Rupes Anand, V. ACIT,

ITA 442/BANG/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80787 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 28-10-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 02-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRISCILLA SINGSIT CITIII
• Assessee Lawyers: BABU PRASAD
• Keywords: Capital asset; Depreciation; Search and seizure; Block assessment; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 143(3); 153A; 32; 147; 148; 263; 132; 12; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH C BEFORE SHRI RAJPAL YADAV , JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T.A. NO . 442 TO 445 / BANG /20 1 3 ( ASSESSMENT YEAR S : 200 5 - 06 TO 2008 - 09 ) SHRI RUPESH ANAND, PARTNER : M/S. NANDINI DELUX, NO.114/2, LALBAGH FORT ROAD, BANGALORE - 560 004 . . APPELLANT . PAN ABOPA 2665E VS. ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRC LE 1(2), BA NGALORE . .. RESPONDENT. APPELLANT BY : SHRI BABU PRASAD, ADVOCATE. RESPONDENT BY : MS. PRISCILLA SINGSIT, CIT - III (D.R) DATE OF H EARING : 28.10 .2014. DATE OF P RONOUNCEMENT : 5.12 .2014. O R D E R PER BENCH : THESE FOUR APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE COMMIS SIONER OF INCOME TAX (APPEALS) - V I, BANGALORE DT.15.1.2013 AND PERTAIN TO ASSESSMENT YEARS 2005 - 06 TO 2008 - 09. THESE APPEALS WERE HEARD TOGETHER AS COMMON ISSUES ARE INVOLVED, AND ARE THEREFORE DISPOSED OFF BY WAY OF THIS COMMON ORDER. 2. THE FACTS OF THE CASE, BRIEFLY, ARE AS UNDER : - 2.1 THERE WAS A SEARCH AND SEIZURE OPERATION CONDUCTED ON 20.11.2009 IN THE CASE OF THIS ASSESSEE UNDER SECTION 132 OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT'). PURSUANT TO THE 2 ITA NOS.442 TO 445/BANG/2013 SEARCH, NOTICES UNDER SECTION 1 53A OF THE ACT WERE ISSUED TO THE ASSESSEE IN RESPONSE TO WHICH RETURNS OF INCOME WERE FILED. THE DETAILS FOR THE FOUR ASSESSMENT YEARS IN THESE APPEALS ARE AS UNDER : - FOR ASSESSMENT YEAR 2005 - 06 , THE ASSESSEE FILED THE RETURN OF INCOME ON 30.11.20 10 DECLARING A TOTAL LOSS OF ( - ) RS.1,34,42,318. THE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT WAS SUBSEQUENTLY COMPLETED UNDER SECTION 153A RWS 143(3) OF THE ACT BY ORDER DT.28.12.2011 WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.24,08, 157 AS AGAINST THE RETURNED LOSS OF RS.1,34,42,318 , IN VIEW OF THE ASSESSING OFFICER S TREATING EXPENDITURE OF RS;1,76,11,639 , INCURRED BY THE ASSESSEE TOWA RDS RENOVATION AND IMPROVEMENT O F A BUILDING TAKEN ON LEASE BY HIM, AND CLAIMED AS REVENUE EXPENDI TURE BY THE ASSESSEE, TO BE CAPITAL EXPENDITURE. FOR ASSESSMENT YEAR 2006 - 07 , RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 30.11.2010 , IN RESPONSE TO NOTICE UNDER SECTION 153A OF THE ACT, DECLARING TOTAL INCOME OF RS.54,84,010. THE CASE WAS SCRUTINIZED AND THE ASSESSMENT WAS COMPLETED UNDER SECTION 153A RWS 143(3) OF THE ACT BY ORDER DT.28.12.2011, WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.1,85,94,641 IN VIEW OF THE ASSESSING OFFICER, INTER ALIA, TREATING EXPENDITURE OF RS.5,94 ,987 , INCURRED BY THE ASSESSEE ON RENOVATION AND IMPROVEMENT OF A BUILDING TAKEN ON LEASE BY HIM AND CLAIMED AS REVENUE EXPENDITURE BY THE ASSESSEE, TO BE CAPITAL EXPENDITURE. FOR ASSESSMENT YEAR 200 7 - 08 , THE RETURN OF INCOME WAS FILED B Y THE ASSESSEE ON 30.11.2010, IN RESPONSE TO NOTICE UNDER SECTION 153A OF THE ACT, WHEREIN THE AS TOTAL INCOME WAS DECLARED AT RS.87,82,403. THE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT WAS 3 ITA NOS.442 TO 445/BANG/2013 SUBSEQUENTLY COMPLETED UNDER SECTION 153A RWS 143(3) OF THE ACT BY ORDER DT.28.12.2011, WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.1,57,23,400 AS AGAINST RETURNED INCOME OF RS.87,42,403 IN VIEW OF THE ASSESSING OFFICER, INTER ALIA, TREATING EXPENDITURE OF RS.93,56,709 , INCURRED BY THE ASSESSEE ON RENOVATION AND IMPROVEMENT OF A BUILDING TAKEN ON LEASE BY HIM AND CLAIMED AS REVENUE EXPENDITURE BY THE ASSESSEE, TO BE CAPITAL EXPENDITURE. FOR ASSESSMENT YEAR 200 8 - 09 , THE ASSESSEE FILED ITS RETURN OF INCOME ON 30.11.2010, IN RESPONSE TO NOTIC E UNDER SECTION 153A OF THE ACT, DECLARING TOTAL INCOME OF RS.35,70,480. THE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT WAS SUBSEQUENTLY COMPLETED UNDER SECTION 153A RWS 143(3) OF THE ACT BY ORDER DT.28.12.2011, WHEREIN THE INCOME OF THE ASSESSEE W AS DETERMINED AT RS.27,24,431 IN VIEW OF THE ASSESSING OFFICER, INTER ALIA, TREATING EXPENDITURE OF RS.14,75,658 , INCURRED BY THE ASSESSEE ON RENOVATION AND IMPROVEMENT OF A BUILDING TAKEN ON LEASE BY HIM AND CLAIMED AS REVENUE EXPENDITURE BY THE ASSESSEE, TO BE CAPITAL EXPENDITURE. 2.2 AGGRIEVED BY THE ORDERS OF ASSESSMENT FOR ASSESSMENT YEARS 2005 - 06 TO 2008 - 09, ALL DT.28.12.2011, THE ASSESSEE PREFERRED APPEALS BEFORE THE CIT (APPEALS) VI, BANGALORE. ; THE LEARNED CIT (APPEALS) DISPOSED OFF THE ASS ESSEE'S APPEALS FOR THESE FOUR YEARS BY WAY OF A COMMON ORDER DT.15.1.2013 DISMISSING THE FOUR APPEALS. 3.1 AGGRIEVED BY THE COMBINED ORDERS OF THE CIT (APPEALS) VI, BANGALORE DT.15.1.2013 DISMISSING HIS APPEALS FOR ASSESSMENT YEARS 2005 - 06 TO 2008 - 09, THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL RAISING THE FOLLOWING IDENTICAL GROUNDS FOR ALL THE FOUR IMPUGNED ASSESSMENT YEARS : - 1. THE ORDER OF THE LOWER AUTHORITIES IS CONTRARY TO LAW FACTS AND EVIDENCE AVAILABLE ON RECORD AND IS NOT MAINTAINA BLE. 4 ITA NOS.442 TO 445/BANG/2013 2. THE LEARNED CIT (APPEALS) HAS ERRED IN UPHOLDING THE DECISION OF THE LEARNED A.O. TO DISALLOW EXPENSES ON INTERIOR DECORATION AND RENOVATION OF RENTED BUILDING AS CAPITAL EXPENDITURE AND ALLOW ONLY DEPRECIATION UNDER SECTION 32(1) ACTING UNDER SEC TION 153A OF THE ACT WITHOUT ANY SEIZED MATERIAL ON THIS ISSUE. 3. THE LEARNED CIT (APPEALS) HAS ERRED IN TAKING THE VIEW THAT THE LEARNED A.O. CAN REVIEW A DECISION ALREADY TAKEN UNDER SECTION 153A OR DISTURB AN ASSESSMENT WHICH WAS ALLOWED TO BECOME FI NAL WITHOUT ANY SEIZED MATERIAL POINTING OUT TO UNDISCLOSED INCOME. 