Harshvardhan Johari, T v. Dy. Commissioner Of Income Tax, Central Circle-03, New C.r.building, Janpath, Statue Circle, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 48/2020 Harshvardhan Johari, T-2, Pallavi Apartments, Opp. Laxmi VilasHotel, Tonk Road, Jaipur. Present Address- 34, HarshvardhanBuilding, Hind Hotel, Chaura Rasta, Tripolia Gate, Jaipur. Raj -302002 Pan Afvpj2660R ----Appellant Versus Dy. Commissioner Of Income Tax, Central Circle-03, New C.r.Building, Janpath, Statue Circle, Jaipur. ----Respondent For Appellant(s): Mr. Dileep ShivpuriFor Respondent(s): Mr. Siddharth Bapna withFor Respondent(s): Mr. Siddharth Bapna with Mr. Meyhul Miittal HON'BLE MR. JUSTICE AVNEESH JHINGAN HON'BLE MR. JUSTICE MANEESH SHARMA 27/03/2025 Judgment -AVNEESH JHINGAN, J: 1.This is an application (I.A. No.1/2024) filed for framingadditional substantial question of law. 2.After arguing the application at length, learned counsel forthe applicant submits that instead of proposed substantialquestion of law in the application following additional substantialquestion of law be admitted: (i) Whether in the facts of the case todetermine the pendency of the proceedings asper Section 153A, the date of issuance ofnotice would be relevant or date of search?determine the pendency of the proceedings asper Section 153A, the date of issuance ofnotice would be relevant or date of search? 3.Learned counsel for the non-applicant could not raise anyserious objection to the acceptance of the prayer. 4.The substantial question of law framed here in above shall beconsidered while deciding the appeal. 5.The application is allowed. 6.This appeal is filed against the order of the Income TaxAppellate Tribunal, Jaipur (for short ‘the tribunal’) dated11.03.2020 relating to assessment year (for brevity ‘AY’) 2010-11. 7.In this appeal, following substantial questions of law havebeen formulated:- “(i) Whether in the facts of the case todetermine the pendency of the proceedings asper Section 153A’ the date of issuance ofnotice would be relevant or date of search? (ii)Whether on the facts and circumstances ofthe case the assessment order of the Appellant, forAssessment year 2010-11, framed on 10.03.2016,one year beyond the normal time-limit, in view ofExplanation of Section 153B, was not barred bytime limitation, hence invalid, since the referenceallegedly made under section 90 of the Income-TaxAct was illegal, without jurisdiction, withoutstatutory authority, and void ab initio? (iii)Whether on the facts and circumstances ofthe case the ITAT erred in law in holding that theexpenses on education of the Appellant werepersonal expenses, having been incurred prior tosetting up on business, totally ignoring evidence onrecord that the business of the Appellant hadcommenced in the financial year 2008-09 andreturn showing substantial turnover, gross profitand taxable income had been filed right fromAssessment year 2009-10 onwards?” 8.The brief facts are that appellant is an income tax assessee.On 05.09.2011 search was conducted at the residence andbusiness premises of the appellant. On 10.10.2010, appellant filedincome tax returns for AY 2010-11. Notice dated 14.09.2012 wasissued under Section 153-A of the Income Tax Act, 1961 (for short‘the Act’) and the assessment was finalised on 10.03.2015,disallowing the education expenses to the tune ofRs.1,11,35,190/-. The first appeal was dismissed on 26.05.2017.The appellant being unsuccessful in the tribunal is before thiscourt. Substantial question of law No.1 9.Learned counsel for the appellant submits that assessmentproceedings for AY 2010-11 were complete as no notice wasissued under section 143(2) of the Act. Addition under section153-A in completed assessment was wrongly made without therebeing incriminating material seized during the search. Substantial question of law No.1 9.Learned counsel for the appellant submits that assessmentproceedings for AY 2010-11 were complete as no notice wasissued under section 143(2) of the Act. Addition under section153-A in completed assessment was wrongly made without therebeing incriminating material seized during the search. 10.Learned counsel for the revenue submits that before expiryof time to issue notice under section 143(2), the search wasconducted on 05.09.2011 when the proceedings were pending. 11.From Section 143(2) and the proviso thereto, the positionmerges that the Assessing Officer (A.O.), if considers expedient toverify that there is no understated income or excess losscomputed or that there is underpayment of tax, shall serve anotice on the assessee to produce the evidence to support thereturn. The proviso prescribes that notice cannot be issued after expiry of six months from the end of the financial year in which return is furnished. 12.The relevant provisions of Section 153-A of the Act is quoted below:- “Assessment in case of search or requisition. 