M/S Reliance Granite Private Limited, , ... vs Assessee

S.No. ITA No. AY Appellant Respondent 1 1071/H/14 2003-04 Dy. Commissi-oner M/s Reliance of Income-tax, Granite Pvt. Ltd., Central Circle - 7, Hyderabad.

Hyd. PAN - AABCR1369P 2 1072/H/14 2004-05 -do- -do- 3 1073/H/14 2005-06 -do- -do- 4 1074/H/14 2007-08 -do- -do- 5 1278/H/14 2003-04 M/s Reliance Asst. Commissi- Granite Pvt. Ltd., oner of Income- Hyderabad. tax, Central PAN-AABCR1369P Circle - 7, Hyd. 6 1279/H/14 2004-05 -do- Asst. Commissi- oner of Income- tax, Central Circle - 7, Hyd. 7 1280/H/14 2005-06 -do- -do- 8 1281/H/14 2006-07 -do- -do- 9 1282/H/14 2007-08 -do- -do- 10 1283/H/14 2008-09 -do- -do- 11 1284/H/14 2009-10 -do- -do-

Revenue by Shri Rajat Mitra Assessee by Shri P. Murali Mohan Rao

Date of hearing 06-01-2015 Date of pronouncement 14-01-2015

O RDE R

PER BENCH:

These are bunch of 11 appeals relating to same assessee. While there are cross appeals by revenue and assessee for AYs 2003-04, 2004-05, 2005-06 and 2007-08, appeals for the AYs 2006- 07, 2008-09 & 2009-10 are by assessee alone. Though ld. CIT(A) for later three assessment years also has held that the additions made in 2 ITA Nos.107 1/Hyd/201 4 an d others M/s Reliance Granit e Pvt. Ltd.

absence of incriminating materials cannot be upheld, but, the department has not preferred appeal against such orders of ld. CIT(A).

2. We will first deal with the appeals preferred by the Department numbered as ITA Nos. 1071, 1072, 1073 & 1074/Hyd/2014. Common grounds raised by the department in all these appeals, are as under:

"1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the additions by following the ratio laid down in the case of All Cargo Global Logistics 137 ITD 287 without going into the merits of the issues.

2. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the AO be restored."

3. As facts are more or less identical in all these appeals, for the sake of brevity, we will deal with the facts as involved in ITA No. 1071/Hyd/14 for AY 2003-04.

4. Briefly the facts are, assessee a company is engaged in the business of manufacturing and trading of granite slabs, processed blocks and marble slabs/tiles, etc. For the AY under consideration, assessee filed its return of income originally on 29/10/2012 declaring loss of Rs. 67,54,270. Assessment in case of assessee was also completed u/s 143(3) vide assessment order dated 24/03/2005 determining the total income at Rs. 1,07,09,372. It is also mentioned by AO in the assessment order that assessee preferred appeal against the said assessment order before ld. CIT(A) and being unsuccessful there has gone in further appeal before the ITAT, which is still pending. Be that as it may, a search and seizure operation u/s 132 of the Act was conducted in case of M/s Midwest Granite (P) Ltd. and others in the group on 24/07/2008. As a consequence of such search operation, as noted by AO in the assessment order, notices u/s 15A were issued to assessee on 17/07/2009 calling for returns of income for the AYs 2003-04 to 2008-09. In response to the said 3 ITA Nos.107 1/Hyd/201 4 an d others M/s Reliance Granit e Pvt. Ltd.

notice, assessee filed its return of income for the assessment year 2003-04 on 13/10/2009 declaring total income of Rs. 1,41,38,954. Similarly, returns were also filed for AYs 2004-05 to 2008-09. AO, ultimately, completed the assessment u/s 143(3) read with section 153A of the Act vide assessment order dated 19/08/2011 by making a number of additions, as a result of which income before set off of brought forward losses and unabsorbed depreciation was determined at Rs. 1,58,72,796, which was computed to 'NIL' figure after allowing brought forward losses and unabsorbed depreciation. AO, however, computed book profit at Rs. 107,09,372 without allowing any deduction u/s 80HHC. Being aggrieved of the assessment order, so passed, assessee preferred appeal before ld. CIT(A).

