TaxTMI 
TaxTMI 
2020 (11) TMI 43
X X X X Extracts X X X X
X X X X Extracts X X X X
....153B of the I.T. Act, 1961. 2. For that on the facts and circumstances of the case the learned CIT(A) ought to have entirely deleted the addition made by the AO on estimation of profit, as there is no material in this respect relating/pertaining to the assessment year under consideration was found/seized during the course of search & seizure operation u/s. 132 of the I.T. Act, 1961 conducted on 21/22.08.2013. 3. For that on the facts and in the circumstances of the case, the adoption of profit rate by working out from a loose paper relating/pertaining to other assessment year, is not proper and also unjustified, which is also otherwise high and excessive and without any material nexus or bringing any compatible cases. The learned CIT(A) ought to have accepted the income disclosed by the assessee-appellant in absence of any incriminating material relating to the present year found/seized during the course of search operation conducted on 21/22.08.2013. 4. For that on the facts and in the circumstances of the case, levy of interest u/s. 234A, 234B and 234D of the IT Act, 1961 is illegal, unjustified and bad in law, which the learned CIT(A) ought to have vac....
X X X X Extracts X X X X
X X X X Extracts X X X X
..../- from hotel business. After deducting various expenses including depreciation, the assessee-firm has arrived at the gross profit of Rs. 5,03,043/- which works out to about 11.73%. Thereafter, it has arrived at the net profit of Rs. 2,06,904/- after deducting interest on capital and remuneration to partners amounting to Rs. 2,48,139/- and Rs. 48,000/- respectively. During the course of assessment proceedings, the AO asked the assessee to furnish the basis with documentary evidence regarding the net profit arrived at and disclosed in its return of income filed in response to notice u/s. 153A of the Income tax Act, 1961. The assessee was also asked to produce relevant books of account in support of the financial particulars/statements filed during the course of assessment proceedings. Finally, after detailed discussion, in absence of any evidence regarding the source of investment and regular books of account such as cash book & ledger, the AO concluded that the assessee firm has invested the amount of Rs. 13,63,378/- as determined/estimated by the Departmental Valuation Officer, out of its own income earned from undisclosed sources. Thereafter the AO completed the assessment u/s. 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce of any incriminating material relating to 'the present year found/seized during the course of search operation conducted on 21/22.08.2013. 2. In this respect, it is humbly submitted that as is evident from the assessment order that the Assessing Officer estimated the net profit for the Assessment Year 2008-09 completely based on seized material i.e., HMB-3 Page Nos. 30, 32 and 60, which relate to Assessment Year 2014-15 (Part period), Assessment Year 2012-13 and Assessment Year 2013-14 respectively, 'which the CIT(A) has clearly stated in paragraph 4.1 of his order thus- "This document gives the actual state of affairs of the business of the appellant for AYs 2012-13, 2013-14 and 2014-15". Nowhere either in the assessment order or in the first appeal order there is any discussion or finding about any incriminating material being found during the search operation justifying estimation of profit for the Assessment Year 2008-09. Thus it is clear that there is no seized material relating/pertaining to the AY 2008-09 but the addition is made by both the authorities below without any incriminating material being seized during the search operation. It was submitted bef....
X X X X Extracts X X X X
X X X X Extracts X X X X
....year in which the search takes place. (ii) Assessments and reassessments pending on the date of the search shall abate. The total income for such assessment years will have to be computed by the Assessing Officers'' as a fresh exercise. (iii) The Assessing Officer will exercise normal assessment powers in respect of the six years previous to the relevant assessment year in which the search takes place. The Assessing Officer has the power to assess and reassess the "total income " of the six years in separate assessment orders for each of the six years. In other words, there will be only one assessment order in respect of each of the six assessment years in which both the disclosed and the undisclosed income would be brought to tax. (iv) Although section 153A 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 Assessing Officer which can he related to the evidence found, it does not mean that the assessment can be arbitrary or made without any relevance nr nexus with the seized material. Obviously, an assessment has to be made....