4. THE LEARNED CIT (APPEALS) HAS ERRED IN UPHOLDING THE DECISION OF THE LEARNED A.O. TO DISALLOW EXPENDITURE ON INTERIOR DECORATION AND RENOVATION OF RENTED BUILDING AS CAPITAL EXPENDIT URE AND ALLOWING ONLY DEPRECIATION UNDER SECTION 32(1) ACTING UNDER SECTION 153A OF THE ACT WITHOUT ANY SEIZED MATERIAL ON THIS ISSUE. 5. THE LEARNED AUTHORITIES HAS FAILED TO APPRECIATE THAT EVEN THE DECISION OF THE HON'BLE DELHI H C RELIED ON THE BY THE LEARNED CIT (APPEALS) LAYS DOWN THE RULE THAT THERE SHOULD BE SEIZED MATERIAL INDICATING UNDISCLOSED INCOME TO GET JURISDICTION UNDER SECTION 153A IN REGARD TO ASSESSMENTS WHICH HAVE BECOME FINAL AND AS SUCH SHOULD HAVE ACCEPTED THE CLAIM OF THE APPELLAN T IN THIS REGARD BY FOLLOWING THE DECISION OF THE HON'BLE SPECIAL BENCH IN THE CASE OF ALL CARGO AND OTHER DECISION IN THIS REGARD. 6. THE LEARNED AUTHORITIES FAILED TO APPRECIATE THAT A DECISION TAKEN ALREADY AFTER THOROUGH SCRUTINY CANNOT BE REVIEWED U NDER SECTION 153A AND THE DEPT. CANNOT CHANGE ITS STAND WITHOUT ANY CHANGE IN FACTS AND CIRCUMSTANCES VIDE 349 ITR 309, 202 TAXMAN 14 (MAG) (KAR) 192 TAXMANN 28 AND AS SUCH THE LEARNED CIT (APPEALS) SHOULD HAVE REVERSED THE DECISION OF THE LEARNED A.O. TRE ATING THE REVENUE EXPENDITURE AS CAPITAL EXPENDITURE. 7. THE LEARNED ;AUTHORITIES ALSO FAILED TO APPRECIATE THAT THE FIRST ENQUIRY TO APPLY EXPLANATION (1) TO S 32(1) IS TO FIND OUT WHETHER THE EXPENDITURE IS CAPITAL OR REVENUE IN NATURE AND SINCE THE JU DICIAL DECISION SHOWS THAT IT IS REVENUE IN NATURE AND THERE IS NOTHING IN SECTION 32(1) TO CONVERT A REVENUE EXPENDITURE INTO A CAPITAL EXPENDITURE AND AS SUCH SHOULD HAVE DESISTED FROM INVOKING THE SAID EXPLANATION AND PROVISION OF SECTION 32(1) AND AC CEPTED THE CLAIM OF THE APPELLANT AS DONE BY THE LEARNED DCIT IN THE A.Y. 2005 - =06 IN THE CASE OF APPELLANT HIMSELF AND AS SUCH THE LEARNED CIT (APPEALS) SHOULD HAVE ALLOWED THE CLAIM ON MERITS ALSO. 3.2 FROM A PERUSAL OF THE GROUNDS OF APPEAL RAISED FOR ALL THE FOUR IMPUGNED ASSESSMENT YEARS, WE FIND T HAT, BRIEFLY, THEY PERTAIN TO THE FOLLOWING : - GROUND NO.1 IS GENERAL IN NATURE AND THEREFORE NO ADJUDICATION IS CALLED FOR THEREON. GROUND NO S .2 TO 5 PERTAINS TO THE ASSESSEE'S CHALLENGING T HE JURISDICTION OF THE ASSESSING OFFICER IN MAKING THE ADDITIONS / DISALLOWANCE IN THE ABSENCE OF ANY INCRIMINATING MATERIAL FOUND DURING SEARCH. 5 ITA NOS.442 TO 445/BANG/2013 GROUND NOS.6 AND 7 RELATE TO THE MATTER OF THE ISSUE ON THE TREATMENT BY THE AUTHORITIES BELOW, OF EXPEND ITURE INCURRED BY THE ASSESSEE ON RENOVATION AND COST OF IMPROVEMENT OF BUILDING LEASED BY HIM AS CAPITAL EXPENDITURE , THEREBY DISALLOWING THE ASSESSEE'S CLAIM THAT THE SAID EXPENDITURE BE ALLOWED AS REVENUE EXPENDITURE. 4.0 GROUND NOS. 2 TO 5 4.1 THE ASSESSEE HAS ASSAILED THE ORDER OF THE LEARNED CIT (APPEALS) FOR THE IMPUGNED ASSESSMENT YEARS 2005 - 06 TO 2008 - 09 NOT ONLY ON THE MERITS OF THE CASE (VIZ. GROUND NOS.6 & 7) BUT ALSO ON THE GROUNDS THAT SUCH A DISALLOWANCE CANNOT BE MADE IN THE ORDER OF ASSESSMENT PASSED UNDER SECTION 153A OF THE ACT PURSUANT TO SEARCH ACTION UNDER SECTION 132 OF THE ACT IN THE ABSENCE OF ANY INCRIMINATING MATERIAL BEING FOUND IN THE SEARCH RELATING TO THE TRANSACTIONS IN QUESTION. IT IS THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE THAT SINCE NO INCRIMINATING EVIDENCE WAS FOUND AT THE TIME OF SEARCH RELATING TO THESE TRANSACTIONS OF THE EXPENDITURE INCURRED ON RENOVATION AND COST OF IMPROVEMENT OF BUILDING TAKEN ON LEASE BY THE ASSESSEE, THE RESULTANT ADDITION / DISALLOWANCE OF THIS CLAIM WAS NOT CALLED FOR IN THE IMPUGNED ORDERS OF ASSESSMENT OF INCOME UNDER SECTION 153A OF THE ACT FOR THE FOUR ASSESSMENT YEARS INVOLVED IN THE PRESENT APPEALS. 4.2 IN THIS REGARD, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT NO ASSESSMENT FOR ASSESSMENT YEARS 2005 - 06 TO 2008 - 09 WAS PENDING ON THE DATE OF SEARCH; I.E. 20.11.2009, WHICH COULD ABATE AND EMPOWER THE ASSESSING OFFICER TO RECOMPUTE THE TOTAL INCOME EVEN WITHOUT ANY INCRIMINATING MATERIA L BEING FOUND DURING THE COURSE OF SEARCH. IT IS CONTENDED BY THE LEARNED AUTHORISED REPRESENTATIVE, THAT IN THE ABSENCE OF ANY INCRIMINATING MATERIAL, 6 ITA NOS.442 TO 445/BANG/2013 RELATING TO THE TRANSACTIONS IN QUESTION, FOUND AND SEIZED IN THE COURSE OF SEARCH, THERE WAS NO SCOPE F OR THE ASSESSING OFFICER TO MAKE SUCH ADDITION S / DISALLOWANCE S , AS HAS BEEN MADE IN THE IMPUGNED ORDER OF ASSESSMENT FOR ASSESSMENT YEARS 2005 - 06 TO 2008 - 09. RELYING ON CERTAIN JUDICIAL PRONOUNCEMENTS RENDERED IN THIS REGARD, THE LEARNED AUTHORISED REPRE SENTATIVE CONTENDED THAT NO ADDITIONS / DISALLOWANCES CAN BE MADE IN RESPECT OF CONCLUDED ASSESSMENTS AS ON THE DATE OF SEARCH, UNLESS SOME INCRIMINATING MATERIAL WAS FOUND DURING THE COURSE OF SEARCH. IN THIS REGARD, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE, INTER ALIA, RELIED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS : - I) CIT V ANIL KUMAR BHATIA (2012) 24 TAXMANN.COM 98 (DEL H C) II) JAIN STEEL V ACIT (2013) 36 TAXMANN.COM 523 (RAJ H C) III) ACIT V PRATIBHA INDUSTRIES LTD. (2013) 23 ITR (TR IB) 766 (MUM) IV) THE HIMALAYA DRUG COMPANY V DCIT (ITA NOS.1634 TO 1639/BANG/2012 DT.13.6.2014) 4.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSING OFFICER WAS EMPOWER ED TO MAKE THE ADDITIONS / DISALLOWANCES CARRIED OUT BY HIM IN THE ORDERS OF ASSESSMENT FOR ASSESSMENT YEARS 2005 - 06 TO 2008 - 09 DT.28.12.2011 AS PER THE PROVISIONS OF SECTION 153A OF THE ACT. 4.3 A SUBSEQUENT TO THE COMPLETION OF HEARING ON 31.7.2013, IT CAME TO OUR NOTICE THAT A DECISION HAS BEEN RENDERED BY THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF CANARA HOUSING DEVELOPMENT CO. V DCIT CC - 1(1) IN ITA NO.38/2014 DT.25.7.2014, THE FINDINGS OF WHICH HAVE A BEARING ON THE DECISION IN THIS CASE. AS THIS DECISION OF THE HON'BLE HIGH COURT WAS NOT BEFORE THE BENCH IN THE COURSE OF HEARINGS, THE CASE WAS FIXED FOR HEARING ON 7 ITA NOS.442 TO 445/BANG/2013 28.10.2014 WHEN BOTH PARTIES WERE HEARD WITH REFERENCE TO THIS DECISION OF THE HON'BLE HIGH COURT AND ITS IMPLICATION ON THE FACTS OF THE ASSESSEE'S CASE. 4.3.1 WE HAVE HEARD THE RIVAL SUBMISSIONS AT LENGTH AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUDING THE JUDICIAL DECISIONS CITED. THE RELEVANT PORTIONS OF SECTION 153A OF THE ACT ARE EXTRACTED HEREU NDER : 153A. ASSESSMENT IN CASE OF SEARCH OR REQUISITION. - (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 O R 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 NOT ICE, 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 P ROVISIONS 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 PROCEEDING 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 THA T ASSESSMENT OR REASSESSMENT, IF ANY, RELATING TO ANY ASSESSMENT YEAR FALLING WITHIN THE PERIOD OF SIX ASSESSMENT YEARS REFERRED TO IN THIS 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. 