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Income Tax Appellate Tribunal, ‘C’ BENCH, BENGALURU
Before: SHRI VIJAY PAL RAO & SHRI INTURI RAMA RAO
These are appeals filed by the assessee directed against the common order of the Commissioner of Income-tax(Appeals)-11,[CIT(A)] Bengaluru, dated 29/10/2016 for the assessment years 2005-06 to 2008- 09.
The assessee raised the following common grounds of appeal.
Since in all these appeals common issue is involved, we proceed to dispose of the same by this common order for the sake of convenience.
Briefly facts of the case are as under: The assessee is an individual and is engaged in the business of real estate. Original assessments were completed in the appellant’s case u/s 143(3) r.w.s 153A of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] vide assessment order dated 13/03/2013. Consequent upon search operations carried out in the case of one Smt.Adlene Kagoo on 12/04/2011, certain material were seized vide Annexure AK/PDP/06 dated 12/04/2011. Data is in accounting software called ‘tally’ under to 96/Bang/2017 Page 5 of 13 caption ‘Dummy Tally Training Environment’. According to the Assessing Officer, these are unaccounted receipts and payments of one Shri P.Dayananda Pai and his group of companies and from this Tally Dummy, certain payments were alleged to have been paid to the appellant. Accordingly, the Assessing Officer had proceeded to assess same by issue of notice u/s 148 on 29/03/2012 for the assessment years 2005-06 to 2008-09 and assessed the income of Rs.5,01,00,000/-, Rs.4,84,00,000/- Rs.6,83,83,190/- and Rs.2,29,00,000/- for the assessment years 2005-06, 2006-07, 2007-08 and 2008-09 respectively vide assessment orders dated 13/03/2013.
Being aggrieved, appeal was filed before CIT(A) contending inter alia that there is no valid assumption of jurisdiction u/s 148 as the entire addition is based on the seized material found as a result of search action u/s 132 in the case of Smt. Adlene Kagoo. It was further contended that there was no conclusive proof that payments have been made to the appellant and even assuming there is payment, there is no evidence suggesting that it is taxable income in the hands of the appellant. It was further contended that these payments were in any event are owned up by Shri Dayanand Pai before the Settlement Commission and tax has been paid. Thus, it was contended that the question of assessing this money in the hands of the assessee does not arise. The CIT(A), after considering the rival submissions and after considering the remand report of the AO held as follows: to 96/Bang/2017 Page 6 of 13 6. Being aggrieved, the assessee is before us in the present appeal. Learned senior counsel for assessee vehemently argued that in the present case, assumption of jurisdiction u/s 148 is bad in law as additions were made based on material found as a result of search action u/s 132 of the Act in respect of Smt. Adlene Kagoo. Section 147 is not substitute or alternate to section 153C where provisions of section 153C are applicable. Learned senior counsel for assessee placed reliance on the decision of the co-ordinate bench in the case of ITO vs. Arun Kumar Kapoor (140 TTJ 249) and upon the decision of the co-ordinate bench of Tribunal in Rajat Shubra Chatterji vs. Asst.CIT (47 CCH 135)(Del).
On merits, Learned Senior Counsel submitted that no addition can be made based on material found as a result of search u/s 132 in the case of third party without cross examining the parties. He further submitted that even assuming for a moment that there is receipt of amount, it does not mean that it constituted taxable income in the hands of the appellant. He further submitted that these amounts were in any way offered in the hands of Shri Dayanand Pai before the Settlement Commission. Therefore, question of addition in the assessee’s hands does not arise.
On the other hand, learned Departmental Representative placed reliance on the orders of the lower authorities.
