ACIT, CENTRAL CIRCLE-3(4), CHENNAI vs. M SUKUMAR REDDY, CHENNAI

1 Aforesaid appeals by revenue for Assessment Years (AY) 2006-07 to 2008-09 arises out of a common order passed by Ld. learned Commissioner of Income Tax (Appeals)-19, Chennai [CIT(A)] on 01.10.2018 in the matter of separate but identical assessments framed by Ld. Assessing Officer [AO] u/s. 153A of the Act on 22.03.2014. The assessee has filed cross-objections against the same. For the purpose of adjudication, facts from AY 2006-07 have been culled out in this order.

2 The grounds raised by the revenue read as under 1.The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law.

1 The Id. CIT(A) erred in directing the Assessing Officer to delete the addition made on account of unexplained deposits into undisclosed bank accounts amounting to Rs.2,87,81,421/-.

2 The Id. CIT(A) erred in not appreciating the fact that Shri B.V. Reddy was only a name lender and all the transactions in the undisclosed bank accounts actually belonged to Shri Sukumar Reddy.

3 Reliance is placed on the decision of the Hon'ble Supreme Court in the case of Juggilal Kamlapat Vs. CIT (1969) 73 ITR 702, wherein it is held that the income-tax authorities are entitled to pierce the veil of corporate entity and look at the reality of the transaction and that in exceptional cases the Court can lift the veil of corporate entity and to pay regard to the economic realities behind legal facade.

4 Reliance is placed on the decision of the Hon'ble Supreme Court in the case of McDowell & Co. Ltd Vs. CTO (22 Taxman 11), wherein it is held that ordinarily, the courts are precluded by Solomon's case 1897 AC 22 from treating a company as the 'alias, agent trustee or nominee of its member. But they will nevertheless do so if corporate personality is being used as a cloak for fraud or illegal conduct. They can also rend the veil where the agency can be established in fact, either in respect of particular transactions or even as regards the whole of the company's business.

The Id. CIT(A) erred in directing the Assessing Officer to allow the claim of agricultural income. As fresh evidence were filed, the Id. CIT(A) should have allowed under Rule 46A of the Income Tax Rules 1962, the AO an opportunity to examine the fresh evidence furnished.

For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored.

2 It transpired that the assessee and Late Shri. B. Venkatram Reddy (BVR) was two directors in seven group companies. The assessee held 99% of shareholding in these companies whereas BVR was holding remaining 1% share. It was also noted that BVR was cousin of the assessee and he expired in May, 2013. During search proceedings, it was found that over and above the declared sale consideration for land, some on- money was paid by Om Shakthy Agencies (Madras) Pvt. Ltd. (OSAPL) to the director for sale of land of the group companies. However, the assessee denied receipt of the same.

3 During investigation, two undisclosed bank accounts of BVR were discovered. In sworn statement recorded on 07.12.2011, the assessee stated that BVR was a business associates and handled the affairs at Chennai. However, in sworn statement dated 21.06.2011, BVR stated that his role was to take care of construction and purchase and sale of land as directed by Board of directors. On these facts, Ld. AO concluded that BVR merely acted as an executive on behalf of directors and he was more of an employee. The wife and legal heir of BVR also stated that BVR only looked after the affairs of Platinum group of companies and he did not carry out any other business activity. It also transpired that BVR resigned from directorship of the companies in December, 2009 but he continued to work for the companies even after he resigned as a director.

