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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI D. KARUNAKARA RAO & SHRI AMARJIT SINGH
सुनवाई की तायीख / Date of Hearing : 17.12.2015 घोषणा की तायीख /Date of Pronouncement : 14.01.2016 आदेश / O R D E R PER D. KARUNAKARA RAO, AM: There are five appeals under consideration involving two assessees namely (i) Samarthmal P. Mali and (ii) Prakash P Mali. The issues raised in all these appeals are inter-connected as well as identical, therefore, for the sake of convenience, they are clubbed, heard together and disposed of in this consolidated order. Appeal wise adjudication is given in the succeeding paragraphs of this order.
2. Firstly, we shall take up the appeal pertaining to the AY 2007-2008 in respect of Shri Samrathmal P. Mali. This appeal filed by the assessee on 4.3.2013 is against the order of the CIT (A)-40, Mumbai dated 4.1.2013 for the assessment year 2007-2008. In this appeal, assessee raised two grounds and they read as under: “1. The Ld CIT (A) has erred in law and on the facts and in the circumstances of the case in upholding the addition of Rs.5,00,000/- to the total income of the appellant.
The Ld CIT (A) was not justified in ignoring my ground of appeal
in levying interest u/s 234A, 234B and 234C of the Act.”
3. Briefly stated relevant facts in this regard are that there a search action u/s 132 of the Act was conducted in the Mali Group of cases on 28.6.2006. However, there was no seizure of any kind in the hands of the assessee. However, assessee was signatory to the declaration u/s 132(4) of the Act amounting to Rs. 75 lakhs. The said disclosure was divided among five brothers [ie (i) Shankarlal P Mali; (ii) Samarthmal P. Mali; (iii) Chunnilal P. Mali; (iv) Bhagaram P. Mali and (v) Prakash P. Mali] of the Mali Group. Rs. 5 laksh was allocated for the present assessee as per the statement acknowledged by the assessee on 29.6.2006 by putting his signatures. Question No.18 of the statement of Shri Shankarlal P. Mali recorded on 29.6.2008, supports the above. Relevant discussion is given in para 7 of the CIT (A)‟s order. Subsequently, assessee filed an affidavit on 23.12.2008 and informed that no additional income is required to be disclosed in his name. Therefore, without offering the said amount of Rs. 5 lakhs, assessee filed the return of income. AO did not accept the same and proceeded to add the said amount of Rs. 5 lakhs in the hands of the assessee. However, AO did not mentioned about the relevant facts ie rest of the four brothers offered the said amount of Rs. 4 lakhs in their hands. The contents of page 16 of the paper books are relevant in this regard. This paper demonstrates the taxing of the said Rs. 75 lakhs, originally offered in the hands of the rest of the four brothers. On these facts, at the end of the assessment proceedings, AO completed the assessment after making a couple of additions on account of „unexplained jewellery‟ and the said amount of Rs. 5 lakhs. On appeal, CIT (A) deleted the addition of Rs. 1 lakh made on account of unexplained jewellery and confirmed the addition of Rs. 5 lakhs. In the background of the above facts, Ld Counsel for the assessee demonstrated that this is a case of unabated assessment, re-opened u/s 153 of the Act for taxing the unaccounted income, if any. The other facts include that there was no seizure in the case of this assessee and there is no incriminating material seized involving the assessee. Assessee does not have any income from business. His income is only from „salary, house property and other sources‟. Further, it is a fact that the sum of Rs. 5 lakhs, which was originally offered in the hands of the assessee was eventually taxed in the hands of the rest of the four brothers namely (i) Shankarlal P Mali; (ii) Chunnilal P. Mali; (iii) Bhagaram P. Mali and (iv) Prakash P. Mali. Therefore, making the addition of Rs. 5 lakhs once again in the hands of the assessee will constitute double addition, which is unsustainable in law. Further, we find the addition of Rs. 1 lakhs made on account of jewellery was finally deleted by the CIT (A), against which the Revenue is not in appeal. Therefore, the addition made by the AO in the assessment is not based on any incriminating material or any legally sustainable grounds. In such circumstances, re-opening the non-abated assessment is not sustainable. Therefore, we take strength from the number of judgments by the various Hon‟ble High Courts as well as the orders of the Tribunal and the decision of the Tribunal in the case of M/s. Ideal Appliances Co. Pvt. Ltd vs. DCIT is one of the, wherein one of us (AM) is a party to the order. Considering the significance and for the sake of completeness of this order, relevant paras from the said Tribunal‟s order in the case of M/s. Ideal Appliances Co. Pvt. Ltd (supra) are same are extracted as under:-
