ACIT, C.C. XXVII, KOLKATA, KOLKATA vs. M/S. KANCHAN OIL INDUSTRIES LIMITED, KOLKATA

SHRI M.BALAGANESH, AM :

These appeals of the revenue arise out of the orders of the Learned CIT(A)- Central-II, Kolkata in Appeal No. 99A/CC-XXVII/CIT(A)-C-II/KOL./09-10 dated 31.3.2010 for Asst Year 2003-04 ; Appeal No. 100A/CC-XXVII/CIT(A)-C- II/KOL./09-10 dated 31.3.2010 for Asst Year 2004-05 ; Appeal No. 103A/CC- XXVII/CIT(A)-C-II/KOL./09-10 dated 8.4.2010 for Asst Year 2007-08 and ; Appeal No. 84/CC-XXVII/CIT(A)-C-II/KOL./10-11 dated 28.2.2011 for Asst Year 2008-09 against the order of assessment framed by the Learned AO on 3.8.2009 u/s 153A/143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’) for the

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assessment years 2003-04 and 2004-05 and orders framed on 3.8.2009 and 21.10.2010 u/s 143(3) of the Act for the assessment years 2007-08 and 2008-09 respectively.

a) Whether the Learned AO is justified in rejecting the claim of deduction u/s 80IB of the Act in the assessments framed u/s 153A of the Act in respect of Asst Years 2003-04 and 2004-05 (concluded assessments) without any incriminating materials found during the course of search pertaining to the relevant concluded assessment years.

b) Whether the Learned AO is justified in rejecting the claim of deduction u/s 80IB of the Act for the Asst Years 2007-08 nd 2008-09 when the eligibility conditions u/s 80IB of the Act are to be seen only in the initial assessment year and thereafter it is automatic and only academic in nature.

c) Whether the Learned AO is justified in making disallowance u/s 14A of the Act in the assessments framed u/s 153A of the Act in respect of Asst Year 2004-05 without any incriminating material found during the course of search pertaining to the relevant concluded assessment year.

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calling for return for the Asst Years 2003-04 to 2006-07. In response to such notice, the assessee filed return for the Asst Years 2003-04 to 2006-07. In respect of Asst Years 2007-08 & 2008-09, the returns were filed u/s 139(1) of the Act, being the year of search and the year subsequent to the search. The assessment u/s 153A/143(3) of the Act was completed for the Asst Years 2003-04 & 2004-05 and u/s 143(3) of the Act for the Asst Years 2007-08 and 2008-09, wherein deduction claimed u/s 80IB of the Act was disallowed by the Learned AO in Asst Year 2003-04 being the initial assessment year without any incriminating materials found during the course of search with respect to the relevant assessment year. Accordingly, the deduction u/s 80IB of the Act was denied for the subsequent asst years also by the Learned AO. The Learned AO also made disallowance u/s 14A of the Act for the Asst Year 2004-05 without any incriminating materials found during the course of search with respect to the relevant assessment year. On first appeal, the Learned CITA categorically held that since there was no search materials found during the course of search, deduction u/s 80IB of the Act which has already been granted u/s 143(3) proceedings for the Asst Years 2003-04 & 2004-05 cannot be disturbed and accordingly decided this ground in favour of the assessee. However on merits of the claim of the deduction u/s 80IB of the Act, he held that the assessee is not entitled for deduction u/s 80IB of the Act. Against this order, the revenue had preferred appeals before us and assessee had preferred cross objections before us.

“I am directed to request to the Hon’ble “C” Bench, ITAT, Kolkata that Shri Rajat Kumar Kureel, JCIT , Sr.(DR) , will not be able to represent the above mentioned cases since he is going on a visit to Burdwan for official work on 23rd November 2015.

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Accordingly, I am directed to request that the case may kindly be adjourned for a later date as per the convenience of the Hon’ble Bench.

Signed by CIT , ITAT-5, Kolkata”

We find that the revenue had sought adjournment in 20 cases out of total 23 cases listed before the Bench for hearing and in view of this behavior of the Learned Senior DR, we deemed it fit to reject the adjournment request of the revenue and we proceed to dispose the appeal by hearing the Learned AR alone.

