AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2020 (3) TMI 948
X X X X Extracts X X X X
X X X X Extracts X X X X
....ls and cross-objections together and pass consolidated order for the sake of convenience. 3. First of all we shall take up the appeal in ITA No. 2148 of 2017 4. The revenue raised ground no. 1 to 6 amongst which only issue arises for our consideration challenging the action of CIT(A) in holding the assessment made u/s 153A/143(3) of the Act is invalid in the absence of any incriminating material in the facts and circumstances of the case. 5. The brief facts relating to the issue on hand are that the assessee is a company engaged in the business of share dealing and interest income. A search u/d 132 of the Act was conducted in the office premises of the assessee on 05.08.2014 and on subsequent dates. During the course of search and seizure operation documents bearing identification marks BRL-5 was found and seized. 6. According to the AO, page no. 12 and 13 of the seized document reflects the details of shareholder as on 31.03.2014. Accordingly, a notice u/s 153A of the Act was issued, in response to the said notice, the assessee filed return of income declaring total income of Rs. 1,49,03,670/-. Notices u/s 143(2) and 142(1) of the Act issued and authorized representati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tio decided by the Jurisdictional bench of Kolkata Tribunal in cases referred above and the ratio decided by the Hon'ble Calcutta High Court in the case of Veer Prabhu Marketing Ltd. (supra) in the light of CBDT's decision of not filing SLP in this case in the Supreme Court and keeping in view the Apex Court's decision to dismiss SLP on similar issue in the case of Pr. CIT vs Kurele Paper Mills Pvt. Ltd. SLP (c) No. 34554 of 2015 dtd. 07.12.2015, I am of this view that in order to maintain judicial continuity on this issue and respectfully following the ratio decided by the Hon'ble Calcutta High Court in the case of Veer Prabhu Marketing Ltd. (supra), assessee's appeal on ground no. 1, 2 and 3 are allowed and as such I am not inclined to adjudicate appeal on ground no. 4 to 7 on merit. Since the appeal in this case has been adjudicated on technical ground, therefore, I am not inclined to adjudicate appeals on other grounds on merit." 9. Before us, the ld. DR Sri Imokaba Jamir submits that the language of section 153A makes it very clear that there is no explicit or intended requirement of seizure of incriminating material during the search u/s 132(1) before issuing the notices u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d to examine whether such income / entry was disclosed fully or partly and/ or represents its real nature and source for the purposes of the Act. This inter alia would mean that even the entries disclosed in accounts which might represent income fully or partly would in itself be an incriminating material for which a search was initiated. When the non-production of books or other documents can give rise to a belief for initiating search u/s 132(1), then it may be counterproductive to conclude that the power of AO is restricted to assessment based only on incriminating material found in search, irrespective of any other item of income which might have remained fully or partly undisclosed for the purposes of the Act, based upon the entries already appearing in such books. 12. Further, ld. DR submits that it is the 'assessment of total income' which is required to be made u/s 153A. The total income as defined u/s 2(45) would be the total income computed as per section 5 of the Act. The word 'assessment' cannot have a different meaning for different purposes under the same Act, unless restricted by specific provisions. The process of assessment for the purposes of the Act is wide en....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ome which could be assessed u/s 153A in abated proceedings cannot be different for the cases which could not be abated such as i) where no proceedings were pending; or ii) where earlier assessments were completed u/s 143(3)/147; or iii) where earlier assessments were not made at all. The only caveat could be that before making any addition to the total income, the AO must bring on the record how such items are falling into the category of total income for the purposes of the Act. 14. If it were to be held that no addition can be made without any incriminating material in respect of the years covered by section 153A, then it would lead to an absurd consequence whereby the powers granted to issue notices u/s 153A would be rendered otiose in cases which got abated for any particular AY. In the absence of any seized material, AO may not be able to proceed to make any assessment of any other item of total income implying that the process of making assessment of total income as envisaged in section 153A fails in abated cases and a statute can never be interpreted in a manner to make it redundant. Section 153A does not say that additions should be strictly made on the basis of evidence....