GITANJALI INFRATECH LTD,MUMBAI vs. ACIT CEN CIR 2, MUMBAI

In the absence of any incriminating material found during the course of search against the Appellant the assessment order framed under section 143(3) r.w.s 153C is beyond jurisdiction. Hence, the same may be quashed.

The Ld.A.O. is not justified in making additions and disallowances dehors of the seized material while conducting assessment pursuant to notice under section 153C is not at all justified and the same may be deleted.

The Appellant craves leave to add, alter or amend any of the above grounds of appeal.” 3.Before proceedings further,we would like to take note of the brief facts of the matters before us.Assessee-compay is part of Gitanjali Group.A search action u/s.132 (1) and survey action u/s.133A of the Act were initiated in the group cases on 29 /11/2011.During the proceedings,seized material belonging to the assessee was found and accordingly proceedings u/s.153C were initiated.The Assessing Officers (AO.s)completed the scrutiny assessments, as stated in the first paragraph of our order.They disallowed the expenses under the heads personnel expenses,office expenses,depreciation, bank charges and interest etc.,comprising business loss. 4.During the appellate proceedings for the AY. 2011-12, the First Appellate Authority (FAA) observed that the assessee had shown other income at Rs. 1.19 crores,that it had claimed expenses against the said income declaring loss of Rs. 31.54 lakhs, that the AO had examined the eligibility of expenses u/s.57 (iii) of the Act, that he had observed that various expenses claimed by the assessee had resulted in business loss, that the AO had given a finding that assessee had not shown any business income during the year, that the assessee had submitted that expenses were incurred for the purpose of general day-to-day operations and conduct of the business, that it was also contended that the expenses were mainly for admission to staff and the head office, that the AO had noted that the assessee had made investment in various projects, that he was of the opinion that assessee should have capitalised the expenses and should have added the same to the cost of the respective projects, that the AO had held that expenses debited to the P&L account were of the nature of capital work in progress, that the assessee had signed these agreements for commercial spaces and had paid further advances relatable to the said projects that the development business of the assessee had commenced during the year under appeal, that it had not returned any income, that the AO was justified in holding that the expenses debited to the P&L account should have been capitalised. Referring 1366/M/16;3486-87/M/16- M/s. Gitanjali Infratech Ltd. to the case of Vardhaman Developers Ltd.(55 taxmann.com 370), relied upon by the assessee, the FAA held that the business of the assessee had commenced, that it had incurred similar expenses to those discussed in the order of Vardhaman Developers Ltd. (supra). Relying upon her order for the AY. 2012-13, she upheld the disallowance to the extent of 50%. For the other two AY.s also similar disallowance was upheld. 4.1.With regard to order of the then FAA for the AY. 2009-10, she observed that principles of res judicata did not apply to income tax proceedings. The observations were made by deciding the appeal for AY. 2008-09. 4.2.Before us, the AR stated that during the search proceedings certain papers were seized,that the seized material had been placed on record, that as a consequent to the search action the assessee was served with the notice u/s.153C,on 22/10/2012,that the AO had made dis-allowance of expenses u/s.37(1) of the Act, that the action of the AO in issuing the notice u/s.153C was without jurisdiction, that no incriminating material was found or seized during the search proceedings for any of the AY.s, that pages 92-96, seized during the search, were some extracts of Ledger accounts which pertain to the AY. 2012-13 and not for any of the AY.s, that the other materials seized during the search proceedings were of general nature, that the seized material was not incriminating in nature as it did not reveal any disclosed income of the assessee,that in absence of any incriminating material relevant to the above- mentioned three AY.s there was no valid satisfaction to the effect that undisclosed income belonged to the assessee,that the AO had made no addition on the basis of seized material, that while finalising the assessment he disallowed the claim of expenditure u/s.37 (1) of the Act,that the disallowance made by the AO and all the AY.s was based on regular books of accounts, that the same did not have any nexus with the seized material, that the assessment proceedings u/s.153C of the act were bad in law. He relied upon the case of Sinhgad Technical Education Society (378 ITR 84) of the honorable Bombay High Court