AI Insights
The case involves an appeal by the Income Tax Department against the order of the CIT(Appeals) which set aside the assessment made under section 153C of the Income Tax Act, 1961. The assessment was initially based on bank statements and other documents not found during a search operation but were later examined during the assessment proceedings. The Tribunal found that the additions made to the assessee's income were not based on any incriminating material found during the search, which is a prerequisite for initiating proceedings under section 153C. The Tribunal referenced several judicial precedents to support the decision that in the absence of incriminating material, the assessment could not be sustained.
Appeal Details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 131493 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
1 year(s) 4 month(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
02-03-2023
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
D
Next Hearing Date
06-02-2023
Assessment Year
2009-2010
Appeal Filed On
01-11-2021
Judgement Text
THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “D” BENCH Before: Ms. Annapurna Gupta, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member Th e ITO, Ward-5(3 )(1), Ah medabad (Appellant) Vs Shri Ku ntal Mah eshkumar Gandhi, D-404, 5 t h Floor Dh arnidhar To wer, Op p. Dh arnidhar Jain Temple, Pald i, Ahmedabad PAN: AHY PG53 28C (Resp ondent) Asses see b y : None Revenue by : Shri Alpesh Parmar, Sr. D. R. Date of hearing : 07-02 -2023 Date of pronouncement : 03-03 -2023 आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- This is an appeal filed by the Revenue against the order of the ld. Commissioner of Income Tax (Appeals)-11, Ahmedabad, in proceeding u/s. 250 of the Act vide order dated 16/08/2021 passed for the assessment year 2009-10. ITA No. 287/Ahd/2021 Assessment Year 2009-10 I.T.A No. 287/Ahd/2021 A.Y. 2009-10 Page No. ITO vs. Shri Kuntal Maheshkumar Gandhi 2 2. The Department has taken the following grounds of appeal:- “(1) The Ld.CIT(A) has erred in law and on facts in not appreciating the provisions of section 153C of the Act which requires the total income to be brought under tax without any restrictions. (2) The Ld.CIT(A) has erred in law and on facts in holding that such assessment or reassessment under Section 153C of the Act is to be restricted only to the incriminating material found during the search. (3) The Ld. CIT(A) has erred in law and on facts in deleting addition of Rs. 2,57,00,000/- made on account of credits in the bank account of the assessee. (4) The Ld. CIT(A) has erred in law and on facts in deleting addition of Rs. 2,00,000/- made on account of unexplained purchases of shares. (5) On the facts and circumstances, the Id. CIT(A) ought to have upheld the order u/s.144 r.w.s. 153C of the I.T. Act, 1961 passed by the Assessing Officer. (6) It is therefore prayed that the order of the Id. CIT(A) may be set aside and that of the order of the Assessing Officer be restored to the above extent. (7) It is further prayed that the tax effect of this case is Rs. 88,03,410/-,which is more than the monetary limit specified in the Instruction No. of CBDT Circular No. 3/2018, F. No. 279/Misc. 142/2007-ITJ(Pt) dated 11.07.2018 & recently issued Circular No. 17/2019 dated 08/08/2019, hence the appeal be decided on merits.” 3. The brief facts of the case are that the search action under section 132 of the Act was carried out in the Suraj Group of cases on 18-12-2013. During the course of search, certain incriminating documents were found, I.T.A No. 287/Ahd/2021 A.Y. 2009-10 Page No. ITO vs. Shri Kuntal Maheshkumar Gandhi 3 which as per the assessing Officer belonged to the assessee. Accordingly, proceedings under section 153C of the Act were initiated by the assessing Officer. During the course of assessment, the AO observed that on verification of the bank statement of M/s Kuntal Investment and Shri Mahesh P. Gandhi, it was seen that there were transfers from the assessee to the aforesaid parties and the assessee has given a total sum of 2,57,00,000/- and received back a sum of 1,47,00,000/-. Accordingly, the AO held that the entire credit of 2,57,00,000/- given to M/s Kuntal Investment and Shri Mahesh P. Gandhi is the unexplained income of the assessee under section 68 of the Act. 4. In appeal before Ld. CIT(Appeals), the assessee challenged