The Principal Commissioner Of Income Tax v. Rameshbhai Jivraj Desai

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 195 of 2020 ========================================================== THE PRINCIPAL COMMISSIONER OF INCOME TAX VersusRAMESHBHAI JIVRAJ DESAI ========================================================== Appearance:MRS MAUNA M BHATT, SENIOR STANDING COUNSEL(174) for the Appellant(s) No. 1 for the Opponent(s) No. 1 ========================================================== CORAM: HONOURABLE THE CHIEF JUSTICE MR. VIKRAM NATHandHONOURABLE MR. JUSTICE J.B.PARDIWALA Date : 18/09/2020 ORAL ORDER (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) 1. This Tax Appeal under Section 260A of the Income Tax Act, 1961 (for short “the Act, 1961”) isat the instance of the Revenue and is directedagainst the order passed by the Income TaxAppellate Tribunal, Ahmedabad “C” Bench dated17.01.2020 in IT(SS) A No. 108/Ahd/2017 for A.Y.2009-10. 2. The Revenue proposed the following substantialquestion of law for the consideration of this Court:-question of law for the consideration of this Court:- “Whether the Appellate Tribunal is right in lawand on facts in holding that in absence of anyincriminating material related to the givenassessment year found during search,assessment u/s. 153A of the Act cannot bemade for that assessment year for whichassessment has been concluded on the date ofsearch and not abated? “and on facts in holding that in absence of anyincriminating material related to the givenassessment year found during search,assessment u/s. 153A of the Act cannot bemade for that assessment year for whichassessment has been concluded on the date ofsearch and not abated? “ 3. It appears from the materials on record that a search action under Section 132 of the Act, 1961 wasundertaken in the group cases of Master Group inF.Y. 2012-13 on 03.01.2013. In such circumstances,in accordance with the provisions of Section 153A ofthe Act, 1961, a notice was issued to the assesseedated 19.11.2013. In response to the said notice, theassessee filed his return of income declaring totalincome of Rs. 12,74,710/-. Thereafter, the orderunder Section 153A read with Section 143(3) of theAct, 1961 dated 31.03.2015 came to be passeddetermining the total income of Rs. 5,59,10,869/-. undertaken in the group cases of Master Group inF.Y. 2012-13 on 03.01.2013. In such circumstances,in accordance with the provisions of Section 153A ofthe Act, 1961, a notice was issued to the assesseedated 19.11.2013. In response to the said notice, theassessee filed his return of income declaring totalincome of Rs. 12,74,710/-. Thereafter, the orderunder Section 153A read with Section 143(3) of theAct, 1961 dated 31.03.2015 came to be passeddetermining the total income of Rs. 5,59,10,869/-. 4. It further appears that in the course of theassessment proceedings, the Assessing Officerassessment proceedings, the Assessing Officer noticed that for the A.Y. 2009-10, bad debts of Rs.94,14,513/- were written off. The auditor in his auditreport stated that although the bad debts of theaforesaid amount were written off, yet no relevantrecords or details were furnished. In view of thesame, the Assessing Officer disallowed the claim ofthe bad debts of Rs. 94,14,513/- and added the sameto the total income of the assessee. 5. The assessee being dissatisfied with the assessmentorder, preferred appeal before the Commissioner ofIncome Tax (A). The Commissioner of Income Tax (A)confirmed the addition/disallowance and dismissedthe appeal of the assessee.order, preferred appeal before the Commissioner ofIncome Tax (A). The Commissioner of Income Tax (A)confirmed the addition/disallowance and dismissedthe appeal of the assessee. noticed that for the A.Y. 2009-10, bad debts of Rs.94,14,513/- were written off. The auditor in his auditreport stated that although the bad debts of theaforesaid amount were written off, yet no relevantrecords or details were furnished. In view of thesame, the Assessing Officer disallowed the claim ofthe bad debts of Rs. 94,14,513/- and added the sameto the total income of the assessee. 5. The assessee being dissatisfied with the assessmentorder, preferred appeal before the Commissioner ofIncome Tax (A). The Commissioner of Income Tax (A)confirmed the addition/disallowance and dismissedthe appeal of the assessee.order, preferred appeal before the Commissioner ofIncome Tax (A). The Commissioner of Income Tax (A)confirmed the addition/disallowance and dismissedthe appeal of the assessee. 6. The assessee being dissatisfied with the order of theCommissioner of Income Tax (A), preferred appealbefore the Appellate Tribunal. The Appellate Tribunalallowed the appeal of the assessee. Commissioner of Income Tax (A), preferred appealbefore the Appellate Tribunal. The Appellate Tribunalallowed the appeal of the assessee. 