We heard rival submissions and perused the material on record. At the first instance, we shall deal with preliminary ground raised challenging validity of assumption of jurisdiction u/s 148 of the Act. In the present case, original assessments were made u/s 143(3) r.w.s. 153A of the Act vide order dated 28/12/2010. Subsequently, consequent to search operations in the case of Smt. Adlene Kagoo, material disclosing alleged payment to appellant was found. The AO had proceeded to make assessment by issuing notice u/s 148 of the Act. Now the issue that arises is whether the AO was correct in law in assuming jurisdiction u/s 148 when the provisions of section 153C of the Act prescribe a separate scheme of assessment in the case of material found as a result of search to 96/Bang/2017 Page 7 of 13 in the case of third parties. A similar issue had arisen in the context of block assessment prescribed under Chapter XIV-B of the Act and these provisions were subsequently substituted by inserting sections 153A, 153B, 153C and 153B in Chapter XIV. But the spirit of both old provisions and new provisions remained same. The Hon’ble Gujarat High Court in the case of Cargo Clearing Agency (Gujarat) vs. Joint CIT (307 ITR 1), in the context of block assessment i.e. 153BD, after considering the entire scheme of the Act, held as follows:
22. There is one more aspect of the matter. Entire Chapter XIV-B of the Act relates to assessment of search cases, viz., undisclosed income found as a result of search. One cannot envisage escapement of undisclosed income once a search has taken place and material recovered, on processing of which undisclosed income is brought to tax. Sec. 147 of the Act itself indicates that the same is in relation to income escaping assessment and applies in a case where either income chargeable to tax has escaped assessment by virtue of either non- disclosure by way of non-filing of return, or non-disclosure by way of omission to disclose fully and truly all material facts for the purpose of assessment, or processing of material already available on record, if the same is within stipulated period of limitation. Therefore, to contend that undisclosed income has escaped assessment despite an assessment having been framed under Chapter XIV-B of the Act by adopting the special procedure prescribed by the said Chapter is to contend what is inherently not possible. It cannot be a case of non-filing of return considering the provisions of s. 158BC of the Act. It cannot be a case of non-disclosure of material facts considering the fact that everything which was undisclosed has already been unearthed at the time of search and the definition of undisclosed income" itself indicates that not only what has been seized or recovered, but even income or property which has not been or would not have been disclosed for the purpose of the Act has been roped in. Furthermore, s. 158BB of the Act also provides not only for requisition of books of accounts or other documents, but on the basis of evidence found as a result of search and such other materials or information as are available with the AO, undisclosed income of the block period shall be computed. Therefore, even if, assuming for the sake of argument, some income has not been disclosed in the return furnished under s. 158BC of the Act, the AO is bound to assess all undisclosed income after processing the entire material available with AO. The AO cannot be heard to state that undisclosed income has escaped assessment because the officer failed to apply his mind to the material available on record, there being no lack of disclosure.
The last of the amendments made by Finance Act, 2002 as explained in CBDT Circular No. 8 of 2002, dt. 27th Aug., 2002 further goes to support the stand of the petitioners. The legislature has provided that the block assessment of undisclosed income is to be based not only to 96/Bang/2017 Page 8 of 13 on the evidence found at the time of search, but also on the basis of material and information gathered during the inquiries made after the search proceedings. However, on the basis of evidence found during the search proceedings certain further inquiries are undertaken by the AO resulting in collection of material or information gathered during such inquiries. The assessment for the block period shall also include computation of such income as a consequence of such inquiries. Thus, there would be no scope for any income escaping or remaining undisclosed when the special procedure laid down by Chapter XIV-B of the Act is resorted to. The contention, on behalf of the Revenue, that there might be income which might have yet escaped assessment from the block assessment cannot be accepted because the scheme itself provides for bringing to tax all undisclosed income, whether recovered during the course of search proceedings or recovered in the course of post-search inquiries made on the basis of material collected during search. Hence, the legislative intent is clear. Once a block assessment is framed the same is final unless and until disturbed in an appropriate proceeding taken before the higher forum.
The provisions of Chapter XIV-B of the Act, more particularly s. 158BG of the Act provide for a situation where no order of assessment for the block period shall be passed without the previous approval of either the CIT or Director (as the case may be) in respect of search cases. In other words, not only the AO cannot be an officer below the rank of an Asstt. CIT, etc., but the order of assessment framed is scrutinised by the highest officer in the hierarchy to ensure that : (1) no undisclosed income escapes assessment, and (2) there is no high pitched assessment, only for the sake of making an assessment. It would not be open to Revenue to contend that despite material being available on record the same escaped scrutiny at the hands of two officers, one of them being a superior officer in the hierarchy.
As already noted hereinbefore, the entire scheme for bringing to tax income which has escaped assessment under ss. 147 to 153 of the Act specifically relates to a specific assessment year and different time-limits are provided at different stages which are all inter-linked and commence from the end of the relevant assessment year. The definition of "assessment year" as provided in ss. 2(9) of the Act means the period of 12 months commencing on the first day of April every year. This definition cannot by any stretch of imagination be made applicable to the term "block period" which has been defined by s. 158B(a) of the Act. On a plain reading the concept of block period cannot take within its fold the meaning of an assessment year. Similarly, the term "assessment year" by its very definition, cannot be read to mean "block period".
In light of this specific distinction in the statutory scheme brought about by specific definitions of the two terms, "assessment year" and "block period", the submission on behalf of Revenue that the term "assessment year", wheresoever it appears in the group of ss. 147 to 153 of the Act, be substituted by the term "block period" cannot be accepted, to 96/Bang/2017 Page 9 of 13 because on a plain reading of the said provisions, viz., s. 147 to s. 153 of the Act, the entire scheme becomes unworkable. The principles of interpretation also do not permit such an exercise.