the validity of assessment under section 153C of the Act on the ground that no incriminating documents or books of accounts “belonging to” the assessee were found during the course of search action under section 132 of the Act on the Suraj Group on 18-12-2013. The assessee submitted during the assessment proceedings, the AO has not brought on record the details of any incriminating documents found during the course of search on the Suraj Group. Therefore, it is evident that the AO has made the addition on the basis of credits and debits found in the bank account of the assessee maintained in the name of M/s Kuntal Investment and Shri Mahesh P. Gandhi. The assessee submitted the bank statement of the assessee were not incriminating documents found at the place of Suraj Group on the basis of which the 153C proceedings have been initiated in the case of the assessee. The Ld. CIT(Appeals) allowed the appeal of the assessee and set-aside the I.T.A No. 287/Ahd/2021 A.Y. 2009-10 Page No. ITO vs. Shri Kuntal Maheshkumar Gandhi 4 assessment order framed under section 153C of the Act with the following observations: “26 It is an undisputed fact that on the date of initiation of the search no assessment proceedings were pending in this assessment year. Therefore, the proceedings were not abated in the case as mentioned in the second proviso to section 153A of the Act. It seems that the A.O. lost sight of the fact that he was not making an assessment under section 153(A)(1) of the Act read with its second proviso. As discussed hereinabove, there is no indication in the contents of the assessment order that the addition was made on the basis of any incriminating material found and seized in search at the place of appellant. 27. In view of the aforesaid findings and respectfully following the judgments/decisions of Jurisdictional High Court, Jurisdictions! Tribunal and other Courts, wherein it has been held that in absence of incriminating material/evidences found at the place of appellant, addition /-disallowance cannot be sustained within the pale of section 153C of the Act. In my considered opinion, the action of the AO for making addition not justified. This ground of appeal is allowed. 28. The second ground of appeal is against the addition of Rs.2,57,00,000/- made u/s.68 of the IT Act, 1961 on facts and law. I have considered the facts of the case, remand report of the AO and the I.T.A No. 287/Ahd/2021 A.Y. 2009-10 Page No. ITO vs. Shri Kuntal Maheshkumar Gandhi 5 submission and rejoinder of the appellant carefully. Since the initiation of proceedings u/s. 153C is held to be not in accordance with the provisions of law and accordingly no addition was justified as has been held in the first ground of appeal. Thus, this ground of appeal is not required to be decided on merits. The grounds of appeal are allowed.” 5. The Department is in appeal before us against the aforesaid order passed by Ld. CIT(Appeals) setting aside the assessment order on the ground of jurisdiction itself. Before us, the DR relied upon the observations made by the Ld. A.O. in the assessment order. In response, the counsel for the assessee reiterated the submissions made before Ld. CIT(Appeals) and submitted that it is a settled law that addition under section 153C of the Act can be made only on the basis of incriminating material found during the course of search. In the instant case, admittedly the additions were made on the basis of bank statements of the assessee examined by the A.O. during the course of assessment proceedings. Accordingly, Ld. CIT(Appeals) has correctly set aside the assessment order on grounds of jurisdiction itself in absence of any incriminating material belonging to the Assessee. 6. We have heard the rival contentions and perused the material on record. On analysis of the arguments of the Department and the counsel for the assessee and the material on record, we are of the considered view that Ld. CIT(Appeals) has not erred in facts and in law in setting aside the I.T.A No. 287/Ahd/2021 A.Y. 2009-10 Page No. ITO vs. Shri Kuntal Maheshkumar Gandhi 6 assessment order passed under section 153C of the Act, for the following reasons: No additions were made by the A.O. on the basis of documents “belonging to” the assessee: 6.1 In the instant facts, we observe that admittedly no documents “belonging to” the assessee were found during the course of search at Suraj Group