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TMI Blog2018 (10) TMI 1495X X X X Extracts X X X X X X X X Extracts X X X X ..... s or things found or documents seized during the search which are not disclosed in the original assessment. The power given by the 1st proviso of section 153A of the Income Tax Act, 1961 to ‘assess’ income for six assessment years has to be confined to the undisclosed income unearthed during search and cannot include items which are disclosed in the original assessment proceedings. Items of regular assessment cannot be added back in the proceedings u/s 153A when no incriminating documents were found in respect of the disallowed amounts in the search proceedings. A search assessment under section 153A should be evidence based. - Decided in favour of assessee. - ITA No.787/Kol/2018 - - - Dated:- 12-9-2018 - Shri A.T. Varkey, JM And Dr. A.L. Saini, AM For the Appellant : Shri S.K.Tulsiyan, Advocate For the Respondent : Shri P.K.Srihari, CIT(DR) ORDER PER DR. ARJUN LAL SAINI, AM: The captioned appeal filed by the assessee, pertaining to assessment year 2009-10, is directed against the order passed by the ld. Principal Commissioner of Income Tax- Central-I, Kolkata, under section 263 of the Income Tax Act, 1961 (hereinafter referred to as the Act ) dated 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord is a subject matter of rectification u/s.154 of the Act. 7. That, therefore, as the assessment order passed by the A.O. u/s.153A/143(3) of the Act is neither erroneous nor prejudicial to the interest of the revenue as there is no loss of revenue, the impugned order u/s.263 of the Act of the Ld. Pr. CIT directing to reframe the assessment as per his guidelines on the same set of facts and evidence on record being devoid of any merit and bad in law is liable to be quashed and the assessee be given such relief(s) as prayed for. 8. That, the assessee craves leave to amend, alter, modify, substitute, add to, abridge and/ or rescind any, or all of the above grounds. 3. The brief facts qua the issue are that the assessee is a company, which incorporated as per the provisions the Companies Act, 1956 and derived income from business in the financial year 2008-09. The assessee company filed its original return of income for the A.Y.2009-10, on 25.09.2009 declaring a total income to the tune of ₹ 2,73,217/-. Later on, the assessee company revised its return of income on 10.06.2010, declaring total income of ₹ 36,23,652/-. Thereafter, an assessment order under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lent in ordinary course of business of banking or money lending, which is carried on by the assessee. Considering this provision, the following balances written off by assessee in the Profit Loss account had been examined by the Pr.CIT from the details available in assessment record :- The ld Pr.CIT noted that from the assessment record it is proved that assessee company is in the business of transportation and hence, assessee company is not in the business of money lending and above mentioned balances are not considered in computation of income of earlier years or this year, therefore, such write off of balances cannot be allowed to the assessee company. Moreover, in the case of following write off, there is no specification apparently available in the assessment record. Sl.No. Nature Amount (in Rs.) 1. Non recoverable parts of sundry balance written off (nature not specified) 4,200 2. Non recoverable parts of sundry balance written off (nature not clear) 1,27,033.95 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of section 153A of the Act is limited to the assessment of income based on the income unearthed during search and cannot include items which are disclosed in the original assessment proceedings. Items of regular assessment under section 143(3), cannot be added back in the proceedings under section 153A, when no incriminating documents were found in respect of the disallowed amounts in the search proceedings. Therefore, the assessee company submitted before the ld Pr.CIT that the assessment order passed by the A.O u/s 153A/143(3) of the Income Tax Act, 1961, is neither erroneous nor prejudicial to the interest of revenue and hence the proceedings under section 263 of the Act should not be initiated. 