TMI Blog2017 (3) TMI 1669X X X X Extracts X X X X X X X X Extracts X X X X ..... enquiry took one of the possible views. - Decided in favour of assessee. - ITA Nos.613 & 614/Bang/2014 - - - Dated:- 17-3-2017 - SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER and SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER Appellant by : Shri M.V.Seshachala, Advocate. Respondent by : Ms. Neera Malhotra, CIT(DR). O R D E R Per INTURI RAMA RAO, AM : These are appeals filed by the assessee directed against different orders of the Commissioner of Income-tax, Karnataka (Central), Bengaluru [ CIT ], dated 28th March 2013 passed u/s 263 of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] for the assessment years 2008-09 and 2009-10. 2. Brief facts of the case are that the assessee is an individual deriving income from business of real estate. Return of income for the assessment year 2008-09 was filed on 18/06/2010 declaring total income of ₹ 8,82,13,948/-. Search and seizure operations were conducted in the case of the assessee on 06/01/2009. Consequently, notice u/s 153A was issued on 08/03/2010 requiring the assessee to file return of income for this assessment year. However, the assessee filed letter dated 23/07/2010 req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing aggrieved, the assessee is in appeal before us raising the following grounds of appeal: 6. The learned counsel for the assessee vehemently contended that the CIT was not justified in exercising the power of revision in the facts of the present case. He submitted that the issues which are sought to be revised by the AO were duly examined and considered by the AO during the course of assessment proceedings. After considering the submissions made by the assessee during the course of assessment proceedings, the AO took one of the possible views. Therefore, it was submitted that CIT was not justified in resorting to the power of revision u/s 263 of the Act. Learned counsel for the assessee also submitted that the issue of donation of ₹ 1,50,000/- was examined by the AO and the donations were made by account payee cheque or accounted in the books of account. After referring to same, the AO allowed the same as deduction considering the fact that the donations are made to further the interest of business. Regarding disallowance of labour charges of ₹ 7,72,41,000/- and development expenses of ₹ 6,07,85,051/- it was submitted that the two items of expenditure were co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO. Learned counsel for the assessee further contended that the issues sought to be revised by the CIT are subject matter of proceedings before the CIT(A). Therefore, the proceedings initiated by the CIT u/s 263 got merged with the proceedings with the CIT(A). Therefore, applying the principle of merger, revision proceedings are not valid in law as held by the Hon ble Supreme Court in the case of Kunhayammed Ors. Vs. State of Kerala Anr. Reported in 245 ITR 360(SC). He further contended that the CIT, in the power of revision, is imposing his views on the AO on certain issues and therefore, the order of revision should be set aside as it has no legs to stand in the eyes of law. On the other hand, ld.CIT(DR) placed reliance on the order of revision u/s 263. 8. We heard rival submissions and perused material on record. The short issue that comes up for our consideration is whether the CIT was justified in exercising the power of revision vested with him u/s 263. The CIT, in his order u/s 263 dated 28/03/2013 directed the AO to make addition of ₹ 18,78,84,039/- - (i) on account of donation ₹ 1,50,000/-, (ii) ₹ 2,71,13,658/- towards cost of purchase of la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s prescribed under Section 132 of the Act. 45. Sections 153A, 153B and 153C were inserted by the Finance Act, 2003, with effect from 1/6/2003. They have replaced the post-search block assessment scheme in respect of any search or requisition made after 31/5/2003. Sub-section (1) of Section 153A inter alia deals with 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 Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 132A 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 sub-section (2) of Section 143 has been served and limitation of serving the notice under subsection (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 158 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties indicating their undisclosed income found during the search or requisition under Section 132/132A leading to a prima facie tax liability. A special procedure is contemplated in such cases. Such books of account, documents or valuable assets are required to be handed over by the Assessing Officer having jurisdiction 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sclosed 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 Clause (b) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 132A or documents or assets have been requisitioned under Section 132A. Section 158BD, however, provides for taking recourse to a block assessment in terms of Section 158BC in respect 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 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 As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Authority, who had partly allowed the appeal. The Revenue had carried the matter further by filing an appeal before the Tribunal and the assessee therein filed cross-objection. The Tribunal rejected Revenue's appeal, which filed an appeal before the High Court, which also rejected the Revenue's appeal and 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 account, 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing stages: (a) 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 scope and interpretation of Section 158BD of the Act. (b) In CIT v. Lancy Constructions [2016] 237 Taxman 728/66 taxmann.com 264 (Kar.), 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 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 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 postsearch 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., th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) In Savesh Kumar Agarwal v. Union of India [2013] 35 taxmann.com 85/216 Taxman 109 (Mag.)