of cases on 18-12-2013. The Department has also not disputed that there is no specific finding to the effect that any incriminating documents “belonging to” the assessee were found and seized during the course of search at the premises of Suraj Group. The additions were made on the basis of bank statement of the assessee and not on the basis of any incriminating material found “belonging to” the assessee found during the course of search on Suraj Group. Notably, assessee search action was carried out before 01- 06-2015, therefore only documents “belonging to” the assessee could trigger the initiation of proceedings u/s 153C of the Act. The jurisdictional Gujarat High Court in the case of Anil Kumar Gopikishan Agrawal418 ITR 25 (Gujarat High Court), held that since the search was conducted prior to date of amendment to section 153C of the Act, the amended provisions which came into effect from 1-6-2015 would not apply to search initiated on or before 1-6-2015 and thus, not applicable to the present case. It would be pertinent to reproduce the relevant extracts of the aforesaid ruling which are relevant to the issue under consideration before us: I.T.A No. 287/Ahd/2021 A.Y. 2009-10 Page No. ITO vs. Shri Kuntal Maheshkumar Gandhi 7 19.4 Section 153C of the Act is a machinery provision which is inserted in the statute book for the purpose of carrying out assessments of a person other than the person searched under sections 132 and 132A of the Act. The moot question that arises for consideration in the present case is as to what is relevant date from which the amended provisions of section 153C of the Act would be applicable. While the amended provisions have been expressly brought into force with effect from 1.6.2015, the controversy in the present case arises because the searches in all these case had been conducted prior to 1.6.2015, whereas the proceedings under section 153C of the Act have been initiated after that date and it is in this backdrop that the validity of the impugned notices has been called in question. It is the case of the petitioners that the proceedings under section 153C of the Act are triggered by the search, and hence the provisions of law as existing on the date of the search have to be followed, while it is the case the respondents that the provisions of law as existing on the date of recording of satisfaction by the Assessing Officer of the person searched and the date of issuance of notice under section 153C of the Act have to be followed. 19.8 While it is true that section 153C of the Act is also a machinery provision for assessment of income of a person other than the person searched, in the opinion of this court, this is not a case where by virtue of the amendment, there is merely a change in the procedural provisions affecting the assessees who were covered by the unamended provision. By the amendment, a new class of assessees I.T.A No. 287/Ahd/2021 A.Y. 2009-10 Page No. ITO vs. Shri Kuntal Maheshkumar Gandhi 8 are sought to be brought within the sweep of section 153C of the Act, which affects the substantive rights of the assessees and cannot be said to be a mere change in the procedure. Since the amendment expands the scope of section 153C of the Act by bringing in an assessee if books of account or documents pertaining to him or containing information relating to him have been seized during the course of search, within the fold of that section, this question assumes significance, inasmuch as in the facts of the present case, as on the date of search, it was only if such material belonged to a person other than the searched person, that the Assessing Officer of the searched person could record such satisfaction and forward the material to the Assessing Officer of such other person. However, subsequent to the date of search, the amendment has been brought into force and based on the amendment, the petitioners who were not included within the ambit of section 153C of the Act as on the date of the search, are now sought to be brought within its fold on the ground that the satisfaction note and notice under section 153C of the Act have been issued after the amendment came into force. Therefore, this case does not relate to the interpretation of the provisions of any of the sections, but relates to the stage at which the amended section 153C of the Act can be made applicable, as to whether it relates to the date of search; or