4 In the above background, Ld. AO noted that BVR had two undisclosed bank accounts i.e., one with Royal Bank of Scotland and another with State Bank of India wherein certain deposits were made. The wife of BVR, in sworn statement, stated that the monies deposited therein were from land dealings of Platinum group of companies only. However, the assessee did not accept that the money so deposited in the bank accounts were on-money received from the buyers of land. He also contended that these were the deposits from some other activities

5 The assessee could not file any satisfactory reply. Therefore. Ld. AO concluded that all the deposits were not to be disclosed in the return of income but were to be utilized by the assessee for the business of the group companies. Hence, these deposits were to be considered as unaccounted money of the assessee since the shareholding of these companies was mainly of the assessee and BVR was merely acting like a salaried employee. The assessee was merely using the corporate composition of his group of companies, the shareholders and other

6 The Ld. AO, applying the ratio of Hon’ble Supreme Court in the case of McDowell & Co. Ltd vs. CTO (22 Taxman 11) held that though corporate entities had been created but from the shareholding pattern, it was clearly perceived that the assessee was the only individual having controlling stake in the affairs of all the companies and he only would stand to gain from the transactions of the group even though two bank accounts were maintained in the name of a minor shareholder and who worked more like an employee for the group. The ultimate gain was that of the assessee. By lifting corporate veil, Ld. AO held that all the transactions in the group of companies were undertaken for the benefit of the assessee and therefore, the deposits were to be considered as unexplained income of the assessee and accordingly, added in the hands of the assessee. The deposits in these two accounts during this year were Rs.287.81 Lacs which were added substantively in the hands of the assessee and protectively in the hands of BVR.

7 The assessment for AY 2007-08 was framed on similar lines u/s 153A wherein agricultural income of Rs.2.30 Lacs was treated as normal income. The deposits in undisclosed bank accounts for Rs.392.53 Lacs were added substantively in the hands of the assessee. The Ld. AO made another addition of Rs.100 Lacs. The same was on the basis that the assessee, through two brokers, made land sales of the companies to OSAPL and received on-money. OSAPL claimed total payment of Rs.24.1 Crores whereas two brokers claimed that they received payment of Rs.11.9 Crores for payment to the assessee’s companies and its sister concerns. Both the brokers as well as BVR, who handled the deal, were produced on 01.07.2011 as witnesses of OSAPL and statement was recorded from its executive director Shri. N.R. Manigantan. The witnesses were examined and cross-examined during which BVR accepted to have received amount of Rs.140 Lacs in FY 2006-07 through two DDs, one favoring the assessee for Rs.100 Lacs and another favoring Platinum Holdings Pvt Ltd for Rs.40 Lacs. Upon verification of assessee’s books of account, it was found that the amount was reflected as return of advance from A. Senthamarai Kannan and not by way of sale. Therefore, Ld. AO added the same to the income of the assessee as undisclosed income.

8 In AY 2008-09, an assessment was framed u/s 153A making addition on substantive basis on account of deposits in two bank accounts for Rs.514.89 Lacs. Aggrieved as aforesaid, the assessee assailed the assessment so framed before learned first appellate authority which met with partial success vide impugned order dated 01.10.2018. During appellate proceedings, the assessee assailed the legal validity of impugned additions u/s 153A on legal grounds as well as quantum additions on merits.

Appellate Proceedings

1 The Ld. CIT(A) noted that original return of income for AYs 2006- 07, 2007-08 & 2008-09 was filed on 03.10.2006, 31.10.2007 and 29.09.2009 respectively. The assessee was searched on 21.06.2011

2 The assessee assailed AO’s juri iction u/s 153A on the ground that there was no incriminating material found / seized during search on assessee and therefore, assessment needs to be annulled on this account alone. The addition, in case of concluded assessment, could be made only on the basis of incriminating material / document seized in the course of search on the assessee. Nothing incriminating was found from the assessee in the course of search u/s 132 and still the additions were based. Such additions were not based on any documents seized or recovered in the course of search on assessee. The additions made in all these years were based on material collected during search of another entity much before initiation of search on assessee. Such material, therefore, could not form the basis of assessment u/s 153A in respect of unabated assessment. The addition based on any other material or document in respect of a concluded assessment would be unsustainable in law. To support the same, the assessee relied on various juridical decisions which have already been enumerated in the impugned order.

