Gujarat High Court
The Principal Commissioner Of ... vs Umang Hiralal Thakkar on 21 August, 2023
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/TAXAP/353/2023 ORDER DATED: 21/08/2023
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 353 of 2023
With
R/TAX APPEAL NO. 354 of 2023
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THE PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL),
AHMEDABAD
Versus
UMANG HIRALAL THAKKAR
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Appearance:
MR.VARUN K.PATEL, SENIOR STANDING COUNSEL with MR. DEV D
PATEL, ADVOCATE for the Appellant(s) No. 1
for the Opponent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BIREN VAISHNAV
and
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 21/08/2023
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BIREN VAISHNAV)
1 These Tax Appeals have been filed challenging the
order of the Income Tax Tribunal dated 19.10.2022 in ITA
No. 2407/AHD/2008 for Assessment Year 2003-04 and
ITA No. 2418/Ahd/2008.
The following substantial questions of law are raised
in these appeals:
Tax Appeal No. 353 of 2023.
"(a) Whether in the facts and circumstances of the
case and in law, the Ld. ITAT has erred in upholding
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the decision of the Ld. CIT(A) and dismissing the
appeal of the Revenue in respect of the addition of
Rs.1,89,19,363/- and Rs.69,88,121/- made on
account of unexplained capital and unexplained cash
credits, respectively without considering the factual
position that the assessee failed to prove identity
and capacity of the depositors and genuineness of
the transactions?
(b) Whether in the facts and circumstances of the
case and in law, the Ld. ITAT has erred in upholding
the decision of the CIT(A) and dismissing the appeal
of the Revenue in respect of the addition of
Rs.82,75,619/- made on account of unexplained
investment in residential house and hotel building
without considering and appreciating the valuation
report of District Valuation Officer?
(c) Whether in the facts and circumstances of the
case and in law, the Ld. ITAT has erred in upholding
the decisions of the CIT(A) and dismissing the
appeal of the Revenue in respect of the addition of
Rs.68,238/- made on account of disallowance of
interest expenditure for non-business use?
(d) Whether in the facts and circumstances of the
case and in law, the learned ITAT is justified in
dismissing the appeal of the Revenue by holding to
the effect that any addition / disallowance during the
assessment under Section 153A the Income Tax Act
has to be confined to the incriminating material
found during the course of search under section
132(1) of the Act, even though there is no stipulation
in section 153A of the Income Tax Act?
(e) Whether in the facts and circumstances of the
case and in law, the learned ITAT is justified in not
appreciating that Sec.153A requires a notice to be
issued requiring the assessee to furnish his return of
income in respect of each assessment year falling
within six assessment years and to assessee or re-
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assess the total income of those six assessment
years, and that the scheme of assessment or re-
assessment of the total income of a person searched
could be brought to tax, if no addition is allowed to
be made for those six assessment years in the
absence of any seized incriminating material?
Tax Appeal No. 354 of 2023:
"(a) Whether in the facts and circumstances of the
case and in law, the Ld. ITAT has erred in reversing
the decision of the CIT(A) and allowing the appeal of
the assessee in respect of the addition of Rs.7,404/-
and Rs.28,580/- made on account of disallowance of
excess depreciation and disallowanve of 20% of
telephone / mobile expenses for personal use?
(b) Whether in the facts and circumstances of the
case and in law, the learned ITAT is justified in
allowing the appeal of the Assessee by holding to the
effect that any addition / disallowance during the
assessment under section 153A of the Income Tax
Act has to be confined to the incriminating material
found during the course of search under section
132(1) of the Act, even though there is no stipulation
in section 153A of the Income Tax Act?
(c) Whether in the facts and circumstances of the
case and in law, the learned ITAT is justified in not
appreciating that Sec.153A requires a notice to be
issued requiring the assessee to furnish his return of
income in respect of each assessment year falling
within six assessment years and to assessee or re-
assess the total income of those six assessment
years, and that the scheme of assessment or re-
assessment of the total income of a person searched
could be brought to tax, if no addition is allowed to
be made for those six assessment years in the
absence of any seized incriminating material?"
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2 A search was conducted at the residential as well as
business premises of the assessee along with a builder
group. Notices were issued under Sec.153A of the Act,
based on which certain additions were made.
