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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
.. Mr. Jignesh R. Shah& Assessee by Mr. Haresh Kenia .. Mr. H.N. Singh, CIT DR Revenue by Date of hearing .. 16-05-2017 .. Date of pronouncement 24-05-2017 O R D E R PER BENCH:
These eighteen appeals by the assessees’ are arising out of the different orders of CIT(A)-39, Mumbai, in appeal No. CIT(A)-39/IT-189,193,197,198,201, 202,203,204,205,215,222/08-09 of even date 23-03-2011. The Assessments were framed by DCIT CC 17 & 28, Mumbai for the A.Y. 2003-04 vide orders of even date 30-12-2008 u/s 143(3) read with section 153 of the Income Tax Act, 1961 Page 2 of 13 3583,3584,3735,3736&3737/Mum/2011 ITA No. 7382,7383,7384,7385,7387,7389 & 7390/Mum/2013 For AY: 2003-04 (hereinafter ‘the Act’) in all these cases. The penalties in ITA Nos. 7382,7383,7384,7385,7387,7389 & 7390/Mum/2013 for AY 03-04 were levied by ACIT CC 17 &18 u/s 271(1)(c) of the Act vide his orders of even date 21-03- 2012.
The only common issue in all these eleven quantum appeals of assessees’ is as regards to the order of CIT(A) confirming the action of the AO in treating the gift received as unexplained and assessed as income from other sources despite the fact that no incriminating material / evidence were found during the course of search under section 132 of the Act on the premises of the assessees and the original assessment was not abated. The following are the details of these eleven appeals: - Sl Name of the assessee added/ No. issue in dispute 1. Nenshi L Shah 3577/Mum/2011 Addition of Rs. 10 lacs with regard to gift received from Mr. Gayanchand Jain 2. Shantaben Shah 3581/Mum/2011 ‘do’ 3. Shantilal Shah 3584/Mum/2011 ‘do’ 4. Sonalben Shah 3583/Mum/2011 ‘do’ 5. Subhas Shah 3580/Mum/2011 ‘do’ 6. Hitesh Shah 3575/Mum/2011 ‘do’ 7. Lalji K Shah (HUF) 3582/Mum/2011 ‘do’ 8. Talakshi L Nandu 3735/Mum/2011 ‘do’ 9. Kumar P Shah 3736/Mum/2011 ‘do’ 10. Paresh K Shah 3737/Mum/2011 ‘do’ 11. Gunvatiben Shah 3576/Mum/2011 ‘do’
For this all the eleven assessees’ have raised identical worded grounds and hence, we will take up the ground raised
in AY 2003-04, which is lead case, reads as under: -
1. Re: Addition ti/s 68 with regard to gift received 1.1 On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax Page 3 of 13 3583,3584,3735,3736&3737/Mum/2011 ITA No. 7382,7383,7384,7385,7387,7389 & 7390/Mum/2013 For AY: 2003-04 (Appeals) [hereinafter referred to as 'the learned CIT (A)] erred in affirming the action of the Assessing Officer by treating Gifts received as "income from other sources" inspite of the fact that no incriminating evidence being found during the course of search proceedings.
1.2 On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in discarding the various documentary evidence and explanations given during the course of assessment proceedings and appeal proceedings to prove the genuineness of the gift received.”
Brief facts are that in these eleven cases, the assessees filed returns of income on even date 11-08-2003 for the AY 2003-04. The assessees’ received gift of Rs. 10 lacs in each of the case from one Mr. Gayanchand Jain. This gift was declared in the original returns filed by the respective assessees’ on 11-08- 2003 in the form of capital accounts filed, wherein each of the assessee has declared this gift. The assessment / processing of return of income for the year under consideration was concluded much before the search and could not therefore abate as the returns were filed by the respective assessees’ on 11-08- 2003 and therefore, the last date for issuing notices u/s 143(2) of the Act were on 31-08-2004, whereas, search on the premises of these assessees’ took place on 03-08-2006. The AO during the course of assessment proceedings in consequence to search u/s 153A read with section 143(2) of the Act noticed the factum of gift was already disclosed in the capital accounts filed along with the returns of income by the respective assessees’ and this is not the income discovered or unearthed during the course of search by the department u/s 132 of the Act. But the AO assessed the gifts as income from undisclosed sources of the assessees and CIT(A) also confirmed the same. Aggrieved, all the assessees’ came in second appeal before Tribunal.