3 The Ld. CIT(A) noted that as per the provisions of Sec.153A, upon initiation of search u/s 132, Ld. AO is mandated to issue notice u/s 153A and required to determine the total income of each of the six assessment years, immediately preceding the year in which the search was initiated. Presence of seized material would not be a pre-requisite for issuing notice u/s 153A. What is required is mere initiation of search u/s 132. Once search is initiated, AO is bound to issue notice u/s 153A for all the stipulated years. The AO is bound to frame the assessment even if no document was unearthed from the assessee.

4 The Ld. CIT(A) sought distinction in the cited case law of Hon’ble Delhi High Court in the case of PCIT vs Meeta Gutgutia (395 ITR 526) and also in CIT vs Kabul Chawla (380 ITR 573) on the ground that in these decisions, two basic issues were not examined / addressed. Firstly, when presence of seized material is not a pre-requisite for issuance of notice u/s 153A of the act then how presence of such seized material is a pre-requisite condition for conclusion of assessment u/s 153A. This aspect was not addressed. Secondly, once there is an initiation of search u/s 132, AO will loose juri iction under all other normal provisions like 143(3) and 147. It is not restricted to abating the pending assessment / reassessment proceedings. The Ld. AO could not resort to Sec. 143(3) or 147 as these provisions would become un- operational. The provisions of Sec.153A are substituted provisions for Sec.143 as well as for Sec.147. In other words, all the powers vested with AO under normal provisions of Sec.143 & 147 are now available with AO u/s 153A upon initiation of search u/s 153A. However, Ld. AO is not permitted to re-visit the already concluded issues, especially in unabated concluded assessment years and could not require the assessee to prove its claim once again. In all such already concluded assessment years, the assessment of total income should be strictly based on the material evidences and information gathered during search proceedings and / or during the course of 153A proceedings. Finally, Ld. CIT(A) held that in the present case, no assessment was made in any of the AYs prior to search and therefore, these assessment years could not be considered as concluded or assessment years having reached finality. Therefore, presence of seized material would not be a mandatory requirement for determining total income of these years. Accordingly, the legal grounds as urged by the assessee were rejected and Ld. CIT(A) considered the merits of impugned additions.

5 Regarding assessee’s claim of agricultural income, the assessee, inter-alia, furnished copies of Patta, Chitta Adangal in support of ownership of agricultural land at Dindigal Village. The Ld. CIT(A), upon perusal of the same, noted that the assessee was possessing agricultural land from 2005 onwards. The same was also reflected in the Balance Sheet of the assessee. During FY 2008-09, the assessee sold these lands and offered capital gains. Therefore, this claim could not be held to be non-genuine.

6 On the addition of Rs.100 Lacs in AY 2007-08, the assessee submitted that he had earlier paid Rs.100 Lacs to one Sh. R. Ramdas, as advance for procuring land at Kundrattur village on 08.08.2006. This was in addition to opening advance of Rs.343 Lacs. Since he could procure only some lands, he returned sum of Rs.100 Lacs on 23.10.2006. When the advance was given, the transaction was recorded properly in the ledger account. However, when the amount was received back on 23.10.2006, it was wrongly entered in a different ledger account. This mistake was noticed subsequently and hence, necessary adjustment entry was made on 31.03.2008 by correcting both the ledgers. The Ld. CIT(A), upon perusal of ledger accounts, concurred with the submissions of the assessee and also noted that the assessee did not sell any land to OSAPL during this year and therefore, it was not possible to presume that the above receipts could be on-money consideration. Accordingly, Ld. AO was directed to delete the impugned addition.

7 On the issue of undisclosed bank accounts, Ld. CIT(A) noted that the two bank accounts were in the name of BVR. The Ld. AO observed that BVR was a minor shareholder and acted more like an employee rather than a stakeholder. The Ld. AO concluded that he was name lender to the assessee and all transactions in the two accounts belonged to the assessee. However, the assessee submitted that no addition could be made based on any third-party evidences or statements. There was no evidence to support the allegation of Ld. AO. The assessee also submitted that BVR was an independent director appointed during 2006 only. Further, BVR was having its own business affaires much before he was inducted as a director. To support the same, the assessee drew attention to the transactions undertaken by BVR during FY 2005-06. The assessee claimed that BVR had business interest in various concerns as partner as well as director. Some of the funds from these two banks were transferred to these concerns. Also, BVR was working as broker in real estate business in his own and in his individual capacity. He made substantial payments to various persons which were in no way related to the assessee or his group concerns. BVR resigned from Platinum group of companies in December, 2009 i.e., much before the date of search on 21.06.2011. Accordingly, the assessee assailed addition of impugned amounts in his hand.

