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TMI Blog2023 (10) TMI 1383X X X X Extracts X X X X X X X X Extracts X X X X ..... e incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132A of the Act, 1961. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under Sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved. In view of the above detailed reasoned judgement rendered by the Hon'ble Supreme Court in Abhisar Buildwell P.Ltd. (supra), Question No. 1 raised before us, i.e., as to whether the AO was justified in passing the assessment orders u/s 143(3) and not u/s 153C of the Act is answered in the negative and Question No.2, as to whether the assessment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces of the case/s? (iii) Do the provisions of sections 153 A and 153C override section 143 (or sec. 144) of the Act, or are the same required to be read and applied in conjunction therewith in making an assessment thereunder? (iv) Would the initiation of proceedings u/s. 153A(l) r/w s. 153C, in the facts and circumstances of the case, including the absence of jurisdictional basis, be, on the contrary, without any basis in law? (v) Can the assessee, in any case, plead prejudice for non-invocation of the provision of s. 153 A( 1) r/w s. 153C, which is for the benefit of the Revenue? (vi) Would the impugned assessment/s, in any event, fail, i.e., given the law as to the assumption of jurisdiction as well as with regard to the interpretation of the statutes as explained by the Apex Court? (vii) Is the challenge to the impugned assessments on this ground/s of any consequence considering that the provisions of sections 153A and 153C are designed in a manner that one set of proceedings, validly initiated, would survive at any rate, i.e., with a view to ensure that the proceedings do not fail on that count? B. Adjustment on Quantum u/s. 68 (i) Is the law in the matter, i.e., section 68, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment proceedings, on 17.11.2015, a search was conducted on the premises of one Shri Tarachand Khatri, Director of both the assessee companies, whose office address is also the same. During the search, unsecured loan ledgers, bank statements, Promissory note, katcha vouchers and other documents relating to both the assessee companies were found and seized. On 19.11.2015, statement of Shri Tarachand Khatri was recorded. This included specific questions in relation to the loans received from M/s Little Star Securities Pvt. Ltd. Vide order dated 04.05.2016, the cases of both the companies were centralized u/s 127 of the Act, by the Pr. Commissioner, to the Central Circle, Jabalpur, alongwith the assessments in respect of the searched person, i.e., Shri Ghanshyam Khatri and Shri Tarachand Khatri. All the documents seized during the search were handed over to the Central Circle, Jabalpur by the Investigation Wing of the Department. Notice dated 23.12.2016 was issued u/s 142(1) of the Act, specifically relating to the borrowings made from M/s Little Star Securities Pvt. Ltd. Vide order dated 29.12.2016, regular assessment u/s 143(3) of the Act was completed. The Assessing Officer (in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earch, the AO was correct in ignoring the provisions of Section 153C of the Act and completing the assessment as a regular assessment under the provisions of Section 143(3), even when the assessment proceedings stood initiated through issuance of notice dated 03.09.2015, issued u/s 143(2) of the Act, whereas the search was conducted only thereafter, i.e., on 17.11.2015. 10. The ld. Counsel for the assessee has contended that the assessment proceedings u/s 143(3) of the Act are illegal in the face of the provisions of Sections 153A and 153C. 10.1 It has been contended that the search in this case was conducted only on 17.11.2015, whereas the notice u/s 143(2) of the Act stood already issued on 03.09.2015. 10.2 It has been contended that this search was conducted on the premises of the Chairman and Managing Director of both the assessee companies. 10.3 It has been contended that the assessment of both the assessees was centralized vide order dated 04.05.2016, issued by the ld. Pr. CIT, at the Central Circle, Jabalpur. 10.4 It has been contended that the AO of the assessee companies and the searched person, i.e., Shri Tarachand Khatri, is one and the same. 10.5 It has been contended t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a), the process gets initiated by issuance of a notice requiring an assessee to file a return of income in respect of each assessment year falling within the six assessment years. 10.16 The ld. Counsel for the assessee contends that assessment u/s 153A is not a block assessment. 10.17 The ld. Counsel for the assessee contended that according to the clause (b) of Section 153A(1), a separate independent power has been conferred on the AO, to assess or re-assess. 10.18 The ld. Counsel for the assessee contended that thus, there is no requirement to hark back to the provisions of Section 143(3) for effecting assessments concerning cases arising from searches conducted u/s 132 or requisitions made u/s 132A of the Act. 10.19 The ld. Counsel for the assessee contended that because of Sections 153A to Section 153C having been introduced, there cannot be any parallel assessments, nor can the AO choose the provision under which an assessment can be made. 10.20 The ld. Counsel for the assessee contended that because of the abatement of the pending assessments/reassessments for the period falling within Section 153A or Section 153C, by virtue of the provisions of the second proviso to Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd on receipt of the materials, the AO shall have no option but to issue notice u/s 153C of the Act to the other person(s), after recording satisfaction. 10.29 The ld. Counsel for the assessee has contended that in Karti Chidambaram (supra), it has been held that Sections 153A and 153C were enacted since the Legislature thought it fit that the assessment and re-assessment in case of search operations are to be conducted in a different manner. 