ITA No. 3575,3576,3577,3580,3581,3582, 3583,3584,3735,3736&3737/Mum/2011 & 7390/Mum/2013 For AY: 2003-04 5. In view of the above given facts, the learned Counsel for the assessees’ argued that the issue of assumption of jurisdiction by the AO and making addition while framing assessment u/s 153A read with section 143(3) of the Act, the assessment is without jurisdiction in respect to assessment of gifts already disclosed. Now, before us the learned CIT DR. could not support the orders of CIT(A) or on query from the Bench could not produce any seized material pertaining to this AY relatable to assessee in regards to the additions made by AO. Once this is the position, the issue is squarely covered in favour of assessee by the decision of the Hon'ble Bombay High Court in the case of CIT vs Continental Warehousing Corporation (Nhava Sheva) Ltd. (2015) 374 ITR 645 (Bom).
We find that this issue now stands covered in favour of assessee and against the Revenue by the decision of Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra), wherein considering the judgment of the Special Bench of the Mumbai Tribunal in the case of All Cargo Global Logistics 137 ITD 287(SB) (Mum), considered this issue that, whether there is scope of assessment u/s. 153A of the Act in respect to completed assessment which is limited only to undisclosed income and undisclosed assets found during the course of search or not? Hon'ble High Court held that on a plain reading of section 153 of the Act it becomes clear that on initiation of the proceedings u/s. 153A of the Act, it is only the assessment/reassessment proceedings that are pending on the date of conducting search u/s. 132 of the Act stand abated and not the assessments/reassessments already final for those assessment years covered u/s. 153A of the Act. Hon'ble High Court also discussed the CBDT Circular No. 8 of 2003 dated 18.09.2003 reported in 263 ITR (st.) 61 at page 107 wherein CBDT has clarified that on initiation of proceedings u/s. 153A of the Act the proceedings pending in appeal, revision or rectification proceedings against final assessment shall not abate. It is only because the final assessments do not abate the appeal, revision or rectification pending against final assessments would not abate. Therefore, 3583,3584,3735,3736&3737/Mum/2011 ITA No. 7382,7383,7384,7385,7387,7389 & 7390/Mum/2013 For AY: 2003-04 Hon'ble High Court rejected the arguments of the Revenue that on initiation of proceedings u/s. 153A of the Act, the reassessment final for assessment years covered u/s. 153A of the Act stands abated. Only the pending assessments get revived u/s. 153A of the Act. Hon'ble High Court further held that once assessment has attained finality, then the AO while passing independent assessment order u/s. 153A/143(3) of the Act could not disturb the assessment order which has attained finality unless the material gathered in the course of search u/s. 132/153A of the Act established that the finality attained in the assessment were contrary to the facts unearthed during the course of search. The relevant portion of the judgment reads as under: - “31. We, therefore, hold that the Special Bench's understanding of the legal provision is not perverse nor does it suffer from any error of law apparent on the face of the record. The Special Bench in that regard held as under:-
“The provision under section 153A is applicable where a search or requisition is initiated after 31.5.2003. In such a case the AO is obliged to issue notice u/s 153A in respect of 6 preceding years, preceding the year in which search etc. has been initiated. Thereafter he has to assess or reassess the total income of these six years. It is obligatory on the part of the AO to assess or reassess total income of the six years as provided in section 153A(1)(b) and reiterated in the 1st proviso to this section. The second proviso states that the assessment or reassessment pending on the date of initiation of the search or requisition shall abate. We find that there is no divergence of views in so far as the provision contained in section 153A till the 1st proviso. The divergence starts from the second proviso which states that pending assessment or reassessment on the date of initiation of search shall abate. This means that an assessment or Page 6 of 13 ITA No. 3575,3576,3577,3580,3581,3582, 3583,3584,3735,3736&3737/Mum/2011 & 7390/Mum/2013 For AY: 2003-04 reassessment pending on the date of initiation of search shall cease to exist and no further action shall be taken thereon. The assessment shall now be made u/s 153A. The case of Ld. Counsel for the assessee is that necessary corollary to this provision is that completed assessment shall not abate. These assessments become final except in so far and to the extent as undisclosed income is found in the course of search. On the other hand, it has been argued by the Ld. Standing Counsel that abatement of pending assessment is only for the purpose of avoiding two assessments for the same year, one being regular assessment and the other being assessment u/s 153A. In other words these two assessments coalesce into one assessment. The second proviso does not contain any word or words to the effect that no reassessment shall be made in respect of a completed assessment. The language is clear in this behalf and therefore literal interpretation should be followed. Such interpretation does not produce manifestly absurd or unjust results as section 153A (i)(b) and the first proviso clearly provide for assessment