11 However, totally disregarding the submissions of the assessee, based on the said show cause notice, the Ld. Pr. CIT, passed the order u/s 263 of the Act on 26.03.2018, holding the assessment order u/s 153A/143(3) of the Act dated 31.03.2016 (for unabated assessment year 2009-10) is erroneous and prejudicial to the interests of the revenue and setting aside the same for de novo assessment as per directions/guidelines enumerated in his order. The ld Pr. CIT rejected the contenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 4,200), nature of sundry balances written off , were not specified by the assessee, therefore, these sundry balances written off should also be examined. While examining the nature of the debit balances written off by the assessee for which narrations are given as loan and advances written off as mention above, the A.O should determine whether these balances written off are in the nature of balances used in computation of income of the assessee in earlier years or they have arisen out of loan and advances given by the assessee. If these debit balances written off are taken into account in computing the income of the assessee of the current previous year in which the amount of such debt or part thereof is written off or of an earlier previous year this writing off of such balances should be allowed by the AO, otherwise if these debt balances written off , are found to be on account of loan or advances given by the assessee, write off of such loan and advances should not be allowed as the assessee is not in the business of banking. After examination of all the details pertaining to debt balances written off with narration loan and advances written off in the manner as dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09.03.2016, was issued by the Ld. Principal CIT, Central-1, Kolkata, on the following grounds: (1) That the assessee s claim of debit write off to the tune of ₹ 58,63,145/- is not allowable as the balances were not offered to tax in earlier years. In this regard, the Ld. Principal CIT observed that out of an amount of ₹ 83,14,966/- debited on account of sundry balance written off (net) an amount of ₹ 72,31,592/- represents capital balances written off, out of which an amount of ₹ 13,68,447/- was already disallowed by the AO in the assessment order passed u/s 153A/143(3) of the Act dated 31.03.2016. Therefore, the balance claim of debit write off amounting to ₹ 58,63,145/- (i.e. ₹ 72,31,592 - ₹ 13,68,447) being allowed by the Ld. AO while passing the assessment order u/s 153A/143(3) of the Income Tax Act, 1961 on 31.03.2016, has resulted the said assessment order being erroneous in so far as it is prejudicial to the interests of the revenue. (2) That the nature of the assessee s claim of sundry debtors written off to the tune of ₹ 1,31,233/- not being clear, the Ld. AO wrongly allowed the deduction for the amount of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... criminating materials or documents were unearthed by the search and seizure team. Therefore, in the case of unabated assessment the addition cannot be made unless there is any incriminating materials or documents which were unearthed during search and for that ld Counsel relied on the judgment of the Hon`ble Jurisdictional Calcutta High Court in the case of CIT vs. Veerparabhu Marketing Ltd. (2016) 388 ITR 574 (Cal), wherein it was held that The existence of incriminating material in the seized material is a pre-requisite before exercising power u/s 153C r.w.s 153A of the Income Tax Act, 1961. The ld Counsel also relied on the judgment of the Hon`ble Delhi High Court in the case of CIT vs. Kabul Chawla (2015) 380 ITR 573 (Del), wherein it was held 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 requisition 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. On the basis of above arg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, assessment order passed by the A.O u/s 153A/143(3) of the Income Tax Act, 1961, is erroneous and prejudicial to the interest of revenue. 18. As regard, third ground, the ld DR for the Revenue, submitted that the amount of ₹ 10 lakh, was disallowed in the original assessment order u/s 143(3) dated 27.12.2011. However, the said amount of ₹ 10 lakh, had not been disallowed by the assessing officer while making assessment order under section 153A/143(3), dated 31.03.2016. Therefore, there is a loss to the revenue and hence the order passed by the assessing officer under section 153A/143(3), dated 31.03.2016, is erroneous and prejudicial to the interest of revenue. The ld DR further pointed out that it is immaterial whether for mistake apparent from the record, rectification is done u/s 154 or the order is revised u/s 263. The main purpose of these provisions is to safeguard the interest of revenue by making necessary correction in the assessment passed by the AO. As this mistake is admittedly correct, therefore, the AO was rightly directed by the Pr.CIT, to add the amount of ₹ 10 lakh in the fresh assessment order being passed by him, under section 153A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of revenue. We note that assessee company filed its original return of income on 25/09/2009, declaring a total income of ₹ 2,73,270/-. Subsequently, the return was revised by the assessee on 10/06/2010 declaring a total income of ₹ 36,23.652/-. Thereafter, assessment order u/s. 143(3) of