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ns of 153A. (b) However, the same Delhi High Court in case of Dayawanti Gupta Vs CIT 390 ITR 496(Del) in para 16 has observed that: "Section 153A, which provides for an assessment in case of search, and was introduced by the Finance Act, 2003 HYPERLINK "https://taxguru.in/custom-duty/section-166- finance-act-2003-incorporation-provisions-relating-prosecution-finance-act-1989- respect-inland-air-travel-taxreg.html" with effect from 1-6-2003, does not provide that a search assessment has to be made strictly on the basis of evidence found as a result of search or other documents and such other materials or information as are available with the Assessing Officer and relatable to the evidence found. The earlier section 158BB which is not applicable in case of a search conducted after 31-5-2003, provided that the computation of the undisclosed income can only be on the basis of the evidence found as a result of search or other documents and materials or information as are available with the Assessing Officer, provided they are related to the materials found. Section 153A(1)(b) requires assessment or reassessment of total income of the six assessment years immediately pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ere was incriminating material is also of no consequence as the provisions of section 153C has been amended w.e.f 1/4/2005 and that the decision of Sinhgad Tech Edu society was for period prior to 1/4/2005. 16. He reiterates that the sum and substance of all the decisions above could only indicate that the question of whether the AO has powers u/s 153A to assess total income as defined u/s 2(45) dehors the incriminating material also, has not at all become final and the same is yet pending final adjudication before the Supreme Court in SLPs admitted and the arguments made in preceding paragraphs can be pitched up to support the revenues' contention before courts. 17. He raised next set of questions that the 'incriminating material' can be in any form such as evidence in the nature of i) a document, content of any document; ii) an entry in books of account; iii) an asset; iv) a statement given on oath; v) absence of any fact claimed earlier but coming to notice during search; vi) absence of books being found during search; or vii) absence of the office/ business premises as claimed during returns filed or any other documents, etc. In short, any fact/ evidence which could sugge....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ged, or incorrect, wholly or partially, and such entries have a bearing on determination of total income of such person. The definition under clause (ii) of 271AAB(c) also defines undisclosed income as "any income based on entry in books of accounts wholly or partly false and would not have been found to be so, had the search not been conducted". This clearly implies that any entry even recorded in the books, which is found to be wholly or partly false along with having a bearing on determination of income based on evidence gathered during search, would also be in the nature of incriminating material. Further, recently introduced section 270A, which is also applicable to search asstt. for AYs other than specified years, mandates to levy penalty even in cases where the expenses had been claimed in the books without any evidence or where the entries recorded in the books were found to be false. This also supports the contention that mere recording of an entry in the books of accounts does not take away its incriminating character, if such entry was without evidence or had been falsely recorded in the books of accounts. The same principle will also hold good for the documents submitte....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of 158BB are Pari Materia to section 153A. The Delhi High court in PCIT Vs Kabul Chawla in para 37(iv) observed as under: "iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously, an assessment has to be made under this Section only on the basis of seized material." 22. The Delhi High court has thus explained the underlying principle that though the assessment may not be based on seized evidence only but the addition cannot be arbitrary. There can be no dispute on this proposition. It has to be based on evidences found during search, or post search or information available with the AO which can be related to the evidence found. Any entry already recorded in the books which is not true in its nature or source and any information even coming to the AO post search shall constitute incriminating material for the purpose of making an assessment u/....