TaxTMI 
TaxTMI 
2013 (10) TMI 520
X X X X Extracts X X X X
X X X X Extracts X X X X
....d in law in not following the Circular No. 7 of 2003 dated 05/09/2003 issued by the CBDT. 5. Whether on the facts and in the circumstances of the case, the CIT(A) has erred in law by not appreciating the fact that there is no precondition that documents pertaining to each of the assessment year falling under the provisions of Section 153C/153A should be found ? 6. The order of the CIT (A) is perverse and not tenable in law and on facts. 7. The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal." 2. In this revenue's appeal the deletion of Rs. 90,19,000/- made by A.O. out of the land development expenses of Rs. 14,64,30,786/- made during the year incurred by the assessee during the year has been challenged. The brief facts of the case are as under :- Assessee Company is engaged in the business of development of farm land and sale thereof. The land is mainly purchased in rural areas in different parts of the countries, the original return for the A.Y. 2003-04 was filed on 02.12.2003 showing NIL income but showing income 115JB at Rs. 74,80,591/-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Lucknow Bench in the case of Kailash Auto Finance Ltd. v. ACIT [2009] 32 SOT 80 (LUCK). e. ITAT Delhi Bench in the case of Charchit Agrawal v. ACIT 34 SOT 348 ( Del. ) f. ITAT Delhi Bench in the case of Sh. Sanjay Kumar Bhatia (ITA No. 2666 to 2672/ Del /2009 dt. 01.01.2010. g. Circular No. 007 of 2003 dt. 5.09.2003 of the CBDT." 5. While pleading on behalf of the revenue, the Ld. DR relied on the order of AO and submitted that assessee is engaged the business of purchase and sale of agriculture land. The assessee has debited land development expenses in its profit and loss account. The assessing officer to verify the genuineness of these land development expenses deputed the inspector to verify the addresses of the contractors. The inspector reported that no such concern or person were available at the given addresses. The assessing officer on the basis of this report held that the very genuineness of the expenses claimed by the assessee becomes doubtful and added the amount of Rs. 90,19,000/- to the income of assessee. The CIT(A) is not justified the deleting the addition which was made on the basis of inquiries conducted by the departme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oceedings relating to that assessment will abate and scope of assessment will be wide enough to include issues emerging from abated proceedings as well as issues emerging from seized incriminating material. (iv) The scope of expression "abate" has been elaborately discussed by Hon'ble Allahabad High Court in CIT Vs. Smt. Shaila Agrawal (2011) 16 Taxmann.com 232 (All.). It is held that "The word 'abatement' is preferable to something, which is pending alive, or is subject to deduction. The abatement refers to suspension or termination of the proceedings either of the main action, or the proceedings ancillary or collateral to it." (v) The expression "pending" has also been considered in Kailash Auto Finance Ltd. Vs. ACIT (2009) 32 SOT 80 (Luck.) wherein it is observed that pending means undecided i.e. something which is not concluded. An action is considered as pending from the time of commencement of the proceedings. Thus, a legal proceeding is pending as soon as commenced and until it is concluded. A proceeding must be pending on the date of initiation of the search and before the A.O. (vi) But where no incriminating material is found in th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the sum payable or refundable to the assessee on the basis of such assessment. It is, therefore, obvious, that an assessment under section 143(1) comprises computation of income and computation of tax on such income (Re: CIT vs. Swam Taneja (Miss.) [1990] 186 ITR 0348-(MP))The decision of Hon'ble Apex Court in the case of Rajesh Jhaveri Stock Brokers P. Ltd. V. CIT [2007] 291 ITR 0500-(SC) often referred to in support of the argument that intimation issued u/s 143(1)(a) is not an assessment order is really on the proposition that in intimation there is no occasion to frame an opinion by the AO and therefore action u/ s 147 cannot be prohibited on the ground that there was a change of opinion. It does not lay down the proposition that even after issue of intimation (which is also deemed as demand notice) or acknowledgment after filing of return of income assessment proceedings are pending and even if they are pending then how long they will remain pending. (xi) We place reliance on the following judgments in support of our arguments that, no addition can be made u/s 153A or 153C, if no incriminating material is found in the search: (a) Allcargo Global 137....