ACIT CC 22 & 30 CEN RG 5, MUMBAI vs. USHA MITTAL, MUMBAI

This appeal by the Revenue is directed against the order of the CIT(A)- 39, Mumbai dated 30.05.2014 for A.Y. 2006-07.

2.2 Pursuant to the search on 13.10.2010, notice under section 153A of the Act was issued to the assessee on 04.08.2011 and in response thereto, the assessee filed a return of income for A.Y. 2006-07 on 15.09.2011 declaring the same total income of `2,51,382/- as was declared in the original return. The Assessing Officer (AO) completed this assessment under section 143(3) r.w.s. 153A of the Act vide order dated 25.03.2013, wherein the income of the assessee was determined at `38,72,630/- in view of the following additions: - (i) LTCG treated as unexplained cash credit `34,49,139/- (ii) Bogus commission `1,72,107/- 3. Aggrieved by the order of assessment dated 25.03.2013 for A.Y. 2006-07 passed under section 143(3) r.w.s. 153A of the Act, the assessee preferred an appeal before the CIT(A)-33, Mumbai. The learned CIT(A) vide the impugned order dated 30.05.2014 allowed the assessee’s appeal. The learned CIT(A), following the decision of the Special Bench of the ITAT, Mumbai in the case of All Cargo Global Logistics Ltd. 18 ITR 106 (Mumbai) (SB), held that in the case on hand the AO did not have the power to make the impugned additions listed at (i) and (ii) in pre para 2.2 (supra), in the absence of any incriminating material found in the course of search. In that view of the matter, the learned CIT(A) annulled the additions made in the order of assessment for A.Y. 2006-07 passed under section 143(3) r.w.s. 153A of the Act; thereby allowing the assessee’s appeal on ground of appeal No. 4 raised by the assessee challenging the validity of the additions in assessment made for A.Y. 2006-07 vide order dated 25.03.2013.

3 ITA 4962/M/2013 & CO 76/M/2016 Smt. Usha Mittal 4.1 Aggrieved by the order of the CIT(A)-39, Mumbai dated 30.05.2014 for A.Y. 2006-07, Revenue has preferred this appeal raising the following grounds: - “

1. Whether On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the AO to delete the addition of Rs.34,49,139/- on account of unexplained cash credit u/s. 68 treating the LTCG as bogus.

2. Whether On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the AO to delete the addition of Rs.1,72,107/- on account of unaccounted expenditure towards commission paid on bogus capital gains.

3. Whether On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred that assessment completed u/s. 143(3) r.w.s. 153A is against the provisions of law and as such liable to be annulled. The appellant craves leave to add, to amend and / or to alter any of the grounds of appeal, if need be.” 4.2 The assessee has also raised Cross Objections (CO); which are as under: - “1.i) On the facts and in the circumstances of the case and in law, the ld. AO erred in disputing the deletion of an addition of `34,39,139/- made by him to the income of the Appellant on account of unexplained cash credit u/s.68 treating the Long term capital gains as bogus and an addition of `1,72,107/- made by him to the income of the Appellant on account of unaccounted expenditure for the reason that the ld. CIT(A) has not adjudicated on the ground of appeal since the addition was out of scope of section 153A. ii) The ld. AO failed to appreciate that the ld. CIT(A) has only adjudicated on the issue of validity of the assessment passed u/s. 143(3) r.w.s. 153A iii) In raising such grounds of appeal the ld. AO omitted to consider relevant factors, considerations, principles and evidences while he was overwhelmed, influenced and prejudiced by irrelevant considerations and factors.” Revenue’s appeal for A.Y. 2006-07

5. Ground No. 1 & 2 – (i) LTCG treated as Bogus & (ii) Commission paid on bogus LTCG 5.1 At the onset, we observe that the averments in two grounds are factually incorrect. In the impugned order, at para 10 thereof the learned CIT(A) has stated that having decided the appeal on the validity of the 4 ITA 4962/M/2013 & CO 76/M/2016 Smt. Usha Mittal additions made by the AO; as being beyond the scope of his powers as per the provisions of section 153A of the Act, she is not adjudicating the other grounds 2 and 3 raised on the merits of these additions.

