Regards
Prarthana Jalan
On Saturday, 1 March 2014 9:37 AM, Prarthana Jalan <prarthanajalan@ymail.com> wrote:
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "A", MUMBAI
BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND
SHRI SANJAY GARG, JUDICIAL MEMBER
ITA Nos.2889/Mum/2011 :Asst.Year 2003-04
ITA Nos.2890/Mum/2011 :Asst.Year 2006-07
ITA Nos.2891/Mum/2011 :Asst.Year 2007-08
ITA Nos.2930/Mum/2011 :Asst.Year 2006-07
ITA Nos.2931/Mum/2011 :Asst.Year 2007-08
Shri Atul Barot Vs. The DCIT
Assessee By : Shri Vijay Mehta
Revenue By : Shri S.J. Singh
Date of Hearing : 21.01.2014 Date of Pronouncement : 26.02.2014
ORDER
Per Sanjay Garg, Judicial Member:
These cross appeals i.e. three by the assessee and two by the revenue arise out of the common order of the Commissioner of Income Tax (Appeals)-40, [hereinafter referred to as CIT(A)] Mumbai, dated 25.01.2011 pertaining to A.Ys. 2003-04, 2006-07& 2007-08. As common issues are involved in these appeals, they were heard together and are being disposed of by this common order for the sake of convenience and brevity.
2. A search and seizure operation was carried out in the case of the assessee on 19.07.2007 u/s. 132 of the Income Tax Act. In response to notice u/s. 153A issued by the Assessing Officer (hereinafter referred to as AO), the assessee filed returns of income for A.Y. 2003-04 & A.Y. 2005-06 to 2007-08. The AO thereafter made fresh assessments and assessed additional income of the assessee on account of deemed dividend u/s 2(22)(e) of the Income Tax Act, on protective basis, at Rs.500000/-, Rs.2500000/- Rs.16600000/- & Rs.17000000/- in relation to above mentioned Assessment Years 2003-04, 2005-06, 2006-07 & 2007-08 respectively.
3. The CIT(A) upheld the action of the AO for passing the Assessment Order u/s. 153A of the Income Tax Act. However he confirmed the additions of Rs.500000/- in relation to A.Y. 2003-04, Rs.5258919/- in relation to A.Y.2006- 07 and Rs.3803928/- for A.Y.2007-08 on substantive basis and deleted the remaining additions made by the AO.
4. The assessee is thus in appeals before us against the action of the CIT(A) in upholding of assessment proceedings made by the AO under section 153A of the Act and further against the confirmations of additions by him on substantive basis. Whereas revenue is in appeals against the action of the CIT(A) in reducing the quantum of additions made by the AO u/s 2(22) _ of the Act in relation to A.Y. 2006-07 & 2007-08.
5. The learned representative of the assessee, at the outset has submitted, as admitted by the learned DR also, that the question as to validity of assessment u/s 153A be adjudicated first because if the same is decided in favour of the assessee, then the consequential additions made or confirmed will not survive.
Hence the issue of validity of assessment made by the AO u/s 153A is taken first for adjudication.
6. The contention of the learned AR has been that since no incriminating material was found during the search and seizure operation, the re-assessment made by the AO u/s 153 A was not valid. He has further submitted that assessment in relation to A.Y. 2003-04 has already been completed u/s 143(3) whereas for A.Y. 2006-07 & 2007-08 the limitation period for issuing notice u/s 143(2) of the Act had already been expired and as such the assessments in relation to above mentioned assessment years had attained finality. There was as such no abatement of any pending assessment proceedings. The reassessment could have been made only if there were found any incriminating material against the assessee.
7. On the other hand, the contention of the learned DR has been that the earlier the return filed by the assessee for AY 2006-07 & 2007-08 were processed by the AO u/s 143(1) of the Act which amounts to just the intimation and cannot be said to be an assessment. He has further contended that as per the provisions of section 153 A it is mandatory for the AO to assess or reassess the income of the assessee for six earlier years irrespective of the availability of any incriminating material.