We have heard both the parties and perused the orders of the Revenue Authorities as well as the cited decision of the Tribunal in the case of Shri Govind Agarwal v. ACIT being ITA No: 3389/Mum/2011 dated 10.01.2014 (supra); All Cargo Global Logistics v. Addl.CIT (supra); SKS Ispat and Power Limited vs. DCIT CC 45 (ITA 8746/M/12 and ITA 8747/M/12) (supra) as well as the judgment of the Hon‟ble Bombay High Court in the cases of CIT v. All Cargo Global Logistic (374 ITR 645) (supra), copies of which are placed on record. On perusal of the said decisions, we find they are relevant for the proposition that “when no assessment has abated, the question of making any addition or making disallowance which are not based on only material found during the search is bad in law”. In this regard, we find it relevant to extract the relevant paras from the decision of the Tribunal in the case of Shri Govind Agarwal (supra) and the same is as follows:
“12. We have heard the parties and their divergent stands on the legal issue and the validity of the instant assessment/reassessment with the routine additions u/s 68 and section 14A of the Act based on the accounted transactions. The instant case for the AY 2002-03 deals with the case of disturbing the „completed assessment‟. Earlier the assessment was completed u/s 143(1) of the Act. Completeness of the summary assessment is considered and held in favour of the assessee vide many judgments cited above. In the assessment u/s 153A, the AO made (i) Addition u/s 68 on account of artificially inflated investment in house duly disclosed in the balance sheet of the assessee Rs.31,33,070/-; and (ii) disallowance u/s 14A: Rs. 23,31,469/-. Admittedly, there is no incriminating material before the AO to support the above additions. The valuation report, which is garnered by the authorities constitutes mere estimates and the provisions of section 132 is not required to obtain such report from the DVO. As such, for making aforesaid additions of Rs 31,33,070/-, AO has not used even the said valuation report and the AO disallowed what is reported in the books. Similar is the case with the additions u/s 14A of the Act. Therefore, undisputedly, the impugned quantum additions are made merely based on the entries in the accounted books and certainly not based on either the unaccounted books of accounts of the assessee or books not produced to the AO earlier or the incriminating material gathered by the investigation wing of the revenue. Considering the legal propositions place before us by the assessee‟s counsel, we are of the opinion, such assessments or additions are unsustainable in law.
For the sake completeness of the assessee, we insert here some of the extracts from relevant judgments and they are: A. [2013 36 taxmann.com 523 (Rajasthan) in the case of Jai Steel (India) vs. ACIT - From Held portion: ….The requirement of assessment or reassessment under the said section has to be read in the context of sections 132 or 132A, inasmuch as, in case nothing incriminating is found on account of such search or requisition, then the question of reassessment of the concluded assessments does not arise, which would require more reiteration and it is only in the context of the abated assessment under second proviso which is required to be assessed. ....... ....... Para 26 of the Judgment: The plea raised on behalf of the assessee that as the first proviso provides for assessment or reassessment of the total income in respect of each assessment year falling within the six assessment years, is merely reading the said provision in isolation and not in the context of the entire section. The words 'assess' or 'reassess' have been used at more than one place in the Section and a harmonious construction of the entire provision would lead to an irresistible conclusion that the word 'assess' has been used in the context of an abated proceedings and reassess has been used for completed assessment proceedings, which would not abate as they are not pending on the date of initiation of the search or making of requisition and which would also necessarily support the interpretation that for the completed assessments, the same can be tinkered only based on the incriminating material found during the course of search or requisition of documents. B. [2012] 28 Taxmann.com 328 (Mumbai –Trib.) in the case of Gurinder Singh Bava vs. DCIT …. Whether since assessment under section 153A was passed by Assessing Officer on basis of material available in return of income and there was no reference to any incriminating material found during search and since no assessment was abated, assessment under section 153A was to be quashed being made without jurisdiction available under section 153A - Held, yes [Para 6.2] [In favour of assessee] Para 6.1 of the Order: The Special bench in the case of Alcargo Global Logistics Ltd. (supra), has held that provisions of section 153A come into operation if a search or requisition is initiated after 31.5.2003 and on satisfaction of this condition, the AO is under obligation to issue notice to the person requiring him to furnish the return of income for six years immediately preceding the year of search. The Special Bench further held that in case assessment has abated, the AO retains the original jurisdiction as well as jurisdiction under section 153A for which assessment shall be made for each assessment year separately. Thus in case where assessment has abated the AO can make additions in the assessment, even if no incriminating material has been found. But in other cases the Special Bench held that the assessment under section 153A can be made on the basis of incriminating material
