TaxTMI 
TaxTMI 
2014 (7) TMI 897
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.... evidence on the record furnished by assessee; on the basis of evidence gathered by the Department either during the course of search in the form of incriminating documents, books of accounts etc. or by investigations carried out by the department before/after the search and during the assessment proceedings ? 2. Whether of the facts and in the circumstances of the case, the CIT(A) was right in law and on facts in holding that section 153A of the Income Tax Act, 1961 does not empower the A.O. to go into the areas other than the areas in respect of which some material or documents or assets have been found during the course of search proceedings ? 3. Whether on the facts and in the circumstances of the case, the CIT(A) was right in law and on the facts in holding that items of regular assessment cannot be added back in the proceedings under section 153A or 153C of the Income Tax Act, 1961, when no incriminating documents are found in respect of the disallowed amounts during the course of search proceedings." C.O. No.10/Agra/2013 by the assessee 3. In the Cross Objection, the grounds raised are in support of the order of CIT(A). The Cross Objection is time barred by four ....
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....y creditors u/s 68 of the IT Act Rs. 11,85,95,936/- Add Disallowance u/s 40A(2)(b) of the IT Act Rs. 92,79,830/- Add Disallowance of depreciation Rs. 31,13,602/- Add Advances from customers u/s 68 of the IT Act Rs. 2,53,768/- Total = Rs. 13,72,28,648/- 6. Before the CIT(A) the assessee has challenged the order of A.O. on the ground that the A.O. has made the addition whereas no incriminating documents or materials were found during the course of search. The CIT(A) allowed the assessee's ground of appeal as under :- (Para nos.3.3 to 3.7, pages nos.4, 5, 6 & 7) "3.3 However, the appellant's objection to completion of assessment u/s 153A by making various additions on the basis of items disclosed in its balance sheet & trading account in the absence of any incriminating material found or seized & that too before the date given for final hearing are found acceptable. The appellant has field return u/s 153A on 16.09.2011 which is same as filed on 21.10.2004 in due course for pre-search period. On receipt of notice u/s 143(2) issued on 16.09.2011, the appellant has submitted before the A.O. that no incriminating documents have been found during ....
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....ing to K.S. Oils Ltd., but none of them belongs or pertains to the appellant for the year under consideration nor there is any material on record proving appellant's connection with these dummy concerns or undisclosed bank accounts or unaccounted transactions. 3.4 It is further seen from records that the appellant has filed return for the assessment year under consideration in due course on 21.10.2004 declaring income of Rs. 2,76,250/- which is same as per return now filed u/s 153A on 16.09.2011 after the search operations on 11.03.2010. Assessment order u/s 143(3) has also been passed on 6.12.2006 by ITO, 2(2), Gwalior assessing total income at Rs. 4,25,590/- along with agricultural income of Rs. 14,294/- after making additions on estimated basis for disallowance of diesel & fuel expenses, hammali expenses, freight, general repair expenses etc. Vide appeal order dated 17.10.2011 in appeal No. 641/IT/06- 07/GWL, relief of Rs. 70,000/- been granted out of addition made of Rs. 95,000/- by the A.O. 3.5 It has been held by various courts Manish Maheshwari Vs. ACIT & Another, Indore Construction Pvt. Ltd. Vs. CIT (2007) 289 ITR 341 (SC), M/s S.K. Jain Vs ACIT (2010) 14 ITJ 434 (In....
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....aring and giving the appellant opportunity to explain the various issues, as asked for vide the notice/questionnaire. This is totally against principles of natural justice envisaged in the statute. It is also to bring on record that no day-to-day regular order sheets have been written/maintained by the A.O. during entire course of assessment proceedings. This fact has also been admitted by the A.O. during the course of appeal proceedings, as per discussion held with him. As per records, the appellant is found to have details, as asked for vide different questionnaires issued by the A.O. Thereafter, no further query has been raised by the A.O nor further explanation/verification sought or done. However, the appellant's submissions, as made & found placed on record, have not been accepted by the A.O. without any justification for the same. 3.7 After Perusal of records, submissions and facts of the case, assessment completed by the A.O. resulting into various additions made is not found to be sustainable in the eyes of the law. The same is, hereby, cancelled. Accordingly, merits of the addition made are not being adjudicated hereupon." 7. Since the CIT(A) decided the legal issue....
