SH. SHANTI LAL WADHWA,NEW DELHI vs. DCIT, NEW DELHI

Before us, the ld. counsel for the assessee, Shri Rakesh Gupta, raised a preliminary objection regarding the scope of addition made under assessment passed under section 153A r.w.s. 143(3) on the ground that the additions made by the Assessing Officer are not based on incriminating materials found during the course of search, as the assessment for impugned assessment year was unabated at the time of search. Highlighting the chronology of events, he submitted that in this case return of income was filed on 31/10/2010 and in support of the same he filed a copy of acknowledgement of return of income which is duly stamped and acknowledged on the date of 31/10/2007. He pointed out that the last date for issuance and service of notice under section 143(21) was 31/10/2008, however, no such notice under section 143(2) was issued and accordingly, the returned income stood finally assessed, which had attained finality. The search and seizure action was conducted at the business and residential premises of the assessee on 19/10/2010 and on that date assessment for assessment year 2007-08 was not pending and hence will fall within the scope of ‘unabated assessment’ in terms of second proviso to section 153A. Shri Rakesh Gupta further pointed out that the additions, which have been roped in, in the impugned assessment order, is firstly, income from rent which has been treated as business income by the assessee has been taxed under the head income from house property by the Assessing Officer who has treated rent amount of Rs.1,03,750/- as income from house property; and secondly, addition of Rs.30,69,374/- by way of ad-hoc disallowance on account of various expenses claimed under the head purchase, labour charges; and various expenses. None of these additions are based on any document or material found during the course of search. Thus, such an addition is beyond the scope of addition under section 153A. In support, he relied upon the judgment of Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawla reported in [2016] 380 ITR 573 (Delhi) and has been reiterated in the case of Pr. CIT vs. Meeta Gutgutia reported in [2017] 152 DTR 153 (Delhi).

The ld. counsel for the assessee further pointed out that this issue has been raised before the ld. CIT(A) also vide grounds No.2 to 7, however, the ld. CIT(A) has decided this issue against the assessee after following certain Tribunal decisions. His relevant finding has been incorporated at para 9 from pages 7 to 12 of the appellate order. Now, in the wake of decision of the Hon'ble jurisdictional High Court, the view taken by the ld. CIT(A) cannot be upheld.

On the other hand, the ld. CIT (DR) relied upon the order of the ld. CIT (A) and submitted that once search has taken place, assessment has to be completed under section 153A wherein the Assessing Officer has power to assess and re-assess the income of the assessee for entire six years preceding the year in which search has taken place. There is no such requirement under the Act that additions made in unabated assessment should be on the basis of any incriminating material. Thus, he submitted that this issue should be decided on merits.

We have heard the rival submissions and perused the relevant finding given in the impugned order. Here in this case, the original return of income was filed on 31/10/2007 and last date for issuance and service of notice under section 143(2) was 31/10/2008. When search took place on 19/10/2010, then assessment for assessment year 2007-08 had attained finality and was not pending in terms of second proviso to section 153A. From the impugned assessment order, it is seen that the additions made by the Assessing Officer are not based on any material or document found or seized during the course of search relating to the assessee qua the assessment year impugned before us. This is clearly evident from the order of the Assessing Officer as well as this fact has not been disputed by the ld. CIT(A) also. In the absence of any rebuttal that any incriminating material or document was found for the impugned assessment year qua the addition made, then no addition can be made over and above income originally assessed. Now it is quite settled law in the jurisdiction of Hon'ble High Court that for making any addition for the unabated assessment covered under section 153A, it is sine-qua-non that some incriminating material or documents should have been found at the time of search qua that assessment year which warrants additions while reassessing the completed assessments for those years. This proposition of law has been well settled and reiterated by the Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawla reported in [2016] 380 ITR 573 (Delhi) and has been reiterated in the case of Pr. CIT vs. Meeta Gutgutia reported in [2017] 152 DTR 153 (Delhi).

