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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Assessee by .. Shri.Girish Dave, AR & Shri. Vinayak R. Pandaya, AR Revenue by .. Shri. A G Bhatakar, CIT DR Date of hearing .. 03-01-2017 .. Date of pronouncement 03-01-2017 O R D E R PER MAHAVIR SINGH, JM: These four appeals by the assessee are arising out of the different orders of CIT (A)-52, Mumbai in appeal Nos. CIT (A)-52/IT&ACIT/AC-CC-4(4)/101,102,103 &104/2015-16 dated 24-09-2015, 05-10-2015, 01-10-2015. The Assessments were framed by the ACIT (OSD-I) Central Circle-7, Mumbai for the Assessment Years 2004-05, 2005-06 2006-07 & 2007-08 vide his orders of same date 29-12-2008 u/s 143(3) r. w. s. 153A of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The first issue in for the A.Y. 2004-05 is as regards to the order of CIT(A), who confirming the action of the AO in treating the gift received by assessee amounting to Rs.1,00,000/- as unexplained and added u/s 69A of the Act. For this assessee has raised following ground No.1: -
The Learned CIT(A) has erred in law and on facts and in the circumstances, in upholding the order of the AO making addition Rs.1,00,000/- by treating the gift received as income of the appellant ignoring all the details submitted to him relating to the ‘gift’ including the order passed in regular assessment by the predecessor AO.
Briefly stated facts are that a search and seizure operation u/s 132 of the Act was conducted on 28-06-2006 on Mali Group of cases. During the course of search, the AO noticed from the capital account filed by the assessee that he has credited a gift of Rs. 1,00,000/- received from one Shri Sanjay Jethava. As the assessee could not explain the source of gift or could not produce the donner, the AO treated the gift as unexplained investment u/s 69A of the Act. Aggrieved assessee preferred the appeal before CIT(A), who also confirm the action of the AO for the reason that assessee failed to discharge his onus in this regard and could not produce any evidence. Aggrieved, now assessee is in second appeal before the Tribunal.
Before us the learned Counsel for the assessee Shri. Girish Dave argued that this gift was disclosed in the return of income filed for the A.Y. 2004-05 filed on 25-11- 2004 by the assessee and in balance sheet this gift of Rs. 1,00,000/- from Sanjay Jethava was clearly reflected. The learned Counsel for the assessee took us through pages 1 to 3 of assessee’s paper book, wherein complete documents relating to this gift were filed. The learned Counsel for the assessee also took us through declaration of gift by donor Shri. Sanjay Jethava, which are enclosed at pages 12 to 18 of the assessee’s paper book which includes the copy of return of income of Shri Sanjay Jethava including computation of income to prove the identity, capacity and genuineness of the transaction. The learned Counsel for the assessee stated that this gift was received amounting to Rs.1,00,000 by cheque No.287211 dated 30-04-2003 drawing on Cosmos Bank, Dadar West, Mumbai. The learned Counsel for the assessee stated that these details were already before the AO, which were filed along with the return of income and hence, now while framing assessment u/s 153A of the Act this cannot be the subject matter for addition again as this issue is already settled. For this the learned Counsel for the assessee relied on 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.). On the other hand, the learned Sr. DR heavily relied on the orders of the lower authorities.
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, 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 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 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 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 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: - 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 the assessee has filed complete details in respect of the gift of Rs. 1,00,000/-, which was received by the assessee from the donor Shri. Sanjay Jethava by account payee cheque. It is also a fact that the assessee as well as the donor Shri. Sanjay Jethava both are assessed to tax and this gift is reflected in the respective capital account and balance sheet, which are enclosed with the return of income filed in with the department. 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 is a genuine gift and addition should not have been made. Accordingly, we are deleted the addition and allow this issue of assessee’s appeal.
The next issue in for the A.Y. 2004-05 is as regards to the order of CIT(A) confirming the order of the AO in excluding the income declared from assessee’s firm M/s Nimbeshwar Creation amounting to Rs.15,26,938/- and consequently confirmed the addition of Rs. 15,000,00/- being unexplained investment/expenditure in renovation /purchasing of Flat No.601,6th Floor, A-Wing, Suparshava Apts., opp. Orbit Towers, Raamchandra Sudkoji Sawant Chowk, Elphistone Road, Mumbai. For this assessee has raised following ground No.2 and 3: - “2. The learned CIT(A) has erred in law and on facts and in the circumstances, in upholding the order of the AO in ignoring the source of investment from M/s Nimbeshwar cration of Rs. 15,26,938/- towards purchase of property.
3. The learned CIT(A) has erred in law and on facts in the circumstances in confirming addition of Rs. 15,00,000/- made by AO.”
