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Income Tax Appellate Tribunal, DELHI BENCH ‘A’ NEW DELHI
Before: SHRI G.D. AGRAWAL & SHRI SUDHANSHU SRIVASTAVA
PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER The present appeal has been preferred by the Department against the order dated 11.03.2013 passed by the Ld. CIT(A)-III, New Delhi for assessment year 2004-05 whereas the CO has been filed by the assessee.
The facts of the case, in brief, are that a search and seizure
action was carried on assessee's premises on 20.08.2009 which I.T.A. 3125/Del/2013 Assessment year 2004-05 is a part of Unity Group of companies. The other companies/concerns which were also searched along with the assessee are as under:-
S. No. Name of the appellant 1. North Delhi Projects Ltd. 2. Unity Buildwell Projects Ltd. 3. Unity Projects P. Ltd. 4. Unity Township P. Ltd. 5. Prestige Buildwell P. Ltd. 6. Sankalp Agencies P. Ltd. Aggarwal Tower P. Ltd. 7. Agarwal Entertainment P. Ltd. 8. •�•u \
9. New Horizon Buildwell P. Ltd.
Fun City Developers P. Ltd. 11. Mittaso Projects P. Ltd. 12. Aggarwal Plaza P. Ltd.
During the course of the proceeding under section 153A in the assessee’s case, the AO found that the assessee had increased the share capital/share application money by Rs. 1052.24 lacs from 84 different entities. The AO has made enquiries from 33 entities by sending the notices under section 133(6)/131 of the Act for the Assessment Years 2004-05, 2005-06, 2006-07 and 2007-08.
I.T.A. 3125/Del/2013 Assessment year 2004-05 4. For the year under consideration i.e. Assessment Year 2004-05, the AO issued notices to 21 entities.
Out of 21 entities, 19 entities filed their written confirmations and other related documents etc. However, remaining 2 entities namely Vikas Parafins Pvt. Ltd. and Raf Steel Pvt. Ltd., who had invested Rs. 10,00,000/- and 20,00,000/- respectively, did not comply with the notices issued under section 131. Accordingly Rs 30,00,000 invested by them were treated as unexplained credit and addition was made to assessee's income by the AO.
In the appeal before the Ld. First Appellate Authority, the assessee challenged the assessment framed u/s 153A on the ground that no incriminating documents were found relating to it and, therefore, no addition could be made. The addition was challenged on merits also. The Ld. CIT (A) rejected the assessee’s legal ground relating to the validity of proceedings u/s 153A but allowed the assessee’s appeal on merits and deleted the entire addition.
Now the Department has filed an appeal and has raised the following grounds:-
I.T.A. 3125/Del/2013 Assessment year 2004-05 “1. On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the addition of Rs. 30,00,000/- made by the Assessing Officer on account of unexplained cash credits U/s 68 of the Income tax Act 1961, under the head share application money received by the assessee from different entities.
2. On the facts and in the circumstance of the case, the C1T(A) has erred, in not appreciating in observation of the Assessing Officer on facts of the case that the assessee failed to prove the creditworthiness of the shares applicants as well as genuineness of the transaction within the meaning of section 68 of the Act.
3. The order of the CIT (A) is erroneous and is not tenable on facts and in law.
The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.”
In the CO, the assessee has raised the following grounds:-
“1. That on the facts and circumstances of the case, the Commissioner of Income Tax (Appeals) has erred both in law and on facts in confirming the proceedings initiated under Section 153A of I.T. Act, which is bad in law in the absence my incriminating material belonging to the assessee being found during the course of search.
2. That on the facts and circumstances of the case, the Commissioner of Income Tax (Appeals) has erred both in law and on facts in confirming the validate of impugned assessment order dated 30.12.2011 u/s 153A of I.T. Act as framed by the Assessing officer in respect of closed assessment for which no incriminating material seized during the course of search and seizure action.
3. That on the facts and circumstances of the case, the Commissioner of Income Tax (Appeals) has erred both in law and on facts in confirming the action and Procedure I.T.A. 3125/Del/2013 Assessment year 2004-05 followed by the Assessing officer during the proceeding u/s 153A of the I.T. Act, which is invalid in eyes of law being based on incorrect postulate that search assessment u/s 153A is de novo in nature whereas the same is to be based and confined to incriminating material unearthed during search operations.”