8 The Ld. CIT(A) concurred that the observation of Ld. AO that BVR acted as director in Platinum Group of companies since its inception in 2004, was incorrect because all the group companies were incorporated only on 24.04.2006 and BVR was appointed as director in these companies only on 24.08.2006. Upon perusal of two bank accounts, it could be seen that there were transactions much before BVR joined Platinum Group as director. The total of such transactions during FY 2005-06 alone were to the tune of Rs.287 Lacs. BVR was having his own business affairs much before he was inducted as director of Platinum Group. He was also partner in M/s Krishna Krishna Infra & M/s Mytor Constructions and director in M/s Sharat Sea Foods Ltd. Only a small fraction of these transactions was with Platinum group of concerns and the same were also accounted in the regular books of accounts of the respective concerns. On the other hand, there was several payments by BVR from the two bank accounts which were in no way related to the assessee as examined by AO / DDIT in remand report dated 05.06.2015. In the said remand report, many transactions of the above bank accounts had been reconciled but none of them were connected to the assessee or his group concerns. BVR resigned during December, 2009 which was much before search proceedings on 21.06.2011. After his exit, there were several suits / criminal complaints filed against him by the Platinum group of companies, for alleged mi eeds and misusing his position. Shri BVR was also working as broker / agent in real estate business on his own and in his individual capacity as evident from paras 10 to 10.4 of Tribunal order in the case of OSAPL (66 Taxmann.com 287). Therefore, it was not possible to hold that the above two bank accounts belonged to the present assessee and AO was not justified in concluding that BVR was the name-lender to the assessee, Therefore,

Since the legal grounds urged by the assessee assail very juri iction of Ld. AO u/s 153A and goes to the root of the matter, we take up the same first. It could be seen that the assessee has filed return of income for AYs 2006-07, 2007-08 & 2008-09 on 03.10.2006, 31.10.2007 and 29.09.2009 respectively. The assessee was searched on 21.06.2011 and notice u/s 153A was issued to the assessee on 24.12.2012. The assessee offered original return of income as already filed in response to these notices and apparently, the impugned additions are not based on any incriminating material found from the assessee but the same are based on incriminating material found in another search which has already happened much before the dateof search on the assessee. From the submissions of Ld. AR, it could be seen that search was conducted in the premises of OSAPL on 02.07.2010 wherein two undisclosed bank accounts belonging to BVR were found. The assessee was searched on 21.06.2011. 5. The Ld. AR has placed on record copy of Panchnama drawn against the assessee. The seized material has been marked as ANN/VJ/B&D/S which apparently contain copy of the registered sale deed and copy of the agreement between the assessee and various parties. The Annexure ANN/VJ/LS/S is a yellow color folder containing loose sheets from Sheet No.1 to 140. However, none of these

On given set of facts, the ratio of recent decision of Hon’ble (149 Taxmann.com 399), considering all the earlier decisions holding the field, would squarely apply to the facts of the case settling the impugned issue in favor of the assessee. The adjudication of Hon’ble Court was as under: -

We have heard learned counsel for the respective parties at length. The question which is posed for consideration in the present set of appeals is, as to whether in respect of completed assessments/unabated assessments, whether the juri iction of AO to make assessment is confined to incriminating material found during the course of search under section 132 or requisition under section 132A or not, i.e., whether any addition can be made by the AO in absence of any incriminating material found during the course of search under section 132 or requisition under section 132 A of the Act, 1961 or not.

