TMI Blog2016 (8) TMI 1509X X X X Extracts X X X X X X X X Extracts X X X X ..... of AO for verifying the factual position and make addition in the correct year of sale. Similarly in the case of Jayant B Patel [ 2010 (10) TMI 1208 - ITAT MUMBAI] addition on account of sale of shares of Tripex Ltd.was made in the assessment year 2001-02 and also addition on account of 5% commission. Ld. AR drew our attention to the statement and copies of the contract notes for the purchase in the month April 2005 and sales in August, 2006. As per ld. AR the sale of shares of Tripex Ltd. was made in the assessment year 200708 and not in the assessment year 2001-02, therefore, the AO was not justified in making addition in the assessment year 200102. In the interest of justice and fairplay, we restore this issue back to the file of AO for verifying the record and taxing the same in the current assessment year. All other additions made by the AO in respect of sale of shares are being confirmed. Addition made on account of seizer of cash and jewellery, we confirm the respective additions so made by AO in the hands of the assessee in his individual capacity. Addition on the ground of telescoping - whether assessee could not establish link between the income declare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee and revenue against the order of CIT(A) for the assessment years 2001-02 to 2007-08, in the matter of order passed u/s.143(3) r.w.s.153A/154 of the I.T.Act. 2. Rival contentions have been heard and record perused. Common grounds have been taken in the appeals so filed. Facts in brief are that a search and seizure action u/s, 132 of the IT.Act, 1961 was carried out on 10.01.2007 in the case of the assessee alongwith other associated persons and companies. Shri Jayanat B. Patel owns proprietary business concern viz. M/s. Universal Taste Maker and M/s. Universal Flavours Fragrance and also has interests in the companies M/s.Unique Aromatics P.Ltd. and M/s. Specialty Food Ingredients P. Ltd. Business of these concerns are manufacturing and sale of proprietary items being food flavours made from combination of spices, etc. For the A.Y.200102 Jayant B Patel (HUF) filed its original return of income on 31.07.2001 declaring total income of ₹ 10,04,171/. In response to notice u/s.153A, the assessee filed its return of income on 19.08.2008 declaring total income at ₹ 19,49,1711. The assessment u/s. 143(3) r.w.s. 153A of the Act was completed on 30.12.2008 dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence submitted by the assessee were self serving and that there was no third party evidence regarding purchase of various agricultural inputs such as seeds, fertilizers, labour payments etc. was factually incorrect. However, the CIT(A) found that these observations were made by the A.O. considering the queries which was made by the Ld. A.O. in the first round of the assessment. The CIT(A) observed that AO was referring to the details called for vide letter dt.08.12.2008 and the reply furnished by the assessee thereto whereas the present appeal is arising out of the second round of assessment made by the Ld. A.O. vide order dt.16.12.2011. From the submissions made before CIT(A) during the course of this appellate proceedings, the CIT(A) found that the Ld. A.R. for the assessee has filed a copy of letter dt.07.10.2011 furnished before the Ld. A.O. with reference to the agricultural income. As per this letter, a copy of lease deed of agricultural land with detailed statement of income from agricultural activity was also furnished before the Ld. A.O. Further, an affidavit of the staff who was handling the agricultural operation of the assessee was filed before the AO vide assessee s le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the action of CIT(A) regarding agricultural income earned and declared by assessee. 5. With regard to the addition made on account of long term capital gain on sale of shares, the CIT(A) found that out of 7 scrips in which the assessee had dealt and on which the long term capital gain was claimed, assessee had surrendered long term capital gain in respect of three such shares as fictitious. However, in respect of the other 4 shares, viz. ATN International Ltd., Swacco Communication Ltd., Tripex Ltd and Planter Poly Ltd., the assessee has not surrendered the long term capital gain in various years pertaining to the search assessments. The CIT(A) observed that the facts of the case in all the 7 companies are the same as the assessee has neither purchased nor sold the shares through BSE. Further, BSE has already stated that these transactions never took place through the exchange. In similar circumstances, when the assessee admits certain income, how the bogus long term capital gain earned on other scrips are not in the nature of the taxable income is to be explained by the assessee. As per the directions of the Hon'ble Tribunal in the first round, the matter was set aside an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of verifying actual year of sale, we restore the addition back to the file of AO for verifying the factual position and make addition in the correct year of sale. 8. Similarly in the case of Jayant B Patel (HUF), addition on account of sale of shares of Tripex Ltd. at ₹ 4,86,110/was made in the assessment year 200102 and also addition on account of 5% commission amounting to ₹ 24,306/. Ld. AR drew our attention to the statement and copies of the contract notes for the purchase in the month April 2005 and sales in August, 2006. As per ld. AR the sale of shares of Tripex Ltd. was made in the assessment year 200708 and not in the assessment year 200102, therefore, the AO was not justified in making addition in the assessment year 200102. In the interest of justice and fairplay, we restore this issue back to the file of AO for verifying the record and taxing the same in the current assessment year. We direct accordingly. 