HARSHVARDHAN JOHARI V. DY. COMMISSIONER OF INCOME TAX

ITA/48/2020

AI Insights

This case involves an appeal by Harshvardhan Johari against the order of the Income Tax Appellate Tribunal, Jaipur, which pertained to the assessment year 2010-11. The primary issues revolved around the applicability of Section 153A of the Income Tax Act following a search at the appellant's premises and the nature of certain claimed expenses. The tribunal had disallowed education expenses amounting to Rs.1,11,35,190, categorizing them as personal expenses. The High Court considered whether the proceedings were correctly deemed pending at the time of the search and whether the expenses were justifiably related to business operations.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 746535 (HC-RAJASTHAN)
• Appeal Type: Others
• Pronouncement Date: 27-03-2025
• Assessment Year: misc
• Other Referred Cases: Principal Commissioner of Income Tax vs. Abhisar Buildwell P. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: SIDDHARTH BAPNA; MEYHUL MIITTAL
• Assessee Lawyers: DILEEP SHIVPURI
• Keywords: Assessment Year 2010-11; Education expenses; Income tax appeal; Incriminating material; Personal expenses; Search and seizure
• Section: 143(2); 153A; 153B

Judgement Text

"[2025:RJ-JP:14217-DB] 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 Vilas Hotel, Tonk Road, Jaipur. Present Address- 34, Harshvardhan Building, 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 Shivpuri For Respondent(s) : Mr. Siddharth Bapna with Mr. Meyhul Miittal HON'BLE MR. JUSTICE AVNEESH JHINGAN HON'BLE MR. JUSTICE MANEESH SHARMA Judgment 27/03/2025 AVNEESH JHINGAN, J:- 1. This is an application (I.A. No.1/2024) filed for framing additional substantial question of law. 2. After arguing the application at length, learned counsel for the applicant submits that instead of proposed substantial question of law in the application following additional substantial question of law be admitted: (i) Whether in the facts of the case to determine the pendency of the proceedings as per Section 153A, the date of issuance of notice would be relevant or date of search? [2025:RJ-JP:14217-DB] (2 of 10) [ITA-48/2020] 3. Learned counsel for the non-applicant could not raise any serious objection to the acceptance of the prayer. 4. The substantial question of law framed here in above shall be considered while deciding the appeal. 5. The application is allowed. 6. This appeal is filed against the order of the Income Tax Appellate Tribunal, Jaipur (for short ‘the tribunal’) dated 11.03.2020 relating to assessment year (for brevity ‘AY’) 2010-11. 7. In this appeal, following substantial questions of law have been formulated:- “(i) Whether in the facts of the case to determine the pendency of the proceedings as per Section 153A’ the date of issuance of notice would be relevant or date of search? (ii) Whether on the facts and circumstances of the case the assessment order of the Appellant, for Assessment year 2010-11, framed on 10.03.2016, one year beyond the normal time-limit, in view of Explanation of Section 153B, was not barred by time limitation, hence invalid, since the reference allegedly made under section 90 of the Income-Tax Act was illegal, without jurisdiction, without statutory authority, and void ab initio? (iii) Whether on the facts and circumstances of the case the ITAT erred in law in holding that the expenses on education of the Appellant were personal expenses, having been incurred prior to setting up on business, totally ignoring evidence on record that the business of the Appellant had commenced in the financial year 2008-09 and return showing substantial turnover, gross profit and taxable income had been filed right from Assessment year 2009-10 onwards?” [2025:RJ-JP:14217-DB] (3 of 10) [ITA-48/2020] 8. The brief facts are that appellant is an income tax assessee. On 05.09.2011 search was conducted at the residence and business premises of the appellant. On 10.10.2010, appellant filed income tax returns for AY 2010-11. Notice dated 14.09.2012 was issued 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 of Rs.1,11,35,190/-. The first appeal was dismissed on 26.05.2017. The appellant being unsuccessful in the tribunal is before this court. Substantial question of law No.1 9. Learned counsel for the appellant submits that assessment proceedings for AY 2010-11 were complete as no notice was issued under section 143(2) of the Act. Addition under section 153-A in completed assessment was wrongly made without there being incriminating material seized during the search. 10. Learned counsel for the revenue submits that before expiry of time to issue notice under section 143(2), the search was conducted on 05.09.2011 when the proceedings were pending. 11. From Section 143(2) and the proviso thereto, the position merges that the Assessing Officer (A.O.), if considers expedient to verify that there is no understated income or excess loss computed or that there is underpayment of tax, shall serve a notice on the assessee to produce the evidence to support the return. [2025:RJ-JP:14217-DB] (4 of 10) [ITA-48/2020] 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 in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall— (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made: Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years: Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this 72[sub-section] pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate.: **** ***” [2025:RJ-JP:14217-DB] (5 of 10) [ITA-48/2020] 13. By Finance Act, 2003, Section 153-A to 153-D were introduced in Chapter XIV of the Act laying down special procedure for assessment in cases of search or requisition made on or after 01.06.2003. There was deviation made from the earlier regime which are as follows:- (i) the assessment /reassessment of ‘total income’ was to be made for each of relevant preceding year by passing separate order for each assessment year, instead of initiation of parallel proceedings 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 be applied. (iv) The pending assessment or reassessment proceedings, on date of initiating of search or requisition, abated. In case of annulment of the assessment/reassessment under Section 153A the abated assessment or reassessment revived. (v) The provisions of Section 153A to 153D brought within ambit not only the cases of assessee on whom the