Contact us   Feedback   Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (5) TMI 372 - KARNATAKA HIGH COURT

2016 (5) TMI 372 - KARNATAKA HIGH COURT - [2016] 385 ITR 346 - Depreciation 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 - Held that:- The lessee is required to pay not only the rentals on the building but also charges for the facilities provided by the assessee. The facilities and services provided by the assessee are at Annexure–2 to the said agreement. On a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d capital - whether an allowable business expenditure? - Held that:- It is noted that in the financial year 2003-04, assessee had constructed a project known as M/s.IBC Knowledge Park Pvt. Ltd., on Bannerghatta Road, Bengaluru. However, there were disputes between the assessee and Bangalore Housing Development and Investments, a partnership firm, with whom the assessee had entered into a joint development agreement. As a result, assessee could not sell the constructed properties. Sale of constru .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eld to be correct by this court. We hold that the Tribunal was right in giving relief to the assessee and the findings of the Tribunal would not call for any interference.- Decided in favour of assessee - Disallowance of interest - Held that:- The Tribunal has found that the assessee had filed a letter dated 30/9/2006 before the Assessing Officer. In paragraph No. 21 of the said letter, detailed workout of interest on borrowings for 'Tower A' is furnished. 'Tower A' had been let-out and the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

o, if the assessee had received income of ₹ 78.25 lakh towards construction management services, it would have incurred expenditure in various forms. But the details of expenditure was not putforth by the assessee. In the circumstances, the Tribunal assessed the expenditure to be allowed as expenses at 25% of the gross fee. We think that the Tribunal was right in construing the said income as business income and not as income from other sources. We do not find any perversity in the said as .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ating 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 was no incriminating material found leading to undisclosed income. Therefore, assessment of income of the assessee was unwarranted. Consequently, no satisfaction was recorded in the case of the assessee.- Decided in favour of assessee - Assessment .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

dance with law.- Decided in favour of assessee - I.T.A. Nos. 403/2009, C/W 402/2009, 410-412/2014, 394/2014 & 271/2015, 399/2014, 400/2014 & 351/2015, 402/2014 & 352/2015 - Dated:- 28-4-2016 - MR. JAYANT PATEL AND MRS. B.V. NAGARATHNA , JJ. FOR THE APPELLANT : SRI: K.V. ARAVIND, ADVOCATE FOR THE RESPONDENT : SRI: A. SHANKAR & SRI. M. LAVA, ADVOCATES JUDGMENT These appeals, filed by the Revenue as well as the assessee, assail order dated 25/4/2014, passed by the Income Tax Appellate Tribuna .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

mp; 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ribunal 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 the documents not revealing any undisclosed income? 4. The appeals filed by the Revenue raise the following substantial questions of law and were admitted on 28/5/2010 and 3/8/2015: "(i) Whether the Appellate Authorities were correct in holding that separate depreciation is allowable in respect of ' .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

erty'? (iii) Whether the Appellate Authorities were correct in holding that a sum of ₹ 1.91 crores cannot be disallowed as held by the Assessing Officer despite the same not been reflected in the Balance Sheet and no particulars having been furnished recorded a perverse finding, not supported by materials? (iv) Whether the Tribunal was correct in holding that the claim of ₹ 1,29,08,375/- shown as construction management fee is allowable to the extent of 25% even though no evidenc .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ets and these fixtures are affixed with the building and were part of the leased are part of the leased building which do not have any independent existence and that no independent receipt/fees/ maintenance charges were received against these facilities/services and therefore, they are receipts are taxable as "income from house property?" 5. Briefly stated, the facts are that the assessee is a company registered under the Companies Act, 1956 and is engaged in the business of developmen .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 Assessi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

