ITA NO. 3996/Del/2011
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "B", NEW DELHI
BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER
AND
SHRI L.P. SAHU, ACCOUNTANT MEMBER
I.T.A. No. 3996/DEL/2011
A.Y. : 2003-04
ACIT, CC-2 M/S DELHI HOSPITAL SUPPLY
NEW DELHI VS. PVT. LTD.,
101, PAL MOHAN SADAN,
26/32, EAST PATEL NAGAR,
NEW DELHI
(PAN: AAACD2901Q)
(APPELLANT) (RESPONDENT)
Department by : Md. Mohsin Alam, CIT(DR)
Assessee by : Sh. Salil Aggarwal, Adv. &
Sh. Shailesh Gupta, Adv.
Date of Hearing : 10-09-2015
Date of Order : 01-10-2015
ORDER
PER H.S. SIDHU : JM
The Revenue has filed the present appeal against the
impugned Order dated 06/6/2011 passed by the Ld. Commissioner
of Income Tax (Appeals)-III, New Delhi for the asstt. year 2003-04
on the following grounds:-
1. On the facts and in the circumstances of the
case, the CIT(A) has erred in law and on facts
in deleting the addition of Rs.14,98,653/-
made by the Assessing Officer on account of
unexplained investment in office flat.
2. On the facts and in the circumstances of the
case, the CIT(A) has erred in law and on facts
in deleting the disallowance of Rs.4,400/-
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ITA NO. 3996/Del/2011
made by the Assessing Officer u/s 40A(3)
out of medical allowances.
3. On the facts and in the circumstances of the
case, the CIT(A) has erred in law and on facts
in deleting the disallowance of Rs.36,200/-
made by the Assessing Officer out of
conveyance expenses.
4. On the facts and in the circumstances of the
case, the CIT(A) has erred in law and on facts
in deleting the disallowance of Rs.50,611/-
made by the Assessing Officer out of
travelling expenses.
5. On the facts and in the circumstances of the
case, the CIT(A) has erred in law and on facts
in deleting the disallowance of Rs.15,250/-
made by the Assessing Officer out of
miscellaneous expenses.
6. On the facts and in the circumstances of the
case, the CIT(A) has erred in, law and on facts
in deleting the disallowance of Rs.19,100/-
made by the Assessing Office 'out of
telephone and telex expenses.
7. On the facts and in the circumstances of the
case, the CIT(A) has erred in law and on facts
in deleting the disallowance of Rs.17,000/-
made by the Assessing Officer out of Vehicle
running and maintenance expenses.
8. On the facts and in the circumstances of the
case, the CIT(A) has erred in law and on facts
in deleting the disallowance of Rs.20,000/-
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ITA NO. 3996/Del/2011
made by the Assessing Officer out of vehicle
depreciation expenses.
9. On the facts and in the circumstances of the
case, the CIT(A) has erred in law and on facts
in holding that no disallowance can be made
to the income of the appellant u/s 153A of the
Act which is not based on any incriminating
material found and seized during the search.
10. The order of the Ld. CIT(A) is erroneous and is
not tenable on facts and in law.
11. The appellant craves leave to add, alter or
amend any / all of the grounds of appeal
before or during the course of the hearing of
the appeal."
2. The brief facts of the case are that the assessee is a private
limited company incorporated on 20.2.1995 and, is engaged in the
business of trading, servicing and indenting of hospital equipments.
For the instant assessment year 2003-04, assessee had filed return
declaring an income of Rs. 15,30,710/- on 2.12.2003 which was as
such accepted. Thereafter, search was carried on 14.2.2008 at the
business premises of the assessee company and, notice u/s. 153A of
the Act was issued on 15.1.2009. In compliance, a return of income
was filed by the assessee company on 9.2.2009 declaring income of
Rs. 15,30,710/-. The AO however, vide order u/s. 143(3)/153A dated
29.12.2009 determined the income of the assessee company at Rs.
31,91,924/-.
3. Against the aforesaid assessment order dated 29.12.2009,
assessee preferred an appeal before the Ld. CIT(A), who vide
impugned order dated 6.6.2001 has allowed the appeal of the
assesee.
