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2016 (6) TMI 378 - KERALA HIGH COURT

2016 (6) TMI 378 - KERALA HIGH COURT - [2016] 385 ITR 624 - Validity of assessment u/s 153A - addition in pursuance to notice issued under Section 153A - Is not the Tribunal erroneous in holding that addition in pursuance to notice issued under Section 153A can be made only if incriminating material is found and seized in case where there is also abatement of regular assessment proceedings, and are not, such an approach and the resultant conclusion perverse and uncalled for ? - Held that:- On a .....

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assessment year following the six assessment years specified in sub-clauses (a) and (b) of Section 153A. However, even if no documents are unearthed or any statement made by the assessee during the course of search under section 132 and no materials are received for the aforespecified period of six years, the assessee is bound to file a return, is the scheme of the provision. Even though the second proviso to Section 153A speaks of abatement of assessment or reassessment pending on the date of t .....

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nces has proceeded purely on the basis that the cases at hand were covered under the Special Bench decision in All Cargo Logistics Ltd. (2012 (7) TMI 222 - ITAT MUMBAI(SB) ). In our view the course adopted by the Tribunal was not the proper one to decide the question with regard to the sustainability of the order passed by the First Appellate Authority. Therefore, we are of the considered opinion that the Tribunal has not adopted the right method to decide the issue with regard to the question f .....

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MT.MARIAN G.M.THARAKAN JUDGMENT Shaji P. Chaly, J. The captioned appeals are filed by the Revenue challenging Annexure F order of the Income Tax Appellate Tribunal, Cochin Bench dated 10.10.2014. By a common order, 84 connected appeals filed by the Revenue were dismissed by the Tribunal and it is accordingly the captioned appeals along with other appeals were filed by the Revenue before this court. 2. In all the 84 appeals, one question was common and in the above 21 appeals, out of the 84 appea .....

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could not be considered by us and in such circumstances Revenue filed review petitions in the above appeals, the review petitions were allowed and it is thus the above 21 appeals are coming before us to consider the common question involved therein. The common question raised in the above appeals are enumerated as follows: "1.(a) Whether on the facts and in the circumstances of the case, is not the Tribunal erroneous in holding that addition in pursuance to notice issued under Section 153A .....

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the Tribunal one putting an artificial cap on section 153A ? 4. The facts required for the disposal of the above appeals are common in nature and they are as follows: 5. The parties are hereinafter referred to as Revenue and assessee for convenience. The assesses are partnership firms which are carrying on Chit business and money lending business by way of gold loans and pro-note loans. Head office of the firms is at Palayamparambu with three branches at Chalakudy, Annamanada and Mala. The firm .....

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d returns of income and the Assessing Officer completed assessment under Section 153A vide order dated 29.12.2009 in respect of A.Ys. 2002-2003 to 2007-2008 and under Section 143(3) in respect of A.Y.2008-2009. The assessees have raised a legal issue before the Commissioner of Income Tax (Appeals) that the assessment under Section 153A for A.Ys.2002-2003 to 2006-2007 are to be made only on the basis of incriminating materials found/seized during the course of search. The CIT(Appeals) by its orde .....

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e grounds raised by the Revenue regarding the same were rejected. It is thus challenging Annexure F common order of the Income Tax Appellate Tribunal, the above appeals are preferred. 7. Heard learned Senior Counsel for the Revenue and learned Senior Counsel appearing for the assessee. 8. The main contention advanced by the learned Senior Counsel for the Revenue is that, the Tribunal erred in holding that the addition in pursuance to notice issued under Section 153A can be made only if incrimina .....

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ples of interpretation of statutes and hence perverse. Therefore, learned Senior Counsel contended that the findings rendered by the Appellate Tribunal with respect to the scope of Section 153A cannot be sustained under law. Learned counsel has also invited our attention to Section 153A of the Income Tax Act and contended that the word incriminating is not used anywhere in the said provision and therefore by incorporating such a provision the Tribunal was expanding the scope of the said provisio .....

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assessment year falling within six assessment years referred to in Clause (b), 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 Income Tax Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139. 9. It is also contended that as per Section 153A(1)(b) when such a procedure is adopted by the Assessing Officer, the Assessing Officer c .....