or reassessment of all six years. It may cause hardship to some assesses where one or more of such assessments has or have been completed before the date of initiation of search. This is hardly of any relevance in view of clear and unambiguous words used by the legislature. This interpretation does not cause any absurd etc. results. There is no casus omissus and supplying any would be against the legislative intent and against the very rule in this behalf that it should be supplied for the purpose of achieving legislative intent. The submissions of the Ld. Counsels are manifold, the foremost being that the provision u/s 153A should be read in conjunction with the provision contained in section 132(1), the reason being that the latter deals with search and seizure and the Page 7 of 13 ITA No. 3575,3576,3577,3580,3581,3582, 3583,3584,3735,3736&3737/Mum/2011 ITA No. 7382,7383,7384,7385,7387,7389 & 7390/Mum/2013 For AY: 2003-04 former deals with assessment in case of search etc, thus, the two are inextricably linked with each other.
Before proceeding further, we may now examine the provision contained in sub-section (2) of section 153, which has been dealt with by Ld. Counsel. It provides that if any assessment made under subsection (1) is annulled in appeal etc., then the abated assessment revives. However, if such annulment is further nullified, the assessment again abates. The case of the Ld. Counsel is that this provision further shows that completed assessments stand on a different footing from the pending assessments because appeals etc. proceedings continue to remain in force in case of completed assessments and their fate depends upon subsequent orders in appeal. On consideration of the provision and the submissions, we find that this provision also makes it clear that the abatement of pending proceedings is not of such permanent nature that they cease to exist for all times to come. The interpretation of the Ld. Counsel, though not specifically stated, would be that on annulment of the assessment made u/s 153(1), the AO gets the jurisdiction to assess the total income which was vested in him earlier independent of the search and which came to an end due to initiation of the search.
The provision contained in section 132 (1) empowers the officer to issue a warrant of search of the premises of a person where any one or more of conditions mentioned therein is or are satisfied, i.e. - a) summons or notice has been issued to produce books of account or other documents but such books of account or documents have not been produced, b) summons or notice has been or might be issued, he will not produce the books of account 3583,3584,3735,3736&3737/Mum/2011 ITA No. 7382,7383,7384,7385,7387,7389 & 7390/Mum/2013 For AY: 2003-04 or other documents mentioned therein, or c) he is in possession of any money or bullion etc. which represents wholly or partly the income or property which has not been and which would not be disclosed for the purpose of assessment, called as undisclosed income or property. We find that the provision in section 132 (1) does not use the word "incriminating document". Clauses (a) and (b) of section 132(1) employ the words "books of account or other documents". For harmonious interpretation of this provision with provision contained in section 153A, all the three conditions on satisfaction of which a warrant of search can be issued will have to be taken into account.
Having held so, an assessment or reassessment u/s 153A arises only when a search has been initiated and conducted. Therefore, such an assessment has a vital link with the initiation and conduct of the search. We have mentioned that a search can be authorised on satisfaction of one of the three conditions enumerated earlier. Therefore, while interpreting the provision contained in section 153A, all these conditions will have to be taken into account. With this, we proceed to literally interpret to provision in 153A as it exists and read it alongside the provision contained in section 132(1).
The provision comes into operation if a search or requisition is initiated after 31.5.2003. On satisfaction of this condition, the AO is under obligation to issue notice to the person requiring him to furnish the return of income of six years immediately preceding the year of search. The word used is "shall" and, thus, there is no option but to issue such a notice. Thereafter he has to assess or reassess total income of these six years. In this respect also, the word used is "shall" and, therefore, the 3583,3584,3735,3736&3737/Mum/2011 ITA No. 7382,7383,7384,7385,7387,7389 & 7390/Mum/2013 For AY: 2003-04 AO has no option but to assess or reassess the total income of these six years. The pending proceedings shall abate. This means that out of six years, if any assessment or reassessment is pending on the date of initiation of the search, it shall abate. In other words pending proceedings will not be proceeded with thereafter. The assessment has now to be made u/s 153A (1)(b) and the first proviso. It also means that only one assessment will be made under the aforesaid provisions as the two proceedings i.e. assessment or reassessment proceedings and proceedings under this provision merge into one. If assessment made under sub-section (1) is annulled in appeal or other legal proceedings, then the abated assessment or reassessment shall revive. This means that the assessment or reassessment, which had abated, shall be made, for which extension of time has been provided under section 153B.
