AI Drafter 
TaxTMI 
TaxTMI 
2015 (9) TMI 80
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....s under Section 2(22)(e) of the Income Tax Act, 1961 ('Act') were not sustainable because no incriminating material concerning such additions were found during the course of search and further no assessments for such years were pending on the date of search?' Background facts 3. A search was carried out under Section 132 of the Act on 15th November 2007 on BPTP Ltd., a leading real estate developer operating all over India and mainly in the National Capital region and some of its group companies. A search was on the same date carried out in the premises of the Assessee who along with his wife Mrs. Anjali Chawla owned and controlled the group. As on the date of the search, no assessment proceedings were pending for AYs 2002-03, 2005-06 and 2006-07. For the said AYs, assessments had already been made under Section 143(1) of the Act. 4. Pursuant to the search a notice under Section 153A (1) of the Act was issued to the Assessee on 3rd September 2008. Pursuant to the said notice, the Assessee filed returns for the three AYs on 19th January 2009. For AY 2002-03, the Assessee declared a total income of Rs. 12,42,740. The assessment was finally completed by the Assessin....
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....of the corresponding amounts had been made on protective basis in the hands of STPPL, BPOPL, CPDPL, PPDPL and the companies in the BPTP Group. Each of the above companies had contended that they were not registered shareholders in the companies which advanced loans to them and that the said loan amounts could be considered as deemed dividend only in the hands of the registered shareholder of the lending companies concerned. The AO had observed that in the respective assessment orders of STPPL etc for the relevant AYs it had been noted that the Assessee herein was a registered shareholder in the companies that had advanced them loans. The AO had rejected the contention of the Assessee herein that he himself had not received any sum by way of dividend and that the advance had been received by the sister concerns of the group during the normal course of business. 8. The CIT (A) noted that the Assessee was a beneficiary/owner having more than 10% of the voting rights in both STPPL and PPDPL as well as the company from which the loan was received. The undisputed facts were that some other sister concerns of the BPTP Group had made advances to the said companies. All the concerns invo....
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....which assessment is not pending, then the total income would be determined by considering the originally determined income plus (+) income emanating from the incriminating material found during the course of search." 10. In the facts of the present cases, the ITAT concluded that the additions made for AY 2002-2003, 2005-2006 and 2006-2007 under Section 2 (22) (e) of the Act were not based on any incriminating material found during search operation. Accordingly, these were held not sustainable in law, the impugned assessment orders for the said AYs were set aside and the additions directed to be deleted. However, the additions made for AYs 2007-2008 and 2008-2009 were sustained by the same impugned order of the ITAT. The present appeals do not pertain to the said two AYs. Submissions of counsel 11. The submission of Ms. Suruchi Aggarwal, learned Senior Standing Counsel for the Revenue, is that there is no mention in Section 153A of the Act that any incriminating material had to be found during the search in order that an assessment could be framed in terms of the first proviso to Section 153A(1) of the Act for those AYs where the assessment already stood completed on the da....
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....47 of the Act to draw a distinction as to the basis on which an AO may come to a conclusion that some income has escaped assessment. Reference was made to the decision of this Court in Ranbaxy Laboratories Ltd. v. Commissioner of Income Tax [2011] 12 Taxmann.Com 74 (Del), of the Rajasthan High Court in Jai Steel (India), Jodhpur v. ACIT [2013] 36 Taxmann.Com 523 (Raj) and the judgement dated 29th October, 2010 of the Bombay High Court in ITA No. 36/2009 (CIT v. M/s. Murli Agro Products Ltd.). 14. Mr. Aggarwal added that if, in the absence of any material unearthed during the course of search, an AO has come to a different conclusion on the documents and evidence already available at the time of finalisation of the earlier assessment, then it would be only a change of opinion which in any event would be unsustainable in terms of Section 147 of the Act. In other words even if the AO could have sought to reopen the assessment under Section 147 of the Act his satisfaction would have to be based on some tangible material. He submitted that in the facts and circumstances of the case the AO could not have made an addition even if he had recourse to Section 147 of the Act since the....
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....of sections, viz., Sections 153A to 153C, the concept of a single block assessment was given a go-by. It was explained that where a search was made after 31st May, 2003 the AO was obliged to issue notices calling upon the searched person to furnish returns for the six AYs immediately preceding the AYs relevant to the previous year in which the search was conducted. Under Section 153A, the AO was required to exercise normal assessment powers in respect of the previous year in which the search took place. Another significant feature was that the AO had power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. This meant that there could be only one Assessment Order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". 18. This Court in CIT v. Anil Kumar Bhatia (supra) posed the question as under: "21. A question may arise as to how this is sought to be achieved where an assessment order had already been passed in respect of all or any of those six assessment years, either under Section 143(1)(a) or Section 143(3) of the Act. ....