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ng to any assessment year falling within the period of six assessment years referred to in this sub-section pending on the date of initiation of the search under Section 132 or making of requisition under Section 132A, as the case may be, shall abate. Therefore, it is contended that whenever there is a search, the Assessing Officer is bound under law to re-open the assessment by resorting to Section 153A, and after complying with the statutory requirement provided thereunder, the assessment shal .....

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nt wrong in holding that in order to proceed under Section 153A incriminating materials should be recovered. Learned Senior Counsel contends that such findings of the Tribunal cannot be sustained under law since under Section 153A nowhere it is stated that the materials recovered while conducting search under Section 153A should be incriminating in nature. It is also contended that whatever materials unearthed during the search operations under Section 132 is sufficient to proceed under Section .....

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ed Senior Counsel for the revenue that in the remand report the Assessing Officer has stated that there are documents unearthed in the form of day book and ledger relating to assessment years 2006 - 2007 to 2008 - 2009 and seized from the business premises of the assessee firms. It is further contended in that regard by the Revenue that since materials belonging to the assessee firms were found and seized in the course of a search and seizure operation conducted under Section 132 of the IT Act, .....

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se of the search. That apart it is contended by the Revenue that under the current scheme of search, the Assessing Officer was empowered to assess or re-assess the total income of all the six assessment years, notwithstanding that the income tax assessments for certain years were concluded as on the date of search. Therefore, according to the Revenue, the objection of the assessee regarding initiation of assessment proceedings for the assessment years 2002- 2003 to 2005 - 2006 was not legally va .....

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rror in taking up a particular contention. With the above said proposition learned counsel has contended that merely because the Assessing Officer has submitted certain incorrect facts before the 1st Appellate Authority, that will not in any manner affect the case of the Revenue and such errors are liable to be corrected by the Tribunal. So also learned Senior Counsel invited our attention to the judgement of the Apex Court in Income Tax Officer, Special Investigation Cirlcle "B", Meer .....

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or not seize any documents or books of account. An error committed by the officer in seizing documents which may ultimately be found not to be useful for or relevant to the proceeding under the Act will not by itself vitiate the search, nor will it entitle the aggrieved person to an omnibus order releasing all documents seized. That apart it is also contended that any irregularity in the course of entry, search and seizure committed by an officer acting in pursuance of the authorisation will no .....

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books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income Tax Act, 1922 (11 of 1922), or under this Act. Further the explanation contained thereunder reads thus: "Explanation.- For the removal of doubts, it is hereby declared that the examination of any person under this sub-section may be not merely in respect of any book .....

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on 132 vis-a-vis Section 158BB of the Income Tax Act. In the said judgement it was held that the statement made by a partner of a firm is evidence as contemplated under Section 3 of the Evidence Act and therefore, such evidence is a valid material to proceed under Section 158BB of the Income Tax Act. 13. Therefore, learned Senior Counsel contends that if and when a search is conducted as provided under Section 132 of the Act, the Assessing Officer is bound to initiate action under Section 153A a .....

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iminating material shall be unearthed. Thus it is contended by the counsel that the finding of the Tribunal that there are no incriminating materials before it so as to justify the action of the Assessing Officer is not a legal and valid finding and thus he seeks interference of this court in these appeals. 14. On the other hand learned Senior Counsel for the assessee contended that in order to assess under Section 153A of the Act, the materials that are unearthed can alone be applied against th .....

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nto account to proceed with the assessment under Section 153A. In order to substantiate the said contention, learned Senior Counsel has invited our attention to the common judgement of the Bombay High Court in Commissioner of Income-Tax v. Continental Warehousing Corporation and All Cargo Global Logistics Ltd. reported in [2015]374 ITR 645] and the judgement of the Delhi High Court in Commissioner of Income Tax v. Kabul Chawla reported in [(2016) 380 ITR 573 (Delhi)]. Learned Senior Counsel cont .....

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2002 - 2003 to 2005 -2006 were concluded as on the date of the search and no proceedings were pending, the scope of assessment under Section 153A for these assessment years was restricted to the incriminating materials relating to those years recovered during the course of search. The assessee further contended that since no incriminating materials relating to these years were found or seized during the course of search the Assessing Officer had no jurisdiction to initiate proceedings under Sect .....

