SRI. H. NAGARAJA,BANGALORE vs. CIT, BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, BENGALURU

BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER and SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER

ITA Nos.613 & 614/Bang/2014 (Assessment years: 2008-09 & 2009-10)

Shri H.Nagaraja, No.6 & 7, 5th Cross, ‘Sri Ganesh Krupa’ New Bank Colony, Konankunte, Bengaluru-560062. … Appellant PAN:ABMPN 7731 L Vs. Commissioner of Income-tax, Karnataka (Central), Bengaluru. … Respondent

Appellant by : Shri M.V.Seshachala, Advocate. Respondent by : Ms. Neera Malhotra, CIT(DR).

Date of hearing : 06/01/2017 Date of pronouncement : 17/03/2017

O R D E R Per INTURI RAMA RAO, AM : These are appeals filed by the assessee directed against different orders of the Commissioner of Income-tax, Karnataka (Central), Bengaluru [‘CIT’], dated 28th March 2013 passed u/s 263 of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] for the assessment years 2008-09 and 2009-10.

ITA Nos.613 & 614/Bang/2014 Page 2 of 41 2. Brief facts of the case are that the assessee is an individual deriving income from business of real estate. Return of income for the assessment year 2008-09 was filed on 18/06/2010 declaring total income of Rs.8,82,13,948/-. Search and seizure operations were conducted in the case of the assessee on 06/01/2009. Consequently, notice u/s 153A was issued on 08/03/2010 requiring the assessee to file return of income for this assessment year. However, the assessee filed letter dated 23/07/2010 requesting the Assessing Officer (AO) to treat return filed u/s 139 as return in response to 153A. Subsequently, the assessment was completed by the AO at total income of Rs.10,81,86,756/- vide order u/s 143(3) r.w.s.153A of the Act dated 28/12/2010. While doing so, the AO made addition of Rs.1,25,66,700/- on account of profit on sale of properties to M/s.Brigade Enterprises and Rs.50 lakhs on account of disallowance of development expenditure as offered by the assessee himself during the course of assessment proceedings and also made addition of unexplained investment of Rs.32,50,000/- in various immovable properties and an amount of Rs.30 lakhs was disallowed u/s 40A(3) of the Act.

ITA Nos.613 & 614/Bang/2014 Page 3 of 41 of unexplained investment of Rs.32,50,000/- as the same should be telescoped against addition of Rs.50 lakhs offered by the assessee and addition of Rs.30 lakhs u/s 40A(3) ought not to have been made. The appeal was partly allowed by the CIT(A) vide his order dated 15/09/2011. This order was carried further in appeal to the Tribunal which came to be partly allowed vide its order dated 05/09/2014.

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In response to show cause notice, the assessee submitted that the issue sough to be revised by the CIT was duly examined and considered by the AO during the course of assessment proceedings. After considering the explanation filed by the assessee during the course of assessment proceedings, the AO took a possible view and therefore, the CIT was not justified in exercising the power of revision. The CIT, however, held vide his order dated 28/03/2013 passed u/s 263 that the assessment order passed by the AO is erroneous and prejudicial to the interests of revenue and directed the AO to make enhancement of Rs.18,78,84,039/- on the above issues and directed the AO to compute the assessment.

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ITA Nos.613 & 614/Bang/2014 Page 6 of 41 assessment proceedings. After considering the submissions made by the assessee during the course of assessment proceedings, the AO took one of the possible views. Therefore, it was submitted that CIT was not justified in resorting to the power of revision u/s 263 of the Act. Learned counsel for the assessee also submitted that the issue of donation of Rs.1,50,000/- was examined by the AO and the donations were made by account payee cheque or accounted in the books of account. After referring to same, the AO allowed the same as deduction considering the fact that the donations are made to further the interest of business. Regarding disallowance of labour charges of Rs.7,72,41,000/- and development expenses of Rs.6,07,85,051/- it was submitted that the two items of expenditure were considered under the head ‘development expenditure’ by the AO in the assessment order. During the course of assessment proceedings, the AO had directed the assessee to file details of development expenditure and labour charges and also to adduce proof to substantiate the expenditure. In compliance to the directions, the assessee had produced evidence of payment made to contractors in respect of development expenditure and labour charges and details of compliance of TDS provisions. The appellant, however, because of inability to produce certain proof in respect of development expenditure, offered suo motu disallowance of Rs.50 lakhs for assessment year 2008-09 and Rs.2 crores for the assessment year 2009-10. The AO, after duly considering the submissions

ITA Nos.613 & 614/Bang/2014 Page 7 of 41 made by the assessee had accepted the disallowance offered by the assessee on these two accounts. Thus it was contended that the AO accepted the disallowance after considering the entire issue of development expenditure in its proper perspective. Thus it was contended that the issue was duly considered by the AO and took one of the possible views.