7. Being dissatisfied with the order passed by the Appellate Tribunal, the Revenue is here before thisCourt with the present appeal. 8. We have heard Ms. Mauna M. Bhatt, the learnedSenior Standing Counsel, appearing for the Revenue.Senior Standing Counsel, appearing for the Revenue. 9. The Tribunal noted the following contentions raisedon behalf of the assesee in its impugned order:-on behalf of the assesee in its impugned order:- “1.1 The order passed u/s. 250 on 26.12.2016for A.Y. 2009-10 by CIT (A)-7, Abad upholdingthe validity of proceedings u/s. 153A of the Actas well as the addition of Rs. 3,83,40,000/- asunaccounted profit in respect of landtransactions 6t bad debts of Rs. 94,14,513/- iswholly illegal, unlawful and against theprinciples of natural justice. 1.2 The Ld. CIT(A) has grievously erred in lawand or on facts in not considering fully andproperly the submissions made and evidenceproduced by the appellant with regtard to theimpugned addition. 2.1The CIT(A) has grievously erred in law and on facts in confirming the validity ofproceedings as well as noticve u/s. 153A dated19.11.2013 for A.Y. 2009-10, though theconditions precedents were not fulfilled.Therefore, the notice as well as proceedings u/s.153A(1) were wholly illegally and unlawful inview of no incriminating material found duringthe course of search for this year. 2.1That in the facts and circumstances of thecase as well as in law, the Ld.CIT(A) ought not tohave upheld the validity of proceedings as wellas notice u/s. 153A dated 19.11.2013 forA.Y.2009-10. 3.1The Ld.CIT(A) has grievously erred in lawand on facs in confirming the addition ofRs.3,83,40,000/- as unaccounted profit inrespect of land transactions with M/s RajCorporation as unaccounted profit in respect ofland transactions. 3.2The Ld.CIT(A) has grievously erred in lawand on facts in holding that the appellant hadfailed to produce documents in respect ofpurchase and sale of land. 3.3The Ld.CIT(A) has grievousl erred in law and on facts in holding that there wasunaccounted profit and on facts in holding thattherewasunacco8untdprofitofRs.3,83,40,000/- in respect of lands at TragadVillage which was the diversion to the books ofRJD Impex Pvt.Ltd.(correct is M/s RajaCorporation) was a sham transaction as well asexplain satisfactorily the impugned amount aswell as make request for admisison of additionalevidence. 4.1The Ld.CIT(A) has grievously erred in lawand on facts in confirming the disallowance ofbad debts/business loss of Rs.94,14,513/-. 4.2That in the facts and circumstances of thecase as well as in law, the Ld.CIT(A) ought not tohave upheld the disallowance of baddebts/business loss of Rs.94,14,513/-. 3.3The Ld.CIT(A) has grievousl erred in law and on facts in holding that there wasunaccounted profit and on facts in holding thattherewasunacco8untdprofitofRs.3,83,40,000/- in respect of lands at TragadVillage which was the diversion to the books ofRJD Impex Pvt.Ltd.(correct is M/s RajaCorporation) was a sham transaction as well asexplain satisfactorily the impugned amount aswell as make request for admisison of additionalevidence. 4.1The Ld.CIT(A) has grievously erred in lawand on facts in confirming the disallowance ofbad debts/business loss of Rs.94,14,513/-. 4.2That in the facts and circumstances of thecase as well as in law, the Ld.CIT(A) ought not tohave upheld the disallowance of baddebts/business loss of Rs.94,14,513/-. Itis,therefore,prayedthattheadditiona/disallowance of Rs.3,83,40,000/- & Rs.94,14,513/- and validity u/s. 153A(1) upheld bythe CIT(A) may kindl be deleted.” 10.The Appellate Tribunal, while allowing theappeal of the assessee held as under:- “53. At the outset we note that the technicalissue raised by the assessee in ground 1 & 2challenging the validity of the assessmentframed under section 153A of the Act isidentical to the issue raised in the case of ShriRajnibhai Jivraj Desai in ITA No. 104/AHD/2017which has been decided by us in favour of theassessee vide paragraph No. 14 & 15 of thisorder. For the detail discussion please refer therelevant paragraph as discussed above.Therefore, respectfully following the same andto maintain parity with the findings, we allowthe technical ground raised by the assessee inhis favour withut going into the merit of thecase.” 