/2014. 6. The disallowance made by the Assessing Officer for the relevant assessment years are in respect of the following: (i) Depreciation on Elevators, DG Set and other such items (for all assessment years) (ii) Professional charges (for assessment year 2004-05) (iii) Interest expenses (for assessment year 2004-05) (iv) Disallowance of interest capitalized (for assessment years 2004-05 and 2006-07) 7. That in respect of the assessment year 2004-05, the order under Section 143(3) had been pass .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nitiation of proceedings under Section 153C of the Act, while granting relief against disallowances made by the Assessing Officer by following the earlier order of the Tribunal for the assessment year 2004-05. The orders of the Assessing Officer, Appellate Authority and the Tribunal are at Annexures-A to F respectively. 10. Against the order of the Appellate Commissioner, Revenue had filed appeals before the Tribunal for three assessment years in question, which were numbered as ITA.Nos.903-905/ .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

above. 11. We have heard Sri. K.VS.Aravind, learned counsel for the Revenue, Sri. K.P.Kumar, learned Senior Counsel appearing for Sri.J.Suryanarayana, learned counsel for M/s. King & Partridge as well as Sri. A.Shankar, 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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. The assessee had computed such income under the head profit and gains of business and .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ribunal granted depreciation on elevators and lifts also. 13. It is contended on behalf of the Revenue that the fixtures such as, transformers, D.G.sets, elevators etc., were part of the building and income from letting out of building is chargeable to tax under the head income from house property. That the assessing officer had rightly disallowed the claim of the assessee for deduction on account of depreciation on the aforesaid assets against income received in the form of maintenance fee char .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e was not entitled to seek depreciation in respect of maintenance of amenities for which it received a separate fee. 14. Per contra, the submission of learned counsel for the assessee is that the issue was already decided by the Tribunal in the case of this very assessee for the assessment year 2004-05, wherein the Tribunal had held that rentals for the building and rent for the aforesaid facilities were separately charged and that the assessee was entitled to claim depreciation on the said asse .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nted 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 Demise .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

any of the terraces or basements of the demised premises or any other portion/building of IBC Knowledge Park. The exact amount of rent payable shall be as provided in Clause 1(a)(iv) below and at present is estimated at ₹ 52,44,962 (Rupees Fifty Two Lakhs Forty Four Thousand Nine Hundred Sixty Two Only). It is agreed that the area being leased to the LESSEE is as described in Schedule "B" and only as regards the rent agreed, the super built up area of the ground plus six floors .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

additional term of 4 years as per Clause 7 (d), by execution of a fresh lease which shall be duly registered, and the rent payable for the renewed term shall also be as provided in Annexure III. The detailed calculations of rent payable by the LESSEE for the entire duration of the lease and its renewal, is set out in Annexure III. The LESSEE shall pay an amount of ₹ 52,44,962/= to the LESSORS, towards one month's rent in advance and to be adjusted against rent for Tower A on commenceme .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e first three years and thereafter for the 4th and the 5th year it shall be multiplied ₹ 25.30p (instead of ₹ 22/-) per Sq. Ft. per month of actual plinth area." Clauses 3 (a) and (f) read as under: 3 a) The LESSORS agree that it is imperative for the quiet and peaceful occupation and use of the Demised Premises by the LESSEE and for the purpose the LESSEE intends to occupy and use the Demised Premises, that the Demised Premises have, at all times, the provision of services and .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

y, 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 s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

floors, including bridge areas only if they are authorized for commercial use, being an amount of ₹ 7,15,222/= per month if the bridge area is authorized for commercial use, and being an amount of Rs,. 6,43,715/- per month if the bridge area is not authorized for commercial use. The LESSORS shall not be entitled to any escalation during the three years of the first term, for any reason whatsoever. The said amounts to be paid alongwith lease rents. ii. For the second term of the lease, if t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the said agreement. On a conjoint reading, it becomes clear that the rental income is income from house property. But the charges received towards provision and maintenance of facilities and services as per Annexure-2 cannot be construed to be income from house property. The said income, in our view, has to be considered as income from business and therefore, the claim for depreciation has to be allowed, which has been rightly done so by the Tribunal. Substantial question of law No.1 is accordin .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ion or construction of the property is eligible for deduction. But the assessee had not 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' .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