4.3.2 A PERUSAL OF SECTION 153A OF THE ACT SHOWS THAT IT STARTS WITH A NON - OBSTANTE CLAUSE RELATING TO NORMAL ASSESSMENT PROCEDURE WHICH IS COVERED BY S ECTIONS 139, 147, 148, 149, 151 AND 153 OF THE ACT IN RES PECT OF SEARCHES CARRIED OUT AFTER 31.5.2003. THESE SECTIONS, THE APPLICABILITY OF WHICH HAS BEEN EXCLUDED, RELATE TO RETURNS OF INCOME, ASSESSMENT AND REASSESSMENT PROVISIONS. AS PER THE PROVISIONS OF SECTION 153A OF THE ACT, THE ASSESSING 8 ITA NOS.442 TO 445/BANG/2013 OFFICER IS BOU ND TO ISSUE NOTICE TO THE ASSESSEE TO FURNISH RETURNS FOR EACH ASSESSMENT YEAR FALLING WITHIN SIX ASSESSMENT YEARS IMMEDIATELY PRECEDING THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE SEARCH UNDER SECTION 132 OF THE ACT OR REQUISITION UNDER SECTION 132A OF THE ACT, WAS MADE. AS HAS BEEN HELD BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF ANIL KUMAR BHATIA (SUPRA), THERE IS NO DISPUTE TO THE PROPOSITION THAT WHERE A SEARCH IS CARRIED OUT UNDER SECTION 132 OR A REQUISITION UNDER SECTION 132A OF THE ACT, THE ASSESSING OFFICER SHALL ISSUE NOTICE REQUIRING THE PERSON SEARCHED TO FURNISH HIS RETURN OF INCOME IN RESPECT OF EACH ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH SUCH SEARCH IS CONDUCTED OR REQUISITION IS MADE. THEREFORE, THE ASS ESSING OFFICER GETS JURISDICTION FOR PASSING ORDERS UNDER SECTION 153A OF THE ACT, ONCE SEARCH ACTION IS INITIATED, WHETHER OR NOT ANY INCRIMINATING MATERIAL IS FOUND DURING THE COURSE OF SEARCH ACTION. 4.3.3 THE NEXT ISSUE IS THE SCOPE OF ASSESSMENT UNDER SECTION 153A OF THE ACT. THE JURISDICTION TO ISSUE NOTICES UNDER SECTION 153A CANNOT BE EQUATED WITH THE SCOPE OF ASSESSMENT UNDER THIS SECTION. THIS HAS BEEN LUCIDLY EXPLAINED BY THE ORDER OF THE ITAT, MUMBAI IN THE CASE OF PRATIBHA INDUSTRIES L TD. (SUPRA) WHEREIN IT HAS BEEN OBSERVED THAT WHEN WE EXAMINE THE PROVISIONS OF SECTION 153A(1)(B) OF THE ACT, THE 2 ND PROVISO THERETO AND THE JUDICIAL DECISIONS CITED BEFORE US, THREE POSSIBLE CIRCUMSTANCES EMERGE ON THE DATE OF THE INITIATION OF SEARCH U NDER SECTION 132(1) OF THE ACT. I. ASSESSMENT PROCEEDINGS ARE PENDING; II. PROCEEDINGS ARE NOT PENDING BUT SOME INCRIMINATING MATERIAL IS FOUND IN THE COURSE OF SEARCH, INDICATING SOME INCOME AND / OR ASSETS NOT DISCLOSED IN THE RETURN OF INCOME; AND 9 ITA NOS.442 TO 445/BANG/2013 III. PR OCEEDINGS ARE NOT PENDING AND NO INCRIMINATING MATERIAL IS FOUND IN THE COURSE OF SEARCH. 4.3.4 WHEN WE EXAMINE THE CASES COVERED UNDER THESE THREE CIRCUMSTANCES, THE CASES COVERED UNDER (I) ABOVE, WHERE PROCEEDINGS ARE PENDING, IS ANSWERED BY THE ACT ITSELF; I .E. SINCE PROCEEDINGS ARE STILL PENDING, ALL THOSE PENDING PROCEEDINGS ABATE AND THE ASSESSING OFFICER GETS A FREE HAND TO MAKE THE ASSESSMENT . W HERE INCRIMINATING MATERIAL RELATING TO THE EARNING OF INCOME NOT DECLARED TO THE DEPARTMENT IS FOUND IN THE C OURSE OF SEARCH, THEN THERE IS NO DISPUTE AS TO THE JURISDICTION AS WELL AS THE SCOPE OF ASSESSMENT WHERE AN ASSESSMENT PROCEEDINGS FOR ANY ASSESSMENT YEAR IS PENDING ON THE DATE OF SEARCH, THEN PROCEEDINGS RELATING TO THAT ASSESSMENT WILL ABATE AND THE SC OPE OF ASSESSMENT WILL BE WIDE ENOUGH TO INCLUDE ISSUES EMERGING FROM ABATED PROCEEDINGS AS WELL AS ISSUES EMERGING FROM SEIZED INCRIMINATING MATERIAL. 4.3.5 THE CIRCUMSTANCE LAID OUT AT (II) ABOVE, HAS BEEN ANSWERED BY THE COURTS INTERPRETING THE 2 ND PROVISO READ WITH SECTION 153(1)(B) OF THE ACT. THE HON'BLE DELHI HIGH COURT IN THE CASE OF ANIL KUMAR BHATIA (SUPRA) AT PARA 21 OF ITS ORDER HAS OBSERVED THAT : .. IN CASES WHERE THE ASSESSMENT OR REASSESSMENT PROCEEDINGS HAVE ALREADY BEEN COMPLETED A ND 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 SITU ATION, THE ASSESSING OFFICER WILL REOPEN THE ASSESSMENTS OR REASSESSMENTS ALREADY MADE (WITHOUT HAVING THE NEED TO FOLLOW THE STRICT PROVISIONS OR COMPLYING WITH THE STRICT CONDITIONS OF SECTIONS 147, 148 AND 151) AND DETERMINE THE TOTAL INCOME OF THE ASSE SSEE. 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. IN SUCH A CASE, TO REITERATE, THERE IS NO QUESTION OF ANY ABATEMENT OF THE EARLIER PROCEEDINGS FOR THE SIMPLE REASON THAT NO PROCEEDINGS FOR ASSESSMENT OR REASSESSMENT WERE PENDING SINCE THEY HAD ALREADY CULMINATED IN 10 ITA NOS.442 TO 445/BANG/2013 ASSESSM ENT OR REASSESSMENT ORDERS WHEN THE SEARCH WAS INITIATED OR THE REQUISITION WAS MADE. 4.3.6 THEREFORE, WHERE NO INCRIMINATING MATERIAL IS FOUND IN THE SEARCH PROCEEDINGS RELATING TO ANY ASSESSMENT YEAR, THEN THE SCOPE OF ASSESSMENT WILL DEPEND ON WHE THER THE ORIGINAL ASSESSMENT IS PENDING OR COMPLETED. WHERE THE ORIGINAL ASSESSMENT IN ANY ASSESSMENT YEAR IS PENDING ON THE DATE OF SEARCH, THEN THE PROCEEDINGS RELATING TO THE PENDING ASSESSMENT SHALL ABATE AND THE PROCEEDINGS INITIATED AS A RESULT OF S EARCH WILL BE CONTINUED. THE SCOPE OF THIS ASSESSMENT WOULD COVER ISSUES ARISING FROM THE PENDING ASSESSMENT AND THE FRESHLY INITIATED PROCEEDINGS WILL COVER ISSUES WHICH COULD ARISE FROM THE ORIGINALLY PENDING PROCEEDINGS ALSO. 4.3.7 THE THIRD CIRCU MSTANCE AT (III) ABOVE, I.E. WHERE PROCEEDINGS ARE NOT PENDING AND NO INCRIMINATING MATERIAL IS FOUND IN THE COURSE OF SEARCH; HAS BEEN LEFT UNASWERED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF