ACIT, FARIDABAD vs. M/S. HINDUSTAN SYRINGES & MEDICAL DEVICES LTD., FARIDABAD

ITA NO. 5407/Del/2013

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “C”, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI J.S. REDDY, ACCOUNTANT MEMBER I.T.A. No.5407/DEL/2013 A.Y. : 2005-06 ACIT, CENTRAL CIRCLE-II VS. M/S HINDUSTAN SYRINGES & NEW DELHI MEDICAL DEVICES LTD., SECTOR-25, BALLABGARH, FARIDABAD (PAN: AAACH0007) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT)

Department by : Sh. A.K. Saroha, CIT(DR) Assessee by : Sh. V.K. Agarwal, A.R.

Date of Hearing : Date of Hearing : 14-03-201 Date of Hearing : Date of Hearing : 201 2016 201 Date of Order : Date of Order : 01 Date of Order : Date of Order : 01 01-04 01 04 04-201 04 201 2016 201 ORDER ORDER ORDER ORDER PER H.S. SIDHU : JM PER H.S. SIDHU : JM PER H.S. SIDHU : JM PER H.S. SIDHU : JM The Revenue has filed the present appeal against the impugned Order dated 25/7/2013 passed by the Ld. Commissioner of Income Tax (Central), Gurgaon for the assessment year 2005-06 on the following ground:-

“Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was right in deleting the addition of Rs. 50,19,494/- made by the AO on account of excess depreciation claimed by the assessee without considering the merit of the case and merely taking into account the facts that original assessment was already completed u/s. 143(3) of the Income Tax Act, 1961”

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5.1 On the contrary, Ld. Counsel of the assessee stated that the issue in dispute is squarely covered in favor of the assessee by the decision dated 28.8.2015 of the Hon’ble Delhi High Court passed in the case CIT(Central)-III vs. Kabul Chawla in ITA No. 707, 709, 713/Del/2014 wherein the Hon’ble High Court has held that if the additions are made, but not based on any incriminating material found during search operation, then these additions are not sustainable in the eyes of law. He further stated that recently the Hon’ble High Court in the case of CIT vs. Jakson Engineers Ltd. vide order dated 7.12.2015 reported in 2015-TIOL-2789-HC-DEL-IT has dealt the similar issue wherein the decision of the Hon’ble High Court in the case of CIT vs. Kabul

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Chawla (Supra) was discussed and followed. In this behalf, he filed the copies of the aforesaid orders.

“6. I have considered the assessee’s submission and the impugned order. In so far as Grounds of Appeal Nos. 1 and 2 are concerned, the assessee has vehemently submitted that where no incriminating material is found in the course of search, the return of income u/s. 139(1) r/w section 143(3) cannot be disturbed. The assessee has relied on the Hon’ble ITAT, Special Bench, Mumbai in the case of All Cargo Global Logistics Ltd. vs. DIT, 2012-TIOL-391- ITAT-Mum-SB; Hon’ble Delhi High Court in the case of CIT vs. Anil Kumar Bhatia, ITA No. 1626/2010; Hon’ble ITATMumbai dated 19.12.2012 in the case of ACIT vs. M/s Pratibha Industries Ltd., ITA No. 2197 to 2199/Mum/2008; Hon’ble ITAT Mumbai in the case of Shri Gurinder Singh Bawa vs. DCIT, ITA No. 2075/Mum/2010; LMJ International Ltd. vs. DCIT, (2008) 119 TTJ (Kol) 214; Anil P Khimani vs. DCIT 2010-TIOL-177-ITAT-Mum.

6.1 To decide on the issue, we may refer to the provisions of section 153A of the Income Tax Act, 1961. Chapter XIV of the Act and provisions of Section 153A were brought in the statute by Finance Act 2003 w.e.f. 1.6.2003. It reads as under:-

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“153A. [(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 132A 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; (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made : Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years: Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this [sub-section] pending81 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 : [Provided also that the Central Government may by rules made by it and published in the Official Gazette (except in cases where any assessment or reassessment has abated under the second proviso), specify the class or classes of cases in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made.]

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[(2) 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 [Principal Commissioner or] Commissioner: Provided that such revival shall cease to have effect, if such order of annulment is set aside.] Explanation.—For the removal of doubts, it is hereby declared that,— (i) save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to the assessment made under this section; (ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year.” In other words, the only condition for initiation of notice u/s 153A is a search conducted u/s 132. It also gives credence to a requisition u/s 132A. The word 'incriminating' document/material has not been mentionod. The said section facilitates assessment/reassessment for six financial years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made. In other words, the AO is bound to issue notice to the assessee for each assessment year falling within six assessment year reckoned from the date of search. AO is also empowered to assess or reassess the 'total income' of the aforesaid years. This has been the stand of the Delhi High Court in CIT v Anil Kumar Bhatia (2012) 80 DTR 169. The Hon'hle High Court has also

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laid down that this amendment has been brought about to avoid multiplicity of assessment.

It may be reiterated that the provisions of Section 153A does not provide that the assessment/reassessment should he based on 'incriminating material'. However, one may state that the Delhi High Court (supra) in para 23 has left the issue open.

Not without reason, the Hon'ble Andhra Pradesh High Court in Gopal Lal Bhadruka & Ors (2012) 77 DTR 146 has observed that Section 15BBI was introduced by the Finance Act, 2003. The said provision also stated that Chapter XIVB did not apply after 315.2003. It has categorically held in para 17 that while the provisions of Charter XIV-B of the Act limit the enquiry by the AO to those materials found in the course of search and seizure operations, no such limitation is found insofar as sections 153A/153C of the Act arc concerned. The AO can take into consideration material other than what was available during the search and seizure operation for making an assessment of the undisclosed income of the assessee.