10.30 The ld. Counsel for the assessee has contended that in Karti Chidambaram (supra), it was held that the abatement clause is provided in order to avoid parallel proceedings. 10.31 The ld. Counsel for the assessee has contended that in Karti Chidambaram (supra), it was held that thus, once the seized materials are handed over to the AO having jurisdiction, the AO shall have no option, but to issue notice u/s 153A in respect of the searched person and u/s 153C in respect of other persons, after recording satisfaction. 10.32 The ld. Counsel for the assessee has contended that in Karti Chidambaram (supra), it has been held that on the date of receipt of the searched materials by the jurisdictional AO, the non obstante clause would come into op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter the handing over of the documents to the AO of the other person, in the case of the assessment year to which the material pertains, by virtue of such handing over of the documents, a proceeding gets to be pending against such other person. 20. The ld. Counsel for the assessee has contended that in case, no such proceedings are pending, even if an assessment has been completed, a fresh proceeding would be initiated for assessment or re-assessment u/s 153C itself. 21. The ld. Counsel for the assessee has contended that in Pr. CIT Vs Abhisar Buildwell P. Ltd. (2023) SCC On Line SC 481, it has been held that as per the second proviso to Section 153A, only pending assessment or re-assessment relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search u/s 132 or making of requisition u/s 132A, as the case may be, shall abate. 21.1 The ld. Counsel for the assessee has contended that in Abhisar Buildwell P. Ltd. (supra), it has been held that the intention of the Legislation seems to be that in case of search, only the pending assessment/re-assessment proceedings shall abate and the AO would assume the jurisdiction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments, meaning thereby, that in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search u/s 132 or requisition u/s 132A of the Act. 21.10 The ld. Counsel for the assessee has contended that as such, in the light of Abhisar Buildwell P. Ltd. (supra), the issue of incriminating material becomes relevant only in cases of unabated or completed assessments, which cannot be opened unless there is incriminating material. 21.11 The ld. Counsel for the assessee has contended that in the case of abated proceedings in view of abatement of pending proceedings, or in the case of unabated proceedings, in view of discovery of incriminating material, the Section contemplates and requires the AO of the other person to proceed against such other person and to issue a fresh notice u/s 153C(1) of the Act. 22. The ld. Counsel for the assessee has contended that the limited enquiry contemplated at the stage of initiation of proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of abated assessment and not one of unabated/completed assessment. 23.10 The ld. Counsel for the assessee has contended that hence, such proceedings would mandatorily abate under the second proviso to Section 153A read with the proviso to Section 153C. 23.11 The ld. Counsel for the assessee has contended that the AO was required to initiate proceedings u/s 153C, which he has failed to do and has, instead, proceeded to decide and pass an order in an abated proceeding. 23.12 The ld. Counsel for the assessee has contended that in the light of the decision in Abhisar Buildwell (supra), the issue of incriminating material becomes relevant only in the case of unabated or completed assessment and not in the case of abated assessments, where the AO assumes jurisdiction to carry out assessment of total income, taking into consideration all the material including the material found during the search or any other material otherwise available, and that so, it cannot be said that since no incriminating material was found or used, the provisions of Section 153C were not attracted. 23.13 The ld. Counsel for the assessee has contended that Sections 153A to 153D are express provisions which ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e starts with the words not withstanding anything contained , as opposed to the words not withstanding anything to the contrary contained , which, according to the ld. Counsel, changes diametrically, the nature of the clause as it is and as it would have been had there existed the words to the contrary in the clause. The ld. Counsel has stated that the Legislature, it is trite, chooses its words with utmost caution and that no words so chosen by the Legislature can be said to have been frivolously chosen. It has been contended that the non obstante clause as it exists, contemplates a complete over-ride over the Sections mentioned therein, from which, there is no escape. It has been stated that if the clause had been worded containing the words to the contrary , there would have been only a partial over-ride, i.e., except to the extent specifically provided in the Section, the specified provisions would have been operative. 23.19.1 The ld. Counsel for the assessee has contended that the second proviso to Section 153A specifically provides that proceedings pending for assessment or re-assessment with regard to any year falling within the prescribed period of six assessment years, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessee has contended that the non obstante clause over-rides Sections 139, 147 to 149, 151 and 153. 23.22 The ld. Counsel for the assessee has contended that Section 139 requires the filing of a return of income, as specially provided for under clause (a) of Section 153A and Section 153C(1). 23.23 The ld. Counsel for the assessee has contended that Sections 147 to 149 and 151 are relating to re-opening of an assessment, for which, special provisions have been provided in Section 153A(1)(b) as well as the first proviso to the said Section. 23.24 The ld. Counsel for the assessee has contended that Section 153 prescribes a time limit for all assessments and re-assessments. 