that was later on confirmed by the honorable Supreme Court (397 ITR 344). He further contended that the return for the AY. 2008-09 was processed and accepted u/s.143 (1)of the Act,that no assessment was pending when the AO passed the order u/s.153C, that the order passed by him was bad in law. He relied upon the cases of Continental Ware - housing Corporation (374 ITR 645), Lavnya Land Private Ltd. (397 ITR 246), Nikki Drugs and Chemicals Private Ltd. (386 ITR 680) and Gurinder Singh Bawa (386 ITR 483).With regard to AY.s 2010-11 and 2011-12,he stated that returns were filed on 20/09/2010 and 27/09/2011 respectively, that the same were processed and accepted u/s.143 (1) of the Act.It 1366/M/16;3486-87/M/16- M/s. Gitanjali Infratech Ltd. was further argued that the FAA,while deciding the appeal for the AY. 2009-10 did not confirm the additions made by the AO under the same heads.The Departmental Representa - tive(DR)supported the order of the AO and stated that documents belonged to the assessee,that the AO had rightly made the disallowace. 4.3.We have heard the rival submissions and perused the material before us.We find that search and seizure proceedings/survey actions were carried out in the group cases on 29/11/ 2011,that certain documents were seized pertaining to the assessee, that the AO completed assessment u/s.153C for the above-mentioned three AY.s, that he made disallowance of the claims of expenditure u/s.37 (1) of the Act, that basically he disallowed the business losses for the above-mentioned three years, that while completing the assessment he did not refer to any of the seized documents,that the seized material also pertained to the AY. 2012-13 and not to any of the AY.s under consideration,that the seized documents, wherein the name of the assessee is mentioned, were extract of the Ledger accounts,that the AO had not mentioned anywhere in his assessment order is as to how the Ledger accounts represented the un- disclosed income of the assessee.Here, we would like to reproduce the provisions of section 153C of the Act and same reads as under: “(1)Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153C, where the Assessing Officer is satisfied that, (a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to ; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to,a person other than the person referred to in section 153CA, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person” shall be inserted. that Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153CA A perusal of the above section clearly shows that there should be some relation between the seized material and the assessed income where special procedure has to be followed u/s.153C of the Act.The section was introduced to cover the ‘other persons’,where incriminating documents/assets were seized during the search and seizure proceedings of the main person. It is not uncommon that during actions carried out u/s.132 (1) of the Act, certain papers/ documents/books of accounts/assets belonging to the persons,other than the person searched, are found.If the seized documents/assets represent the undisclosed income of the other person then the incriminating material, including the assets are transferred to the AO having jurisdic -tion over that other person.But the basic and foremost thing is the documents/ asset should be incriminating. If the documents/assets do not represent the undisclosed income of the other 1366/M/16;3486-87/M/16- M/s. Gitanjali Infratech Ltd. person, then there would be no justification for passing order u/s.153C.Here,would like to refer to the case of the Hon’ble Apex Court.The facts of the case were that the assessee was an educational institution registered u/s.12AA of the Act since the AY. 1994-95,that on the basis of documents seized during search and seizure operations carried out on the president of the assessee-society and his wife on 20/07/2005, a satisfaction note was recorded on 18/ 04/ 2007 to the effect that the assessee-trust could not be considered a genuine trust, that it was receiving extra money over and above the fee fixed by the competent authority, that it was not adhering to the object of providing education to the masses and the managing trustees were using the assessee’s trust for their own benefit.Accordingly,notice u/s.153CC of the Act was issued on 18/04/2007 for the AY.s 2000-01 to 2005-06 and u/s.143(2) for AY. 2006-07. Reassessment proceedings were taken for the AY. 1999-2000.On the ground that the activities of the trust were not genuine and were not being carried out in accordance with the trust deed,registration of the trust was cancelled u/s.12AA(3) of the Act, the assessee was treated as an association of persons, a special audit u/s.142(2A) of the Act was conducted and on the basis of the special audit report, taxable incomes for the AY.s 1999-2000 to 2006-07 were worked out by a common order.The FAA upheld