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Income Tax Appellate Tribunal, MUMBAI BENCHES “F”, MUMBAI
Before: Shri Joginder Singh, & Shri Ramit Kochar
Per Joginder Singh (Judicial Member) Both these appeals are by the Revenue and Cross Objections by the assessee challenging the impugned orders both dated 11/01/2012 of the ld. First Appellate Authority, Mumbai.
The ground raised in these appeals pertains to directing the Assessing Officer to delete the addition made on account of low net profit reworked out at 0.14% when the estimation made by the Assessing Officer was based on comparable cases and further admission of additional evidence contravening Rule 46A of Income Tax Rules 1962 (hereinafter the Rules).
2.1. During hearing of these appeals, Shri G.M.Doss, ld. DR, advanced his arguments, which are identical to the ground raised. On the other hand, Shri Dharmesh Shah, ld. counsel for the assessee explained that the impugned issue is covered by the decision of the Tribunal, on identical facts, in the case of father and uncle of the assessee. Our attention was invited to page 77, 78, 80, 90 and 95 of the paper book by placing reliance upon the decision in Continental Warehousing Corporation and All Cargo Global Logistic Ltd. 374 ITR 645 (Bom). Reliance was also placed upon the 3 Visttal Jayendra Jhaveri & 2147/Mum/2012 & C.O. No.284 & 285/Mum/2013 decision in the case of ACIT vs Shri Jayendra P. Jhaveri (ITA No.2141 to 2144/Mum/2012) (Assessment Years 2003-04 to 2006-07), order dated 20/02/2014, ITA No.2139, 2140, 2159 and 2160/Mum/2012, in the case of ACIT vs Yogin P. Jhaveri, order dated 15/09/2014 in the cases of relatives of the assessee (father and uncle), which are exactly identical on facts. This factual matrix was not controverted by the Ld. DR.
2.2. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion of the order dated 20/02/2014 (ITA No.2141 to 2144/Mum/2012) for ready reference:-
“These four appeals by the revenue arise out of the common order of the CIT(A)- 41, Mumbai, dated 11.01.2012 pertaining to A.Ys. 2003-04, 2004-05, 2005-06 & 2006-07. The cross- objections are by the assessee against the very same order of the CIT(A). As common issues are involved in these appeals and cross-objections, they were heard together and are being disposed of by this common order for the sake of convenience and brevity.
2. A search and seizure operation was carried out in the case of the assessee on 14.08.2008 u/s. 132 of the Income Tax Act. Pursuant thereto, the AO issued notice u/s. 153A to the assessee to file the return of income for six years subsequent to the search. In response to the notice, the assessee filed return of 4 Visttal Jayendra Jhaveri & 2147/Mum/2012 & C.O. No.284 & 285/Mum/2013 income before the AO. The AO, thereafter, issued notice u/s. 143(2) and 142(1) of the I.T. Act along with questionnaire for submission of details. The assessee submitted before the AO that books of account and other details were destroyed in the flood in the year 2005 and, therefore, the same could not be produced. Since the assessee failed to produce the books of accounts, the AO passed the order u/s. 144 r.w.s. 153A of the I.T. Act. The AO estimated the net profit of the assessee’s proprietary concern, M/s. J. P. Exports @ 0.99% on the basis of net profit ratio of certain other persons who were engaged in a similar business as that of the assessee and thus made the additions accordingly to the total income of the assessee. The AO further disallowed the deductions under Chapter VI claimed by the assessee and also declined to give credit of tax paid for want of proof.
The CIT(A) upheld the action of the AO for passing the order u/s. 144 r.w.s 153A of the Income Tax Act. However he directed the AO to re-compute the net profit of the assessee by adopting the net profit of 0.14% and deleted the balance addition out of that was made by the AO. He further directed the AO to look into the record and allow the credit of tax paid as per law.
The revenue thus is in appeal before us, against the action of the CIT(A) in directing the AO to rework the net profit of the assessee at the lower rate of 0.14% as against the 0.99% estimated by the AO. Whereas the assessee has filed the cross objections against the action of the CIT(A) in upholding of assessment proceedings made by the AO under section 153A of the Act.