23.25 The ld. Counsel for the assessee has contended that since a special scheme has been provided in the present Sections, the said provision has also been overridden. 23.26 The ld. Counsel for the assessee has contended that where the assessments have been concluded, the Section enables re-opening of assessments, for which, special provision has been made. 24. Addressing the effect of the first proviso on Section 153C(1), the ld. Counsel for the assessee has contended that the said proviso refers to and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfaction by the AO of the other person that the documents received have a bearing on the total income of the other person, for triggering Section 153C. 25.2 The ld. Counsel for the assessee has contended that this is also in consonance with the mandate of the first proviso to Section 153C, which abates the proceedings on the date of receipt of documents by the AO of the other person and not from the date of recording of satisfaction by the said second AO, that the documents have a bearing on the determination of the total income of the assessee. The ld. Counsel for the assessee has contended that the Legislature has, as also reiterated in Abbhisar Buildwell (supra), by enacting Sections 153A and 153C, clearly intended that there cannot be two parallel proceedings, i.e., one under the regular proceedings u/s 143(3) or Section 147 and another u/s 153A. 25.3 The ld. Counsel for the assessee has contended that as held in Karti Chidambram (supra), Sections 153A and 153C do not contemplate any discretion with the AO to choose, to assess income either under the regular proceedings under Sections 143(3) and 147, or u/s 153A or u/s 153C. 25.4 The ld. Counsel for the assessee has conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the course of the search, in respect of some entries found in the ledger of these companies, on which, specific queries were raised. 26.6 The ld. Counsel for the assessee has contended that the seized books of these two companies were retained and they have been used for making addition in the assessment of these two companies. 26.7 The ld. Counsel for the assessee has contended that even after the assessment of these two companies, the seized books continue to be retained by the Department, even till date. 26.8 The ld. Counsel for the assessee has contended that the Investigation Wing of the Department has handed over all the documents on record seized during the search, to the Central Circle, Jabalpur. 26.9 The ld. Counsel for the assessee has contended that the assessee has also produced the statements recorded and the material collected by the Investigation Wing, as noted by the AO in his order. 26.10 The ld. Counsel for the assessee has contended that thus, the material relating to the search has been relied on by the AO for the purposes of the assessment. 26.11 The ld. Counsel for the assessee has contended that in view of the search conducted on 17.11.2015, the cases of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. 26.23 The ld. Counsel for the assessee has contended that the appraisal report would also show whether the addition in relation to the loan transaction has been made as a consequence of the search conducted in the premises of Shri Tarachand Khatri. 26.24 The ld. Counsel for the assessee has contended that thus, the appraisal report ought to have been produced before the Bench, even as specifically asked by the Bench, for not once, but twice over. 26.25 The ld. Counsel for the assessee has contended that since the appraisal report has not been produced, despite repeated opportunities having been granted to the Department, an adverse inference is required to be drawn against the Department in this regard. 27. The ld. Counsel for the assessee supporting the argument for drawing of such adverse inference, has placed reliance on the provisions of Section 114(g) of the Indian Evidence Act, 1872, as per which, the Court may presume existence of certain facts, i.e., the Court may presume that evidence which could be and is not produced, would, if produced, be un-favourable to the person and withholds it. 28. The ld. Counsel for the assessee, in this regard, has placed reliance on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done only and only u/s 153C. 29.8 The ld. Counsel for the assessee has contended that thus, continuation of the proceedings initiated by a notice u/s 143(2) of the Act, which stood abated by virtue of the second proviso to Section 153A read with the proviso to Section 153C, and passing of order of assessment u/s 143(3) instead of initiation of proceedings u/s 153C, is unsustainable. 29.8.1 The ld. Counsel for the assessee has contended that last but not the least, undisclosed income has been defined in Section 158BB(1)(b) which states that the undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period, computed in accordance with the provisions of the Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the AO and relatable to such evidence, as reduced by the aggregate of the total income, or as increased by the aggregate of the losses of such previous years, determined, where the returns of income have been filed u/s 139 or in response to a notice issued u/s 142(1) or Section 148, but a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for each of the six assessment years preceding the assessment year relevant to the previous year of the date of the search. 30.11 The ld. Counsel for the Department has contended that the return filed is treated as one furnished u/s 139 and the provisions of the case shall apply, so far as may be. 30.12 The ld. Counsel for the Department has contended that in certain cases, as may be specified in the official Gazette, no notice u/s 153A(1) is required for framing an assessment, provided that it would not be so in cases where the assessment has abated. 30.13 The ld. Counsel for the Department has contended that the AO shall determine the total income for each of the years. 