which in the context of relevant provisions means books of account and other documents found in the course of search but not produced in the course of original assessment and undisclosed income or property disclosed during the course of search. In the present case, the assessment had been completed under summary scheme under section 143(1) and time limit for issue of notice under section 143(2) had expired on the date of search. Therefore, where there was no assessment pending, in this case and, in such a case there was no question of abatement. Therefore, addition could be made only on the basis of incriminating material found during search. B. All Cargo Global Logistics Ltd. v. Deputy Commissioner of Income- tax, Central Circle-44 [2012] 23 taxmann.com 103 (Mum.) (SB)
Para 58 of SB decisions: Thus, question No.1 before us is answered as under : (a) In assessments that are abated, the AO retains the original jurisdiction as well as jurisdiction conferred on him u/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 u/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.
Thus, in case of the completed assessments either u/s 143(1) or 143(3), the above extracts are uniform in advocating against making additions in routine manner in the assessments made u/s 153A of the Act when there is no incriminating material gathered in the search action. Statutory notice u/s 153A of the Act can also be issued to reiterate the returned income or for making additions based on the incriminating material or unproduced books of account. Otherwise, additions made in routine matter as in the present appeal are not sustainable. Further, for the sake completeness of the order, we have perused the orders/judgments relied upon by Ld DR for the revenue and found they are distinguishable on facts for one reason or other. To start with, we have perused the judgment of Honble Hon‟ble Delhi High Court in the case of Madugula Venu (supra) and find that, though explained the provisions in plain language, it does not dealt with the relevance or factum of incriminating material. Further, the judgment of Andhra Pradesh High Court in the case of Gopal Lal Bhadruka (supra) is not on the notices issued u/s 153A of the Act and the same is pronounced in the context of the notice u/s 153C of the Act. Further, also, the Coordinate Bench decision in the case of Scope (P) Ltd (supra) has granted relief to the assessee though the notice issued u/s 153A of the Act was upheld. However, this order has not considered the then existing decision of the Coordinate Bench decision in the case of Pratibha Industries Ltd (supra) which is relevant for the proposition that the completed assessment may not be disturbed in the absence of any incriminating material specific to the assessee. In fact, all these judgments take spirit from the Special Bench decision in the case of All Cargo Global Logistics Ltd (supra), which is relevant for the proposition that the assessment u/s 153A will be made on the basis of incriminating material such as books of accounts, other documents found in the search but not produced in the course of original assessment and undisclosed income or property discovered in the course of the search. 15. .......
In these circumstances, we have no doubt about the absence of any seized material which are incriminating in nature to back the additions u/s 68 or 14A of the Act made in the assessment made u/s 153A of the Act for the AY under consideration. Regarding the DVO‟s report gathered during the search action, we find that the report suffers from certain deficiencies qua cost of construction of residential property and the land obtained thereto. The said report constitutes an opinion of the third party which cannot be used by the AO for making additions and such additions, if any, cannot be sustained legally. As such, we find that the AO has not used the said report of the DVO also for making additions of Rs. 31,33,007/-, the difference between accounted amount of Rs. 46,13,007/-, claimed as the amount spent on construction of house and acquisition of land as on 31.3.2002 minus Rs. Rs. 14.8 lakhs, the investment made on the land plots. AO made addition for assessee‟s failure to provide evidences / bills in support of the claim of expenditure on the construction. It the presumption of the AO that the plots since acquired only by July 2001, the assessee would not have spend Rs. 31,33,007/- by 31.3.2002. This is merely a presumption rather conclusion based on any evidences. Such additions are unsustainable in law in the assessments made u/s 153A r.w.s 143(3) of the Act.