ANIL KUMAR BHATIA (SUPRA). IN THIS CASE, THE HON'BLE COURT HAS HELD THAT EVEN IF THE ASSESSMENT ORDER HAS BEEN PASSED IN RESPECT OF ONE OR ANY OF THE SIX RELEVANT ASSESSMENT YEARS, EITHER UNDER SECTION 143(1)(A) OR 143(3) OF THE ACT PRIOR TO THE INITIATION OF SEARCH, THE ASSESSING OFFICER IS STILL EMPOWERED TO RE OPEN THOSE PROCEEDINGS UNDER SECTION 153A OF THE ACT WITHOUT ANY FET TERS AND REASSESS THE TOTAL INCOME TAKING NOTE OF UNDISCLOSED INCOME, IF ANY, UNEARTHED DURING THE SEARCH. IT IS CLEAR THAT THE HON'BLE COURT DEALT WITH A SITUATION IN WHICH SOME INCRIMINA TING MATERIAL WAS FOUND IN RESPECT OF A NON - PENDING ASSESSMENT. IT WAS IN THIS BACKGROUND THAT THE HON'BLE COURT HELD THAT SECTION 153A OF THE ACT APPLIES IF INCRIMINATING MATERIAL IS FOUND IN THE COURSE OF SEARCH EVEN IF ASSESSMENTS ARE COMPLETED. THE Q UESTION AS TO WHETHER ANY ADDITION CAN BE MADE IN RESPECT OF 11 ITA NOS.442 TO 445/BANG/2013 COMPLETED ASSESSMENTS WHEN NO INCRIMINATING MATERIAL WAS FOUND, WAS APPARENTLY LEFT OPEN. AT PARA 23 OF ITS ORDER, THE HON'BLE HIGH COURT HAS OBSERVED THAT - 23. WE ARE NOT CONCERNED WITH A CAS E WHERE NO INCRIMINATING MATERIAL WAS FOUND DURING THE SEARCH CONDUCTED UNDER SECTION 132 OF THE ACT. WE, THEREFORE, EXPRESS NO OPINION AS TO WHETHER SECTION 153A CAN BE INVOKED EVEN IN SUCH A SITUATION. THAT QUESTION IS THEREFORE LEFT OPEN. THE ABOVE OBSERVATION APPEARS TO INDICATE A DOUBT IN THE MIND OF THE HON'BLE HIGH COURT AS TO WHETHER THE PROCEEDINGS UNDER SECTION 153A OF THE ACT CAN STILL BE INITIATED IF NO INCRIMINATING MATERIAL IS FOUND IN THE COURSE OF SEARCH. TO OUR MINDS, HAD IT BEE N AN OPEN AND SHUT CASE, I.E. ACQUIRING OF JURISDICTION UNDER SECTION 153A OF THE ACT DOES NOT DEPEND UPON RECOVERY AND OF SEIZURE OF ANY INCRIMINATING MATERIAL, THE HON'BLE COURT WOULD NOT HAVE SO COMMENTED. 4.3.8 IT IS IN THIS CONTEXT THAT THE DECIS ION OF THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF CANARA HOUSING DEVELOPMENT CO. (SUPRA) ASSUMES SIGNIFICANCE. INTERPRETING THE DECISION OF THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF CIT V ANIL KUMAR BHATRA (SUPRA), THE HON'BLE HIGH COURT OF KARNATAKA HELD AS UNDER : 18. A PERUSAL OF SECTION 153A SHOWS THAT IT STARTS WITH A NON OBSTANTE CLAUSE RELATING TO NORMAL ASSESSMENT PROCEDURE WHICH IS COVERED BY SECTIONS 139, 147, 148, 149, 151 AND 153 IN RESPECT OF SEARCHES MADE AFTER 31.5.2003. TH ESE SECTIONS, THE APPLICABILITY OF WHICH HAS BEEN EXCLUDED, RELATE TO RETURNS, ASSESSMENT AND REASSESSMENT PROVISIONS. PRIOR TO THE INTRODUCTION OF THESE THREE SECTIONS, THERE WAS CHAPTER XIV - B OF THE ACT WHICH TOOK CARE OF THE ASSESSMENT TO BE MADE IN CA SES OF SEARCH AND SEIZURE. SUCH AN ASSESSMENT WAS POPULARLY KNOWN AS BLOCK ASSESSMENT BECAUSE THE CHAPTER PROVIDED FOR A SINGLE ASSESSMENT TO BE MADE IN RESPECT OF A PERIOD OF A BLOCK OF TEN ASSESSMENT YEARS PRIOR TO THE ASSESSMENT YEAR IN WHICH THE SEAR CH WAS MADE. IN ADDITION TO THESE TEN ASSESSMENT YEARS, THE BROKEN PERIOD UP TO THE DATE ON WHICH THE SEARCH WAS CONDUCTED WAS ALSO INCLUDED IN WHAT WAS KNOWN AS BLOCK PERIOD. THOUGH A SINGLE ASSESSMENT ORDER WAS TO BE PASSED, THE UNDISCLOSED INCOME WAS TO BE ASSESSED IN THE DIFFERENT ASSESSMENT YEARS TO WHICH IT RELATED. BUT ALL THIS HAD TO BE MADE IN A SINGLE ASSESSMENT ORDER. THE BLOCK ASSESSMENT SO MADE WAS INDEPENDENT OF AND IN ADDITION TO THE NORMAL ASSESSMENT PROCEEDINGS AS CLARIFIED BY THE EXPLANA TION BELOW SECTION 158BA(2). AFTER THE INTRODUCTION OF THE GROUP OF SECTIONS NAMELY, 153A TO 153C, THE SINGLE BLOCK ASSESSMENT CONCEPT WAS GIVEN A GO - BY. UNDER THE NEW SECTION 153A, IN A CASE WHERE A SEARCH IS INITIATED UNDER SECTION 132 OR 12 ITA NOS.442 TO 445/BANG/2013 REQUISITION OF BOOKS OF ACCOUNT, DOCUMENTS OR ASSETS IS MADE UNDER SECTION 132A AFTER 31.5.2003, THE ASSESSING OFFICER IS OBLIGED TO ISSUE NOTICES CALLING UPON THE SEARCHED PERSON TO FURNISH RETURNS FOR THE SIX ASSESSMENT YEARS IMMEDIATELY PRECEDING THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE SEARCH WAS CONDUCTED OR REQUISITION WAS MADE. THE OTHER DIFFERENCE IS THAT THERE IS NO BROKEN PERIOD FROM THE FIRST DAY OF APRIL OF THE FINANCIAL YEAR IN WHICH THE SEARCH TOOK PLACE OR THE REQUISITION WAS MADE AN D ENDING WITH THE DATE OF SEARCH/REQUISITION. UNDER SECTION 153A AND THE NEW SCHEME PROVIDED FOR, THE AO IS REQUIRED TO EXERCISE THE NORMAL ASSESSMENT POWERS IN RESPECT OF THE PREVIOUS YEAR IN WHICH THE SEARCH TOOK PLACE. 19. UNDER THE PROVISIONS OF SECT ION 153A, AS WE HAVE ALREADY NOTICED, THE ASSESSING OFFICER IS BOUND TO ISSUE NOTICE TO THE ASSESSEE TO FURNISH RETURNS FOR EACH ASSESSMENT YEAR FALLING WITHIN THE SIX ASSESSMENT YEARS IMMEDIATELY PRECEDING THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS Y EAR IN WHICH THE SEARCH OR REQUISITION WAS MADE. ANOTHER SIGNIFICANT FEATURE OF THIS SECTION IS THAT THE ASSESSING OFFICER IS EMPOWERED TO ASSESS OR REASSESS THE 'TOTAL INCOME' OF THE AFORESAID YEARS. THIS IS A SIGNIFICANT DEPARTURE FROM THE EARLIER BLOCK ASSESSMENT SCHEME IN WHICH THE BLOCK ASSESSMENT ROPED IN ONLY THE UNDISCLOSED INCOME AND THE REGULAR ASSESSMENT PROCEEDINGS WERE PRESERVED, RESULTING IN MULTIPLE ASSESSMENTS. UNDER SECTION 153A, HOWEVER, THE ASSESSING OFFICER HAS BEEN GIVEN THE POWER TO ASSESS OR REASSESS THE TOTAL INCOME OF THE SIX ASSESSMENT YEARS IN QUESTION IN SEPARATE ASSESSMENT ORDERS. THIS MEANS THAT THERE CAN BE ONLY ONE ASSESSMENT ORDER IN RESPECT OF EACH OF THE SIX ASSESSMENT YEARS, IN WHICH BOTH THE DISCLOSED AND THE UNDI SCLOSED INCOME WOULD BE BROUGHT TO TAX. 20. A QUESTION MAY ARISE AS TO HOW THIS IS SOUGHT TO BE ACHIEVED WHERE AN ASSESSMENT ORDER HAD ALREADY BEEN PASSED IN RESPECT OF ALL OR ANY OF THOSE SIX ASSESSMENT YEARS, EITHER UNDER SECTION 143(1)(A) OR SECTION 14 3(3) OF THE ACT. IF SUCH AN ORDER IS ALREADY IN EXISTENCE, HAVING OBVIOUSLY BEEN PASSED PRIOR TO THE INITIATION OF THE SEARCH/REQUISITION, THE ASSESSING OFFICER IS EMPOWERED TO REOPEN THOSE PROCEEDINGS AND REASSESS THE TOTAL INCOME, TAKING NOTE OF THE UNDI SCLOSED