TMI Blog2014 (11) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... t dehors any incriminating material found during the course of search – the contention of the assessee is accepted that the only action left for the AO in that respect as no addition was conceived on incriminating material as to drop the proceedings - under the provision of the Act only the proceedings which are pending shall got abated - any proceedings that has reached its finality shall not be disturbed unless there is incriminating material found indicating the existence of income embedded in the said incriminating material/document/evidence. No incriminating material has been proved to have been found during the course of search operation which belonging to the assessee warranting the reassessment u/s 153A r.w.s. 143(3) of the Act for the AY - the AO has invoked provision of section 14A of the Act read with Rule 8D of the IT Rules 1962 for the AY 2006-07 but the provision of Rule 8D of the Rules have prospective effects from A.Y. 2008-09 onwards - the AO made addition on wrong and unjustified reasons and basis which was upheld by CIT(A) without considering the factual matrix of the case and without affording due opportunity of hearing for the assessee - adhoc estimated dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng an ad hoc estimated disallowance of expenses of ₹ 2,10,311/- by holding that disallowance out of administrative expenses @ % of average investment cannot be said to be ad hoc. 3. Briefly stated the fact; giving rise to this appeal are that a search and seizure operation u/s 132of the Act 1961, (for short the Act ) was carried out in the assessee s group of cases including the assessee company on 13.05.2010 and subsequently all cases were duly centralised with Central Circle-19, New Delhi, vide order u/s 127 of the Act, dated 10.10.2012. Originally the return of income was filed u/s 139 on 30.11.2006 declaring total income of ₹ 1,18,93,32,413/- which was assessed earlier u/s 143(3) of the Act at ₹ 1,21,21,89,430/-. Due to search taken place, statutory notice u/s 153A of the Act was issued on 15.02.2012 requiring the assessee to file the return of income for A.Y. 2006-07 being one of the six preceding the assessment year relevant to the previous year in which search was conducted. In response to the notice u/s 153A of the Act, the assessee filed the return of its income on 03.05.2012, declaring a total income of ₹ 1,18,93,32,413/- for AY 2006-07. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of ITAT, Delhi Bench, G in the case of Sanjay Aggarwal, Vs. DCIT (2014) 47 Taxmann.com 210 (Del- Tribunal) another decision of ITAT, Delhi Bench, SMC in the case of Parivar Properties Pvt. Ltd. Vs. DCIT (2014) 41 Taxmann.com 485 (Delhi-Tribunal). 9. Reply to the above the ld. DR supported the orders of the authorities below and submitted that in view of recent judgment of Hon ble Jurisdictional High Court of Delhi, in the case of Filatex India Ltd. Vs. CIT 2014-TIOL-1325- HC-DEL submitted that when notice u/s 153A of the Act was issued then all assessment of the block of six assessment years preceding the assessment year relevant to the previous year in which the search was conducted falls within the ambit of assessment or re-assessment u/s 153A of the Act. 10. The ld. DR further contended that the additions need not to be restricted or limited to the incriminating material which was found during the course of search and after issuance of notice u/s 153A of the Act. The AO is empowered to compute the total income of six assessment years immediately proceeding the assessment year relevant to the previous year in which search was conducted and the total income of asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance of % of average investment out of total administrative expense claimed for ₹ 7,55,73,544/- appears to be proper. It may be mentioned here that disallowance of administrative expense cannot be said as adhoc. As subsequently w.e.f. 24.03.2008 under Rule 8D, sub rule (iii) for residual expense, i.e. not direct expense disallowance is to be computed @ % of average investment. Through Rule 8D has not been made retrospectively, but this rule gives basis of disallowing indirect expenses in clause (iii) of said rule. As a result, the action of the assessing officer is confirmed. This ground of appeal is dismissed. 13. In the case of Sanjay Aggarwal (Supra) the Coordinate Bench of this Tribunal took a view that the provision of section 153A of the Act, in respect of the assessment year for which original assessment have already been completed on the date of search the total income shall be determined by restricting the additions, only to those issues which flow from incriminating material found during the course of search the relevant observations of this decision paragraph no. 7-to 14 reproduced:- 7. Let us examine the judgments of the Hon ble jurisdictional Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded in the case of person other than the person searched. On the contrary, we are dealing with assessment u/s 153A, being the assessment in the case of person searched. In that view of the matter, we find that the reliance of the ld. DR on this judgment is misplaced. 