It is the case on behalf of the Revenue that once upon the search under section 132 or requisition under section 132A, the assessment has to be done under section 153A of the Act, 1961 and the AO thereafter has the juri iction to pass assessment orders and to assess the 'total income' taking into consideration other material, though no incriminating material is found during the search even in respect of completed/unabated assessments.

At the outset, it is required to be noted that as such various High Courts, namely, Delhi High Court, Gujarat High Court, Bombay High Court, Karnataka High Court, Orissa High Court, Calcutta High Court, Rajasthan High Court and the Kerala High Court have taken the view that no addition can be made in respect of completed/unabated assessments in absence of any incriminating material. The lead judgment is by the Delhi High Court in the case of Kabul Chawla (supra), which has been subsequently followed and approved by the other High Courts, referred to hereinabove. One another lead judgment on the issue is the decision of the Gujarat High Court in the case of Saumya Construction (supra), which has been followed by the Gujarat High Court in the subsequent decisions, referred to hereinabove. Only the Allahabad High Court in the case of Pr. CIT v. Mehndipur Balaji 2022 SCC Online All 444/[2023] 147 taxmann.com 201/ [2022] 447 ITR 517 has taken a contrary view.

1 In the case of Kabul Chawla (supra), the Delhi High Court, while considering the very issue and on interpretation of section 153A of the Act, 1961, has summarised the legal position as under: Summary of the legal position

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 153A(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 '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 juri iction 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 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.

2 Thereafter in the case of Saumya Construction (supra), the Gujarat High Court, while referring the decision of the Delhi High Court in the case of Kabul Chawla (supra) and after considering the entire scheme of block assessment under section 153A of the Act, 1961, had held that in case of completed assessment/unabated assessment, in absence of any incriminating material, no additional can be made by the AO and the AO has no juri iction to re-open the completed assessment. In paragraphs 15 & 16, it is held as under: "15.On a plain reading of section 153A of the Act, it is evident that the trigger point for exercise of powers thereunder is a search under section 132 or a requisition under section 132A of the Act. Once a search or requisition is made, a mandate is cast upon the Assessing Officer to issue notice under section 153A of the Act to the person requiring him to furnish the return of income in respect of each assessment year falling within six

Section 153A bears the heading "Assessment in case of search or requisition". It is well settled as held by the Supreme Court in a catena of decisions that the heading of the, section can be regarded as a key to the interpretation of the operative portion of, the section and if there is no ambiguity in the language or if it is plain and clear, then the heading used in the section strengthens that meaning. From the heading of section 153, the intention of the Legislature is clear, viz, to provide for assessment in case of search and requisition. When, the very purpose of the provision is to make assessment in case of search or requisition, it goes without saying that the assessment has to have relation to the search or requisition. In other words, the assessment, should be connected with something found during the search or requisition, viz., incriminating material which reveals undisclosed income Thus, while in view of the mandate of sub-section (1) of section 153A of the Act, in every case where there is a search or requisition, the Assessing Officer is obliged to issue notice to such person to furnish returns of income for the six years preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made, any addition or disallowance can be made only on the basis of material collected during the search or requisition. In case no incriminating material is found, as held by the Rajasthan High Court in the case of Jai Steel (India) v. Asst. CIT (supra), the earlier assessment would have to be reiterated. In case where pending assessments have abated, the Assessing Officer can pass assessment orders for each of the six years determining the total income of the assessee which would include income declared in the returns, if any, furnished by the assessee as well as undisclosed income, if any, unearthed during the search or requisition. In case where a pending reassessment under section 147 of the Act has abated, needless to state that the scope

For the reasons stated hereinbelow, we are in complete agreement with the view taken by the Delhi High Court in the case of Kabul Chawla (supra) and the Gujarat High Court in the case of Saumya Construction (supra), taking the view that no addition can be made in respect of completed assessment in absence of any incriminating material.

