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TMI Blog2019 (4) TMI 1736X X X X Extracts X X X X X X X X Extracts X X X X ..... t propose to go into the merits of the addition made by the AO under section 2(22)(e). Addition made u/s 2(22)(e) - AY 2016-17- HELD THAT:- While considering the identical issue in case of Smt. Reema Harish Bhatia (supra), we have held that the amount given by the company was not for trading or business purposes of the said company but this amount was given to the assessee for making the investment in the shares of the company though the said investment was required for taking the loan from the bank. It was the duty of the promoters as a shareholder of the said company to infuse more capital in the said company, therefore the fund of the said company used by the assessee is nothing but the loan/advance in terms of section 2(22)(e). Since the facts as well as the issue is identical, therefore, in view of our finding in case of Smt. Reema Harish Bhatia(supra), we do not find any error or illegality in the order of ld. CIT (A) qua this issue. - ITA No. 593 & 594/JP/2018 Assessment Years : 2013-14 & 16-17 - - - Dated:- 25-4-2019 - Shri Vijay Pal Rao, JM And Shri Vikram Singh Yadav, AM Assessee by : Shri P.C. Parwal (CA) Revenue by : Shri B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss or reassess the total income of these years notwithstanding anything contained in section 139, 147 and other related sections. Thus, the assessment u/s 153A are not de novo assessments since the purpose of making the reassessments under section 153A is subject to tax, the hitherto undisclosed income unearthed during the course of the search. It is for this reason that the second proviso to section 153A(1) provides only for the abatement of the pending assessments. This is done to ensure that the regular assessment proceedings under the normal provisions and the assessment proceedings under section 153A are not conducted simultaneously since that would result in redundancy. Therefore, already completed assessments do not abate and they shall hold the field. It can be interfered by the AO while making the assessment u/s 153A only if some incriminating material is unearthed during the course of search or requisition of documents or undisclosed income or property is declared in the course of search which were not produced or not already disclosed or made known in the course of original assessment. The issuance of notices under section 153A(1) for all the six assessment years does no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of section 153A(1) would be redundant which cannot be the intention of the legislature. Therefore, the ld. D/R has submitted that the provisions of section 153A do not require any incriminating material for assessment or reassessment of income. Similarly, when no scrutiny assessment under section 143(3)/144 of the Act was made then the AO is duty bound to assess the total income of the assessee whether it is based on incriminating material found during the course of search or on the basis of information available on record or comes to his notice during the assessment proceedings. In support of his contention, he has relied upon the decision of Hon ble Kerala High Court in case of CIT vs. St. Francis Clay D cor tiles, 70 taxmann.com 234 (Kerala) as well as in case of E.N. Gopakumar vs. CIT, 75 taxmann.com 215 (Kerala). The ld. D/R has submitted that the Hon ble High court has observed that neither under section 132 nor under section 153A, phraseology incriminating is used by Parliament, therefore, any material which was unearthed during search operations or any statement made during course of search by assessee is a valuable piece of evidence in order to invoke section 153A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. However, the reassessment of the income consequent to the search and seizure action depends upon the status of the assessment proceedings as on the date of search. If the assessment for a particular assessment year falling within six assessment years is pending as on the date of search, the same shall abate by virtue of the search and seizure action under section 132 of the IT Act and consequently the AO shall assess the income of the assessee under section 153A which will be considered as a regular assessment and not a reassessment. On the other hand, if the assessment was not pending as on the date of search then the AO has to reassess the income of the assessee depending upon the undisclosed income detected during the course of search and seizure. Therefore, the completed assessment can be disturbed by the AO while making the assessment under section 153A only if there is incriminating material found during the search disclosing undisclosed income of the assessee. Otherwise the income as declared by the assessee in the original return of income and accepted in the assessment under section 143(1) or 143(3) would be reaffirmed. In the case in hand undisputedly neither an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atement again resumed at 7.50 a.m. on 05/4/2013 we note that up to question No. 67 were recorded on 04/4/2013 and up to 1.00 a.m. on 05/4/2013 and thereafter the statement of the assessee was again resumed in the morning of 05/4/2013 and continued up to question No. 78. It is manifest from the statement recorded U/s 132(4) of the Act that repeated questions were asked about the