X X X X Extracts X X X X
X X X X Extracts X X X X
....utta High Court In the said case, the learned Tribunal was of the' opinion that the Assessing Officer had no jurisdiction under Section 153 A of the Income Tax Act to reopen the concluded cases when the search and seizure did not disclose any incriminating material. In taking the aforesaid view, the learned Tribunal relied upon a judgement of Delhi High Court in the case of CIT[A] vs. Kabul Chawla reported in 380 ITR 573. The aggrieved Revenue appealed before the Hon'ble High Court. The Hon'ble High Court dismissed the appeal by observing as under: "We are in agreement with the views expressed by the Karnataka High Court that incriminating material is a pre- requisite before power could have been exercised under section 153C read with section 153A. In the case before us, the assessing officer, has made disallowances of the expenditure, which were already disclosed, for one reason or the other. But such disallowances were not contemplated by the provisions contained under section 153C read with section 153A. The disallowances made by the assessing officer were upheld by the CIT(A) but the learned Tribunal deleted those disallowances." ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Assessing Officer had not referred to any incriminating material found during the search based on which addition had been made. Hon'ble Tribunal relying on the Special Bench decisions deleted the additions holding that the Assessing Officer had no jurisdiction to make addition under S. 153A. (7) Hardev Jesgwabu v. ACIT in ITA No. 369, 339, 340 & 341/Agra./2012 order dt. 31.5.2013 (ITAT Agra) In this case where no adverse or incriminating material was found as a result of search which can be made the basis for Assessing Officer to have satisfied that the income relating to the assessee, has been unearthed during the search, and when the Assessing Officer has not referred to any seized documents or material in the assessment orders on the basis of which the addition has been, Hon'ble ITAT deleted the additional including the addition of notional annual letting value being determined on estimation. (8) CIT vs. Anil Kr. Bhatia (2012), 2010-11 Taxman 453 (Del) In this case Hon'ble High Court has held that in absence of incriminating material found during the course of search an addition u/s. 153A of the Act cannot be made in the assessm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat decision noted, that "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 under such situation". That question was, therefore, left open. As far as CIT v Chetan Das Lachman Das (supra) is concerned, in para 11 of the decision it was observed: "11. Section 153A (1) (b) provides for the assessment or reassessment of the total income of the six assessment years immediately preceding the -assessment year, relevant to the previous year in which the search took place. To repeat, there is no condition in this Section 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 Assessing Officer which can be related to the evidence found. 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. Obviously an assessment has to be made under this Section only on the basis of seized material." 58. In Kabul Chawla (supra), th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d abated in terms of II proviso to Section 153A of the Act, the AO acts under his original jurisdiction, for which, assessments have to be made; (b) regarding other cases, the addition to the income that has already been assessed, the assessment will be made on the basis of incriminating material; and (c) in absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made." 34. The argument of the Revenue that the AO was free to disturb income de hors the incriminating material while making assessment under Section 153A of the Act was specifically rejected by the Court on the ground that it Was "not borne out from the scheme of the said provision" which was in the context of search and/or requisition. The Court also explained the purport of the 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 readin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....undisclosed income would be brought to tax". 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." v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d that was assessed, section 153A of the Act seeks to assess the total income for the assessment year, which is clear from the first proviso thereto which provides that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years. The second proviso makes the intention of the Legislature clear as the same provides that assessment or reassessment, if any, relating to the six assessment years referred to in the sub-section pending on the date of initiation of search under section 132 or requisition under section 132A, as the case may be, shall abate. Sub-section (2) of section 153A of the Act provides that if any proceeding or any order of assessment or reassessment made under sub-section (1) is annulled in appeal or any other legal provision, then the assessment or reassessment relating to any assessment year which had abated under the second proviso would stand revived. The proviso thereto says that such revival shall cease to have effect if such order of annulment is set aside. Thus, any proceeding of assessment or reassessment falling within the six assessment years prior to the search or requisition s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e and ambit of the assessment would include any order which the Assessing "Officer could have passed under section 147 of the Act as well as under section 153A of the Act. XXX 19. On behalf of the appellant, it has been contended that if any incriminating material is found, notwithstanding that in relation to the year under consideration, no incriminating material is found, it would be permissible to make additions and disallowance in respect of an the six assessment years. In the opinion of this court, the said contention does not merit acceptance, inasmuch as. the assessment in respect of each of the six assessment years is a separate and distinct assessment. Under section 153A of the Act, assessment has to be made in relation to the search or requisition, namely, in relation to material disclosed during the search or requisition. If in relation to any assessment year, no incriminating material is found, no addition or disallowance can be made in relation to that assessment year in exercise of powers under section 153A of the Act and the earlier assessment shall have to be reiterated. In this regard, this court is in complete agreement with the view ado....