INCOME, IF ANY, UNEARTHED DURING THE SEARCH. FOR THIS PURPOSE, THE FETTERS IMPOSED UPON THE ASSESSING OFFICER BY THE STRICT PROCEDURE TO ASSUME JURISDICTION TO REOPEN THE ASSESSMENT UNDER SECTIONS 147 AND 148, HAVE BEEN REMOVED BY THE NON OBSTANTE CLAUSE WITH WHICH SUB SECTION (1) OF SECTION 153A OPENS. THE TIME - LIMIT WITHIN WHICH THE NOTICE UNDER SECTION 148 CAN BE ISSUED, AS PROVIDED IN SECTION 149 HAS ALSO BEEN MADE INAPPLICABLE BY THE NON OBSTANTE CLAUSE. SECTION 151 WHICH REQUIRES SANCTION TO B E OBTAINED BY THE ASSESSING OFFICER BY ISSUE OF NOTICE TO REOPEN THE ASSESSMENT UNDER SECTION 148 HAS ALSO BEEN EXCLUDED IN A CASE COVERED BY SECTION 153A. THE TIME - LIMIT PRESCRIBED FOR COMPLETION OF AN ASSESSMENT OR REASSESSMENT BY SECTION 153 HAS ALSO BE EN DONE AWAY WITH IN A CASE COVERED BY SECTION 153A. WITH ALL THE STOPS HAVING BEEN PULLED OUT, THE ASSESSING OFFICER UNDER SECTION 153A HAS BEEN ENTRUSTED WITH THE DUTY OF BRINGING TO TAX THE TOTAL INCOME OF AN ASSESSEE WHOSE CASE IS COVERED BY SECTION 1 53A, BY EVEN MAKING REASSESSMENTS WITHOUT ANY FETTERS, IF NEED BE. 10. SECTION 153A OF THE ACT STARTS WITH A NON OBSTANTE CLAUSE. THE FETTERS IMPOSED UPON THE ASSESSING OFFICER BY THE STRICT PROCEDURE TO ASSUME JURISDICTION TO REOPEN THE ASSESSMENT U NDER SECTIONS 147 AND 148, HAVE BEEN REMOVED BY THE NON OBSTANTE CLAUSE WITH WHICH SUB SECTION (1) OF SECTION 153A OPENS. THE TIME - LIMIT WITHIN WHICH THE NOTICE UNDER SECTION 148 CAN BE ISSUED, AS PROVIDED IN SECTION 149 HAS ALSO BEEN MADE INAPPLICABLE BY THE NON OBSTANTE CLAUSE. SECTION 151 WHICH REQUIRES SANCTION TO BE OBTAINED BY THE ASSESSING OFFICER BY ISSUE OF NOTICE TO REOPEN THE ASSESSMENT UNDER SECTION 148 HAS ALSO BEEN EXCLUDED IN A CASE COVERED BY SECTION 153A. THE TIME - LIMIT PRESCRIBED FOR CO MPLETION OF AN ASSESSMENT OR REASSESSMENT BY SECTION 153 HAS ALSO BEEN DONE AWAY WITH IN A CASE COVERED BY SECTION 153A. WITH ALL THE STOPS HAVING BEEN PULLED OUT, THE ASSESSING OFFICER UNDER SECTION 153A HAS BEEN ENTRUSTED WITH THE DUTY OF BRINGING TO TAX THE TOTAL INCOME OF AN ASSESSEE WHOSE CASE IS COVERED 13 ITA NOS.442 TO 445/BANG/2013 BY SECTION 153A, BY EVEN MAKING REASSESSMENTS WITHOUT ANY FETTERS, IF NEED BE. THEREFORE, IT IS CLEAR EVEN IF AN ASSESSMENT ORDER IS PASSED UNDER SECTION 143(1) OR 143(3) OF THE ACT, THE ASSESSING OFF ICER IS EMPOWERED TO REOPEN THOSE PROCEEDINGS AND REASSESS THE TOTAL INCOME TAKING NOTE OF THE UNDISCLOSED INCOME, IF ANY, UNEARTHED DURING THE SEARCH. AFTER SUCH REOPENING OF THE ASSESSMENT, THE ASSESSING OFFICER IS EMPOWERED TO ASSESS OR REASSESS THE TOT AL INCOME OF THE AFORESAID YEARS. THE CONDITION PRECEDENT FOR APPLICATION OF SECTION 153A IS THERE SHOULD BE A SEARCH UNDER SECTION 132. INITIATION OF PROCEEDINGS UNDER SECTION 153A IS NOT DEPENDENT ON ANY UNDISCLOSED INCOME BEING UNEARTHED DURING SUCH SEA RCH. THE PROVISO TO THE AFORESAID SECTION MAKES IT CLEAR THE ASSESSING OFFICER SHALL ASSESS OR REASSESS THE TOTAL INCOME IN RESPECT OF EACH ASSESSMENT YEAR FALLING WITHIN SUCH SIX ASSESSMENT YEARS. IF ANY ASSESSMENT PROCEEDINGS ARE PENDING WITHIN THE PERI OD OF SIX ASSESSMENT YEARS REFERRED TO IN THE AFORESAID SUB - SECTION ON THE DATE OF INITIATION OF THE SEARCH UNDER SECTION 132, THE SAID PROCEEDING SHALL ABATE. IF SUCH PROCEEDINGS ARE ALREADY CONCLUDED BY THE ASSESSING OFFICER BY INITIATION OF PROCEEDING S UNDER SECTION 153A, THE LEGAL EFFECT IS THE ASSESSMENT GETS REOPENED. THE BLOCK ASSESSMENT ROPED IN ONLY THE UNDISCLOSED INCOME AND THE REGULAR ASSESSMENT PROCEEDINGS WERE PRESERVED, RESULTING IN MULTIPLE ASSESSMENTS. UNDER SECTION 153A, HOWEVER, THE ASS ESSING OFFICER HAS BEEN GIVEN THE POWER TO ASSESS OR REASSESS THE TOTAL INCOME OF THE SIX ASSESSMENT YEARS IN QUESTION IN SEPARATE ASSESSMENT ORDERS. THE ASSESSING OFFICER IS EMPOWERED TO REOPEN THOSE PROCEEDINGS AND REASSESS THE TOTAL INCOME, TAKING NO TE OF THE UNDISCLOSED INCOME, IF ANY, UNEARTHED DURING THE SEARCH. HE HAS BEEN ENTRUSTED WITH THE DUTY OF BRINGING TO TAX THE TOTAL INCOME OF AN ASSESSEE WHOSE CASE IS COVERED BY SECTION 153A, BY EVEN MAKING REASSESSMENTS WITHOUT ANY FETTERS. THIS MEANS THAT THERE CAN BE ONLY ONE ASSESSMENT ORDER IN RESPECT OF EACH OF THE SIX ASSESSMENT YEARS, IN WHICH BOTH THE DISCLOSED AND THE U NDISCLOSED INCOME WOULD BE BROUGHT TO TAX. WHEN ONCE THE PROCEEDINGS ARE INITIATED UNDER SECTION 15 3A OF THE ACT, THE LEGAL EFFECT IS EVEN IN CASE WHERE THE ASSESSMENT ORDER IS PASSED IT STANDS REOPENED. IN THE EYE OF LAW THERE IS NO ORDER OF ASSESSMENT. RE - OPENED MEANS TO DEAL WITH OR BEGIN WITH AGAIN. IT MEANS THE ASSESSING OFFICER SHALL ASSESS OR REASSESS THE TOTAL INCOME O F SIX ASSESSMENT YEARS. ONCE THE ASSESSMENT IS REOPENED, THE ASSESSING AUTHORITY CAN TAKE NOTE OF THE INCOME DISCLOSED IN THE EARLIER RETURN, ANY UNDISCLOSED INCOME FOUND DURING SEARCH OR AND ALSO ANY OTHER INCOME WHICH IS NOT DISCLOSED IN THE EARLIER RE TURN OR WHICH IS NOT UNEARTHED DURING THE SEARCH, IN ORDER TO FIND OUT WHAT IS THE TOTAL INCOME OF EACH YEAR AND THEN PASS THE ASSESSMENT ORDER. THEREFORE, THE COMMISSIONER BY VIRTUE OF THE POWER CONFERRED UNDER SECTION 263 OF THE ACT GETS NO JURISDICTI ON TO INITIATE PROCEEDINGS UNDER THE SAID PROVISION BECAUSE THE CONDITION PRECEDENT FOR INITIATING PROCEEDINGS UNDER SECTION 263 IS ANY ORDER PASSED UNDER THE ACT BY THE ASSESSING OFFICER IS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE R EVENUE. ONCE THE ORDER PASSED BY THE ASSESSING OFFICER GETS REOPENED, THERE IS NO ORDER WHICH CAN BE SAID TO BE ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE WHICH CONFERS JURISDICTION ON THE COMMISSIONER TO EXERCISE THE POWER OF TH E JURISDICTION. 