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o addition under section 2(22)(e). The AO had not referred to any incriminating material found during the search based on which addition had been made. Therefore following the decision of the Special Bench (supra), we hold that the AO had no jurisdiction to make addition under section 153A. The addition made is therefore deleted on this legal ground. On merit also we do not find any case to sustain the addition. The addition made is on account of gift which is nothing but loan taken by the assessee which was converted into gift during the year. Thus source of gift was loan which the AO himself has admitted had been taken by the assessee in the year prior to 2000. Therefore, addition if any could have been made in the year of loan. Similarly, claim of the assessee and finding of CIT(A) that there was no accumulated profit has not been controverted before us. We agree with CIT(A) that current year profit has to be excluded. Therefore, there is no case for any addition under section 2(22)(e). We, therefore, dismiss the appeal of the revenue and allow the appeal filed by the assessee. (ii) CIT Vs. Lachman Dass Bhatia [2012] 26 taxmann.com 167 (Delhi): Both t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o the year of the search, but at another place, in para 23 it is observed that "we are not concerned with a case where no incriminating material was found during the search conducted u/s 132 of the Act. We therefore, express no opinion as to whether Sec. 153A can be invoked even in such a situation. That question is therefore left open". In other words, there is a clear doubt in the mind of the Hon'ble High Court as to whether proceedings u/ s 153A can still be initiated if no incriminating material is found in the search. Had it been an open and shut case i.e. acquiring of jurisdiction u/s 153A does not depend upon recovery and seizure of any incriminating material, Hon'ble High Court would not have so commented. In Anil Bhatia's case a document was found in the search which was unsigned and on the basis of which addition was made but deleted by the Tribunal on the ground that document is unsigned but Hon'ble High Court had held that once document was found in the course of the search, Sec. 153A is triggered. Once the section is triggered, it appears mandatory for the A.O. to issue notice u/s 153A calling upon the assessee to file the returns for the six assessment years prior to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessments that are abated, the A.O. retains the original jurisdiction as well as jurisdiction conferred on him under s. 153A for which assessments shall be made for each of the six assessment years separately; (b) In other cases, in addition to the income that has already been assessed, the assessment under section 153A will be made on the basis of incriminating material, which in the context of relevant provisions means (i) books of account, other documents, found in the course of search but not produced in the course of original assessment, and (i) undisclosed income or property discovered in the course of search. Therefore what emerges is that no doubt 153A shall be initiated, and all the six years shall become subject matter of assessment under section 153A. The AO shall get the free hand, through abatement, only on the proceedings that are/is pending. It is, in these abated proceedings, AO can frame the assessment(s) afresh. But in a case or in a circumstances where the proceedings have reached finality, assessment under section 153A read with 143(3) has to be made as was originally made / assessed and in case where certain incrimina....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch the search took place or the requisition was made and ending with the date of search/requisition. Under Section 153A and the new scheme provided for, the AO is required to exercise the normal assessment powers in respect of the previous year in which the search took place. 19. Under the provisions of Section 153A, as we have already noticed, the Assessing Officer is bound to issue notice to the assessee to furnish returns for each assessment year falling within the six assessment years immediately preceding the assessment year relevant to the previous year in which the search or requisition was made. Another significant feature of this Section is that the Assessing Officer is empowered assess or reassess the "total income" of the aforesaid years. This is significant departure from .11 ~ the earlier block assessment scheme in which the block assessment ~ roped in only the undisclosed income and the regular assessment proceedings were preserved, resulting in multiple assessments. Under section 153A, however, the Assessing Officer has been given the power to assessee or reassess the 'total income' of the six assessment years in question in separate assessment orders. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ome of the assessee, but also the total income' of the assessee in whose case a search or requisition has been initiated. Obviously there cannot be several orders for the sane assessment year determining the total income of the assessee in order to ensure this state of affairs namely, that in respect the six assessment years preceding the assessment year relevant to the year in which the search took place there is only one determination of the total income, it has been provided in the second proviso of sub Sub-Section 153A that any proceedings for assessment or reassessment of the assessee which are pending on the date of initiation of the search or making requisition "shall abate". Once those proceedings abate, the decks are cleared, for the Assessing Officer to pass assessment orders for each of those six years determining the total income of the assessee which would include both the income declared in the returns, if any, furnished by the assessee as well as the undisclosed income, if any, unearthed during the search or requisition. The position thus emerging is that where assessment or reassessment proceedings are pending completion when the search is initiated or requisition i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Officer will reopen the assessments or reassessments already made (without having the need to fallow the strict provisions or complying with the strict conditions of Sections 147, 148 and 151) 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". But when we come to third circumstance i.e. circumstance (c), we find that this has been left unanswered. Para 23 of the judgment, the Hon'ble Delhi High Court mentions that the issue is left open. 43. This, has been explained in the graphic made below and the relevant portion is in italics therein. This can be explained through this graphic: 44. To answer the question, as to what shall be the assessment of total income, where there is/are no pending proceedings and no incriminating material, we have to trace out the logical conclusion, by harmonising the legislative intendments and the judicial decisions, as held by the Hon'ble Supreme Court....