6. Ground No. 3 – Validity of the additions made in the assessment order under section 143(3) r.w.s. 153A 6.1 We have heard the rival submissions of the learned D.R. for Revenue and the learned A.R. of the assessee and perused and carefully considered the material on record; including the judicial pronouncements cited. 6.2 The learned D.R. placed strong reliance on the order of the Assessing Officer as being in order on this issue. 6.3.1 The learned A.R. of the assessee reiterated the submissions made in this regard before the learned CIT(A), which are extracted hereunder: - a) The issue of Long term capital gains has already been accepted by the AO in the regular assessment completed under s. 143(1) on 25-9-2007. b) It is submitted that the Legislature requires pending assessment proceedings to abate and only such years for which proceedings are abated, may be treated as normal assessment proceedings. For other years, addition can be made only on the basis of incriminating documents found as a result of search on the assessee. Section 153A refers to a "pending” "assessment or re- assessment" and not "assessment order”. The assessment may not be pending, even though there is no formal assessment order under section 143(1)(a). The moment the return is fled and acknowledgement or intimation is issued, the proceedings initiated by filing the return are closed, unless they are again triggered by issuing notice under section 143(2). Even in a case where notice under section 143(2) is not issued, though time period for issuing such notice is available, it cannot be said that any proceeding is pending. The notice under section 143(2) only initiates another proceeding called as regular assessment proceeding. The issuance of notice under section 143(2) is discretionary and not mandatory. Therefore, mere availability of time to issue notice under section 143(2) does not create pendency of an assessment. c) It is submitted that the Assessing Officer has no power to re- examine the issue which have already been examined in the earlier assessment proceedings completed u/s. 143(3). It is settled law that in case of re-assessment proceedings u/s. 147/148 change of opinion on the same set of facts is not permitted as held by the SC in the case of CIT V/s. Kelvinator of Indis Ltd. 320 5 ITA 4962/M/2013 & CO 76/M/2016 Smt. Usha Mittal ITR 561. The reassessment proceedings u/s. 153A are also of the same nature as reassessment proceedings u/s. 147/148 and the ratio should equally applied while forming assessment u/s. 153A d) It is further submitted that the assessment under s. 153A can be made only on the basis of any evidence, documents material or information found during the search on an assessee. Therefore no adverse inference can be drawn against any assessee, which are based on conjecture and surmises or estimates and presumptions not supported by any valid evidence, documents etc, found in the search on the assessee. It is further submitted that the where the transactions are disclosed in the regular books of account prior to search and no incriminating documents have been found as a result and as such this issue is beyond the scope of the assessment to be made under s. 153A. Section 153A provides that where a search is initiated under s. 132 the AO shall "assessee or reassess the total income of six assessment. years immediately preceding the assessment year” relevant to the previous year in which. the search is conducted or requisition is made. The 1st Proviso states that the AO shall "assess or reassess the total income in respect of each assessment year falling within such six assessment years" while the 2nd Proviso states that the assessment or reassessment relating to the said six assessment years "pending" on the date of initiation of the search under 132 shall "abate". In the assessee's case, search action was initiated and assessment under s.153A were framed for six assessment years making various additions. The additions were not tenable as regular returns had been filed where the particulars relating to the additions had been disclosed and the same had been accepted u/s. 143(1) or 143(3) and also that no material had been found during the search to justify the additions. Section 153A does not authorise the making of a de novo assessment. While under the 1st Proviso, the AO is empowered to frame assessment for six years, under the 2nd Proviso, only the assessments which are pending on the date of initiation of search abate. The effect is that completed assessments do not adate. There can not be two assessment for the same assessment year. Assessments which are not pending before the AO on the date of search but are pending before an appellate authority will survive. An assessment can be said to be 'pending" only if the AO is statutorily required to do something further. If a notice u/s. 143(2) has been issued, the assessment is pending. However, the assessment in respect of a return processed u/s. 143(1) is not “pending" because the AO is not required to do anything further about such a return. The power given by the 1st Proviso to "assess" income for six assessment years has to be confined to the undisclosed income unearthed during search and cannot include items which are disclosed in the original assessment proceedings. As the returns had been 6 ITA 4962/M/2013 & CO 76/M/2016 Smt. Usha Mittal processed u/s. 143(1)/assessments made u/s. 143(3), the assessment were not "pending” and as no material was found during the search, the additions could not be sustained. e) It is submitted that the word 'pending' occurring in the second proviso to Section 153A of the Act, is significant. It is qualified by the words 'on the date of initiation of the search', and makes it abundantly clear that only such assessment or reassessment proceedings are liable to abate. In other words, assessments which are not pending i.e. competed assessments as on the date of Search would hold their base and would not abate. Thus only pending assessments as on the date of search shall abate. f) It is the further contention of the appellant that as far as completed assessments are concerned, they do not abate and pending appeals, etc. in respect thereof continue to exist notwithstanding the fact that the search has been made. Thus a completed assessment becomes final unless some incriminating material is found in the course of search. Otherwise the Assessing Officer will be empowered to undo what has already been completed and has become final. g) It is further pointed out that the second proviso to section 153A is intended to avoid two assessments for the same year. Therefore, proper construction would be that in respect of completed assessments, the assessment shall be made only if incriminating documents etc. are found. Therefore, the term assess and reassess appearing in section 153A(1)(b) means that assessment shall be made in case of pending assessments and reassessments shall be made in respect of completed assessments where incriminating material is found.” 