Asstt. CIT v. Pratibha Industries Ltd.

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The Tax Publishers2013 TaxPub(DT) 0667 (Mum-Trib) : (2013) 141 ITD 0151 : (2013) 023 ITR (Trib) 0766 INCOME TAX ACT, 1961 --Search and seizure--Applicability of section 153AComputation of undisclosed incomes vis-a-vis pending amount year's finality--Assessee-company was engaged in development of projects both infrastructure and non infrastructure. In the relevant year, the assessee besides having its normal business of development of projects also was in the development of water supply projects and other connected infrastructure finalities for government and semi government departments. Assessee was also exposed in its own, towards various risks and responsibilities such as completion of contracts within stipulated time, maintenance, delayed payments and bad debts, litigation and geological risks. the assessee was subject to action under section 132 on 17-2-2005. In the course of search certain documents relating to projects undertaken by the assessee were seizured. As a consequence thereof the assessee made on after of Rs. 1.95 crores under section 132(4) pertaining to assessment year 2005-06, were in the assessee added back to its income survey creditors, which were more than 3 years under section 41(1). Except this no other incriminatry material or evidences were found as contended by the Authorised Representative. The assessee contended that provisions of section 153A would not be applied where the amount years 2000-01 to 2003-04 were finalised and refunds were also credited in bank account. The abatement of assessment years would be those which are pending on date of search. Moreover withdrawal of deduction under section 80-IA(4) was not justified. Held: ,/i>,/b>Not acceptable when one read section 153A with the observation made in Anil Kmar Hatia's case and in All cargo's case the assessing officer was correct in law to issue to notice under section 153A for all the years under consideration as he was bound assessing officer in respect of all the concerned assessment years. one cannot agree with the arguments of Authorised Representative that the proceedings under section 153A have to be quashed because there was no material found in the search indicating that the assessee had conceded any part of its income. No doubt 153A shall be initiated, and all the six years shall become subject matter of assessment under section 153A. The assessing officer shall get the free hand, through abatement, only on the proceedings that are/is pending. It is, in these abated proceedings, assessing officer can frame the assessment(s) afresh. But in a case or in a circumstances where the proceedings have reached finality, assessment under section 153A read with 143(3) has to be made as was originally made/assessed and in case where certain incriminating documents have been found indicating undisclosed income, then the addition shall only be restricted to those documents/incriminating material, and clubbed only to the assessment framed originally, as the law does not permit the assessing officer to disturb already concluded issues, whether it pertained to any income or expenditure or deduction. [Para 40] On going through the provisions of section 153A, clause (b) of section 153A, 2nd Proviso and the various decisions cited, three possible circumstances emerge on the date of initiation of search under section 132(1), (a) proceedings are pending; (b) proceedings are not pending but some incriminating material found in the course of search, indicating some income and/or assets not disclosed in the return and (c) proceedings are not pending and no incriminating material has been found. [Para 41] When one tread to trace the correct and logical answers to the above circumstances, circumstance (a) is answered by the Act itself, that is, since the proceedings are still pending, all those pending proceedings are abated and the assessing officer gets a free hand to make the assessment. Circumstance (b) has been answered by the courts, interpreting 2nd Proviso along with clause (b) to section 153A, wherein the Hon'ble Delhi Court observes and hold, '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 pending. In this latter situation, the assessing officer will reopen the assessments or reassessments already made (without having the need to fallow the strict provisions or complying with the strict conditions of sections 147, 148 and 151) and determine the total income of the assessee. Such determination in the orders passed under section 153A would be similar to the orders passed in any reassessment, where the total income determined in the original assessment order and the income that escaped assessment are clubbed together and assessed as the total income'. But when one come to third circumstance, i.e., circumstance (c), this has been left unanswered. Para 23 of the judgment, the Hon'ble Delhi High Court mentions that the issue is left open. [Para 42] The arguments of the Authorised Representative, that when there was no incriminating material or assets, then there is no jurisdiction of section 153A, cannot be accepted. It is triate, that whenever a provision begins with a non obstante provision, it shall supersede all other provisions. Since section 153A begins with the word, Notwithstanding, section becomes non porous and it has to be applied first. Therefore, whenever a search is undertaken under section 132 on any person, 153A is triggered automatically. This is a settled provision of law and now well supported by the decision of Hon'ble Delhi High Court in the case of Anil Kumar Bhatia, wherein in para 19. The Hon'ble Delhi High Court observes, Under the provisions of section 153A, the assessing officer is bound to issue notice to the assessee to furnish returns for each assessment years, falling within the six assessment years immediately preceding the assessment year relevant to the previous year in which the search or requisition was made'. [Para 46] When we look into clause (b) of sub section (1) of section 153A, the legislature has granted an authority on the assessing officer to assess or reassess the total income. This clause has to be read along with 2nd Proviso, where the law has laid restriction over the assessing officer as to which assessment would become eligible for being assessed or reassessed. 