5 Visttal Jayendra Jhaveri & 2147/Mum/2012 & C.O. No.284 & 285/Mum/2013 5. The learned representative of the assessee, at the outset has submitted, as admitted by the learned DR also, that the question as to validity of assessment u/s 153A be adjudicated first because if the same is decided in favour of the assessee, then the consequential computation of net profits will not survive. Hence the issue of validity of assessment u/s 153A raised by the assessee in his cross objections is taken first for adjudication.
The contention of the learned AR has been that since no incriminating material was found during the search and seizure operation, the re-assessment made by the AO u/s 153 A was not valid. He has further submitted that since the limitation period for issuing notice u/s 143(2) of the Act had already been expired and as such the assessments in relation to above mentioned assessment years had attained finality. There was as such no abatement of any pending assessment proceedings. The reassessment could have been made only if there were found any incriminating material against the assessee.
On the other hand, the contention Sh. S.D. Shrivastva, the learned DR, has been that in this case no books of accounts were found during search operation carried u/s 132 of the Act. The explanation of the assessee that the books of accounts were destroyed in floods was not plausible. The absence of the books of accounts, itself, was the incriminating evidence against the assessee necessitating initiation of assessment proceedings u/s 153A of the Act. His further contention has been that the earlier the return filed by the assessee in this case was processed by the AO u/s 143(1) of the Act which amounts to just the intimation
6 Visttal Jayendra Jhaveri & 2147/Mum/2012 & C.O. No.284 & 285/Mum/2013 and cannot be said to be an assessment as per the law laid down by the Hon’ble Supreme Court in the case of “Rajesh Jhaveri” 291 ITR 500. Apart from that, both the representatives of the parties have relied upon various case laws which we will also discuss along with the relevant points of arguments.
The learned DR has also filed written submissions. To stress his point that the return processed u/s. 143(1) cannot be said to be an assessment but a mere intimation, he has relied upon the judgment of Hon’ble Supreme Court in the case of “Rajesh Jhaveri Stock Brokers P. Ltd.” (2007) 291 ITR 500 (SC). His contention has been that in the case in hand the assessment was not done originally u/s. 143(3) hence the estimation in question has been rightly made u/s. 153A of the Act by the AO. He has further contended that the principal laid down by the Special Bench of the Tribunal in the case of “All Cargo Global Logistics Ltd.” 137 ITD 287 can be applied to the case where the original assessment was completed u/s. 143(3) of the Act and not to the case where the return was processed u/s. 143(1) of the Act.
We have considered the submissions of the learned DR. So far so the reliance placed by him in the case of “Rajesh Jhaveri Stock Brokers P. Ltd.” (supra) is concerned, we may observe that the issue before the Hon’ble Supreme Court in that case was regarding the reopening of the assessment u/s. 147 of the Act. The Hon’ble Supreme Court held that the proposition of law laid down by the Hon’ble Gujarat High Court in the case of “Adani Exports v. Deputy CIT”, (1999) 240 ITR 224 (Guj) was not applicable in that case. In the case of “Adani Exports” (supra),
