AI Insights
The case involves cross appeals by Sadbhav Engineering Ltd. and the Assistant Commissioner of Income Tax (ACIT) against the orders of the CIT(Appeals) for the assessment years 2007-08 and 2008-09. The primary legal contention revolved around the validity of the assessments made under section 153A of the Income Tax Act following a search operation. The Tribunal examined whether the assessments for the years in question, which had already been completed and were unabated, could be reopened under section 153A without any incriminating material found during the search. The Tribunal concluded that the assessments could not be reopened as no incriminating material was found, and thus, the proceedings under section 153A were not applicable.
Appeal Details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 131358 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
9 year(s) 3 month(s) 9 day(s)
Appellant
Respondent
Appeal Type
Income Tax (Search & Seizure) Appeal
Pronouncement Date
22-01-2023
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
A
Next Hearing Date
06-12-2022
Assessment Year
2007-2008
Appeal Filed On
13-10-2013
Judgement Text
THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “A” BENCH Before: Shri Waseem Ahmed, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member Sadbh av Engineering Ltd ., Sadbh av House, Opp. Law Garden Police Ch owki, Ellisbridge, Ah medabad -3 80006 PAN: AADCS085 2Q (Appellant) Vs The ACIT, Central Circle-1(1), Ah med abad (Resp ondent) Th e ACIT, Central Circle-1(1), Ah medabad (Appellant) Vs Sad bhav Engineering Ltd., Sad bhav House, Op p. Law Gard en Police Ch owk i, Ellisbridge, Ah med abad-3800 06 PAN: AAdCS085 2Q (Resp ondent) Asses see b y : Shri Dhinal Shah, A. R. Revenue by : Shri Vijay Kumar J aisw al, CIT-D. R. IT(SS)A No. 361 & 362/Ahd/2013 Assessment Year 2007-08 & 2008-09 IT(SS)A No. 389 & 391/Ahd/2013 Assessment Year 2007-08 & 2008-09 I.T(SS)A No. 361, 362, 389 & 391/Ahd/2013 A.Y. 2008-09 & 2009-10 Page No. Sadbhav Engineering Ltd. vs. ACIT & ACIT vs. Sadbhav Engineering Ltd. 2 Date of hearing : 07-12 -2 022 Date of pronouncement : 23-01 -2 023 आदेश/ORDER PER BENCH:- These are cross appeals filed by the assessee and the Department against the order of Ld. CIT(Appeals) for assessment year 2007-08 vide order dated 29-07-2013 and assessment year 2008-09 vide order dated 29- 07-2013 2. Since common issues are involved for both the years under consideration, both the appeals are being disposed of by way of a common order. 3. We shall first discuss the appeal for assessment year 2007-08 and our observations in respect of this year shall apply to assessment year 2008-09 as well. Assessment year 2007-08: 4. The assessee has raised the following Grounds of Appeal: “1.1 The Learned CIT(A) erred in law and on the facts of the case in confirming action of the AO in assuming the jurisdiction u/s 153Aof the Act, ignoring the fact that "only assessment pending" as on the date of search shall abate and not the "assessment completed". The assessment of year under appeal had been completed and become final and conclusive as on the date of search and I.T(SS)A No. 361, 362, 389 & 391/Ahd/2013 A.Y. 2008-09 & 2009-10 Page No. Sadbhav Engineering Ltd. vs. ACIT & ACIT vs. Sadbhav Engineering Ltd. 3 therefore an assumption of jurisdiction u/s 153A for the year under appeal is illegal. 1.2 The Learned CIT(A) erred in law and on the facts of the case in confirming action of the AO in making assessment, which was outside the scope of section 153A, by encompassing additions not based on any incriminating material found during the course of search. 1.3 The order passed by the learned CIT(A) is against law and facts on the file in as much as CIT(A) was not justified to reject the contention of the appellant that since the search did not revealed any convicting or implicating material against the Appellant, hence the Assessment is invalid, void and without jurisdiction u/s 153 A of the Act. 2. The Learned CIT(A) erred in law and on the facts of the case in confirming 25% of the disallowance made by the AO for alleged bogus payments despite the fact that the Appellant has submitted all the necessary evidences before the AO as well as CIT(A) with a proof that work / services was carried out for the Appellant. It is therefore prayed that the addition confirmed by the CIT(A) may please be deleted. 3. The ld. CIT(A) has erred in law and on facts in confirming the action of Id. AO in charging interest u/s 234B/C/D of the Act. 4. The Id. CIT(A) has erred in law and on facts in confirming the action of Id. AO in initiating penalty proceedings u/s 271(l)(c) of the Act. 5. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.” 