6.3.2 The learned A.R. placed reliance on the following judicial pronouncements in support of the arguments put forth: - (i) All Cargo Global Logistics Ltd. vs. DCIT (137 ITD 287) (SB-ITAT- Mumbai). (ii) CIT vs. Anilkumar Bhatia [24 taxmann.com 98 (Del)] 6.3.3 On an appreciation of the facts of the case on hand, the submission/ contentions put forth by both parties, the orders of the authorities below and judicial pronouncements cited, it is not disputed that the issue on which the AO made addition in the post search order of assessment passed under section 143(3) r.w.s 153A of the Act for A.Y. 2006-07, i.e. LTCG treated as bogus cash credit – `34,49,139/-, has already been accepted by the AO in the regular order of assessment for A.Y. 2006-07 under section 143(1) of the Act on 25.09.2007, prior to the search. The law mandates 7 ITA 4962/M/2013 & CO 76/M/2016 Smt. Usha Mittal that only pending assessment proceedings abate and it is only those years in which proceedings have abated that are to be treated as normal assessment proceedings. For other years, where assessment proceedings have not abated the AO is empowered to make additions only on the basis of evidence, material, information or incriminating documents found in the course of search on an assessee. If as on the date of search, no proceedings are pending for any assessment year and the concerned transactions have been disclosed in the regular books of account prior to the search, additions in respect of such transactions are beyond the scope of assessments to be made under section 153A of the Act and the AO is not empowered to do so. Therefore, in our view, the AO in the case on hand was not empowered by law to make the additions of LTCG treated as bogus cash credit and consequent bogus commission, in the post search assessment as the same was already admittedly disclosed in the original return of income filed for A.Y. 2006-07 which was assessed under section 143(1) of the Act on 25.09.2007 before the search took place on 13.10.2010. 6.3.4 The learned CIT(A), in the impugned order, while allowing the assessee’s appeal on this technical aspect held as under at paras 9 and 10: “9. I have considered the facts of the case, the assessment order passed by the Assessing Officer and the contentions as raised by the appellant. Admittedly the issue of Long term capital gains has already been accepted by the Assessing Officer in the regular assessment completed under s.143(1) on 25-9-2007 i.e. prior to the search. The law requires that only pending proceedings abate and only such years for which proceedings are abated are to be treated as normal assessment proceedings. For other years, the addition is be made on the basis of the incriminating documents found as a result of search. The assessment under s. 153A is be made on the basis of any evidence, documents material or information found during the search on an assessee. Where the transactions are disclosed in the regular books of account prior to search and no incriminating documents have been found as a result and as on the date of search if no proceedings are pending, such matter is beyond the scope of assessment to be made under s. 153A. Section 153A provides that where a search is initiated under s. 132 the Assessing Officer shall “assess or reassess the total income of six assessment years immediately preceding the assessment year” relevant to the previous year in which the search is conducted or 8 ITA 4962/M/2013 & CO 76/M/2016 Smt. Usha Mittal requisition is made. The 1st Proviso states that the Assessing Officer shall “assess or reassess the total income in respect of each assessment year falling within such six assessment years" while the 2nd Proviso states that the assessment or reassessment relating to the said six assessment years “pending" on the date of initiation of the search under 132 shall "abate". While under the 1st Proviso, the Assessing Officer is empowered to frame assessment for six years, under the 2nd Proviso, only the assessments which are pending on the date of initiation of search abate. The effect is 'that completed assessments do not abate. In the instant case the return had been processed under s. 143(1); no proceedings were "pending" on the date of search; the time to issue notice under s. 143(2) had expired and no material was found during the search as regards the addition made with regard to the impugned transaction in shares. The Hon'ble Mumbai ITAT Special Bench in the case of All Cargo Global Logistics Ltd. Vs. DCIT 137 ITD 287 has held, on the subject matter, as under:- a) In assessments that, are abated, the Assessing Officer retains the original jurisdiction as well as jurisdiction conferred on him under s. 153A for which assessments shall be made for each of the six assessment years separately; b) In other cases, in addition to the income that has already been assessed, the assessment under s. 153A will be made on the basis of incriminating material, which in the context. of relevant provisions means - (i) books of account, other documents, found in the course of search but not produced in the course of original assessment, and (ii) undisclosed income or property discovered in the course of search.

10. In view of the above discussion, following the decision of the Special Bench (of the Hon'ble Mumbai Tribunal in the case of All Cargo Global Logistics Ltd. v. Deputy CIT 18 ITR 106(Mumbai (SB), it is held that in the instant case the Assessing Officer did not have the power to make the impugned addition in absence of any incriminating material. Therefore it follows that both the additions made by the Assessing Officer are beyond the scope of section 153A. Ground 4 is decided in favour of the appellant. Having decided on the validity of the additions/ assessment, I am not adjudicating on Grounds 2 and 3.” 6.3.5 In the light of the facts and circumstances of the case on this issue, as discussed in paras 6.3.1 to 6.3.4 of this order (supra), and placing reliance on the decision of the ITAT, Mumbai Special Bench in the case of All Cargo Global Logistics vs. DCIT (131 ITD 287), we uphold the finding of the learned CIT(A) that in the case on hand the AO did not have the power to make the impugned additions of (i) LTCG treated as unexplained cash