genuineness of the loans taken by the assessee during the financial year 200910 relevant to the assessment year under consideration and the assessee has given the answer and stated that all these loans are genuine and taken through banking channel and the assessee also repaid these loans prior to the date of the search. These transactions are very much part of the regular books of account of the assessee. However, the search team again put question to the assessee as question No. 77 in which the assessee has stated that the assessee has checked the details of the loans from M/s Dipnarayan Vyapar Pvt. Ltd. for which the assessee received cash and the same was declared as undisclosed income for the year of the search. We find that prior to that the assessee was also asked question No. 34 to 36 and question No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee as they could not extract the statement which can be used against the assessee, therefore, question were continuously put to the assessee for two days and it is a matter of record that the assessee was grilled up to 1.00 a.m. on the night of 04/4/2013 and again restarted in the morning at 7.50 a.m. and the question No. 77 was again asked specifically regarding loan from M/s Dipnarayan Vyapar Pvt. Ltd. in reply to that the assessee has explained that after trying to remember for continuously for two days and hoping the cooperation from the department, he said that he received cash against the said loan which was declared as undisclosed income for the year of search. The Investigation Wing was still not satisfied with the statement of the assessee and again called the assessee for further investigation on 30/5/2013 and thereafter on 21/6/2013. The assessee was again put the question about the loan taken from M/s Dipnarayan Vyapar Pvt. Ltd., in reply, the assessee explained that on repeated instances of the investigation team and due to exhausted mind, the assessee given an incorrect reply to question No. 77 recorded U/s 132(4) of the Act on 05/4/2013 and again stated th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equent decision, the Hon ble Delhi High Court in the case of Pr.CIT Vs. Meeta Gutgutia (supra) has held in para 57 to 72 as under: 57. The question whether unearthing of incriminating material relating to any one of the AYs could justify the re-opening of the assessment for all the earlier AYs was considered both in Anil Kumar Bhatia (supra) and Chetan Das Lachman Das (supra). Incidentally, both these decisions were discussed threadbare in the decision of this Court in Kabul Chawla (supra). As far as Anil Kumar Bhatia (supra) was concerned, the Court in paragraph 24 of that decision noted that we are not concerned with a case where no incriminating material was found during the search conducted under Section 132 of the Act. We therefore express no opinion as to whether Section 153A can be invoked even under such situation . That question was, therefore, left open. As far as Chetan Das Lachman Das (supra) is concerned, in para 11 of the decision it was observed: 11. Section 153A (1) (b) provides for the assessment or reassessment of the total income of the six assessment years immediately preceding the assessment year relevant to the previous year in which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he course of search. It was held where undisclosed income or undisclosed property has been found as a consequence of the search, the same would also be taken into consideration while computing the total income under Section 153A of the Act. The Court then explained as under: 22. In the firm opinion of this Court from a plain reading of the provision along with the purpose and purport of the said provision, which is intricately linked with search and requisition under Sections 132 and 132A of the Act, it is apparent that: (a) the assessments or reassessments, which stand abated in terms of II proviso to Section 153A of the Act, the AO acts under his original jurisdiction, for which, assessments have to be made; (b) regarding other cases, the addition to the income that has already been assessed, the assessment will be made on the basis of incriminating material; and (c) in absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. 34. The argument of the Revenue that the AO was free to disturb income de hors the incriminating material while making assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made and assess or reassess the same. Since the assessment under section 153A of the Act is linked with search and requisition under sections 132 and 132A of the Act, it is evident that the object of the section is to bring to tax the undisclosed income which is found during the course of or pursuant to the search or requisition. However, instead of the earlier regime of block assessment whereby, it was only the undisclosed income of the block period that was assessed, section 153A of the Act seeks to assess the total income for the assessment year, which is clear from the first proviso thereto which provides that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years. The second proviso makes the intention of the Legislature clear as the same provides that assessment or reassessment, if any, relating to the six assessment years referred to in the sub-section pending on the date of initiation of search under section 132 or requisition under section 132A, as the case may be, shall