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....ered by the Board to make search, and seizure when they have reason to believe that any person to whom summonses or notices have been issued under the provisions of the Act referred to therein have failed to produce books of account or any other documents relevant for any assessment proceeding. The provision of section 132 underwent a series of amendments with a view to enlarge the power of search and seizure vested in the income-tax authority. By subsequent amendment the power of search and seizure vested in the Inspecting Assistant Commissioner also. Sub-section (3) of section 132 empowers the taxing authorities to take possession or control of the seized articles. By the 1991 amendment, the operation of the prohibitory order passed can also be extended with the approval of the Commissioner. 8.3 In the year 1995, the special procedure for assessment of search cases was introduced by the Finance Act, 1995 (22 of 1995). Chapter XIV-B containing section 158B to section 158BH was inserted. Under the said scheme, the undisclosed income detected as a result of search initiated after 30-6-1995, is assessed separately as the income of the designated period (block) consisting of 10 pre....
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....e Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years: (e) Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate." 8.5 For giving effect to the above newly inserted provision section 158BI has also been inserted by the Finance Act of 2003 which provides that the provisions of Chapter XIV-B, section 158B to section 158BH, shall not apply where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A of the Act after 31-5-2003. 8.6 From a reading of the provisions of section 153A, it is clear that this provision provides for assessments of undisclosed income of a block period in a case where search is conducted. In other words, in a case where search is conducted there shall be block assessments for the period comprising previous years relevant to six assessment years pr....
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.... furnish, within such period as may be specified in the notice, return of income in respect of six assessment years immediately preceding the assessment year relevant to the previous year in which the search was conducted under section 132 or requisition was made under section 132A. 65.5 The Assessing Officer shall assess or reassess the total income of each of these six assessment years. Assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search under section 132 or requisition under section 132A, as the case may be, shall abate. It is clarified that the appeal, revision or rectification proceedings pending on the date of initiation of search under section 132 or requisition shall not abate. Save as otherwise provided in the proposed section 153A, section 153B and section 153C, all other provisions of this Act shall apply to the assessment or reassessment made under section 153A. It is also clarified that assessment or reassessment made under section 153A shall be subject to interest, penalty and prosecution, if applicable. In the assessment or reassessment made in respect....
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....ly 65.9 The new section 153C provides that where an Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belong or belongs to a person other than the person referred to in section 153A, then the books of account, or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A. 65.10 An appeal against the order of assessment or reassessment under section 153A shall lie with the Commissioner of Income-tax (Appeals). 65.11 Consequential amendments have also been made in sections 132, 132B, 140A, 234A, 234B, 246A and 276CC to give reference to section 153A in these sections. 65.12 These amendments will take effect from 1-6-2003." 8.8 From a bare reading of the provisions of sections 153A, 153B and 153C of the Act and the Departmental Circular dated 5-9-2003 (see [2003] 263 ITR (St.) 62), it is mani....
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....nt or other documents has omitted or failed to produce, or cause to be produced, such books of account or other documents as required by such summons or notice, or (b) any person to whom a summons or notice as aforesaid has been or might be issued will not, or would not, produce or cause to be produced, any books of account or other documents which will be useful for, or relevant to, any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act, or (c) any person is in possession of any money, bullion, jewellery or other valuable article or thing90 and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property 91[which has not been, or would not be, disclosed90] for the purposes of the Indian Income-tax Act, 1922 (11 of 1922), or this Act (hereinafter in this section referred to as the undisclosed income or property), 92[then,- (A) the 93[Director General or Director] or the 94[Chief Commissioner or Commissioner], as the case may be, may authorise any 94a[Additional Director or Additional Commissioner or] 95[Joint Director], 96[Joint Commissioner], 97[Assistant Director 98[or Deputy Directo....
