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TMI Blog2015 (9) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 . Although Section 153 A 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 under this Section only on the basis of seized material. In 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 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... group. As on the date of the search, no assessment proceedings were pending for AYs 2002-03, 2005-06 and 2006-07. For the said AYs, assessments had already been made under Section 143(1) of the Act. 4. Pursuant to the search a notice under Section 153A (1) of the Act was issued to the Assessee on 3rd September 2008. Pursuant to the said notice, the Assessee filed returns for the three AYs on 19th January 2009. For AY 2002-03, the Assessee declared a total income of ₹ 12,42,740. The assessment was finally completed by the Assessing Officer (AO) on the total income of ₹ 68,31,740 which, inter alia, included an addition of ₹ 50 lakhs on account of a gift received by the Assessee from Mrs. Gianna Fissore, ₹ 2 lakhs on account of low house withdrawals and ₹ 37,162 on account of deemed dividend under Section 2 (22) (e) of the Act. For AY 2005-06, the income was assessed at ₹ 82,51,126 which, inter alia, included an addition of ₹ 2 lakhs on account of low house withdrawals and ₹ 62,70,496 on account of deemed dividend under Section 2 (22) (e) of the Act corresponding to the additions made on protective basis in the hands of Business Park ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d advanced them loans. The AO had rejected the contention of the Assessee herein that he himself had not received any sum by way of dividend and that the advance had been received by the sister concerns of the group during the normal course of business. 8. The CIT (A) noted that the Assessee was a beneficiary/owner having more than 10% of the voting rights in both STPPL and PPDPL as well as the company from which the loan was received. The undisputed facts were that some other sister concerns of the BPTP Group had made advances to the said companies. All the concerns involved in the transaction were companies where the public was not substantially interested. The CIT (A) referred to the decision in CIT v. Ankitech Pvt. Ltd. (2011) 11 Taxmann. Com 100 (Del) and held that giving such loans or advances to the sister concerns was with the ultimate aim of making the money available to the shareholders of such sister concerns. In the present case since the loans and advances were given by one group company to other group company where the Assessee had shares constituting more than 10% of voting rights, such loans and advances were to be assessed in the hands of the Assessee as deemed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e additions made for AYs 2007-2008 and 2008-2009 were sustained by the same impugned order of the ITAT. The present appeals do not pertain to the said two AYs. Submissions of counsel 11. The submission of Ms. Suruchi Aggarwal, learned Senior Standing Counsel for the Revenue, is that there is no mention in Section 153A of the Act that any incriminating material had to be found during the search in order that an assessment could be framed in terms of the first proviso to Section 153A(1) of the Act for those AYs where the assessment already stood completed on the date of the search. Referring the judgement of this Court in Madugula Venu v. Director of Income Tax [2013] 29 Taxmann.Com 200 (Delhi), she submitted that in terms of Section 153A(1) of the Act it was mandatory for the AO to issue a notice to the searched person once a search took place whether or not any incriminating material was found. The logical corollary of this was that irrespective of whether any such incriminating material was found the search, since notice had been issued under Section 153A(1)(a) of the Act, the returns for the six preceding years had to mandatorily be filed by the Assessee and the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onclusion on the documents and evidence already available at the time of finalisation of the earlier assessment, then it would be only a change of opinion which in any event would be unsustainable in terms of Section 147 of the Act. In other words even if the AO could have sought to reopen the assessment under Section 147 of the Act his satisfaction would have to be based on some tangible material. He submitted that in the facts and circumstances of the case the AO could not have made an addition even if he had recourse to Section 147 of the Act since there existed no material for the reasonable belief that any income had escaped assessment . The decision in Anil Kumar Bhatia 15. At the outset this Court would like to observe that an analysis of the provisions of Section 153A of the Act has been undertaken by this Court in the decision in CIT v. Anil Kumar Bhatia (supra), which decision was given on the same date that the Court rendered another decision in CIT v. Chetan Das Lachman Das (supra). However, in neither case was the Court considering a situation where there was absolutely no material unearthed during the search, much less any incriminating material. 16. In C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x years in separate assessment orders for each of the six years. This meant that there could 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 . 18. This Court in CIT v. Anil Kumar Bhatia (supra) posed the question as under: 21. A question may arise as to how this is sought to be achieved 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. For this purpose, the fetters imposed upon the Assessing Officer by the strict procedure to assume jurisdiction to reopen the assessment under Sections 147 and 148, have been removed by the non obstante clause with which sub section (1) of Section 153A opens. 