9. All other additions made by the AO in respect of sale of shares are being confirmed. 10. In view of the detailed finding given by lower authorities with regard to addition made on account of seizer of cash and jewellery, we confirm the respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings that the cash was out of the income offered for gross profit on cash sale amounting to ₹ 63,73,000/in various years as well as from the agricultural operation of A.Y.200708 amounting to ₹ 5,25,500/. In fact in this regard, an additional ground has also been filed before the CIT(A) and it has been pleaded that this addition should be deleted by telescoping disclosure made on account of GP on cash sales and agricultural income. 15. By the impugned order the CIT(A) after considering various judicial pronouncements allowed assessee s claim of telescoping after having following observations : 14.10.9 I find that in the present case no finding has been given nor anything brought on record that cash secreted out of gross profit on cash sales was not available as cash in hand, even if undisclosed. It was held in Commissioner of Income-tax Vs. K.S.M. Guruswamy Nadar Sons [1984] 19 Taxman 533 (Mad.) : In the instant case, in addition to the bogus cash credits, there was an addition towards the suppression of profit also. In such a case when there were two additions, it is open to the assessee to prove that the cash credits came from the suppressed profits towards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s with regard to bogus gifts. It was further pleaded that assessment in respect of both the years were not pending as on the date of search, insofar as even time limit for issue of notice u/s.143(2) had already been expired much before the date of search. Accordingly, same cannot be said to be pending. Reliance was placed on the decision of Special Bench in the case of All Cargo Logistics,138 ITD287. 18. We have considered rival contentions and carefully gone through the orders of the authorities below and also statement recorded u/s.132(4) and found that there is no mention of any incriminating material with regard to the gifts received by the assessee during these two years. The CIT(A) has deleted the addition on merit in respect of some gifts and upheld the addition with respect to some gifts. Revenue is not in appeal with regard to addition deleted by CIT(A), however, the assessee has challenged the addition on the plea that no incriminating material was found and that assessment was not pending as on the date of search. In respect of assessment year 200304 the assessee has filed its return of income on 3092003, the time period for issue of notice u/s.143(2) have already bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen the authorities have reason to believe that such powers need to be exercised. Therefore, the fetters and which are to be found in other provisions are removed and a notice of assessment in such cases is then issued. That is mandated by sub-section (1) of section 153A. It is not only the issuance of the notice but assessment or reassessment of total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition has to be made. ■ There is much substance in the contentions of the assessee that the provisions such as section 153A enabling assessment in case of search or requisition making specific reference to the provisions which enable carrying out of search or exercise of power of requisition that the assessment in furtherance thereof is contemplated. ■ Assessee's reliance upon the Division Bench judgment of this Court rendered in CIT v. Murli Agro Products Ltd. [2014] 49 taxmann.com 172 in that context is, therefore, well placed. ■ The Division Bench outlined the ambit and scope of the powers conferred by section 153A and observed that on a plain reading of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... history of section 153A and the power that is conferred thereunder. When the revenue argued before the Division Bench that the power under section 153A can be invoked and exercised even in cases where the second proviso to subsection (1) is not applicable that the Division Bench was required to express a specific opinion. The provision deals with those cases where assessment or reassessment, if any, relating to the assessment years falling within the period of six assessment years referred to in sub-section (1) of section 153A were pending. If they were pending on the date of the initiation of the search under section 132 or making of requisition under section 132A, as the case may be, they abate. It is only pending proceedings that would abate and not where there are orders made of assessment or reassessment and which are in force on the date of initiation of the search or making of the requisition. As that specific argument was canvassed and dealt with by the Division Bench and that is how it was called upon to interpret section 153A , then, each of the above conclusions rendered by the Division Bench would bind the instant Court. ■ Even otherwise, Court is in agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the absence of the pendency of the assessment as on the date of search on the basis that for framing assessment under