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TMI Blog2021 (10) TMI 1100X X X X Extracts X X X X X X X X Extracts X X X X ..... is of incriminating material respectfully following the judgment of Hon'ble Supreme Court in the case of Meeta Gutgutia [ 2018 (7) TMI 569 - SC ORDER] and Kabul Chawla [ 2015 (9) TMI 80 - DELHI HIGH COURT] we do not find any infirmity in the order of learned CIT(A). Therefore, the appeals filed by the Revenue are dismissed. - I.T.(SS)A. No.253/Lkw/2020 And I.T.(SS)A. No.254/Lkw/2020 - - - Dated:- 20-10-2021 - Shri A. D. Jain, Vice President And Shri T. S. Kapoor, Accountant Member For the Appellant : Smt. Sheela Chopra, CIT, D.R. For the Respondent : Shri Rakesh Garg, Advocate ORDER PER T. S. KAPOOR, A.M. These two appeals have been filed by the Revenue against the separate orders of learned CIT(A), dated 03/06/2020 and 17/06/2020 respectively pertaining to assessment year 2014-15. The grounds of appeal taken by the Revenue are similar in both the appeals. Both the appeals were heard together therefore, for the sake of convenience a common and consolidated order is being passed. For the sake of completeness, the grounds taken by the Revenue in I.T.A. No.253/Lkw/2020 are reproduced below: 1. On facts and circumstances of the case and in law, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as akin to the expression 'bearing on the assessment of income' as appearing u/s 153C for asstt of other person based on material found during search. This expression has very wide connotation and envisages that such material should be in the nature of prima facie material only having live nexus to the belief of it having bearing on assessment of income and not in the nature of absolute incriminating evidence, which by itself could suggest/divulge the undisclosed income without any further act of investigation/examination. The detailed examination of such material for different asstt years finally representing undisclosed material or not, was the step envisaged only after the issue of notice u/s 153A for six asstt years. 6. On facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that after amendment u/s 153C w.e.f. 01.04.2005, it is the test of 'bearing on the assessment of income' only which needs to be applied in place of the test of 'presence of incriminating material' u/s 153A and the decision of apex court in Sinhgad Technical education society which was rendered for period prior to amendment w.e.f. 1/4/2005 is there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring on the asstt of income as provided u/s 153A/153C w.r.t bogus loans taken by assessee from such shell co. 10. On facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the statement of Santosh Choudhary recorded by DD1T Kolkata could not be termed as 'incriminating' on ground that statement recorded u/s 133A was not on oath without appreciating that in the asstt order it was clearly mentioned that the statements of other two persons i.e. Shri Virendra Keshri and Shri Shailendra Gupta CA were recorded on oath by the DDIT(lnv) u/s 131(1 A) in the capacity of the authorised officer u/s 132(1) in connection with the search in the fortuna group wherein they had admitted that M/s Anirudh Motor Finance P Ltd and M/s Techmech Developer P Ltd were merely paper Cos without actual economic activities, even though the no survey could be done as these Cos were found non-existent at the given addresses. In C/T Chennai vs Ajit S Kumar 93 Taxman.com 294(SC), the court in the context of section 158BB has also upheld the use of information collected in a survey in case of connected person carried along with search in other person for the purpose of maki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct to the order passed u/s 153A is without application of mind and hence the order passed u/s 153A is nonest and void ab initio and same may be quashed. However, during the course of hearing, Learned counsel for the assessee did not press the same and therefore, learned CIT, D.R. was asked to proceed with her arguments on the grounds of appeal. 3. Learned CIT, D.R. submitted that a search had taken place on 21/04/2016 on the Fortuna Group and whereby the cases of these assessees along with cases of other assessees were reopened u/s 153A and the Assessing Officer had made certain additions which the learned CIT(A) has deleted by holding that the assessments in these cases stood completed and therefore, the additions, if any, could have been made only on the basis of incriminating material. Learned CIT, D.R. in this respect submitted that while holding so, learned CIT(A) has not taken into account the judgment of Hon'ble jurisdiction High Court in the case of Raj Kumar Arora wherein the Hon'ble court has held that during proceedings u/s 153A, the Assessing Officer is all empowered to make addition or make reassessment, even without the incriminating material. It was submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same judgment of Anil Kumar Bhatia, Hon'ble Delhi High Court in the case of Kabul Chawla has clearly held that in the case of completed assessments, the additions can only be based on incriminating documents. It was further argued that Hon'ble Supreme Court in the case of Meeta Gutgutia has upheld the decision of Hon'ble Delhi High Court in the case of Meeta Gutgutia. Therefore, it was argued that there is no perverse finding in the order of learned CIT(A). As regards the ground, taken by the Revenue regarding non application of decision of Apex Court in the case of Singhad Technical Educational, it was submitted that the assessment in the present case has not been completed u/s 153C of the Act but has been completed u/s 153A therefore, such decision has no application to the facts of the present cases. As regards the argument of learned CIT, D.R. that unsupported entries appearing in the books of account can also fall into being incriminating, Learned counsel for the assessee submitted that the entries, which are recorded in the books of account, cannot be said to be incriminating. It was submitted that though the word incriminating has not been defined in the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d CIT, D.R. that Singhad Technical Education Society s case by Hon'ble Apex Court is applicable to the period prior to amendment in section 153C, we find that learned CIT(A) has not relied on the order of Apex Court in the case of Singhad Technical Education Society and