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TMI Blog2016 (5) TMI 372X X X X Extracts X X X X X X X X Extracts X X X X ..... 2014 & 351/2015, 402/2014 & 352/2015 are filed by the Revenue. 3. By order dated 3/8/2015, the appeals filed by the assessee were admitted on the following substantial questions of law: (a) Whether the Tribunal was right in holding that the initiation of proceedings and the consequent order passed under Section 153C of the Act were valid, on a mere coincidence that the appellant was also carrying on its business in the searched premises along with the searched persons? (b) Whether the Tribunal was correct in holding that the assessment under Section 153C was valid despite there being no satisfaction recorded that the documents found during the search on 17.06.2008 were incriminating in nature and prima facie represented undisclosed income? (c) Whether the Tribunal was justified in rejecting the contention of the appellant that proceedings under Section 153C ought to be initiated only for assessment years in respect of which the documents were found during the search? (d) Whether the Tribunal was correct in upholding the validity of the order under Section 153C of the Act for the assessment year 2005-06 despite there being no pending assessment as on the date of search and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... properties. One Mr.Yunus Zia, Mr.Ziaulla Sheriff and M/s.India Builders Corporation were subjected to a search operation on 17/6/2008 under Section 132 of the Income Tax Act, 1961 (hereinafter referred to as "the Act" for short). The assessee i.e., M/s. IBC Knowledge Park Pvt. Ltd., has its registered office at the ver same premises where the search was conducted. During the search operation, certain documents and books of accounts ybelonging to the assessee were seized from the premises searched. Documents of the assessee seized during the search operation were transferred by the Assessing Officer, who searched the premises, to the Deputy Commissioner of Income Tax, Central Circle-1(3) (hereinafter referred to as "the Assessing Officer") of the assessee. The Assessing Officer issued notice under Section 153C of the Act. The assessee requested the Assessing Officer to furnish reasons for initiating action under that section. The Assessing Officer, then proceeded to pass assessment orders under Section 143(3) read with Section 153C of the Act for the assessment years 2004-05 to 2008-09 making several disallowances of deductions claimed as well as additions to the income of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kar, learned counsel for the assessee and perused the material on record. We now consider the substantial questions of law raised by the Revenue in seriatim along with the submissions of the learned counsel. 12. The first substantial question of law is with regard to depreciation allowable in respect of electrical installations, elevators, DG sets installed in the building, which have been let-out by the assessee, which is receiving rental income from the said building. The Appellate Commissioner had directed the Assessing Officer to allow depreciation on DG sets, transformers, photocopier system and security camera, but not elevators (lifts). Aggrieved by the finding, the Revenue had filed the appeal and the assessee has taken a ground in the cross-objection before the Tribunal. The Tribunal on going through the agreement of lease entered into by the assessee with various lessees held that the agreement indicated that rentals of the building and rent for the electrical installation were being separately charged, which was not denied by the Revenue. The assessee was also entitled to claim depreciation in respect of maintenance of amenities for which it received a separate fee. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, depreciation has to be allowed. That reference made to Section 24 of the Act by the counsel for the Revenue is incorrect. He, therefore, contended that the Tribunal has rightly granted the depreciation on elevators also. 15. We have considered the aforesaid submissions in light of the lease agreement dated 11/8/2003, which was submitted during the course of arguments. On perusal of the said agreement, relevant portions of Clause 1 provides as under: "1. The LESSORS doth hereby grant on lease and the LESSEE doth hereby take on lease the Demised Premises (Demised Premises are described in Schedule "B" hereto). a) (i) The first term of the lease for the Demised Premises shall be for a period of Five (5) years, commencing from the date provided in Clause 1 (b) below, at a monthly rent at the rate of Rs. 22/-(Rupees Twenty Two only) per sq. ft. (of which 18% shall be towards Electro Mechanical charges throughout the tenure of the lease) calculated for the first 3 years, and Rs. 25.30 per sq., ft. calculated for the 4th and the 5th years, for the super built up area of the said six floors of the Building, including bridge areas but not including any of the terraces or basemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imes, the provision of services and facilities stipulated in Annexure II and as per the specifications and requirements stipulated therein, Annexure V and elsewhere in this lease or any of the annexures, which include but are not limited to requisite lifts and generators, Primary Power and 100% Power Back-up for Common Areas, cleanliness and upkeep of Tower A maintenance of lawn security services, water etc. for Tower A and such necessary area of IBC Knowledge Park for ingress and egress to and from Tower "A". Accordingly, the LESSORS shall provide and agree to be responsible for ensuring that the services and facilities set out in Annexure II and provision of primary power and 100% power backup for common Areas, and in the manner they are set out in this lease and all the Annexures, are provided to the LESSEE by the LESSORS at all times while the LESSEE is in occupation of the Demised Premises or any portion thereof. However, the LESSORS shall be entitled to nominate a Maintenance Agency to maintain the said services, while being responsible for all acts of the Maintenance Agency and for the provision of the said services and facilities. x x x (f) The LESSEE shall, over and ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot sold any building and therefore, the business of the assessee had not commenced. The stand of the Revenue is that the sale of flats or building constructed was a sine qua non for commencement of its business. 