3 Perusal of the questions of law indicate essentially
that the question of law is whether the revenue's appeal
was dismissed on the ground that any addition /
disallowance during the assessment under section 153A
of the Income Tax Act has to be confined to the
incriminating material found during the course of search
under Section 132(1) of the Act even though there is no
stipulation in section 153A of the Income Tax Act. The
ITAT on the facts of the case held thus:
"7. We have carefully perused the rival
submissions and perused the case records. The first
and foremost controversy that arises for adjudicatin
is on the scope and ambit of assessment proceedings
under S.153A of the Act. The case propounded on
behalf of the assessee that additions / disallowances
made in Section 153A proceedings has no rational
connection with incriminating material, if any, found
as a result of search remains undisputed. It is also
not dispute that assessment pertaining to the
assessment years in question viz. Ays. 1999-2000
and 2000-01 stood concluded either under S.143(1)
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or under s.143(3) of the Act and were not pending at
the time of search. In the backdrop of these facts,
we straightway notice that the scope of assessment
under s.153A of the Act in respect of completed
assessment is circumscribed by the condition that
the additions / disallowances must have some
bearing with the incriminating material detected in
the course of search. The scope of assessment under
s.153A of the Act in respect of concluded
assessment is thus narrower in its sweep as held in
long line of judicial precedents including the
decision rendered by the Hon'ble Gujarat High
Court in Saumya Construction (supra), PCIT vs.
Deepak J Panchal (2017) 397 ITR 0153 (Guj), CIT vs.
deepakkumar Agrawal (2017) 398 ITR 586 (Bombay)
& Priya Holdings Pvt. Ltd. vs. ACIT (2018) 90
taxmann.com 408 (Ahd). We also note that the
Hon'ble Delhi High Court in Pr. CIT vs. Meeta
Gutgutia (2017) 82 taxmann.com 287 (Delhi)
expressed the same view, the SLP against which
filed by the revenue was dismissed as reported in
(2018) 96 taxmann.com 468 (SC). In the light of the
consistent view by higher judicial forum, the
position of law is explicitly clear. In the absence of
any connection with the incriminating material, the
additions / disallowances in respect of concluded
assessments prior to initiation of search are not
permissible in law.
8 In the absence of any incriminating materials
shown to be found in the course of search, the
action of the AO is contrary to the position of law
judicially enumerated. Therefore, where the
additions / disallowance itself are unsustainable and
bad in law, the controversy cropped up in the
respective appeals of both sides on merits of
additions / disallowances is rendered noest. In the
light of the aforesaid transactions, the additions /
disallowances made in assessment framed under
s.153A of the Act is devoid of any legitimacy. Under
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the circumstances, the additional ground raised by
the assessee is allowed and the appeal of the
Revenue is dismissed at the threshold as the action
of the AO itself suffers from lack of jurisdiction. The
order of the CIT(A) is accordingly set aside and the
AO is directed to cancel the additions /
disallowances made without reference to the
incriminating material."
4 As seen, the ITAT relied upon the decision of this
Court in the case of CIT (Pri) Vs. Saumya
Construction (P) Ltd, reported in (2016) 387 ITR 529
(Guj.). The Hon'ble Supreme Court in the case of Pr.CIT
vs. Abhisar Buildwell (P) Ltd, reported in (2023)
2154 ITR 212 (SC) while approving held as under:
"We have heard learned counsel for the respective
parties at length.
The question which is posed for consideration in the
present set of appeals is, as to whether in respect of
completed assessments/unabated assessments,
whether the jurisdiction of AO to make assessment
is confined to incriminating material found during
the course of search under Section 132 or
requisition under Section 132A or not, i.e., whether
any addition can be made by the AO in absence of
any incriminating material found during the course
of search under section 132 or requisition under
Section 132 A of the Act, 1961 or not.
It is the case on behalf of the Revenue that once
upon the search under Section 132 or requisition
under Section 132A, the assessment has to be done
under Section 153A of the Act, 1961 and the AO
thereafter has the jurisdiction to pass assessment
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orders and to assess the 'total income' taking into
consideration other material, though no
incriminating material is found during the search
even in respect of completed/unabated assessments.