5.1. With regard to the cross objections of the assessee for the Asst Years 2003-04 ; 2004-05 and 2007-08 are concerned, the Learned AR stated that the cross objections are only in support of the order of the Learned CIT(A) except in respect of Asst Year 2007-08, wherein the Learned CIT(A) had made an observation that in case if the jurisdiction issue based on which assessee is granted relief is reversed by superior courts then the issue on merits would go in favour of the revenue with regard to claim of deduction u/s 80IB of the Act. He further stated that the deduction once granted in

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the initial assessment year, the assessee becomes automatically entitled in the subsequent assessment years. He pleaded before the Bench that the observation made by the Learned CIT(A) for the Asst Year 2007-08 in para 4 of his order is unwarranted. Later he filed a letter dated 23.11.2015 stating that the cross objections preferred by the assessee may be treated as withdrawn.

CO No. 140 / 2010 – Asst Year 2007-08 – Assessee CO CO No. 106 / 2010 – Asst Year 2003-04 – Assessee CO CO No. 107 / 2010 – Asst Year 2004-05 – Assessee CO

We find that the Learned CIT(A) had made an observation in his appellate order for the Asst Year 2007-08 at para 4 page 4 as below:-

“I must mention here that if the position of law in respect of jurisdiction of Assessing Officer to assess any income u/s 153A is ever reversed by superior courts then on facts my order for Assessment Year 2003-04 on facts would be in favour of revenue.”

We find that this observation of the Learned CIT(A) is unwarranted as the appeal has been allowed by him on jurisdiction of Learned AO to assess any income u/s 153A for want of incriminating materials found during the course of search. When the assessment is struck down on jurisdiction issue, we hold that there is no need for the Learned CIT(A) to make any observation on merits. At the maximum the same could only be considered as an Obiter which is not binding on the authorities. It is well settled that only the Obiter of a Supreme Court is binding on the subordinate courts and authorities. Hence we hold that the aforesaid finding given by the Learned CITA is unwarranted and is hereby dismissed.

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6.1. We also find that as of now the Learned CIT(A) had already granted relief in respect of granting deduction u/s 80IB of the Act for the assessee in the initial Assessment Year 2003-04 vide his appellate order dated 31.3.2010 in Appeal No. 99A/CC-XXVII/CIT(A)-C-II/KOL./09-10 and accordingly, the deduction u/s 80IB of the Act would be applicable for subsequent years also. It is well settled that the eligibility conditions for granting deduction u/s 80IB of the Act needs to be looked into only in the initial assessment year and thereafter it is automatic and hence becomes academic in nature.

6.2. We find that the Learned AR had filed a letter dated 23.11.2015 withdrawing all the Cross Objections filed by the assessee. In view of the same, the Cross Objections of the assessee are dismissed as withdrawn.

6.3. It will be pertinent to get into the provisions of section 153A of the Act which is reproduced herein below:- [Assessment in case of search or requisition. 153A. [(1)] Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person79 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:

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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] pending 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.] [(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”.

6.4. In our opinion, the scheme of assessment proceedings should be understood in the following manner pursuant to the search conducted u/s 132 of the Act :-

a) Notice u/s 153A of the Act would be issued on the person on whom the warrant of authorization u/s 132 of the Act was issued for the six assessment years preceding the year of search and assessments thereon would be completed u/s 153A of the Act for those six assessment years.

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b) In respect of the year of search, notice u/s 143(2) of the Act would be issued and assessment thereon would be completed u/s 143(3) of the Act.

c) In respect of concluded assessments prior to the year of search, no addition could be made in the relevant assessment year unless any incriminating material is found during the course of search with respect to the relevant assessment year.

d) Pursuant to the search u/s 132 of the Act, the pending proceedings would get abated. In respect of abated assessments, the total income needs to be determined afresh in accordance with the provisions of section 153A and other provisions of the Act.

6.4.1. The concluded assessments for the purpose of section 153A of the Act shall be -

(i) assessment years where assessments are already completed u/s 143(1) and time limit for issuance of notice u/s 143(2) of the Act has expired or;

(ii ) assessment years where assessments are already completed u/s 143(3) of the Act ;

unless they are reopened u/s 147 of the Act for some other purpose in both the scenarios stated above.