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ITA NO. 3996/Del/2011
4. Aggrieved with the order of the Ld. CIT(A), the Revenue is in
appeal before us.
5. At the time of hearing, Ld. DR relied upon the order of the AO
and reiterated the contentions raised in the Grounds of Appeal.
5.1 On the contrary, Ld. Counsel of the assessee stated that the
issue in dispute is squarely covered in favor of the assessee by the
decision dated 28.8.2015 of the Hon'ble Jurisdictional High Court
passed in the case CIT(Central)-III vs. Kabul Chawla in ITA No. 707,
709, 713/Del/2014 wherein the Hon'ble High Court has held that if
the additions are made, but not based on any incriminating material
found during search operation, then these additions are not
sustainable in the eyes of law.
6. We have heard both the counsel and perused the relevant
records available with us, especially the orders of the revenue
authorities. We find that Ld. CIT(A) had adjudicated the legal issue
as well as the issues on merits vide para no. 7 to 7.5 at pages 9 to
15. For the sake of convenience, we are reproducing the relevant
findings of the Ld. CIT(A) as under:-
"7. I have considered the facts of the appellant,
material placed on record and, order of assessment. It is
evident from the assessment order that the AO has made
the. impugned disallowances which is not based on any
incriminating document/ material found during the course
of search. On this issue the Kolkata Bench of ITAT has
held the following in the case of LMJ International Ltd. vs.
DCIT .119 TTJ 214, which is as under:-
"Where nothing incriminating is found in the course of
search relating to any assessment years, the
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ITA NO. 3996/Del/2011
assessments for such years cannot be disturbed; items of
regular assessment cannot be added back in the
proceeding under s. l53C when no indiscriminating
documents were found in respect of the disallowed
amounts in the search proceedings."
Also, Visakhapatnarn Bench in the case of KGR Exports
vs. JCIT in ITA No. 494IV /2007 held as under:-
"Since section 153A overrides provisions of section 147 of
and 148 can it be the intention of the legislature to give
enormous powers on the Assessing Officer for opening a
completed assessment time and again? In our opinion,
the legal restrictions and conditions prescribed for
reopening the assessment still applies to the cases
reopened u/s 153A. The intention of the legislature could
not have been otherwise lest it should lead to
unnecessary harassment upon the assessee's. Though
the completed assessments can be reopened under
Section 153, the issues which have already been
concluded in the earlier assessments should not be
subject matter of reassessment unless some
incriminating material concerning those issues were
found during the course of search. Otherwise, in the
concluded assessments which have been reopened u/s
153A, the assessing officer should restrict himself with
the additions arising out of the incriminating materials
found during the course of search."
Ahmadabad bench in the case of Meghmani
Organics Ltd. has held as under:-
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ITA NO. 3996/Del/2011
"The meaning of assessment/reassessment does not
always mean taking recourse to the whole procedure laid
down in the Act for computing the tax liability. It is
possible to effect reconciliation of the two provisos
appended to s. 153A by restricting the meaning of the
term 'assess or reassess' appearing in the first proviso.
After the search, the total income of the assessee is to be
recomputed on the basis of the undisclosed income
unearthed during search and the same is to be added
with the regular income assessed under s. 143(3) or
computed under s. 143(1) for each of the six preceding
assessment years. Where any prepaid taxes are there,
the same are required to be given credit, for computing
the further tax payable by the assessee. The assessee is
also required to pay interest under ss. 234A and 234B on
the tax due on the basis of new calculation. Where
nothing incriminating is found in the course of search
relating to any assessment years, the assessments for
such years cannot be disturbed. The construction that the
Department seeks to place on the impugned provisions
would lead to serious hardship, inconvenience, injustice,
absurdity and anomaly. Suppose, in the course of a
search, nothing incriminating was found. Does this mean
that an honest citizen be unduly harassed by facing
automatic reopening of the concluded assessments
merely because there was search action against him?