18. On the other hand, the assessee had contended that it had purchased land and on obtaining sanctioned plan had started construction and had completed a few towers by 31/3/2004. Therefore, assessee's business had commenced. Disallowance of interest was incorrect. The Tribunal noted that the assessee was in the business of developing immovable property and selling them. During the financial year 2003-04, it has constructed M/s. IBC Knowledge Park Pvt. Ltd., on Bannerghatta Road, Bengaluru. Disputes arose between the assessee and Bengaluru Housing Development and Investment, a partnership firm with whom assessee had entered into a joint development agreement. On account of the said dispute, assessee could not proceed with the sale of properties. 19. It is noted that the Assessing Officer had disallowed a sum of Rs. 52.56 crore related to investment in the construction of the towers, which have been let-out and proportionate interest was allowed under Section 24 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... substantial question of law is with regard to the disallowance of interest of Rs. 1,91,14,354/-. The Assessing Officer had held that the balance sheet did not reflect any accrued interest and hence, the same could not be allowed as a deduction. The Appellate Commissioner had directed the Assessing Officer to allow deduction on payment of interest. As noted from the order, in ITA.Nos.903 to 906/Bang/2013, letter dated 30/9/2006 was filed by the assessee before the Assessing Officer, which was furnished to the Tribunal as well. The Appellate Commissioner had held that the detailed working of interest on borrowings for Tower 'A' were furnished and that Tower 'A' had been let-out and the interest pertaining to the said aspect amounted to Rs. 1,91,14,354/- paid during the previous years. The Tribunal held that there was no infirmity in the order of the Appellate Commissioner in granting relief to the assessee. Therefore, the same was confirmed. 24. Learned counsel for the Revenue, however, contended that the Appellate Authorities were not right in holding that a sum of Rs. 1.91 crore cannot be disallowed as a deduction. He submitted that the said amount was not reflect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved a sum of Rs. 78.25 lakh without incurring expenses. Therefore, 25% of the gross fee earned was allowed as expenses. 28. Learned counsel for the Revenue contended that the assessee had not produced any evidence with regard to the claim of Rs. 1,29,08,375/- as construction management fee for being deducted from the income. He contended that the said expense related to the property constructed and the assessee had let-out the said property and had received rental income from the house property. Hence, expenses in that regard did not arise. 29. Per contra, assessee's counsel supported the finding of the Tribunal by contending that the assessee had earned income of Rs. 78.25 lakh as construction management fee. It had set up the interiors of M/s.Accenture Services Pvt. Ltd., and the aforesaid disputed amount was the expenses incurred in the process. 30. It is noted that M/s. Accenture Services Pvt. Ltd., had engaged the services of the assessee herein as construction management services. The income earned is business income and cannot be considered as income from other sources. Also, if the assessee had received income of Rs. 78.25 lakh towards construction management service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Learned Senior Counsel further contended that the documents belonging to the assessee which were seized during the search of the aforesaid three parties were bound to be found in the premises searched as it carries on business from the very same premises. Merely because documents of the assessee were found and seized, proceedings under Section 153C could not have been initiated. The requisite procedure under Section 132 of the Act cannot be ignored while invoking Section 153C of the Act. Further, for the accounting year 2004-05, assessment had been completed on 12/12/2006 and thus, the assessment proceedings did not abate. Hence, no order under Section 153C could have been made except with regard to any undisclosed income based on incriminating material. That the Revenue has filed an appeal against the order of the Tribunal in this regard, which is without merit. For the accounting year 2005-06, an intimation under Section 143(1)(a) had already been issued and the time for issuance of notice under Section 143(2) had already lapsed and therefore, no assessment could be said to be pending, for it to abate. As far as accounting year 2006-07 is concerned, no notice for assessment wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Sections 158BC and 158BD of the Act, block assessment had to be made for six assessment years preceding previous year in which the search or requisition was made and until the date of commencement of the search or date of such requisition in the previous year in which the search was conducted or requisition made. That is not so under the present scheme as an independent assessment could be made. That in the instant case, out of six assessment years, no undisclosed income was found for the assessment year 2004-05 and hence, the assessment under Section 153C of the Act was not valid and the original assessment was reiterated, but all the six assessment years were rightly reopened under Section 153C of the Act. 36. Thus, according to learned counsel for Revenue, the finding of the Tribunal that assessment under Sections 153A and 153C have to be confined to only when undisclosed income was detected on the basis of the incriminating material found during the course of search would imply that the Assessing Officer cannot make use of any other information coming to his notice while assessment under Sections 153A and 153C is made. Also, if the limitation period prescribed as provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment under Section 153A read with Section 153C could be made only in respect of those assessment years relating to the documents detected. 