It is well-settled that a Court is not empowered to either add words to a statute or substitute words while interpreting a provision. The Court can only read and interpret the language employed by the statute. Only in the event of a provision not conveying the intended meaning, in other words, a plain reading resulting in absurd situation, can the Court import words to make sense out of the provision. However, at the same time, even a purposive interpretation does not permit the Court to substitute the statutory language unless and until the provision as it stands would not result in the provision being workable. If the language of the statute is capable of a plain meaning without doing violence to the language, it is not open to add any words therein so as to give meaning which one or the other side thinks to be more appropriate.
In the present case none of the exceptional contingencies exist. As already noticed, on a plain reading it becomes discernible that there are two separate streams of procedure provided by the legislature : (1) under Chapter XIV of the Act which provides for "procedure for assessment", and (2) under Chapter XIV-B of the Act which provides for "a special procedure for assessment of search cases". Only in the event the special procedure for assessment has not provided for some procedure for assessment can one refer to the procedure under Chapter XIV of the Act. Therefore, the interpretation sought to be placed by Revenue on the provisions of the Act so as to read in the term "block period" for the purpose of invoking and applying ss. 147 to 153 of the Act cannot be countenanced. Neither does a plain reading of the provisions permit such an exercise, nor is there any lacuna in the provisions which is required to be filled up.
In Chapter XIV-B of the Act the only place where one finds the use of the term 'assessment year’ is in the definition of the term 'block period’. This itself indicates that if the 'block period’ was equivalent to 'assessment year’ the definition of block period would not have provided that 'block period’ means period comprising previous years relevant to 10/6 assessment years. To put it differently, reference to the number of assessment years is only a means, a measure to indicate and specify the period of previous years which would comprise block period. Revenue, therefore, cannot contend successfully that wherever the term 'assessment year’ is used in the group of sections from ss. 147 to 153 of the Act the said term has to be replaced by the term 'block period’. Furthermore, the amendment which is retrospectively made in the definition of the block period by the Finance (No. 2) Act, 1996, itself indicates that originally the term block period meant as consisting of 10 previous years prior to the previous year in which the search was conducted and also the period of current previous year upto the date of search, but, before adoption of uniform previous year, in case of different assessees, 'block period’ would be different depending on the accounting period adopted in terms to 96/Bang/2017 Page 10 of 13 of s. 3 of the Act. To obviate this situation the definition of block period was amended. This becomes clear from Circular No. 762, dt. 18th Feb., 1998 issued by CBDT extracted hereinbefore.
The apex Court decision on which great emphasis has been placed on behalf of Revenue in fact goes to support the view adopted in the present case. The controversy before the apex Court was in relation to the rate of tax which was to be applied to the undisclosed income assessed in terms of Chapter XIV-B of the Act. The apex Court itself has observed, as can be seen from the portion wherein emphasis is supplied by this Court, that the Supreme Court was concerned mainly with computation of undisclosed income under s. 158BB(1) of the Act. This Court has already noticed that s. 158BH of the Act provides for invoking other machinery provisions to an assessment made under Chapter XIV-B of the Act and does not require other provisions of the Act to be applied to a block assessment to be made under Chapter XIV-B of the Act.
The apex Court decision also provides for a harmonious construction on the basis of reading of the mode of computation provided in Chapter IV of the Act and provided under Chapter XIV-B of the Act by stating that s. 158BH inter alia provides that other provisions of the Act shall apply if there is no conflict between the provisions of Chapter XIV-B of the Act and other provisions of the Act. This becomes clear from the extracted portion wherein emphasis has been supplied. To put it differently, in a situation where there is a conflict between the provisions of block assessment procedure prescribed under Chapter XIV-B of the Act and other provisions of the Act, it will be the special procedure prescribed under Chapter XIV-B of the Act which has to prevail.
As already noticed hereinbefore, the entire scheme under Chapter XIV of the Act, more particularly from ss. 147 to 153 of the Act pertaining to reassessment, and the special procedure for assessing the undisclosed income of the block period under Chapter XIV-B of the Act are not only separate and distinct from each other, but if an effort is made to incorporate the scheme under Chapter XIV of the Act for the purpose of assessment of the block period there is a conflict between the provisions which becomes apparent on a plain reading. In the circumstances, as per established rules of interpretation, unless and until a plain reading of the two streams of assessment procedure does not result in the procedures being independently workable, only then the question of resolving the conflict would arise. But to the contrary, in the present case, in light of provisions of s. 158BH of the Act, once there is a conflict between the two streams of procedure, as laid down by the apex Court, provisions of Chapter XIV-B of the Act shall prevail and have primacy.
Thus, viewed from any angle, the stand of Revenue does not merit acceptance. Once assessment has been framed under s. 158BA of the Act in relation to undisclosed income for the block period as a result of search there is no question of the AO issuing notice under s. 148 of the to 96/Bang/2017 Page 11 of 13 Act for reopening such assessment as the said concept is abhorrent to the special scheme of assessment of undisclosed income for block period. At the cost of repetition it is required to be stated and emphasised that the first proviso under s. 158BC(a) of the Act specifically provides that no notice under s. 148 of the Act is required to be issued for the purpose of proceeding under Chapter XIV-B of the Act.