8. We have considered the respective submissions of the ld. representatives of the parties and have also gone through the record. This issue relating to the validity of assessment made u/s 153A without having any incriminating material found during the search action u/s 132 of the Act, has recently came into consideration before the co-ordinate bench of the Tribunal in the case of "The ACIT Cent. Cir. 33, Mumbai Vs.Shri Jayendra P Jhaveri," ITA Nos.: 2141, 2142, 2143 & 2144/M/2012 & CO Nos.248, 249, 250 & 251/M/13 decided on 20.02.2014 (One of us being party to that order), wherein the co- ordinate bench of the Tribunal has discussed the issue in detail and has made the following observations:
The learned DR has also filed written submissions. To stress his point "8. that the return processed u/s. 143(1) cannot be said to be an assessment but a mere intimation, he has relied upon the judgment of Hon'ble Supreme Court in the case of "Rajesh Jhaveri Stock Brokers P. Ltd." (2007) 291 ITR 500 (SC).
His contention has been that in the case in hand the assessment was not done originally u/s. 143(3) hence the estimation in question has been rightly made u/s. 153A of the Act by the AO. He has further contended that the principal laid down by the Special Bench of the Tribunal in the case of "All Cargo Global Logistics Ltd." 137 ITD 287 can be applied to the case where the original assessment was completed u/s. 143(3) of the Act and not to the case where the return was processed u/s. 143(1) of the Act.
9. We have considered the submissions of the learned DR. So far so the reliance placed by him in the case of "Rajesh Jhaveri Stock Brokers P. Ltd." (supra) is concerned, we may observe that the issue before the Hon'ble Supreme Court in that case was regarding the reopening of the assessment u/s. 147 of the Act. The Hon'ble Supreme Court held that the proposition of law laid down by the Hon'ble Gujarat High Court in the case of "Adani Exports v. Deputy CIT", (1999) 240 ITR 224 (Guj) was not applicable in that case. In the case of "Adani Exports" (supra), where the assessment was made u/s. 143(3) of the Act, and the AO did not hold any belief that income had escaped assessment on account of erroneous computation, the re-opening u/s. 147 made merely on the basis of audit objections was held to be bad in law by the Hon'ble High Court. In the case of "Rajesh Jhaveri Stock Brokers P. Ltd." (supra), the Hon'ble Supreme Court while interpreting the provisions of section 143(1) and section 143(3) (as were in force during the relevant time period) has held that in case of assessment made u/s. 143(3), the assessment is made by the AO by applying his mind whereas in case of processing of return u/s. 143(1) of the Act, there is no application of mind by the AO and as such, if a new material comes into the knowledge of the AO and the requirements of section 147 of the Act are fulfilled, the AO is free to initiate proceedings u/s. 147 and the failure to take steps u/s. 143(3) will not render the AO powerless to initiate re-assessment proceedings even when intimation u/s. 143(1) had been issued.
So the proposition of law laid down in the case of "Rajesh Jhaveri Stock Brokers P. Ltd." (supra) relates to the powers of the AO for re-opening of assessment u/s. 147in relation to the assessment proceedings conducted under section 143(1) viz-a-viz u/s 143(3) of the Act. (as were in force during the relevant period, since section 143 has been further amended vide Finance Act 2008 w.e.f 01.04.2008.) It is to be noted that powers of the AO to re-open an assessment u/s. 147 is subject to limitation of time period as prescribed u/s. 149 of the Act. So the reasonable conclusion will be that whether the return was processed u/s. 143(1) or u/s. 143(3), if the AO has a reason to believe that any income chargeable to tax has escaped assessment, he can re-open the assessment u/s. 147 by issuing notice u/s. 148 but within the time limit as prescribed u/s. 149 of the Act.