While considering the issue involved, one has to consider the object and purpose of insertion of Section 153A in the Act, 1961 and when there shall be a block assessment under section 153A of the Act, 1961. 9.1 That prior to insertion of Section 153A in the statute, the relevant provision for block assessment was under section 158BA of the Act, 1961. The erstwhile scheme of block assessment under section 158BA envisaged assessment of 'undisclosed income' for two reasons, firstly that there were two parallel assessments envisaged under the erstwhile regime, i.e., (i) block assessment under section 158BA to assess the 'undisclosed income' and (ii) regular assessment in accordance with the provisions of the Act to make assessment qua income other than undisclosed income. Secondly, that the 'undisclosed income' was chargeable to tax at a special rate of 60% under section 113 whereas income other than 'undisclosed income' was required to be assessed under regular assessment procedure and was taxable at normal rate. Therefore, section 153A came to be inserted and brought on the statute. Under Section 153A regime, the intention of the legislation was to do away with the scheme of two parallel assessments and tax the 'undisclosed' income too at the normal rate of tax as against any special rate. Thus, after introduction of Section 153A and in case of search, there shall be block assessment for six years. Search assessments/block assessments under section 153A are triggered by conducting of a valid search under section 132 of the Act, 1961. The very purpose of search, which is a prerequisite/trigger for invoking the provisions of sections 153A/153C is detection of undisclosed income by undertaking extraordinary power of search and seizure, i.e., the income which cannot be detected in ordinary course of regular assessment. Thus, the foundation for making search assessments under sections 153A/153C can be said to be the existence of incriminating material showing undisclosed income detected as a result of search.

On a plain reading of Section 153A of the Act, 1961, it is evident that once search or requisition is made, a mandate is cast upon the AO to issue notice under section 153 of the Act to the person, requiring him to furnish the return of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made and assess or reassess the same. Section 153A of the Act reads as under: "153A. Assessment in case of search or requisition - (1) Notwithstanding anything contained in Section 139, Section 147, Section 148, Section 149, Section 151 and Section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132-A after the 31st day of May, 2003, the Assessing Officer shall— (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139;

As per the provisions of Section 153A, in case of a search under section 132 or requisition under section 132A, the AO gets the juri iction to assess or reassess the 'total income' in respect of each assessment year falling within six assessment years. However, it is required to be noted that as per the second proviso to Section 153A, the assessment or re-assessment, if any, relating to any assessment year falling within the period of six assessment years 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. As per sub- section (2) of Section 153A, if any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner. Therefore, the intention of the legislation seems to be that in case of search only the pending assessment/reassessment proceedings shall abate and the AO would assume the juri iction to assess or reassess the 'total income' for the entire six years period/block assessment period. The intention does not seem to be to re-open the completed/unabated assessments, unless any incriminating material is found with respect to concerned assessment year falling within last six years preceding the search. Therefore, on true interpretation of Section 153A of the Act, 1961, in case of a search under section 132 or requisition under section 132A and during the search any incriminating material is found, even in case of unabated/completed assessment, the AO would have the juri iction to assess or reassess the 'total income' taking into consideration the incriminating material collected during the search and other material which would include income declared in the returns, if any, furnished by the assessee as well as the undisclosed income. However, in case during the search no incriminating material is found, in case of completed/unabated assessment, the only

If the submission on behalf of the Revenue that in case of search even where no incriminating material is found during the course of search, even in case of unabated/completed assessment, the AO can assess or reassess the income/total income taking into consideration the other material is accepted, in that case, there will be two assessment orders, which shall not be permissible under the law. At the cost of repetition, it is observed that the assessment under section 153A of the Act is linked with the search and requisition under sections 132 and 132A of the Act. The object of Section 153A is to bring under tax the undisclosed income which is found during the course of search or pursuant to search or requisition. Therefore, only in a case where the undisclosed income is found on the basis of incriminating material, the AO would assume the juri iction to assess or reassess the total income for the entire six years block assessment period even in case of completed/unabated assessment. As per the second proviso to Section 153A, only pending assessment/reassessment shall stand abated and the AO would assume the juri iction with respect to such abated assessments. It does not provide that all completed/unabated assessments shall abate. If the submission on behalf of the Revenue is accepted, in that case, second proviso to section 153A and sub-section (2) of Section 153A would be redundant and/or rewriting the said provisions, which is not permissible under the law.