11. THE TRIBUNAL HAS PROCEEDED ON THE ASSUMPTION BY VIRTUE OF THE JUDGMENT OF THE SPECIAL BENCH OF THE MUMBAI, THE SCOPE OF ENQUIRY UNDER SECTION 153A I S TO BE CONFINED ONLY TO THE UNDISCLOSED INCOME UNEARTHED DURING SEARCH AND IF THERE IS ANY OTHER INCOME WHICH IS NOT THE SUBJECT MATTER OF SEARCH, THE SAME CANNOT BE TAKEN INTO CONSIDERATION. THEREFORE, THE REVISIONAL AUTHORITY CAN EXERCISE THE POWER UNDER SECTION 263. IN THE ENTIRE SCHEME OF 153A OF THE ACT, THERE IS NO PROHIBITION FOR THE ASSESSING AUTHORITY TO TAKE NOTE OF SUCH INCOME. ON THE CONTRARY, IT IS EXPRESSLY PROVIDED UNDER SECTION 153A OF THE ACT THE ASSESSING OFFICER SHALL ASSESS OR REASSESS THE TOTAL INCOME OF SIX ASSESSMENT YEARS WHICH MEANS THE SAID TOTAL INCOME INCLUDES INCOME WHICH WAS RETURNED IN THE EARLIER RETURN, THE INCOME WHICH WAS UNEARTHED DURING SEARCH AND INCOME WHICH IS NOT THE SUBJECT MATTER OF AFORESAID TWO INCOME. IF THE COMMISSIONER HAS COME ACROSS ANY INCOME THAT THE ASSESSING AUTHORITY HAS NOT TAKEN NOT E OF WHILE PASSING THE EARLIER ORDER, THE SAID MATERIAL CAN BE FURNISHED TO THE ASSESSING AUTHORITY AND THE ASSESSING AUTHORITY SHALL TAKE NOTE OF THE SAID INCOME ALSO IN DETERMINING THE TOTAL INCOME OF THE 14 ITA NOS.442 TO 445/BANG/2013 ASSESSEE WHEN THE EARLIER PROCEEDINGS ARE REO PENED AND THAT INCOME ALSO SHALL BECOME THE SUBJECT MATTER OF SAID PROCEEDINGS. . 4.3.9 RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF CANARA HOUSING DEVELOPMENT COMPANY (SUPRA), WE HOLD THAT ONCE THE ASSESSM ENT IS REOPENED, THE ASSESSING OFFICER CAN TAKE NOTE OF THE INCOME DISCLOSED IN THE EARLIER RETURN, ANY UNDISCLOSED INCOME FOUND DURING THE COURSE OF SEARCH AND ALSO ANY OTHER INCOME WHICH IS NOT DISCLOSED IN THE EARLIER RETURN OF INCOME OR WHICH IS NOT UN EARTHED IN THE COURSE OF SEARCH UNDER SECTION 132 OF THE ACT, IN ORDER TO FIND OUT AND DETERMINE WHAT IS THE TOTAL INCOME OF EACH YEAR AND THEN PASS THE ORDER OF ASSESSMENT. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE AT S.NOS. 2 TO 5 ARE ACCORDINGLY DISMISSED FOR ALL FOUR ASSESSMENT YEARS 2005 - 06 TO 2008 - 09. 5. TREATMENT OF CERTAIN EXPENDITURE AS CAPITAL IN NATURE . 5.1 GROUNDS NOS. 6 AND 7 RELATE TO THE ISSUE OF TREATMENT BY THE AUTHORITIES BELOW OF EXPENDITURE INCURRED BY THE ASSESSEE ON RENO VATION AND COST OF IMPROVEMENT OF BUILDING LEASED BY HIM AS CAPITAL EXPENDITURE, THEREBY DISALLOWING THE ASSESSEE'S CLAIM THAT THE SAID EXPENDITURE BE ALLOWED AS REVENUE EXPENDITURE. 5.2 .1 IN THE CASE ON HAND, FOR THE IMPUGNED ASSESSMENT YEARS IN APPEA L BEFORE US, ADDITIONS / DISALLOWANCES HAVE BEEN MADE IN RESPECT OF ITEMS OF EXPENDITURE CLAIMED AS DEDUCTION IN THE ASSESSEE'S PROFIT AND LOSS ACCOUNT. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD CLAIME D EXPENDITURE TOWARDS RENOVATION / INVESTMENT IN THE HOTELS TAKEN ON LEASE WHICH WERE ADDED TO THE ASSESSEE'S BUSINESS DURING THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER HELD THAT THESE EXPENSES WERE INCURRED TOWARDS CAPITAL 15 ITA NOS.442 TO 445/BANG/2013 ITEMS AND BY INVOKING THE PROVISIONS OF EXPLANATION 1 TO SECTION 32 OF THE ACT AND PLACING RELIANCE ON THE DECISION OF THE DELHI ITAT IN THE CASE OF ACIT V FLOUR DANIEL INDIA (P) LTD; R EPORTED IN (2007) 11 SOT 349 DISALLOWED THE EXPENSES CLAIMED AS REVENUE, HELD THEM TO BE CA PITAL I N NATURE AND ALLOWED DEPRECIATION THEREON. 5.2.2 ON APPEAL, THE LEARNED CIT(A) UPHELD THE DECISION OF THE ASSESSING OFFICER IN TREATING THE SAID EXPENDITURE INCURRED ON RENOVATION / INVESTMENT IN HOTELS ACQUIRED BY THE ASSESSEE ON LEASE , AS BEI NG CAPITAL IN NATURE, MAKING THE FOLLOWING OBSERVATIONS : - (I) EXPLANATION 1 TO SECTION 32(1) OF THE ACT PROVIDES FOR FICTIONAL OWNERSHIP TO THE LESSEE AND THEREFORE THE ISSUE OF OWNERSHIP IS IRRELEVANT; (II) DUE TO THE INSERTION OF EXPLANATION 1 TO SEC TION 32 OF THE ACT, THE JUDGEMENT OF THE HON'BLE APEX COURT IN THE CASE OF CIT V MADRAS AUTO SERVICES (P) LTD. REPORTED IN (1998) 233 ITR 4 68 (SC) IS NO LONGER APPLICABLE; (III) THE LEASE PERIOD FOR THE HOTEL BUILDINGS IS FOR 10 YEARS AND THEREFORE IT C ANNOT BE SAID THAT THE BENEFIT IS NOT OF ENDURING NATURE; (IV) RENOVATION OF BUILDING AND INTERIORS NORMALLY FORMS PART OF IMPORTANT CAPITAL EXPENDITURE. 5.3.1 BEFORE US, THE CONTENTION OF THE ASSESSEE IS THAT IT HAS TAKEN HOTELS O N LEASE AND FOR C ARRYING OUT ITS BUSINESS EFFECTIVELY AND EFFICIENTLY, HAS INCURRED EXPENDITURE FOR RENOVATION THE SAME. ACCORDING TO THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE, THE EXPENDITURE INCURRED BY THE ASSESSEE IN RENOVATING THE HOTELS IS ONLY IN THE PR OCESS OF EARNING PROFITS IN THE COURSE OF THE BUSINESS ACTIVITIES AND THE EXPENDITURE SO INCURRED HAS NOT BROUGHT INTO EXISTENCE ANY NEW ASSET OR ANY NEW ADVANTAGE TO THE ASSESSEE. IT IS SUBMITTED 16 ITA NOS.442 TO 445/BANG/2013 THAT THE BUSINESS OF THE ASSESSEE REMAINS THE SAME EVEN A FTER THE SAID EXPENDITURE WAS INCURRED AND THE ASSET, HOTEL BUILDING, CONTINUED TO BE LEASE HOLDING ASSETS. THEREFORE, ACCORDING TO THE LEARNED AUTHORISED REPRESENTATIVE, IT IS NOT CORRECT TO SAY THAT THE ASSESSEE HAS OBTAINED AN ENDURING BENEFIT AFTER IN CURRING THE EXPENDITURE ON RENOVATION OF HOTEL BUILDINGS. THE LEARNED AUTHORISED REPRESENTATIVE FURTHER SUBMITTED THAT THE INCURRING OF THE SAID EXPENDITURE WAS ABSOLUTELY NECESSARY FOR THE PURPOSE OF CARRYING ON ITS BUSINESS AND THE SAID EXPENDITURE ARE INCURRED IN THE PROCESS OF EARNING BUSINESS PROFITS AND NOT FOR THE ACQUISITION OF ANY CAPITAL ASSETS. IN SUPPORT OF ITS AVERMENTS, THE LEARNED AUTHORISED REPRESENTATIVE PLACED RELIANCE ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS, COPIES OF WHICH WERE PLACE D ON RECORD : - (I) CIT V MADRAS AUTO SERVICES (P) LTD. (1998) 233 ITR 468 (SC) (II) CIT V HARIDAS BHAGATH & CO. (P) LTD. (1999) 240 ITR 169 (MAD); (III) CIT V AMWAY INDIA ENTERPRISES - LD/60/71 (DEL) DT.4.10.2011. 5.3.2 PLACING PARTICULAR RELIANCE ON THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF CIT V MADRAS AUTO SERVICES (P) LTD. (SUPRA), THE LEARNED AUTHORISED REPRESENTATIVE HELD THAT THE EXPENDITURE INCURRED IN CONSTRUCTION OF A BUILDING IN A LEASED PREMISES TO BE REVENUE EXPENDITURE.. IN VIEW OF THE FACTS OF THE CASE ON HAND AND THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF MADRAS AUTO SERVICES (P) LTD. (SUPRA) WHICH IS SQUARELY APPLICABLE TO THE FACTS OF THE CASE, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITS THAT THE ASSESSE E'S APPEALS ON THIS ISSUE ARE TO BE ALLOWED. 