5. In course of hearing of appeal before ld. CIT(A), assessee raised additional grounds challenging the assessment order passed and additions made in absence of incriminating/seized materials.

6. Ld. CIT(A) after considering the submissions of assessee and following the ratio laid down in a number of decisions including the decision of ITAT, Mumbai Special Bench in case of All Cargo Global Logistics Pvt. Ltd. Vs. DCIT, 137 ITD 287 decided the issue in favour of assessee by holding as under:

"4.5 Perused the submissions of the appellant, with specific reference t the issues raised through additional grounds, which was mainly relied upon the judicial decisions, more particularly in the case of All Cargo (,obal Logistics Pvt. Ltd., by Special Bench of Mumbai ITAT reported in 137 ITD

287. Before getting into the judicial decision, it is pertinent to look into the relevant law on this issue, which is Section 153C as applicable to the facts of the case where search was conducted in the case of M/ . Midwest Granites Pvt. Ltd and based on certain findings, proceedlnq: u/s. 153C initiated in this case.

153C. Assessi ent of income of any other person.

[1] Notwithsta .ding anything contained in section 139, section 4 ITA Nos.107 1/Hyd/201 4 an d others M/s Reliance Granit e Pvt. Ltd.

147, section 148, section 149, section 151 an section 153, where the Assessing Officer is satisfied that any money, bullion, jewellery or ( her valuable article or thing or books of account or documents seized or requisitioned 1 .longs or belong to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153 A.]

[Provided that n case of such other person, the reference to the date of initiation of the search under section 32 or making of requisition under section 132A in the second proviso to [sub- section (1) of section 153A] shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person.]

[Provided further that the Central Government may by rules made by it and published in the Official Gazette, specify the class or classes of cases in respect of such other person, in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made except in cases where any assessment or reassessment has abated.]

[(2) Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other pc: .on after the due date for furnishing the return of income for the assessment year relevant 0 the previous year in which search is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year --

a) no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or

(b) a .turn of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub-section (2) of section 143 has expired, or 5 ITA Nos.107 1/Hyd/201 4 an d others M/s Reliance Granit e Pvt. Ltd.

(c) assessment or reassessment, if any, has been made, before the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person, such Assessing Officer shall issue the notice and assess or reassess total income of such other person of sue assessment year in the manner provided in section 153A.]

4.6 As could be seen from the language used, the basis for initiation of proceedings u/s. 153C is the information /valuables/documents seized belonging to persons other than covered u/s 153A. As could be seen from the assessment order under reference, here is no indication as to the information on the valuables / documents seized during from the search proceedings conducted in the case of MJ '. Midwest Granites (P) Ltd(MGPL), and it's directors, and no such valuables or documents relatable/belong to the assessee. As could be seen fn m the assessment order, no addition was made based on the incriminating material found during the course of search proceedings conducted in case of MGPL , which is an associate concern of the assessee company. There are catena of judicial decisions wherein it has been held that additions made in course of assessment proceedings u/s. 153A should be derived from the incriminating material found during the course of search. The assessment proceedings u/s. 153C are also considered as proceeding u/s. 153A, since 153C is read with Sec. 153A.

4.7 (i) In the case of LMJ International Ltd., Hon'ble ITAT Kolkata, observed t at the items of regular additions cannot be taken up in the assessrnent u/s. 153A/153C. The head note in the case read as under:

'Section l53C, read with Section 153A, of the Income-tax Act,1 961, search and seizure - assessment of income of any other person - assessment year 1990-00 - whether items of regular assessment can be added back in proceedings under section 153C - Held, no - whether only undisclosed income detected in course of search of searched person or any other person can be added and charged to tax under section 153C - Held, yes."