41. The Tribunal while considering the aforesaid contentions held that the assessee shared common business premises with the person searched. But the fact that it ipso facto could not face proceedings under Section 153C of the Act, unless there was undisclosed income on the part of the assessee detected in the search operation, was not correct. Also, it was not necessary that satisfaction should be recorded regarding the seized articles found in the course of search which lead to undisclosed income at the stage of detection during the course of search. The Tribunal also held that once the condition for invoking Section 153A was satisfied, the Assessing Officer could proceed in accordance with Section 153C of the Act and pass an order of assessment for six assessment years immediately preceding the assessment year relevant to previous year in which search was conducted or requisition was made. 42. As far as the assessment year 2004-05 was concerned, the Tribunal noted that as on the date the search was conducted i.e., on 17/06/2008, no assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith assessment in case of search or requisition. It begins with a non obstante clause and states that notwithstanding anything contained in Sections 139, 147, 148, 149, 151 and 153, in the case of a person where a search is initiated under Section 132 or books of account, other documents or any valuable assets are requisitioned under Section 132A, the Assessing Officer shall issue notice to such person requiring him to furnish within such period, as may be specified in the notice, return of income in respect of each assessment year falling within six assessment years referred to in clause (b) of Section 153(1) in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of the Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under Section 139. The Assessing Officer can 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 is conducted or requisition is made. However, assessment or reassessment, if any, relating to any assessment year falling within t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and limitation of serving the notice under sub-section (2) of Section 143 has expired, or (c) assessment or reassessment, if any, has been made, before the date of receiving the books of account or documents or valuable assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person, such Assessing Officer shall issue notice and assess or reassess total income of such other person of such assessment year in the manner provided in Section 153A. 47. Chapter XIV-B consists of Section 158B to 158BH, inserted with effect from 01/07/1995, deals with special procedure for assessment in search cases. The Finance Act, 1995 inserted Chapter XIV-B in the Act, incorporating a new scheme of block assessment in cases relating to search conducted under Section 132 of the Act or requisitions made under Section 132A after 30/06/1995. Section 158B(b) defines 'undisclosed income' to include any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on over the persons searched requisitioned to the assessing officer of a third party on his satisfaction that they belong to a third party before handing over. 49. On a conjoint reading of the aforesaid provisions, it becomes clear that a search can take place only when a concerned officer has information and reason to believe that any person is in possession of any valuable assets, which has not been or would not be disclosed under the Act. In such a case, a search can take place. Following the search, if any books of account, other documents, any valuable assets is or are found in the possession or control of any person in the course of a search, then the books of account or other documents or valuable assets could be seized. Under Section 153A, the satisfaction regarding an inference of liability must be recorded. The Assessing Officer has to issue notice to the assessee i.e., the person searched for the purpose of assessment or re-assessment of the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted. Section 153C as already noted, deals with assessment of income of any other person, when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of Section 158B(b) of the Act. This becomes even more clear on a comparison of section 132(1)(c) with Section 158B(b) of the Act. It is for the above reason that Sections 153A and 153C begin with a non obstante clause in order to make these provisions exclusive of Sections 139, 147, 148, 149, 151 and 153 of the Act. If a search operation does not lead to detection of undisclosed income as defined in Chapter XIV-B of the Act, then no purpose would be served in reopening the assessment already completed. Also, if there is no detection of any undisclosed income, then there would be no need for pending assessment to abate. Thus, when particulars of income declared in the return is already available with the Assessing Officer, such income cannot form part of undisclosed income even if such return is filed beyond the time limit, but before search, as long as they relate to any year covered in the block. Thus, a block assessment is justified only on the basis of evidence found during search and the materials or information relatable thereto. Section 153C is in pari materia with Section 158BD conferring jurisdiction over third parties to a search providing certain conditions before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer that any undisclosed income belongs to any person, other than the person with respect to whom search was made under Section 132 of the Act; (ii) The books of account or other documents or assets seized or requisitioned had been handed over to the Assessing Officer having jurisdiction over such other person; and (iii) The Assessing Officer has proceeded under Section 158BC against such other person. The conditions precedent for invoking the provisions of Section 158BD, thus, are required to be satisfied before the provisions of the said chapter are applied in relation to any person other than the person whose premises had been searched or whose documents and other assets had been requisitioned under Section 132A of the Act." In that case, it was held that the Assessing Officer had not recorded his satisfaction, which is mandatory; nor had he transferred the case to the Assessing Officer having jurisdiction over the matter. Therefore, the judgment of the High Court was set aside and the appeals were allowed. 