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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
The captioned appeal is preferred by the assessee and is directed against the impugned order dated 01/04/2015 of CIT(A)-48, Mumbai, pertaining to the assessment year 2005-06, which in turn has arisen from an order passed by the Assessing Officer dated 30/3/2013 under section 153A r.w.s. 144(3) of the Income Tax Act, 1961( in short “the Act”).
(Assessment Year : 2005-06) 2. The Grounds of appeal raised by the assessee read as under:-
1) “On the facts and circumstances of the case and in law, the learned CIT(A) erred in not appreciating the fact that the additions for this year has to be restricted on the basis of evidence found in the books and documents found during the search as per the decision of the ITAT Mumbai ,Special Bench in the case of 'All Cargo Global Logistics Ltd' [23 taxmann.com 103 (Mum)SB], which has now been upheld by the Bombay High Court by their decision delivered on 21st April 2015, in appeal No ITX 1969 of 2013. 2) On the facts and circumstances of the case and in law, the learned CIT(A) erred in upholding the Assessment order as the PAN was not transferred to the new jurisdiction even on the date of the order.” 3) On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the addition of notional rent of Rs.1,17,600/-“
Briefly put, the relevant facts are that assessee is an individual, who alongwith his family members and other family controlled entities was subject to a search action by the Department under section 132 of the Act on 10/01/2011. Pursuant to the search a notice under section 153A of the Act was issued calling for a return of income, in response to which assessee filed a return of income declaring an of Rs.1,72,964/- on 26/12/2011, which was same as the income originally declared in return of income filed under section 139(1) of the Act on 10/10/2006. The return of income filed by the assessee was subject to scrutiny assessment under section 143(3) r.w. section 153 A of the Act, whereby the total income has been assessed at Rs.2,90,564/-. The difference between the returned and the assessed income was primarily on account of an addition of Rs.1,17,600/- made by the Assessing Officer
(Assessment Year : 2005-06) on account of notional rental value of two properties at Karjat and Nalasopara.
Before me, the Ld. Representative for the assessee contended that during the course of search no incriminating material was found, which would suggest that the impugned notional value related to any undisclosed properties. It was further, pointed out that in the context of the original return filed under section 139(1) of the Act on 10/10/2006, no notice under section 143(2) of the Act was issued within the prescribed period and, therefore, assessment stood completed and in any case as on the date of search i.e. on 10/01/2011, the assessment for impugned assessment of 2005-06 was not pending. The aforesaid factual matrix has been referred to by the Ld. Representative for the assessee to explain that the assessment for the year under consideration did not abate in terms of the second proviso to section 153A(1) of the Act. Accordingly, it is sought to be canvassed that the impugned addition made on account of notional rental income could not be made in the impugned assessment proceedings unless some incriminating material was found during the course of search regarding the unexplained nature of the impugned income. In support of the said proposition, the Ld. Representative for the assessee has relied upon the following decisions:-
(i) All Cargo Global Logistics, 374 ITR 645 (Bom) (ii) Suncity Alloys (P) Ltd. vs. ACIT, 124 TTJ 674 (Jod) (iii) Athithi N. Patel, order dated 22/08/2012
(Assessment Year : 2005-06) (iv) Saf Yeast Company Pvt. Ltd. vs. ACIT, order dated 03.10.2012 (v) B.R. Machine Tools Pvt. Ltd. vs. ACIT, ITA No.4174 to 4177/Mum/2013 order dated 06.12.2013. (vi) Gurinder Singh Bawa, ITA No.2075/Mum/2010 order dated 16/11/2012 (vii) Raksha Chhadwa vs. ACIT, ITA No.8576& 8577/Mum/2010 for A.Y 2003-04 & 2005-06 order dated 17.10.2014
On the other hand, Ld. Departmental Representative appearing for the Revenue has defended the action of the income tax authorities pointed out that the provisions of section 153A of the Act empower the Assessing Officer to assess or re-assess the total income of six Assessment Years immediately preceding the assessment year relevant to the previous year in which such search was conducted. As per Ld. Departmental Representative the Assessing Officer was duty bound to assess or reassess ‘total income’ of such assessment years and, therefore, the impugned addition was justifiably made as it involves application of section 23(1) of the Ac relating to the determination of Annual Value of property.