While deciding the issue the Hon'ble Tribunal referred to the decision of Hon'ble HigH Court of Jharkhand in the case of Abhay Kumar Shroff Vs. CIT (290 ITR 114)

ii) In the case of KG Exports Vs. JCIT (ITA No. 494/V/2007), Hon'ble ITA , was of the view that only undisclosed income can be assessed u/ . 153A of the Income-tax Act. The relevant portion of the order run as nder:

6 ITA Nos.107 1/Hyd/201 4 an d others M/s Reliance Granit e Pvt. Ltd.

In view of the foregoing, we are of the opinion that when no incriminating material is found during the course of search, the assess I g officer cannot make any addition on issues which have already been concluded even when the assessments were reopened by virtue of provisions of Sec. 153A. In such cases, the assessing officer has to complete such assessments without making any further addition. Hence, the second issue urged before us is answer d in favour of the assessee. "

(iii) A imilar view was taken by the Hon'ble ITAT, Hyderabad, in the case of Platina Properties Projects Ltd in ITA No. 1622, 1623, 573 to 576/Hyd/2001. The relevant portion of the order runs as under:

"....the present assessment is made u/s. 143(3) r.w.s.153A rw.s. 153C of the Act. The second proviso of sub section 1 to section provides that if assessment for any of the assessment year falling within a period of 6 years mentioned in clause (b) of Section 153A(1), is pending on the date of search, it shall abate. The present assessment year is 1999- 2000 which is falling within the period of 6 years but its assessment is complete and hence the proceedings do not abate. In other words the original assessment was made u/s. 143(3) has become final and is not affected by the second proviso to section 153A. Of course, the present assessment is a case falling u/s. 153C, but then, as per sub section (2) of section 153C, this assessment was also to be done in the manner provided in section 153A. Therefore, the second proviso to section 153A i pp lies equally to the cases falling u/s. 153C. What follows is that the assessment now to be done is to be confined to the material found in the course of search only. The additions/disallowances made in the regular assessment cannot be repeal d in the assessment to be made u/s. 153C of the Act unless fresh, material has been unearthed in course of search in respect of those additions/disallowances..... "

(iv) HI n'ble Special Bench of ITAT, Mumbai, in the case of All Cargo Global Lo91 tics (137 ITD 287), while dealing on the issue more elaborately, has categorically held that additions to the income that has already been assessed, the assessment u/s. 153A will be made on the basis of incriminating material. The essential observations of the order run as under :

"In assessments that are abated, the AO retains the original jurisdiction as well as jurisdiction conferred on him u/s. 153A for which assessments shall be made for each of the 7 ITA Nos.107 1/Hyd/201 4 an d others M/s Reliance Granit e Pvt. Ltd.

six assessment years separately;

(b) In other cases, in addition to the income that has already been assess I d, the assessment u/s. 153A will be made on the basis of incriminating material, which in the context of relevant provisions means

(i) books of account, other documents, found in the course of search but not produced in the course of original assessment, and (ii) undisclosed income or property discovered in the course of search."

4.8 Further, on the said issue similar views were echoed from the following decisions of various Tribunals and High Courts.

(i) Jai Steels (P) Ltd. Vs. CIT (88 ITR 1 (Raj.) (2013)

(ii) ACIT Vs. Prathibha Industries ( 28 Taxmn.com 246 ITAT, Bom)

In the case of ACIT Vs. Prathibha Industries Ltd. (supra), the decision of Special Bench, Bombay, in the case of All Cargo Global Logistics Ltd was followed, and it has been held that in cases where assessments are completed or time limit for issue of notices u/s. 143(3) have expired and no incriminating material has been found, the assessments have to be completed at NIL income. This view was also entertained in the case of Mr. Vikram Khandelwal Vs. DCIT (ITA No. 1976, 1977 and 3896/Mum 2009 order dtd. 18.3.2013.)

In the case of Jai Steels (P) Ltd Vs. CIT (supra), it has been held that, it is not open f .r assessee to seek deduction or claim expenditure which has not been claimed in original assessment, which already stands completed only because an assessment under section 153A/153C of the Act, in pursuance of search or requisition, is required to be made.