this order relates to section 153C of the Act whereas the assessment, in these cases, has been made u/s 153A of the Act. As regards the argument of learned CIT, D.R. that the assessee had not discharged its onus under section 68, we find that learned CIT(A) has allowed relief to the assessee on the basis of a legal issue and has not gone into the merits of the case. As regards the arguments of learned CIT, D.R. that the decision in the case of Raj Kumar Arora, rendered by Hon'ble Allahabad High Court, was applicable, we find that such decision was based on the judgment in the case of Anil Kumar Bhatia, rendered by Hon'ble Delhi High Court and Hon'ble Delhi High Court in the case of Kabul Chawla has followed the judgment of Hon'ble Delhi High Court in the case of Anil Kumar Bhatia and has decided the issue in favour of assessee by holding that in case of completed assessments, the additions can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Santosh Chaudhary, whose statement was recorded during the survey proceedings. However Sliri Chaudhary denied having any role with regards to the maintenance of the Books of M/s Techmech Developers PvtLtd. The AO formed his belief on the basis of statement given in respect of the other two group companies which had no relation to M/s Techmech Developers Pvt Ltd. It is also pertinent to mention here that the statement was retracted subsequently. 11.3 The issue whether the AO can make addition on issued not based on the seized documents during the Search and Seizure operation u/s 132 in case of an assessment made u/s 153A has been a subject of plethora of litigations. This issue has been finally settled by the Hon'ble Apex Court in case of Principal Commissioner of Income-tax, Central IT, New Delhi v. Meeta Gutgutia, [2018] 96 taxmann.com 468 (SC). The Hon'ble Supreme Court has dismissed the SLP filed by the Revenue, against the judgement given by the Hon'ble Delhi High Court in case of Principal Commissioner of Income-tax, Central -2, New Delhi vs. Meeta Gutgutia [2017] 82 taxmann.com 287 (Delhi) with the following directions/Order:- 1. Delay condoned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the search took place. To repeat, there is no condition in this Section 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 Assessing Officer which can be related to the evidence found. This, however, does not mean that the assessment under Section 153A 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. 58. In Kabul Chawla (supra), the Court discussed the decision in Filatex India Ltd. v. CIT (supra) as well as the above two decisions and observed as under: 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the Court on the ground that it was not borne out from the scheme of the said provision which was in the context of search and/or requisition. The Court also explained the purport of the words assess and reassess , which have been found at more than one place in Section 153A of the Act as under: 26. The plea raised on behalf of the assessee that as the first proviso provides for assessment or reassessment of the total income in respect of each assessment year falling within the six assessment years, is merely reading the said provision in isolation and not in the context of the entire section. The words 'assess' or 'reassess'-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 an 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 based o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssess' 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 making the assessment under Section 153 A 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. 61. It appears that a number of High Courts have concurred with the decision of this Court in Kabul Chawla (supra) beginning with the Gujarat High Court in Principal Commissioner of Income Tax v. Saumya Construction Pvt. Ltd. (supra). There, a search and seizure operation was carried out on 7t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y proceeding or any order of assessment or reassessment made under sub-section (1) is annulled in appeal or any other legal provision, then the assessment or reassessment relating to any assessment year which had abated under the second proviso would stand revived. The proviso thereto says that such revival shall cease to have effect if such order of annulment is set aside. Thus, any proceeding of assessment or reassessment falling within the six assessment years prior to the search or requisition stands abated and the total income of the assessee is required to be determined under section 153A of the Act. Similarly, sub- section (2) provides for revival of any assessment or reassessment which stood abated, if any proceeding or any order of assessment or reassessment made under section 153A of the Act is annulled in appeal or any other proceeding. 16. Section 153A bears the heading Assessment in case of search or requisition . It is well settled as held by the Supreme Court in a catena of decisions that the heading or the Section can be regarded as a key to the interpretation of the operative portion of the section and if there is no ambiguity in the language or if it is pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act, assessment has to be made in relation to the search or requisition, namely, in relation to material disclosed during the search or requisition. If in relation to any assessment year, no incriminating material is found, no addition or disallowance can be made in relation to that assessment year in exercise of powers under section 153A of the Act and the earlier assessment shall have to be reiterated. In this regard, this court is in complete agreement with the view adopted by the Rajasthan High Court in the case of Jai Steel (India) v. Asst. CIT (supra). Besides, as rightly pointed out by the learned counsel for the respondent, the controversy involved in the present case stands concluded by the decision of this court In the case of CIT v. Jayaben Ratilal Sorathia (supra) wherein it has been held that while it cannot be disputed that considering section 153A of the Act, the Assessing Officer can reopen and/or assess the return with respect to six preceding years ; however, there must be some incriminating material available with the Assessing Officer with respect to the sale transactions in the particular assessment year. 62. Subsequently, in Principal Commissioner of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether all the purchases made by the family firms, were entered in the regular books of account, the answer was: We and our family firms namely M/s Assam Supari Traders and M/s Balaji Perfumes generally try to record the transactions made in respect of purchase, manufacturing and sales in our regular books of accounts but it is also fact that some time due to some factors like inability of accountant, our busy schedule and some family problems, various purchases and sales of Supari, Gutka and other items dealt by our firms is not entered and shown in the regular books of accounts maintained by our firms. 