DCIT CEN CIR 2(3), MUMBAI vs. INFOLINK SOLUTIONS P LTD, MUMBAI

Date of hearing 27-12 -2017 Date of pronouncement -12-2017 O R D E R Per G Manjunatha, AM : These two appeals filed by the revenue against separate but identical orders

2 ITAS 545 547/Mum/2016 of the CIT(A)-48, Mumbai dated 30-11-2015 in respect of two different assesses. Since facts are identical and issues are common, these appeals were heard together and are disposed of by this common order, for the sake of convenience.

(i) "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in annulling the assessment u/s. 153C r. ws. 153A without appreciating the fact that the provisions of the said section authorizes the Assessing Officer to assess or reassess the total income in respect of six assessment years immediately preceding the assessment year relevant to previous year in which search is conducted or requisition is made, without any exception." (ii) "On the facts and in the circumstances of the case and in law, the L ci. CIT(A) erred in not deciding on merits disallowance of adjustment of speculation loss on future and options of Rs. 1,03,41,446/- as business loss."

The AO, after arriving at his satisfaction with regard to the ownership of the documents / computer data, issued notice dated 19-09-2011 u/s 153C of the Act, calling for a true and correct return of income for AY 2006-07. In response, the assessee filed its return of income on 30-11-2011 declaring loss at Rs.1,05,66,650 which was the same as that of the returned loss as per original

3 ITAS 545 547/Mum/2016 return of income filed u/s 139(1) of the Act, on 16-11-2006 and the assessment of which was completed on 13-08-2008 u/s 143(3), accepting the total loss declared by the assessee. The case has been selected for scrutiny and accordingly notices u/s 143(2) and 142(1) of the Act were issued. In response to notices, authorized representative of the assessee attended from time to time and filed details, as called for. During the course of assessment proceedings, the AO noticed that the assessee company is engaged in the business of trading in computer hardware and software; however, debited F&O loss of Rs.3,51,41,247 and claimed as set off against the business income. The AO, after considering relevant facts observed that clause (d) of Proviso to sub section 5 of section 43 as applicable for the assessment year under consideration, transactions in purchase / sale of derivatives and shares have to be considered as speculative transactions. Therefore, in view of the said provisions, the loss claimed by the assessee of Rs.3,51,41,247 has been treated as speculative business loss and accordingly added to the income of the assessee.

4 ITAS 545 547/Mum/2016 taken at the time of assessment that the addition has been made on the basis of satisfaction recorded at the time of issue of notice u/s 153C. In a rejoinder to the remand report, assessee contended that the satisfaction note does not refer to the material found during the course of search and seizure. The material found were P&L Account for the year ending 31-03-2010 which was already before the AO at the time of completion of assessment u/s 143(3) of the Act. It was further contended that the material on the basis of which the disallowance is so made in the assessment u/s 143(3) r.w.s. 153C of the Act were already available before the AO during the original assessment proceedings u/s 143(3) of the Act, therefore, it is very clear that no new fresh details were available or documents found during the course of search and hence, the AO cannot make addition towards items of income or loss which were part of original return of income. In this regard, he relied upon the decision of ITAT, Mumbai Special Bench in the case of ACIT vs All Cargo Global Logistics Ltd 137 ITD 287(Mum)(SB).

“4.7 In the present case, I find that there is nothing on record to suggest that any material was found in the course of search which would show any connection on loss of sale of share and F&O with the seized material which is the subject matter of dispute in assessment order. Nothing is found contrary to the stated position of the assessee. Be that as it may, I am not presently dealing with the merits of the efficacy of the ingredients of the additions made by AO., but, I am only trying to ascertain as to whether any incriminating material was unearthed during the course of search which would show that the loan was not genuine. In the instant case the AO has disallowed the loss of Rs,51,41, 245/- on sale of F&O and shares claimed by assessee in its P&L Account and the same is treated by AO as speculative loss and accordingly, added to the total income of the assessee. On these aspects, I find that there is no material referred to by the AO to say that any incriminating material was unearthed during the search. Therefore, in the factual background, I do not find any justification for the AO to make the impugned addition in an assessment finalized u/s 153C of the Act in the absence of any incriminating material having been found during the course of search, qua the impugned loss on sale of F&O and shares. I may categorically mention that on the date of initiation of search, qua the A.Y. 200607 under consideration, assessment was not pending, and accordingly, the assessments for this year did not abate in terms of the second proviso to section 153A(1) of the Act. Therefore, the ratio of the judgment of the Hon'ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Seva) (supra) is clearly attracted and the impugned additions should not have been made in respect of an unabated assessments which had become final in the absence of any incriminating material having been found in the course of search, qua the impugned addition of F&O and shares. Thus, I direct the AO to delete the addition of Rs.3,51 ,41 ,247/- as the same is beyond the scope and ambit of an assessment envisaged u/s 153A r.w.s.153C of the Act. Accordingly, additional grounds are allowed. Since thes assessment proceedings have been annulled, issues raised in the grounds of appeal are not adjudicated upon.”

6 ITAS 545 547/Mum/2016 6. The Ld.DR submitted that the Ld.CIT(A) erred in annulling the assessment order u/s 143(3) r.w.s. 153C without appreciating the fact that the provisions of the said section authorizes the AO to assess or re-assess total income in respect of six assessment years immediately preceding the assessment year relevant to previous year in which search is conducted or requisition is made without any exceptions. The Ld.DR further submitted that though there is no reference of any seized material to justify addition made by the AO, the provisions of section 153A / 153C does not require any seized material for the purpose of assessment.

Therefore, the CIT(A) was erred in deleting addition made by the AO towards F&O losses.

7 ITAS 545 547/Mum/2016 8. We have heard both the parties and perused the material available on record. The only solitary issue that came up for our consideration is whether in the facts and circumstances of the case, the AO was justified in making addition towards F&O losses in the absence of any incriminating material found as a result of search in the assessment completed u/s 143(3) r.w.s. 153C of the Income-tax Act, 1961. The issue is no longer res integra. The Hon’ble Bombay High Court in the case of Continental Warehousing Corporation Ltd vs CIT (supra) observed that in respect of an unabated assessment which had become final, no addition can be made in the absence of any incriminating material found as a result of search. The ITAT, Mumbai Special Bench in the case of All Cargo Global Logistics Ltd vs ACIT (supra) observed that no addition can be made in the assessment framed u/s 143(3) r.w.s. 153A in the absence of any incriminating material. In this case, the search took place on 28-09-2010. The assessment for the assessment year in question has been completed u/s 143(3) on 13-08-2008. As on the date of search the assessment year in question was unabated. Therefore, we are of the considered view that no addition can be made in respect of unabated / concluded assessments in the absence of any incriminating material found as a result of search. In this case, the addition made by the AO is based on financial statements filed by the assessee along with regular returns of income. This fact has been accepted by the Ld.DR.

Therefore, we are of the considered view that the AO was erred in making addition towards F&O losses without any reference to seized material found as a