/353 ITR 26 (All.), 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 released in favour of the assessee, notice 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 v. Dy. CIT [2012] 26 taxmann.com 54 (Ker.), 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 account or other evidence or materials seized in the course of search of an assessee represents or proves undisclosed income of another ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was in fact dealing with a case where incriminating material had been found. 10. In the case of assessment made pursuant to notice u/s 153A, addition should be confined only to the incriminating material. It is equally settled proposition of law that the AO is estopped from adopting pick and choose method in choosing evidence. For the purpose of making addition AO relies on the statement made by the assessee u/s 132(4). However, the AO ignores that part of the statement given u/s 132(4) wherein the appellant had stated that he alone borne the entire development expenditure on the project. He cannot afford to ignore that part of the statement which is against revenue. In the present case, in the statement given by the appellant u/s 132(4), the appellant clearly mentioned that he made a profit of ₹ 8.43 crores during the financial year 2007-08 relevant to assessment year 2008-09 and ₹ 5.50 crores during the financial year 2008-09 relevant to assessment year 2009-10 and the same was offered to tax in the return of income filed by him. Even during the course of assessment proceedings, assessee made detailed submissions with regard to transactions entered into with M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uently, the appellant had filed full details of commission paid to various parties, names and addresses of parties and details of TDS compliance provisions and payment details. After considering this material, AO had chosen not to make any addition on this item of expenditure. Thus it is clear that the items of expenditure on which CIT proposed revision of the assessment was thoroughly examined/considered by the AO during the course of assessment proceedings and took a possible view. 12. Now, the law is quite settled that the CIT was not justified in exercising power of revision when there was adequate inquiry by the AO and the view taken by the AO is one of the possible views. In this connection, we refer to the decision of the Hon ble Bombay High Court in the case of CIT vs. Nirav Modi (2017) 390 ITR 292(Bom) wherein it has been held that the CIT was not justified in exercising power of revision where the AO, after due enquiry took one of the possible views. The relevant paras. f the judgment are extracted below: 6. It is a settled position in law that powers under Section 263 of the Act can be exercised by the CIT on satisfaction of twin conditions viz. the Assessment Ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessment Years, the Assessing Officer issued a query memos to the assessee, calling upon him to justify the genuineness of the gifts. The Respondent-Assessee responded to the same by giving evidence of the communications received from his father and his sister i.e. the donors of the gifts along with the statement of their Bank accounts. On perusal, the Assessing Officer was satisfied about the identities of the donors, the source from where these funds have come and also the creditworthiness/capacity of the donor. Once the Assessing Officer was satisfied with regard to the same, there was no further requirement on the part of the Assessing Officer to disclose his satisfaction in the Assessment Order passed thereon. Thus, this objection on the part of the Revenue, cannot be accepted. 8. It is next submitted that the donor had not been examined by the Assessing Officer. It is not in every case that every evidence produced has to be tested by cross examination of the person giving the evidence. It is only in cases where the evidence produced gives rise to suspicion about its veracity that further scrutiny is called for. If there is nothing on record to indicate that the evide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven in case of inadequate enquiry by the Assessing Officer, the order of the Assessing Officer could be erroneous in two classes of situation. The first class would be where orders passed by the Assessing Officer are ex facie erroneous i.e. a decision rendered ignoring a binding decision in favour of the Revenue or where enquiry is per se mandated on the basis of the record available before the Assessing Officer and that is not done. In the second class of cases, where the order is not ex facie erroneous, then the CIT must himself conduct an enquiry and determine it to be so. The Court held that it is not permissible to the CIT while exercising power under Section 263 of the Act to remit the issue to the Assessing Officer to re-examine the same and find out whether earlier order of Assessment is erroneous. It is the CIT who must hold that the order is erroneous, duly supported by reasons. In the present facts, the CIT in exercise of its powers under Section 263 of the Act has merely restored the Assessment to the Assessing Officer to decide whether the gifts were genuine and, if not, then the Assessment could be completed on application of Section 68 of the Act. In this case, the o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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