assessee could not proceed with the sale of properties. 19. It is noted that the Assessing Officer had disallowed a sum of ₹ 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 Act, but the balance amount of ₹ 72.00 lakh was disallowed on the ground that the building in respect of which the loan was taken had not yet been let-out. But the Tribunal noted that where interest on borr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rom business and assessee had received only rental income, which was income from house property. 21. Per contra, learned counsel for the assessee contended that merely because the assessee had not sold the flats it had constructed, it could not be said that the assessee had not commenced business. The moment land was purchased and several steps were taken towards construction of towers would imply that the assessee had commenced business. Therefore, disallowance on payment of interest was incorr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

siness. Assessee's business commenced when it had purchased land, obtained plan sanction and put up construction. Thus, when the business of the assessee had commenced during the financial year 2003-04, interest paid by the assessee on borrowed capital cannot be added back to the work in progress. The Tribunal in this regard has relied upon a decision in the case of K.Raheja Development [102 ITD 414], which has been held to be correct by this court. We hold that the Tribunal was right in giv .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

er 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 ₹ 1,91,14,354/- paid during the previo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ned counsel contended that the Appellate Authorities were not right in directing the Assessing Officer to allow the interest, which direction has been affirmed by the Tribunal. 25. Per contra, learned counsel for the assessee supported the order of the Appellate Commissioner as well as the Tribunal on this issue. The Tribunal has found that the assessee had filed a letter dated 30/9/2006 before the Assessing Officer. In paragraph No. 21 of the said letter, detailed workout of interest on borrowi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

st the Revenue. 27. Fourth substantial question of law is with regard to the correctness of allowing the claim of deduction on construction management fee to an extent of 25% even though no evidence has been adduced in support of the claim, when this expense related to the property constructed by the assessee which was let-out and rental income was received under the head Income from House Property and therefore, the question of earning expense did not arise and therefore, the same could not be .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t was not meant for management of construction, but on other expenses, such as advertisement, sales promotion etc. Therefore, the income had to be assessed under the head income from other sources. The Tribunal held that the income had to be assessed as business income and the assessee could not have received a sum of ₹ 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 n .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 ₹ 78.25 lakh towards constructio .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ere is no merit in the substantial question of law raised, which is answered against the Revenue. In the result, the appeals filed by the Revenue are liable to be dismissed. ASSESSEE'S APPEALS: 31. As far as the appeals filed by the assessee with regard to the proceedings under Section 153C is concerned, submission of learned Senior Counsel, Sri.K.P.Kumar, appearing for the assessee is that under Section 132 of the Act, search was conducted on Mr. Yunus Zia, Mr.Ziaulla Sheriff and M/s. India .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

2006-07 only. While highlighting the aforesaid factual details, learned Senior Counsel contended that in the absence of any incriminating material found during the search operation, the assessments made under Section 153C were without jurisdiction. That the purpose of Sections 153A to 153C of the Act is to bring to tax undisclosed income. However, for the relevant assessment years no new additions were made on the basis of the documents seized. That the additions made were the very same ones mad .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ssee 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 an .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

be said to be pending, for it to abate. As far as accounting year 2006-07 is concerned, no notice for assessment was pending under Section 143(2) had been issued. 33. Learned Senior Counsel further contended that the precedents relied upon by the Revenue do not support the proposition, that even in the absence of any incriminating material found assessment under Section 153A/153C could be made. Learned Senior Counsel lastly contended on merits, the judgment to be passed in ITA.No.402/2009 arisi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