6.4.2. The scheme of assessment proceedings contemplated u/s 153A of the Act are totally different and distinct from the proceedings contemplated u/s 147 of the Act and these procedures of assessment operate in different fields and have different purposes to be fulfilled altogether.

6.4.3. The expression ‘assess or reassess’ stated in section 153A(1)(b) has to be understood as below:-

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‘assess’ means assessments to be framed in respect of abated assessment years irrespective of the fact whether there are any incriminating materials found during the course of search with respect to relevant assessment years ;

‘reassess’ means assessments to be framed in respect of concluded assessment years where incriminating materials were found during the course of search in respect of the relevant assessment year.

6.5. Now let us see how the aforesaid provisions of section 153A of the Act and the scheme of assessment proceedings stated hereinabove fit into the facts of the instant case. For this purpose, the following tabulation would be relevant :-

Date of Search – 28.3.2007

Assessment Years 2003-04 2004-05 2007-08 2008-09 Date of filing the 1.12.2003 1.11.2004 30.10.2007 24.12.2008 original Return of Income Date of filling the N.A N.A 5.3.2008 N.A revised return of income, if any Date of 143(1) N.A N.A N.A 27.8.2009 Intimation Time limit for 31.12.2004 30.11.2005 30.9.2008 30.9.2009 issuance of Notice u/s.143(2) Date of completion 21.3.2006 22.12.2006 3.8.2009* 21.10.2010+ of original assessment u/s. 143(3) Whether any notice No No No No u/s. 148 is issued

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‘N.A’ denotes not applicable

* represents the date of completion of assessment u/s 143(3) of the Act after the search on 28.3.2007

+ represents the date of completion of assessment u/s 143(3) of the Act succeeding the year of search

6.5.1. Hence from the above table, the following conclusions could be reached as on the date of search :-

Concluded assessment years - Asst Years 2003-04 and 2004-05 ( i.e the first two assessment years under appeal before us)

Asst. Year 2007-08- Year of Search is Asst Year 2007-08 (one of the years under appeal before us). The Search has happened before the completion of the previous year 2006-07 relevant to Asst Year 2007-08 and hence the assessment proceedings itself had not commenced on the date of Search.

Asst Year 2008-09 (one of the years under appeal before us) is only consequential to the earlier years and does not attain any significance.

6.6. It is an admitted fact that no incriminating materials were found during the course of search by the revenue in order to disturb the claim of deduction u/s 80IB of the Act which is given by way of a categorical finding by the Learned CIT(A) in his appellate order and which is also not controverted by the revenue before us. In the

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instant case, no incriminating materials are found relating to Asst Years 2003-04 and 2004-05 and hence the action of the Learned AO in disturbing the claim of deduction u/s 80IB of the Act cannot be appreciated.

6.7. We find that our understanding of the provisions of section 153A of the Act is also supported by the decision of the Hon’ble Bombay High Court in the case of CIT vs Continental Warehousing Corporation (Nhava Sheva) Ltd and All Cargo Global Logistics Ltd reported in (2015) 374 ITR 645 (Bom) vide order dated 21.4.2015, wherein the facts before the Bombay High Court and decision rendered thereon are as below :- “Under section 153A of the Income-tax Act, 1961, which enables carrying out of search or exercise of power of requisition, assessment in furtherance thereof is contemplated. There is a mandate to issue notices under section 153(1)(a) and 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. Thus, the crucial words "search" and "requisition" appear in the substantive provision and the provisos. That would throw light on the issue of applicability of the provision. True it is that the assessment which has to be made in pursuance of the notice is in relation to the six years. An order will have to be made in that regard. While making the order, the income or the return of income filed for all these assessment years is to be taken into account. A reference will have to be made to the income disclosed therein. However, the scope of enquiry though not confined essentially revolves around the search or the requisition under section 132A , as the case may be. The provision deals with those cases where assessment or reassessment, if any, relating to the assessment years falling within the period of six assessment years referred to in sub-section (1) of section 153A were pending. If they were pending on the date of the initiation of the search under section 132 or making of requisition under section 132A , as the case may be, they abate. It is only pending proceedings that would abate and not where there are orders made of assessment or reassessment and which are in force on the date of initiation of the search or making of the requisition. The assessee was engaged in the operation of a container freight station. It claimed deduction under section BO-IA(4) producing a certificate dated July 13, 2006, from the Jawaharlal Nehru Port Trust Nhava Sheva declaring that the assessee was considered an extended arm of port-related services. The education was disallowed on the ground that