The absurdity of the construction gets all the more
pronounced when say, no incriminating material is found
relating to the 'other person' but the material found
indicates disclosed income. Suppose, loan confirmations
relating to loans duly disclosed in the return of income of
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ITA NO. 3996/Del/2011
A are found at the time of search in the premises of B,
Should the assessments of A be reopened for all the six
preceding years merely because search action has been
initiated against B? In selecting out of different
interpretations, the Courts shall adopt that which is just,
reasonable and sensible rather than that which is none of
those things. One may also refer to CBDT Circular No. 7
of 2003, dt. 15th Sept., 2003. A reading of the circular
clearly indicates that the appeal, revision etc. arising out
of earlier assessments shall not abate. In other words,
there is no merger of the earlier assessments with the
assessments done under the new scheme, i.e., s. 153A or
153C."
Further, following the decision of Delhi Bench of
Tribunal in the case of Anil Kumar Bhatia vs. ACIT, it has
been held by Murnbai Bench in the case of Anil P.
Khemani as under:
"13. A perusal of the assessment orders in all these
cases, clearly demonstrate that the sole addition in
question is on account of low withdrawals. This had not
been made, based on any material found either during
the course of search or during the course of assessment
proceedings. Under the circumstances, we examine the
legal position. The Delhi Bench of the Tribunal in the case
of Anil Kurnar Bhatia vs. AC[T held as follows:-
"S. 153A provides that where a search is initiated
uls 132 the AO shall "assess or reassess the total
income of six assessment years immediately
preceding the assessment year" relevant to the
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ITA NO. 3996/Del/2011
previous year in which the search is conducted or
requisition is made. The first proviso states that the
AO shall "assess or reassess the total income in
respect of each assessment year falling within such
six assessment years" while the second proviso
state that the assessment or reassessment relating
to the said six assessment years "pending" on the
date of initiation of the search under section 132
shall "abate". In the assessee's case, search action
was initiated and assessments under s. 153A were
framed for six assessment years making various
additions. The assessee claimed that the additions
were not tenable regular returns had been filed
where the particulars relating to the additions had
been disclosed and the and the same had been
accepted uls 143(I) and also that no material had
been found during the search to justify the
additions. The revenue claimed that the effect of
the provisos to s. 153A was that all assessments
abate and there had to be a de novo assessment in
which the AO was not confined to the material
found during the search. Held rejecting the claim of
the Revenue.
(i) S. 153A does not authorize the making of a de
novo assessment. While under the 1st Proviso, the
AO is empowered to frame assessment for six
years, under the 2nd Proviso, only the assessments
which are pending on the date of initiation of search
abate. The effect is that complete assessments do
not abate. There can be two assessments for the
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ITA NO. 3996/Del/2011
same assessment year. Assessments which are not
pending before the AO on the date of search but are
pending before an appellate authority will survive.
(ii) An assessment can be said to be "pending" only
if the AO is statutorily required to do something
further. If a s.143(2) notice has been issued, the
assessment is pending. However, the assessment in
respect of a return processed u/s 143(I) is not
"pending" because the AO is not required to do
anything further about such a return.
(iii) The power given by the Proviso to "assess"
income for six assessment years has to be confined
to the undisclosed income unearthed during search
and cannot include items which are disclosed in the
original assessment proceedings.
(iv) On facts, s the returns had been processed u/s
143(I), the assessments were not "pending" and as
no material was found during the search, the
additions could not be sustained. "
Respectfully following the same, we delete all
the additions made and allow the appeals of the
assessee."
Finally, Mumbai Bench in the case of Guruprerna
Enterprises vs. Asstt. CIT in ITA No. 255, 256 and
257/Mum/20 I 0 for Assessment Years 2003-04, 2004-05
and 2005-06 dated 07.01.20 11 after noticing the case of
M/s Viraj Forgins Ltd. vs. DCIT in ITA No. 1945/M/200S
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ITA NO. 3996/Del/2011
and, M/s Viraj Impoexpo Ltd. vs. DCIT in ITA No.