7 Visttal Jayendra Jhaveri & 2147/Mum/2012 & C.O. No.284 & 285/Mum/2013 where the assessment was made u/s. 143(3) of the Act, and theAO did not hold any belief that income had escaped assessment on account of erroneous computation, the re- opening u/s. 147 made merely on the basis of audit objections was held to be bad in law by the Hon’ble High Court. In the case of “Rajesh Jhaveri Stock Brokers P. Ltd.” (supra), the Hon’ble Supreme Court while interpreting the provisions of section 143(1) and section 143(3) (as were in force during the relevant time period) has held that in case of assessment made u/s. 143(3), the assessment is made by the AO by applying his mind whereas in case of processing of return u/s. 143(1) of the Act, there is no application of mind by the AO and as such, if a new material comes into the knowledge of the AO and the requirements of section 147 of the Act are fulfilled, the AO is free to initiate proceedings u/s. 147 and the failure to take steps u/s. 143(3) will not render the AO powerless to initiate re-assessment proceedings even when intimation u/s. 143(1) had been issued. So the proposition of law laid down in the case of “Rajesh Jhaveri Stock Brokers P. Ltd.” (supra) relates to the powers of the AO for re-opening of assessment u/s. 147in relation to the assessment proceedings conducted under section 143(1) viz-a-viz u/s 143(3) of the Act. (as were in force during the relevant period, since section 143 has been further amended vide Finance Act 2008 w.e.f 01.04.2008.) It is to be noted that powers of the AO to re- open an assessment u/s. 147 is subject to limitation of time period as prescribed u/s. 149 of the Act. So the reasonable conclusion will be that whether the return was processed u/s. 8 Visttal Jayendra Jhaveri & 2147/Mum/2012 & C.O. No.284 & 285/Mum/2013 143(1) or u/s. 143(3), if the AO has a reason to believe that any income chargeable to tax has escaped assessment, he can re- open the assessment u/s. 147 by issuing notice u/s. 148 but within the time limit as prescribed u/s. 149 of the Act.
So far so, the question as to the processing of return u/s. 143(1) viz-a-viz assessment made u/s. 143(3) is concerned, it may further be observed that after processing of return u/s. 143(1) the same can be assessed u/s. 143(3) by issue of notice u/s. 143(2) subject to its issuance within the limitation period of 12 months from the end of the month in which return is furnished as per the proviso to clause (ii) of section 143(2) [as was existing at the time of relevant assessment year]. Once the limitation period as prescribed vide proviso to clause (ii) of sub section (2) of section 143 is expired, it is not open to the AO to assess the income u/s. 143(3) of the Act and the return filed by the assessee u/s. 139 is deemed to be accepted, which however, can be re-opened u/s. 147 of the Act subject to the fulfillment of ingredients of section 147 and within the time period as prescribed u/s. 149 of the Act, as discussed in the preceding para. So under such circumstances if the return is processed u/s. 143(1) and not u/s. 143(3) and after the prescribed period of limitation, the same cannot be assessed u/s. 143(3) though it may be interpreted as mere intimation assessment or otherwise, but the same shall be deemed to be accepted by the AO and it will not have any different colour other than the return which is processed u/s. 143(3) of the Act. The only distinguishing feature as held by the Hon’ble Supreme Court in the case of “Rajesh
9 Visttal Jayendra Jhaveri & 2147/Mum/2012 & C.O. No.284 & 285/Mum/2013 Jhaveri Stock Brokers P. Ltd.” (supra), would be that if to a set of facts and circumstances, the AO has applied his mind and he was of the belief that there was no escapement of income then for invoking the provisions of section 147 of the Act, he is precluded, on the basis of same facts and circumstances, to say that he has reason to believe that income of the assessee has escaped assessment. Whereas in case of returns processed u/s. 143(1), since the AO does not apply his mind, such a defense is not available to the assessee. However, that proposition of law does not help the revenue in the present case which is a case of assessment/re-assessment u/s. 153A of the Act.