sec. 153A, no such requirement is there and the only requirement is that search has been conducted under sec. 132 of the Act. 10. Having gone through the decisions cited by the learned AR including the decision of Special Bench of the ITAT in the case of AL Cargo Global Logestic Ltd. vs. CIT (supra), we find that the ratio laid down therein, supports the contentions of the assessee on the issue. It reads as under: 58. Thus, question No. 1 before us is answered as under :- (a) In assessments that are abated, the AO retains the original jurisdiction as well as jurisdiction conferred on him u/s 153A for which assessments shall be made for each of the six assessment year separately : (b) In other cases, in addition to the income that has already been assessed, the assessment u/s 153A will be made on the basis of incriminating material, which in the context of relevant provisions means (i) books of account, other documents, found in the course of search but not produced in the course of original 8 assessment, and (ii) undisclosed income or property disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where an assessment order had already been passed in respect of all or any of those six assessment years, either under Section 143(1)(a) or Section 143(3) of the Act. If such an order is already in existence, having obviously been passed prior to the initiation of the search/requisition, the Assessing Officer is empowered to reopen those proceedings and reassess the total income, taking note of the undisclosed income, if any, unearthed during the search. 9. The above extracted observations of the Hon'ble High Court, which are though obiter dicta, make the point clear that where an assessment order has already been passed for a year(s) within the relevant six assessment years, then also the A.O is duty bound to reopen those proceedings and reassess the total income but by 'taking note of the undisclosed income if any, unearthed during the search'. The expression 'unearthed during the search' is quite significant to denote that in respect of completed or non-pending assessments, the Assessing Officer is albeit duty bound to assess or reassess the total income but there is a cap on the scope of additions in such assessment, being the items of income 'unear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atia (supra) supports the case of the assessee that in absence of incriminating material found during the course of search an addition u/s 153A of the Act cannot be made in the assessment framed thereunder. The decisions relied upon by the ld. CIT, DR in the cases of Canara Housing Development Company vs. DCIT (supra) of Hon ble Karnataka High Court and Filatex India P. Ltd. vs. CIT (supra) of Hon ble Delhi High Court having distinguishable facts are not applicable in the present case. In the case of Filatex India Pvt. 12 Ltd. (supra), the question raised on the applicability of provisions u/s 153A was that whether the Tribunal erred on facts and in law in not holding that recomputation of book profit, de-hors any material found during the course of search in the order passed u/s 153A of the Act was without jurisdiction, being outside the scope of proceedings under that section? The other question was, whether on the facts and circumstances of the case, the Tribunal erred in law in upholding the action of the AO in denying set off, of book loss unabsorbed depreciation relatable to earlier assessment year in terms of clause (III) of Explanation 1 to section 115JB of the Act? The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... man 453 (Del) cited by the ld. AR of the assessee appellant, has noted certain observations made and findings given by the Hon ble Court therein. Thereafter in para no. 4 of the judgment, the Hon ble High Court has held as under: The first question, we notice was not raised by the appellant before the AO, CIT(A) and before the Tribunal. The appellant claims that the contention being legal can be raised at any stage. We have examined sec. 153A of the Act and find that the submission/contention has no merit . 15. When we peruse the facts of the case in the case of Filatax India Ltd. and the question raised therein it comes out that in that case admittedly during the course of search incriminating material including statements were found and resulted in additions and the addition made u/s 115JB of the Act was not based upon any incriminating material. Thus, the question raised before the Hon ble High Court was as to whether the Tribunal has erred in law in not upholding that recomputation of book profit, de-hors any material found during the course of search in the order based u/s 153A of the Act was without jurisdiction, being outside the scope of proceedings under that section. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r thing or books of account or documents seized in the course of the search belongs to a person other than the person who was searched, then such assets or books of accounts or documents shall be handed over by him to the AO having jurisdiction over such other person. Once, that is done, the AO having jurisdiction over such other person shall proceed against him for making an assessment or reassessment of his income in accordance with the provisions of sec. 153A. The petitioner therein was not searched u/s 132 of the Act, however, some documents belonging to it were found during the search carried out in the premises of Puri Group of Companies. 