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2015 (11) TMI 540 - ITAT MUMBAI

2015 (11) TMI 540 - ITAT MUMBAI - TMI - Validity of assessment order u/s 143(3) r.w.s 153C - Addition u/s 68 - Held that:- For the proposition that “when no assessment has abated, the question of making any addition or making disallowance which are not based on only material found during the search is bad in law. See case of Shri Govind Agarwal [2014 (2) TMI 810 - ITAT MUMBAI]

In the absence of any incriminating material found during search, additions made on the assessed income are u .....

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ar, CIT-DR ORDER Per D. Karunakara Rao, AM: There are 10 appeals under consideration. Out of them, 6 appeals are filed by the assessee and 4 appeals are filed by the Revenue involving the AYs 2001-02 to 2006-07. Since, the issues raised in all these appeals are inter-connected, as such there are cross appeals for the AYs 2001-02; 2002-03; 2003-04 and 2005-06, therefore, for the sake of convenience, they are clubbed, heard together and disposed-of in this consolidated order. Appeal wise adjudicat .....

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. The Ld CIT (A) has erred in law and in facts in not holding that the assessment proceeding and consequential assessment order u/s 143(3) r.w.s 153C is without jurisdiction in the absence of issuance of issuance of mandatory legal notice u/s 143(2) of the Act. 3. The Ld CIT (A) has erred in law and facts in not holding that the assessment proceeding and consequential assessment order u/s 143(3) r.w.s 153C is without jurisdiction in the absence of valid notice u/s 142 of the Act as one single co .....

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holding that the addition amounting to ₹ 7 lakhs cannot be made in the proceedings u/s 143(3) r.w.s 153A of the Act as the same is not on the basis of evidence found during the course of search and hence beyond jurisdiction. 8. The Ld CIT (A) has erred in law and in facts in confirming an addition of ₹ 7 lakhs under section 68 of the Act in respect of share capital received by the appellant. 3. Assessee also raised the Additional Grounds of appeal vide letter dated 8.2.2014 and the .....

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ion, jewellery etc belonging to the assessee seized during the course of search nor any such assets have been handed over to the Assessing Officer of the assessee. 4. Briefly stated relevant facts of the case are that the assessee is engaged in the business of Finance & Investment. Assessee filed the return of income declaring the total loss of ₹ 481/-. A search and seizure was carried out on 10.8.2006 in the case of M/s. Rohan Group including Directors of different associates and sist .....

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the assessment u/s 143(3) r.w.s 153C of the Act and the assessed income was determined at ₹ 31,99,519/-, which include the addition of ₹ 32 lakhs u/s 68 of the Act on account of share application money received by the assessee. Aggrieved with the above decision of the AO, assessee is in appeal before the first appellate authority. 5. During the proceedings before the first appellate authority, after considering the submissions of the assessee, CIT (A) partly allowed the appeal and co .....

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ssee demonstrated that in all the 6 appeals of the assessee involving the AYs 2001-02 to 2006-07 have a common legal issue and submitted that issue relates to when the assessments involved are non-abated assessment (either regular assessments are completed u/s 143(3) and the quantum proceedings are not pending or the due date for issue of notice us 143(2) has expired, the additions, if any, in the search assessment can be made basing on any incriminating material seized u/s 132 of the Act and fo .....

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argued that such additions are unsustainable in law. For this, Ld Counsel for the assessee filed written submissions and the relevant portions from the said written submissions are extracted as under: 6. It is submitted that as per the decision of the Hon'ble Bombay High court in the case of CIT v. All Cargo Global Logistic (374 ITR 645) only the assessments pending on the date of search abate. In other words, the assessments not pending on the date of initiation shall not abate and the ori .....

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y can be made only on account of incriminating material found during the course of search. The relevant position of non-abated assessment years is demonstrated vide chart attached herewith. 7. From the above chart, it is clearly evident that all assessment years ie. AY 01-02 to 06-07 are non - abated years. As stated above, all the additions made by the Assessing Officer are on account of share application and are not based on any seized material found during the course of search. Reliance is al .....

