DCIT CEN CIR 2(3), MUMBAI vs. ALLIANCE MALL DEVELOPERS CO. P.LTD, MUMBAI

The only ground urged by the Revenue reads as under: -

Search and seizure action was carried out on 20.01.2012 at the office of Provogue (India) Ltd. and residence of the Directors and it was concluded on 17.03.2012. Prior to the search action assessee filed its regular return on 03.09.2011 declaring total loss of `10,62,071/-. No notice was issued under section 143(2) of the Act for taking up the matter for scrutiny and thus the return filed by the assessee is deemed to have been processed under section 143(1) of the Act.

During the course of search, loose papers with serial Nos. 9 to 32 have been found and seized, which are trial balances of the following three companies: - i. Alliance Mall Developer Co. Pvt. Ltd. ii. Hagwood Commercial Developers P. Ltd. iii. Empire Mall Pvt. Ltd. Since the documents belonging to the assessee-company have been seized in the search action, satisfaction note for initiating proceedings under section 153C has been recorded and notice under section 153A

Aggrieved, assessee contended before the CIT(A) that the proceedings under section 143(3) r.w.s. 153C are bad in law. It was also contended that the disallowance of administrative and other overheads expenses is not in accordance with law.

The main plea of the assessee was that for the year under consideration the return filed by the assessee having been deemed to be processed under section 143(1) of the Act, in the absence of any notice issued under section 148 of the Act it attained finality. In other words, no assessment or reassessment was pending on the date of initiation of search. In such an event an assessment can be made only if incriminating documents, etc. are found. In the instant case no incriminating material was found which was the basis for initiating proceedings under section 153C of the Act and thus the notice issue under section 153C and the assessment made thereon are bad in law. The learned CIT(A) extracted the arguments advanced by the assessee before him (vide letters dated 01.07.2014 and 06.09.2014). The brief submission of the assessee was that under section 153A of the Act the AO is supposed to determine the total income of the assessee in respect of the relevant six assessment years. By virtue of the second proviso any pending assessment or reassessment on the date of initiation of search or making a requisition under section 153A shall abate. The effect of 4 & 1538/Mum/2015 M/s. Alliance Mall Developers Co. P. Ltd. second proviso is that any pending assessment or reassessment will abate. Fresh determination of total income would be required only when there is incriminating material. The case law relied upon by the AO, i.e. Shri Anil Kumar Bhatia (352 ITR 493) was distinguished on the ground that it was examined by the Special Bench of ITAT in the case of All Cargo Global Logistics Ltd. It was contended that no addition can be made unless there is any incriminating material found in the course of search for each year.

The learned CIT(A) held that in the light of the decision of the Hon'ble Delhi High Court in the case of Anil Kumar Bhatia it is mandatory on the part of the AO to initiate proceedings under section 153A of the Act, consequent to search and seizure action. He also observed that in this case return of income was filed on 03.09.2011 and hence the time limit for issuance of notice under section 143(2) would be expiring after the date of search. He also admitted that it is not clear as to whether any notice under section 143(2) was issued which got abated. In his opinion there is no purpose in making two assessments in the same assessment year, once a notice is issued under section 153C of the Act. He also admitted that there is no incriminating material found during the search but, according to him, processing of return under section 143(1) is merely a check on accuracy of computation and calculation of taxes, etc. and soon after search it is mandatory on the part of the AO to issue notice under section 153C of the Act.

He thus, in principle, upheld the action of the AO, though he granted substantial relief on merits by holding that the disallowance of `1,61,497/-, referable to administrative and other overheads, are allowable as revenue expenditure.

Aggrieved, both Revenue and assessee preferred appeals before the Tribunal. The learned CIT-DR filed detailed written submissions wherein it was contended that the case of the assessee

In his opinion the decision of the ITAT Third Member in the case of Royal Cartons Pvt. Ltd. as well as the Coordinate Bench decision in the case of Hagwood Commercial Developers Pvt. Ltd. (ITA No. 1305/Mum/2015 dated 22.05.2015) are distinguishable on facts, whereas the decision of the Hon'ble Kerala High Court in the case of Dr. K.M. Mehaboob vs. DICT 26 taxmann.com 54 has direct bearing on the issue on hand. According to him there is no need to examine whether evidence/material seized represents undisclosed income of another person; all that is required is to consider whether such material relates to another assessee or not. He also relied upon the decision of the Hon'ble Bombay High Court in the case of SSP Aviation Ltd. vs. CIT 20 taxman.com 214 wherein it was held that the satisfaction that is required to be reached by the AO having jurisdiction over the searched person is that the valuable articles seized during the search belong to a person other than the searched person. There is no requirement, under section 153C of the Act, that the AO should also be satisfied that such valuable articles or documents belong to the other person and it reflects any undisclosed income.

On the other hand, the learned counsel for the assessee submitted that an assessment completed can be reopened by the AO only on the basis of some incriminating material unearthed during the course of search proceedings. In the instant case the AO having jurisdiction over the other persons acted mechanically, without any verification of facts, and as such the process is not in accordance with law because the Hon'ble Delhi High Court as well as the Hon'ble Kerala High Court were concerned with the requirement of the AO who had to merely transfer the case to the AO having jurisdiction over the third person and those decisions are not rendered in the context of the powers of the AO who had to directly deal with third party. He also submitted that identical issue was considered by the ITAT SMC Bench, Mumbai in the case of Empire Mall Pvt. Ltd., wherein, more or less under identical circumstances, the Bench agreed that initiation of proceedings under section 153C are bad in law. He also referred to the decision of the Hon'ble Delhi High Court in the case of SSP Aviation Ltd. 346 ITR 177 (Del) to submit that the decision was rendered in the context of the powers of the AO who was required to hand over the file to the AO who has jurisdiction over the third party but even in that context the court observed that in the case of the other person the question of pendency or abatement of assessment or reassessment will be examined with reference to the date on which the books accounts or documents seized and requisitioned by the AO having jurisdiction over such other person. He also referred to paras 14 to 18 of the said judgement to submit that validity of seizure has to be examined independently while initiating proceedings under section 153C of the Act. There is no requirement under section 153C of the Act that the AO should also be satisfied that such valuable articles or books, etc., belonging to other person, reflect undisclosed income of the third party because under section 153C it enables the Revenue authorities to investigate the contents of the documents seized which belongs

I have carefully considered the rival submissions and perused the record. The return of income having been filed in 2011, proceedings have reached finality by 2013 on which date the officer, to whom the matters were transferred, had not initiated proceedings and thus the assessment can be said to have attained finality. Even otherwise it is not in dispute that there was no incriminating material found during the course of search in respect of the assessee herein and in fact no addition was made by AO on the strength of the documents seized, in this assessment year. Under identical circumstances the ITAT ‘SMC’ Bench - in the case of Empire Mall Ltd. (ITA Nos. 1541 & 1543/Mum/2015) and also in the case of Hagwood Commercial Developers Pvt. Ltd. (ITA No. 1305/Mum/2015 dated 22.04.2015 wherein addition made on the basis of the trial balances found during the course of search in the premises of Provogue (India) Ltd.) - held that the proceedings initiated under section 153C are not valid and therefore the assessments made thereon were quashed. Consistent with the view taken by the ITAT in the aforecited cases I hold that the proceedings initiated under section 153C and the assessment made in the instant case is also not valid in as much as there is no incriminating material found during the course of search, pertaining to A.Y. 2011-12. Since the notice issued under section 153C is held to be invalid, the assessment made thereon has no legs to stand and therefore it is not necessary to deal with other disallowances.