Admittedly, in the case in hand, the return was processed u/s. 143(1) of the Act but the same has attained finality due to the expiry of limitation period of twelve months from the end of the month in which the return was filed. Hence, the assessment is deemed to be completed and not pending on the date of search on 14.08.2008. Admittedly, no incriminating material was found from the premises of the assessee during the search u/s. 132 of the Act. The Special Bench of the Tribunal in the case of “All Cargo Global Logistics Ltd.” (supra), has held that assessment u/s. 153A can be made on the basis of incriminating material found during the search. The Hon’ble Rajasthan High Court in the case of “Jai Steel (India) v. ACIT” (2013) 259 CTR 281 has held that in case nothing incriminating is found on account of search or requisition, the question of reassessment of the concluded assessment does not arise. Under such circumstances, it is not open to the assessee to seek deduction or claim
10 Visttal Jayendra Jhaveri & 2147/Mum/2012 & C.O. No.284 & 285/Mum/2013 expenditure which has not been claimed in the original and already concluded assessment, in the case of assessment u/s. 153A in pursuance of search action. Hon’ble High Court rejected the argument of the learned counsel for assessee to the effect that once the notice u/s. 153A is issued, the assessments for six years are at large both for the AO and the assessee. It has been further held by the Hon’ble High Court that the provisions of section 153A to 153C cannot be interpreted to be further innings to the AO and/or assessee beyond the provisions of section 139(return of income), 139(5) (revised return of income), 147 (income escaping assessment) and 263( revision of orders) of the Act. The Hon’ble High Court has further observed that the words “assess” or “re-assess” 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 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 on the basis of the incriminating material found during the course of search or requisition of documents. The Hon’ble High Court while reproducing the proposition of law laid down by the Hon’ble Supreme Court in the case of “K P Varghese v. ITO” (1981) 24 CTR 358 “that it is recognized rule of construction that a statutory proviso must be so construed, if possible, that 11 Visttal Jayendra Jhaveri & 2147/Mum/2012 & C.O. No.284 & 285/Mum/2013 absurdity and mischief may be avoided” has observed that if the argument of the counsel for the assessee was to be accepted, it would mean that even in case where the appeal arises out of the completed assessment has been decided by the CIT(A) or Tribunal and the High Court, on a notice issues u/s. 153A of the Act, the AO would have power to undo what has been concluded by the High Court. Any interpretation which leads to such conclusion has to be repelled and/or avoided as held by the Hon’ble Supreme Court in the case of K P Varghese (supra).
Almost similar proposition of law has been laid down by the co- ordinate Bench of the Tribunal in the case of “M/s Deepa Restaurant & Bar P. Ltd.” in decided on 05.02.2014 (one of us being the party of the said order) wherein, it has been observed that where the scrutiny assessment order u/s. 143(3) of the Act was set aside by the higher authorities that, itself, cannot be a ground for re-opening the assessment u/s. 147 of the Act on the plea that since scrutiny assessment has been annulled on the legality of notice u/s. 143(2) of the Act and the case has not been heard at any of the stage hence, there was a reason to believe that the income assessed in this case has escaped assessment. The co-ordinate Bench in the above said case has further held that such an action cannot be allowed under the law as it may amount to defeating one of the statutory provisions in the grab of acting under other provisions of the statute. Once assessment u/s. 143(3) had been annulled by higher authorities on the ground of legality of notice u/s. 143(2) of the Act, re-opening u/s. 147 on that very ground would
12 Visttal Jayendra Jhaveri & 2147/Mum/2012 & C.O. No.284 & 285/Mum/2013 mean nothing else but the abuse of process of law. Hence, the contention of the learned DR that as the return was processed u/s. 143(1) and it was a mere intimation hence, the AO had reason to believe that income had escaped assessment and it was open to the AO to re-assess the income u/s. 153A, even without any incriminating material found during the search action, is not tenable.
The learned DR has further relied on the judgment of the Hon’ble Andhra Pradesh High Court in the case of “Gopal Lal Badruka Vs. DCIT”, 346 ITR 106 (AP) to stress the point that the AO can use evidence other than that found during the course of search while framing the assessment u/s. 153A of the Act. The said judgment of Hon’ble Andhra Pradesh High Court has been duly discussed by the Special Bench of the Tribunal in the case of “All Cargo Global Logistics Ltd.” (supra), holding that the same was distinguishable on the facts. In the case of “Gopal Lal Badruka Vs. DCIT” (Supra), incriminating evidence was found in relation to eight plots of land but no evidence was found in respect of 24 plots. Since incriminating material was found in respect of eight plots, Hon’ble Court held that the AO can estimate the income in respect of all 32 plots. The fact was that incriminating material was found in that case.