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on in Dayawanti Gupta 64. That brings us to the decision in Dayawanti Gupta (supra). As rightly pointed out by Mr. Kaushik, learned counsel appearing for the Respondent, that there are several distinguishing features in that case which makes its ratio inapplicable to the facts of the present case. In the first place, the Assessees there were engaged in the business of Pan Masala and Gutkha etc. The answers given to questions posed to the Assessee in the course of search and survey proceedings in that case bring out the points of distinction. In the first place, it was stated that the statement recorded was under Section 132(4) and not under Section 133A. It was a statement by the Assessee himself. In response to question no. 7 whether all the purchases made by the family firms, were entered in the regular books of account, the answer was: "We and our family firms namely M/s. Assam Supari Traders and M/s. Balaji Perfumes generally try to record the transactions made in respect of purchase, manufacturing and sales in our regular books of accounts but it is also fact that some time due to some factors like inability of accountant, our busy schedule and some family pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ces drawn in respect of undeclared income were premised on the materials found as well as the statements recorded by the assessees. These additions therefore were not baseless. Given that the assessing authorities in such cases have to draw inferences, because of the nature of the materials -since they could be "scanty (as one habitually concealing income or indulging in clandestine operations can hardly be expected to maintain meticulous books or records for long and in all probability be anxious to do away with such evidence at the shortest possibility) the element of guess work is to have some reasonable nexus with the statements recorded and documents seized. In tills case, the differences of opinion between the CIT (A) on the one hand and the AO and ITAT on the other cannot be the sole basis for disagreeing with what is essentially a factual surmise that is logical and plausible. These findings do not call for interference. The second question of law is answered again in favour of the revenue and against the assessee." 69. What weighed with the Court in the above-decision was the "habitual concealing of income and indulging in clandestine operations" and that a person....
X X X X Extracts X X X X
X X X X Extracts X X X X
....legal, unjustified and not tenable in the eye of law in view of various judicial pronouncements as referred to in the earlier paragraphs and as such the said addition even as sustained by the learned CIT(A) is liable to be deleted. The assessee prays accordingly. 7. That further it is humbly submitted that the assessee-firm carries on hotel business. It has maintained all receipts and expenditure and on the said basis filed the return alongwith the statement of income including income and expenditure account, Profit & loss account, capital account, balance sheet and depreciation chart etc. All such accounts were produced before the learned Assessing Officer as well as the learned CIT(A), who verified the same and found nothing incorrect therein. There is no incriminating material pertaining to this Assessment Year i.e., 2009-10 so as to affect the profit of the assessee were found during the search. However, alleging absence of regular books of accounts such as cash book, ledger and supporting documents and/or evidence showing the basis for arriving at the net profit, the learned Assessing Officer as well as the learned CIT(A) did not accept the net profit shown by the ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....maintained the accounts is only for the purpose of escaping from imposition of penalty u/s. 271B of the I.T. Act, 1961." (Copy enclosed herewith) 10. That the authorities below have admitted the assessee to have maintained accounts in the penalty proceedings u/s. 271B, whereas holding absence of accounts they estimated the net profit which is not proper. In fact the assessee has maintained accounts keeping notes of receipts and expenditures, which were produced before the authorities below. Without finding any fault or lapses in the said accounts so produced, the forums below are not justified in not giving credence to such accounts. Instead, they have chosen to adopt the percentage of profit by working out the profits as per the seized loose paper pertaining to Assessment Year 2012-13, 2013-14 and 2014-15, which is not at all justified and not tenable in the eye of law. In view of this, merely on the flimsy ground of absence of regular books of accounts, the forums below are not justified in not accepting the expenses claimed in the Profit & Loss account and also not justified in resorting to estimation of net profit on the gross receipts disclosed by the assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....taxmann.com 172 (Allahabad) has held that even if there is no incriminating material, the AO is empowered to make additions in an assessment framed u/s. 153A of the Act. We find that none of the decision relied upon by either of the parties are of jurisdictional High Court. It is a well settled position of law that when there are conflicting decisions of High Courts none of which is the jurisdictional High Court, then the decision favouring the assessee should be followed. For this, we derive support from the decision of Hon'ble Supreme Court in the case of CIT vs. Vegetable Products Ltd. 88 ITR 192 (SC). Therefore, we are of the considered view that the addition made by the taxing authorities are without correlating to any incriminating material found during the course of search, cannot be sustained. 