2007 (12) TMI 237 - AT - Income Tax

Tribunal Upholds Assessee's Appeal: Regular Assessments Unchanged Without Incriminating Evidence; Revenue's Appeal Dismissed.

Lmj International Limited. Versus Deputy Commissioner Of Income-Tax.

The tribunal allowed the assessee's appeal on legal grounds, determining that regular assessments should remain undisturbed unless incriminating material ... Validity of the assessment framed under s. 153C r/w s. 144 - Search And Seizure - no incriminating documents found - new provisions relating to the assessment in case of search comprising of ss. 153A to 153C - HELD THAT:- A reading of s. 153A reveals apparent contradiction in the first proviso and the second proviso. The first proviso provides that the assessment or reassessment shall be done by the AO in respect of each assessment year falling within six assessment years preceding the year of search. The second proviso, on the other hand, provides that the assessment/reassessment pending on the date of search shall abate. In other words, the assessments which are not pending, shall hold the field. The assessee contends that the concluded assessments cannot be disturbed by the AO and even under the new scheme, only undisclosed income detected in the course of search can be added and charged to tax. The Department, on the other hand, vehemently contends that once a search is conducted, the preceding six years assessment of the searched person and any other person whose valuables and/or books, or documents are found during search are ripped open and the assessments/reassessments shall be framed afresh. As the issue under consideration is new and no direct legal precedents are available on the point, we take aid from the principles of statutory interpretation and also from a judgment of the Hon'ble Jharkhand High Court in the case of Abhay Kumar Shroff vs. CIT [2007 (2) TMI 169 - JHARKHAND HIGH COURT], where the new provisions of assessments of search cases have fallen for consideration although in a different context. The basic principle of interpretation of a statute is that where the words of a statute are clear, plain or unambiguous, the Courts should give effect to that meaning irrespective of consequences. As we have seen above, the language of s. 153A is not unambiguous and is not susceptible to only one meaning. In the circumstances, the principle of literal construction is of no help. We, therefore, would like to take recourse to other guiding rules like rule of harmonious construction, regard to consequences, rules relating to provisos and the external aids like contemporanea expositio. Thus, it is possible to effect reconciliation of the two provisos appended to s. 153A by restricting the meaning of the term 'assess or reassess' appearing in the first proviso. After the search, in our considered opinion, the total income of the assessee is to be recomputed on the basis of the undisclosed income unearthed during search and the same is to be added with the regular income assessed under s. 143(3) or computed under s. 143(1) for each of the six preceding assessment years. Where any prepaid taxes are there, the same are required to be given credit for computing the further tax payable by the assessee. The assessee is also required to pay interest under ss. 234A and 234B on the tax due on the basis of new calculation. Where nothing incriminating is found in the course of search relating to any assessment years, the assessments for such years cannot be disturbed in our considered view. We agree with the ld DR. But at the same time, the scheme of the Act is very clear-the regular assessments are made in terms of ss. 139, 142 and 143, concluded assessments can be reopened as per ss. 147 and 148 in case the AO has 'reasons to belief' that the income chargeable to tax has escaped assessment and the 'provisions of ss. 153A to 153C can be resorted to for the assessment of undisclosed income in search cases. All the three procedures of assessment operate in different fields and have different purposes to be fulfilled altogether. Therefore, we allow ground Nos. 1 and 2 of the assessee. The additions made by the AO, being all relating to regular items are hereby deleted. Since we have allowed the appeal on legal grounds, we are not inclined to deal with the merit of additions, though arguments were made on merit as well. In the result, the appeal of the assessee is allowed and the Revenue's appeal is hereby dismissed. Issues Involved:1. Validity of assessment framed under Section 153C read with Section 144.2. Addition of items of regular assessment in proceedings under Section 153C.3. Disallowance of sales-tax payment.4. Disallowance of donation.5. Partial disallowance of deduction claimed under Section 80HHC.6. Deletion of provisions of brokerage and commission by CIT(A).Detailed Analysis:1. Validity of Assessment Framed Under Section 153C Read with Section 144:The assessee challenged the validity of the assessment framed under Section 153C read with Section 144. The counsel for the assessee argued that the provisions of Section 153C should not disturb items of regular assessment unless incriminating documents were found during the search. They contended that the assessments which have attained finality should not be reopened unless there is undisclosed income unearthed due to search action. The Department argued that Section 153A prescribes reassessment in such cases, and the total income of the assessee is to be recomputed. The tribunal concluded that the total income should be recomputed based on undisclosed income found during the search, and regular assessments should not be disturbed if no incriminating material is found.2. Addition of Items of Regular Assessment in Proceedings Under Section 153C:The assessee argued that the AO erred in adding back items of regular assessment in proceedings under Section 153C when no incriminating documents were found. The tribunal held that the assessments for years where no incriminating material was found cannot be disturbed. The tribunal emphasized that the construction sought by the Department would lead to undue harassment of honest taxpayers and should be avoided.3. Disallowance of Sales-Tax Payment:The assessee contested the disallowance of sales-tax payment amounting to Rs. 38,411. Since the tribunal allowed the appeal on legal grounds, they did not delve into the merits of this disallowance.4. Disallowance of Donation:The assessee also contested the disallowance of donation amounting to Rs. 38,171. Similar to the sales-tax payment disallowance, the tribunal did not address the merits of this issue due to the legal grounds on which the appeal was allowed.5. Partial Disallowance of Deduction Claimed Under Section 80HHC:The assessee challenged the partial disallowance of the deduction claimed under Section 80HHC amounting to Rs. 64,22,953. The tribunal did not address the merits of this issue as the appeal was allowed on legal grounds.6. Deletion of Provisions of Brokerage and Commission by CIT(A):The Revenue's sole ground of appeal was that the CIT(A) erred in deleting provisions of brokerage and commission amounting to Rs. 1,13,75,000, arguing that the liability did not accrue to the assessee during the year. The tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision.Conclusion:The tribunal allowed the assessee's appeal on legal grounds, holding that regular assessments should not be disturbed unless incriminating material is found during the search. Consequently, all additions made by the AO relating to regular items were deleted. The Revenue's appeal was dismissed, and the tribunal did not address the merits of individual disallowances due to the legal grounds on which the appeal was decided.