1949/M/200S held as follows:
"4.2 We have perused the records and considered
the rival contentions carefully. The legal dispute
raised in this ground is whether issues considered
and decided in the regular assessment can be re-
considered in an assessment proceedings initiated
under section 153A. In case of search, the AO under
section 153A is empowered to issue notices to the
searched person requiring him to furnish the return
of income in, respect of each assessment year
falling within the six assessment years immediately
preceding the assessment year relevant to the
previous year in which search is conducted or
requisition is made. Further the second proviso to
section 153A also provides that assessment or re-
assessment relating to any assessment year falling
within the period of six assessment years referred
to above pending on the date of initiation of search
under section 132 or making of requisition under
section 132A as the case may be shall abate.
Normally, the assessments which are pending in
appeal or in revision cannot be said to be complete
and therefore assessment/re-assessment pending in
appeal/revision could also to be considered as
pending on the date of search but the CBDT in the
circular NO.7 of2003 dated 5.9.2003 has clarified
that appeal, revision or rectification proceedings
pending on the date of initiation of search under
section 132 will not abate. In other words, only the
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ITA NO. 3996/Del/2011
assessments pending before the Assessing Officer
for completion shall abate. In this case there is no
dispute that on the date of search, the assessment
in the case of assessee had already been completed
by the AO and in terms of the Circular of the CBDT,
the regular assessment made in the case of the
assessee will not abate. Therefore, in our view the
points/ issues decided in the assessment cannot be
re-considered in the proceedings under section
153A unless there is some fresh material found
during the course of search in relation to such
points/ issues.
4.3 In this case the claim of deduction under
section 80HHC had already been decided by the
Tribunal in the appeal against regular assessment
for A. Y .2001-02 and no fresh material had been
found during the course of search in relation to
allowability of deduction under section 80HHC.
Therefore we agree with the submission of the
Learned AR that the claim of deduction under
section 80HHC cannot be considered afresh in the
proceedings under section 153A. The Learned DR
has relied on the decision of the Tribunal in case of
Shivnathrai Harnarayan India (Pvt) Ltd. (supra) but
the said case in our view is distinguishable. In that
case, the Tribunal held that any assessment or
reassessment proceedings initiated by the AO which
are pending on the date of initiation of search, the
same shall abate and AO cannot proceed with such
pending assessment. Thus as per the decision of the
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ITA NO. 3996/Del/2011
Tribunal, only the assessment/reassessment
.proceedings pending before AO shall abate. The
issue whether the assessment already completed
by AO and pending in appeal or revision will also
abate was not before the Tribunal."
In view of above decisions of the coordinate
Bench, we have to necessarily hold that only the
assessments pending before the AO for completion
shall abate and that under section 153A the issues
decided in the assessment cannot be reconsidered
and readjudicate, unless there is some fresh
material found during the course of search in
relation to such points. As in this case, the
undisputed fact is that, there is no incriminating
material found or seized in the search, the ground
of the assessee has to be accepted by respectfully
following the order of the Coordinate Bench.
Though on the legal issue, we have decided in
favour of the assessee, as the case was heard at
length on merits we adjudicate the same."
7.1 From the aforesaid decision, it is evident that, it
has been consistently held that, in absence of any
material found as a result of search, no
disallowance/addition can be made in assessment
u/s 153A of the Act. In the instant case too, all the
disallowances made are routine disallowances for
which no material was found even as a result of
search. Therefore, respectfully following the above
decisions. the total addition made for Rs.
16,61,214/- is directed to be deleted.
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ITA NO. 3996/Del/2011
7.2 Also, even addition of Rs. 14,98,653/-
representing alleged unexplained investment in flat
has been made without referring to any material
found as a result of search and as such even the
same is without jurisdiction. Apart from the above,
event otherwise, the same is based on factual
misconception, as would be evident from the
tabular chart hereunder:
Sr. No. Particulars Amount (In Rs.)
i) Transfer from factory 4,74,950/-
building as cost debited (page 16 of the
the factory building Paper)
account in the preceding
year.
ii) Transfer from head 4,74,950/-
advance for flat as cost (page 16 of the
debited in advance for flat Paper)
account in the preceding
year.
iii) Fresh investment during 4,29,275/-
the year. (Page 54 of the
Paper Book)
Total 14,98,653/
7.5 I am in agreement with the submission of the
counsel that, the above transfer entries have been
accepted by Assessing Officer while computing
depreciation on factory building/loss on sale of flat.