10. So far so, the question as to the processing of return u/s. 143(1) viz-a-viz assessment made u/s. 143(3) is concerned, it may further be observed that after processing of return u/s. 143(1) the same can be assessed u/s. 143(3) by issue of notice u/s. 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 AO to assess the income u/s. 143(3) of the Act and the return filed by the assessee u/s. 139 is deemed to be accepted, which however, can be re-opened u/s. 147 of the Act subject to the fulfillment of ingredients of section 147 and within the time period as prescribed u/s. 149 of the Act, as discussed in the preceding para. So under such circumstances if the return is processed u/s. 143(1) and not u/s. 143(3) and after the prescribed period of limitation, the same cannot be assessed u/s. 143(3) though it may be interpreted as mere intimation assessment or otherwise, but the same shall be deemed to be accepted by the AO and it will not have any different colour other than the return which is processed u/s. 143(3) of the Act. The only distinguishing feature as held by the Hon'ble Supreme Court in the case of "Rajesh Jhaveri Stock Brokers P. Ltd." (supra), would be that if to a set of facts and circumstances, the AO has applied his mind and he was of the belief that there was no escapement of income then for invoking the provisions of section 147 of the Act, he is precluded, on the basis of same facts and circumstances, to say that he has reason to believe that income of the assessee has escaped assessment. Whereas in case of returns processed u/s. 143(1), since the AO does not apply his mind, such a defense is not available to the assessee. However, that proposition of law does not help the revenue in the present case which is a case of assessment/re-assessment u/s. 153A of the Act.
11. Admittedly, in the case in hand, the return was processed u/s. 143(1) of the Act but the same has attained finality due to the expiry of limitation period of twelve months from the end of the month in which the return was filed.
Hence, the assessment is deemed to be completed and not pending on the date of search on 14.08.2008. Admittedly, no incriminating material was found from the premises of the assessee during the search u/s. 132 of the Act. The Special Bench of the Tribunal in the case of "All Cargo Global Logistics Ltd." (supra), has held that assessment u/s. 153A can be made on the basis of incriminating material found during the search. The Hon'ble Rajasthan High Court in the case of "Jai Steel (India) v. ACIT" (2013) 259 CTR 281 has held that in case nothing incriminating is found on account of search or requisition, the question of reassessment of the concluded assessment does not arise.
Under such circumstances, it is not open to the assessee to seek deduction or claim expenditure which has not been claimed in the original and already concluded assessment, in the case of assessment u/s. 153A in pursuance of search action. Hon'ble High Court rejected the argument of the learned counsel for assessee to the effect that once the notice u/s. 153A is issued, the assessments for six years are at large both for the AO and the assessee. It has been further held by the Hon'ble High Court that the provisions of section 153A to 153C cannot be interpreted to be further innings to the AO and/or assessee beyond the provisions of section 139(return of income), 139(5) (revised return of income), 147 (income escaping assessment) and 263( revision of orders) of the Act. The Hon'ble High Court has further observed that the words "assess" or "re-assess" have been used at more than one place in the section and a harmonious construction of the entire provision would lead to an irresistible conclusion that the word 'assess' has been used in the context of abated proceedings and 'reassess' has been used for completed assessment proceedings, which would not abate as they are not pending on the date of initiation of the search or making of requisition and which would also necessarily support the interpretation that for the completed assessments, the same can be tinkered only on the basis of the incriminating material found during the course of search or requisition of documents. The Hon'ble High Court while reproducing the proposition of law laid down by the Hon'ble Supreme Court in the case of "K P Varghese v. ITO" (1981) 24 CTR 358 "that it is recognized rule of construction that a statutory proviso must be so construed, if possible, that absurdity and mischief may be avoided" has observed that if the argument of the counsel for the assessee was to be accepted, it would mean that even in case where the appeal arises out of the completed assessment has been decided by the CIT(A) or Tribunal and the High Court, on a notice issues u/s. 153A of the Act, the AO would have power to undo what has been concluded by the High Court. Any interpretation which leads to such conclusion has to be repelled and/or avoided as held by the Hon'ble Supreme Court in the case of K P Varghese (supra).