search was conducted or requisition made but also assessee to whom the seized material related to or belonged to. 14. The heading of Section 153-A is assessment in cases of search or requisition. The section starts with a non-obstante clause and operates inspite of the provisions of sections 139, 147, 148, 149, 151 and 153. It mandates the AO for issuing notices to furnish income tax returns for the relevant AY or years [2025:RJ-JP:14217-DB] (6 of 10) [ITA-48/2020] and for each of the six assessment years preceding the assessment year relevant to previous to year in which search was conducted. First proviso stipulates assessing or reassessing the total income for each of the six assessment years preceding to the relevant AY in which search was conducted and also for the relevant year. As per the second proviso the assessment or reassessment for the relevant AY or the six years preceding thereto pending on the date of initiation of search or making requisition shall abate. 15. In the case in hand, the return was furnished in financial year 2010-11 and the notice under section 143(2) of the Act could have been issued till 30.09.2011. Before expiry of the limitation to issue notice under section 143(2) the search was conducted on the premises of the appellant on 05.09.2011. By operation of 2nd proviso to section 153-A pending assessment or reassessment abetted. 16. The reliance on Principal Commissioner of Income Tax vs. Abhisar Buildwell P. Ltd. is of no avail. The Supreme Court in the case of Abhisar Buildwell P. Ltd. (supra) was dealing with following question. “11. The question which is posed for consideration in the present set of appeals is, as to whether in respect of completed assessments/unabated assessments, whether the jurisdiction of AO to make assessment is confined to incriminating material found during the course of search under Section 132 or requisition under Section 132A or not, i.e., whether any addition can be made by the AO in absence [2025:RJ-JP:14217-DB] (7 of 10) [ITA-48/2020] of any incriminating material found during the course of search under section 132 or requisition under Section 132 A of 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 filing returns in respect of relevant preceding years. The AO assumes jurisdiction to assess or reassess ‘total income’ for the relevant preceding years. The pending assessment and reassessment abate by operation of the provision of section 153A. The completed and unabated assessments could not be reopened in absence of an incriminating seized material relating to the concerned assessment years. The assessment and reassessment under Section 153A has to be of the ‘total income’, taking into consideration the returned income (if return is filed), incriminating material result of search or requisition and other material. In case no incriminating material was found in search, the department can reopen completed/unabated assessment under Sections 147 & 148 of the Act. 17. The Supreme Court held that in case of complete assessment the addition under section 153-A can only be done on the basis of incriminating material relating to relevant AY recovered during search. For the second proviso to section 153-A to be operative the assessment or reassessment should be pending on date of initiation of search. In the present case, before expiry of limitation [2025:RJ-JP:14217-DB] (8 of 10) [ITA-48/2020] 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 length realizing that the substantial question of law No.2 is not arising out of the order of the tribunal, is not pressing this appeal qua the question No.2 with liberty to avail remedies in accordance with law. 19. The appeal qua the substantial question of law No.2 is disposed of as not pressed with liberty as prayed for. Substantial question of law No.3 20. Section 37 deals with general expenditures made wholly and exclusively for purpose of business or profession which can be claimed as deduction from the business or professional income. The exception is to the expenses prescribed under section 32 to 36 and being in nature of capital or personal expenses of the assessee. 21. The appellant claimed expenses incurred for pursuing degree of B.Sc(Hons.) in Business Management and M.sc in Finance from London. The bachelors degree was pursued during the year 2006 to 2009 and masters degree in 2010-11. The deduction for education expenses was disallowed for not having been incurred in AY 2010-11 and that the expenses for perusing B.sc related to period prior to setting up of the business. Moreover apart from bald statement, there was no material produced to substantiate [2025:RJ-JP:14217-DB] (9 of 10) [ITA-48/2020] the nexus of the studies with the business started that too after completion of Bachelors degree. The expenses were held to be personal in nature. 22. Learned counsel for the appellant argues that the education pursued in London helped the appellant for better management of the business. Submission is that the business was established in the AY 2009-10 yet the authorities disallowed the deduction in AY 2010-11. 23. Learned counsel for the respondent contends that the tribunal recorded finding that the deduction claimed was not substantiated by producing evidence of having a direct relation to the operation of the business. 24. The bachelors degree was pursued from 2006 to 2009 and admittedly the business was established in AY 2009-10. There is nothing on record to prove that while pursuing the bachelors degree in London the business was started by proprietor in Rajasthan. 25. The other angle needs to be considered is that the expenses were incurred in AY 2007-08, 2008-09 and 2009-10 and 2011-12 but there is no basis made out for claiming these deductions in AY 2010-11. 26. The decisions of the High Courts relied upon by the appellant before the tribunal were rightly distinguished and are not applicable to the fact of the case. [2025:RJ-JP:14217-DB] (10 of 10) [ITA-48/2020] 27. No case is made out for interference in the findings recorded that these expenses were personal in nature and were not relating to the assessment year in which deduction was claimed. 28. In view of the above discussion, the question Nos.1 and 3 are answered against the assessee and question No.2 is disposed of as not pressed with liberty as prayed for. 29. The appeal is disposed of. (MANEESH SHARMA),J (AVNEESH JHINGAN),J Chandan/56 Reportable: Yes "