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....f Commissioner or Commissioner], but such 9[Chief Commissioner or Commissioner] has no jurisdiction over the person referred to in clause (a) or clause (b) or clause (c), then, notwithstanding anything contained in section 10[120], it shall be competent for him to exercise the powers under this sub-section in all cases where he has reason to believe that any delay in getting the authorisation from the 11[Chief Commissioner or Commissioner] having jurisdiction over such person may be prejudicial to the interests of the revenue :] 12[Provided further that where it is not possible or practicable to take physical possession of any valuable article or thing and remove it to a safe place due to its volume, weight or other physical characteristics or due to its being of a dangerous nature, the authorised officer may serve an order on the owner or the person who is in immediate possession or control thereof that he shall not remove, part with or otherwise deal with it, except with the previous permission of such authorised officer and such action of the authorised officer shall be deemed to be seizure of such valuable article or thing under clause (iii):] 13[Provided also that nothin....
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....llery or other valuable article or thing under clause (iii) of sub-section (1).] (4) The authorised officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act. 25a[Explanation.-For the removal of doubts, it is hereby declared that the examination of any person under this sub-section may be not merely in respect of any books of account, other documents or assets found as a result of the search, but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act.] 26[(4A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed- (i) that such books of account, othe....
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.... referred to as the assets) seized under that sub-section shall be handed over by the authorised officer to the Assessing Officer having jurisdiction over such person within a period of sixty days from the date on which the last of the authorisations for search was executed and thereupon the powers exercisable by the authorised officer under sub-section (8) or sub-section (9) shall be exercisable by such Assessing Officer.] (10) If a person legally entitled to the books of account or other documents seized under sub-section (1) 37[or sub-section (1A)] objects for any reason to the approval given by the 38[Chief Commissioner, Commissioner, Director General or Director] under sub-section (8), he may make an application to the Board stating therein the reasons for such objection and requesting for the return of the books of account or other documents 39[and the Board may, after giving the applicant an opportunity of being heard, pass such orders as it thinks fit]. (11) 40[***] (11A) 41[***] (12) 42[***] 43[(13) The provisions of the Code of Criminal Procedure, 1973 (2 of 1974), relating to searches and seizure shall apply, so far as may be, to searches and seizure under....
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....of account or other documents on the return of such books of account or other documents by any officer or authority by whom or which such books of account or other documents have been taken into custody under any other law for the time being in force, or (c) any assets represent either wholly or partly income or property which has not been, or would not have been, disclosed for the purposes of the Indian Income-tax Act, 1922 (11 of 1922), or this Act by any person from whose possession or control such assets have been taken into custody by any officer or authority under any other law for the time being in force, then, the [Director General or Director] or the [Chief Commissioner or Commissioner] may authorise any [Additional Director, Additional Commissioner,] [Joint Director], 56[Joint Commissioner], [Assistant Director 58[or Deputy Director]], 59[Assistant Commissioner [or Deputy Commissioner] or Income-tax Officer] (hereafter in this section and in sub-section (2) of section 278D referred to as the requisitioning officer) to require the officer or authority referred to in clause (a) or clause (b) or clause (c), as the case may be, to deliver such books of account, other docum....
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....ome of the six years as provided in section 153A(1)(b) and reiterated in the 1st proviso to this section. The second proviso states that the assessment or reassessment pending on the date of initiation of the search or requisition shall abate. There is no divergence of views in so far as the provision contained in section 153A till the 1st proviso. The divergence starts from the second proviso which states that pending assessment or reassessment on the date of initiation of search shall abate. This means that an assessment or reassessment pending on the date of initiation of search shall cease to exist and no further action shall be taken thereon. The assessment shall now be made under section 153A. The case of the assessee is that necessary corollary to this provision is that completed assessment shall not abate. These assessments become final except in so far and to the extent as undisclosed income is found in the course of search. On the other hand, it has been argued by the revenue that abatement of pending assessment is only for the purpose of avoiding two assessments for the same year, one being regular assessment and the other being assessment under section 153A. In other wo....