2nd proviso specifies that the assessing officer can only assess or reassess the assessment years which are still pending before him, as the legislature has only mentioned the words assessee or reassess, which power is only vested with the assessing officer, therefore, no other proceeding can get abated, which includes appeal, revision or rectification (as per Circular No. 7. [Para 47] Now one has to tread into a situation where on the date of initiation of search under section 132 or requisition of books, no proceeding(s) is pending, but in the search, material is found indicating incriminating material. In this situation, the assessing officer embarks on a jurisdiction, wherein he has to club the two sets of incomes, i.e. returned income and the unearthed income and arrive at the total income. [Para 48] There is another circumstance, wherein, in the search operation, no incriminating material is found and there are no proceedings pending before the assessing officer. In this scenario, as per the provisions of section 153A(1), the assessing officer has to issue notices under section 153A, asking the searched person to file its returns. Since there are no proceedings which are pending before him, 2nd Proviso stops the assessing officer to proceed further, because proceedings cannot be abated and since there is no material, no further jurisdiction is embarked on him. This is where, Hon'ble Delhi High Court stops and leaves the question open. [Parta 49] There is complete disharmony in the circumstance, because, the Act allows six assessments years to be open vide section 153A for being assessed or reassessed to ascertain total income, therefore, the assessing officer is bound to pass an order under section 153A read with 143(3), which, according the Anil Kumar Bhatia, 'Such determination in the orders passed under section 153A would be similar to the orders passed in any reassessment, where the total income determined in the original assessment order and the income that escaped assessment are clubbed together and assessed as the total income'. Therefore, the assessing officer, accordingly has to stop short in these proceedings and restrict himself to the income already determined/assessed in the already concluded proceedings for the year(s), whether under section 143(1) or 143(3). Thus it is a case of valid notice under section 153A, with no undisclosed income to be clubbed with income originally assessed and finalized. However, it has to be added here that proceedings under section 153A are linked to the search having been initiated on the person, not with the documents found and seized. The documents so found and seized, may become useful to the assessing officer for making an assessment of total income under section 153A read with 143(3). [Para 50] The referred documents may be considered relevant initially, for the purposes of 2nd Proviso to section 153A, but in any case, these documents cannot be read as stand-alone and in isolation, but have to be read along with other connected documents. [Para 52] When one peruse the assessment orders, as well as the denial of deduction under section 80IA(4), at no point of time, the assessing officer has been able to bring on record or refer to any material, which could be said to be either incriminating, or found in the course of search, indicating undisclosed income. On the contrary, one found that even the withdrawal of impugned deduction is only based on the changed interpretation of the assessing officer, i.e. whether the assessee was really a contractor or was the assessee really the developer of infrastructure, and working for and on behalf of the government. Still looking from the point of view of the assessing officer, as to how the deduction could be denied, we, do not find either any change in the relevant provision allowing deduction, nor was there any change in the factual circumstance, which could have lead to a distinguishable circumstance, or anything else, which the assessee did not bring on record in the computation of income, filed for the various years under consideration or that the claim made by the assessee was illegal or the claim was wrong. [Para 53] When one read section 153A along with the observations made in Anil Kumar Bhatia and in All Cargo, the assessing officer was correct in law to issue the notices under section 153A for the years under consideration, as he was bound to in respect of all the concerned assessment years. One cannot agree with the arguments of the Authorised Representative that the proceedings under section 153A have to be quashed, because there was no material found in the search, indicating, that the assessee had concealed any part of its income. [Para 54] Once search is conducted, the assessing officer is bound to issue the notices under section 153A and then has to pass orders thereon. Therefore, the assessing officer was legally correct to initiate proceedings under section 153A and passing appropriate orders in accordance with law. [Para 55] In the result, so far as the grounds raised by the assessee in Cross Objections, for assessment years 2000-01 to 2004-05, against the Commissioner (Appeals)'s decision to sustain the assessments framed under section 153A are incorrect, cannot be accepted. We, therefore, sustain the decision of the Commissioner (Appeals). The COs, filed by the assessee, fail, therefore, the grounds raised therein are dismissed. [Para 56] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 0667 (Mum-Trib) : (2013) 141 ITD 0151 : (2013) 023 ITR (Trib) 0766