In the case of CIT vs. Kabul Chawla (supra), the Hon'ble High Court, after discussing various judgments and analysing section 153A in-extenso, have laid down the following legal proposition:-

The Hon'ble High Court has also taken note of the judgment of their earlier judgment in the case of CIT vs. Anil Kumar Bhatia reported in [2013] 352 ITR 493 (Del) and observe that this was not the issue before the Court. Again in the case of Pr. CIT Vs. Meeta Gutgutia’s (supra), their Lordships have again reiterated the same principle in a very detailed manner and have also distinguished one of their earlier judgment in the case of Smt. Dayawanti Gupta reported in 390 ITR 496. The relevant observations made by their Lordships are as under:-

The question whether unearthing of incriminating material relating to any one of the AYs could justify the re- opening of the assessment for all the earlier AYs was considered both in Anil Kumar Bhatia {supra) and Chetan Das Lachman Das {supra). Incidentally, both these decisions were discussed threadbare in the decision of this Court in Kabul Chawla {supra). As far as Anil Kumar Bhatia {supra) was concerned, the Court in paragraph 24 of that decision noted that "we are not concerned with a case where no incriminating material was found during the search conducted under Section 132 of the Act. We therefore express no opinion as to whether Section I53A can be invoked even under such situation". That question was, therefore, left open. As far as Chetan Das Lachman Das {supra) is concerned, in para 11of the decision it was observed: "11. Section 153A (1) (b) provides for the assessment or reassessment of the total income of the six assessment years immediately preceding the assessment year relevant to the previous year in which the search took place. To repeat, there is no condition in this Section 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 Assessing Officer which can be related to the evidence found. This, however, does not mean that the assessment under Section 153A 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."

In Kabul Chawla {supra), the Court discussed the decision in Filalex India Ltd. {supra) as well as the above two decisions and observed as under: "31. What distinguishes the decisions both in CIT v. Chetan Das Lachman Das {supra), and Filatex India Ltd. v. CIT-IV {supra) in their application to the present case is that in both the said cases there was some material unearthed during the search, whereas in the present case there admittedly was none. Secondly, it is plain from a careful reading of the said two decisions that they do not hold that additions can be validly made to income forming the subject matter of completed assessments prior to the search even if no incriminating material whatsoever was unearthed during the search.

Recently by its order dated 6th July 2015 in of 2015 {Pr. Commissioner of Income Tax v. Kurele Paper Mills P. Ltd.), this Court declined to frame a question of law in a case where, in the absence of any incriminating material being found during the search under Section 132 of the Act, the Revenue sought to justify initiation of proceedings under Section I53A of the Act and make an addition under Section 68 of the Act on bogus share capital gain. The order of the CIT (A), affirmed by the ITAT, deleting the addition, was not interfered with."

In Kabul Chawla {supra), the Court referred to the decision of the Rajasthan High Court in Jai Steel (India) v. Assn. CIT [2013] 36 taxmann.com 523/219 Taxman 223. The said part of the decision in Kabul Chawla {supra) in paras 33 and 34 reads as under: '33. The decision of the Rajasthan High Court in Jai Steel (India), Jodhpur v. A CIT {supra) involved a case where certain books of accounts and other documents that had not been produced in the course of original assessment were found in the course of search. It was held where undisclosed income or undisclosed property has been found as a consequence of the search, the same would also be taken into consideration while computing the total income under Section 153A of the Act. The Court then explained as under:

The argument of the Revenue that the AO was free to disturb income de hors the incriminating material while making assessment under Section 153A of the Act was specifically rejected by the Court on the ground that it was "not borne out from the scheme of the said provision" which was in the context of search and/or requisition. The Court also explained the purport of the words "assess" and "reassess", which have been found at more than one place in Section 153A of the Act as under: "26. The plea raised on behalf of the assessee that as the first proviso provides for assessment or reassessment of the total income in respect of each assessment year falling within the six assessment years, is merely reading the said provision in isolation and not in the context of the entire section. The words 'assess' or 'reassess'-have been used at more than one

Thus, the Hon'ble High Court after detail analysis concluded that, whence there is no incriminating material qua each of the assessment year roped in under section 153A, then no addition can be made while framing the assessment under section 153A.

The aforesaid principle and ratio are clearly applicable on the facts of the present case also, as admittedly no incriminating material relating to this assessment year was found during the course of search and accordingly, the originally assessed income, i.e., income disclosed by the assessee in the original return of income and reiterated in the return filed in response to notice u/s 153A deserves to be accepted and the same has to be reckoned as assessment of the income in terms of section 153A and no further addition can be made by the Assessing Officer over and above the returned income. Accordingly, the additions made by the AO are deleted on the ground that they are beyond the scope of assessments u/s 153A.

Thus, on the preliminary issue raised by the ld. counsel for the assessee, the appeal of the assessee is allowed and other grounds raised in the grounds of appeal are treated as infructuous, as the same have become academic in nature.

In the result, appeal of the assessee is allowed.