de under Sections 158BB, 158BC and 158BD of the Act. The aforesaid three sections deal with undisclosed income on the basis of the evidence found as a result of search or requisition of books of accounts or other documents and such other materials or information that are available with the Assessing Officer and such other relatable evidence. In other words, detection of undisclosed income was a sine qua non for invocation of those sections. But Section 153C of the Act mandates recording of satis .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d 153C of the Act, any incriminating material found during the course of search or requisition is sufficient for reopening the assessment, it is not necessary that undisclosed income must be found. Thus, according to learned counsel, detection of any undisclosed income during search operation or requisition is not a sine qua non for reopening of assessment under Sections 153A and 153C and that the finding of the Tribunal in that regard is not correct. 35. He further submitted that as per the ear .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

und 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 sear .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r the scheme of the Act, is the submission. 37. Learned counsel for the Revenue contended that the Assessing Officer under Section 153C of the Act has to record satisfaction regarding the material seized in the course of search of a person when it belonged to any other person. But detection of undisclosed income is not material. Relying on certain decisions of the Hon'ble Supreme Court as well as various High Courts, learned counsel for Revenue sought for dismissal of assessee's appeals. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e Act were initiated by the Assessing Officer of the assessee. Assessee's contention that the proceedings were not initiated in accordance with law, was not accepted by the appellate Commissioner, who dismissed the appeals. Before the Tribunal, it was contended that the assessee also carried out its functions from the very premises which was searched. Therefore, assesse's documents were bound to be found in the said premises. Therefore, it was contended that Section 153C could not be inv .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

find out prima facie that the documents represented undisclosed income. It was also contended that the assessment 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 un .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ssment 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 assessment proceeding for that year was pending and the additions made for the assessment year under Section 153A r/w Section 153C are identical to the ones made in the assessment order dated 27/12/20 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

under Section 143(1) is also an order of assessment, and therefore, the argument of the assessee was not accepted. In the circumstances, cross-objection of the assessee was partly allowed for the assessment year 2004-05 and for the assessment years 2005-06 and 2006-07 were dismissed by the Tribunal. 44. Before considering the rival contentions, it is necessary to advert to the scheme of the Act regarding special procedure for assessment in cases of search. Subsection (1) of Section 132 of the A .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n, the authorized officer can enter and search any building, place, vessel, vehicle or aircraft, where he has reason to suspect that such books of account, other documents, or valuable assets are kept or search any person, break open the lock of any door etc., seize any books of account, other documents, or other valuable assets found as a result of such search and do all other things necessary as prescribed under Section 132 of the Act. 45. Sections 153A, 153B and 153C were inserted by the Fina .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f initiation of the search under Section 132 or making of requisition under Section 132A, as the case may be, shall abate. The explanation states, save as otherwise provided in Sections 153A, 153B and 153C, all other provisions of the Act shall apply to the assessment made under Section 153A. Section 153B speaks about time-limit for completion of assessment under Section 153A. 46. 153C is relevant for the purposes of this case. Sub-section (1) of Section 153C begins with a non obstante clause an .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of Section 153A, if that Assessing Officer is satisfied that the books of account or documents or valuable assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or ye .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and in respect of such assessment year - (a) no return of income has been furnished by such other person and no notice under sub-section (1) of Section 142 has been issued to him, or (b) a return of income has been furnished by such other person but no notice under subsection (2) of Section 143 has been served 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

elevant to six assessment years preceding the previous year in which the search was conducted under Section 132 or any requisition was made under Section 132A and also includes the period up to the date of commencement of such search or date of such requisition in the previous year in which the said search was conducted or requisition was made. The proviso is not relevant for the purpose of this case. 48. Section 158BD is relevant for the present case and it states that where the Assessing Offic .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

son and the provisions of Chapter XIV-B shall apply accordingly. Section 158BE prescribes time limit for completion of block assessment. Section 158BH states that except as otherwise provided in Chapter XIV-B all other provisions of the Act shall apply to the assessment made under the said chapter. Section 153C provides for the role of the Assessing Officer having jurisdiction over the person searched/requisitioned as regards third party liability. The said section covers assessments which have .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

earch is conducted. Section 153C as already noted, deals with assessment of income of any other person, when the Assessing Officer is satisfied that the books of account or documents or valuable assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to under sub-section(1) of Section 153A of the Act. In such a case, the Assessing Officer has to issue notice to assess or re-assess income of oth .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