the Act was passed vide order dated 27/12/2011 showing assessee company income to the tune of ₹ 49,59,590/-. Subsequently, a search seizure operation was conducted at different locations of the assessee company on 13/03/2014. Subsequent to search and seizure operation, assessee company filed its return of income on 30/05/2015 declaring the total income of ₹ 36,23,652/- as shown in the revised return filed subsequent to original return of income. Assessment u/s.143(3)/153A was completed on 31/03/2016 by the AO assessing the total income at ₹ 52,63,710/-. The ld Pr.CIT exercised his jurisdiction under section 263 of the Act to revise the assessment order passed by the assessing officer, u/s.143(3)/153A of the Act, which was passed by the AO after search and seizure action on dated 13.03.2014. 20. We note that in the assessee`s case under consideration, the ld Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) the order of the Assessing Officer sought to be revised is prejudicial to the interests of the Revenue. Therefore, it stands clear that recourse to Section 263(1) of the Income Tax Act, 1961 cannot be taken by the Principal Commissioner if either of the above conditions are not satisfied, i.e. if the impugned assessment order is erroneous but not prejudicial to the interest of the revenue, or if the impugned assessment order is prejudicial to the interest of the revenue but not erroneous. For that, let us take the guidance of judicial precedence laid down by the Hon ble Apex Court in the case of Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the CIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer s order was passed on incorrect assumption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is is a settled position of law and is no longer res integra. The following judgments are given in support of the above proposition of law:- The Hon ble Delhi High Court in Kabul Chawla (supra) has laid down the law which spells out the power of the AO while exercising power u/s 153A after search u/s 132 of the Act was conducted by the Revenue. The same is reproduced as under: Summary of legal position 37.On a conspectus of Section 153A(1) of the Act, read with provisions 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 re-assessments 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25. In view of the aforesaid ratio decidendi of the Hon ble High Court as well as Hon ble Supreme Court s decisions cited above, since assessment for Assessment Year 2009-10 was not pending before the Assessing Officer on the date of search i.e. on 13.03.2014, no addition can be made by the Assessing Officer without the aid of incriminating material unearthed during the search conducted on 13.03.2014. Therefore, we have to examine whether there was any incriminating materials unearthed by the Department during search conducted on 13.03.2014. We have gone through the assessment order of Assessing Officer in all the counts before us and we find that the Assessing Officer has not made a whisper of any incriminating material which has been unearthed/seized during the search on 13.03.2014. The Assessing Officer having no incriminating materials unearthed during the search on 13.03.2014 against the assessee company, did not make any additions (with the aid of any incriminating material) against the assesses, before us, for Assessment Year 2009-10. We note that in the assessee`s case under consideration the information and documentary evidence about the amount of ₹ 72,31,592/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer has not made any additions in his assessment order dated 31.03.2016, based on incriminating material since there was none unearthed. We take note that it is not the case of ld. Principal CIT that AO failed to made any additions/disallowances based on incriminating material seized/unearthed during search. On this finding of fact by us, we cannot term the assessment order passed by the AO u/s 153A/143(3) dated 31.03.2016 as erroneous. It is important here to note that revision u/s 263 of the Income Tax Act, 1961 has to be made within well-defined limits subject to satisfaction of preconditions, as explained by us above, and therefore, similar limitation may have to be read in the instant provision. In relation to the years whose assessment is completed, it is laid down by law that in such situations of completed assessment, assessment u/s 153A of the Income Tax Act, 1961 however shall be to the extent of undisclosed income which is found during the course of search with reference to the valuable articles or things found or documents seized during the search which are not disclosed in the original assessment. The power given by the 1st proviso of section 153A of the Income Tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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