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stration, Gorakhpur Vs. Bhagwan Das (dead) By Lrs reported in (2008) 8 Supreme Court Cases 511, the Hon'ble Supreme Court has again reiterated the point that a judgment or decree obtained by fraud either in the first court or in the highest Court, is a nullity in the eye of law. 25. Section 44 of the Evidence Act also enables a party otherwise bound by a previous adjudication to show that it was not final or binding because it is vitiated by fraud. The provision gives jurisdiction and authority to a Court to consider and decide the question whether a prior adjudication is vitiated by fraud. The above propositions of law abundantly make clear that the AO also being a quasi-judicial authority, while functioning under the Act, shall also be bound by similar principles of jurisprudence. For the purposes of assessment of total income u/s 153A also, any findings given in respect of any claim/relief in earlier proceedings shall stand vacated by operation of legal principles where it is found that in earlier proceedings the AO has been misled by suppression or misrepresentation of material facts or by producing only make belief documents, which were not found to be genuine subsequently ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... High Court in the case of Canara Housing Development Co. vs. D.C.I.T. reported in (2014) 49 taxmann.com 98 (Kar Hc) and also as per the decisions of Kerala High Court in the case of St. Francis Clay Décor Tiles 2016, 70 tamann. 234 Kerala, 22 March, 2016 and E. N. Gopa Kumar vs. C.I.T.(Central), 30 October, 2016 it was held that search assessments could be framed even without the existence of incriminating materials found in the course of search. 29. The basic foundation for conducting the search is governed by the provisions of section 132 of the Act which has to be read harmoniously with section 153A of the Act. There are three conditions based on which a search action could be initiated u/s. 132 of the Act on an assessee. They are :- Section 132(1) - If the concerned authority has in consequence of information in his possession, has reason to believe that - where a person fails to produce the books of accounts and other documents in response to notice u/s. 142(1) or summons issued u/s. 131(1) of the Act ; or where a person fails to comply with the requirements of summons issued u/s. 131(1) of the Act ; or where a person is in posses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion 153A(1). 32. It is further to point out that the provision of Section 153A are non obstanse clause which does not have any conditions of seized material or incriminating material for making assessment, filing of return or conditions for issuance of notice u/s. 153A. Wherever the search has been conducted 153A has to be issued indiscriminately without any seized material and assessment of that return is to be made. The Apex Court in the case of CST v. Modi Sugar Mills Ltd. [1961] 12 STC 182 (SC) ; AIR 1961 SC 1047 and in CIT v. Calcutta Knitwears [2014] 362 ITR 673 (SC) has held that the while interpreting fiscal statutes, the court must not add or substitute the word in the provision and prayed to allow the grounds raised by the appellant revenue. 33. In reply to Revenue's contention, Sri R.P. Agarwal, Sr. Advocate placed reliance on the order passed by the Ld. CIT(A) and submitted that the additions are not based on any incriminating seized material in course of search. As per section 153A, the assessments are classified in two categories, i.e.(i) Completed Assessment and (ii) Pending or Abated Assessment. Completed Assessment refers to the assessment which are not pend....
X X X X Extracts X X X X
X X X X Extracts X X X X
....criminating material on record. 36. Regarding certain decisions as relied on by Ld. DR out of which most of the decisions are irrelevant to the instant case and distinguished the same. a. In respect of the decision of Hon'ble Delhi High Court in the case of M/s. Filatex India Ltd. vs CIT (229 Taxman 555) and CIT vs Anil Kumar Bhatia (352 ITR 493) and submit that both the decisions as relied by the Ld. DR are completely on different facts and have been considered and distinguished by the Hon'ble High Court of Delhi while passing the decision of CIT vs Kabul Chawla (380 ITR 573). Therefore, the decision in Kabul Chawla (supra), negates the contention of the Ld. DR. b. Regarding the decision of Hon'ble Allahabad High Court in case of Raj Kumar Arora ( in 367 ITR 517) and submitted that the above mentioned decision of Raj Kumar Arora has been given by the Hon'ble Allahabad High Court by relying on the decision of Hon'ble Delhi High Court in case of CIT vs Anil Kumar Bhatia (352 ITR 493). As mentioned above, the case of Anil Kumar Bhatia has been considered and distinguished by the Hon'ble High Court of Delhi while passing the decision of CIT vs Kabul Ch....