8. Briefly stated facts are that the assessee group deals in readymade garments, which include shirts, kids wear, Sherwani, etc. During the course of search and seizure operation at the residence of the assessee certain loose papers as per Annexure-A9 consisting of pages 1-123 containing the transactions with regard to the purchase of the above stated House No.601 and another loose paper Annexure-A3 containing transactions in the name of benami firm of M/s Nimbeshwar Creation was found and seized. According to the AO the total unexplained investment/expenditure appearing at page No.123 of Annexure-A9 found and seized is totaling of Rs.15,00,000/- being the amount invested in renovation/purchase of above stated House No.601. To this point the learned Counsel for the assessee accepted the investment. But the learned Counsel for the assessee stated that this investment is made out of the funds available out of unaccounted business in the name of M/s Nimbeshwar Creation. It was pointed out by the assessee that M/s Nimbeshwar Creation was benami firm of the assessee, having 60% shares of his own and 33 % of the other partner Shri Shivalaji. The learned Counsel for the assessee stated that Annexure-A3 found and seized from the residence of the assessee clearly depicts the transaction of undisclosed profit earned from M/s Nimbeshwar Creation. According to the learned Counsel this profit is depicted in Annexure A3 consisting of pages 19-48 of the assessee’s paper book, wherein in page 43 complete amounts of profit amounting to Rs.30,25,282/- is depicted. The learned Counsel for the assessee took us through the page 35 of assessee’s paper book and internal page 29 of Annexure A3, wherein, the accounts of both the partners that the assessee and Shivalaji is given and profit for the year 2004 is clearly depicted of amounting to Rs.13,93,400/-. The learned Counsel for the assessee, in view of the above account stated that the profit to the tune of Rs. 20,26,938/- was earned by the assessee out of the total profit of Rs. 30,25,282/-. According to him the assessee has already declared the profit of Rs. 15,26,938/- pertaining to F.Y. 2003-04 in the A.Y. 2004-05. It was explained that this investment in renovation of house property amounting to Rs. 15,00,000/- was out of the profit of M/s Nimbeshwar Creation earned for the A.Y. 2004-05 and declared amounting to Rs. 15,28,938/- out of unaccounted profit of Rs. 20,26,938/-, the balance of Rs. 5,00,000/- was declared in the A.Y. 2005- 06 pertains to the F.Y. 2004-05. But the AO as well as the CIT(A) was not convinced and added the amount of Rs. 15,00,000 being unexplained investment in the house property and taxed this unaccounted profit of Rs. 15,26,938/- in A.Y. 2005-06 instead of the A.Y. 2004-05.
We have gone through the seized paper Annexure A9 consisting of pages 123 and also Annexure A3 wherein, the transactions of unaccounted profit of benami concern M/s Nimbeshwar Creation is appearing. From reading these papers it is clear that the part of the profit pertains to A.Y. 2004-05 and part pertains to A.Y. 2005-06. For reaching this conclusion the reason is that the almost profit to the extent of Rs.14,00,000/- is earned in A.Y. 2004-05 because the year mentioned is 2004 while distributing the profit as per the capital account seized. Anyhow, the assessee has earned the total profit of Rs. 30,25,282/- in a benami firm M/s Nimbeshwar Creation and admittedly, the assessee’s share to the extent of 67% and the profit accordingly workout is Rs.20,26,938/-. The assessee admitted and offered a sum of Rs.15,26,938/- in the relevant A.Y. 2004-05 and remaining sum of Rs.5,00,000/- in A.Y.2005-06. As the facts gathered from seized material, we are of the view that a reasonable view is to be adopted and reasonable view seems that the profit of Rs. 15,26,939/- declared by assessee is to be assessed in 2004-05 and this is to be telescoped against the investment in renovation/ acquisition of house property of Rs. 15,00,000/- i.e. House No. 601, 6th Floor, A-Wing, Suparshava Apts., opp. Orbit Towers, Raamchandra Sudkoji Sawant Chowk, Elphistone Road, Mumbai. Accordingly, we direct the AO to re-compute the income and assessee the income as declared by the assessee being profit earned from M/s Nimbeshwar Creation amounting to Rs.15,26,939/- and give telescoping effect to the same against the investment in purchase / renovation of House. This issue of assessee’s appeal is allowed.
The next issue in for the A.Y. 2005-06 is as regards to the order of CIT(A) confirming the action of AO in assessing the unaccounted profit of Nimbeshwar Creation amounting to Rs. 15,26,938/- in A.Y. 2005-06 and not allowing the telescoping of the same. For this assessee has raised following two grounds: - “1. The learned CIT(A) has erred in law and on facts and in the circumstances, in upholding the order of the AO in making an addition of Rs. 15,26,938/- as undisclosed profit.