Hence, it is held that, investment made stands duly
explained, and as such, the addition made for Rs.
14,98,653/- is not tenable and therefore is directed to be
deleted.
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ITA NO. 3996/Del/2011
Regarding the disallowances made totaling to Rs.
1,62,561/- under the head medical allowance,
conveyance expenses, travelling expenses,
miscellaneous expenses, telephone and telex expenses,
vehicle running and maintenance expenses and vehicle
depreciation is concerned, the appellant has submitted
that the AO has made all these disallowances holding
that no proof in form of vouchers in support of such claim
has been produced with respect to these expenses
debited in the books of accounts. The appellant has in his
paper book inter alia stated that complete details of such
expenses duly supported by necessary bills / vouchers
had been filed before the AO in the course of assessment
proceedings. Copy of ledger accounts of these expenses
have also been filed through the paper book and has
submitted that in the absence of any basis given by the
AO for making the disallowances, the same is not
tenable. Reliance in this regard has been placed on the
decision in case of State of Orissa vs. Maharaja Shri BP
Singh Deo 76 ITR 690 (SC); Goodyear India Ltd. vs. ITO 73
ITD 189 (Del.); Hughes Escorts Communications Ltd. vs.
JCIT 106 TTJ 1065 (Del.) among other cases. The
appellant has placed a comparative chart to establish
that expenditure has been incurred for the purpose of
business of the appellant company in each of the year
under consideration and no disallowance has been made
in the past that is prior to framing of the impugned
assessments for AY 2002-03 to 2008-09. Further it is
settled law that a company does not have any personal
expenditure as held in the cases of DCIT vs. Haryana
Oxygen ltd., 76 ITD 32 (Del); Sayaji Iron and Engg. Co. vs.
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ITA NO. 3996/Del/2011
CIT 253 ITR 749 (Guj.); Dinesh Mills Ltd. vs. CIT 173 478
(Guj.)
I have carefully gone through the submissions and the
copy of the ledger account and comparative chart filed by
the appellant who has contested the disallowance made
as also the case laws relied upon by the appellant. It is
noted that no specific instance has been pointed out by
the AO for making the disallowances, which makes the
disallowances adhoc in nature. In view of the above the
total disallowance made for Rs. 1,62,561/- is directed to
be deleted as it is not sustainable even on merits."
7. Keeping in view of the aforesaid findings given by the Ld.
CIT(A), we are of the considered view that Ld. CIT(A) has rightly held
that in the absence of any material found during the search, as a
result, no disallowance / additions can be made in the assessment
u/s. 153A of the I.T. Act. Even otherwise, we find force in the Ld.
Counsel's submissions that the issue in dispute is also covered by
the decision of the Hon'ble Jurisdictional High Court in the case of
CIT(Central)-III vs. Kabul Chawla in ITA No. 707, 709, 713/Del/2014
wherein the Hon'ble High Court has held that if the additions are
made, but not based on any incriminating material found during
search operation, then these additions were not sustainable in the
eyes of law. In our considered opinion, the Ld. CIT(A) has rightly
adjudicated the issue in dispute and accordingly rightly deleted the
additions in dispute. Keeping in view of the above discussion, we
uphold the Ld. CIT(A)'s order which is a well reasoned order and
therefore, the same does not need any interference on our part and
also by respectfully following the decision of the Hon'ble
Jurisdictional High Court in the case of CIT(Central)-III vs. Kabul
Chawla (Supra), we are of the view that Ld. CIT(A) has rightly
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ITA NO. 3996/Del/2011
deleted the additions in dispute. Accordingly, the issues in dispute
are decided against the Revenue and in favour of the Assessee.
8. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the Open Court on 01/10/2015.
Sd/- Sd/-
[L.P. SAHU] [H.S. SIDHU]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Date 01/10/2015
"SRBHATNAGAR"
Copy forwarded to: -
1. Appellant -
2. Respondent -
3. CIT
4. CIT (A)
5. DR, ITAT
TRUE COPY
By Order,
Assistant Registrar, ITAT, Delhi Benches
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