11.We are of the view that the Tribunal could notbe said to have committed any error in passing theimpugned order waranting any interference in thisappeal. As such, the question of law as proposed bythe Revenue cannot be termed as a substantialquestion of law. 12. In the aforesaid context, we may refer to and rely upon a decision of this High Court in the case ofPrincipal Commissioner of Income-tax-4 vs.Saumya Construction (P.) Ltd, reported in 387ITR 529, more particularly the observations made inParas 15 to 19, which read thus: “15. On a plain reading of section 153A of theAct, it is evident that the trigger point forexercise of powers thereunder is a search undersection 132 or a requisition under section132Aof the Act. Once a search or requisition ismade, a mandate is cast upon the AssessingOfficer to issue notice under section 153A of theAct to the person, requiring him to furnishthereturn of income in respect of eachassessment year falling within six assessmentyears immediately preceding the assessmentyear relevant to the previous year in which suchsearch is conducted or requisition is made andassess or reassess the same. Since theassessment under section 153A of the Act islinked with search and requisition undersections 132 and 132A of the Act, it is evidentthat the object of the section is to bring to taxthe undisclosed income which is found duringthe course of or pursuant to the search or requisition.However, instead of the earlierregime of block assessment whereby, it wasonly the undisclosed income of the block periodthat was assessed, section 153A of the Actseeks to assess the total income for theassessment year, which is clear from the firstproviso thereto which provides that theAssessing Officer shall assess or reassess thetotal income in respect of each assessment yearfalling within such six assessment years. Thesecond proviso makes the intention of thelegislature clear as the same provides thatassessment or reassessment, if any, relating tothe six assessment years referred to in the sub-section pending on the date of initiation ofsearch under section 132 or requisition undersection 132A, as the case may be, shall abate.Sub-section (2) of section 153A of the Actprovides that if any proceeding or any order ofassessment or reassessment made under sub-section (1) isannulled in appeal or any otherlegal provision, then the assessment orreassessment relating to any assessment yearwhich had abated under the second provisowould stand revived. The proviso thereto saysthat such revival shall cease to have effect ifsuch order of annulment is set aside. Thus, anyproceeding of assessment or reassessment falling within the six assessment years prior tothe search or requisitionstands abated and thetotal income of the assessee is required to bedetermined under section 153A of the Act.Similarly, sub-section (2) provides for revival ofany assessment or reassessment which stoodabated, if any proceeding or any order ofassessment or reassessment made undersection 153A of the Act is annulled in appeal orany other proceeding. 16. Section 153A bears the heading“Assessment in case of search or requisition”. Itis well settled as held by the Supreme Court in acatena of decisions that the heading of thesection can be regarded as a key to theinterpretation of the operative portion of thesection and if there is no ambiguity in thelanguage or if it is plain and clear, then theheading used inthe section strengthens thatmeaning. From the heading of section 153, theintention of the legislature is clear viz., toprovide for assessment in case of search andrequisition. When the very purpose of theprovision is to make assessment in case ofsearch or requisition, it goes without saying thatthe assessment has to have relation to thesearch or requisition. In other words, theassessment should be connected with something found during the search orrequisition, viz., incriminating material whichreveals undisclosed income. Thus, while in viewof the mandate of sub-section (1) of section153A of the Act, in every case where there is asearch or requisition, the Assessing Officer isobliged to issue notice to such person to furnishreturns of income for the six years precedingthe assessment year relevant to the previousyear in which the search is conducted orrequisition is made, any addition ordisallowance can be made only on the basis ofmaterial collected during the search orrequisition. In case no incriminating material isfound, as held by the Rajasthan High Court inthe case of Jai Steel (India), Jodhpur v. AssistantCommissioner of Income Tax(supra), the earlierassessment would have to be reiterated. In casewhere pending assessments have abated, theAssessing Officer can pass assessment ordersfor each of the six years determining the totalincome of the assessee which would includeincome declared in the returns, if any, furnishedby the assessee as well as undisclosed income,if any, unearthed during the search orrequisition. In case where a pendingreassessment under section 147 of the Act hasabated, needless to state thatthe scope and ambit of the assessment would include anyorder which the Assessing Officer could havepassed under section 147 of the Act as well asunder section 153A of the Act. 17. In the facts of the present case, a searchcame to be conducted on 07.10.2009 and thenotice was issued to the assessee under section153A of the Act for assessment year 2006-07 on04.08.2010. In response to the notice, theassessee filed return of income on 18.11.2010.In terms of section 153B, the assessment wasrequired to be completed