5. The Department has raised the following Grounds of Appeal: “1) The Ld.CIT (A) has erred in law and on facts in deleting addition of RS.6615,916/- out of total addition of Rs.88,21,222/- made on account of disallowance non-genuine sub-contract payments. 2) On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the A.O.. 3) It is, therefore, prayed that the order of the CIT (A) be set aside and that of the A.O. be restored to the above extent.” I.T(SS)A No. 361, 362, 389 & 391/Ahd/2013 A.Y. 2008-09 & 2009-10 Page No. Sadbhav Engineering Ltd. vs. ACIT & ACIT vs. Sadbhav Engineering Ltd. 4 6. At the outset, the counsel for the assessee challenged the validity of the assessment order passed by the AO under section 153A r.w.s. 143(3) of the Act. The brief facts of the case are that search operation under section 132(1) of the Act was carried out on the Sadhbhav Group of cases and as per the AO certain documents/books of accounts were found and seized from various premises on which the search was conducted. The assessee raised objections to carry out the 153A proceedings, which were dismissed by the AO. During the course of search, the AO observed that the assessee M/s Sadbhav Engineering Ltd. had made payments to M/s Twinkle Vanijya and M/s Zam Zam Engineering, which were found to be non-genuine. Accordingly, the AO disallowed the payments made to the above two entities with the following observations: “3.5.12 From the above discussion, no iota of doubt remain left that the payments made by Sadbhav Engineering Limited to Zam Zam Engineering & Construction Limited were not genuine. Cheques were issued to Zam Zam Engineering & Construction Limited and the same was withdrawn in cash on the same day. Hence, the transactions with the M/s Zam Zam Engineering & Construction Limited are accommodation entries only and cannot be allowed as an expenditure. 3.5.13 Hence, in view of the above facts and circumstances, it is established that payments made by M/s. Sadbhav Engineering Limited to M/s. Twinkle Vanijya Pvt. Ltd., M/s. Zam Zam Engineering & Contracts and M/s. Zam Zam Engineering & Construction Limited were not genuine. Therefore, disallowed and added back to the total income of the assessee. Year-wise disallowances are as hereunder: Party Name Assessment Years 2007-08 2008-09 M/s, Twinkle Vanjijya Pvt. Ltd. - 1,05,41,918/- M/s. Zam Zam Engineers & Contractors 36,36,322/~ - I.T(SS)A No. 361, 362, 389 & 391/Ahd/2013 A.Y. 2008-09 & 2009-10 Page No. Sadbhav Engineering Ltd. vs. ACIT & ACIT vs. Sadbhav Engineering Ltd. 5 M/s. Zam Zam Engineering & Constructions 51,84,900/- 16,35,485/- TOTAL 88,21,222/- 1,21,77,403/- 3.5.14 Therefore total disallowances of Rs. 88,21,222/- has been made and added back to the total income of the assessee. Penalty proceedings u/s. 271(l)(c) of the I.T. Act, 1961 are also initiated separately, for furnishing inaccurate particulars of income.” 7. In appeal before Ld. CIT(Appeals), the assessee again challenged the initiation of proceedings under section 153A of the Act on the ground that no incriminating materials were found during the course of search conducted by the Department. The assessee further submitted that the assessment year under consideration is an unabated assessment year and the assessment proceedings for the impugned assessment year have already been concluded. He further submitted that during the course of original assessment proceedings, payments to the two entities i.e. M/s Twinkle Vanijya and M/s Zam Zam Engineering was found to be genuine and hence no additions have been made on this count. The assessee further submitted that since no incriminating materials were found during the course of search, the assessments cannot be framed under section 153A of the Act and hence the assessment is invalid. The Ld. CIT(Appeals) however rejected the assessee’s arguments challenging the initiation of proceedings under section 153A of the Act and held that the proceedings under section 153A of the Act had been validly initiated by the AO. On merits, Ld. CIT(Appeals) accepted the argument of the assessee that when the revenue has been subject to tax, then the corresponding expenses which have helped in earning the revenue cannot be disallowed in totality. Accordingly, Ld. CIT(Appeals) partly allowed the appeal of the assessee and restricted the disallowance to 25% of I.T(SS)A No. 361, 362, 389 & 391/Ahd/2013 A.Y. 2008-09 & 2009-10 Page No. Sadbhav Engineering Ltd. vs. ACIT & ACIT vs. Sadbhav Engineering Ltd. 6 the aforesaid payments made to M/s Twinkle Vanijya and M/s Zam Zam Engineering. While dismissing the challenge to jurisdiction of initiation of proceedings under section 153A of the Act, Ld. CIT(Appeals) made the following observations: “4.3 From the observations of the Hon'ble Delhi High Court it is clear that once a search is conducted u/s. 132 and any document, whether signed or unsigned, is recovered during the search then section 153A is triggered and then it is mandatory for the Assessing Officer to issue notice U/S.153A calling the assessee to file returns for six assessment years prior to the year in which the search took place. 