In the circumstances, impugned notice dt. 16th April, 1999 under s. 148 of the Act cannot be upheld and is hereby quashed and set aside. In the view that the Court has adopted it has not been found necessary to go into the facts of the case and examine whether the reasons recorded by the respondent authority are germane or not as the matter has been decided only on the point of absence of jurisdiction in a case of block assessment. Thus, the ratio laid down by the Hon’ble Gujarat High Court is that once the Legislature prescribes a special procedure for assessment of search cases, such special procedure can alone be applied and not other procedure. It has been further held that where the Legislature prescribes special procedure for assessing income in the case of search matters, special procedure shall prevail over normal procedure. Therefore, in the present case, undisputedly addition was made by the AO based on evidence found as a result of search. Therefore, in such cases, income can be assessed only by invoking provisions of section 153BC subject to fulfillment of other conditions laid down therein. Even the co-ordinate benches of Tribunal in the cases of Arun Kumar Kapoor (supra) and Rajat Shubra Chatterji (supra) laid down the same ratio. The co-ordinate bench (Amritsar) of Tribunal in the case of Arun Kumar Kapoor (supra) held as follows:
8. On a perusal of the above provisions, it would be clear that the provisions of s. 153C of the Act were applicable, which supersedes the applicability of provisions of ss. 147 and 148 of the Act. As we have already noted hereinabove that the documents were seized during the search under s. 132 of the Act and the same were sent to the assessee’s AO at Amritsar by the officer at Delhi in our view, the learned CIT(A) has correctly observed that only the provision in which any assessment could be made against the assessee in the IT Act was s. 153C r/w s. 153A of the Act. It is also apparent from the record that the officer at Delhi has mentioned in his letter that the necessary action may be taken as per law under s. 153C/148 of the Act. Hence, notice issued under s. 148 of the Act and proceedings under s. 147 of the Act by the AO are illegal and void ab initio. In view of the provisions of s. 153C of the Act, s. 147/148 stands ousted. In the instant case, the procedure laid down under s. 153C to 96/Bang/2017 Page 12 of 13 has not been followed by the AO and, therefore, assessment has become invalid. We also observe that the CIT(A) was justified in following the ratio laid down by the Hon’ble Supreme Court in the case of Manish Maheshwari vs. Asstt. CIT & Anr. (2007) 208 CTR (SC) 97 : (2007) 289 ITR 341 (SC) wherein it has been held that if the procedure laid down in s. 158BD is not followed, block assessment proceedings would be illegal. The CIT(A) has correctly observed that the provisions of s. 153C are exactly similar to the provisions of s. 158BD of the Act in block assessment proceedings. Thus, considering the entire facts and the circumstances of the present case, we hold that the CIT(A) was fully justified in quashing the reassessment order. We also do not find any merit in the submissions of the learned Departmental Representative that during the course of search, it was found at premises of M/s Today Homes & Infrastructure (P) Ltd. pertaining to M/s P.R. Infrastructure Ltd. and not the assessee. In this regard, we may point out that the contention raised by the learned Departmental Representative is factually incorrect and contrary to the available records of seized documents specifically mentioned in the assessment order dt. 30th Dec., 2008. In view of the above factual discussion, we do not find any merit and substance in the contention of the learned Departmental Representative. Therefore, we uphold the order of the CIT(A) and dismiss the ground Nos. 1 to 4 of the appeal.
Even otherwise, from perusal of reasons recorded, it cannot be inferred that there is income in the hands of the appellant, even if there is payment to appellant, but there is nothing on record suggesting that it constitutes income in the hands of the appellant. Even assuming for a moment that the contention of the AO that payments were made towards consideration for cancellation of Joint Development Agreement (JDA) which the assessee had entered with in respect of property at survey Nos.3/3, 7, 8, 9/2A, 9/213, Mallasandra. In the absence of evidence that the appellant is the owner, had interest of any nature in the said property, it cannot be said that the payments constituted taxable income in the hands of the appellant. One cannot come to conclusion that the payments constituted taxable income in the hands of the assessee. Furthermore, even assuming that these payments were made towards consideration of cancellation of JDA, same does not represent taxable income for period under consideration. It is only after insertion of clause (ix) to section 56(2) by Finance (No.2) Act 2014 w.e.f. 01/04/2015 that provisions of the Act have been amended to tax any consideration received on cancellation of any agreement to sell or JDA. Therefore, viewed from any angle, we cannot uphold the validity of assumption of to 96/Bang/2017 Page 13 of 13 jurisdiction u/s 147 and therefore, we hereby quash the impugned assessment orders as bad in law.
In the result, the appeals filed by the assessee are allowed.