19. The Court then explained that the concept of time-limit for completion of assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate as it rendered the above decision, this Court also pronounced its decision in CIT v. Chetan Das Lachman Das (supra). In the latter case, again, a search was undertaken in the Assessee‟s premises under Section 132 of the Act on 13th December, 2005. The decision itself notes: in the course of the search certain documents were found which according to the Assessing Officer suggested gross under invoicing of sales and suppression of production/ yield of Hing. Consequently that was again not a case where there was no material unearthed during the search. The judgement also notes that it is on the basis of the material unearthed that the AO made additions of suppressed sale value of Hing and compound Hing. The High Court interfered with the order of the ITAT on the ground that it had failed to examine the seized material itself to find out if the findings of the CIT(A) were justified. Consequently the decision in CIT v. Chetan Das Lachman Das (supra) does not deal with the fact situation that arises in the present case. 23. Nevertheless it is interesting to note that in CIT v. Chetan Das Lachman Das (supra) the Court underscored the need for to Department to have unearthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome tax authorities or to rebut the material gathered during the search, it is perfectly open to him to do so. One observation in the said judgement is, however, important. While explaining Section 153A of the Act, the Court observed it is not merely the undisclosed income that will be brought to tax in such assessments, but the total income of the assessee, including both the income earlier disclosed and income found consequent to the search, would be brought to tax. The Court, however, did not answer the question of whether a finding of undisclosed income would have to be based on some material unearthed during the search. The decision in Canara Housing 25. The Court would also like to refer to a judgement of the Karnataka High Court dated 25th July, 2014 in ITA No.38/2014 (M/s. Canara Housing Development Company v. The DCIT). There the Assessee, which was carrying on real estate business filed its return for AY 2008-2009. His case was taken up under Section 143(3) of the Act and an order came to be passed on 31st December, 2010. Subsequently a search took place in the premises of the Assessee under Section 132 of the Act on 12th April, 2011. The judgement notes in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er observed that in the facts of that case if the CIT had come across any income that the AO had not taken note of while passing the earlier order, the said material can be furnished to the assessing authority who will take note of it while determining total income. The decision in Filatex India Ltd. 28. In Filatex India Ltd. v. CIT-IV (supra), one of the questions framed was whether the ITAT 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 under Section 153A of the Act was without jurisdiction, being outside the scope of proceedings under that Section? The facts of the case were that there was incriminating material found during the course of search conducted in the premises of the Assessee on 18th January, 2006 and subsequent dates. This included a statement of the General Manager (Marketing). On the basis of the said material and statement additions were made to the disclosed income under Section 115 JB although no material was found specific to such addition. The Court held that under Section 153A the additions need not be restricted or limited to the incriminating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section only on the basis of seized material.... 31. What distinguishes the decisions both in CIT v. Chetan Das Lachman Das (supra) and Filatex India Ltd. v. CIT-IV (supra) in their application to the present case is that in both the said cases there was some material unearthed during the search, whereas in the present case there admittedly was none. Secondly, it is plain from a careful reading of the said two decisions that they do not hold that additions can be validly made to income forming the subject matter of completed assessments prior to the search even if no incriminating material whatsoever was unearthed during the search. 32. Recently by its order dated 6th July 2015 in ITA No. 369 of 2015 (Pr. Commissioner of Income Tax v. Kurele Paper Mills P. Ltd.), this Court declined to frame a question of law in a case where, in the absence of any incriminating material being found during the search under Section 132 of the Act, the Revenue sought to justify initiation of proceedings under Section 153A of the Act and make an addition under Section 68 of the Act on bogus share capital gain. The order of the CIT(A), affirmed by the ITAT, deleting the addition, was not interf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bated 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 based on the incriminating material found during the course of search or requisition of documents. The decision in Continental Warehousing 35. In Commissioner of Income Tax v. Continental Warehousing Corporation (Nhava Sheva) Ltd. [2015] 58 Taxmann.Com 78 (Bom) the question addressed by the Bombay High Court was whether the scope of assessment under Section 153A encompasses additions, not based on any incriminating material found during the course of search? It was held that no addition could be made in respect of the assessments that had become final in the event no incriminating material was found during search. The Bombay High Court relied on the earlier decision in CIT v. M/s. Murli Agro Products Ltd. (supra) and discussed the scope and ambit of the proceedings for assessment and reassessment of total income under Section 153A (1) of the Act and the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tely; 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 assessment, and (ii) undisclosed income or property discovered in the course of search. Summary of the legal position 37. 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 aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the 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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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