Rajasthan High Court judgment in the case of Jai Steel (India) (supra), vide para 18, it is categorically mentioned that “the requirement of assessment or reassessment under the said section (153A) has to be read in the context of sections 132 or 132A of the Act, inasmuch as, in case nothing incriminating is found on account of search or requisition, then the question of reassessment of the concluded assessments does not arise, which would more reiteration………….”. Thus, the judgment of Hon‟ble High court in the case of Jai Steel Ltd, supra and above decisions of the Tribunal are categorical in concluding that, in case of the concluded assessments like the present one, the additions are made only based on the incriminating material discovered during the search action. The facts of the Jai Steel Ltd (supra) are identical to the present one ie AO made additions by reassessing u/s 153A on the completed assessment u/s 143(1) of the Act. Thus, considering the judgment in the case of the Jai Steel Ltd (supra), the arguments on the legal issue raised before us stands covered. Therefore, considering the Rajasthan High Court‟s judgment in the case of Jai Steels Ltd, supra, we have no difficulty in (i) upholding the issue of notice u/s 153A of the Act and (2) in disapproving the making of the impugned additions u/s 68 and 14A of the Act, which are not backed by the incriminating materials. In the absence of incriminating material, the role of the AO is only to reiterate the returned income filed in response to the notice u/s 153A of the Act. Accordingly, in substance, the common legal issue raised in the grounds for both the appeals of the assessee (ITA NO 3389&3390/M/2011) is allowed.”
Further, in the recent past, similar issue was adjudicated by the Hon‟ble Delhi High Court in the case of CIT vs. Kabul Chawla vide and others, dated 28.8.2015, wherein the Hon‟ble Delhi High Court has reiterated the above settled legal proposition that since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed. In this regard, we find it relevant to extract the summary of the legal propositions and the conclusion of said judgment of the Hon‟ble Delhi High Court which is as follows:
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. Assessments and reassessments pending on the date of the search shall ii. abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. The AO will exercise normal assessment powers in respect of the six iii. 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”. Although Section 153 A does not say that additions should be strictly iv. 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.” In absence of any incriminating material, the completed assessment can v. 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. Insofar as pending assessments are concerned, the jurisdiction to make vi. 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. Completed assessments can be interfered with by the AO while making vii. 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. Conclusion 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.
The question framed by the Court is answered in favour of the Assessee and against the Revenue.” From the above settled legal position of the issue that in the absence of any 5. incriminating material found during search, additions made on the assessed income are unsustainable in law, we are of the considered opinion that the additions made in the instant case are not sustainable and accordingly, we delete the same. Accordingly, the grounds originally raised by the assessee are allowed.
In the result, appeal of the assessee is allowed.
ITA No.7282/M/2013 (AY 2001-2002) (AY 2002-2003) ITA No.7284/M/2013 (AY 2003-2004) ITA No.7405/M/2013 (AY 2004-2005) 7. There are four appeals under consideration pertaining to the assessee (Shri Prakash P. Mali) involving the assessment years 2001-02 to 2004-05. Since, the assessee identical issues in all the appeals under consideration, except the figures, therefore, for the sake of adjudication and reference, the grounds raised in the appeal for the AY 2001-2002 are reproduced as under:
“1. The Ld CIT (A) has erred in law and on the facts & in the circumstances of the case in holding notice issued under section 153C of the Act as valid and consequential erred in law in holding the assessment made under section 153C of the Act as valid. Without prejudice to the above, 2. The Ld CIT (A) has erred in law and on the facts and in the circumstances of the case, in upholding the order of the AO making addition of Rs. 1 lakh by treating the gift received as income of the appellant ignoring all the details submitted to him relating to the „gift‟ including the order passed in regular assessment by the predecessor AO.
The Ld CIT (A) has erred in not granting rebate of Rs. 506 u/s 88 for the life insurance premium of Rs. 2,530/- paid on the life of the assessee.”