The question now is - what is the scope of assessment or reassessment of total income u/s 153A (1) (b) and the first proviso? We are of the view that for answering this question, guidance will have to be sought from section 132(1). If any books of account or other documents relevant to the assessment had not been produced in the course of original assessment and found in the course of search in our humble opinion such books of account or other documents have to be taken into account while making assessment or reassessment of total income under the aforesaid provision. Similar position will obtain in a case where undisclosed income or undisclosed property has been found as a consequence of search. In other words, harmonious interpretation will produce the following results: - 3583,3584,3735,3736&3737/Mum/2011 ITA No. 7382,7383,7384,7385,7387,7389 & 7390/Mum/2013 For AY: 2003-04 a) In so far as pending assessments are concerned, the jurisdiction to make original assessment and assessment u/s 153A merge into one and only one assessment for each assessment year shall be made separately on the basis of the findings of the search and any other material existing or brought on the record of the AO, (b) in respect of non-abated assessments, the assessment will be made on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search, and undisclosed income or undisclosed property discovered in the course of search.”
We have examined the details and noticed that notice u/s 143(2) of the Act became time barred on 31.08.2004 at the time when the search took place much later on 03.08.2006. Therefore, it follows that as on the date of search, there was an assessment completed or processing of return of income of the assessee under section 143(1) of the Act. Subsequently, the A.O. initiated proceedings under s. 153A and in the assessment completed under s. 143(3) r.w.s 153A, the A.O. has brought to tax a sum of Rs. 10,00,000/- being the amount of gift received from Shri Gayanchand Jain without any incriminating material found during the course of search. Once this is the position the issue is clearly covered in favour of assessee and against the Revenue by the decision of Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (Supra). Respectfully, following the same and in the given said of facts, we are of the view that this gift received from Shri Gayandhand Jain for an amount of Rs. 10,00,000/- disclosed in the return of income as evidence by the capital account and which has not been abated, the amount of gift cannot be added. Accordingly, we reverse the orders of CIT(A) as well as that of the AO and delete the addition in all these eleven appeals of the assessee.
ITA No. 3575,3576,3577,3580,3581,3582, 3583,3584,3735,3736&3737/Mum/2011 & 7390/Mum/2013 For AY: 2003-04 8. Further, in regard to the above quantum appeals, the AO levied the penalty, in the following seven assessees’, u/s 271(1)(c) of the Act on the addition of gift of Rs. 10 lacs in each of the case received by respective assessees’ from Shri Gayanchand Jain: - Sl Name of the ITA No. Penalty levied under No. assessee section 271(1)(c) 1. Shantaben Shah 7384/Mum/2011 Rs. 2,87,700/- on issue of gift of Rs. 10,00,000 2. Shantilal Shah 7389/Mum/2011 ‘do’ 3. Sonalben Shah 7387/Mum/2011 ‘do’ 4. Subhas Shah 7383/Mum/2011 ‘do’ 5. Hitesh Shah 7390/Mum/2011 ‘do’ 6. Lalji K Shah (HUF) 7382/Mum/2011 ‘do’ 7. Paresh K Shah 7385/Mum/2011 ‘do’ 9. At the outset, the learned Counsel for the assessee argued that the penalty in one of the group cases in the case of Gunvantiben N Shah vs. ACIT in ITA NO. 7386/Mum/2013 for AY 2003-04 was deleted by the co-ordinate Bench of this Tribunal vide order dated 16-11-2015 on merits. But now, we have already deleted the quantum addition in all these seven cases, the penalties levied by AO will not survive. Hence, the penalties levied by AO and confirmed by CIT(A) are hereby deleted.
In the result, all the eighteen appeals of the assessees’ are allowed. Order pronounced in the open court on 24-05-2017.