4.4 In the instant case, it is not denied that a search has taken place. In view of the above, it is clear that the notice issued u/s 153A of the IT Act, 1961, was valid and assessment made thereafter cannot be held to be illegal on the ground that there no incriminating material in relation to the disallowance made was surfaced in the course of search.” 8. Before us, the counsel for the assessee submitted that in the instant set of facts, the Department has not been able to bring forth any incriminating material which form the basis of initiation of proceedings under section 153A of the Act. The counsel for the assessee drew our attention to Para 3.2 of Ld. CIT(Appeals) order and also paragraphs 4.3 and 4.4 of Ld. CIT(Appeals) order, from which it is evident that the Department has not been able to prove that any incriminating material was found during the course of search, which formed basis of proceedings under section 153A of the Act. He further relied upon various judicial precedents which have held that in case of unabated assessment years, in respect of which the proceedings have been completed, proceedings under section 153A of the Act cannot be initiated unless certain incriminating materials have been unearthed during the course of search. In the instant case, in absence of any I.T(SS)A No. 361, 362, 389 & 391/Ahd/2013 A.Y. 2008-09 & 2009-10 Page No. Sadbhav Engineering Ltd. vs. ACIT & ACIT vs. Sadbhav Engineering Ltd. 7 incriminating materials having been found during the course of search, the assessment order passed under section153A r.w.s 143(3) of the Act is liable to be set aside. 9. In response, DR placed reliance upon the observations made by the Ld. CIT(Appeals) in the appellate order, while dismissing the challenge to jurisdiction by the assessee. 10. We have heard the rival contentions and perused the material on record. In the present facts, it is observed that the impugned assessment year 2007-08 is admittedly an unabated assessment year in respect of which the assessment proceedings have already been concluded. This is evident from the contents of paragraph 2.2 of the assessment order, which is reproduced below for reference: “2.2 In this case regular assessment order u/s 143(3) of the IT ACT was passed on 25.02.2009 determining total income at Rs. 38,21,94,100/-. Thereafter the assessee has filed an appeal to C!T(A). After giving effect to CIT(A)'s order total income reduced to Rs. 37,95,45,120/~. Further, one more order u/s 143(3) r.w.s. 147 was passed on 13.08.2010, but as per the directions of the Honorable Gujarat High Court this order was not served to the assessee. Further, the honorable Gujarat High Court has given the direction for not serving the order on the issue of deduction u/s 80IA(4) of the IT Act. Accordingly, with due respect to the High Court's order, demand notice and order was not served to the assessee. Therefore, no separate disallowances/additions u/s 80 IA(4) in this order are required. Since, the assessee has preferred further appeal to the higher appellate authorities, therefore, the final outcome of the appeals will be treated as per law.” 11. On the issue whether any incriminating material was unearthed during the course of search, in our view, the Revenue has not been able to bring I.T(SS)A No. 361, 362, 389 & 391/Ahd/2013 A.Y. 2008-09 & 2009-10 Page No. Sadbhav Engineering Ltd. vs. ACIT & ACIT vs. Sadbhav Engineering Ltd. 8 forth any incriminating material which could form the basis of proceedings under section 153A of the Act. This is evident from the interim order passed by AO disposing of the objections raised by the assessee in respect of initiation of proceedings under section 153A of the Act (page 3 of CIT order). The same are reproduced for reference: 3.1 After going through the assessee's submission it is Unacceptable because as per the statuary provisions of section 153A of the IT Act, for applicability of section 153A, the initiation of search is necessary. Once a warrant of authorization or requisition is issued and search is conducted and panchnama is drawn, the completed assessments for all relevant years would be reopened, irrespective of whether any incriminating material is found or not in relation to a particular assessment year. In other words, even if the material found shows the concealment in only one year, all the completed assessments falling in the period of six assessment years preceding the year of search will get reopened. Hence, the initiation of valid search u/s 132 or requisition u/s 132A is the only condition for invoking the provisions of section 153A. The seizure of incriminating material is not the condition for invoking such provisions. Further, unlike provisions of chapter XI.V-B, section 153A, in clear terms provides that in case where search is initiated after 31st day of May 2003, the AO shall issue the notice in respect of specified six years and assess/reassess the total income of the of assessee and not the undisclosed income. The Assessing Officer, therefore, shall assess of reassess such income for all these years.” 