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TMI Blog2019 (2) TMI 1053X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment u/s 153A of the Act without bringing any incriminating material found during the course of search and seizure operation u/s 132 of the Act. 3. Facts on record show that a search operation was conducted at the premises of the assessee on 21.01.2011. Original return of income was filed on 21.11.2006 and the assessment was framed u/s 143(3) of the Act vide order dated 13.05.2008. This means that the assessment was completed on the date of search. This means that a completed assessment can be reopened u/s 153A of the Act and assessment can be framed if, and only if, some incriminating material is found during the course of search operation. The law is well-settled on this point by the decision of the Hon'ble Jurisdictional High Court in the case of Kabul Chawla 281 CTR 0045 [Del] which was followed in the case of Meeta Gutgutia 82 Taxmann.com 287. 4. Let us now consider the documents seized during the course of search and let us find out whether the same can be considered as incriminating material, enabling the Assessing Officer to proceed u/s 153A of the Act. 5. During the course of search operations, several sale deeds were seized which related to the purchases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the basis of the very same sale deeds, the Assessing Officer came to the conclusion that an amount of Rs. 1.05 crores has been paid to various persons in cash. In our considered opinion, the sale deeds, transactions when duly recorded in the regular books of account, cannot be considered as incriminating material found during the course of search operation. It is not the case of the Revenue that if the search and seizure operation had not been conducted, the Revenue could never have come to know that the assessee has entered into various purchase transactions of land. 9. The ld. DR vehemently stated that though the deeds were before the Assessing Officer, but he examined the deeds only to ascertain the circle rate vis a vis the transaction rate and never went into the cash transactions reflected in the land deed. This contention of the ld. DR is not acceptable. Once a document is filed before the Assessing Officer during the course of search proceedings it is assumed that he has gone through the contents of those documents and has verified the same. It may be that the assessment framed u/s 143(3) of the Act is silent on this aspect but as held by the Hon'ble Gujarat High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght to tax". (iv) 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." (v) 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. (vi) 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 basis of the findings of the search and any other material existing or brought on the record of the AO. (vii) Completed assessments can be interfered with by the AO while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t any defect in the said transactions. It is the say of the ld. counsel for the assessee that the Assessing Officer has neither doubted the genuineness of the transaction nor he has doubted the identity of the payees. Therefore, mechanical invocation of provisions of section 40A(3) of the Act is uncalled for and the additions should be deleted. 20. Per contra, the ld. DR strongly supported the findings of the Revenue authorities. It is the say of the ld. DR that application of section 40A(3) is mandatory and if there is a violation of the said provision, then, the Assessing Officer is bound to make additions as per law. 21. We have given thoughtful consideration to the orders of the authorities below. There is no dispute that the purchases of land are duly recorded in the books of account of the assessee. There is also no dispute that the payees were identified from the sale deeds itself and the transactions have been held to be genuine. In our understanding, since the genuineness of the payments and identity of the payees is not doubted by the Revenue, the provisions of section 40A(3) of the Act could not be made mechanically. In our considered opinion, the intention behind intr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of section 40A(3) and rule 6DD that they are intended to regulate business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions. " CIT vs CPL Tannery reported in (2009) 318ITR 179 (Cal) The second contention of the assessee that owing to business expediency, obligation and exigency, the assessee had to make cash payment for purchase of goods so essential for carrying on of his business, was also not disputed by the AO. The genuinity of transactions, rate of gross profit or the fact that the bonafide of the assessee that payments are made to producers of hides and skin are also neither doubted nor disputed by the AO. On the basis of these facts it is not justified on the part of the AO to disallow 20% of the payments made u/s 40A(3) in the process of assessment. We, therefore, delete the addition of Rs. 17,90,571/- and ground no.l is decided in favour of the assessee. CIT vs Crescent Export Syndicate in ITA No. 202 of 2008 dated 30.7.2008 - Jurisdictional High Court decision "It also appears that the purchases have been held to be genuine by the learned CIT(Appeal) but the learned CIT(Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certificate in support of this - Whether since assessee had placed proof of payment of consideration for its transaction to seller, and later admitted payment and there was no doubt about genuineness of payment, no disallowance could be made under section 40A(3) - Held, yes [ Para 23] [In favour of the assessee]" CIT vs Smt. Shelly Pas si reported in (2013) 350ITR 227 (P&H) In this case the court upheld the view of the tribunal in not applying section 40A(3) of the Act to the cash payments when ultimately, such amounts were deposited in the bank by the payee." 24. From the afore stated judicial decisions, it can be found that the primary object of enacting section 40A(3) of the Act was two-fold - firstly, putting a check on trading transactions with a mind to evade the liability of tax on income earned out of such transaction, and secondly, to inculcate the banking habits amongst the business community. In our understanding, this provision was directly related to curb evasion of tax and inculcating banking habits. Therefore, once the genuineness of the transaction is accepted and the payees are identified, then the intention of inserting the provisions of section 40A(3) of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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