52. The decisions relied upon by the learned Senior Counsel appearing for the assessee are as under: (a) In Commissioner of Income-Tax vs. Calcutta Knitwears ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmed the order of the Tribunal. The Revenue, then approached the Hon'ble Supreme Court. While dealing with various provisions of Chapter XIV-B of the Act pertaining to assessment in the case of search operation, the Hon'ble Supreme Court held that Section 158BD of the Act deals with undisclosed income of any other person. On the question of recording satisfaction that there is an undisclosed income, which had been traced where a person was searched under Section 132 of the Act or books of accounts, other documents or valuable assets are requisitioned under Section 132A of the Act, the Hon'ble Supreme Court opined as under: "We would certainly say that before initiating proceedings under section 158BD of the Act , the Assessing Officer who has initiated proceedings for completion of the assessments under section 158BC of the Act should be satisfied that there is an undisclosed income which has been traced out when a person was searched under Section 132 or the books of account were requisitioned under Section 132A of the Act. This is in contrast to the provisions of section 148 of the Act where recording of reasons in writing are a sine qua non. Under Section 158B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person." In that case, the Hon'ble Supreme Court remanded the matters to the concerned High Court for consideration of the individual cases in light of observations made above on the scope and interpretation of Section 158BD of the Act. (b) In Commissioner of Income Tax vs. M/s. Lancy Constructions [ITA.No.528/2014 & connected matters disposed of by this Court on 15/12/2015], it was held that there were no incriminating documents during the course of search on the basis of which additions could have been made by the Assessing Officer. That the accounts which were submitted by the assessee at the time of regular assessment were duly verified during the course of such assessment and accepted by the Assessing Officer. In the absence of any incriminating documents having been found, the same accounts of the assessee were reassessed by making further investigations, which was impermissible, as the same would amount to reopening of a concluded assessment, without there being any additional material found at the time of search. Otherwise, it would give the Revenue a second opportunity to reopen a concluded assessment, which is impermissible in law. Merely because a search is condu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate 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 assessment years 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 Assessing Officer 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 the seized material. (v) In the 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e could be issued under Section 153C of the Act to file returns for six years. The stand of the Revenue therein was that the Assessing Officer could still proceed under Section 153A of the Act in order to find out the source of income. In that case the writ petition filed under Article 226 of the Constitution of India challenging the notice was dismissed on the premises that the power under Section 153C exists in the Assessing Officer, if he is satisfied with regard to the need for examination of the source of income. (d) In Dr. K.M. Mehaboob vs. DCIT [(2012) 26 Taxmann.com 54 (Kerala)], it was held that unlike under Section 158BD, for transferring a file under Section 153C, there is no need to examine whether the books of accounts or other evidence or materials seized in the course of search of an assessee represents or proves undisclosed income of another assessee. On the other hand, for transferring the file to the Assessing Officer of such other assessee, all that is required to be considered is whether the materials or books of accounts or evidence recovered relates to another assessee, which may or may not lead to an assessment in the case of the other assessee after transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of search is concerned, the same can be considered during the course of assessment. Further, such incriminating material must relate to undisclosed income which would empower the Assessing Officer to upset or disturb a concluded assessment of the other person. Otherwise, a concluded assessment would be disturbed without there being any basis for doing so which is impermissible in law. Even in case of a searched person, the same reason would hold good as in case of any other person. As observed by us, detection or the existence of incriminating material is a must for disturbing the assessment already made and concluded. But, at the same time, such can be at three stages: one, at the stage when the re-assessment is initiated, the second, at the stage during the course of reassessment and third, at a stage where the re-assessment is altered by a different assessment in respect of searched person or in respect of third party. In this regard, reference may be made to the decision of Apex Court in case of M/s. Calcutta Knitwear (supra) and based on the said decision, the CBDT has also issued circular dated 31.12.2015 vide No.24/2015.The relevant extract of the circular for ready refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 153C of the Act or immediately after the assessment proceedings are completed under Section 153C of the Act, recording of satisfaction is required. 55. If the observations made by the Tribunal are considered in this regard, it is noted by the Tribunal that it is not necessary that satisfaction should be recorded that documents or valuable assets found in the course of search showed undisclosed income. In view of the aforesaid discussion, we do not think that such can be the correct position of law. 56. Further, in the judgments referred to by the learned counsel for the Revenue, where incriminating material leading to undisclosed income of another assessee was detected in a search operation, in those cases, reopening of the concluded assessment have taken place. There has been no single decision cited by the learned counsel for the Revenue where the assumption of jurisdiction of the Assessing Officer is in the absence of any incriminating material or undisclosed income having been detected during the course of search leading to reopening of a concluded assessment. In the instant case, though documents belonging to the assessee were seized at the time of search operation, there ..... X X X X Extracts X X X X X X X X Extracts X X X X
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