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ere admission of SLP does not mean that the case has been decided in favour of the revenue. g. In respect of the decision of Hon'ble Apex Court in case of CIT vs S. Ajit Kumar in 404 ITR 526 and Hon'ble Apex Court have held that material found or statement recorded in a survey conducted simultaneously at the premises of a connected person can be treated as incriminating material for the purpose of making the addition u/s 153A. However, in our case, no such survey has been conducted u/s 133A. 37. Further, that the present case is completely covered in the favour of the assessee by various decisions of various High Courts & ITAT including the Jurisdictional High Court & ITAT and also by the decision of Hon'ble Apex Court. 38. The Hon'ble Supreme Court in case of PCIT Vs. Meeta Gutgutia Hon'ble held as under: "section 153A of the Income-tax Act 1961 - Search and seizure (General principles) - Assessment years 2001 -02 to 2003 -04 and 2004- 05 - High Court in impugned order held that invocation of section 153A to re-open concluded assessments of assessment years earlier to year of search was not justified in absence of incriminating material foun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Calcutta has time and again reiterated its view that the additions in case of the search assessments have to be made on the basis of incriminating material. Some of the recent decision of the Hon'ble Jurisdictional High Court as well as other courts are discussed hereunder for ready reference. * PCIT-2, Kolkata vs Salasar Stock Broking Ltd. (ITAT No. 264 of 2016 dated 24.08.2016): (Calcutta) * CIT, Kolkata - III vs Veerprabhu Marketing Ltd. (2016) 73 taxmann.com 149 (Calcutta) * CIT vs Kabul Chawla (2016) 380 ITR 0573 (Delhi) * Mridul Commodities Pvt. Ltd. vs DCIT, Cent, Cir-XXI, Kolkata in [IT(SS)A Nos. 14 & 15/Kol/2015] dated 07.10.2016. * M/s. All Cargo Global Logistics Ltd. vs DCIT, Cent. Circle - 44, Special Bench Mumbai (IT Appeal Nos. S018 to S022 & S059 (Mum) of 2010 dated 06.07.2012. * ACIT vs M/s. PHPL Stock Broking Pvt. Ltd. in IT(SS)A No. 12/Kol/2017 dated 21.08.2018. * DCIT vs M/s. B.R. Infraprojects Pvt. Ltd. in IT(SS)A No. 11/Kol/2017 dated 26.09.2018. * DCIT vs M/s. Rosemarry Sponge & Ispat Pvt. Ltd. in IT(SS)A No. 75 & 76/Kol/2017 dated 30.11.2018. 42. Further, submits the Ld. CIT(A) has giv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ment completed was beyond the scope in the absence of any incriminating material found during the course of search. 47. For our benefit, let us examine that the decision of Hon'ble High Court of Delhi in the case of Kabul Chawla. We note that a search was conducted in the case of Kabul Chawla as on the date of said search, no assessment proceeding was pending with the relevant assessment year. The AO reopened the said assessment pursuant to the search on account of deemed dividend u/s 2(22)(e) of the Act. The Tribunal deleted the said addition which was not based on any incriminating material found during the course of search. The Hon'ble High Court of Delhi upheld the order of Tribunal by holding that the additions made to the income of assessee for the relevant assessment years u/s 2(22)(e) were not sustainable as there was no incriminating material concerning such additions was found during the course of search. In the present case, there is no dispute that the assessment was completed as on the date of search and we find the CIT(A) in his impugned order categorically held that no incriminating documents / papers relevant to the issue on hand were not seized during the course....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he present case. 51. Regarding the decision of Hon'ble Supreme Court in the case of Continental Warehousing Corporation reported in 235 Taxman 568 (SC) wherein we find a special leave petition has been admitted by the Hon'ble Supreme Court and no final order brought on record by both the parties. 52. We note that as rightly argued by the Ld.AR the Hon'ble High Court of Calcutta have been consistently held that the additions in the case of search assessment have to be made on the basis of incriminating material, supporting the same, the citation of which have been reproduced in the afore-mentioned paragraph. Therefore, considering the facts and circumstances of the case and submissions of ld. DR and AR along with the decisions relied on, we find no infirmity in the order of CIT(A) and it is justified. Thug ground nos. 1 to 6 raised by the revenue are dismissed. 53. Ground No. 7 and 8 raised by the revenue becomes infructuous in view of our decision involving ground nos. 1 to 6 in the above mentioned paragraph. Therefore ground no. 7 & 8 raised by the revenue are dismissed. 54. We shall take up C.O. No. 110 of 2018 of assessee of ITA 148/KOL/2017 55. We find that th....