M/S. NILAY INFRASTRUCTURE (P) LTD.,NEW DELHI vs. DCIT, NEW DELHI

ORDER

PER I.C. SUDHIR: JUDICIAL MEMBER The assessee has questioned first appellate order on the following grounds: 1. That having regard to the facts and circumstances of the case, Learned CIT(Appeals) has erred in law and on facts in confirming the action of the Ld. A.O. in framing the impugned assessment order u/s. 153A/143(3) without assuming jurisdiction as per law and without obtaining requisite approval as per law and without complying with the other mandatory condition envisaged under the Act, more so when no incriminating material have been found as a result of search.

3. That in any case and in any view of the matter, impugned disallowance and impugned assessment order are bad in law, illegal, unjustified, barred by limitation, contrary to facts and law and based upon recording of incorrect facts and finding, without giving adequate opportunity of hearing, in violation of principles of natural justice and the same deserves to be quashed.

4. That in any case and in any view of the matter, action of the Learned CIT(Appeals) in confirming the action of the Ld. A.O. in framing the impugned assessment order is contrary to law and facts, void ab initio, beyond jurisdiction and the same is not sustainable on various legal and factual grounds.

5. On perusal of the above referred documents as well as the assessment order, we find that the Learned AR has been able to corroborate this fact that return of income under sec. 139(1) of the Act for the assessment year under consideration was filed by the assessee on 14.11.2007. The parties were thus directed to advance their respective arguments on the validity of assessment framed under sec. 153A/143(3) of the Act. 6. The Learned AR reiterated the above contention that on the date of search, no incriminating material was found relating to the assessee and on that date no assessment was pending for the abatement. In this regard, he referred orders of the authorities below wherein nothing incriminating has been mentioned found during the course of search. The disallowance under sec. 40A(3) of the Act in the assessment has been made not on the basis of any incriminating material found during the course of search. He placed reliance on the above cited decision of the Hon'ble jurisdictional High Court 7 of Delhi in the case of Kabul Chawla (supra) with this further submission that in that case also return was filed and processed under sec. 143(1) of the Act and no notice under sec. 143(2) was issued within the prescribed time limit. The Learned CIT(Appeals) has decided the issue against the assessee following the decision of Hon'ble jurisdictional High Court of Delhi in the case of Anil Bhatia, which has been distinguished in the case of Kabul Chawla. 7. The Learned CIT(DR) on the other hand placed reliance on the first appellate order with the submission that original assessment remains the issue of contention in the present case. She reiterated that return processed under sec. 143(1) of the Act cannot be termed as assessment order. In this regard, she placed reliance on the decision of Hon'ble Delhi High Court in the case of CIT vs. Punjab National Bank – 249 ITR 763. She submitted that provisions laid down under sec. 153A will come in operation only when the return originally filed and processed under sec. 143(1) is treated as assessment.

“Summary of the legal position 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 as 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." 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 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 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”.