10. As per the decision of Hon'ble Delhi High Court in the case of Kabul Chawla, [2015] 61 taxmann.com 412 (Delhi), completed assessments can be interfered with by the Assessing Officer while making the assessment under section 153A of the Act only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....riginal assessment and the assessment under section 153A merges into one. Only one assessment shall be made separately for each assessment year on the basis of the findings of the search and any other material existing or brought on the record of the Assessing Officer. (vii) Completed assessments can be interfered with by the Assessing Officer while making the assessment under section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. [Para 37] The present appeals concern assessment years 2002-03, 2005-06 and 2006-07. On the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed. [Para 38] The revenue's appeals are accordingly dismissed. [Para 40]" 11. The AO has not referred to any incriminating material found during the course of search in the assessment order. Nothing is fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gard to ground No. 2, the assessee has agitated that there is no incriminating material found during the course of search and seizure operation, therefore, ld. AR relied on the decision of Hon'ble Delhi High Court in the case of Kabul Chawla, 380 ITR 573 (Delhi) and submitted that no addition can be made in assessment framed u/s. 153A of the Act in absence of any incriminating material where the assessment were not abated. 14. We observe from the assessment order that the assessee has not filed return of income for the assessment year 2010-2011 u/s. 139(1) of the Act prior to the search. During the course of hearing also, ld. AR admitted that no return was filed for A.Y. 2010-2011 prior to the search. On perusal of the assessment order, we noticed that the assessee has filed return of income for the said assessment year on 28.08.2014, which is much after the search. Similar is the position in the assessment year 2011-2012. Therefore, the contention of assessee is not acceptable that there was no incriminating material found during the course of search. Further we observe that the assessee had filed return of income for A.Y. 2011-2012 on 28.03.2013. In this assessment year th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by the AO. This ground of appeal of the assessee raised in both the appeals is partly allowed. Thus, both the appeals of the assessee are partly allowed. IT(SS)A Nos. 30, 31 & 95/CTK/2018 (AYs: 2012-13, 2013-14 & 2014-15) 16. In Ground No. 1 raised in IT(SS)A Nos. 30 & 31/CTK/2018 for the assessment years 2012-2013 & 2013-2014, the assessee has challenged to quash the assessment order as it is barred by limitation as provided u/s. 153B of the Act. 17. On perusal of the assessment order as well as appellate order, we find that the assessment order was passed by the AO on 31.03.2016 and as per the ld. AR of the assessee the assessment order was served on the assessee on 05.04.2016, on this ground he submitted that the assessment order is barred by limitation. The CIT(A) in the appellate order for the assessment year 2012-2013 observed that there is no allegation against the Assessing Officer that the said order was changed or modified during the period from the date of issue to the date of service after observing as under:- "8.2 I have carefully examined the submission of the appellant. The assessing officer was required to make the order by 31.03.2016 and was not r....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... was also no indication that Assessing Officer revised his assessment order - Further, probability of order being made and ready to be collected by representative of assessee as on 1-04-2005, could not be ruled out -Whether, therefore, assessment order could not be treated as barred by limitation - Held, yes [Para 9] [In favour of revenue]. " SLP filed by the assessee against the above mentioned decision has been rejected by Hon'ble Supreme Court as per citation (2016) 73 taxmann.com 191 (SC). Considering the above, the ground of appeal is dismissed. We have carefully gone through the above observations of the CIT(A), to which ld. AR could not controvert the same. Accordingly, we do not see any good reason to interfere with the above observations of the CIT(A) and we uphold the same. Thus, ground No. 1 raised in both the appeals for A.Y,.2012-2013 & 2013-2014 [IT(SS)A Nos. 30 & 31/CTK/2018 is dismissed. 18. Ground No. 1 raised in appeal of the assessee for A.Y. 2014-2015 has been withdrawn and Ground No. 4 in appeals for A.Y. 2012-2013 & 2013-2014 along with ground No. 5 in appeal for A.Y. 2014-2015 have not been pressed, which is also clear from the wri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sh Sharma, Shri Puranmal Sharma and Smt. Bimla Sharma, made withdrawals from their capital account in the assessee-firm M/s. Hotel Majaraja. Further, ld. AR submitted that the loose paper HMB-3 found during search is nothing but a loose unsigned rough paper. The withdrawals of the Partners mentioned above have been found indicated in the loose seized paper as "Brahmchari". Withdrawal from capital by the partners is not revenue expenditure and as such it cannot be debited in the profit & loss account. Therefore, the entries found in the said loose paper cannot be a material for using it against the assessee merely basing on the statement recorded u/s. 132(4) of the Act. Moreover, the assessee has not claimed the disputed amount as expenditure in their Profit & Loss filed alongwith the return. 22. On the other hand, ld. DR relied on the order of authorities below. 23. Having heard both the parties and perusing the impugned orders and considering the submissions of both the parties along with various documents, evidence produced by the assessee, we find that the word "Brahamchari" appearing in the loose sheet alleged to be the profit & loss account has been explained right from ....