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....in him earlier independent of the search and which came to an end due to initiation of the search.[Para 49) The provision contained in section 132(1) empowers the officer to issue a warrant of search of the premises of a person where any one or more of conditions mentioned therein is or are satisfied, i.e. (a ) summons or notice has been issued to produce books of account or other documents but such books of account or documents have not been produced, (b ) summons or notice has been or might be issued, he will not produce the books of account or other documents mentioned therein, or (c) he is in possession of any money or bullion etc. which represents wholly or partly the income or property which has not been and which would not be disclosed for the purpose of assessment, called as undisclosed income or property. The provision in section 132(1) does not use the word 'incriminating document'. Clauses (a ) and (b) of section 132(1) employ the words 'books of account or other documents'. For harmonious interpretation of this provision with provision contained in section 153A, all the three conditions on satisfaction of which a warrant of search can be issued will h....
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....ssessment had not been produced in the course of original assessment and found in the course of search, such books of account or other documents have to be taken into account while making assessment or reassessment of total income under the aforesaid provision. Similar position will obtain in a case where undisclosed income or undisclosed property has been found as a consequence of search. In other words, harmonious interpretation will produce the following results:- (a) In so far as pending assessments are concerned, the jurisdiction to make original assessment and assessment under section 153A merge into one and only one assessment for each assessment year shall be made separately on the basis of the findings of the search and any other material existing or brought on the record of the Assessing Officer, (b ) in respect of non-abated assessments, the assessment will be made on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search, and undisclosed income or undisclosed property discovered in the course of search. [Para 53] The interpretation placed by the Tribunal takes into account the principles of li....
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....3A has been issued after search and seizure operations, as per the provisions of section 153A, all the assessments of the six preceding assessment years prior to the date of search have to abate and that even the completed and concluded assessments should stand merged in the fresh assessment to be made by the Assessing Officer under section 153A in pursuance of the search. On appeal the court held that as under:- "A plain reading of section 153A would show that where notice under this section is issued as result of any search under section 132, assessment or reassessment if any relating to any assessment year falling within the period of six assessment years referred to under section 153, pending on the date of initiation of search under section 132 or requisition under section 132A shall abate. The words, pending on the date of initiation of search under section 132, or making of requisition under section 132A, as the case may be, has to be assigned simple and plain meaning. Where the assessment or re-assessment is finalised, there are no pending proceedings to be abated, and restored to the file of the Assessing Officer. To abate means to diminish or to take away. [Para 12] ....
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....ch interpretation, that wherever the appeal against such assessment or reassessment is pending, the same along with assessment or reassessment proceedings is liable to be abated. The principles of interpretation of taxing statutes do not permit the Court to interpret the second proviso to section 153A in a manner that where the assessment or reassessment proceedings are complete, and the matter is pending in appeal in the Tribunal, the entire proceedings will abate. [Para 19] There is another aspect to the matter, namely that the abatement of any proceedings has serious causes and effect in as much as the abatement of the proceedings, takes away all the consequences that arise thereafter. In the present case, after deducting bogus gifts in the regular assessment proceedings, the proceedings for penalty were drawn under section 271(1)(c). The material found in the search may be a ground for notice and assessment under section 153A but that would not efface or terminate all the consequence, which has arisen out of the regular assessment or reassessment resulting into the demand or proceedings of penalty. [Para 20] For the aforesaid reasons, the Tribunal had erred in law in abating....
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....to the assessee even after specifically asked by the assessee. The admitted facts are that no incriminating documents or material were found during the course of search in the case of the assessee. The Revenue has failed to point out any contrary material to the facts recorded and finding given thereon by the CIT(A). Therefore, as per the detailed discussions made above, the additions are not warranted in the hands of the assessee. 8.15 The CIT(A) noticed that the assessee has filed return for the assessment year under consideration in due course on 21.10.2004 declaring income of Rs. 2,76,250/- which is same as per return filed u/s. 153A on 16.09.2011 after the search operations on 11.03.2010. Assessment order u/s. 143(3) has also been passed on 6.12.2006 by ITO, 2(2), Gwalior assessing total income at Rs. 4,25,590/- along with agricultural income of Rs. 14,294/- after making additions on estimated basis for disallowance of diesel & fuel expenses, hammali expenses, freight, general repair expenses etc. Vide appeal order dated 17.10.2011 in appeal No.641/IT/06- 07/GWL, relief of Rs. 70,000/- has been granted out of addition made of Rs. 95,000/- by the A.O. In the light of judgmen....