65. Therefore, there was a clear admission by the Assessees in Dayawanti Gupta (supra) there that they were not maintaining regular books of accounts and the transactions were not recorded therein. 66. Further, in answer to Question No. 11, the Assessee in Dayawanti Gupta (supra) was confronted with certain documents seized during the search. The answer was categorical and reads thus: Ans:- I hereby admit that these papers also contend details of various transactions include purchase/ sales/ manufacturing trading of Gutkha, Supari made in cash outside Books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the other cannot be the sole basis for disagreeing with what is essentially a factual surmise that is logical and plausible. These findings do not call for interference. The second question of law is answered again in favour of the revenue and against the assessee. 69. What weighed with the Court in the above decision was the habitual concealing of income and indulging in clandestine operations and that a person indulging in such activities can hardly be accepted to maintain meticulous books or records for long. These factors are absent in the present case. There was no justification at all for the AO to proceed on surmises and estimates without there being any incriminating material qua the AY for which he sought to make additions of franchisee commission. 70. The above distinguishing factors in Dayawanti Gupta (supra), therefore, do not detract from the settled legal position in Kabul Chawla (supra) which has been followed not only by this Court in its subsequent decisions but also by several other High Courts. 71. For all of the aforementioned reasons, the Court is of the view that the ITAT was justified in holding that the invocation of Section 153A by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh 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. 11.6 It is evident from the above judicial pronouncements that any S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. 41. This distinction was noticed by this Court in CIT v. Dhingra Metal Works (supra). The Court there referred to the decision of the Kerala High Court in Paul Mathews Sons v. Commissioner of Income Tax (2003) 263 ITR 101 (Ker) and of the Madras High Court in CIT v. S. Khader Khan Son (supra) and observed that the word may‟ occurring in Section 133A(3)(iii) of the Act clarifies beyond doubt that the material collected and the statement recorded during the survey is not a conclusive piece of evidence by itself. Incidentally, the decision of the Madras High Court in CIT v. S. Khader Khan Son (supra) has been affirmed by the Supreme Court by the dismissal on 20th September, 2012 of SLP (Civil) No. 13224/2008 filed by the Revenue against the said decision after granting leave. To the same effect is the decision of this Court in CIT v. Sunrise Tooling System Pvt. Ltd (supra) and of the Jharkhand High Court in Shree Ganesh Trading Co. v. Commissioner of Income-Tax (supra). The CBDT‟s instructions dated 10th March, 2003 and 18th December, 2014 have also emphasized that there should be no recording of statement during search/seizure/other proceeding und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the jurisdictional Hon'ble Allahabad High Court in case of CIT vs Raj Kumar Arora 367 ITR 517 (Allahabad), has held that the AO has power to reassess returns of assessee not only for undisclosed income found during search operation but also with regard to material available at the time of original assessment by relying on the judgment of the Hon'ble Delhi High Court given in case of CIT v Anil Kumar Bhatia 211 Taxman 453. The above judgment given by the Hon'ble Delhi High Court in case of Anil Kumar Bhatia was considered in the landmark judgment given by the Hon'ble Delhi High Court in case of Commissioner of Incometax (Central)-III v. Kabul Chawla, [2015] 61 taxmann.com 412 (Delhi) with the following observations: 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 Anil Kumar Bhatia (supra), which decision was given on the same date that the Court rendered another decision in Chetan Das Lachman Das (supra). However, in neither case was the Court considering a situation where there was absolutely no material u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power to assess and reassess the 'total income' of the aforementioned six 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 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(l)(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 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .11 Thus, the above judgment given in case of Anil Kumar Bhatia (supra) is not applicable when there is no incriminating material. The above judgment given in case of Kabul Chawla (supra) has been followed subsequently by various Hon'ble High Courts of the Country and all of them have come to me conclusion that in case of unabated assessment, i.e. the assessment which was not pending as on the day of Search, no addition can be made in Search assessment without any incriminating materials found during Search. The other incriminating materials found subsequently or earlier but not during the Search and Seizure operation cannot be used in the Search assessment. Finally the Hon'ble Supreme Court has affirmed the above decisions of various Hon'ble High Courts in case of Meeta Gutgutia (supra), which relied heavily on the judgement given in case of Kabul Chawla(supra), by dismissing the SLP of the Revenue against the judgment given by the Hon'ble Delhi High Court in case of Meeta Gutgutia (supra) on merit. Thus, the judgment given by the Hon'ble Altahahad High Court in case of Raj Kumar Arora has now been overruled by the above judgement of the Hon'ble Apex Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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