153A. (1) Notwithstanding anything contained insection 139, section 147, section 148, section149, section 151 and section 153, in the case of aperson where a search is initiated under section132 or books of account, other documents or anyassets are requisitioned under section 132A afterthe 31st day of May, 2003, the Assessing Officershall— (a) issue notice to such person requiring him tofurnish within such period, as may be specified inthe notice, the return of income in respect of eachassessment year falling within six assessmentyears referred to in clause (b), in the prescribedform and verified in the prescribed manner andsetting forth such other particulars as may beprescribed and the provisions of this Act shall, sofar as may be, apply accordingly as if such returnwere a return required to be furnished undersection 139; (b) assess or reassess the total income of sixassessment years immediately preceding theassessment year relevant to the previous year inwhich such search is conducted or requisition ismade: Provided that the Assessing Officer shall assessor reassess the total income in respect of eachassessment year falling within such sixassessment years: Provided furtherthat assessment orreassessment, if any, relating to any assessmentyear falling within the period of six assessmentyears referred to in this 72[sub-section] pendingon the date of initiation of the search undersection 132 or making of requisition under section132A, as the case may be, shall abate.: *******” 13.By Finance Act, 2003, Section 153-A to 153-D wereintroduced in Chapter XIV of the Act laying down specialprocedure for assessment in cases of search or requisition madeon or after 01.06.2003. There was deviation made from the earlierregime which are as follows:- (i) the assessment /reassessment of ‘total income’ was to bemade for each of relevant preceding year by passing separateorder for each assessment year, instead of initiation of parallelproceedings for the undisclosed and regular income. (ii) The concept of assessment for broken period i.e. from 1st April to the date when the search was conducted, was no longer there.(iii) The normal rates of the tax applicable in each year were to beapplied. (iv) The pending assessment or reassessment proceedings, ondate of initiating of search or requisition, abated. In case ofannulment of the assessment/reassessment under Section 153Athe abated assessment or reassessment revived. (v) The provisions of Section 153A to 153D brought within ambitnot only the cases of assessee on whom the search was conductedor requisition made but also assessee to whom the seized materialrelated to or belonged to. (ii) The concept of assessment for broken period i.e. from 1st April to the date when the search was conducted, was no longer there.(iii) The normal rates of the tax applicable in each year were to beapplied. (iv) The pending assessment or reassessment proceedings, ondate of initiating of search or requisition, abated. In case ofannulment of the assessment/reassessment under Section 153Athe abated assessment or reassessment revived. (v) The provisions of Section 153A to 153D brought within ambitnot only the cases of assessee on whom the search was conductedor requisition made but also assessee to whom the seized materialrelated to or belonged to. 14.The heading of Section 153-A is assessment in cases ofsearch or requisition. The section starts with a non-obstanteclause and operates inspite of the provisions of sections 139, 147,148, 149, 151 and 153. It mandates the AO for issuing notices tofurnish income tax returns for the relevant AY or years and for each of the six assessment years preceding theassessment year relevant to previous to year in which search wasconducted. First proviso stipulates assessing or reassessing the total incomefor each of the six assessment years preceding to the relevant AYin which search was conducted and also for the relevant year. As per the second proviso the assessment or reassessment for therelevant AY or the six years preceding thereto pending on the dateof initiation of search or making requisition shall abate. 15.In the case in hand, the return was furnished in financialyear 2010-11 and the notice under section 143(2) of the Act couldhave been issued till 30.09.2011. Before expiry of the limitation toissue notice under section 143(2) the search was conducted onthe premises of the appellant on 05.09.2011. By operation of 2[nd]proviso to section 153-A pending assessment or reassessmentabetted. 