11.1 Further, we observe that even Ld. CIT(Appeals) while disposing of the objections raised by the in respect of initiation of proceedings under section 153A of the Act has not brought forth any incriminating material which formed the basis of initiation of proceedings under section 153A 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 153A of the Act. The relevant extracts of the order passed by Ld. CIT(Appeals) are reproduced below for reference: I.T(SS)A No. 361, 362, 389 & 391/Ahd/2013 A.Y. 2008-09 & 2009-10 Page No. Sadbhav Engineering Ltd. vs. ACIT & ACIT vs. Sadbhav Engineering Ltd. 9 “4.3 From the observations of the Hon'ble Delhi High Court it is clear that once a search is conducted u/s. 132 and any document, whether signed or unsigned, is recovered during the search then section 153A is triggered and then it is mandatory for the Assessing Officer to issue notice u/s. 153A calling the assessee to file returns for six assessment years prior to the year in which the search took place. 4.4 In the instant case, it is not denied that a search has taken place. In view of the above, it is clear that the notice issued u7s 153A of the IT Act, 1961, was valid and assessment made thereafter cannot be held to be illegal on the ground that there no incriminating material in relation to the disallowance made was surfaced in the course of search. In view of the above, ground Nos. 1, 2.1 & 2.2 do not have any merits. The same are dismissed.” 11.2 In our considered view, in the instant set of facts, no incriminating materials was found during the course of search which could form the basis of initiation of proceedings under section 153A of the Act. We also observe that the instant year is an unabated assessment year when 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 of the Act cannot be initiated. 11.3 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 section could not disturb completed assessment of assessee in respect of such earlier assessment year. I.T(SS)A No. 361, 362, 389 & 391/Ahd/2013 A.Y. 2008-09 & 2009-10 Page No. Sadbhav Engineering Ltd. vs. ACIT & ACIT vs. Sadbhav Engineering Ltd. 10 11.4 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. The High Court while passing the order observed as under: 6. This court in the case of Saumya Construction (P.) Ltd. (supra), has held that in view of the mandate of sub-section (1) of section 153A of the Act, in every case where there is a search or requisition, the Assessing Officer is obliged to issue notice to such person to furnish returns of income for the six years preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made. However, any addition or disallowance can be made only on the basis of material collected during the search or requisition. 7. In the facts of the present case, the Tribunal has recorded a finding of fact to the effect that no incriminating material had been found during the course of the search proceedings and that the statement of the director which is stated to have been recorded during the course of search under section 131 of the Act, and which forms the basis for the impugned addition, was recorded much later on 7.12.2009. In the light of the above cited decision, it was not permissible for the Assessing Officer to make any addition under section 153A of the Act I.T(SS)A No. 361, 362, 389 & 391/Ahd/2013 A.Y. 2008-09 & 2009-10 Page No. Sadbhav Engineering Ltd. vs. ACIT & ACIT vs. Sadbhav Engineering Ltd. 11 when no incriminating material had been found during the course of the search. 11.5 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. 