As the aforesaid discussion shows that the pertinent point raised by the assessee before me is that the impugned addition has been made in the absence of requisite jurisdiction. In order to appreciate the controversy, it is pertinent to observe that Section 153A of the Act postulates the assessment in cases of search or requisition under section 132 or under section 132A of the Act respectively. The said
(Assessment Year : 2005-06) section envisages that the Assessing Officer shall assess or reassess the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search was conducted. The second proviso to section 153A(1) of the Act also prescribes that assessment or re-assessment, if any, relating to any assessment year falling within the period of six years referred to in sub- section(1) of section 153A of the Act, which is pending on the date of initiation of search or making of requisition as the case may be , shall abate. In other words, in so far as the pending assessments are concerned, the competence of the Assessing Officer to make the original assessment converges with the assessment to be made u/s.153A of the Act, i.e. only one assessment shall be made for such assessment years based on the findings of the search as well as any other material existing or brought on record by the Assessing Officer. Notably, there would assessments in the period of the six assessment years identified in section 153A(1) of the Act, which would have become final (i.e. which are not pending on the date of search); such assessments do not abate in terms of the second proviso to sec.153A(1) of the Act. The scope and ambit of such an assessment is the controversy before me. In this context, it would be pertinent to refer to the judgment of the Hon’ble Bombay High Court in the case of CIT vs. Continental Warehousing Corporation (Nhava-Sheva) 58 Taxmann.Com 78 (Bom) wherein the scope of an assessment under section 153A of the Act has been considered. One of the points addressed by the Hon’ble High Court was whether the scope of assessment under section 153A of the Act envisages additions, which are otherwise not based on any incriminating material found during the course of search. As per
(Assessment Year : 2005-06) Hon’ble High Court, no addition could be made in respect of the assessment that had become final in the event no incriminating material was found during the course of search. The Hon’ble High Court also noticed its earlier judgment in the case of Murali Agro-products Ltd. (supra) and elaborately culled out the scope and ambit of the assessment and reassessment of total income under section 153A(1) of the Act read with the proviso thereof. The Hon’ble Bombay High Court in Continental Warehousing Corporation (supra) has ruled that an unabated assessment under section 153A(1) would not encompass an addition, if no incriminating material is found during the course of search, because in such a case, the original assessment had become final. This proposition has been canvassed by the Ld. Representative for the assessee before me in order to assail the addition of Rs.1,17,600/- made by the Assessing Officer on account of notional rental value of the properties at Karjat and Nalasopara.
5.1 The Hon’ble Delhi High Court in the case of CIT(Central)-III vs. Kabul Chawla in ITA 707/2014 dated 28/08/2015 has extensively considered the legal position and summarized it in the following words:-
“Summary of the legal position
On a conspectus of Section 153A(1) of the Act, read with the proviso 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 153A(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 places.
(Assessment Year : 2005-06) 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 take 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 153A 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 153A 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 Assessing Officer. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153A 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.” 5.2 Factually speaking, in the present case the assessment on the date of search stood completed in as much as the date for issuance of notice under section 143(2) of the Act in relation to return originally fined under section 139(1) filed on 10/10/2006 had lapsed. Thus, I have perused the assessment order and find that there is nothing brought on record to suggest that any incriminating material was found during
(Assessment Year : 2005-06) course of search with respect to the impugned addition. The entire discussion on this point in para-3 of the assessment order does not refer to any material found during the course of search leave alone any incriminating material. Therefore, in this factual background, I do not find any justification for the Assessing Officer to make the impugned addition in an assessment finalized under section 153A of the Act in the absence of incriminating material having not been found during the course of search, qua the impugned income.
5.3 In conclusion, I, therefore, hold that following the ratio of the judgment of the Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava-Sheva) (supra) as also the judgment of the Hon’ble Delhi High Court in the case of Kabul Chawla (supra), the impugned addition could not have been made in respect of an unabatable assessment which had otherwise become final, in the absence of any incriminating material having not been found in the course of search, qua the impugned addition. Accordingly, I set aside the order of the CIT(A) and direct the Assessing Officer to delete the addition of Rs.1,17,600/- as the same is purported to be beyond the scope and ambit of assessment envisaged under section 153A of the Act. Thus, on this aspect, the assessee succeeds.
In the result, the appeal of the assessee is allowed as above.
Order pronounced in the open court on 30/10/2015.