abat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of Jai Steel (India) v. Asst. CIT (supra), the earlier assessment would have to be reiterated, in case where pending assessments have abated, the Assessing Officer can pass assessment orders for each of the six years determining the total income of the assessee which would include income declared in the returns, if any, furnished by the assessee as well as undisclosed income, if any, unearthed during the search or requisition. In case where a pending reassessment under section 147 of the Act has abated, needless to state that the scope and ambit of the assessment would include any order which the Assessing Officer could have passed under section 147 of the Act as well as under section 153A of the Act. ** ** ** 19. On behalf of the appellant, it has been contended that if any incriminating material is found, notwithstanding that in relation to the year under consideration, no incriminating material is found, it would be permissible to make additions and disallowance in respect of an the six assessment years. In the opinion of this court, the said contention does not merit acceptance, inasmuch as. the assessment in respect of each of the six ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment proceedings. 63. Even this Court has in Mahesh Kumar Gupta (supra) and Ram Avtar Verma (supra) followed the decision in Kabul Chawla (supra). The decision of this Court in Kurele Paper Mills (P.) Ltd. (supra) which was referred to in Kabul Chawla (supra) has been affirmed by the Supreme Court by the dismissal of the Revenue's SLP on 7th December, 2015. The decision in Dayawanti Gupta 64. That brings us to the decision in Smt. Dayawanti Gupta (supra). As rightly pointed out by Mr. Kaushik, learned counsel appearing for the Respondent, that there are several distinguishing features in that case which makes its ratio inapplicable to the facts of the present case. In the first place, the Assessees there were engaged in the business of Pan Masala and Gutkha etc. The answers given to questions posed to the Assessee in the course of search and survey proceedings in that case bring out the points of distinction. In the first place, it was stated that the statement recorded was under Section 132(4) and not under Section 133A. It was a statement by the Assessee himself. In response to question no. 7 whether all the purchases made by the family firms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven the additions made for AYs 2004-05 were subsequently deleted by the CIT (A), which order was affirmed by the ITAT. Even the Revenue has challenged only two of such deletions in ITA No. 306/2017. 68. In para 23 of the decision in Smt. Dayawanti Gupta (supra), it was observed as under: 23. This court is of opinion that the ITAT's findings do not reveal any fundamental error, calling for correction. The inferences drawn in respect of undeclared income were premised on the materials found as well as the statements recorded by the assessees. These additions therefore were not baseless. Given that the assessing authorities in such cases have to draw inferences, because of the nature of the materials - since they could be scanty (as one habitually concealing income or indulging in clandestine operations can hardly be expected to maintain meticulous books or records for long and in all probability be anxious to do away with such evidence at the shortest possibility) the element of guess work is to have some reasonable nexus with the statements recorded and documents seized. In tills case, the differences of opinion between the CIT (A) on the one hand and the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en in the case of CIT Vs. Kabul Chawla (supra) and specifically held that once the assessment has attained the finality i.e. is not pending then the same cannot be subject to tax in proceedings U/s 153A of the Act except some incriminating material are gathered in course of search or during the proceedings U/s 153A of the Act. The Hon ble Jurisdictional High court in the case of Jai Steel (India) Vs ACIT (supra) has also considered this issue in para 22 to 26 as under: 22. In the firm opinion of this Court from a plain reading of the provision along with the purpose and purport of the said provision, which is intricately linked with search and requisition under Sections 132 and 132A of the Act, it is apparent that: (a) the assessments or reassessments, which stand abated in terms of II proviso to Section 153A of the Act, the AO acts under his original jurisdiction, for which, assessments have to be made; (b) regarding other cases, the addition to the income that has already been assessed, the assessment will be made on the basis of incriminating material and (c) in absence of any incriminating material, the completed assessment can be reitera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 subsection (1) of Section 153A opens. The time-limit within which the notice under Section 148 can be issued, as provided in Section 149 has also been made inapplicable by the non obstante clause. Section 151 which requires sanction to be obtained by the Assessing Officer by issue of notice to reopen the assessment under Section 148 has also been excluded in a case covered by Section 153A. The time-limit prescribed for completion of an assessment or reassessment by Section 153 has also been done away with in a case covered by Section 153A. With all the stops