2. The learned CIT(A) has erred in law and on facts in the circumstances in not granting telescoping effect of Rs. 15,00,000/- for investment in flat, treated as income in A.Y. 2004-05 out of Income from Nimbeshwar Creations.”
After hearing both the sides and gone through the facts of the case, we have already adjudicated the issue while adjudicating the appeal for the A.Y. 2004-05 and directed the AO to assess this income of unaccounted profit of Nimbeshwar Creations in A.Y. 2004-05, hence, this addition will be deleted. In view of the above decision, the appeal of the assessee is allowed here also.
The next issue in A.Y. 2006-07 is as regards to the order of CIT(A) confirming the addition of Rs. 54,080/- as unexplained investment in stock u/s 69 of the Act. For this assessee has raised following two grounds: - “1. The learned CIT(A) has erred in law and on facts and in the circumstances, in confirming an addition of Rs. 2,42,882/- on unaccounted sales of Rs.23,04,730/- by application of G.P. Rate instead of Net profit rate. As Tax is to be calculated on net profit and not on gross profit.
2. The learned CIT(A) has erred in law and on facts and in the circumstances, in making further addition of Rs. 54,080/- as unexplained circumstances, in making further addition of Rs. 54,080/- as unexplained investment in stock u/s 69A as stock worth Rs. 6,00,000/- offered by the assessee was sufficient against the undisclosed sales of Rs. 23,06,730/-.”
At the outset, the learned Counsel for the assessee stated that the complete details in respect of the direct and indirect expenses are appearing in the seized records lying with the department and CIT(A) has not examined this issue while adjudicating the issue of application of profit rate. The learned Counsel for the assessee sated that this is a limited issue and this can be remitted back to the file of the AO for verification whether there are direct or indirect expenses available in the seized records and if direct or indirect expenses are available this should be allowed. On query for the Bench, the learned Sr. DR has not objected to remanding the matter back to the file of the AO for verification of expense.
After considering the submissions of the assessee’s counsel, we are of the view that if the details regarding direct and indirect expenses are available in the seized records of the department, this benefit should have been given to the assessee. Hence, we remand this matter back to the file of the AO for verification of the same and assessee should also be confronted to the same before deciding the issue. This appeal is remitted back to the file of the AO.
The next issue in for the A.Y. 2007-08 is as regards to the order of the CIT(A) confirming the addition of Rs. 50,000/- on account of undisclosed jewelry found from the assessee was worth of Rs.1,98,140/- and out of which the same was claimed as Stridhan of the wife. The AO treated the jewelry for an amount of Rs.98,140/- as Stridhan and remaining amount of Rs.1,00,000/- as unexplained investment within the meaning of Section 69A of the Act. Before CIT(A) as well as before us now, the assessee claimed that as per CBDT circular there is a limit of Rs. 500 grams for seizure purpose and normally it is treated to that extent jewelry is kept by ladies as Stridhan. The learned Counsel stated that to that extent no addition should be made. The learned Sr. DR supported the order of the lower authorities.
We have gone through the facts and circumstances of the case and noticed that there is a small amount of jewelry of Rs. 1,79,560/-. Value of total jewelry found is Rs. 1,79,560/- which is much less than 500 gram of the jewelry according to the value as on the date of search. The assessee claimed that this is Stridhan, and we have no reason to disbelieve the same for the reason that the quantum of jewelry is very less. Accordingly, we delete the addition in entirety and allowed this issue of assessee’s appeal.
The next issue in for the A.Y. 2007-08 is as regards to the application of gross profit rate instead of net profit rate and addition of unaccounted profit of Rs. 3,64,620/-. For this assessee as raised following ground No.2 to 4.
“2. The learned CIT(A) has erred in law and on facts and in the circumstances, in confirming an addition of Rs. 31,960/- on unaccounted sales of Rs.2,35,000/- by application of G.P. Rate instead of net profit rate.
3. The learned CIT(A) had erred in law and on the facts & in the circumstances of the case in rejecting the contention of the appellant to apply the estimated Net profit rather than estimated gross profit as done by AO and uphold by the learned CIT(A).
4. The learned CIT(A) has erred in law and on facts and in the circumstances, in adding Rs.3,64,620/- on account of profit on unaccounted sales.”
At the outset, the learned Counsel for the assessee made same submissions that there are direct and indirect expense recorded in the seized documents which is not been allowed. As we have already directed the AO to verify the same in the A.Y. 2006- 07, the same decision will be applied here. This issue is also set aside to the file of the AO on the same reasoning as in the A.Y. 2006-07. This issue is remanded back to the file of the AO and allowed for statistical purposes.
In the result, & 5780/Mum/2015 of assessee’s appeal are allowed, assessee’s appeal in 5782 &5779/Mum/2015 are partly allowed for statistical purposes. Order pronounced in the open court on 03-01-2017.