The other judgment of the Hon’ble Delhi High Court in the case of “CIT vs. Chetan Dass Lachman Dass” [2012] 211 Taxmann 61, strongly relied upon by the learned DR, is also of no help to the revenue but to the assessee only. In the said case the Hon’ble Delhi High Court, in para 11 of the order, though has held that 13 Visttal Jayendra Jhaveri & 2147/Mum/2012 & C.O. No.284 & 285/Mum/2013 there is no condition in section153A that additions should be strictly made on the basis of evidence found during the course of search or other post search material or information available with the AO which can be related to the evidence found and that the seized material can be relied upon to also draw inference that there can be similar transactions throughout the relevant period, yet, at the same time it has been further observed that this however, does not mean that assessment u/s 153 A can be arbitrarily made without any relevance or nexus with the seized material.
The proposition of law which emerges out in the light of the law laid down by the Rajasthan High Court in the case of “Jai Steel (India) (supra)”, Hon’ble Gujarat High Court in the case of “Gopal Lal Badruka” (supra) and also by the Hon’ble Delhi High Court in the case of “Chetan Dass lachman Dass” is that where incriminating material is found during the search action, the AO while making assessment u/s. 153A can take note of other materials on record, which are relevant and connected to the material found during the search and inference can be drawn relating to other transactions of similar nature. However, when no incriminating evidence is found during search, it is not open to the AO to make re-assessment of concluded assessment in the garb of invoking the provisions of section 153A. As observed above, such an action will defeat the other relevant provisions of the Act and also the rights of the assessee accrued therein.
The next argument of the learned DR has been that since in the case in hand, no books of account were found during the 14 Visttal Jayendra Jhaveri & 2147/Mum/2012 & C.O. No.284 & 285/Mum/2013 search action that itself is the incriminating material against the assessee, in our view has no force of law. Though the revenue may not be satisfied with the explanation of the assessee that the books of account were lost in floods, still the assessment or addition cannot be made on this ground. Such an inference of concealment of income cannot be made just on mere assumptions, presumptions or suspicion. The Coordinate Bench of the Tribunal in the case of “Jitendra Kumar Jain v. DCIT” ITA Nos. 5951- 5953/M/2011 decided on 16.01.2014 (incidentally constituted by both of us) has held that such an assumption cannot be said to be having any value of evidence in eyes of law and even the assessee cannot be called to disapprove such type of assumptions and presumptions based on mere suspicions. The revenue has to stand on its own legs to bring incriminating evidence against the assessee. It is not open to the revenue to rely on the weakness of the evidence produced by the assessee to make any adverse presumption or conclusion of his indulging in any illegal activity, without being there any direct or even circumstantial evidence on record against him.
The next limb of argument of the learned DR, while relying upon the authority of Hon’ble Supreme Court in the case of “Padma Sunder Rao” 255 ITR 147 (SC), has been that the court should not place reliance on the decisions without discussing as to how the factual situation fits to the factual situation of the decision on which reliance is placed. His contention is that one additional or different fact may make a world of difference between conclusions in two cases. There is no doubt about the 15 Visttal Jayendra Jhaveri & 2147/Mum/2012 & C.O. No.284 & 285/Mum/2013 above said proposition of law laid down by the Hon’ble Supreme Court. The court must observe the facts and circumstances of the case under which a certain proposition of law is laid down by the Hon’ble Supreme Court and then to compare the same with the facts and circumstances of the case under adjudication before it. However, this proposition of law, put by the learned DR, in our view, is of no help to the revenue but to the assessee only. As observed above, the various case laws relied upon by the learned DR are quite distinguishable on their own facts whereas, the proposition of law laid down in the case of “Jai Steel (India)” (supra), decided by Hon’ble Rajasthan High Court better fits into the facts and circumstances of the present case.