Almost similar proposition of law has been laid down by the co-ordinate Bench of the Tribunal in the case of "M/s Deepa Restaurant & Bar P. Ltd." in ITA No.1336/M/2012 decided on 05.02.2014 (one of us being the party of the said order) wherein, it has been observed that where the scrutiny assessment order u/s. 143(3) of the Act was set aside by the higher authorities that, itself, cannot be a ground for re-opening the assessment u/s. 147 of the Act on the plea that since scrutiny assessment has been annulled on the legality of notice u/s. 143(2) of the Act and the case has not been heard at any of the stage hence, there was a reason to believe that the income assessed in this case has escaped assessment. The co-ordinate Bench in the above said case has further held that such an action cannot be allowed under the law as it may amount to defeating one of the statutory provisions in the grab of acting under other provisions of the statute. Once assessment u/s. 143(3) had been annulled by higher authorities on the ground of legality of notice u/s. 143(2) of the Act, re-opening u/s. 147 on that very ground would mean nothing else but the abuse of process of law. Hence, the contention of the learned DR that as the return was processed u/s. 143(1) and it was a mere intimation hence, the AO had reason to believe that income had escaped assessment and it was open to the AO to re- assess the income u/s. 153A, even without any incriminating material found during the search action, is not tenable.
12. The learned DR has further relied on the judgment of the Hon'ble Andhra Pradesh High Court in the case of "Gopal Lal Badruka Vs. DCIT", 346 ITR 106 (AP) to stress the point that the AO can use evidence other than that found during the course of search while framing the assessment u/s. 153A of the Act. The said judgment of Hon'ble Andhra Pradesh High Court has been duly discussed by the Special Bench of the Tribunal in the case of "All Cargo Global Logistics Ltd." (supra), holding that the same was distinguishable on the facts. In the case of "Gopal Lal Badruka Vs. DCIT" (Supra), incriminating evidence was found in relation to eight plots of land but no evidence was found in respect of 24 plots. Since incriminating material was found in respect of eight plots, Hon'ble Court held that the AO can estimate the income in respect of all 32 plots. The fact was that incriminating material was found in that case.
The other judgment of the Hon'ble Delhi High Court in the case of "CIT vs. Chetan Dass Lachman Dass" [2012] 211 Taxmann 61, strongly relied upon by the learned DR, is also of no help to the revenue but to the assessee only. In the said case the Hon'ble Delhi High Court, in para 11 of the order, though has held that there is no condition in section153A that additions should be strictly made on the basis of evidence found during the course of search or other post search material or information available with the AO which can be related to the evidence found and that the seized material can be relied upon to also draw inference that there can be similar transactions throughout the relevant period, yet, at the same time it has been further observed that this however, does not mean that assessment u/s 153 A can be arbitrarily made without any relevance or nexus with the seized material.
The proposition of law which emerges out in the light of the law laid down by the Rajasthan High Court in the case of "Jai Steel (India) (supra)", Hon'ble Gujarat High Court in the case of "Gopal Lal Badruka" (supra) and also by the Hon'ble Delhi High Court in the case of "Chetan Dass lachman Dass" is that where incriminating material is found during the search action, the AO while making assessment u/s. 153A can take note of other materials on record, which are relevant and connected to the material found during the search and inference can be drawn relating to other transactions of similar nature. However, when no incriminating evidence is found during search, it is not open to the AO to make re-assessment of concluded assessment in the garb of invoking the provisions of section 153A. As observed above, such an action will defeat the other relevant provisions of the Act and also the rights of the assessee accrued therein."
9. We agree with the view taken by the co-ordinate bench of the Tribunal in the case of 'Shri Jayendra P Jhaveri" (Supra) and also for the sake of consistency, following the above decision, reassessments made by the AO u/s 153A in the above cases in which the assessments have already been 10 concluded, without any incriminating material being found during the search action conducted u/s 132 of the Act, are hereby set aside. Consequently the additions made by the AO in assessments proceedings u/s 153A do not survive and therefore ordered to be deleted.
10. In the result, the appeals filed by the assessee are allowed and the appeals filed by the revenue are hereby dismissed.
Order pronounced in the open court on 26.02.2014
Regards
Prarthana Jalan
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