16.The reliance on Principal Commissioner of Income Tax vs.Abhisar Buildwell P. Ltd. is of no avail. The Supreme Court in thecase of Abhisar Buildwell P. Ltd. (supra) was dealing withfollowing question. “11. The question which is posed forconsideration in the present set of appealsis, as to whether in respect of completedassessments/unabatedassessments,whether the jurisdiction of AO to makeassessment is confined to incriminatingmaterial found during the course of searchunder Section 132 or requisition underSection 132A or not, i.e., whether anyaddition can be made by the AO in absenceconsideration in the present set of appealsis, as to whether in respect of completedassessments/unabatedassessments,whether the jurisdiction of AO to makeassessment is confined to incriminatingmaterial found during the course of searchunder Section 132 or requisition underSection 132A or not, i.e., whether anyaddition can be made by the AO in absence of any incriminating material found duringthe course of search under section 132 orrequisition under Section 132 Aof the Act,1961 or not.” It was held that on a search or requisition of an assessee, it is mandatory to issue notice under Section 153A for filingreturns in respect of relevant preceding years. The AOassumes jurisdiction to assess or reassess ‘total income’ forthe relevant preceding years. The pending assessment andreassessment abate by operation of the provision of section153A. The completed and unabated assessments could not bereopened in absence of an incriminating seized materialrelating to the concerned assessment years. The assessmentand reassessment under Section 153A has to be of the ‘totalincome’, taking into consideration the returned income (ifreturn is filed), incriminating material result of search orrequisition and other material. In case no incriminatingmaterial was found in search, the department can reopencompleted/unabated assessmentunder Sections 147 & 148 ofthe Act. 17.The Supreme Court held that in case of complete assessmentthe addition under section 153-A can only be done on the basis ofincriminating material relating to relevant AY recovered duringsearch. For the second proviso to section 153-A to be operativethe assessment or reassessment should be pending on date ofinitiation of search. In the present case, before expiry of limitation for issuance of notice under section 143(2) search was conducted.In other words on date of search the assessment was pending. Substantial question of law No.2 18.Learned counsel for the appellant after arguing at lengthrealizing that the substantial question of law No.2 is not arisingout of the order of the tribunal, is not pressing this appeal qua thequestion No.2 with liberty to avail remedies in accordance withlaw. 19.The appeal qua the substantial question of law No.2 isdisposed of as not pressed with liberty as prayed for. Substantial question of law No.3 20.Section 37 deals with general expenditures made wholly andexclusively for purpose of business or profession which can beclaimed as deduction from the business or professional income.The exception is to the expenses prescribed under section 32 to36 and being in nature of capital or personal expenses of theassessee. 21.The appellant claimed expenses incurred for pursuing degreeof B.Sc(Hons.) in Business Management and M.sc in Finance fromLondon. The bachelors degree was pursued during the year 2006to 2009 and masters degree in 2010-11. The deduction foreducation expenses was disallowed for not having been incurred inAY 2010-11 and that the expenses for perusing B.sc related toperiod prior to setting up of the business. Moreover apart frombald statement, there was no material produced to substantiate the nexus of the studies with the business started that too aftercompletion of Bachelors degree. The expenses were held to bepersonal in nature. 22.Learned counsel for the appellant argues that the educationpursued in London helped the appellant for better management ofthe business. Submission is that the business was established inthe AY 2009-10 yet the authorities disallowed the deduction in AY2010-11. 23.Learned counsel for the respondent contends that thetribunal recorded finding that the deduction claimed was notsubstantiated by producing evidence of having a direct relation tothe operation of the business. 24.The bachelors degree was pursued from 2006 to 2009 andadmittedly the business was established in AY 2009-10. There isnothing on record to prove that while pursuing the bachelorsdegree in London the business was started by proprietor inRajasthan. 25.The other angle needs to be considered is that the expenseswere incurred in AY 2007-08, 2008-09 and 2009-10 and 2011-12but there is no basis made out for claiming these deductions in AY2010-11. 26.The decisions of the High Courts relied upon by the appellantbefore the tribunal were rightly distinguished and are notapplicable to the fact of the case. 27.No case is made out for interference in the findings recordedthat these expenses were personal in nature and were not relatingto the assessment year in which deduction was claimed. 28.In view of the above discussion, the question Nos.1 and 3are answered against the assessee and question No.2 is disposedof as not pressed with liberty as prayed for. 29.The appeal is disposed of. (MANEESH SHARMA),J Chandan/56 (AVNEESH JHINGAN),J Reportable:Yes