8. Now we turn to the other judgment relied by the ld. DR in the case of Chetan Das Lachman Das (supra). Referring to para 11 of this judgment, the ld. DR contended that the condition precedent for computing undisclosed income on the basis of incriminating material found during the course of search was in the context of Chapter XIV-B of the Act which envelopes a special procedure for assessment of search cases. The ld. DR contended that section 153A which provides for an assessment in the case of search, does nowhere stipulate that a search assessment has to be made on the basis of evidence found as a result of search, etc. He emphatically relied on several judgments including State of Kerala VS. Mathai Verghese (1986) 4 SCC 746, 749 and CIT VS. Keshavlal AIR 1965 SC 866 to put forth that there is no room for any intendment and there is no equity about tax. It was emphasized that the courts cannot reframe the legisl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate : ..............' 10. A careful perusal of the above provision brings to light that where a search is initiated u/s 132 of the Act etc., the A.O shall issue a notice requiring the person searched etc. to furnish his return of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made. Once such returns are filed, the Assessing Officer has to assess or reassess the total income of such assessment years. The decisive words used in the provisions are to 'assessee or reassess the total income'. Thus, it is manifest that a duty has been cast on the Assessing Officer to determine the 'total income' of the assessee for such six assessment years. Obviously 'total income' refers to the sum total of income in respect of which a person is assessable. It covers not only the income emanating from declared sources or any material placed before the Assessing Officer but from all sources including the undeclare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of section 153A. In fact, the special bench of the tribunal in holding so has interpreted the provision in its existing form in this way so as to prohibit the making of any addition in the assessment for those years the assessment of which was not pending on the date of search. This view has been followed in several cases including Kabul Chawla vs. Asstt. CIT [IT Appeal No.779 (Delhi) of 2013, dated 23-05-2014], to which one of us, namely, the AM is party, Thus, we do not find any merit in the contention raised on behalf of the Revenue that the tribunal should not legislate. As it is a case of interpretation of the provision and not that of legislating, we find no force in the contention advanced on behalf of the Revenue. The same is jettisoned. 12. The next judgment relied on by the ld. AR is Anil Kumar Bhatia (supra). In that case, the Hon ble High Court held that even if assessment order had already been passed in respect of one or any of the six relevant assessment years either u/s 143(1)(a) or 143(3) prior to the initiation of search, still the AO is empowered to reopen those proceedings u/s 153A without any fetters and reassess total income taking note of undisclosed inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luenced by the items of income other than those based on the material unearthed during the course of search. There is not and cannot be any quarrel over the proposition that the Assessing Officer has no option but to determine the total income of the assessee in respect of the relevant six assessment years. However, the scope of such determination of total income is different in respect of the years for which the assessments are pending vis-a-vis the years for which assessments are non-pending. In respect to the assessment years for which the original assessments have already been completed on the date of search, the total income shall be determined by restricting additions only to those which flow from incriminating material found during the course of search. If no incriminating material is found in respect of such completed assessment, then the total income in the proceedings u/s 153A shall be computed by considering the originally determined income. If some incriminating material is found in respect of such assessment years for which the assessment is not pending, then the 'total income' would be determined by considering the originally determined income plus income eman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned finality in the original assessment dehors any incriminating material found during the course of search. 16. Under these circumstances and factual matrix of the present case we agree with the submissions and contentions of the ld. AR of the assessee that the only action left for the AO in that respect as no addition was conceived on incriminating material as to drop the proceedings. Hence, we are of the considered opinion that under the provision of the Act only the proceedings which are pending shall got abated. Meaning thereby any proceedings that has reached its finality shall not be disturbed unless there is incriminating material found indicating the existence of income embedded in the said incriminating material/document/evidence. 17. Turning to the fact of the present case, we note that no incriminating material has been proved to have been found during the course of search operation which belonging to the assessee warranting the reassessment u/s 153A r.w.s. 143(3) of the Act for the impugned assessment year. Even on the merits, we observe that the AO has invoked provision of section 14A of the Act read with Rule 8D of the IT Rules 1962 for the assessment year 2006 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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