INCOME TAX ACT, 1961

--Search and seizure--Applicability of section 153AComputation of undisclosed incomes vis-a-vis pending amount year's finality--Assessee-company was engaged in development of projects both infrastructure and non infrastructure. In the relevant year, the assessee besides having its normal business of development of projects also was in the development of water supply projects and other connected infrastructure finalities for government and semi government departments. Assessee was also exposed in its own, towards various risks and responsibilities such as completion of contracts within stipulated time, maintenance, delayed payments and bad debts, litigation and geological risks. the assessee was subject to action under section 132 on 17-2-2005. In the course of search certain documents relating to projects undertaken by the assessee were seizured. As a consequence thereof the assessee made on after of Rs. 1.95 crores under section 132(4) pertaining to assessment year 2005-06, were in the assessee added back to its income survey creditors, which were more than 3 years under section 41(1). Except this no other incriminatry material or evidences were found as contended by the Authorised Representative. The assessee contended that provisions of section 153A would not be applied where the amount years 2000-01 to 2003-04 were finalised and refunds were also credited in bank account. The abatement of assessment years would be those which are pending on date of search. Moreover withdrawal of deduction under section 80-IA(4) was not justified. Held: ,/i>,/b>Not acceptable when one read section 153A with the observation made in Anil Kmar Hatia's case and in All cargo's case the assessing officer was correct in law to issue to notice under section 153A for all the years under consideration as he was bound assessing officer in respect of all the concerned assessment years. one cannot agree with the arguments of Authorised Representative that the proceedings under section 153A have to be quashed because there was no material found in the search indicating that the assessee had conceded any part of its income.

No doubt 153A shall be initiated, and all the six years shall become subject matter of assessment under section 153A. The assessing officer shall get the free hand, through abatement, only on the proceedings that are/is pending. It is, in these abated proceedings, assessing officer can frame the assessment(s) afresh. But in a case or in a circumstances where the proceedings have reached finality, assessment under section 153A read with 143(3) has to be made as was originally made/assessed and in case where certain incriminating documents have been found indicating undisclosed income, then the addition shall only be restricted to those documents/incriminating material, and clubbed only to the assessment framed originally, as the law does not permit the assessing officer to disturb already concluded issues, whether it pertained to any income or expenditure or deduction. [Para 40] On going through the provisions of section 153A, clause (b) of section 153A, 2nd Proviso and the various decisions cited, three possible circumstances emerge on the date of initiation of search under section 132(1), (a) proceedings are pending; (b) proceedings are not pending but some incriminating material found in the course of search, indicating some income and/or assets not disclosed in the return and (c) proceedings are not pending and no incriminating material has been found. [Para 41] When one tread to trace the correct and logical answers to the above circumstances, circumstance (a) is answered by the Act itself, that is, since the proceedings are still pending, all those pending proceedings are abated and the assessing officer gets a free hand to make the assessment. Circumstance (b) has been answered by the courts, interpreting 2nd Proviso along with clause (b) to section 153A, wherein the Hon'ble Delhi Court observes and hold, '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 pending. In this latter situation, the assessing officer will reopen the assessments or reassessments already made (without having the need to fallow the strict provisions or complying with the strict conditions of sections 147, 148 and 151) and determine the total income of the assessee. Such determination in the orders passed under section 153A would be similar to the orders passed in any reassessment, where the total income determined in the original assessment order and the income that escaped assessment are clubbed together and assessed as the total income'. But when one come to third circumstance, i.e., circumstance (c), this has been left unanswered. Para 23 of the judgment, the Hon'ble Delhi High Court mentions that the issue is left open. [Para 42] The arguments of the Authorised Representative, that when there was no incriminating material or assets, then there is no jurisdiction of section 153A, cannot be accepted. It is triate, that whenever a provision begins with a non obstante provision, it shall supersede all other provisions. Since section 153A begins with the word, Notwithstanding, section becomes non porous and it has to be applied first. Therefore, whenever a search is undertaken under section 132 on any person, 153A is triggered automatically. This is a settled provision of law and now well supported by the decision of Hon'ble Delhi High Court in the case of Anil Kumar Bhatia, wherein in para 19. The Hon'ble Delhi High Court observes, Under the provisions of section 153A, the assessing officer is bound to issue notice to the assessee to furnish returns for each assessment years, falling within the six assessment years immediately preceding the assessment year relevant to the previous year in which the search or requisition was made'. [Para 46] When we look into clause (b) of sub section (1) of section 153A, the legislature has granted an authority on the assessing officer to assess or reassess the total income. This clause has to be read along with 2nd Proviso, where the law has laid restriction over the assessing officer as to which assessment would become eligible for being assessed or reassessed. 