TaxTMI 
TaxTMI 
TaxTMI 
2014 (12) TMI 299
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2005-06, the assessee filed the return of income on 30.11.2010 declaring a total loss of (-) Rs. 1,34,42,318. The case was taken up for scrutiny and the assessment was subsequently completed under section 153A rws 143(3) of the Act by order dt.28.12.2011 wherein the income of the assessee was determined at Rs. 24,08,157 as against the returned loss of Rs. 1,34,42,318, in view of the Assessing Officer's treating expenditure of Rs;1,76,11,639, incurred by the assessee towards renovation and improvement of a building taken on lease by him, and claimed as revenue expenditure by the assessee, to be capital expenditure. For Assessment Year 2006-07, return of income was filed by the assessee on 30.11.2010, in response to notice under section 153A of the Act, declaring total income of Rs. 54,84,010. The case was scrutinized and the assessment was completed under section 153A rws 143(3) of the Act by order dt.28.12.2011, wherein the income of the assessee was determined at Rs. 1,85,94,641 in view of the Assessing Officer, inter alia, treating expenditure of Rs. 5,94,987, incurred by the assessee on renovation and improvement of a building taken on lease by him and claimed as revenue expen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er section 153A of the Act without any seized material on this issue. 3. The learned CIT (Appeals) has erred in taking the view that the learned A.O. can review a decision already taken under section 153A or disturb an assessment which was allowed to become final without any seized material pointing out to undisclosed income. 4. The learned CIT (Appeals) has erred in upholding the decision of the learned A.O. to disallow expenditure on interior decoration and renovation of rented building as capital expenditure and allowing only depreciation under section 32(1) acting under section 153A of the Act without any seized material on this issue. 5. The learned authorities has failed to appreciate that even the decision of the Hon'ble Delhi H C relied on the by the learned CIT (Appeals) lays down the rule that there should be seized material indicating undisclosed income to get jurisdiction under section 153A in regard to assessments which have become final and as such should have accepted the claim of the appellant in this regard by following the decision of the Hon'ble Special Bench in the case of All Cargo and other decision in this regard. 6. The learned authorities failed....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the assessee that since no incriminating evidence was found at the time of search relating to these transactions of the expenditure incurred on renovation and cost of improvement of building taken on lease by the assessee, the resultant addition / disallowance of this claim was not called for in the impugned orders of assessment of income under section 153A of the Act for the four assessment years involved in the present appeals. 4.2 In this regard, the learned Authorised Representative submitted that no assessment for Assessment Years 2005-06 to 2008-09 was pending on the date of search; i.e. 20.11.2009, which could abate and empower the Assessing Officer to recompute the total income even without any incriminating material being found during the course of search. It is contended by the learned Authorised Representative, that in the absence of any incriminating material, relating to the transactions in question, found and seized in the course of search, there was no scope for the Assessing Officer to make such additions / disallowances, as has been made in the impugned order of assessment for Assessment Years 2005-06 to 2008-09. Relying on certain judicial pronouncements rendere....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) assess or reassess the total income of six assessment years immediately proceeding the assessment year relevant to the previous year in which such search is conducted or requisition is made : Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years: 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 sub-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." 4.3.2 A perusal of section 153A of the Act shows that it starts with a non-obstante clause relating to normal assessment procedure which is covered by Sections 139, 147, 148, 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... proceedings abate and the Assessing Officer gets a free hand to make the assessment. Where incriminating material relating to the earning of income not declared to the Department is found in the course of search, then there is no dispute as to the jurisdiction as well as the scope of assessment where an assessment proceedings for any Assessment Year is pending on the date of search, then proceedings relating to that assessment will abate and the scope of assessment will be wide enough to include issues emerging from abated proceedings as well as issues emerging from seized incriminating material. 4.3.5 The circumstance laid out at (ii) above, has been answered by the Courts interpreting the 2nd proviso read with section 153(1)(b) of the Act. The Hon'ble Delhi High Court in the case of Anil Kumar Bhatia (supra) at para 21 of its order has observed that : " ..... in cases where the assessment or reassessment proceedings have already been completed and assessment orders have been passed determining the assessee's total income and such orders are subsisting at the time when the search or the requisition is made, there is no question of any abatement since no proceedings are ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as in this background that the Hon'ble Court held that section 153A of the Act applies if incriminating material is found in the course of search even if assessments are completed. The question as to whether any addition can be made in respect of completed assessments when no incriminating material was found, was apparently left open. At para 23 of its order, the Hon'ble High Court has observed that - "23. We are not concerned with a case where no incriminating material was found during the search conducted under section 132 of the Act. We, therefore, express no opinion as to whether section 153A can be invoked even in such a situation. That question is therefore left open." The above observation appears to indicate a doubt in the mind of the Hon'ble High Court as to whether the proceedings under section 153A of the Act can still be initiated if no incriminating material is found in the course of search. To our minds, had it been an open and shut case, i.e. acquiring of jurisdiction under section 153A of the Act does not depend upon recovery and of seizure of any incriminating material, the Hon'ble Court would not have so commented. 4.3.8 It is in this context th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eme 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 to assess or reassess the "total income" of the aforesaid years. This is a significant departure from 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 assess or reassess the "total income" of the six assessment years in question in separate assessment orders. This means that there can be only one assessment order in respect of each of the six assessment years, in which both the disclosed and the undisclosed in....