2019 (9) TMI 153 - HC - Income Tax

Court Partially Quashes Orders, Stays Recovery: Petitioner to Pay 10%

The court partially allowed the petition, quashing the impugned orders and notice, and stayed further recovery of the demand subject to the petitioner ... Application u/s 220(6) for stay of unreasonably high-pitched and that enforcement of recovery of the demand - Assessment u/s 153A - addition of income where assessment has already completed - HELD THAT:- In case of section 153A the search or requisition are the trigger points, and once the trigger operates the AO is required to assess or reassess the total income of the assessee for six assessment years preceding the assessment year relevant to the previous year in which the search is carried out. Thus, while under section 158BB of the Act, it is the undisclosed income which is to be computed, u/s 153A there is assessment or reassessment of the total income of six assessment years. While in those cases, where an assessment order has already been framed under section 143(3) prior to initiation of proceedings u/s 153A or 153C of the Act, it has been held that any addition made in those proceedings should be on the basis of the material found during the course of search. In case of reassessment, the addition has to be based upon material found during the course of search, but insofar as assessment is concerned, all available material can be taken into consideration, whether it is found during the course of search, requisition or survey or is otherwise available with the AO. In case of assessment, the additions cannot be restricted to the material found during the course of search alone. Application made u/s 220(6) - PCIT has nowhere applied his mind to the contention of the assessee that the assessment is unreasonably high-pitched and that enforcement of recovery of the demand would cause genuine hardship to the assessee since the demand is unusually high looking to the financial standing of the assessee. In the opinion of this court, when the statute vests power in an authority, such power is required to be exercised in a reasonable manner, and not in the perfunctory manner in which both the AO and the PCIT have dealt with the applications made by the petitioner under section 220(6) of the Act. There is some merit in the submissions insofar as the additions are concerned. Moreover, considering the amount assessed during the course of regular assessment in the preceding years, the assessment order for the year under consideration appears to be unreasonably high-pitched. However, for the reasons recorded hereinabove, no case has been made out for unconditional stay of the demand. Besides, a perusal of the assessment order reveals that on behalf of the petitioner it has been admitted that an amount of ₹ 91,50,156/- is to be treated as out of books sales which is unrecorded in the books of accounts. Assessment is unreasonably high-pitched, the court is of the view that the ends of justice would be met, if instead of 20% of the demand, further recovery of the demand is stayed subject to the petitioner making payment of 10% of the demand of ₹ 8,57,91,420/-. The petition partly succeeds and is, accordingly, allowed to the following extent. The impugned orders dated 8.2.2019 and 11.3.2019 passed by the first and the second respondents, respectively, as well as the impugned notice dated 25.3.2019 issued under section 226(3) of the Act, are hereby quashed and set aside. Further recovery of the demand is stayed subject to the petitioner making payment of 10% of the demand of ₹ 8,57,91,420/-. Rule is made absolute accordingly to the aforesaid extent. It is clarified that the view expressed in this order is a prima facie view for the purpose of deciding the application under section 220(6) of the Act and the CIT (Appeals) shall decide the appeal without in any manner being influenced by any observations made in this judgment. Issues Involved:1. Validity of proceedings under section 153A of the Income Tax Act.2. Legality of the demand raised and recovery actions taken.3. Merits of the additions made under sections 68 and 69B of the Income Tax Act.4. Application of CBDT Circular No. 1914 regarding stay of demand.5. Jurisdictional and procedural aspects of the search and survey actions.Detailed Analysis:1. Validity of Proceedings under Section 153A:The petitioner contested the validity of the assessment under section 153A, arguing that no search was conducted at their business premises, which is a prerequisite for invoking section 153A. The petitioner cited the Bombay High Court decision in Bansilal B. Raisoni & Sons, emphasizing that mere search authorization is insufficient without actual search initiation. The respondent countered that the search was person-specific and not location-specific, and the authorization included the petitioner's name, thus justifying the proceedings under section 153A. The court agreed with the respondent, referencing the Delhi High Court's decision in MDLR Resorts (P.) Ltd., which stated that the search could be conducted at any location where relevant documents or assets might be found, not necessarily the registered office.2. Legality of the Demand Raised and Recovery Actions:The petitioner argued that the demand raised was excessively high and the immediate recovery actions, including attaching bank accounts, were harsh and premature. The petitioner requested a stay on the demand until the appeal was decided. The court noted that the Assessing Officer and the Principal Commissioner of Income Tax (PCIT) did not adequately consider the merits of the petitioner's application under section 220(6) of the Act and acted in a perfunctory manner. The court found that the assessment appeared unreasonably high-pitched and ordered a stay on further recovery, subject to the petitioner paying 10% of the demand.3. Merits of the Additions Made:The petitioner challenged the additions of Rs. 7,88,85,082/- under section 68 and Rs. 1,27,58,762/- under section 69B, arguing that the sales were already offered for taxation and the stock in the vault was not considered. The petitioner cited the Gujarat High Court decision in CIT v. Vishal Exports Overseas Ltd., which held that double taxation of the same income is not permissible. The court acknowledged the petitioner's prima facie case regarding the high-pitched assessment but did not delve into the merits of the additions, leaving it for the CIT (Appeals) to decide.4. Application of CBDT Circular No. 1914:The petitioner argued that the CBDT Circular No. 1914, which provides guidelines for stay of demand, was not followed correctly, as the demand of 20% was treated as automatic. The court observed that the Assessing Officer and the PCIT did not apply their minds to the petitioner's financial hardship or the high-pitched nature of the assessment. The court directed that instead of 20%, the petitioner should pay 10% of the demand for the stay to be granted.5. Jurisdictional and Procedural Aspects of the Search and Survey Actions:The petitioner contended that the search was not conducted at their business premises but at the partners' residences, questioning the jurisdiction of the proceedings under section 153A. The respondent clarified that the search authorization included the petitioner's name and was not limited to specific locations. The court upheld the respondent's view, stating that the search could be conducted at any location where relevant assets or documents might be found, thus validating the jurisdiction of the proceedings.Conclusion:The court partially allowed the petition, quashing the impugned orders and notice, and stayed further recovery of the demand subject to the petitioner paying 10% of the demand. The court emphasized that the CIT (Appeals) should decide the appeal independently of the observations made in this judgment.