18. We, thus, find that the ratio laid down by the Hon ble Delhi High Court and Hon ble Rajasthan High Court in the above cited and discussed decisions supports the case of the assessee that in absence of incriminating material found during the course of search no addition can be made u/s 153A of the Act where the original assessment was already framed on the date of search. The Hon ble Karnataka High Court in the case of Canara Housing Development Company (supra) has, however, been pleased to express different view, however, as per the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter XIV B of the Act, as stated in the Memorandum explaining the provisions in the Finance Bill 2003 was that under the existing provisions relating to search cases, often disputes were raised on the question, as to whether a particular income could be treated as 'undisclosed income' or whether a particular income could be said to be relatable to the material found during the course of search, etc. which led to prolonged litigation. To overcome that difficulty, the legislature by Finance Act, 2003, decided to discard Chapter XIV B provisions and introduce sections 153A, 153B and 153C in the Act. What section 153A contemplates is that, notwithstanding the regular provisions for assessment/reassessment contained in the Act, where search is conducted under section 132 or requisition is made under section 132A on or after 31-5-2003 in the case of any person, the Assessing Officer shall issue notice to such person requiring him to furnish return of income within the time stipulated therein, in respect of six assessment years immediately preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made and thereafter assess or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not have disturbed original assessment order relating to section 80HHC deduction and consequently the Commissioner could not have invoked jurisdiction under section 263 of the Act. 23. The ITAT Mumbai bench in the case of Jayendra P. Jhaveri, 46 taxmann.com 457 observed as under : Head Note : So far as the question as to the processing of return under section 143(1) vis- -vis assessment made under section 143(3) is concerned, it may further be observed that after processing of return under section 143(1) the same can be assessed under section 143(3) by issue of notice under section 143(2) subject to its issuance within the limitation period of 12 months from the end of the month in which return is furnished as per the proviso to clause (ii) of section 143(2) [as was existing at the time of relevant assessment year]. Once the limitation period as prescribed vide proviso to clause (ii) of sub-section (2) of section 143 is expired, it is not open to the Assessing Officer to assess the income under section 143(3) and the return filed by the assessee under section 139 is deemed to be accepted, which however, can be re-opened under section 147 subject to the fulfilment of ingre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention is that one additional or different fact may make a world of difference between conclusions in two cases. There is no doubt about the above said proposition of law laid down by the Supreme Court. The Court must observe the facts and circumstances of the case under which a certain proposition of law is laid down by the Supreme Court and then to compare the same with the facts and circumstances of the case under adjudication before it. However, this proposition of law, put by the revenue, is of no help to the revenue but to the assessee only. In view of above, it is accordingly held that the reassessments made by Assessing Officer under section 153A, without any incriminating material being found during the search action are not in accordance with law and consequential result is that the return/original assessments which have acquired finality are to be reiterated. 24. Similar view has been taken by ITAT Jodhpur Bench in the case of IOC Builders and Developers, 50 taxmann.com 396, Pune Tribunal in the case of SRJ Peety Steels (P) Ltd., 20 taxmann.com 101, Mumbai Tribunal in the case of Nikki Agarwal, ITA No.879/Mum/2011, order dated 2212014, Mumbai Tribunal in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO 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 AYs 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 AO 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be remained undisclosed in the relevant assessment years. This Court in Commissioner of Income Tax (Central)-III v. Kabul Chawla : ITA 707/2014, decided on 28 th August, 2015 = 2015-TIOL-2006-HC-DEL-IT has held that completed assessments could only be interfered with by the AO on the basis of any incriminating material unearthed during the course of the search or requisition of the documents. In absence of any incriminating material, the AO does not have any jurisdiction to interfere in concluded assessments. Respectfully following the proposition of law discussed in the above judicial pronouncements, we do not find any merit for the addition made by the AO with respect to gifts received by assessee in A.Y.2003-04 2004-05, which were not pending on the date of search and no incriminating material was found during search with regard to these gifts. Accordingly, addition of gifts made by AO when no incriminating materials was found during the course of search is not sustainable. The AO is directed to delete the same. Since we have already decided the legal issues in favour of the assessee, we are not going into merit of the addition made on account of gifts. 27. In the resu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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