11.6 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. The Gujarat High Court while passing the order observed as under: 16. Section 153A bears the heading “Assessment in case of search or requisition”. It is well settled as held by the Supreme Court in a catena of decisions that the heading of the section can be regarded as a key to the interpretation of the operative portion of the section and if there is no ambiguity in the language or if it is plain and clear, then the heading used in the section strengthens that meaning. From the heading of section 153, the intention of the legislature is clear viz., to provide for assessment in case of search and requisition. When the I.T(SS)A No. 361, 362, 389 & 391/Ahd/2013 A.Y. 2008-09 & 2009-10 Page No. Sadbhav Engineering Ltd. vs. ACIT & ACIT vs. Sadbhav Engineering Ltd. 12 very purpose of the provision is to make assessment in case of search or requisition, it goes without saying that the assessment has to have relation to the search or requisition. In other words, the assessment should be connected with something found during the search or requisition, viz., incriminating material which reveals undisclosed income. Thus, while in view of the mandate of sub-section (1) of section 153A of the Act, in every case where there is a search or requisition, the Assessing Officer is obliged to issue notice to such person to furnish returns of income for the six years preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made, any addition or disallowance can be made only on the basis of material collected during the search or requisition. In case no incriminating material is found, as held by the Rajasthan High Court in the case of Jai Steel (India) (supra), the earlier assessment would have to be reiterated. In case where pending assessments have abated, the Assessing Officer can pass assessment orders for each of the six years determining the total income of the assessee which would include income declared in the returns, if any, furnished by the assessee as well as undisclosed income, if any, unearthed during the search or requisition. In case where a pending reassessment under section 147 of the Act has abated, needless to state that the scope and ambit of the assessment would include any order which the Assessing Officer could have passed under section 147 of the Act as well as under section 153A of the Act. ...... I.T(SS)A No. 361, 362, 389 & 391/Ahd/2013 A.Y. 2008-09 & 2009-10 Page No. Sadbhav Engineering Ltd. vs. ACIT & ACIT vs. Sadbhav Engineering Ltd. 13 18. In this case, it is not the case of the appellant that any incriminating material in respect of the assessment year under consideration was found during the course of search. At the relevant time when the notice came to be issued under section 153A of the Act, the assessee filed its return of income. Much later, at the fag end of the period within which the order under section 153A of the Act was to be made, in other words, when the limit for framing the assessment as provided under section 153 was about to expire, the notice has been issued in the present case seeking to make the proposed addition of Rs.11,05,51,000/- on the basis of the material which was not found during the course of search, but on the basis of a statement of another person. In the opinion of this court, in a case like the present one, where an assessment has been framed earlier and no assessment or reassessment was pending on the date of initiation of search under section 132 or making of requisition under section 132A, while computing the total income of the assessee under section 153A of the Act, additions or disallowances can be made only on the basis of the incriminating material found during the search or requisition. In the present case, it is an admitted position that no incriminating material was found during the course of search, however, it is on the basis of some material collected by the Assessing Officer much subsequent to the search, that the impugned additions came to be made. 19. On behalf of the appellant, it has been contended that if any incriminating material is found, notwithstanding that in relation to the year under consideration, no incriminating material is found, it would be permissible to make additions and disallowance in respect of all I.T(SS)A No. 361, 362, 389 & 391/Ahd/2013 A.Y. 2008-09 & 2009-10 Page No. Sadbhav Engineering Ltd. vs. ACIT & ACIT vs. Sadbhav Engineering Ltd. 14 the six assessment years. In the opinion of this court, the said contention does not merit acceptance, inasmuch as, the assessment in respect of each of the six assessment years is a separate and distinct assessment. Under section 153A of the Act, an assessment has to be made in relation to the search or requisition, namely, in relation to material disclosed during the search or requisition. If in relation to any assessment year, no incriminating material is found, no addition or disallowance can be made in relation to that assessment year in exercise of powers under section 153A of the Act and the earlier assessment shall have to be reiterated. In this regard, this court is in complete agreement with the view adopted by the Rajasthan High Court in the case of Jai Steel (India), Jodhpur (supra). Besides, as rightly pointed out by the learned counsel for the respondent, the controversy involved in the present case stands concluded by the decision of this court in the case of Jayaben Ratilal Sorathia (supra) wherein it has been held that while it cannot be disputed that considering section 153A of the Act, the Assessing Officer can reopen and/or assess the return with respect to six preceding years; however, there must be some incriminating material available with the Assessing Officer with respect to the sale transactions in the particular assessment year. 11.7 In the case of PCIT v. Rameshbhai Jivraj Desai[2020] 120 taxmann.com 82 (Gujarat), the Gujarat High Court held that where assessee contended that invocation of provisions of section 153A and making disallowance/additions of bad debts of assessee by Assessing Officer I.T(SS)A No. 361, 362, 389 & 391/Ahd/2013 A.Y. 2008-09 & 2009-10 Page No. Sadbhav Engineering Ltd. vs. ACIT & ACIT vs. Sadbhav Engineering Ltd. 15 was unjustified as no incriminating material against assessee was found or seized during search, Tribunal was justified in deleting impugned additions. 11.8 In the case of PCIT v. Dipak Jashvantlal Panchal[2017] 88 taxmann.com 611 (Gujarat), the Gujarat High Court held that only undisclosed income and undisclosed assets detected during search can be brought to tax in assessment under section 153A of the Act. 11.9 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. 11.10 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 I.T(SS)A No. 361, 362, 389 & 391/Ahd/2013 A.Y. 2008-09 & 2009-10 Page No. Sadbhav Engineering Ltd. vs. ACIT & ACIT vs. Sadbhav Engineering Ltd. 16 in course of original assessment. While passing the order, the Delhi High Court observed as under: 37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153 A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any I.T(SS)A No. 361, 362, 389 & 391/Ahd/2013 A.Y. 2008-09 & 2009-10 Page No. Sadbhav Engineering Ltd. vs. ACIT & ACIT vs. Sadbhav Engineering Ltd. 17 relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. Conclusion 38. The present appeals concern AYs, 2002-03, 2005-06 and 2006- 07.On the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the I.T(SS)A No. 361, 362, 389 & 391/Ahd/2013 A.Y. 2008-09 & 2009-10 Page No. Sadbhav Engineering Ltd. vs. ACIT & ACIT vs. Sadbhav Engineering Ltd. 18 search, no additions could have been made to the income already assessed. 39. The question framed by the Court is answered in favour of the Assessee and against the Revenue. 40. The appeals are accordingly dismissed but in the circumstances no orders as to costs. 11.11 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 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. I.T(SS)A No. 361, 362, 389 & 391/Ahd/2013 A.Y. 2008-09 & 2009-10 Page No. Sadbhav Engineering Ltd. vs. ACIT & ACIT vs. Sadbhav Engineering Ltd. 19 11.12 In our view, the cases cited above squarely applied to assessee’s set of facts wherein, the original assessment was already apply completed by the Ld. Assessing Officer before the search was conducted. 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 assessments already concluded. We note that at the time when the search operations were carried out, the original assessment proceedings had been finalized. We also note that during the course of search operation no fresh material or incriminating evidence was found by the Department. Thus, the assessment was not pending when the search took place in this case. The assessment therefore did not abate as per the provisions of second proviso to section 153A(1) of the Act. It is a settled position of law that in case of unabated assessment to be made u/s. 153A of the Act no addition could be made de-hors the material found during the search. In view of the above factual and legal position, in our view, the ld. CIT has erred in law and in fact in upholding the initiation of proceedings u/s. 153A of the Act on the assessee. The ground of appeal raised by the assessee is thus allowed. 12. In the result, the appeal of the assessee is allowed and the appeal of the Department is dismissed. Assessment year 2008-09: 13. These are cross appeals filed by the assessee and the Department against the order of Ld. CIT(Appeals) for assessment year 2008-09. I.T(SS)A No. 361, 362, 389 & 391/Ahd/2013 A.Y. 2008-09 & 2009-10 Page No. Sadbhav Engineering Ltd. vs. ACIT & ACIT vs. Sadbhav Engineering Ltd. 20 14. The assessee has raised the following Grounds of Appeal: “1.1 The Learned C1T(A) erred in law and on the facts of the case in confirming action of the AO in assuming the jurisdiction u/s 153Aof the Act, ignoring the fact that "only assessment pending" as on the date of search shall abate and not the "assessment completed". The assessment of year under appeal had been completed and become final and conclusive as on the date of search and therefore an .assumption of jurisdiction u/s 153A for the year under appeal is illegal. 