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 153A. With all the stops having been pulled out, the Assessing Officer under Section 153A has been entrusted with the duty of bringing to tax the total income of an assessee whose case is covered by Section 153A, by even making reassessments without any fetters, if need be. Therefore, it is clear even if an assessment order is passed under Section 143(1) or 143(3) of the Act, the Assessing Officer is empowered to reopen those proceedings and reassess the total income taking note of the undisclosed income, if any, unearthed during the search. After such reopening of the assessment, the Assessing Officer is empowered to assess or reassess the total income of the aforesaid years. The condition precedent for application of Section 153A is there should be a search under Section 132. Initiation of proceedings under Section 153A is not dependent on any undisclosed income being unearthed during such search. The proviso to the aforesaid section makes it clear the assessing officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years. If any assessment proceedings are pending within the period of six assessment years referred ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icial to the interest of the revenue which confers jurisdiction on the Commissioner to exercise the power of the jurisdiction. 11. The Tribunal has proceeded on the assumption by virtue of the judgment of the special bench of the Mumbai, the scope of enquiry under Section 153A is to be confined only to the undisclosed income unearthed during search and if there is any other income which is not the subject matter of search, the same cannot be taken into consideration. Therefore, the revisional authority can exercise the power under Section 263. In the entire scheme of 153A of the Act, there is no prohibition for the assessing authority to take note of such income. On the contrary, it is expressly provided under Section 153A of the Act the Assessing Officer shall assess or reassess the "total income" of six assessment years which means the said total income includes income which was returned in the earlier return, the income which was unearthed during search and income which is not the subject matter of aforesaid two income. If the commissioner has come across any income that the assessing authority has not taken note of while passing the earlier order, the said material can be furn....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urred on renovation / investment in hotels acquired by the assessee on lease, as being capital in nature, making the following observations :- (i) Explanation 1 to Section 32(1) of the Act provides for fictional ownership to the lessee and therefore the issue of ownership is irrelevant; (ii) Due to the insertion of Explanation 1 to section 32 of the Act, the judgement of the Hon'ble Apex Court in the case of CIT V Madras Auto Services (P) Ltd. reported in (1998) 233 ITR 468 (SC) is no longer applicable; (iii) The lease period for the hotel buildings is for 10 years and therefore it cannot be said that the benefit is not of enduring nature; (iv) Renovation of building and interiors normally forms part of important capital expenditure. 5.3.1 Before us, the contention of the assessee is that it has taken hotels on lease and for carrying out its business effectively and efficiently, has incurred expenditure for renovation the same. According to the learned Authorised Representative of the assessee, the expenditure incurred by the assessee in renovating the hotels is only in the process of earning profits in the course of the business activities and the expenditure so incurred ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ciation on the capital assets brought into existence by virtue of the said expenditure incurred on the leased hotel building, which has allowed by the Assessing Officer. The learned Departmental Representative supported the findings of the Assessing Officer and placed reliance on the judicial decisions relied on by the Assessing Officer. 5.4.1 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial decisions cited. It is not in dispute that the assessee has taken the hotel on lease. As per the details on record it is seen that the assessee has incurred expenditure on renovation of plant design system, computer cabling, fire detection and alarm system, card access system, plumbing and air conditioning work, electrical works, fixing of carpets, interior work, etc. In the course of assessment proceedings, the Assessing Officer on examination of the same observed that this expenditure indicated that major renovation works had been undertaken and therefore cannot be treated as revenue expenditure. The Assessing Officer, referring to Explanation 1 to Section 32 of the Act, was of the view that the assessee has incurred capi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es were not entitled to any benefit at all in this regard. Therefore, by removing the legal restrictions in respect of capital expenditure incurred by the assessees who take business premises on lease, Parliament intended to grant / allow depreciation on the capital expenditure incurred on such leased premises. On a careful perusal of the provisions of section 32(1A) of the Act and the circumstances in which it was introduced in the statute, it is clear that in case revenue expenditure was incurred by the assessee on the premises taken on lease, the question of allowing any depreciation u. 32(1A) of the Act would not arise for consideration. In other words, section 32(1A) of the Act introduced w.e.f. 1.4.1971 by Taxation Laws (Amendment) Act, 1970 would not be applicable in case the assessee incurred revenue expenditure on the leased premises. 5.4.5 However, sub-section 1A of Section 32 of the Act introduced by Taxation Laws (Amendment) Act, 1970 was omitted and Explanation 1 to Section 32 was introduced by Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 w.e.f. 1.4.1988. This was done when the concept of depreciation on individual asset was changed to depreciation....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sion or improvement in the building. 5.4.7 In the case on hand, on an appreciation of the facts of the case and details on record, we find that after incurring the expenditure on the leased premises, the assessee has neither obtained any enduring benefit nor has any new capital asset has come into existence. The assessee continued to run the hotel in the very same leased premises. It is not anybody's case that the seating capacity was not increased after the expenditure. The expenditure incurred was only for carrying on the business and was an integral part of the profit earning process. Therefore, we find that no case has been made out to say that the assessee has obtained any enduring benefit by virtue of this expenditure. The nature of the work undertaken by the assessee is to carry on the business and not obtain any asset. Further, as already observed, no capital asset of an enduring nature came into existence. In other words, the assessee has not acquired any asset / income earning apparatus. It is well settled principle of law that the expenditure incurred for acquisition of an asset is a capital expenditure and expenditure incurred in the process of earning profit is revenu....