17 ITA NOS.442 TO 445/BANG/2013 5.3.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. ACCORDING TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, THE ASSESSEE HAD TAKEN THE HOTEL BUILDING ON LE ASE AND HAD INCURRED SUBSTANTIAL AMOUNTS TOWARDS RENOVATION THEREOF. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITS THAT THE INCURRING OF THIS EXPENDITURE HAS RESULTED IN THE ASSESSEE OBTAINING ENDURING BENEFIT AND HAS BROUGHT INTO EXISTENCE A CAPITAL A SSET. REFERRING TO EXPLANATION 1 TO SECTION 32 OF THE ACT, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT AFTER THE INTRODUCTION OF EXPLANATION 1, THE ASSESSEE AT BEST IS ENTITLED ONLY FOR DEPRECIATION ON THE CAPITAL ASSETS BROUGHT INTO EXISTENCE BY VIRTUE OF THE SAID EXPENDITURE INCURRED ON THE LEASED HOTEL BUILDING, WHICH HAS ALLOWED BY THE ASSESSING OFFICER. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE FINDINGS OF THE ASSESSING OFFICER AND PLACED RELIANCE ON THE JUDICIAL DECISIONS REL IED ON BY THE ASSESSING OFFICER. 5.4.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUDING THE JUDICIAL DECISIONS CITED. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS TAKEN THE HOTEL ON LEASE. AS P ER THE DETAILS ON RECORD IT IS SEEN THAT THE ASSESSEE HAS INCURRED EXPENDITURE ON RENOVATION OF PLANT DESIGN SYSTEM, COMPUTER CABLING, FIRE DETECTION AND ALARM SYSTEM, CARD ACCESS SYSTEM, PLUMBING AND AIR CONDITIONING WORK, ELECTRICAL WORKS, FIXING OF CARP ETS, INTERIOR WORK, ETC. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ON EXAMINATION OF THE SAME OBSERVED THAT THIS EXPENDITURE INDICATED THAT MAJOR RENOVATION WORKS HAD BEEN UNDERTAKEN AND THEREFORE CANNOT BE TREATED AS REVENUE EXPENDIT URE. THE ASSESSING OFFICER, REFERRING TO EXPLANATION 1 TO SECTION 32 OF THE ACT, WAS OF THE VIEW THAT 18 ITA NOS.442 TO 445/BANG/2013 THE ASSESSEE HAS INCURRED CAPITAL EXPENDITURE AND THEREFORE IS ENTITLED TO DEPRECIATION THEREON @ 10%. ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED THE ASSESSEE'S CLAIM FOR THE AFORESAID EXPENDITURE TO BE ALLOWED AS REVENUE EXPENDITURE, TREATED THE SAME AS CAPITAL EXPENDITURE AND ALLOWED THE ASSESSEE DEPRECIATION THEREON @ 10%. 5.4.2 THE QUESTION THAT NOW ARISES FOR CONSIDERATION IS, WHEN THE ASSESS EE HAS INCURRED EXPENDITURE ON RENOVATION OF THE HOTEL TAKEN ON LEASE, THEN WHETHER THE ASSESSEE IS ENTITLED FOR DEDUCTION OF THE EXPENDITURE INCURRED ON SUCH REPAIRS AS REVENUE EXPENDITURE OR WHETHER IT HAS TO BE TREATED AS CAPITAL EXPENDITURE IN VIEW OF EXPLANATION 1 TO SECTION 32 OF THE ACT. 5.4.3 EXPLANATION 1 TO SECTION 32 OF THE ACT READS AS FOLLOWS : - EXPLANATION 1 : WHERE THE BUSINESS OR PROFESSION OF THE ASSESSEE IS CARRIED ON IN A BUILDING NOT OWNED BY HIM BUT IN RESPECT OF WHICH THE ASSES SEE HOLDS A LEASE OR OTHER RIGHT OF OCCUPANCY AND ANY CAPITAL EXPENDITURE IS INCURRED BY THE ASSESSEE FOR THE PURPOSES OF THE BUSINESS OR PROFESSION ON THE CONSTRUCTION OF ANY STRUCTURE OR DOING ANY WORK IN OR RELATION TO, AND BY WAY OF RENOVATION OR EXTE NSION OF, OR IMPROVEMENT TO, THE BUILDING, THEN, THE PROVISIONS OF THIS CLAIM SHALL APPLY AS IF THE SAID STRUCTURE OR WORK IS A BUILDING OWNED BY THE ASSESSEE. THIS EXPLANATION TO SECTION 32 OF THE ACT WAS INTRODUCED BY THE TAXATION LAWS (AMENDMENT AND MISCELLANEOUS PROVISIONS) ACT, 1986 W.E.F. 1.4.1988. BY INTRODUCTION OF THIS EXPLANATION, THE LEGISLATURE INTENDED TO ALLOW DEPRECIATION ON THE CAPITAL EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO RENOVATION, EXTENSION OR IMPROVEMENT TO THE B UILDING IN WHICH THE ASSESSEE CARRIED ON BUSINESS AS LESSEE. 19 ITA NOS.442 TO 445/BANG/2013 5.4.4 IT MAY BE USEFUL TO EXAMINE THE LEGISLATIVE HISTORY OF THE INTRODUCTION OF EXPLANATION 1 TO SECTION 32 OF THE ACT. THE TAXATION LAWS (AMENDMENT) ACT,1970 W.E.F. 1.4.1971 INTRODUCED S UB - SECTION 1A TO GRANT SOME BENEFIT TO THE ASSESSEE ON THE CAPITAL EXPENDITURE INCURRED BY A TENANT IN LEASED PREMISES . THEREFORE, IT IS OBVIOUS THAT PRIOR TO THE INTRODUCTION OF SUB - SECTION 1A TO SECTION 32 OF THE ACT W.E.F. 1.4.1971 BY THE TAXATION LAW S (AMENDMENT) ACT, 1970, THE ASSESSEE WHO TAKES THE BUSINESS PREMISES ON LEASE WAS NOT ENTITLED TO ANY DEPRECIATION ON CAPITAL EXPENDITURE INCURRED THEREON. IN OTHER WORDS, PRIOR TO 1. 4 .1971, ASSESSEES WHO INCURRED CAPITAL EXPENDITURE ON LEASED PREMISES W ERE NOT ENTITLED TO ANY BENEFIT AT ALL IN THIS REGARD. THEREFORE, BY REMOVING THE LEGAL RESTRICTIONS IN RESPECT OF CAPITAL EXPENDITURE INCURRED BY THE ASSESSEES WHO TAKE BUSINESS PREMISES ON LEASE, PARLIAMENT INTENDED TO GRANT / ALLOW DEPRECIATION ON THE CAPITAL EXPENDITURE INCURRED ON SUCH LEASED PREMISES. ON A CAREFUL PERUSAL OF THE PROVISIONS OF SECTION 32(1A) OF THE ACT AND THE CIRCUMSTANCES IN WHICH IT WAS INTRODUCED IN THE STATUTE, IT IS CLEAR THAT IN CASE REVENUE EXPENDITURE WAS INCURRED BY THE AS SESSEE ON THE PREMISES TAKEN ON LEASE, THE QUESTION OF ALLOWING ANY DEPRECIATION U. 32(1A) OF THE ACT WOULD NOT ARISE FOR CONSIDERATION. IN OTHER WORDS, SECTION 32(1A) OF THE ACT INTRODUCED W.E.F. 1.4.1971 BY TAXATION LAWS (AMENDMENT) ACT, 1970 WOULD NOT BE APPLICABLE IN CASE THE ASSESSEE INCURRED REVENUE EXPENDITURE ON THE LEASED PREMISES. 