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Mala Builders P. Ltd. Versus Assistant Commissioner of Income-Tax (and Connected Appeals)

2016 (11) TMI 1046 - ITAT CHANDIGARH

Assessment u/s 153A - addition to income - whether any incriminating material concerning such additions was found during the course of search? - Held that:- Sh. Goyal admitted that certain incriminating documents relating to various investment companies, excess cash and jewellery was found at his residence. Admittedly there is no reference in the statement to any document found, which revealed that the assessee had wrongly claimed interest on loan taken for his house property, which was the only .....

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d to be incriminating material for the purpose of disallowing interest on housing loan. - Thus we hold that in the absence of any incriminating material found during the course of search and the assessment proceedings having not abated at the time of search, the Assessing Officer has no jurisdiction to make the addition under section 153A of the Act. - Decided in favour of assessee - I. T. A. Nos. 286, 287 and 289, 330, 331, 332, 333 and 334, 560, 565, 556 and 567, 715, 716, 717, 736, 737 an .....

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ssue arose for the purpose of addressal by the Bench in all the appeals and, therefore, they advanced similar contentions. It is in these circumstances that these appeals are being disposed of by a common order. The issue involved in all these appeals is : "Whether the addition made to the income of the assessee for the said assessment years was not sustainable because no incriminating material concerning such additions was found during the course of search and further no assessments for su .....

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conducted on the assessees and the addition made, in the course of assessment framed under section 153A, did not pertain to any incriminating material found during search. Charts reflecting the above facts in relation to all the assessees was placed before us. 3. Further, it was stated that in the bunch of cases relating to Modern Steel Ltd., Modern Diaries Ltd., Heera Moti Agro Industries, Heera Moti Agro Products, Heera Moti Health Care Products Ltd., Heera Moti Spices Pvt. Ltd., Surbhi Agro P .....

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v. CIT [1998] 229 ITR 383 (SC), the same is admitted for adjudication. 4. We shall now proceed to adjudicate the common ground raised before us. For the sake of convenience, the case of Mala Builders Pvt. Ltd. v. Asst. CIT, Central Circle-II, Chandigarh in I. T. A. No. 433/Chd/2014 pertaining to the assessment year 2004-05, is being taken as the lead case. 5. At the outset, it may be stated that this case was earlier dismissed for non-prosecution but was recalled on a miscellaneous application f .....

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e. Search and seizure operations were conducted on the residential and business premises of M/s. Modern Group, to which the assessee belongs, on March 17, 2010, and the assessee was also covered. In response to the notice under section 153A(1), the assessee declared the same income as declared in the return filed under section 139(1) of the Act being ₹ 2,89,220. The Assessing Officer assessed the income at ₹ 8,85,515 after disallowing interest of ₹ 5,96,295 claimed under sectio .....

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der dated February 28, 2014, the learned Commissioner of Income-tax (Appeals) dismissed the appeal. The learned Commissioner of Income-tax (Appeals), relying on various judgments of the High Court held that while making assessment under section 153A of the Act, the Assessing Officer is not obliged to utilise only the incriminating material collected during the search further, the addition made under section 24(b) of the Act was also upheld. 8. Aggrieved by the same the assessee filed the present .....

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al including the incriminating material found during search. While in cases where assessment had been made under section 143(1) or section 143(3) of the Act, there would be no abatement and in the assessment under section 153A the completed assessment was to be reiterated and addition was to be made only with respect to income relating to incriminating material found during the course of search. The learned counsel for the assessee stated that since in the present case the assessments were compl .....

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mann.com 412 (Delhi). 4. Jai Steel (India) v. Asst. CIT [2013] 1 ITR-OL 371 (Raj) ; [2013] 259 CTR (Raj) 281. 5. Deputy CIT v. Times Finvest and Commerce Ltd. (I. T. A. No. 542/Chd/2014, dated December 8, 2015). 10. Shri Sudhir Sehgal, the learned counsel for the assessee, belonging to the Heera Moti group, in his arguments, reiterated the above contentions and further drew our attention to several other judgments of the High Courts and the Income-tax Appellate Tribunal on this issue. The learne .....

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Singh, learned Departmental representative, was that : "(1) The Chandigarh Bench of the Income-tax Appellate Tribunal has already decided this issue against the assessee in the case of Vipin Kumar Verma v. Asst. CIT, vide order dated August 22, 2012. (2) The hon'ble Supreme Court has granted special leave petition against the High Court's ruling in the case of CIT v. Continental Warehousing Corporation (Nhava Sheva) Ltd. [2015] 374 ITR 645 (Bom), on which heavy reliance has been pla .....

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tamount to bringing current procedure at par with the earlier one, thus defeating the very purpose of introducing the legislation. (4) Referring to the Central Board of Direct Taxes Circular No. 7, dated September 5, 2003 ([2003] 263 ITR (St.) 62), which dealt with the necessity of bringing the new section, the learned Departmental representative pointed out that the circular states that the Assessing Officer has to assess/reassess the "total income" (emphasis supplied) of the assessee .....