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....k place." The Court clarified in para 24 as under: "24. 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." 21. Therefore it is clear that the decision in CIT v. Anil Kumar Bhatia (supra) does not deal with a situation where, as in the present case, no incriminating material was found during the search conducted under Section 132 of the Act. The decision in Chetan Das Lachman Das 22. On the same date as it rendered the above decision, this Court also pronounced its decision in CIT v. Chetan Das Lachman Das (supra). In the latter case, again, a search was undertaken in the Assessee's premises under Section 132 of the Act on 13th December, 2005. The decision itself notes: "in the course of the search certain documents were found which according to the Assessing Officer suggested gross under invoicing of sales and suppression of production/ yield of Hing." Consequently that was again not a case where there was no material unearthed during the ....
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....it was mandatory for the AO to issue notice to the person searched requiring him to furnish returns of income for the six AYs immediately preceding the AY relevant to the previous year in which the search was conducted. The Court was not entering into a discussion on whether any additions could be made in the assessment by the AO in the absence of any incriminating material unearthed during search. On the other hand, it left it open to the Assessee to raise all contentions in the assessment proceedings. The Court observed "in case he has evidence or material to show that he has not earned any income which is not disclosed to the income tax authorities or to rebut the material gathered during the search, it is perfectly open to him to do so." One observation in the said judgement is, however, important. While explaining Section 153A of the Act, the Court observed "it is not merely the undisclosed income that will be brought to tax in such assessments, but the total income of the assessee, including both the income earlier disclosed and income found consequent to the search, would be brought to tax." The Court, however, did not answer the question of whether a finding of undisc....
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....ot unearthed during the search, in order to find out what is the "total income" of each year and then pass the assessment order." 27. It is important to note that Canara Housing was also a case where some material was unearthed during the search. Further, the High Court was clear that the addition to the income already disclosed would have to be based on some material unearthed during the search. This is clear from the observation in para 9 of the decision to the effect: "The AO is empowered to reopen those proceedings and reassess the total income, taking note of the undisclosed income, if any, unearthed during the search." It was further observed that in the facts of that case if the CIT had come across any income that the AO had not taken note of while passing the earlier order, "the said material can be furnished to the assessing authority" who will take note of it while determining total income. The decision in Filatex India Ltd. 28. In Filatex India Ltd. v. CIT-IV (supra), one of the questions framed was whether the ITAT erred on facts and in law in not holding that recomputation of book profit, de-hors any material found during the course of search, in the order pas....
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....ed material, is basically clarificatory that the assessment under Section 153A emanates and starts on the foundation of the search, which is the jurisdictional precondition. The additions cannot and should not be arbitrary...." 30. The above passage in Filatex India Ltd. (supra), paraphrases inter alia, the following line in CIT v. Chetan Das Lachman Das (supra): "This, however, does not mean that the assessment under Section 153A can be arbitrary or made without any relevance or nexus with the seized material". However, the immediately next line in CIT v. Chetan Das Lachman Das (supra)reads: "Obviously an assessment has to be made under this Section only on the basis of seized material...." 31. What distinguishes the decisions both in CIT v. Chetan Das Lachman Das (supra) and Filatex India Ltd. v. CIT-IV (supra) in their application to the present case is that in both the said cases there was some material unearthed during the search, whereas in the present case there admittedly was none. Secondly, it is plain from a careful reading of the said two decisions that they do not hold that additions can be validly made to income forming the subject matter of completed asses....
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....words "assess" and "reassess", which have been found at more than one place in Section 153A of the Act as under: "26. The plea raised on behalf of the assessee that as the first proviso provides for assessment or reassessment of the total income in respect of each assessment year falling within the six assessment years, is merely reading the said provision in isolation and not in the context of the entire section. The words 'assess' or 'reassess' have been used at more than one place in the Section and a harmonious construction of the entire provision would lead to an irresistible conclusion that the word assess has been used in the context of an abated proceedings and reassess has been used for completed assessment proceedings, which would not abate as they are not pending on the date of initiation of the search or making of requisition and which would also necessarily support the interpretation that for the completed assessments, the same can be tinkered only based on the incriminating material found during the course of search or requisition of documents." The decision in Continental Warehousing 35. In Commissioner of Income Tax v. Continenta....
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....nd any other material existing or brought on the record of the AO, (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" 36. Ultimately in Continental Warehousing (supra), the Bombay High Court answered the question framed by it as under: "a. In assessments that are abated, the AO retains the original jurisdiction as well as jurisdiction conferred on him u/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 u/s 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 (ii) undisclosed income or property discovered in the course of search." Summary of the legal position 37. On a conspectus of Section 153A(1) of the Act....