within a period of twoyears from the end of the financial yearin whichthe search came to be carried out, namely, onorbefore 31[st] March, 2012. Here, insofar as theimpugned addition is concerned, the notice inrespect thereof came to be issued on19.12.2011 seeking an explanation from theassessee. The assessee gave its response byreply dated 21.12.2011 calling upon theAssessing Officer to provide copies ofstatements recorded on oath of Shri Rohit P.Modi and Smt. Pareshaben K. Modi during thesearch as well as the copies of the documentsupon which the department placed reliance forthe purpose of making the proposed addition aswell as the copy of the explanation given by ShriRohit P. Modiand Smt. Pareshaben K. Modi regarding the on-money received, copies of theassessment orders in case of saidpersons andalso requested the Assessing Officer to permithim to cross-examine the said persons. TheAssessing Officer issued summons to the saidpersons, however, they were out of station andit was not known as to when they wouldreturn.In this backdrop, without affording anyopportunity to the assessee to cross-examinethe said persons, the Assessing Officer madethe addition in question. 18. In this case, it is not the case of theappellant that any incriminating material inrespect of the assessment year underconsideration was found during the course ofsearch. At therelevant time when the noticecame to be issued under section153A of the Act,the assessee filed its return of income.Muchlater, at the fag end of the period withinwhich the order under section 153A of the Actwas to be made, in other words, when the limitfor framing the assessment as provided undersection 153 was about to expire, the notice hasbeen issued in the present case seeking tomaketheproposedadditionofRs.11,05,51,000/- on the basis of the materialwhich was not found during the course ofsearch, but on the basis of a statement of another person. In the opinion of this court, in acase like the present one, where an assessmenthas been framed earlier and no assessment orreassessment was pending on the date ofinitiation of search under section 132 or makingof requisition under section 132A, whilecomputing the total income of the assesseeunder section 153A of the Act, additions ordisallowances can be made only on the basis ofthe incriminating material found during thesearch or requisition. In the present case, it isan admitted position that no incriminatingmaterial was found during the course of search,however, it is on the basis of some materialcollectedby the Assessing Officer muchsubsequent to the search, that the impugnedadditions came to be made. 19. On behalf of the appellant, it has beencontended that if any incriminating material isfound, notwithstanding that in relation to theyear under consideration, no incriminatingmaterial is found, it would be permissible tomake additions and disallowance in respect ofall the six assessment years. In the opinion ofthis court, the said contention does not meritacceptance, inasmuch as, the assessment inrespect of each of the six assessment years is a 19. On behalf of the appellant, it has beencontended that if any incriminating material isfound, notwithstanding that in relation to theyear under consideration, no incriminatingmaterial is found, it would be permissible tomake additions and disallowance in respect ofall the six assessment years. In the opinion ofthis court, the said contention does not meritacceptance, inasmuch as, the assessment inrespect of each of the six assessment years is a separate and distinct assessment. Under section153A of the Act, an assessment has to be madein relation to the search or requisition, namely,inrelation to material disclosed during thesearch or requisition. If in relation to anyassessment year, no incriminating material isfound, no addition or disallowance can be madein relation to that assessment year in exerciseof powers under section 153A of the Act and theearlier assessment shall have to be reiterated.In this regard, this court is in completeagreement with the view adopted by theRajasthan High Court in the case of Jai Steel(India), Jodhpur v. Assistant Commissioner ofIncome Tax (supra). Besides, as rightly pointedout by the learned counsel for the respondent,the controversy involved inthe present casestands concluded by the decision of this courtinthe case of Commissioner of Income-tax-1 v.Jayaben Ratilal Sorathia(supra) wherein it hasbeen held that while it cannot be disputed thatconsidering section 153A of the Act, theAssessing Officer can reopen and/or assess thereturn with respect to six preceding years;however, there must be some incriminatingmaterial available with the Assessing Officerwith respect to the sale transactions in theparticular assessment year.” 13.In view of the aforesaid, this appeal fails and is hereby dismissed. (VIKRAM NATH, CJ) NAIR SMITA V./A.M.PIRZADA (J. B. PARDIWALA, J)