30.14 The ld. Counsel for the Department has contended that all the provisions of the Act, other than those of Sections 153A, 153B and 153C shall apply to such an assessment. 30.15 that assessment proceedings, if any, pending on the date of initiation of search, all abate. 30.16 The ld. Counsel for the Department has contended that as per Section 153C, where any assets, valuables, etc., seized, belong to, or books of account or documents, etc. requisitioned pertain to, a person other than the person searched, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessment proceedings pending completion as on the relevant date shall abate. 30.29 that this would ensure that two assessment proceedings are not being carried out parallel to each other. 30.30 The ld. Counsel for the Department has contended that once these provisions become applicable, fresh assessment proceedings are envisaged by law, providing for an abatement of the assessment proceedings, if any pending. 30.31 The ld. Counsel for the Department has contended that in a case falling u/s 153C, the jurisdictional fact is the satisfaction of the AO that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of the assessee. 30.32 The ld. Counsel for the Department has contended that merely because the seized material has been transmitted, this will not, by itself, confer jurisdiction on the AO to initiate proceedings u/s 153A. 30.33 The ld. Counsel for the Department has contended that there is nothing incriminating about the material seized in the present case, nor does it lead to any inference of income having escaped assessment, nor can it be said to have any bearing on the determination of the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for the Department has contended that where the material handed over u/s 153C(1) is received by the AO after the due date of furnishing the return, or situations are such that proceedings u/s 143(3) cannot be initiated, as per Section 153C(2), the AO is to proceed by issuing notice u/s 153A(1). 30.43 The ld. Counsel for the Department has contended that the assessee, as such, would not be visited by any prejudice whatsoever, by the assessment having been completed under the provisions of Section 143(3) and not u/s 153A/153C, that is to say, that an assessment u/s 143(3) shall not fail where the AO has not invoked the provisions of Section 153C(1) and has not used any seized or requisitioned material in framing the assessment. 30.44 The ld. Counsel for the Department has contended that the provisions of Sections 153A to 153D are for the benefit of the Revenue, so as to facilitate the assessment of total income in search cases and cases connected therewith. 30.45 The ld. Counsel for the Department has contended that the AO cannot be compelled to be satisfied, claiming that the search material does have a bearing on the determination of income, since doing so would amount to questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Pr. CIT Vs Abhisar Buildwell P. Ltd. judgement dated 24.04.2023, passed in Civil Appeal No. 6580 of 2021 and other connected appeals. Therein, their Lordships of the Supreme Court have held that prior to insertion of Section 153A in the statute, the relevant provision for block assessment was under Section 158BA of the Act, 1961; that the erstwhile scheme of block assessment under Section 158BA envisaged assessment of undisclosed income for two reasons, firstly that there were two parallel assessments envisaged under the erstwhile regime, i.e., (i) block assessment under section 158BA to assess the undisclosed income and (ii) regular assessment in accordance with the provisions of the Act to make assessment qua income other than undisclosed income; that secondly, the undisclosed income was chargeable to tax at a special rate of 60% under section 113, whereas income other than undisclosed income was required to be assessed under the regular assessment procedure and was taxable at the normal rate; that therefore, Section 153A came to be inserted and brought on the Statute; that under the Section 153A regime, the intention of the legislation was to do away with the scheme of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the date of receipt of the order of such annulment by the Commissioner; that therefore, the intention of the legislation seems to be that in case of search only the pending assessment/reassessment proceedings shall abate and the AO would assume the jurisdiction to assess or reassess the total income for the entire six years period/block assessment period; that the intention does not seem to be to re-open the completed/unabated assessments, unless any incriminating material is found with respect to concerned assessment year falling within last six years preceding the search; that therefore, on a true interpretation of Section 153A of the Act, 1961, if in case of a search under Section 132 or a requisition under Section 132A, any incriminating material is found, even in case of unabated/completed assessment, the AO would have the jurisdiction to assess or reassess the total income taking into consideration the incriminating material collected during the search and other material which would include income declared in the returns, if any, furnished by the assessee as well as the undisclosed income, however, in case during the search no incriminating material is found, in case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in the case of Pr. Commissioner of Income Tax-4 Vs Saumya Construction (2016) 387 ITR 529 (Guj) and the decisions of the other High Courts taking the view that no addition can be made in respect of completed assessments in absence of any incriminating material. 32.1 As such, their Lordships concluded ; i) that in case of search under Section 132 or requisition under Section 132A, the AO assumes the jurisdiction for block assessment under section 153A; ii) all pending assessments/reassessments shall stand abated; iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the total income taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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