ITA Nos.613 & 614/Bang/2014 Page 8 of 41 Rs.1,25,66,700/- is liable to tax. Thus the issue was duly considered by the AO. Learned counsel for the assessee further contended that the issues sought to be revised by the CIT are subject matter of proceedings before the CIT(A). Therefore, the proceedings initiated by the CIT u/s 263 got merged with the proceedings with the CIT(A). Therefore, applying the principle of merger, revision proceedings are not valid in law as held by the Hon’ble Supreme Court in the case of Kunhayammed & Ors. Vs. State of Kerala & Anr. Reported in 245 ITR 360(SC). He further contended that the CIT, in the power of revision, is imposing his views on the AO on certain issues and therefore, the order of revision should be set aside as it has no legs to stand in the eyes of law. On the other hand, ld.CIT(DR) placed reliance on the order of revision u/s 263.

ITA Nos.613 & 614/Bang/2014 Page 9 of 41 crystal clear from the perusal of the assessment order that additions were made based on the statement given by the assessee during the course of search and seizure operation u/s 132(4) of the Act. The AO also extracted, vide para.5.3 of the assessment order, the statement made by the assessee u/s 132(4) as under:

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ITA Nos.613 & 614/Bang/2014 Page 21 of 41 notice issued u/s 153A of the Act, addition should be confined or based on incriminating material alone. The AO is precluded to travel beyond the incriminating material for the purpose of making addition in the assessment made pursuant to notice u/s 153A of the Act.

In this context, it is worth quoting from the judgment of the Hon'ble jurisdictional High Court in the case of CIT vs. IBC Knowledge Park P.Ltd. (2016)(385 ITR 346(Kar). The relevant paras. are reproduced below:

“44. Before considering the rival contentions, it is necessary to advert to the scheme of the Act regarding special procedure for assessment in cases of search. Sub-section (1) of Section 132 of the Act states that where the Chief Commissioner or any other officer mentioned therein having information in his possession, has reason to believe that inter alia, any person is in possession of any money, bullion, jewellery or other valuable article or thing (hereinafter referred to as "valuable assets" for the sake of convenience) and such valuable assets represents either wholly or partly income or property, which has not been, or would not be, disclosed for the purposes of the Act, then, the authorized officer can enter and search any building, place, vessel, vehicle or aircraft, where he has reason to suspect that such books of account, other documents, or valuable assets are kept or search any person, break open the lock of any door etc., seize any books of account, other documents, or other valuable assets found as a result of such search and do all other things necessary as prescribed under Section 132 of the Act. 45. Sections 153A, 153B and 153C were inserted by the Finance Act, 2003, with effect from 1/6/2003. They have replaced the post-search block assessment scheme in respect of any search or requisition made after 31/5/2003. Sub-section (1) of Section 153A inter alia deals with assessment in case of search or requisition. It begins with a non-obstante clause and states that notwithstanding anything contained in Sections 139, 147, 148, 149, 151 and 153, in the case of a person where a search is initiated under Section 132 or books of account, other documents or any valuable assets are requisitioned under Section 132A, the Assessing Officer shall issue notice to such person requiring him to furnish within such period, as may be

ITA Nos.613 & 614/Bang/2014 Page 22 of 41 specified in the notice, return of income in respect of each assessment year falling within six assessment years referred to in clause (b) of Section 153(1) in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of the Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under Section 139. The Assessing Officer can assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made. However, assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this sub-section pending on the date of initiation of the search under Section 132 or making of requisition under Section 132A, as the case may be, shall abate. The explanation states, save as otherwise provided in Sections 153A, 153B and 153C, all other provisions of the Act shall apply to the assessment made under Section 153A. Section 153B speaks about time-limit for completion of assessment under Section 153A. 46. 153C is relevant for the purposes of this case. Sub-section (1) of Section 153C begins with a non-obstante clause and it states that notwithstanding anything contained in Sections 139, 147, 148, 149, 151 and 153, where the Assessing Officer is satisfied that any valuable assets, seized or requisitioned, belongs to, or 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 153A, then, the books of account or documents or valuable assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of Section 153A, if that Assessing Officer is satisfied that the books of account or documents or valuable assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to in sub-section (1) of Section 153A. Sub-section (2) of Section 153C states that where books of account or documents or valuable assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other person after the due date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under Section 132 or requisition is made under Section 132A and in respect of such assessment year - (a) no return of income has been furnished by such other person and

ITA Nos.613 & 614/Bang/2014 Page 23 of 41 no notice under sub-section (1) of Section 142 has been issued to him, or (b) a return of income has been furnished by such other person but no notice under sub-section (2) of Section 143 has been served and limitation of serving the notice under sub- section (2) of Section 143 has expired, or (c) assessment or reassessment, if any, has been made, before the date of receiving the books of account or documents or valuable assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person, such Assessing Officer shall issue notice and assess or reassess total income of such other person of such assessment year in the manner provided in Section 153A. 47. Chapter XIV-B consists of Section 158B to 158BH, inserted with effect from 01/07/1995, deals with special procedure for assessment in search cases. The Finance Act, 1995 inserted Chapter XIV-B in the Act, incorporating a new scheme of block assessment in cases relating to search conducted under Section 132 of the Act or requisitions made under Section 132A after 30/06/1995. Section 158B(b) defines 'undisclosed income' to include any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property, which has not been or would not have been disclosed for the purposes of this Act or any expense, deduction or allowance claimed under this Act which is found to be false. Section 158BA deals with assessment of undisclosed income as a result of search, while Section 158BB deals with computation of undisclosed income of the block period. Block period is defined in Section 158B(a) to mean the period comprising previous years relevant to six assessment years preceding the previous year in which the search was conducted under Section 132 or any requisition was made under Section 132A and also includes the period up to the date of commencement of such search or date of such requisition in the previous year in which the said search was conducted or requisition was made. The proviso is not relevant for the purpose of this case. 48. Section 158BD is relevant for the present case and it states that where the Assessing Officer is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under Section 132 or whose books of account or other documents or any assets were requisitioned under Section 132A, then the books of account, other documents or valuable assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed under Section 158BC against such other