the date of recording of satisfaction by the Assessing Officer of the searched person; or the date of recording of satisfaction by the Assessing Officer of the other person; or the date of issuance of notice under section 153C of the Act. I.T.A No. 287/Ahd/2021 A.Y. 2009-10 Page No. ITO vs. Shri Kuntal Maheshkumar Gandhi 9 19.9 In the facts of the present case, the search was conducted in all the cases on a date prior to 1st June, 2015. Therefore, on the date of the search, the Assessing Officer of the person searched could only have recorded satisfaction to the effect that the seized material belongs or belong to the other person. In the present case, the hard- disc containing in the information relating to the petitioners admittedly did not belong to them, therefore, as on the date of the search, the essential jurisdictional requirement to justify assumption of jurisdiction under section 153C of the Act in case of the petitioners, did not exist. It was only on 1st June, 2015 when the amended provisions came into force that the Assessing Officer of the searched person could have formed the requisite belief that the books of account or documents seized or requisitioned pertain to or the information contained therein relates to the petitioners. 6.2 In the case of Index Securities (P.) Ltd[2017] 86 taxmann.com 84 (Delhi), the Delhi High Court held that the essential jurisdictional requirement for assumption of jurisdiction under section 153C (prior to its amendment with effect from 1-6-2015) qua ‘other person’ is that seized documents forming basis of satisfaction note must not merely ‘pertain’ to other person but must belong to ‘other person’. During course of assessment proceedings, in case of a company, a number of documents were found and seized which contained trial balance and balance sheet of assessee company for period 1-4-2010 to 13-9-2010.Though seized documents might “pertain” to assessee, same was not proved to “belong” to I.T.A No. 287/Ahd/2021 A.Y. 2009-10 Page No. ITO vs. Shri Kuntal Maheshkumar Gandhi 10 assessee. Hence, since essential requirements for assumption of jurisdiction under section 153C were not met, issuance of notice was unjustified. 6.3 Again, the Delhi High Court in the case of Pepsico India Holdings (P.) Ltd.2014] 50 taxmann.com 299 (Delhi) held that unless and until it is established that documents seized do not belong to searched person, provisions of section 153C do not get attracted. 6.4 In the case of Meghmani Organics Ltd.[2013] 40 taxmann.com 31 (Gujarat), the Gujarat High Court held that where documents on basis of which Assessing Officer initiated proceedings under section 153C did not belong to assessee, assessment framed under section 153C to be cancelled. 6.5 In the case of Arpit Land (P.) Ltd.[2017] 78 taxmann.com 300 (Bombay), the Bombay High Court held that where seized document forming basis of proceedings under section 153C did not belong to assessee said proceedings would be null and void. 6.6 In the case of N.S. Software (Firm)[2018] 93 taxmann.com 21 (Delhi), Delhi High Court held that where in course of search carried out at premises of a third person, a hard disk was seized and on basis of same proceedings under section 153C were initiated against assessee, since Assessing Officer of searched person failed to record a specific satisfaction as to how said hard disk “belonged to” assessee, impugned proceedings under section 153C were unjustified. I.T.A No. 287/Ahd/2021 A.Y. 2009-10 Page No. ITO vs. Shri Kuntal Maheshkumar Gandhi 11 6.7 In light of the above rulings, we are of the considered view that since the search was conducted prior to amendment in section 153C of the Act, it was an essential pre-requisite that the incriminating documents on the basis of which the assessment was framed must “belong” to the assessee. From the contents of the assessment order and the observations made by Ld. CIT(Appeals), even the Ld. A.O. has not alleged that additions were made on the basis of incriminating documents “belonging to” the assessee found during the course of search. Therefore, in the instant set of facts, we find no infirmity in the order of the Ld. CIT(Appeals) wherein he has held that since assessment was not framed on the basis of any incriminating documents “belonging to” the assessee found during the course of search, then in light of the various judicial precedents, including the jurisdictional Gujarat High Court decision on this subject, the additions are not liable to be sustained. Additions for Unabated assessment year can only be made on the basis of incriminating material found during the course of search. 