At the outset, it is required to be noted that as such
various High Courts, namely, Delhi High Court,
Gujarat High Court, Bombay High Court, Karnataka
High Court, Orissa High Court, Calcutta High Court,
Rajasthan High Court and the Kerala High Court
have taken the view that no addition can be made in
respect of completed/unabated assessments in
absence of any incriminating material. The lead
judgment is by the Delhi High Court in the case of
Kabul Chawla (supra), which has been subsequently
followed and approved by the other High Courts,
referred to hereinabove. One another lead judgment
on the issue is the decision of the Gujarat High
Court in the case of Saumya Construction (supra),
which has been followed by the Gujarat High Court
in the subsequent decisions, referred to
hereinabove. Only the Allahabad High Court in the
case of Pr. Commissioner Of Income Tax v.
Mehndipur Balaji, 2022 SCC OnLine All 444 : (2022)
447 ITR 517 has taken a contrary view.
7.1 In the case of Kabul Chawla (supra), the Delhi
High Court, while considering the very issue and on
interpretation of Section 153A of the Act, 1961, has
summarised the legal position as under:
"Summary of the legal position
38. 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 153A(1) will
have to be mandatorily issued to the person
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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 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
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'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 153 A 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."
7.2 Thereafter in the case of Saumya Construction
(supra), the Gujarat High Court, while referring the
decision of the Delhi High Court in the case of Kabul
Chawla (supra) and after considering the entire
scheme of block assessment under Section 153A of
the Act, 1961, had held that in case of completed
assessment/unabated assessment, in absence of any
incriminating material, no additional can be made by
the AO and the AO has no jurisdiction to re-open the
completed assessment. In paragraphs 15 & 16, it is
held as under:
"15.On a plain reading of section 153A of the
Act, it is evident that the trigger point for
exercise of powers thereunder is a search
under section 132 or a requisition under
section 132A of the Act. Once a search or
requisition is made, a mandate is cast upon the
Assessing Officer to issue notice under section
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153A of the Act to the person requiring him to
furnish the return of income in respect of each
assessment year falling within six assessment
years immediately preceding the' assessment
year relevant to the previous year in which
such search is conducted or requisition is made
and assess or reassess the same. Since the
assessment under section 153A of the Act is
linked with search and requisition under
sections 132 and 132A of the Act, it is evident
that the object of the section is to bring to tax
the undisclosed income which is found during
the course of or pursuant to the search or
requisition. However, instead of the earlier
regime of block assessment whereby; it was
only the undisclosed income of the block period
that was assessed, section 153A of the Act
seeks to assess the total income for the
assessment year, which is clear from the first
proviso thereto which provides that the
Assessing Officer shall assess or reassess the
total income in respect of each assessment
year, falling within such six assessment years.
The second proviso makes the intention of the
Legislature clear as the same provides that
assessment or reassessment, if any, relating to
the six assessment years referred to in the sub-
section pending on the date of initiation of
search under section 132 or requisition under
section 132A, as the case may be, shall abate.
Sub-section (2) of section 153A of the Act
provides that if any proceeding or any order of
assessment or reassessment made under sub-
section (1) is annulled in appeal or any other
legal provision, then the assessment or
reassessment relating to any assessment year
which had abated under the second proviso
would stand revived. The proviso thereto says,
that such revival shall cease to have effect if
such order of annulment is set aside. Thus, any
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proceeding of assessment or reassessment
falling within the, six assessment years prior to
the search or requisition stands abated and the
total income of the assessee is required to be
determined under section 153A, of the Act.
Similarly, sub- section (2) provides for revival
of any assessment or reassessment which stood
abated, if any proceeding or any order of
assessment or reassessment made under
section 153A of, the Act is annulled in appeal
or any other proceeding.
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 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
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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) v. Asst. CIT
(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."
For the reasons stated hereinbelow, we are in
complete agreement with the view taken by the
Delhi High Court in the case of Kabul Chawla
(supra) and the Gujarat High Court in the case of
Saumya Construction (supra), taking the view that
no addition can be made in respect of completed
assessment in absence of any incriminating
material."
5 In the case on hand before us, the proceedings were
pursuant to a notice u/s. 153A of the Act and the Tribunal
found that in all appeals there was no rational connection
or live link with the material found during search. The
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assessments had stood concluded. Therefore, as held in
the case of Abhisar Buildwell (supra), since the
assessment should be connected with something found
during the search, the questions raised in this appeal are
answered squarely by the Hon'ble Supreme Court in the
case of Abhisar Buildwell (supra), and therefore,
should not detain us longer.
6 The Tax Appeal is accordingly, dismissed with no
orders as to costs.
(BIREN VAISHNAV, J)
(BHARGAV D. KARIA, J)
BIMAL