For the reasons stated hereinabove, we are in complete agreement with the view taken by the Delhi High Court in the case of Kabul Chawla (supra) and the Gujarat High Court in the case of Saumya Construction (supra) and the decisions of the other High Courts taking the view that no addition can be made in respect of the completed assessments in absence of any incriminating material.

In view of the above and for the reasons stated above, it is concluded as under: (i) that in case of search under section 132 or requisition under section 132A, the AO assumes the juri iction for block assessment under section 153A; (ii) all pending assessments/reassessments shall stand abated; (iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the juri iction to assess or reassess the 'total income' taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and (iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under section 132 or requisition under section 132A of the Act, 1961. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved.

Insofar as the aforesaid Civil Appeals preferred by the assessee – M/s Kesarwani Zarda Bhandar Sahson, Allahabad are concerned, these appeals have been preferred against the impugned judgment and order dated 6-9-2016 passed in ITA Nos. 270/2014, 269/2014, 15/2015, TANVI 16/2015, 268/2014 and 17/2015, as also, against the order dated 21-9-2017 passed in the review applications. It is required to be noted that the issue before the Allahabad High Court was, whether in case of completed/unabated assessments, the AO would have juri iction to re-open the assessments made under section 143(1)(a) or 143(3) of the Act, 1961 and to reassess the total income taking notice of undisclosed income even found during the search and seizure operation.

1 In view of the discussion hereinabove, once during search undisclosed income is found on unearthing the incriminating material during the search, the AO would assume juri iction to assess or reassess the total income even in case of completed/unabated assessments. Therefore, the impugned judgment(s) and order(s) passed by the High Court taking the view that the AO has the power to reassess the return of the assessee not only for the undisclosed income, which was found during the search operation but also with regard to material that was available at the time of original assessment does not require any interference. Under the circumstances, the aforesaid appeals preferred by the assessee – M/s Kesarwani Zarda Bhandar, Sahson, Allahabad deserve to be dismissed and are accordingly dismissed. In the facts and circumstances of the case, no costs.

Similar is the decision of Hon’ble Bombay High Court in the case of CIT V/s Continental Warehousing Corporation [2015; 374 ITR 645] which has been followed in subsequent decision in CIT V/s Gurinder Singh Bawa (79 taxmann.com 398 05/10/2015) which deal with a situation wherein the original return of income was processed u/s 143(1).

We find that similar is the view of Hon’ble Delhi High Court in Pr. CIT V/s Meeta Gutgutia (82 Taxmann.com 287) which has primarily followed the decision of Kabul Chawla (supra). We also find that Special Leave Petition (SLP) filed by the revenue against this decision has already been dismissed by Hon’ble Supreme Court on 02.07.2018 which is reported at 96 Taxmann.com 468. The decision of Hon’ble Court was as under: -

We do not find any merit in this petition. The special leave petition is, accordingly, dismissed.

Pending application stands disposed of.

Another alternative argument of the revenue would be that the assessment could have been framed u/s 153C. The same is also devoid of any merit since to invoke the provisions of Sec.153C, recording of satisfaction of the searched person as well as the assessee is sine-qua- non to assume juri iction u/s 153C. No such satisfaction has been shown to us.

Finally, respectfully following the ratio of aforesaid binding judicial precedents, we allow legal grounds as urged by the assessee. The impugned additions, being not based on any incriminating material found during the course of search on the assessee, are unsustainable on legal grounds itself. Consequently, delving into merits of the case has been rendered merely academic in nature and we see no reason to go into the same. The legal ground as urged in assessee’s cross-objections, for all the three years, stand allowed. The revenue’s appeal has been rendered infructuous and accordingly, dismissed.

The assessee’s cross-objections, for all the years stands allowed. The revenue’s appeals, for all the years, stand dismissed.