1.2 The Learned CIT(A) erred in law and on the facts of the case in confirming action of the AO in making assessment, which was outside the scope of section 153A, by encompassing additions not based on any incriminating material found during the course of search. 1.3 The order passed by the learned C1T(A) is against law and facts on the file in as much as C1T(A) was not justified to reject the contention of the appellant that since the search did not revealed any convicting or implicating material against the Appellant, hence the Assessment is invalid, void and without jurisdiction u/s 153 A of the Act. 2. The Learned CIT(A) erred in law and on the facts of the case in confirming 100% disallowance made by the AO for alleged bogus payments to Twinkle Vanijya Private Limited despite same being genuine and made in respect of professional services rendered by the said party and benefit derived therefrom. It is therefore prayed that the addition confirmed by the CIT(A) may please be deleted. 3. The Learned CIT(A) erred in law and on the facts of the case in confirming 25% of the disallowance made by the AO for alleged bogus payments to "ZAM ZAM GROUP" despite the fact that the Appellant has submitted submitted all the necessary evidences before the AO as well as C1T(A) with a proof that work / services was carried out for the Appellant. It is therefore prayed that the addition confirmed by the CIT(A) may please be deleted. 4. The Id. GIT(A) has erred in law and on facts in confirming the action of Id. AO in charging interest u/s 234B/C/D of the Act. 5. The Id. CIT(A) has erred in law and on facts in confirming the action of ld. AO in initiating penalty proceedings u/s 271(l)(c) of the Act. I.T(SS)A No. 361, 362, 389 & 391/Ahd/2013 A.Y. 2008-09 & 2009-10 Page No. Sadbhav Engineering Ltd. vs. ACIT & ACIT vs. Sadbhav Engineering Ltd. 21 6. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.” 15. The Department has raised the following Grounds of Appeal: “1). The Ld.CIT (A) has erred in law and on facts in deleting addition of Rs.26,54,73,947/- made u/s 80IA(4) of the Act, as in view of Explanation below sub-section (13) of section 80IA introduced by Finance Act, 2009 with retrospective effect from 01.04.2000 the assessee was not eligible for deduction u/s 80IA(4) of the Act. 2) The Ld.CIT (A) has erred in law and on facts in deleting addition of Rs. 1,57,765/- out of total addition of Rs.2,10,354/- made on account of Bogus Purchases from N.B. Enterprises. 3) The Ld.CIT (A) has erred in law and on facts in deleting addition of Rs. l 9,54,565/- made u/s 14A of the I.T. Act read with Rule 8D of the I.T. Rules. 4) The Ld.CIT (A) has erred in law and on facts in deleting addition of Rs.47,96,578/- made u/s 35D of the I.T. Act. 5) On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the A.O.. 6) It is, therefore, prayed that the order of the CIT (A) be set aside and that of the A.O. be restored to the above extent.” 16. Since common issues are involved for both the years under consideration, our observations for assessment year 2007-08 shall apply to assessment year 2008-09 as well. 17. In the result, the appeal of the assessee is allowed for assessment year 2008-09 as well on grounds of jurisdiction itself. Since, we have quashed the assessment proceedings initiated u/s 153A r.w.s. 143(3) of the Act on grounds of jurisdiction itself, we are not discussing with the Grounds of Appeal relating to the merits of the case. Accordingly, the Grounds of I.T(SS)A No. 361, 362, 389 & 391/Ahd/2013 A.Y. 2008-09 & 2009-10 Page No. Sadbhav Engineering Ltd. vs. ACIT & ACIT vs. Sadbhav Engineering Ltd. 22 Appeal raised by the assessee as well as by the Department relating to the merits of the case are not being discussed. 18. In the combined result, the appeals of the assessee are allowed for both assessment years 2007-08 and 2008-09 and the appeals of the Department are dismissed for both assessment years 2007-08 and 2008-09. Order pronounced in the open court on 23-01-2023 Sd/- Sd/- (WASEEM AHMED) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 23/01/2023 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
PCIT v. Rameshbhai Jivraj Desai, Sunrise Finlease (P.) Ltd. v. PCIT, Desai Construction (P.) Ltd. v. PCIT, PCIT v. Saumya Construction (P.) Ltd., CIT v. Kabul Chawla, CIT v. Continental Warehousing Corporation (Nhava Sheva) Ltd, Majestic Commercial (P.) Ltd, Mani Square v. ACIT, Wind World India Infrastructure (P.) Ltd. v. PCIT
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