3B. Undisclosed income includes money, bullion or other valuable assets. It is only when the concerned officer has information about the same and has reason to believe that the said valuable assets has not been or would not be disclosed would give jurisdiction to the officer authorized to conduct a search operation. Therefore, the object and purpose of a search is to detect undisclosed income. As defined under Clause (b) of Section 158B of the Act, it is only when the undisclosed income is detec .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d re-assess the income of any other person. Thus, what emerges is that the sine qua non for the purpose of assessment or re-assessment pursuant to a search operation is detection of undisclosed income. In fact, the initiation of search proceeding is also based on possession of information and reason to believe that a person is in possession of certain valuable assets, which has not been or would not be disclosed under the Act. The same is nothing but 'undisclosed income' as defined in Cl .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ready 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

should be recorded by the Assessing Officer having jurisdiction over the searched persons and communicated to the Assessing Officer having jurisdiction over such third party along with the seized documents and other incriminating materials on the basis of which the Assessing Officer having jurisdiction over such third party would issue notice under Section 153C. On receipt of the aforesaid material, the Assessing Officer having jurisdiction over such third party would proceed against the said t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

cision of the Hon'ble Supreme Court in Manish Maheshwari vs. Asst. Commissioner of Income-Tax & another [(2007) 289 ITR 341 (SC)]. In that case, search was conducted on one of the directors of the assessee-company M/s. Indore Construction (Pvt.) Ltd. When the search was conducted in the premises of the director Sri. Manish Maheshwari and his wife several incriminating documents relating to the company were seized. While dealing with Section 158BD of the Act, the Hon'ble Supreme Court .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

spect of any other person, the conditions precedents wherefor are : (i) Satisfaction must be recorded by the Assessing 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 158B .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 [(2014)362 ITR 673 (SC)], the Hon'ble Supreme Court considered the question, as to at what stage of the proceedings under Chapter XIV-B, the Assessing Authority was required to record .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

uments to the assessee to the Assessing Authority, the latter had completed the block assessments in the case of Bhatia group. Since certain other documents did not pertain to the person searched under Section 132 of the Act, the Assessing Authority therein thought it fit to transmit those documents, which according to him pertained to undisclosed income on account of investment element and profit element of the assessee-firm and required to be assessed under Section 158BC read with Section 158B .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

. The stand of the assessee was rejected by the Assessing Authority, who concluded the assessment proceedings under Section 158BD of the Act. It was also held that notice could be issued even after completion of the proceedings of the searched person under Section 158BC of the Act. Aggrieved by the order of the Assessing Officer, the assessee therein had filed an appeal before the Appellate Authority, who had partly allowed the appeal. The Revenue had carried the matter further by filing an appe .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 procee .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rs' satisfaction in concluding that the seized documents belong to a person other than the searched person is necessary for initiation of action under Section 158BD. The bare reading of the provision indicates that the satisfaction note could be prepared by the Assessing Officer either at the time of initiating proceedings for completion of assessment of a searched person under Section 158BC of the Act or during the stage of the assessment proceedings. It does not mean that after completion .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

is to be reached and recorded in respect of the person other than the searched person. Further Section 158BE(2)(b) only provides for the period of limitation for completion of block assessment under Section 158BD in case of the person other than the searched person as two years from the end of the month in which the notice under this Chapter was served on such other person in respect of search carried on after January 1, 1997. The said section does neither provide for nor impose any restriction .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

