee. In fact, before us, learned Departmental Representative was not in a position to establish on record that any search and seizure operation under section 132 of the Act was carried out on the to 2664/Del/2018 AYs: 2008-09 to 2012-13 assessee. On scanning through two paper-books submitted by the Revenue on 17.11.2021 and 31.01.2022, we have not found any search and seizure warrant or panchnama drawn up in the name of the assessee. What the paper-book filed on 31.01.2022 contains is an authorization of survey under section 133A of the Act. Thus, it is a fact on record that no search and seizure operation was carried out on the assessee. This is vindicated from the fact that on perusal of the assessment record furnished before us by learned Departmental Representative; it is observed that in case of the assessee, the Assessing Officer has recorded a common satisfaction under section 153C on 18.09.2014 for assessment years 2007-08 to 2012-13.
10. Thus, we have to proceed on the basis that assessment proceedings were initiated and completed under section 153C of the Act. As discussed earlier, the Assessing Officer has recorded the satisfaction note under section 153C of the Act on 18.09.2014. In other words, the satisfaction note was recorded in financial year 2014-15 corresponding to assessment year 2015-
Therefore, the block of six previous assessment years would be 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 and 2014-15. to 2664/Del/2018 AYs: 2008-09 to 2012-13 Therefore, the assessment year 2008-09 does not fall within the block of six assessment years, as per the provisions contained under section 153C read with its proviso applicable to the assessment year under dispute. In case of CIT Vs. Jasjit Singh (supra), the Hon’ble Supreme Court has held as under:
“9. It is evident on a plain interpretation of Section 153C (1) that the Parliamentary intent to enact the proviso was to cater not merely to the question of abatement but also with regard to the date from which the six year period was to be reckoned, in respect of which the returns were to be filed by the third party (whose premises are not searched and in respect of whom the specific provision under Section 153-C was enacted. The revenue argued that the proviso [to Section 153 (c) (1)] is confined in its application to the question of abatement.
This Court is of the opinion that the revenue's argument is insubstantial and without merit. It is quite plausible that without the kind of interpretation which SSP Aviation adopted, the A.O. seized of the materials. 132 of the search party, under Section would take his own time to forward the papers and materials belonging to the third party, to the concerned A.O. In that event if the date would virtually "relate back" as is sought to be contended by the revenue, (to the date of the seizure), prejudice caused to the third party, who would be drawn into the proceedings as it were unwittingly (and in many cases have no concern with it at all), is dis-proportionate. For instance, if the papers are in fact assigned under Section 153-C after a period of four years, the third party assessee's prejudice is writ large as it would have to virtually preserve the records for at latest 10 years which is not the requirement in law. Such disastrous and harsh consequences cannot be attributed to Parliament. On the other hand, a plain reading of Section 153-C supports the interpretation which this Court adopts.”
The ratio laid down by the Hon’ble Supreme Court, as aforesaid, clearly applies to the facts of the present appeal.
Therefore, the Assessing Officer could not have proceeded under to 2664/Del/2018 AYs: 2008-09 to 2012-13 section 153A/153C of the Act to initiate and complete the assessment. That being the legal position, the assessment order for the assessment year 2008-09, being void ab-initio is unsustainable. Hence, deserves to be quashed.
Be that as it may, the second issue, which arises for consideration is, whether the additions made in the assessment orders are sustainable, keeping in view the provisions of section 153C of the Act and the legal position on the issue. It is the case of the assessee that the additions made are not based on any incriminating materials found as a result of search. It is beyond dispute that on the date of search and seizure operation on M/s.
SRS Group, assessment proceedings for the impugned assessment years had not abated. Therefore, the additions, if any, have to be made based on seized materials. As discussed earlier, the additions made in the assessment orders are on account of disallowance of freight expenses.
Off course, in some of the assessment years under dispute, the Assessing Officer has made an additional disallowance relating to section 14A read with Rule 8D. Though, in the assessment and first appellate orders, the departmental to 2664/Del/2018 AYs: 2008-09 to 2012-13 authorities have observed that large numbers of incriminating materials were found, however, the additions do not specifically refer to any incriminating/seized material. In fact, on perusal of the satisfaction note recorded under section 153C of the Act on 18.09.2014, it is observed that it is a common satisfaction note for assessment years 2007-08 to 2012-13. In the said satisfaction note, the Assessing Officer has not referred to any seized/incriminating materials found as a result of search and seizure operation, which belong to the assessee.
As per the settled legal position, the Assessing Officer has to record satisfaction note for each assessment year, for which, he intends to initiate proceedings under section 153C of the Act and he also has to refer to incriminating/seized materials relating to such assessment year to justify initiation of proceedings under section 153C of the Act. In the facts of the present appeals, it is not the case. In fact, on specific query, learned Departmental Representative failed to bring to our notice any seized/incriminating materials, which could have influenced the present additions. Even, the paper-books filed by the Department do not contain any seized/incriminating materials. to 2664/Del/2018 AYs: 2008-09 to 2012-13
On the contrary, a careful reading of the assessment order and order of first appellate authority certainly gives an impression that the additions made are based either on the return of income furnished by the assessee or on certain other documents furnished by the assessee itself. Thus, uncontroverted facts on record do clearly reveal that the additions made in the impugned assessment orders are not based on any incriminating/seized materials found during search and seizure operation. That being the factual position emerging on record, the ratio laid down by the Hon’ble Supreme court in case of PCIT Vs. Abhisar Buildwell Pvt. Ltd. (supra) would squarely apply.
16. Pertinently, while considering identical nature of dispute in case of assessee’s group concern arising out of the same search and seizure operation, the Coordinate Bench in case of M/s.
Frontier Commercial Co. Ltd. Vs. DCIT (supra) has deleted the additions, as, they were not based on any seized/incriminating materials found as a result of search and seizure operation. Thus, on overall consideration of facts and materials on record and on application of ratio laid down in the judicial precedents cited before us, we are of the view that the disputed additions having to 2664/Del/2018 AYs: 2008-09 to 2012-13 been made without reference to any seized/incriminating material found as a result of search and seizure operation, are unsustainable. Accordingly, all the additions are deleted.
In the result, all the appeals are allowed.
Order pronounced in the open court on 12th June, 2024