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aking into account such circumstances, Senior Counsel contended that, so far as the assessment with respect to A.Ys. 2002 - 2003 to 2005 - 2006, the assessments are completed as on the date of search and the same can be re-opened only on the basis of specific incriminating documents/transactions/seized assets. It is also contended that as per the scheme of Section 153A such assessments which are pending as on the date of search are liable to abate and the assessments which are not pending i.e. c .....

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retains the original jurisdiction as well as jurisdiction under Section 153A for which assessment shall be made for each assessment separately. Thus according to the learned Senior Counsel, in that circumstances, the Assessing Officer can make additions in the assessment, even if no incriminating material has been found. Therefore, according to the learned Senior Counsel, it thus means that, the assessment under Section 153A will be made on the basis of incriminating material, which in the conte .....

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l was right in dismissing the appeals on the said ground also. 17. After considering the rival submissions and appreciating and perusing the pleadings and documents produced by the Revenue and the written submissions made by the learned counsel for the assessee, we find that the Tribunal without taking any efforts to find out the facts and circumstances involved in the cases on hand has relied on the decision of the Special Bench of the ITAT in All Cargo Logistics Ltd (supra) and has held that t .....

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whom a summons under sub-section (1) of section 37 of the Indian Income-tax Act, 1922 (11 of 1922), or under sub-section (1) of Section 131 of this Act, or a notice under sub-section (4) of section 22 of the Indian Income-tax Act, 1922 (11 of 1922), or under sub-section (1) of section 142 of this Act was issued to produce, or cause to be produced, any books of account or other documents has omitted or failed to produce, or cause to be produced, such books of account or other documents as requir .....

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ing through Section 132 of the Income Tax Act, what we find is that if the authority specified therein has reason to believe that any person to whom a summons under sub-section (1) of section 37 of the Indian Income-tax Act, 1922 (11 of 1922), or under sub-section (1) of section 131 of the 1961 Act, or a notice under sub-section (4) of section 22 of the Indian Income-tax Act, 1922 (11 of 1922), or under sub-section (1) of section 142 of 1961 Act was issued to produce, or cause to be produced, an .....

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jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income-tax Act, 1922 or under the Act 1961. Therefore, going by the said provision not only the books, documents etc. etc. that are unearthed during the course of search but a statement made by such person during such examination can also be used in evidence in any proceeding under the Income Tax Act, 1961. Thus viewing t .....

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power conferred on him under section 153A was competent to issue notice under the said provision and require the assessee firms to furnish the returns as provided thereunder. Neither under section 132 or under section 153A, the phraseology incriminating is used by the Parliament. Therefore, any material which was unearthed during search operations or any statement made during the course of search by the assessee is a valuable piece of evidence in order to invoke section 153A of the Income Tax A .....

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ssue notice to such person requiring him to furnish within such period, as may be specified in the notice, in return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b .....

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n this sub-section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate. Provided also that the Central Government may by rules made by it and published in the Official Gazette (except in cases where any assessment or reassessment has abated under the second proviso), specify the class or classes of cases in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the t .....

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roviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner. Provided that such revival shall cease to have effect, if such order of annulment is set aside. Explanation.- For the removal of doubts, it is hereby declared that.- (i) save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to the assessment made under this section. (ii) in an assessment or reasse .....

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ssessment years referred to in clause (b). It further treats the returns so filed as if such return were a return required to be furnished under Section 139. So that on a reading of Section 153A(1) it is categoric and clear that once a notice is issued and the Assessing Officer has required the assessee to furnish return for a period of six assessment years as contemplated under clause (b) then the assessee has to furnish all details with respect to each assessment year since the same is treated .....

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to file a return, is the scheme of the provision. Even though the second proviso to Section 153A speaks of abatement of assessment or reassessment pending on the date of the initiation of search within the period of six assessment years specified under the provision that will also not absolve the assessee from his liability to submit returns as provided under Section 153A(1)(a). This being the scheme of the provisions of the Act, the Appellate Tribunal ought to have considered the issue with spe .....

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