6.8 We observe that Ld. CIT(Appeals) while disposing of the objections raised by the in respect of initiation of proceedings under section 153C of the Act, has categorically held that there was no incriminating material which formed the basis of assessment framed under section 153C of the Act. The same is evident from the relevant paragraphs of Ld. CIT(Appeals) order disposing of the objections raised by the assessee in respect of initiation of proceedings under section 153C of the Act. The relevant extracts of the order passed by Ld. CIT(Appeals) are reproduced below for reference: I.T.A No. 287/Ahd/2021 A.Y. 2009-10 Page No. ITO vs. Shri Kuntal Maheshkumar Gandhi 12 “26 It is an undisputed fact that on the date of initiation of the search no assessment proceedings were pending in this assessment year. Therefore, the proceedings were not abated in the case as mentioned in the second proviso to section 153A of the Act. It seems that the A.O. lost sight of the fact that he was not making an assessment under section 153(A)(1) of the Act read with its second proviso. As discussed hereinabove, there is no indication in the contents of the assessment order that the addition was made on the basis of any incriminating material found and seized in search at the place of appellant.” 6.9 In the instant set of facts, no incriminating materials was found during the course of search which formed the basis of initiation of proceedings under section 153C of the Act. We also observe that the instant year is an unabated assessment year where the time limit of completing the assessment proceedings have already been concluded. It is well-settled law that in absence of any incriminating material found during the course of search, proceedings under section 153A/153C of the Act cannot be initiated in case of unabated assessment year. 6.10 The Gujarat High Court in the of PCIT v. Rameshbhai Jivraj Desai [2020] 121 taxmann.com 333 (Gujarat) held that where no incriminating material in respect of an earlier assessment year for which assessment had already attained finality was unearthed during course of proceedings under section 153A, Assessing Officer while completing assessment under said I.T.A No. 287/Ahd/2021 A.Y. 2009-10 Page No. ITO vs. Shri Kuntal Maheshkumar Gandhi 13 section could not disturb completed assessment of assessee in respect of such earlier assessment year. 6.11 In the case of Sunrise Finlease (P.) Ltd.[2018] 89 taxmann.com 1 (Gujarat), the Gujarat High Court held that where no incriminating evidence against assessee was found or seized during course of search so as to attract provisions of section 153A proceedings, no additions could be made on basis of statement of director of assessee company which were recorded under section 131 much later after search. 6.12 In the case of Desai Construction (P.) Ltd.[2017] 81 taxmann.com 271 (Gujarat), the Gujarat High Court held that in absence of any incriminating material found during search, Assessing Officer, in assessment under section 153A, would not be entitled to interfere with assessee's claim for deduction under section 80-IA, which was part of original assessment proceedings and such assessment had abated. 6.13 In the case of PCIT v. Saumya Construction (P.) Ltd.[2017] 81 taxmann.com 292 (Gujarat), the Gujarat High Court held that under section 153A, an assessment has to be made in relation to search or requisition, namely, in relation to material disclosed during search or requisition; if no incriminating material is found during search, no addition can be made on basis of material collected after search. 