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as now been upheld by the Hon'ble Bombay High Court referred above. 8. In view of the above, it is humbly submitted that on the basis of the legal propositions, the additions made by the Assessing Officer are bad in law and hence are to be deleted. 9. We would like to bring to Your Honours kind attention the following points:- a. The additions made by the Ld. AO on account of Share application money received is not based on any incriminating seized material found during of Search. b. Further .....

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not be made an hence ought to be deleted. Copy of Order placed on record. d. As per Section 153C of the Act, notice issued u/ s. 153C would be date wherein all the pending assessment will be abate. In the present case issue of Notice u/ s. 153C is 5.9.2008 for AY 2001-02 to 2006-07, hence as seen from chart submitted all years from AY 01-02 to 06-07 are non- abated years, hence no additions based on any incriminating material found during the course of search can be made by the Ld. AO. As submit .....

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(iv) Additions made by the AO; (vi) details of additions confirmed by the CIT (A) and relief granted. For the sake of completeness of this order, the said statement is scanned and placed here under: 7. On the other hand, Ld DR relied on the order of the AO and the CIT (A). Further, on the legal propositions, Ld DR has nothing to controvert except relying on the decisions of the Revenue Authorities. 8. We have heard both the parties and perused the orders of the Revenue Authorities as well as th .....

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oposition that when no assessment has abated, the question of making any addition or making disallowance which are not based on only material found during the search is bad in law . In this regard, we find it relevant to extract the relevant paras from the decision of the Tribunal in the case of Shri Govind Agarwal (supra) and the same is as follows: 12. We have heard the parties and their divergent stands on the legal issue and the validity of the instant assessment/reassessment with the routin .....

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alance sheet of the assessee ₹ 31,33,070/-; and (ii) disallowance u/s 14A: ₹ 23,31,469/-. Admittedly, there is no incriminating material before the AO to support the above additions. The valuation report, which is garnered by the authorities constitutes mere estimates and the provisions of section 132 is not required to obtain such report from the DVO. As such, for making aforesaid additions of ₹ 31,33,070/-, AO has not used even the said valuation report and the AO disallowed .....

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he opinion, such assessments or additions are unsustainable in law. 13. For the sake completeness of the assessee, we insert here some of the extracts from relevant judgments and they are: A. [2013 36 taxmann.com 523 (Rajasthan) in the case of Jai Steel (India) vs. ACIT - From Held portion: ….The requirement of assessment or reassessment under the said section has to be read in the context of sections 132 or 132A, inasmuch as, in case nothing incriminating is found on account of such sear .....

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reading the said provision in isolation and not in the context of the entire section. The words 'assess' or 'reassess' 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 an abated proceedings and reassess has been used for completed assessment proceedings, which would not abate as they are not pending on the date of initi .....

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there was no reference to any incriminating material found during search and since no assessment was abated, assessment under section 153A was to be quashed being made without jurisdiction available under section 153A - Held, yes [Para 6.2] [In favour of assessee] Para 6.1 of the Order: The Special bench in the case of Alcargo Global Logistics Ltd. (supra), has held that provisions of section 153A come into operation if a search or requisition is initiated after 31.5.2003 and on satisfaction of .....

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minating material has been found. But in other cases the Special Bench held that the assessment under section 153A can be made on the basis of incriminating material which in the context of relevant provisions means books of account and other documents found in the course of search but not produced in the course of original assessment and undisclosed income or property disclosed during the course of search. In the present case, the assessment had been completed under summary scheme under section .....

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ered as under : (a) In assessments that are abated, the AO retains the original jurisdiction as well as jurisdiction conferred on him u/s 153A for which assessments shall be made for each of the six assessment years separately ; (b) In other cases, in addition to the income that has already been assessed, the assessment u/s 153A will be made on the basis of incriminating material, which in the context of relevant provisions means - (i) books of account, other documents, found in the course of se .....