ITA Nos.613 & 614/Bang/2014 Page 24 of 41 person and the provisions of Chapter XIV-B shall apply accordingly. Section 158BE prescribes time-limit for completion of block assessment. Section 158BH states that except as otherwise provided in Chapter XIV-B all other provisions of the Act shall apply to the assessment made under the said chapter. Section 153C provides for the role of the Assessing Officer having jurisdiction over the person searched/requisitioned as regards third party liability. The said section covers assessments which have become necessary, because of books of account, documents or valuable assets of third parties indicating their undisclosed income found during the search or requisition under Section 132/132A leading to a prima facie tax liability. A special procedure is contemplated in such cases. Such books of account, documents or valuable assets are required to be handed over by the Assessing Officer having jurisdiction over the persons searched requisitioned to the Assessing Officer of a third party on his satisfaction that they belong to a third party before handing over. 49. On a conjoint reading of the aforesaid provisions, it becomes clear that a search can take place only when a concerned officer has information and reason to believe that any person is in possession of any valuable assets, which has not been or would not be disclosed under the Act. In such a case, a search can take place. Following the search, if any books of account, other documents, any valuable assets is or are found in the possession or control of any person in the course of a search, then the books of account or other documents or valuable assets could be seized. Under Section 153A, the satisfaction regarding an inference of liability must be recorded. The Assessing Officer has to issue notice to the assessee i.e., the person searched for the purpose of assessment or reassessment of the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted. Section 153C as already noted, deals with assessment of income of any other person, when the Assessing Officer is satisfied that the books of account or documents or valuable assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to under sub-section(1) of Section 153A of the Act. In such a case, the Assessing Officer has to issue notice to assess or reassess income of other person under Section 153A of the Act. Thus, the fact that search has been conducted would not justify issuance of notice under Section 153A. If it is only during a valid search when certain incriminating materials are detected, notice could be issued. 50. Chapter XIV-B which deals with special procedure for assessment of search cases deals with undisclosed income as a

ITA Nos.613 & 614/Bang/2014 Page 25 of 41 result of search, the computation thereof and such other provisions. Undisclosed income is defined in Clause (b) of Section 153B. Undisclosed income includes money, bullion or other valuable assets. It is only when the concerned officer has information about the same and has reason to believe that the said valuable assets has not been or would not be disclosed would give jurisdiction to the officer authorized to conduct a search operation. Therefore, the object and purpose of a search is to detect undisclosed income. As defined under Clause (b) of Section 158B of the Act, it is only when the undisclosed income is detected in a search operation that there would be assessment or reassessment, under the provisions of Chapter XIV-B of the Act, of the person who is presumed to be in possession of the undisclosed income. If during the course of search, any valuable assets belongs to or any books of account or document seized or requisitioned pertains to or any information contained therein relates to a person other than the persons searched, then the Assessing Officer, on recording satisfaction, can also assess and reassess the income of any other person. Thus, what emerges is that the sine qua non for the purpose of assessment or reassessment pursuant to a search operation is detection of undisclosed income. In fact, the initiation of search proceeding is also based on possession of information and reason to believe that a person is in possession of certain valuable assets, which has not been or would not be disclosed under the Act. The same is nothing but 'undisclosed income' as defined in Clause (b) of Section 158B(b) of the Act. This becomes even more clear on a comparison of section 132(1)(c) with Section 158B(b) of the Act. It is for the above reason that Sections 153A and 153C begin with a non-obstante clause in order to make these provisions exclusive of Sections 139, 147, 148, 149, 151 and 153 of the Act. If a search operation does not lead to detection of undisclosed income as defined in Chapter XIV-B of the Act, then no purpose would be served in reopening the assessment already completed. Also, if there is no detection of any undisclosed income, then there would be no need for pending assessment to abate. Thus, when particulars of income declared in the return is already available with the Assessing Officer, such income cannot form part of undisclosed income even if such return is filed beyond the time-limit, but before search, as long as they relate to any year covered in the block. Thus, a block assessment is justified only on the basis of evidence found during search and the materials or information relatable thereto. Section 153C is in pari materia with Section 158BD conferring jurisdiction over third parties to a search providing certain conditions before the Assessing Officer having jurisdiction over a third party can assume jurisdiction. Materials such as books of account, documents or valuable assets found during a search