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using Development Co. v. Deputy CIT [2014] 52 taxmann.com 172. (7) It was pointed out that the controversy in question whether assessment under section 153A could be validly framed in the absence of any incriminating material, was left open in the case of CIT v. Anil Kumar Bhatia [2013] 352 ITR 493 (Delhi) but was answered against the assessee in the case of Madugula Venu v. DIT [2013] 29 taxmann.com 200 (Delhi) and CIT v. Raj Kumar Arora [2014] 367 ITR 517 (All). (8) The case law relied upon by .....

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uot; was borrowed from the judgment in the case of CIT v. Chetan Das Lachman Das [2012] 254 CTR (Delhi) 392, which was clarified in Filatex India Ltd. v. CIT [2014] 49 taxmann.com 465 (Delhi), as being merely clarificatory that the assessment under section 153A emanates and starts on the foundation of search. (10) That wherever the Legislature deemed fit, it carried an exception to the rigours of section 153A as in the third proviso to the section and, therefore, there was no scope to read/inter .....

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i Ashok Goel, stated that all issues raised by the learned Departmental representative have already been dealt with by the High Courts in the decisions relied upon by the assessee. The learned counsel for the assessee further stated that no incriminating material vis-a-vis the addition made in the impugned year was found and also that the surrender made pertained to the assessment years relating to the year in which search was conducted and, which were not pending before the Bench. Shri Sudhir S .....

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relating to the impugned year were pending. In fact the assessee had filed the return under section 139(1) of the Act on June 29, 2004, no notice under section 143(2) had been issued to the assessee and on the date of initiation of search, i.e., March 17, 2010, the time limit for issuing notice under section 143(2) had expired. Thus, on the date of search no assessment proceedings were pending. Further in the assessment made under section 153A of the Act, the only addition made pertained to the .....

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dings were pending and assessment had been made under section 143(1)/143(3) of the Act. 16. We are in complete agreement with the contention of the learned authorised representative that the issue is no longer res integra in view of various decisions of the High Courts holding that completed assessments can be interfered with by the Assessing Officer while making the assessment under section 153A only on the basis of some incriminating material unearthed during the course of search or requisitio .....

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section 153A, it was contended by the Revenue that the impugned order was erroneous and prejudicial to the interests of the Revenue since the Assessing Officer had only determined the undisclosed income and not the total income which is the mandate of section153A. The hon'ble High Court, while adjudicating the issue, dealt at length with the purpose of introduction of the new search assessment procedures, as against the earlier block assessment procedures and then went on to interpret the p .....

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held that as against the earlier block assessment procedure which roped in only the undisclosed income and the regular assessment proceedings were preserved, resulting in multiple assessments, under the present assessment procedures prescribed under section 153A/153B/153C of the Act, only one assessment order in respect of each of the six assessment years had to be passed. The hon'ble High Court held that this was sought to be achieved in case of those assessment years where assessment proc .....

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o section 153A. The entire thrust of the judgment rested on the interpretation that there cannot be multiple assessment orders in case of search assessments under section 153A/153B/153C of the Act and, therefore, where assessments were pending they would abate to enable the Assessing Officer to assess the total income including the undisclosed income, and where assessments or reassessments had been completed, they would not abate and the Assessing Officer would only reopen the completed assessme .....

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of the same court in the case of CIT v. Murli Agro Products Ltd. (I. T. A. No. 36 of 2009 (Bom)) and held that finalised assessments cannot be touched by resorting to the provision of section 153A and addition was to be made only on the basis of material unearthed during search since "search" and "requisition" are the crucial words appearing in the substantive provision and the proviso and they would throw light on the issue of applicability of the provision. The court uphel .....

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search carried under section 153A had to essentially revolve around search or requisition under section 132A of the Act. 20. In the case of CIT v. Kabul Chawla [2016] 380 ITR 573 (Delhi), the Delhi High Court, after considering various decisions of High Courts, summarised the legal position in paragraph 37, which is reproduced below (page 589) : "On a conspectus of section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the afore mentioned decis .....

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computed by the Assessing Officers as a fresh exercise. (iii) The Assessing Officer will exercise normal assessment powers in respect of the six years previous to the relevant assessment year in which the search takes place. The Assessing Officer has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six assessment year .....

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ment has to be made under this section only on the basis of 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 the completed assessment proceedings. (vi) In so far as pending assessments are concerned, the jurisdiction to mak .....

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n of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment." 21. The Delhi High Court further reiterated the proposition laid down in CIT v. Kabul Chawla [2016] 380 ITR 573 (Delhi) in the case of CIT v. RRJ Securities Ltd. [2016] 380 ITR 612 (Delhi) and Principal CIT v. Ms. Lata Jain [2016] 384 ITR 543 (Delhi) (I. T. A. No. 274 of 2016 dated April 29, 2016). 22. On go .....

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section 153A(1)(a) can be issued and income assessed or reassessed of six years preceding the assessment year relevant to the previous year in which search is conducted or requisition is made. Thus the crucial words 'search' and 'requisition' appear in the substantive provision and the proviso, which throws light on the issue of applicability of the provision. Such assessments have a vital link with the initiation and conduct of search. Since search can be authorised only on the .....