Vide the at eve discussion and decided case laws, it has been decided that jurisdiction in search cases is two way; i) one in case of concluded assessment whether under section 143(3) or 143(1), where date of issue of notice u s. 143(2) has expired and ii) the other in respect of pending assessment which abates consequent to search. In case of the former, the jurisdiction to assess is limited to incriminating material and in other cases the assessing officer has unfettered jurisdiction to make assessment both by exercising his normal jurisdiction to make assessment both by exercising his normal jurisdiction and also by utilising the incriminating material/evidence.

8 ITA Nos.107 1/Hyd/201 4 an d others M/s Reliance Granit e Pvt. Ltd.

4.9 Coming to the facts of the case, the assessments for the assessment years 2003-04, 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09 w': I e unabated and treated to have been concluded. It is also evident from1 the assessment orders that assessing officer has not specifically pointed to any availability of seized/incriminating material related to the assessee found during the search proceedings conducted in case of MGPL or the directors of the group companies. There is no specific reference to any material or valuables that are relatable to the assessee and have become the basis for making the additions or disallowance and prompt the assessing officer to reagitate the issues which were otherwise settled in the unabated assessments. Thus, considering the legal additional ground raised by the appellant, it is reasonable to hold that the various additions made by the assessing officer in the assessment orders for the asst. years 2003-04 is not justified and are directed to be deleted. Since, the additional ground raised on legal issue has been decided in favour of the appellant, it is reasonable to hold that it is not necessary to adjudicate on the various additions made in assessment order, on merit."

7. Similar orders were passed by ld. CIT(A) for AYs. 2004-05 to 2008-09 also.

8. Being aggrieved of the aforesaid decision of ld. CIT(A), revenue is before us.

9. We have heard the parties and perused the orders of the revenue authorities as well as other materials on record. It is clearly evident from the assessment order passed for the assessment year 2003-04 as well as other assessment years under appeal also, AO has initiated proceeding u/s 153A of the Act in all cases. However, as can be seen from the impugned orders of ld. CIT(A), though, in the cause title as well as while discussing the facts, ld. CIT(A) has mentioned that the assessment orders were passed u/s 143(3) read with section 153A, but, while recording his finding, ld. CIT(A) has proceeded as if the assessment proceedings were initiated u/s 153C of the Act. Therefore, to remove the confusion, ld. DR was asked to clarify on the issue. On the query made by Bench, ld. DR submitted before us that actually no search operation u/s 132 of the Act was 9 ITA Nos.107 1/Hyd/201 4 an d others M/s Reliance Granit e Pvt. Ltd.

conducted, but, only a survey u/s 133A was conducted in assessee's case. In this regard, ld. AR placed before the bench a letter dated 16/12/2014 received from DCIT, Central Circle - 2(5), Hyderabad and copy of the authorization u/s 133A. Thus, from the aforesaid facts, it becomes clear that no search and seizure operation u/s 132 of the Act has been conducted in case of the present assessee. A plain reading of section 153A of the Act, makes it clear that AO can initiate proceeding u/s 153A only against a person in whose case search and seizure u/s 132 of the Act has been conducted. Therefore, admittedly, when there is no search action u/s 132 against assessee, the very assumption of jurisdiction u/s 153A by AO is invalid. For this reason alone, initiation of proceeding u/s 153A and the assessment order passed in consequence thereto have to be held as ab-initio-void. Even otherwise also, there is no dispute to the fact, for the aforesaid assessment years, assessee had voluntarily filed his return of income in terms with section 139 of the Act. In fact for AY 2003-04 and 2004- 05, assessments were completed u/s 143(3) of the Act, much prior to the date of search in other group cases and in AYs 2005-06 and 2006-07, returns filed by assessee were processed u/s 143(1) prior to the date of search. Therefore, as on the date of search, there was no assessment proceeding pending in case of assessee. In the aforesaid facts and circumstances, AO could have assessed the undisclosed income unearthed as a result of incriminating material found during the search and seizure operation. However, none of the additions made by AO are with reference to any incriminating material found in search. The Department has failed to bring any material on record to show that additions made were on the basis of any incriminating material. On the contrary, it is evident on record, in the search assessment, AO has revisited the issues which were subject matter of original assessments. Even, assuming that AO has proceeded u/s 153C, we need to observe, neither the assessment order nor any other material placed before us could indicate that any valuable article, thing, document etc., belonging to assessee was found as a 10 ITA Nos.107 1/Hyd/201 4 an d others M/s Reliance Granit e Pvt. Ltd.