ITA Nos.613 & 614/Bang/2014 Page 26 of 41 should belong to a third party which would lead to an inference of undisclosed income of such third party. Such an inference should be recorded by the Assessing Officer having jurisdiction over the searched persons and communicated to the Assessing Officer having jurisdiction over such third party along with the seized documents and other incriminating materials on the basis of which the Assessing Officer having jurisdiction over such third party would issue notice under Section 153C. On receipt of the aforesaid material, the Assessing Officer having jurisdiction over such third party would proceed against the said third party. Thus, where no material belonging to a third party is found during a search, but only an inference of an undisclosed income is drawn during the course of enquiry, during search or during post-search enquiry, Section 153C would have no application. Thus, the detection of incriminating material leading to an inference of undisclosed income is a sine qua non for invocation of Section 153C of the Act. 51. Before considering the decisions cited at the Bar, it is necessary to refer to a decision of the Hon'ble Supreme Court in Manish Maheshwari v. Asst. CIT [2007] 289 ITR 341/158 Taxman 258. In that case, search was conducted on one of the directors of the assessee-company M/s. Indore Construction (Pvt.) Ltd. When the search was conducted in the premises of the director Sri. Manish Maheshwari and his wife several incriminating documents relating to the company were seized. While dealing with Section 158BD of the Act, the Hon'ble Supreme Court has observed as under: "Condition precedent for invoking a block assessment is that a search has been conducted under Section 132, or documents or assets have been requisitioned under Section 132A. The said provision would apply in the case of any person in respect of whom search has been carried out under Section 132A or documents or assets have been requisitioned under Section 132A. Section 158BD, however, provides for taking recourse to a block assessment in terms of Section 158BC in respect of any other person, the conditions precedents wherefor are : (i) Satisfaction must be recorded by the Assessing Officer that any undisclosed income belongs to any person, other than the person with respect to whom search was made under Section 132 of the Act; (ii) The books of account or other documents or assets seized or requisitioned had been handed over to the Assessing Officer having jurisdiction over such other person; and (iii) The Assessing Officer has proceeded under Section 158BC against such other person.

ITA Nos.613 & 614/Bang/2014 Page 27 of 41 The conditions precedent for invoking the provisions of Section 158BD, thus, are required to be satisfied before the provisions of the said chapter are applied in relation to any person other than the person whose premises had been searched or whose documents and other assets had been requisitioned under Section 132A of the Act." In that case, it was held that the Assessing Officer had not recorded his satisfaction, which is mandatory; nor had he transferred the case to the Assessing Officer having jurisdiction over the matter. Therefore, the judgment of the High Court was set aside and the appeals were allowed. 52. The decisions relied upon by the learned Senior Counsel appearing for the assessee are as under: (a) In CIT v. Calcutta Knitwears [2014] 362 ITR 673/223 Taxman 115 (Mag.)/43 taxmann.com 446 (SC), the Hon'ble Supreme Court considered the question, as to at what stage of the proceedings under Chapter XIV-B, the Assessing Authority was required to record his satisfaction for issuing notice under Section 158BD of the Act. In that case, the facts were that a search operation under Section 132 of the Act was carried out in two premises of the Bhatia Group, namely M/s. Swastik Trading Co., and M/s. Kavita International Co., on 5/2/2003 and certain incriminating documents pertaining to the assessee-firm i.e., Calcutta Knitwear were traced in the said search. After completion of the investigation by the investigating agency and handing over of the documents to the assessee to the Assessing Authority, the latter had completed the block assessments in the case of Bhatia group. Since certain other documents did not pertain to the person searched under Section 132 of the Act, the Assessing Authority therein thought it fit to transmit those documents, which according to him pertained to undisclosed income on account of investment element and profit element of the assessee-firm and required to be assessed under Section 158BC read with Section 158BD of the Act to another Assessing Authority in whose jurisdiction the assessments could be completed. In doing so, the Assessing Authority recorded his satisfaction note dated 15/7/2005. The jurisdictional Assessing Authority for the assessee had issued show-cause notice under Section

ITA Nos.613 & 614/Bang/2014 Page 28 of 41 158BD for the block period of six years dated 10/2/2006 to the assessee. The assessee had replied that no action could be initiated against the assessee and requested the Assessing Authority to drop the proceedings. The stand of the assessee was rejected by the Assessing Authority, who concluded the assessment proceedings under Section 158BD of the Act. It was also held that notice could be issued even after completion of the proceedings of the searched person under Section 158BC of the Act. Aggrieved by the order of the Assessing Officer, the assessee therein had filed an appeal before the Appellate Authority, who had partly allowed the appeal. The Revenue had carried the matter further by filing an appeal before the Tribunal and the assessee therein filed cross-objection. The Tribunal rejected Revenue's appeal, which filed an appeal before the High Court, which also rejected the Revenue's appeal and confirmed the order of the Tribunal. The Revenue, then approached the Hon'ble Supreme Court. While dealing with various provisions of Chapter XIV-B of the Act pertaining to assessment in the case of search operation, the Hon'ble Supreme Court held that Section 158BD of the Act deals with undisclosed income of any other person. On the question of recording satisfaction that there is an undisclosed income, which had been traced where a person was searched under Section 132 of the Act or books of account, other documents or valuable assets are requisitioned under Section 132A of the Act, the Hon'ble Supreme Court opined as under: "We would certainly say that before initiating proceedings under section 158BD of the Act , the Assessing Officer who has initiated proceedings for completion of the assessments under section 158BC of the Act should be satisfied that there is an undisclosed income which has been traced out when a person was searched under Section 132 or the books of account were requisitioned under Section 132A of the Act. This is in contrast to the provisions of section 148 of the Act where recording of reasons in writing are a sine qua non. Under Section 158BD, the existence of cogent and demonstrative material is germane to the Assessing Officers' satisfaction in concluding