6.14 In the case of PCIT v. Dipak Jashvantlal Panchal[2017] 88 taxmann.com 611 (Gujarat), the Gujarat High Court held that only I.T.A No. 287/Ahd/2021 A.Y. 2009-10 Page No. ITO vs. Shri Kuntal Maheshkumar Gandhi 14 undisclosed income and undisclosed assets detected during search can be brought to tax in assessment under section 153A of the Act. 6.15 In the case of PCIT v. Devangi [2017] 88 taxmann.com 610 (Gujarat), after the search conducted at the assessee's premises, the Assessing Officer initiated proceedings under section 153A of the Act on the basis of the incriminating material seized for the period of the assessment year 2004-05 onwards, and made the addition for the assessment years 2000- 01 to 2004-05. The Tribunal deleted the addition holding that only undisclosed income and undisclosed assets detected during the search could be brought to tax and in assessee's case no incriminating material was found with respect to the assessment years 2000-01 to 2004-05, at the time of search. The Gujarat High Court held that the Tribunal was correct in law in holding that the scope of section 153A was limited to assessing only search related income. 6.16 The Delhi High Court in the case of CIT v. Kabul Chawla[2015] 61 taxmann.com 412 (Delhi) held that completed assessments can be interfered with by Assessing Officer while making assessment under section 153A only on basis of some incriminating material unearthed during course of search which was not produced or not already disclosed or made known in course of original assessment. 6.17 The Bombay High Court in the case of CIT v. Continental Warehousing Corporation (Nhava Sheva) Ltd [2015] 58 taxmann.com 78 (Bombay) held that no addition can be made in respect I.T.A No. 287/Ahd/2021 A.Y. 2009-10 Page No. ITO vs. Shri Kuntal Maheshkumar Gandhi 15 of assessments which have become final if no incriminating material is found during search. The Kolkata Tribunal in case of Majestic Commercial (P.) Ltd [2020] 116 taxmann.com 412 (Kolkata - Trib.) held that in case of unabated assessment of an assessee, no addition is permissible in order under section 153A unless it is based on any incriminating material found during course of search. Again in the case of Mani Square v. ACIT, [2020] 118 taxmann.com 452 (Kolkata - Trib.), the Kolkata Tribunal held in case of unabated assessments of an assessee, no addition is permissible in order under section 153A, unless it is based on any tangible, cogent and relevant incriminating material found during course of search qua assessee and qua assessment year. The Mumbai Tribunal in the case of Wind World India Infrastructure (P.) Ltd. v. PCIT [2017] 86 taxmann.com 279 (Mumbai) held that in case of an unabated assessment, no addition in absence of any incriminating material emerging during course of search and seizure proceedings conducted under section 132(1) can be made in hands of assessee. 6.18 In our view, the cases cited above squarely apply to assessee’s set of facts wherein the present assessment year, as noted by Ld. CIT(Appeals), is an unabated assessment year. During the search operation which was carried by the Department, admittedly, no incriminating material was discovered, which formed the basis of additions made in respect of order for assessment year 2009-10 passed u/s. 153C of the Act, for which the time limit of initiation of assessment has already concluded. It is a settled position of law that in case of unabated assessment year, no addition could be made de-hors the material found during the search. I.T.A No. 287/Ahd/2021 A.Y. 2009-10 Page No. ITO vs. Shri Kuntal Maheshkumar Gandhi 16 6.19 In view of the above factual and legal position, in our view, the Ld. CIT(Appeals) has not erred in law and in fact in holding that the initiation of proceedings u/s. 153C of the Act on the assessee are not sustainable in the instant facts. In the result, the appeal of the Department is dismissed on ground of jurisdiction itself. Since we have dismissed the appeal of the Department of the ground of jurisdiction itself, we are not adjudicating on the balance grounds of appeal raised by the Department. 7. In the result, appeal of the Department is dismissed. Order pronounced in the open court on 03-03-2023 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 03/03/2023 आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/ आदेश से, उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद
Other Referred Cases
Anil Kumar Gopikishan Agrawal vs. ITO, Index Securities (P.) Ltd vs. ITO, Pepsico India Holdings (P.) Ltd vs. ITO, Meghmani Organics Ltd vs. ITO, Arpit Land (P.) Ltd vs. ITO, N.S. Software (Firm) vs. ITO, PCIT vs. Rameshbhai Jivraj Desai, Sunrise Finlease (P.) Ltd vs. ITO, Desai Construction (P.) Ltd vs. ITO, PCIT vs. Saumya Construction (P.) Ltd, PCIT vs. Dipak Jashvantlal Panchal, PCIT vs. Devangi, CIT vs. Kabul Chawla, CIT vs. Continental Warehousing Corporation (Nhava Sheva) Ltd
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