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Income Tax Appellate Tribunal, DELHI BENCHES : “C” NEW DELHI
Before: SHRI H.S.SIDHU, J.M. & SHRI J.SUDHAKAR REDDY, AM
PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER
Both these appeals are filed by the Revenue directed against the order of the Ld.CIT(Appeals) for the A.Y. 2007-08 and 2008- 09 dated 4.2.2013. The Cross Objection is filed by the assessee.
Facts in brief:- A search and seizure operation u/s 132 of the Income Tax Act, 1961 (the Act) was carried on in Rajdarbar Group cases on 31.8.2007. Notice u/s 153C of the Act was issued to the assessee on 21.7.2010. Assessment order was framed u/s 153C read with s.143(3) of the Act on 27.10.2012. Admittedly there is no incriminating material found during the course of search, based on which additions were made for both the Assessment Years.
The Ld.Counsel for the assessee raised a legal issue under Rule 27 of the ITAT Rules. He submitted that as the additions in question for both the A.Ys were not based on any incriminating
~ 2 ~ material found and seized during the course of search in the case of Rajdarbar Group, and as the assessments for both the A.Ys have not abated, the issues are covered in favour of the assessee by the decision of the Jurisdictional High Court in the case of CIT, Central Circle-3 vs. Kabul Chawla (2015) 16 Taxmann.com 412(Delhi).
The Ld.D.R. on the other hand strongly disputed the contentions of the assessee and submitted that : (a) The judgement of the Jurisdictional High Court in the case of Kabul Chawla (supra) concerns interpretation of S.153A of the Act only and does not cover the case of the assessee. (b) The case of the assessee is covered by the propositions laid down by the Division Bench of the High Court in the case of Filatex India Ltd. vs. CIT (2014) 49 Taxmann.com 465 (Delhi). He extensively read the decision and argued that the Bench should follow the binding decision of the Jurisdictional High Court in the case of Filatex India Ltd. (supra). He also relied on the judgement of the Hon’ble Delhi High Court in the case of CIT vs. Shri Anil Kumar Bhatia, 24 Taxmann.com 98 (Del). (c) He further relied on the decision of the Jurisdictional High Court in the case of CIT vs. RRJ Securities Ltd. (2015) 62 Taxmann.com 391 (Del) and submitted that the propositions laid down therein squarely applies to the facts of this case.
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(d) He argued that the Cross Objections cannot be admitted as the Registry has been asked to clarify the date of service of notice to the department and as apparently there is a delay of more than one year in filing the Cross Objections. (e) That as on the date of search i.e. 31.7.2008 the assessments for the A.Y. 2007-08 and 2008-09 have abated and hence the A.O. was right in passing his orders by taking into account all material that was required for completing the assessments.
In reply the Ld.Counsel for the assessee submitted that, this ground was raised before the Ld.CIT(A) and was decided against him and hence under Rule 27 of ITAT Rules the assessee has a right to defend the case on this ground. On the issue of abatement he submitted that the time for issue of notice u/s 143(2) of the Act had expired and that no assessment proceeding was pending before the A.O. for both the A.Ys as on date of issue of notice u/s 153C of the Act and that in terms of the decision in the case of RRJ Securities Ltd. (supra), the date of initiation of search for the purpose of Second Proviso to S.153A shall be construed with reference to the date on which valuable assets or documents were received by the assessee (other than the searched person). He relied on para 37 and 38 of the decision in the case of CIT vs. RRJ Securities Ltd. (supra) as well as on para 22 to counter the submissions of the Ld.D.R.
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After hearing the rival contentions we find as follows.
6.1. This legal issue was raised before the Ld.CIT(A) by way of ground no.1. At para 3.1.4, the Ld.CIT(A) has held as follows.
3.1.4. U/s 153A/153C A.O. is duty bound to issue notices requesting for filing returns separately for each of the six A.Ys immediately preceding A.Y. relevant to the P.Y. in which search has been conducted or requisition u/s 132A of the Act has been made. There is a mandate in the section to assess or reassess the income for all such A.Ys. Thus AO is required to assess the income afresh. The legislature in their wisdom have deemed it fit not to restrict the assessment u/s 153A/153C to undisclosed income found during the search. There is no requirement that assessment can be done only if evidences relating to undisclosed income have been seized. There is also no requirement that assessment needs to be based only on the evidences gathered in the course of action u/s 132 or requisition u/s 132A. Further the assessment u/s 153A/153C is not comparable to the block assessment under chapter XIV-B where there was a concept of assessment of undisclosed income for the block period as a whole. 3.1.5. In view of the above, the first ground raised by the assessee regarding validity of assessment u/s 153C is rejected.