ITA Nos.613 & 614/Bang/2014 Page 29 of 41 that the seized documents belong to a person other than the searched person is necessary for initiation of action under Section 158BD. The bare reading of the provision indicates that the satisfaction note could be prepared by the Assessing Officer either at the time of initiating proceedings for completion of assessment of a searched person under Section 158BC of the Act or during the stage of the assessment proceedings. It does not mean that after completion of the assessment, the Assessing Officer cannot prepare the satisfaction note to the effect that there exists income-tax belonging to any person other than the searched person in respect of whom a search was made under Section 132 or requisition of books of account were made under Section 132A of the Act. The language of the provision is clear and unambiguous. The Legislation has not imposed any embargo on the Assessing Officer in respect of the stage of proceedings during which the satisfaction is to be reached and recorded in respect of the person other than the searched person. Further Section 158BE(2)(b) only provides for the period of limitation for completion of block assessment under Section 158BD in case of the person other than the searched person as two years from the end of the month in which the notice under this Chapter was served on such other person in respect of search carried on after January 1, 1997. The said section does neither provide for nor impose any restrictions or conditions on the period of limitation for preparation of the satisfaction note under Section 158BD and consequent issuance of notice to the other person. In the result, we hold that for the purpose of Section 158BD of the Act a satisfaction note is sine qua non and must be prepared by the Assessing Officer before he transmits the records to the other Assessing Officer who has jurisdiction over such other person. The satisfaction note could be prepared at either of the following stages: (a) at the time of or along with the initiation of proceedings against the searched person under Section 158BC of the Act; (b) along with the assessment proceedings under Section

ITA Nos.613 & 614/Bang/2014 Page 30 of 41 158BC of the Act; and (c) immediately after the assessment proceedings are completed under Section 158BC of the Act of the searched person." In that case, the Hon'ble Supreme Court remanded the matters to the concerned High Court for consideration of the individual cases in light of observations made above on the scope and interpretation of Section 158BD of the Act. (b) In CIT v. Lancy Constructions [2016] 237 Taxman 728/66 taxmann.com 264 (Kar.), it was held that there were no incriminating documents during the course of search on the basis of which additions could have been made by the Assessing Officer. That the accounts which were submitted by the assessee at the time of regular assessment were duly verified during the course of such assessment and accepted by the Assessing Officer. In the absence of any incriminating documents having been found, the same accounts of the assessee were reassessed by making further investigations, which was impermissible, as the same would amount to reopening of a concluded assessment, without there being any additional material found at the time of search. Otherwise, it would give the Revenue a second opportunity to reopen a concluded assessment, which is impermissible in law. Merely because a search is conducted in the premises of the assessee, would not entitle the Revenue to initiate the process of reassessment, for which, there is a separate procedure prescribed in the statute. It is only when the conditions prescribed for reassessment are fulfilled that a concluded assessment can be reopened. The very same accounts which were submitted by the assessee, on the basis of which assessment had been concluded, cannot be reappreciated by the Assessing Officer merely because a search had been conducted in the premises of the assessee. (c) In Jai Steel (India) v. Asstt. CIT [2013] 36 taxmann.com 523/219 Taxman 223 (Raj.), it was held that no doubt the Assessing Officer is free to disturb income, expenditure or deduction de hors any incriminating material, while making an assessment under Section 153A of the Act. But in the context of a search, Section 153A to 153C

ITA Nos.613 & 614/Bang/2014 Page 31 of 41 cannot be interpreted to be a "further innings" for the Assessing Officer and/or the assessee beyond the provisions of Sections 139 (return of income); 139(5) (revised return of income); 147 (income escaping assessment) and 263 (revision of orders) of the Act. It was also held that it was not open for the assessee to seek deduction or claim expenditure, which had not been claimed in the original assessment, which assessment already stood completed, only because a assessment under Section 153A of the Act in pursuance of search or requisition was required to be made. (d) In CIT v. Kabul Chawla [2016] 380 ITR 573/[2015] 234 Taxman 300/61 taxmann.com 412 (Delhi), the Delhi High Court has held that (i) once a search takes place under Section 132 of the Act, notice under Section 153A(1) will have to be mandatorily issued to the person in respect of whom search was conducted requiring him to file returns for six assessment years immediately proceeding the previous year relevant to the assessment year in which the search takes place. (ii) Assessment and reassessments pending on the date of the search shall abate. The total income for such assessment years will have to be computed by the Assessing Officers as a fresh exercise. (iii) The Assessing Officer will exercise normal assessment powers in respect of the six years previous to the relevant assessment year in which the search takes place. The Assessing Officer has the power to assess and reassess the "total income" of the six years in separate assessment orders for each of the six years. In other words, there will be only one assessment order in respect of each of the six assessment years in which both the disclosed and the undisclosed income would be brought to tax. (iv) Although Section 153A does not say 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, it does not mean that the assessment can be arbitrary or made without any relevance or nexus with the seized material. Obviously, an assessment has to be made under