In all these AYs, the additions made by the end the fate of these additions in the first appellate proceedings are tabulated as under:-
Ld Counsel for the assessee brought our attention to each of the Assessment Year and submitted that none of these additions were made based on the „seized material‟. Further, he submitted that the Shri Prakash P. Mali was not covered u/s 132 of the Act by drawing an assessee‟s specific. There was survey action u/s 133 of the Act. Further, he informed that in all these assessment years, AO made assessments u/s 143(3) r.w.s 153C of the Act without having seized any documents from the premises of the search person implicating the assessee on the issue of unaccounted income. Referring to the documents seized namely the „gift‟ relating transaction between Mr. Shivlal and the assessee and the statement showing payment for purchase of plot (para „c‟ of page „7‟ of the CIT (A)‟s order is relevant), which are seized from the search premises, ld Counsel for the assessee demonstrated that the „gift‟ in question was an accounted one, duly declared in the return of income. Referring to the other papers relating to the transaction between Mr. Shivlal and assessee, Ld Counsel for the assessee submitted that the said transaction is not between Mr. Shivlal and the assessee. They mistakenly communicated these papers to the assessee. Para 10 of the CIT (A)‟s order is relevant in this regard. Referring to the other papers also, Ld Counsel for the assessee mentioned that no addition was eventually made on this account as they are all found to be accounted transactions. Therefore, for all the four years under consideration, the transactions appeared on the papers seized, allegedly connected to the assessee, are found to be either accounted or not found worthy for making any additions. In such case, the unabated assessments could not have been re- opened. He relied on various in support of the same including the decision of Tribunal in the case of Shri Vimal Kumar Rathi vs. DCIT in ITA Nos. and others, dated 16.10.2015, wherein one of us (AM) is a party to the said order and demonstrated that as and when the assessments involved are non-abated assessment (either regular assessments are completed u/s 143(3) and the quantum proceedings are not pending or the due date for issue of notice us 143(2) has expired), the additions, if any, in the search assessment can be made basing on any incriminating material seized u/s 132 of the Act and forwarded to the concerned AO as per the procedure laid down in the Act. Drawing our attention to each of the assessment order and the additions made by the AO, Ld Counsel for the assessee demonstrated that there is no reference to the seized material in any of the additions made by the AO. In support of his contention that when there is finding or discussion about the any incriminating material seized during the search, the assessment order passed u/s 153A r.w.s 143(3) of the Act is not tenable in law, Ld Counsel for the assessee filed written submissions and also relied on following decisions viz., (i) CIT vs. Smt Shaila Agarwal, 346 ITR 130; (ii) All Cargo Global Logistics Ltd vs. DCIT [18 ITR 106] (Mum.) (SB); (iii) Spacewood Furnishers Pvt Ltd Ors vs. DGIT & Ors. [340 ITR 393 (Bom)] (iv) Shri Govind Agarwal v. ACIT being ITA No: 3389/Mum/2011 dated 10.01.2014; (v) SKS Ispat and Power Limited vs. DCIT l (vi) Sinhgad Technical Education Society vs. ACIT [2011] 140 TTJ 233 and others.
On the other hand, Ld DR relied on the order of the AO and the CIT (A). Further, on the legal propositions, Ld DR has nothing to controvert except relying on the decisions of the Revenue Authorities. He further mentioned that the event of survey action is unsustainable as the issue of notice u/s 153C is based on the conditions specified in the said provisions of section 153C and not on the outcome of the survey action. In this regard, Ld DR filed written submissions referring to the facts concerning the event of survey action on the assessee.
We have heard both the parties and perused the orders of the Revenue Authorities as well as the cited decision of the Tribunal in the case of Shri Govind Agarwal v. ACIT being ITA No: 3389/Mum/2011 dated 10.01.2014 (supra); All Cargo Global Logistics v. Addl.CIT (supra); SKS Ispat and Power Limited vs. DCIT CC 45 (ITA 8746/M/12 and ITA 8747/M/12) (supra) as well as the judgment of the Hon‟ble Bombay High Court in the cases of CIT v. All Cargo Global Logistic (374 ITR 645) (supra), copies of which are placed on record. On perusal of the said decisions, we find they are relevant for the proposition that “when no assessment has abated, the question of making any addition or making disallowance which are not based on only material found during the search is bad in law”. Considering the factual matrix of the case as well considering the above settled legal position of the issue that in the absence of any incriminating material found during search, additions made on the assessed income are unsustainable in law, we are of the considered opinion that the additions made in the instant case are not sustainable and accordingly, we delete the same. 12. Considering the relief granted to the assessee, in our opinion, the adjudication of the grounds relating to the merits of the addition becomes academic and therefore, they are dismissed as academic. 13. In the result, all the five appeals of the assessee are partly allowed. Order pronounced in the open court on 14th January, 2016. Sd/- Sd/- (AMARJIT SINGH) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER भुंफई Mumbai; ददनांक 14.1.2016