the order of the AO,holding that the assessee was not eligible for exemption u/s.11 of the Act and, that therefore, donations received were rightly treated as income.In the appeal before the Appellate Tribunal, the assessee raised an additional ground questioning the validity of the notice u/s.153CC of the Act on the ground that satisfaction was not properly recorded and that the notice u/s.153CC was time-barred in respect of AY.s 2000-01 to 2003-04. The Appellate Tribunal allowed the appeal on the additional ground and quashed the notice. The order of the Tribunal was upheld by the High Court.The appeal filed by the Department before the Hon’ble Apex Court was decided as follow: “…..the Tribunal permitted the assessee to raise the additional ground on the ground that it was a jurisdictional issue taken up on the basis of facts already on record, that u/s.153CC of the Act, incriminating material which was seized had to pertain to the AY.s in question, and that the documents which were seized did not establish any co-relation, document-wise, with these four AY.s(emphasis by us). The Tribunal found that the material disclosed in the satisfaction note belonged to AY. 2004-05 or thereafter. The Tribunal rightly permitted this additional ground to be raised and correctly dealt with the ground on the merits as well. The High Court was right in affirming this view of the Tribunal.” We have gone through the documents seized by the Department authorities during the search proceedings.We find that the documents do not disclose any undisclosed income on part of the assessee for any of the above AY.s .The AO had disallowed business losses and that clearly prove that seized documents were of no relevance for the AO to make the disallowance.We allow the additional grounds raised by the assessee for all the three AY.s 1366/M/16;3486-87/M/16- M/s. Gitanjali Infratech Ltd. and decide the same in its favour.Thus,the assessment orders passed by the AO.s fail on the touch-stone of jurisdictional validity for AY.2008-09,2010-11 and 2011-12.The cases relied upon by the assessee,before us,also support the views taken by us.Therefore,we hold that the orders passed by the AO.s and confirmed by the FAA are not valid either on jurisdictional question or on merits.So,revering the orders of the FAA,we allow the appeals filed by the assessee-company. Before concluding we will like to mention that principles of res judicata do not apply to income tax proceedings,but it is equally true that rule of consistency is applicable to income tax matters.In the case of International Tractors Ltd.( 397 ITR 696)the Hon’ble Delhi High Court has held that deductions allowed in the earlier assessment years should not be withdrawn unless the circumstances have changed. In the matter of Zazsons export Ltd.( 397 ITR 400),the Allahabad High Court has held as follows: In order to maintain consistency, a view, which had been accepted in an earlier order ought not to be disturbed unless there was any material to justify the Department to take a different view of the matter. In respect of the earlier assessment year, 2005-06, the Department had accepted the decision of the Appellate Tribunal that the trade amount due to the trade creditors in the books of account of the assessee could not be added to the income of the assessee. There was nothing on record to show that any appeal had been filed by the Department against that order, which had become conclusive. The Hon’ble Delhi High Court in the matter of Galileo Nederland BV,(367ITR319), has held as under: “Decision on an issue or question taken in earlier years though not binding should be followed and not ignored unless there are good and sufficient reasons to take a different view. Said principle is based upon rules of certainty and that a decision taken after due application of mind should be followed consistently as this lead to certainty, unless there are valid and good reasons for deviating and not accepting earlier decision.” The Hon’ble Bombay High Court in the case of Gopal Purohit(336ITR287)has held that that there should be uniformity in treatment and when facts and circumstances for different years were identical particularly in the case of the same assessee.While upholding the principles of res judicata the FAA has not demonstrated as to how the facts of AY.2009-10 were different from the facts of other three AY.s.-especially of AY. 2008-09.This one more reason to reverse the order of the FAA. As a result,all the three appeals filed by the assessee stand allowed. फलतःिनधा"रती "ारा दािखल क" ग" तीन" अपील" मंजूर क" जाती ह". Order pronounced in the open court on 07th February,2018. आदेश क" घोषणा खुले "यायालय म" %दनांक 07 फऱवरी, 2018 को क" गई । (सी. एन. "साद / C.N.Prasad ) (राजे"" / Rajendra) "याियक सद"य / JUDICIAL MEMBER लेखा लेखा लेखा सद"य लेखा सद"य सद"य / ACCOUNTANT MEMBER सद"य मुंबई Mumbai; "दनांक/Dated : 07.02.2018. Jv.Sr.PS.