at the time of or along with the initiation of proceedings against the searched person under Section 158BC of the Act; (b) along with the assessment proceedings under Section 158BC of the Act; and (c) immediately after the assessment proceedings are completed under Section 158BC of the Act of the searched 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ssment 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 se .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d been conducted in the premises of the assessee. (c) In Jai Steel (India), Jodhpur vs. Assistant Commissioner of Income-tax [(2013) 36 taxmann.com 523 (Rajasthan)], it was held that no doubt the Assessing Officer is free to disturb income, expenditure or deduction de hors any incriminating material, while making an assessment under Section 153A of the Act. But in the context of a search, Section 153A to 153C cannot be interpreted to be a "further innings" for the Assessing Officer and .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n Commissioner of Income-Tax v. Kabul Chawla [2016] 380 ITR 573 (Delhi), the Delhi High Court has held that (i) once a search takes place under Section 132 of the Act, notice under Section 153A(1) will have to be mandatorily issued to the person in respect of whom search was conducted requiring him to file returns for six assessment years immediately proceeding the previous year relevant to the assessment year in which the search takes place. (ii) Assessment and re-assessments pending on the dat .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ll 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 re .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each assessment year on the basis of the finding of the search and any other material existing or brought on record of the Assessing Officer. (vii) Completed assessments can be interfered with by the Assessing Officer while making the assessment under Section 153A only on the basis of some incriminating mater .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e questions were accordingly answered in favour of the assessee. 53. Learned counsel for the Revenue has relied upon the following citations in support of his contentions: (a) In Kamleshbhai Dharamshibhai Patel vs. CIT [(2013) 31 Taxmann.com 50 (Gujarat)], on considering Section 153C of the Act, it was observed that the said section begins with a non obstante clause. Requirements for assuming jurisdiction under Section 153C (1) are, that the Assessing Officer is satisfied that any valuable asset .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

(b) In Filatex India Ltd. vs. CIT [49 Taxman 465 (Delhi)], the court rejected the argument that during assessment under Section 153A additions had to be restricted or limited to incriminating material only, found during course of search. (c) In Savesh Kumar Agarwal vs. Union of India ((2013) 35 Taxmann.com 85 (Allahabad)], the question considered was whether on receipt of satisfaction note, the Assessing Officer had not found anything adverse against the assessee and seized goods having been rel .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

h 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 othe .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

course of search of any other assessee, is a regular assessee before another Officer, and if so, to transfer the file to such other Officer for his consideration and for passing orders, whether assessment or penalty or such other order permissible under the Act by that Officer. (e) In Canara Housing Developnment Co. vs. D.C.I.T. [(2015)] 274 CTR 122 (Kar.)], a Division Bench of this court in the said case noted that in the course of search, incriminating material leading to undisclosed income be .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d income found during search or any other income which is not disclosed in the earlier return or which is not unearthed during the search, in order to find out what is the total income of each year and then pass assessment order. (f) Similarly, in Gopal Lal Badruka vs. DCIT [(2012) 346 ITR 106], the search revealed incriminating material and undisclosed income. (g) in SSP Aviation Ltd. vs. DCIT [(2012) 20 Taxmann.com 214 (Delhi)], the observations of the court were in light of the fact that incr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d income of a third party. However, insofar as the incriminating material of the searched person or other person detected during the course 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 whi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rent 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 reference can be extracted as under: "The issue of recording of satisfaction for the purposes of section 158BD/153C has been subject matter of litigation. 2. The H .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ote could be prepared at any of the following stages: (a) at the time of or along with the initiation of proceedings against the searched person under section 158BC of the act; or (b) in the course of the assessment proceedings under section 158BC of the Act; or (c) immediately after the assessment proceedings are completed under section 158BC of the Act of the searched person." 2. Several High Courts have held that the provisions of section 153C of the Act are substantially similar/pari-ma .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

O of the searched person and the "other person" is one and the same, then also he is required to record his satisfaction as has been held by the Courts. 4. In view of the above, filing of appeals on the issue of recording of satisfaction note should also be decided in the light of the above judgment. Accordingly, the Board hereby directs that pending litigation with regard to recording of satisfaction note under section 158BD/153C should be withdrawn/not pressed if it does not meet the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version