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on, its construction would have to be made accordingly. 2. The second proviso to section 153A(1) states that on initiation of proceedings under section 153A, the assessment/reassessment proceedings pending on the date of conducting search or making requisition under section 132A of the Act, shall stand abated. The Central Board of Direct Taxes Circular No. 8 of 2003, dated September 18, 2003, clarifies that proceedings in appeal, revision or rectification against finalised assessments/reassessme .....

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word 'assess' has been used in the context of abated proceedings and 'reassess' has been used for completed proceedings which would not abate as they are not pending on the date of initiation of search or making of requisition." 23. We may add that the requirement of the section is limited to opening or reopening of the cases for the purpose of making assessment or reassessment of the total income of the preceding six assessment years prior to the year of search. It does no .....

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is Act shall apply to assessment made under this section. This implies that nature of assessment or reassessment made under this section shall be governed by the normal provisions of the Act. In case it is an assessment made for the first time, all provisions of assessment which are applicable to assessments made under section 143(3) shall apply and in case it is a reassessment being made all principles of reassessment which are applicable in case of proceedings under section 147/148 shall becom .....

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and state that under section 153A, addition in case of completed assessments need not be restricted to incriminating material but in view of the apex court decision in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC) which states that where there are two reasonable constructions of a statute, the construction favouring the assessee should be adopted, we hold that in the case of completed assessments under section 143(3)/143(1) of the Act, in the absence of any incriminating material found .....

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arned Departmental representative that the issue had been decided against the assessee by the Chandigarh Bench of the Income-tax Appellate Tribunal in the case of Vipan Kumar Verma v. Asst. CIT (vide its order dated August 22, 2012) merits no consideration in view of the numerous judgments of the higher authorities, i.e., High Courts on this issue. 27. The argument of the learned Departmental representative that the hon'ble Supreme Court has granted special leave petition against the High Co .....

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esentative was that if addition under section 153A of the Act is to be restricted to the extent of incriminating material found/undisclosed income (term used by the learned Departmental representative) there would be no difference between the procedures prescribed under the block assessment regime prescribed in Chapter XIV and the current search assessment proceedings under section 153A and the very purpose of introducing the new procedure to do away with controversies relating to undisclosed in .....

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153B/153C/153D of the Act. Moreover, by prescribing one assessment for each of the six years, covered under search, the Legislature has done away with the requirement of making assessment only of undisclosed income prescribed in the earlier block assessment requirement, and thus doing away with consequent litigation regarding the same. 29. The learned Departmental representative further argued that even the circular outlying the objective behind bringing the present search assessment procedures .....

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3] 352 ITR 493 (Delhi), wherein in paragraph 22, the court held that (page 508) "in cases where the assessment or reassessment proceedings have already been completed and assessment orders have been passed determining the assessee's total income and such orders are subsisting at the time when the search or the requisition is made, there is no question of any abatement since no proceedings are pending. In this latter situation, the Assessing Officer will reopen the assessments or reasses .....

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In such a case, to reiterate, there is no question of any abatement of the earlier proceedings for the simple reason that no proceedings for assessment or reassessment were pending since they had already culminated in assessment or reassessment orders when the search was initiated or the requisition was made". 31. It is evident from the same that the understanding of the learned Departmental representative that by including only undisclosed income discovered as a result of search, in the a .....

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ent of incriminating material would not mean, that total income is not determined. 32. As for the reliance placed by the learned Departmental representative on the decisions against the proposition, we agree that there are divergent views of the High Courts on this issue, but as stated above, we uphold the view favouring the assessee in view of the apex court decision in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC). Further we may add that the hon'ble Delhi High Court, i .....

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h conducted on the Modern group, constituted incriminating material. As per the learned Departmental representative, in the statement, Sh. Kishan Kumar Goyal admitted that incriminating documents relating to various investment companies, excess cash and jewellery were found. The assessee in consequence thereof had surrendered additional income of ₹ 11 crores. 34. The statement referred to by the learned Departmental representative is reproduced as under : "Question 3 Do you want to sa .....

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ction 132(4) of the Income-tax Act, 1961, voluntarily. The break-up of the same will be submitted in the next two days. A separate letter to this effect is submitted hereby." From a reading of the above, it is evident that Sh. Goyal admitted that certain incriminating documents relating to various investment companies, excess cash and jewellery was found at his residence. Admittedly there is no reference in the statement to any document found, which revealed that the assessee had wrongly cl .....

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he same and paid taxes thereon. The statement therefore cannot be stated to be incriminating material for the purpose of disallowing interest on housing loan. 35. Moreover, the Delhi Bench of the Income-tax Appellate Tribunal in the case of Best Infrastructure (India) Pvt. Ltd. v. Asst. CIT (I. T. A. No. 1698/Delhi/2014 dated May 31, 2016) held that any statement recorded during search cannot on standalone basis without reference to any other material discovered during search be treated as " .....

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