ITA Nos.613 & 614/Bang/2014 Page 32 of 41 this section only on the basis of the seized material. (v) In the absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word "assess" in Section 153A is relatable to abated proceedings (i.e., those pending on the date of search) and the word "reassess" to completed assessment proceedings. (vi) Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each assessment year on the basis of the finding of the search and any other material existing or brought on record of the Assessing Officer. (vii) Completed assessments can be interfered with by the Assessing Officer while making the assessment under Section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. The Delhi High Court further held that in the cases before it on the date of the search the assessment already stood concluded since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed. The questions were accordingly answered in favour of the assessee. 53. Learned counsel for the Revenue has relied upon the following citations in support of his contentions: (a) In Kamleshbhai Dharamshibhai Patel v. CIT [2013] 31 taxmann.com 50/214 Taxman 558 (Guj.), on considering Section 153C of the Act, it was observed that the said section begins with a non-obstante clause. Requirements for assuming jurisdiction under Section 153C (1) are, that the Assessing Officer is satisfied that any valuable assets or books of account or document seized or requisitioned belongs to a person other than the person referred in section 153A of the Act. In such a case, he shall handover to the Assessing Officer having jurisdiction of such other person, the books of account or document or documents or valuable

ITA Nos.613 & 614/Bang/2014 Page 33 of 41 assets seized or requisitioned. That the valuable assets or books of account seized or documents seized or requisitioned should belong to a person other than a person referred in Section 153A of the Act. (b) In Filatex India Ltd. v. CIT [2015] 49 Taxman 465/[2014] 49 taxmann.com 465 (Delhi), the court rejected the argument that during assessment under Section 153A additions had to be restricted or limited to incriminating material only, found during course of search. (c) In Savesh Kumar Agarwal v. Union of India [2013] 35 taxmann.com 85/216 Taxman 109 (Mag.)/353 ITR 26 (All.), the question considered was whether on receipt of satisfaction note, the Assessing Officer had not found anything adverse against the assessee and seized goods having been released in favour of the assessee, notice could be issued under Section 153C of the Act to file returns for six years. The stand of the Revenue therein was that the Assessing Officer could still proceed under Section 153A of the Act in order to find out the source of income. In that case the writ petition filed under Article 226 of the Constitution of India challenging the notice was dismissed on the premises that the power under Section 153C exists in the Assessing Officer, if he is satisfied with regard to the need for examination of the source of income. (d) In Dr. K.M. Mehaboob v. Dy. CIT [2012] 26 taxmann.com 54 (Ker.), it was held that unlike under Section 158BD, for transferring a file under Section 153C, there is no need to examine whether the books of account or other evidence or materials seized in the course of search of an assessee represents or proves undisclosed income of another assessee. On the other hand, for transferring the file to the Assessing Officer of such other assessee, all that is required to be considered is whether the materials or books of account or evidence recovered relates to another assessee, which may or may not lead to an assessment in the case of the other assessee after transfer of the file to his Assessing Officer. This is only an internal arrangement to be made between two Departmental Officers and in this regard the

ITA Nos.613 & 614/Bang/2014 Page 34 of 41 only fact that needs to be verified is whether the assessee whose books of account or materials are recovered in the course of search of any other assessee, is a regular assessee before another Officer, and if so, to transfer the file to such other Officer for his consideration and for passing orders, whether assessment or penalty or such other order permissible under the Act by that Officer. (e) In Canara Housing Developnment Co. v. Dy. CIT [2014] 49 taxmann.com 98 (Kar.), a Division Bench of this court in the said case noted that in the course of search, incriminating material leading to undisclosed income being seized, held that the block assessment roped in only the undisclosed income and the regular assessment proceedings were preserved, resulting in multiple assessments. Under Section 153A, however, the Assessing Officer has been given the power to assess or reassess the "total income" of the six assessment years in question in separate assessment orders. Once the assessment is reopened, the Assessing Authority can take note of the income disclosed in the earlier return, any undisclosed income found during search or any other income which is not disclosed in the earlier return or which is not unearthed during the search, in order to find out what is the total income of each year and then pass assessment order. (f) Similarly, in Gopal Lal Badruka v. Dy. CIT [2012] 346 ITR 106/27 taxmann.com 167 (AP), the search revealed incriminating material and undisclosed income. (g) in SSP Aviation Ltd. v. Dy. CIT [2012] 20 taxmann.com 214/207 Taxman 260 (Delhi), the observations of the court were in light of the fact that incriminating material had been found. (h) In CIT v. Anil Kumar Bhatia [2012] 211 Taxman 453/24 taxmann.com 98 (Delhi), the court did not express any opinion as to whether Section 153 A can be invoked in a case where no incriminating material was found during the search as it was in fact dealing with a case where incriminating material had been found.