6.2 It is further reiterated that the word 'incriminating' does not find mention in section 153A or Section 153C. Nor has the said word been defined in the, Act. If it means only what has been seized, then Sections 153A/153C does not provide for the same. There could be times when some material maybe found but not seized. So can the same be declared as non-incriminating? For instance jewellery found but not seized. Will that be outside the scope of 'incriminating'? The

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search party may only inventorise and not seize any of the jewellery. Would that imply the source of acquisition stood explained? Instruction No. 1916 dared 11.05.1994 of the CBDT, relates to exemptions from seizure of jewellery to some extent but it does not however exclude jewellery found from being assessed if sources of acquisition are not satisfactorily explained. In such circumstances the AO is expected to come to a true figure of “total income" as decided in the case of Anil Kumar Bhatia (Supra).

Lastly, Section 5 of the Act provides for 'Scope of total income'. It clearly brings out all income from whatever source derived from.

Thus, I am of the view that while making assessment u/s 153A, the AO is not obliged to only utilize the incriminating materials collected during a search operation in determining the total income of the assessee for the year.

6.3. However, I am bound by judicial discipline as held by a catena of judicial decisions. There is no decision of the jurisdictional High Court. Decisions in Union of India vs. Kamalakshi Finance Corporation Ltd. (1991) 55 ELT 433 (SC); CIT vs. Ralsons Industries Ltd. (2007) 288 ITR 322 (SC); Triveni Chemicals v UOI (2007) 2SCC 503 (SC); Nokia Corporation v DC IT (International Taxation) (2007) 292 ITR 22 (Delhi) may be referred. While on the issue, I am also aware that when two High Courts have given different opinions not being jurisdictional High Court- the one favoring the assessee has to

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be followed as held in CIT vs. Vegetable Products Ltd., 8B ITR 192 (SC).

6.3.1. Recently the Hon'ble Rajasthan High Court in Jai Steel (India) v ACIT (2013) 88 DTR (Raj) 1, has rendered a decision on the issue and has held in para 30 (Page 15) as under:-

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In other words, the Hon'ble Rajasthan High Court has held that the assessment/reassessment can only be based on incriminating material. Same is tile stand taken by the jurisdictional Tribunal in MGF Automobiles Ltd. v JCJT, ITA No: 4212/Del/2011 in an order dated 28.6.2013 as well as others viz. Hon’ble ITAT Mumbai in ACIT v M/s Pratibha Industries Ltd in ITA No. 2197 to 2199/Mum/2000 and in the case of Gurinder Singh Bawa v DCIT in ITA No. 2075/Mum/2010. These decisions have also been relied upon by the assessee .

6.4. Thus respectfully following the above on the issue of notice u/s 153A and the necessity of making assessment/ reassessment on incriminating material, I am of the opinion that the assessee deserves to get relief on these two grounds of appeal.”

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“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 ITA Nos. 707, 709 and 713 of 2014 of 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 ITA Nos. 707, 709 and 713 of 2014 of 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 10

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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. 38. The present appeals concern AYs, 2002-03, 2005-06 and 2006-07.On the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed.” 7.1 We further find force in the assessee’s contention that the Hon’ble High Court in the case of CIT vs. Jakson Engineers Ltd. vide order dated 7.12.2015 reported in 2015-TIOL-2789-HC-DEL-IT has dealt the similar issue wherein the decision of the Hon’ble High Court in the case of CIT vs. Kabul Chawla (Supra) was discussed and followed.

7.2 After going through the impugned order as well as the case laws cited by the Ld. CIT(A) in the impugned order and the case law in the case of CIT vs. Kabul Chawla (Supra) and CIT vs. Jakson Engineers Ltd. (Supra), we are of the considered view that the assessment /reassessment proceedings u/s. 153A of the I.T. Act, can be based only on incriminating material found during the course of search. As per record, of this case the depreciation claim restricted by the AO is not based upon incriminating material/ documents found in the search operations. Therefore, the additions made by the AO is not sustainable in the eyes of law. Thus, the Ld. CIT(A) has rightly adjudicated the issue in favour of the Assessee and against the Revenue. Respectfully, following the various decisions of the Hon’ble High Court and the Tribunal mentioned in the impugned order

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and also respectfully following the decisions of the Hon’ble Jurisdictional High Court in the cases of CIT vs. Kabul Chawla (Supra) and CIT vs. Jakson Engineers Ltd. (Supra), we uphold the well reasoned order passed by the Ld. CIT(A) and dismiss the Appeal filed by the Revenue.

Sd/ Sd/- Sd/ Sd/ Sd/ Sd/- Sd/ Sd/ [J.S. REDDY J.S. REDDY J.S. REDDY] J.S. REDDY [H.S. SIDHU] [H.S. SIDHU] [H.S. SIDHU] [H.S. SIDHU] ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER

Date 01/04/2016

“SRBHATNAGAR” “SRBHATNAGAR” “SRBHATNAGAR” “SRBHATNAGAR” Copy forwarded to: Copy forwarded to: - Copy forwarded to: Copy forwarded to: 1. Appellant - 2. Respondent - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY By Order,

Assistant Registrar, ITAT, Delhi Benches