In view of our above observations, it is accordingly, held that the reassessments made by the AO under section 153A, without any incriminating material being found during the search action conducted u/s. 132 of the Act, were not in accordance with law and the same are hereby set aside and the consequential result is that the return/original assessments which have acquired finality are to be reiterated. Since the cross-objections of the assessee have been allowed, the dispute relating to the additions made in consequence of the reassessments made u/s. 153A does not survive. In the result the cross-objections filed by the assessee are allowed and the appeals filed by the revenue are hereby dismissed. Order pronounced in the open court on 20th February 2014.”
16 Visttal Jayendra Jhaveri & 2147/Mum/2012 & C.O. No.284 & 285/Mum/2013 2.3. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, factual finding/conclusion recorded in the order of the Tribunal (reproduced hereinabove), material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, we note that a search and seizure operation was carried on 14/08/2008 u/s 132 of the Act. The Assessing Officer duly considered the questionnaire and the submissions made by the assessee along with the books of accounts. In the absence of books of accounts, the assessment order was framed u/s 144 r.w.s 153C of the Income Tax Act, 1961(hereinafter the Act) and estimated the net profit of the assessee proprietary concern M/s J. P. Exports, which works out to 0.99% resulting into the addition reflected in the assessment order. 2.4. On appeal, before the ld. Commissioner of Income Tax (Appeals), the matter were examined in detail and found that comparison cannot be made with the case of the assessee as comparable cases submitted by the assessee were considered which gives the net profit at the rate of 0.08% and finally gives the average of 0.14%. The Assessing Officer was directed to recompute the net profit of the assessee to compute the net profit adopting the rate of 0.14% and the balance addition made by the Assessing Officer was deleted. We find that all these identical facts have been duly considered by the Tribunal in the aforesaid case. Even, in the case of ACIT vs Yogin P. Jhaveri, (on order dated 15/09/2014
17 Visttal Jayendra Jhaveri & 2147/Mum/2012 & C.O. No.284 & 285/Mum/2013 which is the case of relative of the assessee) a detailed deliberation was made and finally decided in favour of the assessee, thus, following the order of the coordinate bench, we find no merit in the appeal of the Revenue. Even otherwise, the case of the assessee find support from the ratio laid down in Shri Yogin P Jhaveri (ITA No.2139, 2140,2159 and 2160/Mum/2012) order dated 15/09/2014 and further from Hon’ble jurisdictional High Court in the case of Murli Agro Products Ltd. (ITA No.36 of 2009) order dated 29/10/2010, decision from Hon’ble Rajasthan High Court in Jai Steel (India) vs ACIT 259 CTR 281 (Rajasthan), ACIT vs Jignesh P Shah (ITA No.1553 and 3173/Mum/2010) order dated 13/02/2015, Sanjay Kohli vs ACIT (ITA No.3831/Mum/2012) order dated 14/01/2015 and also from Hon’ble Bombay High Court in CIT vs All Cargo Global Logistics Ltd. (374 ITR 647) order dated 21/04/2015 holding that finalized assessment/reassessment shall not abate and only undisclosed income/undisclosed asset detected during search could be brought to tax in respect of those years as provided u/s 153A of the Income Tax Act, 1961. Respectfully, following the aforementioned cases from Coordinate Benches and also from Hon’ble High Courts including from Hon’ble jurisdictional High Court, more specifically, when no incriminating material was found during search action u/s 132 of the Act, the additions, made by the Assessing Officer, were merely on the basis of comparable cases and the net profit additions, made u/s 153A were without any incriminating material, therefore, we find no merit in the appeals of the Revenue.
18 Visttal Jayendra Jhaveri & 2147/Mum/2012 & C.O. No.284 & 285/Mum/2013 2.5. So far as, the Cross objections raised by the assessee that the Commissioner of Income Tax (Appeals) ought to have appreciated that the Assessing Officer failed to record satisfaction before framing the assessment without incriminating material is already replied while disposing of the appeals of the Revenue. The Cross objections are thus having merits, therefore, allowed. Finally, the appeals of the Revenue are dismissed and the Cross Objections of the assessee are allowed. This Order was pronounced in the open court in the presence of ld. representatives from both sides at the conclusion of the hearing on 24/09/2015.