ITA Nos.613 & 614/Bang/2014 Page 35 of 41 10. In the case of assessment made pursuant to notice u/s 153A, addition should be confined only to the incriminating material. It is equally settled proposition of law that the AO is estopped from adopting pick and choose method in choosing evidence. For the purpose of making addition AO relies on the statement made by the assessee u/s 132(4). However, the AO ignores that part of the statement given u/s 132(4) wherein the appellant had stated that he alone borne the entire development expenditure on the project. He cannot afford to ignore that part of the statement which is against revenue. In the present case, in the statement given by the appellant u/s 132(4), the appellant clearly mentioned that he made a profit of Rs.8.43 crores during the financial year 2007-08 relevant to assessment year 2008-09 and Rs.5.50 crores during the financial year 2008-09 relevant to assessment year 2009-10 and the same was offered to tax in the return of income filed by him. Even during the course of assessment proceedings, assessee made detailed submissions with regard to transactions entered into with M/s.Brigade Enterprises. The AO considering the submissions made u/s 132(4) as well as the statements made during the course of assessment proceedings, made further addition of Rs.1,25,66,700/- on account of profit made in respect of transaction for sale of property to M/s.Brigade Enterprises apart from agreed additions of Rs.50 lakhs on account of development expenditure. The issue of profit on account of transactions with

ITA Nos.613 & 614/Bang/2014 Page 36 of 41 M/s.Brigade Enterprises was discussed by the AO vide para.5.6 of the assessment order. After discussing the issue threadbare, the AO had chosen to make addition of Rs.1,25,66,700/-. As regards development expenditure, the assessee had agreed to offer Rs.50 laksh during the course of assessment proceedings on account of his failure to substantiate development expenditure of Rs.2 crores for the assessment year 2009-10. Thus the issue of transaction with M/s.Brigade Enterprises and the development expenditure incurred thereon was thoroughly examined by the AO and the AO took one of the possible views. The CIT, in the impugned order, is only trying to impose his views on the said transaction on the AO without giving a finding as to how the course adopted by the AO is erroneous nor the CIT had referred to any incriminating material supporting his views on the said transaction. It is not even the case of the CIT that no inquiry was done by the AO on the issues which are sought to be revised by the CIT. In fact, mere perusal of the assessment order it is clear that the AO made a thorough inquiry and after considering the submissions made by the assessee, had come to the conclusion that the amount of Rs.1,25,66,700/-is taxable in respect of profit earned by the assessee on the transactions entered with M/s.Brigade Enterprises. Similarly, an amount of Rs.50 lakhs was accepted as addition on account of development expenditure claimed by the AO.

ITA Nos.613 & 614/Bang/2014 Page 37 of 41 11. As regards the issue of commission expenditure, AO even examined the assessee on oath on this item of expenditure as under: Q.24. Please state what are the evidences you have towards your claim of commission and developmental expenses. Also state whether TDS has been effected and remitted by you in the case of above payments”? In response to the above question the assessee replied that evidence in support of the commission expenditure would be submitted to him. Subsequently, the appellant had filed full details of commission paid to various parties, names and addresses of parties and details of TDS compliance provisions and payment details. After considering this material, AO had chosen not to make any addition on this item of expenditure. Thus it is clear that the items of expenditure on which CIT proposed revision of the assessment was thoroughly examined/considered by the AO during the course of assessment proceedings and took a possible view.

ITA Nos.613 & 614/Bang/2014 Page 38 of 41 enquiry took one of the possible views. The relevant paras. f the judgment are extracted below: “6. It is a settled position in law that powers under Section 263 of the Act can be exercised by the CIT on satisfaction of twin conditions viz. the Assessment Order should be erroneous and prejudicial to the Revenue. By erroneous is meant contrary to law. Thus, this power cannot be exercised unless the CIT is able to establish that the order of the Assessing Officer is erroneous and prejudicial to the Revenue. Thus where there are two possible views and the Assessing Officer has taken one of the possible views, no occasion to exercise powers of Revision, can arise. Nor can Revisional power be exercised for directing a fuller inquiry to find out if the view taken is erroneous, when a view has already been taken after inquiry. This power of Revision can be exercised only where no inquiry as required under the law is done. It is not open to enquire in cases of inadequate inquiry. 7. Firstly, the Revenue contends that the exercise of powers under Section 263 of the Act is justified as in this case, as no inquiry in respect of the gifts received during the subject years was done by the Assessing Officer for the Assessment orders for Assessment Years 2007-08 and 2008- 09. This according to the Revenue is evident from the Assessment Orders dated 31st December, 2009 and 30th December, 2010 which does not even make a mention of the gifts received much less discuss and/or deal with the same. This issue is no longer res integra as this Court in Idea Cellular Ltd. v. Dy. CIT [2008] 301 ITR 407 (Bom.) has held that if during Assessment proceedings queries were raised and the assessee responded to the same, then even if an Assessment order does not mention the same, it does not mean that the Assessing Officer has not applied his mind to the issues. It would be well-nigh impossible for an Assessing Officer to complete all assessments assigned to him under Section 143(3) of the Act if he is required to deal with all issues which arose during the Assessment Proceedings. Thus, the Assessment Order primarily deal with only those issues in respect of which the Assessee has not been able to satisfy him and give reasons for his conclusion. This would enable the Assessee to challenge the same, if aggrieved. In fact the Gujarat High Court in CIT v. Nirma Chemical Works Ltd. [2009] 309 ITR 67/182 Taxman 183 has observed that if an assessment order were to incorporate the reasons for