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Thus in terms of Rule 27 of ITAT Rules, the assessee is entitled to defend the appeal on this legal issue de hors the Cross Objection. Even otherwise the Hon’ble Bombay High Court in the case of 83 ITR 245 B.R.Barsani held that the respondent can defend an appeal on any new legal ground, though for the first time. Hence we admit this legal issue.
The next issue is whether the assessments for both these A.Ys have abated or not? Notice u/s 153C of the Act was issued to the assessee on 21.7.2010.
8.1. At para 14 of the decision in the case of RRJ Securities (supra) reads as follows.
“14. The Proviso to S.153C(1) of the Act expressly indicates that reference to the date of initiation of search for the purposes of second proviso to s.153A shall be construed as a reference to the date on which valuable assets or documents are received by the AO of an assessee (other than a searched person). Thus, by virtue of the second proviso to s.153A of the Act, the assessments/reassessments that were pending on the date of receiving such assets, books of accounts or documents would abate.
The controversy in this regard is no longer res integra. A Coordinate Bench of this Court in SSP Aviation Ltd. vs. DyCIT (2012) 346 ITR 177 has held that:
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“in case of the searched person, the date with reference to which proceedings for assessment or reassessment of any Assessment Year within a period of six A.Ys shall abate, is the date of initiation of search u/s 132 or requisition u/s 132A. However, in case of other person, such date will be the date of receiving the books of accounts or documents or assets seized or requisition by the AO having jurisdiction over such other person. In the case of other person, the question of pendency and abatement of proceedings of assessment or reassessment to the six AYs would have to be examined with reference to such date.”
8.2. Respectfully applying the binding propositions of law laid down by Jurisdictional High Court to the facts of the case on hand, we hold that the assessment for both these A.Ys have not abated. The returns of income for both these A.Ys were filed on 31.10.2007 and 30.9.2008 respectively and time limit allowed for issue of notice u/s 143(2) of the Act has expired prior to 21.7.2010.
8.3. The assessee has placed a copy of the satisfactory note for initiating proceedings u/s 153C of the Act at page 79 of the paper book. There is some over writing on the date of recording the Satisfaction Note but the year 2010 is clear. Even going by the year of recording this Satisfaction Note, we have to hold that the assessment in the impugned A.Ys have not abated.
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This brings us to the issue whether the decision of the Jurisdictional High Court in the case of Kabul Chawla (supra) applies to the facts of this case. The Ld.D.R. has not disputed the fact that the additions in this case are not based on any incriminating material. The Hon’ble Court has held as follows. “37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: (i) Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. (ii) Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. (iii) The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the ‘total income’ of the aforementioned 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 AYs “in which both the disclosed and the undisclosed income would be brought to tax”. (iv) Although Section 153 A 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 AO 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 this Section only on the basis of seized material.” (v) In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word ~ 8 ~ ‘assess’ in Section 153 A 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 AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. (vii) Completed assessments can be interfered with by the AO while making the assessment under Section 153 A 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.”
9.1. The submissions by the Ld.D.R. that the proposition laid down in this case is not applicable to an amount done in pursuance to a notice u/s 153C of the Act is devoid of merit.
In the case of RRJ Securities Ltd. the Hon’ble High Court has held at para 22 as follows.
The aforesaid principles would be equally applicable to proceedings initiated under Section 153C of the Act as Section 153C(1) of the Act expressly provides that once the AO has received “money, bullion, jewellery or other valuable articles or thing or books of account or documents seized” from the AO of the searched person, he would proceed to assess or reassess the income of the person to whom such assets/books belong in accordance with Section 153A of the Act. ~ 9 ~ 10.1. Thereafter at paras 37 and 38 it is held as follows.
As expressly indicated under Section 153C of the Act the assessment or reassessment of income of a person other than a searched person would proceed in accordance with the provisions of Section 153A of the Act. The concluded assessments cannot be interfered with under Section 153A of the Act unless the incriminating material belonging to the Assessee has been seized.
As indicated above, in the present case, the documents seized had no relevance or bearing on the income of the Assessee for the relevant assessment years and could not possibly reflect any undisclosed income. ITA 164/2015 & Other Connected Matters Page 40 of 40 This being the undisputed position, no investigation was necessary. Thus, the provisions of section 153C, which are to enable an investigation in respect of the seized asset, could not be resorted to; the AO had no jurisdiction to make the reassessment under Section 153C of the Act.
10.2. The Jurisdictional High Court in the case of Kabul Chawla has considered the decision in the case of Filatex (supra) as well as the judgement in the case of Anil Kumar Bhatia (supra), so there is no merit in the submissions of the Ld.D.R.
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We respectfully follow the decision of the Jurisdictional High Court in the case of Kabul Chawla (supra) and RRJ Securities (supra) and uphold the contentions of the assessee. In the result we dismiss both the appeals of the Revenue.
In the result both the appeals of the Revenue are dismissed, whereas C.O.90/Del/14 is allowed.
Order pronounced in the Open Court on 27th September,2016