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Income Tax Appellate Tribunal, DELHI BENCH: ‘E’: NEW DELHI
Before: SMT. DIVA SINGH & SHRI INTURI RAMA RAO
ORDER PER INTURI RAMA RAO, A.M.: These appeals filed by both the assessee as well by the Revenue are directed against different orders of CIT(A)-XXIII, New Delhi, dated 26.07.2013 passed for the assessment years 2009-10 & 2010-11. Appeals in & 5686/Del/2013 are filed by the assesse and the appeals in ITA Nos. 6359 & 6360/Del/2013 are filed by the Revenue.
2 & 5686/Del/2013 for AY 2009-10 & 2010-11: 2. The brief facts of the case are that the assessee company is a private limited company incorporated under the Companies Act, 1956. It is engaged in the business of real estate. The return of income for the assessment year 2009-10 was filed on 31st March, 2010, declaring nil income. Consequent upon search and seizure operations under Section 132 of the Income-tax Act, 1961 (for short “the Act”) on the Amtek Group, notice under Section 153A of the Act, dated 26th September, 2011 was served on the assessee company. Consequent upon this notice, the assessment under Section 143 r.w.s. 153A of the Act was completed vide order dated 3rd July, 2012 at a total income of Rs. 1,10,83,618/-. The assessed income is on account of addition made under Section 40A(3) of the Act. Being aggrieved by the assessment order, an appeal was preferred by the assessee company before the ld. CIT(A)-XXXIII, New Delhi, who vide order dated 26th July, 2013, while confirming the addition, directed the Assessing Officer to reduce the amount of addition from the closing work-in- progress in the following words: “Therefore, in my view disallowance u/s 40A(3) is proper. Now, coming to the facts of the case, there is so sale of land or its development. Hence, income has not accrued to the assessee. In that circumstances if disallowance is made u/s 40A(3) & added back to the income, if would amount to taxing the income without any accrual. Therefore, in my view, wherever the land is shown as work in progress, to the extent of disallowance u/s 40A(3), the value of work in progress will reduce. This view is in conformity with the decision of Hon’ble Supreme Court in case of Attar Singh. In case where the land is shown as investment, however, subsequently it is converted into stock-in-trade, to the extent of disallowance u/s 40A(3) value of work-in-progress would reduce at the time of conversion.”
Being aggrieved by this order of CIT(A), the assessee company filed the present appeals challenging the very jurisdiction of the Assessing Officer to make the assessment under Section 153A in the absence of any seized incriminating material and raised the following grounds of appeal: i. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in upholding the validity of order passed by the Assessing Officer u/s 153A on 03.07.2012. ii. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in partly alloweing the appeal as he ought to have fully allowed the appeal. iii. On the facts and in the circumstances in the case, the Ld. CIT(A) erred in holding that “Wherever the land is shown as work in progress, to extent of disallowance u/s 40A(3), will reduce. This view is in conformity with the decision of Hon’ble Supreme Court in the case of Attar Singh. In case where land is shown as investment, however, subsequently it is converted into stock-in-trade, to the extent of disallowance u/s 40A(3) value of work-in-progress would reduce at the time of conversion.” iv. The appellant may kindly be allowed to raise any addition ground in the course of hearing of the appeal. Whereas the Revenue has challenged the direction of the ld. CIT(A) to reduce the amount of addition from closing work-in-progress and raised the following grounds of appeal: i. On the facts and in the circumstanced of the case, the Ld. CIT(A) having held the disallowance u/s 40A(3) as proper, erred in holding that income could not be taxed and the amount if disallowance should go only to reduce the work-in-progress, without appreciating that the assesee had worked out loss of Rs. 3200/- in P&L a/c which should have been modified by the amount of disallowance u/s 40A(3) upheld by the CIT(A). ii. The order of the CIT(A) is erroneous and is not tenable on facts in law. iii. The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the appeal.
3. Now, we shall deal with the appeals filed by the assessee company as they go to the very root of jurisdiction of the assessment. The ld. counsel for the 4 assesse company contended that there was no seized incriminating material indicating that there were cash payments attracting the disallowances under Section 40A(3) of the Act. He further submitted that there was no abatement of assessment proceedings, inasmuch as, there is no pending assessment and the time for issued of notice under Section 143(2) of the Act had already expired and also drawn our attention to the assessment where there was no whisper about any seized incriminating material. Therefore, he submitted that the order of assessment made is null and void in the light of the decision of Hon’ble Jurisdictional High Court in the case of CIT Vs. Kabul Chawla, dated 28th August, 2015. He also relied on the decisions of a coordinate bench of ITAT, Delhi Bench in the case of M/s Saraswati Housing & Developers Vs. ACIT, ITA No. 5795/Del/2011, AY 2006-07, dated 1st March, 2013.
On the other hand, ld. CIT(DR) relied on the orders of the lower authorities.
We heard the rival submissions and perused the material on record. It is undisputed fact that there was no seized incriminating material suggesting any disallowance under the provisions of Section 40A(3) of the Act. A perusal of the assessment order does not reveal that the impugned addition has been made based on any incriminating material seized, nor there is any whisper in the assessment. Now, the law is quite well settled that, no assessments can be made under Section 153A in the absence of any seized incriminating material. The Hon’ble Delhi High Court after referring to the various precedents on the subject 5 i.e. CIT Vs. Continental Warehousing Corporation (Nhava Sheva) Ltd. [2015] 58 Taxmann.com 78 (Bom.) and the decision of the Hon’ble Bombay High Court in the case of CIT Vs. M/s. Murli Agro Products Ltd., dated 29th October, 2010, has summarized the legal position as under: “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 6 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.”
Respectfully following the ratio laid down by the Hon’ble Jurisdictional High Court in the above case, we hold that the assessments made under Section 153A of the Act in the present case are also invalid and is therefore we hereby quash as such. Accordingly, the appeals filed by the assesse are allowed. & 6360/Del/2013 for AY 2009-10 & 2010-11 7. Since we have quashed the very validity of assessment, the grounds of appeal
filed by the Revenue do not survive and are dismissed as such. Accordingly, the appeals filed by the Revenue are dismissed.
8. In the result, the appeals filed by the assesse i.e. ITA Nos. 5685 & 5686/Del/2013 are allowed and the appeals filed by the Revenue i.e. ITA Nos. 6359 & 6360/Del/2013 are dismissed. The decision is pronounced in the open court on 30th October, 2015.