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee. We may further refer to the following case laws:- a) C.I.T. vs. Abhinav Kumar Mittal [2013] 351 ITR 20 (DHC) Held, dismissing the appeal, that there was no material found in the search and seizure operations, which would justify the Assessing Officer's action in referring the matter of the District Valuation Officer for his opinion on valuation of the properties. Therefore, the valuation arrived at by the District Valuation Officer would be of no consequence. In any event, the Tribunal had also, on facts, held that the District Valuation Officer's valuation was based on incomparable sales, which is not permissible in law. b) C.I.T. vs. Mahesh Kumar (2011) 196 Taxman 415 (DHC) Where no evidence could be gathered that assessee had invested more than value declared in registered sale deed of plots purchase and, comparable instances taken by the Valuation Officer were situated for way, addition made under section 69 on account of unexplained investment with respect of purchase of said plots was not justified. 30. From the above, it is evident that in the absence of any evidence that the assessee has invested more than value declare....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d on the return filed on 02-12­2003 should be upheld as the time period for issuance of notice u/s 143(2) expired before the date of the search on 22-09-2005." 7. After hearing both the sides on the issue and taking into consideration, records available the following facts emerges as undisputed. The regular return of income was filed on 2.12.2003 and the same was processed u/s 143(1)(a) of the Act. The time period for issuing notice u/s 143(2) of the IT Act for selecting case for security expired on 31.12.2004. The first search was conducted on the premises of assessee on 22.9.2005 and the 2 nd search was conducted on 25.8.2006 and in both the searches, no incriminating material, document, unaccounted assets and bogus of accounts were found and seized relating to land development expenses debited in profit and loss account for the year. The both searches on assessee did not yield any incriminating material on the basis of which it can be said that assessee was indulgent in debiting bogus land development expenses in its books of account. There is no reference of any material found in the search for making assessment u/s 153A of the Act. Thus the basic controversy before us rem....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... documents or incriminating material, and clubbed only to the assessment framed originally, as the law does not permit the Assessing Officer to disturb issues already concluded. Where on the date of initiation of search under section 132 or requisition of books, no proceeding is pending, but in the search, material is found indicating incriminating material, the Assessing Officer embarks on a jurisdiction, wherein he has to club the two sets of incomes, the returned income and the unearthed income and arrive at the total income. All CARGO GLOBAL LOGISTICS Ltd. Vs. Dy. CIT [2012] 18 ITR (Trib) 106 (Mumbai) [SB] and CIT Vs. ANIL KUMAR BHATIA [2013] 352 ITR 493 (Delhi) followed. Where in the search operation, no incriminating material is found and there are no proceedings pending before the Assessing Officer, the Assessing Officer has to issue notices under section 153A, asking the searched person to file its returns. But since there are no proceedings pending before him, the second proviso stops the Assessing Officer to proceed further, because proceedings cannot abate and since there is no material, no further jurisdiction is embarked on him. Where no proceedings are p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... search." 12. From the finding of the Special Bench, it becomes clear that in case of assessment already completed, no addition can be made further while completing the assessment under Section 153A, if there is no incriminating material, which in the context of relevant provision, means - (i) books of account, other documents, found in the course of search but not produced in the course of original assessment, and (ii) undisclosed income or property discovered in the course of search. 13. In the present case, neither any incriminating material was found nor any other material or document along with books of accounts were found, which were not produced before the AO while completing the assessment originally. For assessment year 2001-02, no incriminating material was found or any other documents were found, which suggests that the assessee has concealed particular of income. Therefore, in view of the observation made by the Special Bench, no addition can be made while completing the assessment under Section 153A, if there no fresh material or documents was found during the course of search." The issues arises from those processed return can be raised on....