ITA Nos.613 & 614/Bang/2014 Page 39 of 41 upholding the claim made by an assessee, the result would be an epitome and not an assessment order. In this case, during the assessment proceedings for both the Assessment Years, the Assessing Officer issued a query memos to the assessee, calling upon him to justify the genuineness of the gifts. The Respondent-Assessee responded to the same by giving evidence of the communications received from his father and his sister i.e. the donors of the gifts along with the statement of their Bank accounts. On perusal, the Assessing Officer was satisfied about the identities of the donors, the source from where these funds have come and also the creditworthiness/capacity of the donor. Once the Assessing Officer was satisfied with regard to the same, there was no further requirement on the part of the Assessing Officer to disclose his satisfaction in the Assessment Order passed thereon. Thus, this objection on the part of the Revenue, cannot be accepted. 8. It is next submitted that the donor had not been examined by the Assessing Officer. It is not in every case that every evidence produced has to be tested by cross examination of the person giving the evidence. It is only in cases where the evidence produced gives rise to suspicion about its veracity that further scrutiny is called for. If there is nothing on record to indicate that the evidence produced is not reliable and the Assessing Officer was satisfied with the same, then it is not open to the CIT to exercise his powers of Revision without the CIT recording how and why the order is erroneous due to not examining the donors. Thus, this objection to the impugned order by the Revenue is also not sustainable. 9. It was next submitted that no enquiry was done by the Assessing Officer to find out whether the donor Mr Deepak Modi (father) had received money from M/s. Chang Jiang as claimed. Nor any inquiry was done to find out whether the sister had in fact earned amounts on account of Foreign Exchange Transactions as claimed by her. We find that this enquiry of a source of source is not the requirement of law. Once the Assessing Officer is satisfied with the explanation offered on inquiry, it is not open to the CIT in exercise of his revsional powers direct that further enquiry has to be done. At the very highest, the case of the Revenue is that this is a case of inadequate inquiry and not of "no enquiry." It is well settled that the jurisdiction under Section 263 of the Act can be exercised by the CIT only when it is a case of lack of enquiry and not one of inadequate enquiry. This view has been taken by this Court in the matter of CIT v. Shreepati

ITA Nos.613 & 614/Bang/2014 Page 40 of 41 Holdings & Finance (P.) Ltd. [ITA 1879 of 2013 dated 5th October, 2013], by the Delhi High Court in CIT v. Vikas Polymers [2012] 341 ITR 537/194 Taxman 57 and in D.G. Housing Projects (supra). In fact the Delhi High Court in D.G. Housing Projects (supra) while so holding placed reliance upon the decision of this Court in Gabriel (India) Ltd. (supra). It is very important to note that the CIT in his order under Section 263 of the Act has recorded the fact that there has been no adequate inquiry. Thus, this is not a case of no inquiry, warranting order under Section 263 of the Act. Thus, this objection on the part of the Revenue, is also not sustainable. 10. The Revenue placed reliance upon the decision of the Delhi High Court in D.G. Housing Projects Ltd., (supra) that as the Assessing Officer had not enquired into the source of the source of the gifts received by the Assessee, the Assessment Order is erroneous. The aforesaid decision holds that the power of Revision under Section 263 of the Act would normally be exercised in case of no enquiry and not in cases of inadequate enquiry. However, even in case of inadequate enquiry by the Assessing Officer, the order of the Assessing Officer could be erroneous in two classes of situation. The first class would be where orders passed by the Assessing Officer are ex facie erroneous i.e. a decision rendered ignoring a binding decision in favour of the Revenue or where enquiry is per se mandated on the basis of the record available before the Assessing Officer and that is not done. In the second class of cases, where the order is not ex facie erroneous, then the CIT must himself conduct an enquiry and determine it to be so. The Court held that it is not permissible to the CIT while exercising power under Section 263 of the Act to remit the issue to the Assessing Officer to re-examine the same and find out whether earlier order of Assessment is erroneous. It is the CIT who must hold that the order is erroneous, duly supported by reasons. In the present facts, the CIT in exercise of its powers under Section 263 of the Act has merely restored the Assessment to the Assessing Officer to decide whether the gifts were genuine and, if not, then the Assessment could be completed on application of Section 68 of the Act. In this case, the order passed by the Assessing Officer is not per se erroneous and further the CIT has not given any reasons to conclude that the order is erroneous. In fact, he directs the Assessing Officer to find out whether the order is erroneous by making further enquiry. This the decision of the Delhi High Court in D.G. Housing Projects Ltd. (supra), clearly negates. In the above view, the decision

ITA Nos.613 & 614/Bang/2014 Page 41 of 41 of Delhi High Court in D.G. Housing Projects Ltd. (supra) would not assist the Revenue in the present facts. ” In light of the above judicial precedent, we hold that the CIT was not justified in exercising the power of revision as the AO accepted the claims after due enquiry on all items in the assessment proceedings. The CIT has not brought any material to show that incriminating material is found as a result of search and seizure operation supporting his views on the issues which are sought to be revised by him.