having been pulled out, the Assessing Officer under Section 153A has been entrusted with the duty of bringing to tax the total income of an assessee whose case is covered by Section 153A, by even making reassessments without any fetters, if need be. 21. Now there can be cases where at the time when the search is initiated or requisition is made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and determine the total income of the assessee. Such determination in the orders passed under Section 153A would be similar to the orders passed in any reassessment, where the total income determined in the original assessment order and the income that escaped assessment are clubbed together and assessed as the total income. In such a case, to reiterate, there is no question of any abatement of the earlier proceedings for the simple reason that no proceedings for assessment or reassessment were pending since they had already culminated in assessment or reassessment orders when the search was initiated or the requisition was made. (Emphasis supplied) 24. The said judgment also in no uncertain terms holds that the reassessment of the total income of the completed assessments have to be made taking note of the undisclosed income, if any, unearthed during the search and the income that escaped assessments are required to be clubbed together with the total income determined in the original assessment and assessed as the total income. The observations made in the judgment contrasting the provisions of determination of undisclosed income under Chapter XIVB with deter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I have perused the order of the AO and submissions made in this regard. I have also gone through the various case laws cited by the AR. For the sake of convenience the legal ground is adjudicated 1st as it goes to the root of the matter. 7.2 In support of the additional ground taken/ contention raised detailed written submission are made wherein the appellant has challenged the legal validity of the addition made in the order framed u/s 143(3)/153A. It is submitted that such additions cannot be made as they are not relatable to any incriminating seized material found during the course of search. The appellant has cited following judgments in support of the contention taken: 1) Jay Steel limited vs. ACIT (88 DTR 1) [Raj HC] 2) Kabul Chawla vs. ACIT 380 ITR 573 (Del HC) 3) Continental warehousing Corporation 374 ITR 645 etc. 7.3 I have perused the order of the AO and submissions made in this regard. Perusal of assessment order passed u/s 143(3)/153A shows that all the additions made by the AO are not relatable to any seized material. I also find that for the A.Yr the assessment stood completed on the date of search. 7.4 The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs 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 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 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 proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be deleted. The legal ground taken by the appellant is thus allowed. The appellant succeeds on legal ground. In view of the above facts and circumstances as well as in the light of binding precedents as discussed in the forgoing paragraphs, we do not find any error or illegality in the impugned order of the ld. CIT(A) qua this issue. Accordingly, in view of binding precedents as well as the decision of this Tribunal, we hold that in the absence of any incriminating material the addition made by the AO under section 2(22)(e) is not sustainable in law. The same is liable to be deleted. Accordingly, in view of the facts and circumstances of the case and binding precedents, we hold that the addition made by the AO in the absence of any incriminating material is not sustainable in law. Therefore, the same is deleted. 5. Since we have decided the issue on the validity of the addition in favour of the assessee, therefore we do not propose to go into the merits of the addition made by the AO under section 2(22)(e) of the Act. ITA No. 594/JP/2018 Assessment Year : 2016-17 : 6. The issue of addition made under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of shareholders would come within the purview of s. 2(22)(e). 2.3.5. The law is clear that once the loan/advance has been given to the substantial shareholders, the same has to be treated as deemed dividend unless the same falls in exceptional circumstances as enumerated in the various case laws and CBDT circular. It may be mentioned that transaction made by the appellant does not fall in any way in to trade advance/commercial transactions described in CBDT in Circular No. 19/2017 dated 12 June 2017 and therefore, the said circular cannot help the appellant to take out the transaction from the ambit of the word advance in section 2(22)(e) of the Act. 2.3.6. Therefore, considering all the facts, the addition of ₹ 53,20,000/- made by the AO by treating the advance taken by the assessee from the company as deemed dividend is confirmed. The decisions relied upon by the assessee are not applicable in the facts of the present case as this is neither the amount given by the company for trading or business purposes of the said company but this amount was given to the assessee for making the investment in the shares of the company though the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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