2nd proviso specifies that the assessing officer can only assess or reassess the assessment years which are still pending before him, as the legislature has only mentioned the words assessee or reassess, which power is only vested with the assessing officer, therefore, no other proceeding can get abated, which includes appeal, revision or rectification (as per Circular No. 7. [Para 47] Now one has to tread into a situation where on the date of initiation of search under section 132 or requisition of books, no proceeding(s) is pending, but in the search, material is found indicating incriminating material. In this situation, the assessing officer embarks on a jurisdiction, wherein he has to club the two sets of incomes, i.e. returned income and the unearthed income and arrive at the total income. [Para 48] There is another circumstance, wherein, in the search operation, no incriminating material is found and there are no proceedings pending before the assessing officer. In this scenario, as per the provisions of section 153A(1), the assessing officer has to issue notices under section 153A, asking the searched person to file its returns. Since there are no proceedings which are pending before him, 2nd Proviso stops the assessing officer to proceed further, because proceedings cannot be abated and since there is no material, no further jurisdiction is embarked on him. This is where, Hon'ble Delhi High Court stops and leaves the question open. [Parta 49] There is complete disharmony in the circumstance, because, the Act allows six assessments years to be open vide section 153A for being assessed or reassessed to ascertain total income, therefore, the assessing officer is bound to pass an order under section 153A read with 143(3), which, according the Anil Kumar Bhatia, 'Such determination in the orders passed under section 153A would be similar to the orders passed in any reassessment, where the total income determined in the original assessment order and the income that escaped assessment are clubbed together and assessed as the total income'. Therefore, the assessing officer, accordingly has to stop short in these proceedings and restrict himself to the income already determined/assessed in the already concluded proceedings for the year(s), whether under section 143(1) or 143(3). Thus it is a case of valid notice under section 153A, with no undisclosed income to be clubbed with income originally assessed and finalized. However, it has to be added here that proceedings under section 153A are linked to the search having been initiated on the person, not with the documents found and seized. The documents so found and seized, may become useful to the assessing officer for making an assessment of total income under section 153A read with 143(3). [Para 50] The referred documents may be considered relevant initially, for the purposes of 2nd Proviso to section 153A, but in any case, these documents cannot be read as stand-alone and in isolation, but have to be read along with other connected documents. [Para 52] When one peruse the assessment orders, as well as the denial of deduction under section 80IA(4), at no point of time, the assessing officer has been able to bring on record or refer to any material, which could be said to be either incriminating, or found in the course of search, indicating undisclosed income. On the contrary, one found that even the withdrawal of impugned deduction is only based on the changed interpretation of the assessing officer, i.e. whether the assessee was really a contractor or was the assessee really the developer of infrastructure, and working for and on behalf of the government. Still looking from the point of view of the assessing officer, as to how the deduction could be denied, we, do not find either any change in the relevant provision allowing deduction, nor was there any change in the factual circumstance, which could have lead to a distinguishable circumstance, or anything else, which the assessee did not bring on record in the computation of income, filed for the various years under consideration or that the claim made by the assessee was illegal or the claim was wrong. [Para 53] When one read section 153A along with the observations made in Anil Kumar Bhatia and in All Cargo, the assessing officer was correct in law to issue the notices under section 153A for the years under consideration, as he was bound to in respect of all the concerned assessment years. One cannot agree with the arguments of the Authorised Representative that the proceedings under section 153A have to be quashed, because there was no material found in the search, indicating, that the assessee had concealed any part of its income. [Para 54] Once search is conducted, the assessing officer is bound to issue the notices under section 153A and then has to pass orders thereon. Therefore, the assessing officer was legally correct to initiate proceedings under section 153A and passing appropriate orders in accordance with law. [Para 55] In the result, so far as the grounds raised by the assessee in Cross Objections, for assessment years 2000-01 to 2004-05, against the Commissioner (Appeals)'s decision to sustain the assessments framed under section 153A are incorrect, cannot be accepted. We, therefore, sustain the decision of the Commissioner (Appeals). The COs, filed by the assessee, fail, therefore, the grounds raised therein are dismissed. [Para 56]