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the certificate was withdrawn on October 5, 2007. The Commissioner (Appeals) confirmed the view of the Assessing Officer. The Tribunal held in favour of the assessee. A search was carried out on its premises and a notice under section 153A was issued to the assessee. The assessee declared a total income of Rs.5,54,63,220 while claiming the deduction under section 80-IA(4) of Rs.1,25, 77,637. The Assessing Officer held that the assessee was not entitled to the deduction under section 80-IA. The Commissioner (Appeals) upheld the order of the Assessing Officer. The Special Bench of the Tribunal held that by the clear language of section 153A together with its provisos, pending assessments abated and that the Assessing Officer was required to make one assessment for each of the six years on the basis of the search and any other material existing or brought on record by the Assessing Officer, that in other cases assessments would be made on the basis of the books of account and other documents found during the search and not produced during assessment and also on any other undisclosed income or property found during the search. On the issue of deduction under section BO-IA(4) the Tribunal held that the container freight station was an inland port and its income was entitled to deduction under section 80-IA(4) . On appeals: Held, dismissing the appeals, (i) that the notice under section 153A was founded on search. If there was no incriminating material found during the search then the Tribunal was right in holding that the power under section 153A being not expected to be exercised routinely, should be exercised if the search revealed any incriminating material. If that was not found then in relation to the second phase of three years, there was no warrant for making an order within the meaning of this provision.”

6.8. In view of the aforesaid findings and judicial precedent relied upon, we hold that the denial of deduction u/s 80IB of the Act in the assessments framed u/s 153A of the Act for the Asst Years 2003-04 and 2004-05 without any incriminating materials found during the course of search with respect to those assessment years is not warranted and held as not in accordance with law. Accordingly, the grounds raised by the revenue in this regard for the assessment years 2003-04 and 2004-05 are dismissed.

6.9. We hold that the same decision would be applicable for the disallowance made by the Learned AO u/s 14A of the Act and accordingly no disallowance u/s 14A of the Act could be made for the Asst Year 2004-05 by the Learned AO in the assessment

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framed u/s 153A of the Act in the absence of any incriminating materials found during the course of search with regard to the relevant assessment year and with regard to the relevant issue.

6.10. With regard to the claim of deduction u/s 80IB of the Act for the Asst Years 2007-08 and 2008-09 are concerned, we find that the same is only consequential in nature and once the assessee has been granted deduction u/s 80IB of the Act for the initial assessment year i.e Asst Year 2003-04, the grant of deduction under the said section in respect of the same unit is only academic and hence the assessee is entitled for deduction u/s 80IB of the Act for the Asst Years 2007-08 and 2008-09. Accordingly, the ground raised by the revenue in this regard for the assessment years 2007-08 and 2008-09 are dismissed.

6.11. Since the decisions are rendered by us on legal grounds, we refrain to give our decision on the merits of the issues.

ORDER PRONOUNCED ON…9-2-15

Sd/- Sd/- ( Mahavir Singh, Judicial Member ) (M. Balaganesh, Accountant Member)

Date 9 /12/2015 **PRADIP/SPS

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Copy of the order forwarded to:- 1.. The Appellant: Asstt. Commissioner of Income Tax/Dy. Commissioner of Income-tax, CC XXVII, 5th Fl., 18 Rabindra Sarani, Kol-1. The Respondent-M/s. Kanchan Oil Industries Limited 10/1 D Lalbazar St, 3rd fl Mercantile 2 Bldg Kol-1. 3 /The CIT, 4.The CIT(A)

DR, Kolkata Bench 5. 6. Guard file. True Copy, By order, Asstt Registrar

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