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ome or for making additions based on the incriminating material or unproduced books of account. Otherwise, additions made in routine matter as in the present appeal are not sustainable. Further, for the sake completeness of the order, we have perused the orders/judgments relied upon by Ld DR for the revenue and found they are distinguishable on facts for one reason or other. To start with, we have perused the judgment of Honble Hon ble Delhi High Court in the case of Madugula Venu (supra) and fi .....

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53A of the Act was upheld. However, this order has not considered the then existing decision of the Coordinate Bench decision in the case of Pratibha Industries Ltd (supra) which is relevant for the proposition that the completed assessment may not be disturbed in the absence of any incriminating material specific to the assessee. In fact, all these judgments take spirit from the Special Bench decision in the case of All Cargo Global Logistics Ltd (supra), which is relevant for the proposition t .....

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or the AY under consideration. Regarding the DVO s report gathered during the search action, we find that the report suffers from certain deficiencies qua cost of construction of residential property and the land obtained thereto. The said report constitutes an opinion of the third party which cannot be used by the AO for making additions and such additions, if any, cannot be sustained legally. As such, we find that the AO has not used the said report of the DVO also for making additions of S .....

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7/- by 31.3.2002. This is merely a presumption rather conclusion based on any evidences. Such additions are unsustainable in law in the assessments made u/s 153A r.w.s 143(3) of the Act. 17. Rajasthan High Court judgment in the case of Jai Steel (India) (supra), vide para 18, it is categorically mentioned that the requirement of assessment or reassessment under the said section (153A) has to be read in the context of sections 132 or 132A of the Act, inasmuch as, in case nothing incriminating is .....

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acts of the Jai Steel Ltd (supra) are identical to the present one ie AO made additions by reassessing u/s 153A on the completed assessment u/s 143(1) of the Act. Thus, considering the judgment in the case of the Jai Steel Ltd (supra), the arguments on the legal issue raised before us stands covered. Therefore, considering the Rajasthan High Court s judgment in the case of Jai Steels Ltd, supra, we have no difficulty in (i) upholding the issue of notice u/s 153A of the Act and (2) in disapprovin .....

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e Delhi High Court in the case of CIT vs. Kabul Chawla vide ITA Nos. 707/2014 and others, dated 28.8.2015, wherein the Hon ble Delhi High Court has reiterated the above settled legal proposition that since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed. In this regard, we find it relevant to extract the summary of the legal propositions and the conclusion of said judgment of the Hon ble Delhi High Court which is as foll .....

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rch takes place. 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 takes 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 .....

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th 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 153 A 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 concerne .....

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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. Conclusion 38. The present appeals concern AYs, 2002-03, 2005-06 and 2006-07.On the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed. 39. The question framed by the Court is answered in .....

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f the assessee, the other grounds demand no specific adjudication. Thus, the legal ground raised by the assessee is allowed and rest of the grounds as well as the additional grounds are dismissed as academic. 11. In the result, appeal of the assessee is allowed. ITA No.8629/M/2010 (AY 2002-2003) (By assessee) ITA No.8630/M/2010 (AY 2003-2004) (By assessee) ITA No.8631/M/2010 (AY 2004-2005) (By assessee) ITA No.8632/M/2010 (AY 2005-2006) (By assessee) ITA No.8633/M/2010 (AY 2006-2007) (By assesse .....

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ditions made on the assessed income are unsustainable in law. Since, the issues raised in all the present appeals are identical to that of the one decided by us in the appeal for the AY 2001-2002, therefore, our decision given therein squarely applies to the present appeals too. Considering the same, legal issue raised by the assessee is decided in favour of the assessee and all other grounds as well as additional grounds raised in all the instant appeals under consideration are dismissed as aca .....

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ppeals, Revenue raised the common grounds, and the only difference, is in figures. Considering the commonality of the grounds raised by the Revenue, we take up the grounds raised by the Revenue for the AY 2001-2002 for the sake of adjudication and the same read as under: 1. On the facts and in the circumstances of the case and in law, whether the CIT (A) was justified in restricting the addition made u/s 68 of ₹ 32,00,000/- to ₹ 7,00,000/- by holding that the addition made u/s 68 in .....

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