5.4.5 HOWEVER, SUB - SECTION 1A OF SECTION 32 OF THE ACT INTRODUCED BY TAXATION LAWS (AMENDMENT) ACT, 1970 WAS OMITTED AND EXPLANATION 1 TO SECTION 32 WAS INTRODUCED BY TAXATION LAWS (AMENDMENT AND MISCELLANEOUS PROVISIONS) ACT, 1986 W.E.F. 1.4.1988. THIS WAS 20 ITA NOS.442 TO 445/BANG/2013 DONE WHEN THE CONCEPT OF DEPRECIAT ION ON INDIVIDUAL ASSET WAS CHAN GED TO DEPRECIATION ON THE BLOCK OF ASSETS. WHEN PARLIAMENT INTRODUCED DEPRECIATION ON BLOCK OF ASSETS, SUB - SECTION (1A) OF SECTION 32 OF THE ACT WAS DELETED, AN IDENTICAL PROVISION WAS INCORPORATED IN EXPLANATION 1 TO SECTION 32 OF THE ACT. THEREFORE, THE POSITION OF LAW AS IT REMAINS AFTER THE INTRODUCTION OF SUB - SECTION 1A OF SECTION 32 OF THE ACT W.E.F. 1.4.1971 CONTINUED TO BE THE SAME IN RESPECT OF REVENUE EXPENDITURE INCURRED BY THE ASSESSEE ON PREMISES TAKEN ON LEASE. IN OTHER WORDS, THE CONCEPT OF ALLOWING DEPRECIATION ON THE CAPITAL EXPENDITURE IN RELATION TO RENOVATION, EXTENSION OR IMPROVEMENT OF THE PREMISES TAKEN ON LEASE CONTINUED TO BE THE SAME W.E.F. 1.4.1971. THEREFORE, WHENEVER THE ASSESSEE INCURRED THE EXPENDITURE, IN THE PROCESS OF EARNING PROFIT WHILE CARRYING ON THE BUSINESS IN THE LEASED PREMISES, THE EXPENDITURE HAS TO BE TREATED AS REVENUE EXPENDITURE AND NEITHER SUB - SECTION (1A) TO SECTION 32 OR EXPLANATION 1 TO SECTION 32 OF THE ACT WOULD COME IN THE WAY OF ALLOWING THE SAME AS REVENUE EXPENDITURE. HOWEVER, WHEN THE ASSESSEE INCURRED EXPENDITURE WHICH IS OF CAPITAL NATURE, THEN THE PARLIAMENT ALLOWS THE BENEFIT TO THE ASSESSEE FOR CLAIMING DEPRECIATION ON SUCH CAPITAL EXPENDITURE IN RELATION TO RENOVATION, EXTENSION OR IMPROVEMENT W.E.F. 1.4 .1971 U/S. 32(1A) AND IN ACCORDANCE WITH THE PROVISIONS OF EXPLANATION 1 TO S ECTION 32 OF THE ACT W.E.F. 1.4.1988. HENCE, THIS IS A BENEFIT ALLOWED TO THE ASSESSEES WHO HAVE TAKEN PREMISES ON LEASE AND INCURRED EXPENDITURE IN THE CAPITAL FIELD. HOWEVER, AS EXPLAINED EARLIER, IF THE EXPENDITURE INCURRED FALLS IN THE REVENUE FIELD, THE ASSESSEE IS ENTITLED TO CLAIM IT AS REVENUE EXPENDITURE IRRESPECTIVE OF SECTION 32(1A) OR EXPLANATION 1 OF SECTION 32 OF THE ACT. IN OUR CONSIDERED VIEW, THIS BEING THE CORRECT POSITION OF LAW, THE CONCLUSIONS OF BOTH THE ASSESSING OFFICER AND 21 ITA NOS.442 TO 445/BANG/2013 THE LE ARNED CIT(A) IN THE IMPUGNED ORDERS THAT THE EXPENSES INCURRED ON LEASED PREMISES HAVE TO BE CAPITALISED AND ONLY DEPRECIATION CAN BE ALLOWED THEREON IS NOT IN T UN E WITH THE PROVISIONS OF LAW AND IS THEREFORE INCORRECT. 5.4.6 TO FALL WITHIN THE AMBIT OF T HE PROVISIONS OF EXPLANATION 1 TO SECTION 32 OF THE ACT, THE QUESTION TO BE ANSWERED IS, WHETHER THE ASSESSEE HAS INCURRED ANY CAPITAL EXPENDITURE FOR THE PURPOSES OF BUSINESS ON THE CONSTRUCTION OF ANY STRUCTURE OR DOING OF ANY WORK IN OR IN RELATION TO A ND BY WAY OF RENOVATION OR EXTENSION OR IMPROVEMENT IN THE BUILDING. 5.4.7 IN THE CASE ON HAND, ON AN APPRECIATION OF THE FACTS OF THE CASE AND DETAILS ON RECORD, WE FIND THAT AFTER INCURRING THE EXPENDITURE ON THE LEASED PREMISES, THE ASSESSEE HAS NEI THER OBTAINED ANY ENDURING BENEFIT NOR HAS ANY NEW CAPITAL ASSET HAS COME INTO EXISTENCE. THE ASSESSEE CONTINUED TO RUN THE HOTEL IN THE VERY SAME LEASED PREMISES. IT IS NOT ANYBODY S CASE THAT THE SEATING CAPACITY WAS NOT INCREASED AFTER THE EXPENDITURE . THE EXPENDITURE INCURRED WAS ONLY FOR CARRYING ON THE BUSINESS AND WAS AN INTEGRAL PART OF THE PROFIT EARNI NG PROCESS. THEREFORE, WE FIND THAT NO CASE HAS BEEN MADE OUT TO SAY THAT THE ASSESSEE HAS OBTAINED ANY ENDURING BENEFIT BY VIRTUE OF THIS EXPENDI TURE. THE NATURE OF THE WORK UNDERTAKEN BY THE ASSESSEE IS TO CARRY ON THE BUSINESS AND NOT OBTAIN ANY ASSET. FURTHER, AS ALREADY OBSERVED, NO CAPITAL ASSET OF AN ENDURING NATURE CAME INTO EXISTENCE. IN OTHER WORDS, THE ASSESSEE HAS NOT ACQUIRED ANY A SSET / INCOME EARNING APPARATUS. IT IS WELL SETTLED PRINCIPLE OF LAW THAT THE EXPENDITURE INCURRED FOR ACQUISITION OF AN ASSET IS A CAPITAL EXPENDITURE AND EXPENDITURE INCURRED IN THE PROCESS OF EARNING PROFIT IS REVENUE EXPENDITURE. IN THE CASE ON HAND, WE ARE 22 ITA NOS.442 TO 445/BANG/2013 OF THE VIEW THAT THE ASSESSEE INCURRED THE EXPENDITURE FOR EFFICIENT RUNNING OF THE BUSINESS AND THEREFORE THE EXPENDITURE INCURRED IS REVENUE IN NATURE. 5.4.8 IT IS SETTLED PRINCIPLE THAT THE TEST OF ENDURING BENEFIT IS NEITHER CERTAIN NOR CON CLUSIVE. EVEN IF THIS FACT IS APPLIED, THE EXPENDITURE INCURRED BY THE ASSESSEE IS ONLY IN THE PROCESS OF EARNING PROFIT AND NOT TO ACQUIRE ANY CAPITAL ASSET. AS A RESULT OF THE EXPENDITURE INCURRED BY THE ASSESSEE, THE HOTEL REMAINS A HOTEL AND THE CAPA CITY DOES NOT INCREASE. AT THE MOST, THE ASSESSEE MIGHT HAVE CARRIED ON THE BUSINESS IN A PROFITABLE MANNER. THE ASSESSEE HAS NOT OBTAINED ANY ENDURING ADVANTAGE IN THE CAPITAL FIELD. THEREFORE, THE EXPENDITURE INCURRED FACILITATED THE ASSESSEE TO CARRY ON ITS BUSINESS EFFECTIVELY AND MORE PROFITABLY. IN THIS FACTUAL MATRIX OF THE CASE ON HAND, WE ARE OF THE CONSIDERED OPINION THAT THE EXPENDITURE INCURRED BY THE ASSESSEE HAS TO BE TREATED AS REVENUE IN NATURE. 5.4.9 IN VIEW OF THE JUDICIAL DECISION S CITED BY THE ASSESSEE (SUPRA), IT IS OBVIOUS THAT WHENEVER AN EXPENDITURE WAS INCURRED IN THE PROCESS OF EARNING PROFITS IT HAS TO BE ALLOWED AS REVENUE EXPENDITURE. IN SUCH A CASE THE EXPENDITURE INCURRED BY THE ASSESSEE WOULD BE OUT OF THE AMBIT AND P URVIEW OF THE PROVISIONS OF EXPLANATION 1 TO SECTION 32 OF THE ACT OF THE ACT. IN THE CASE ON HAND, IT IS NOT IN DISPUTE THAT THE EXPENDITURE WAS INCURRED FOR RENOVATION. THESE EXPENSES WERE INCURRED ONLY FOR THE PURPOSE OF CARRYING ON DAY TO DAY BUSINES S AND EARN PROFITS AND DO NOT RESULT IN THE BRINGING INTO EXISTENCE OF ANY CAPITAL ASSET. THEREFORE, IN THE LIGHT OF THE DISCUSSION FORM PARAS 5.1 TO 5.4. 9 OF THIS ORDER AND THE FACTS AND CIRCUMSTANCES OF THE CASE, IN OUR VIEW, THE LEARNED CIT (APPEALS) WAS NOT RIGHT IN UPHOLDING THE DISALLOWANCE OF THE EXPENDITURE BY HOLDING IT AS CAPITAL IN NATURE. WE, ACCORDINGLY, REVERSE THE FINDINGS OF 23 ITA NOS.442 TO 445/BANG/2013 THE AUTHORITIES BELOW ON THIS ISSUE AND ALLOW THE ASSESSEE'S CLAIM FOR DEDUCTION OF EXPENDITURE INC URRED TOWARDS RE NOVATION OF PLANT DESIGN SYSTEM, COMPUTER CABLING, FIRE DETECTION AND ALARM SYSTEM, PLUMBING, AIR CONDITIONING WORK, ELECTRICAL WORKS, INTERIOR WORK ETC. ON THE HOTEL / BUILDING TAKEN ON LEASE. ACCORDINGLY THE ASSESSEE'S GROUNDS RAISED AT S.NOS.6 & 7 AR E ALLOWED FOR ASSESSMENT YEARS 2005 - 06 TO 2008 - 09. 6. IN THE RESULT, THE ASSESSEE'S APPEALS FOR ASSESSMENT YEARS 2005 - 06 TO 2008 - 09 ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH DEC., 201 4 . SD/ - SD/ - ( RAJPAL YADAV ) ( JASON P BOAZ ) JUDICIAL ME MBER ACCOUNTANT MEMBER *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE. (TRUE COPY) BY ORDER ASST. REGISTRAR, ITAT, BANGALORE