Before proceeding with the grounds of appeal of the Department, we deem it appropriate to first address and adjudicate on the CO of the assessee as the legal issue raised by the assessee is germane to the entire assessment proceedings.
10. Before us the Ld. AR for the assessee submitted that it is not the case of the Department that the addition of Rs. 30 lacs has been made on account of any incriminating material found during the course of search and seizure proceedings. It was further submitted by the Ld. AR that as per the second proviso of section 153 A only the assessments which were pending on the date of initiation of search u/s 132 of the Act will abate and the assessment proceedings which have become final as on the date will not stand abated. It was further submitted that no incriminating material was found during the course of search to show that the entries were not genuine. Ld. AR also drew our attention to the decision of the Hon’ble High Court of Delhi in I.T.A. 3125/Del/2013 Assessment year 2004-05 CIT Central-III vs. Kabul Chawla in 709/2014 and 713/2014.
Ld. DR on the other hand supported the order of the AO.
We have carefully considered the material placed before us and the issue involved. Section 153A of the Act provides that where a search is initiated u/s 132 of the Act, the AO shall “assess or reassess the total income of the six assessment years immediately preceding the assessment year” relevant to the previous year in which the search is conducted or requisition is made. The first proviso states that the AO shall “assess or reassess the total income in respect of each assessment year falling within such six assessment years”. The second proviso states that the assessment or reassessment relating to the said six assessment years pending on the date of initiation of the search u/s 132 shall abate. It is seen that in assessee’s case search action was initiated and assessments u/s 153A were framed for six assessment years making various additions. It is assessee’s claim that the addition of Rs. 30 lacs was not tenable as the regular return had been filed and the original assessment had already been completed u/s 143(3) of the Act. It is also the assessee’s contention that no material has been found during the 6 I.T.A. 3125/Del/2013 Assessment year 2004-05 search to justify the addition. In our considered opinion section 153A does not authorise the making of a de novo assessment in this particular assessment year. While under the first proviso, the AO is empowered to frame assessment for six years, under the second proviso only assessments which are pending on the date of initiation of search abate. The effect is that completed assessments do not abate. The assessments can be said to be pending only if the AO is statutorily required to do something further. If the section 143(2) notice has been issued, the assessment can be said to be pending. However, assessment already completed u/s 143(3) cannot be said to be pending. The power given by the first proviso to assess income for six assessment years has to be confined to the undisclosed income unearthed during search and cannot include items which were already before the AO during the course of the original assessment proceedings .
It will be relevant at this stage to reproduce Para 37 of the judgment of the Hon’ble High Court of Delhi in the case of CIT Central – III vs. Kabul Chawla (supra) which lays down the entire law with regard to section 153A as under :-
I.T.A. 3125/Del/2013 Assessment year 2004-05 “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 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.
I.T.A. 3125/Del/2013 Assessment year 2004-05 v. In 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 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 finding 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.”
It is undisputed in the present case that the original assessment proceedings had already been completed u/s 143(3) prior to the date of the search. It is equally undisputed that the impugned additions were made by the Assessing Officer without there being any finding that the additions related to any seized material. The Ld. CIT(A) has given a categorical finding in para 9 I.T.A. 3125/Del/2013 Assessment year 2004-05 10.1 of his order that in respect of the entities who had subscribed to the shares, the Assessing Officer had asked for various details which were filed by the assessee to prove the identity and creditworthiness of the share subscribers, at the time of the original 143(3) proceedings. The Ld. CIT (A) has also mentioned that the Assessing Officer in 143(3) proceedings, after considering all the evidences/document, accepted the creditworthiness, identity and genuineness of the transactions and that no additions were made on account of unexplained credit u/s 68 of the Act. In the subsequent assessment order u/s 153A/143(3), the additions have been made without any reference to any incriminating material and therefore following the ratio laid down by the Hon'ble Delhi High Court in CIT Central-III vs Kabul Chawla (supra), we allow the CO of the assessee and quash the assessment order passed u/s 143(3)/153A.
In view of our findings in the CO, the appeal of the Department is dismissed.
In the final result, the appeal of the Department is dismissed and CO of the assessee is allowed.
I.T.A. 3125/Del/2013 Assessment year 2004-05 Order pronounced in the open court on 29th June, 2016.