result of search to enable the AO to initiate proceeding even u/s 153C of the Act. Thus, the conditions of neither section 153A nor section 153C are satisfied. That being the case, proceeding could not have been initiated against the assessee either u/s 153A or u/s 153C of the Act. In the aforesaid view of the matter, we do not find any reason to interfere with the order of ld. CIT(A) in holding that AO could not have made the additions. Accordingly, we uphold the order of ld. CIT(A) by dismissing grounds raised. As facts and issues are identical in the other appeals, they are also dismissed.

10. In the result, all the appeals of the Department are dismissed.

11. Now we will adjudicate assessee's appeal in ITA Nos. 1278 to 1283/Hyd/2014.

12. Though it is a fact that ld. CIT(A) has held assessments to be invalid in absence of incriminating material in all the aforesaid assessment years, but, assessee has still preferred appeals on the ground that ld. CIT(A) should have decided additions on merits also. However, considering the fact that we have upheld the order of ld. CIT(A) by dismissing the appeals of revenue for AYs 2003-04 to 2005-06 and 2007-08 hereinbefore and considering the fact that the department has not preferred appeal against the orders of ld. CIT(A) for AYs 2006-07 and 2008-09, issues raised by assessee in its appeals are reduced to mere academic interest, hence, there is no need to adjudicate them. In the aforesaid view of the matter, grounds raised by assessee have become infructuous.

13. In the result, appeals in ITA No. 1278 to 1283/Hyd/14 are dismissed.

11 ITA Nos.107 1/Hyd/201 4 an d others M/s Reliance Granit e Pvt. Ltd.

ITA No. 1284/Hyd/14 by assessee for AY 2009-10. 14. The only issue in the aforesaid appeal of assessee is relating to disallowance of general expenses of Rs. 34,000 and the direction issued by ld. CIT(A) while deciding that issue.

15. Briefly the facts are, in course of assessment proceeding, while examining the details of the general expenses claimed by assessee, AO noticed that an amount of Rs. 34,000 was claimed towards gifts by treating the said expenditure as not allowable, AO made addition of the amount of Rs. 34,000. Being aggrieved of such addition, assessee preferred appeal before ld. CIT(A). Ld. CIT(A) after considering the submissions of assessee, held as under:

"5.3 Perused the observations of the A.O and the submissions of the appellant. As could be seen from the facts, the appellant incurred certain expenses under the head 'general expenses', which include the amount incurred on purchase of 'gifts' by the assessee company during the year. No details were brought on record by the A.O to treat such expenses are disallowable. Similarly, no detailed explanation was offered by the appellant, explaining the nature and relevance of such expenses to the business. Prima facie, the expenditure under the head 'gifts', is business expense, as it Is customary for any business to offer the gifts to it's customers or employees on certain special occasions. There is no blanket bar on allowance of expenses on gifts, as long as they relate to business There is no denial on this issue. But the fact remains that, the details a d nature of expense require scrutiny along with allowable limits on cost of gifts etc. This requires examination by the A.O and if there is no bar on the limits of value of gifts given to employees or customers, the A.O is directed to allow the expenses, on verification of the bills related to it. On this issue, the ground is treated as allowed, subject to verification."

16. We have heard the parties and perused the orders of revenue authorities as well as other material on record. The main contention of ld. AR is that ld. CIT(A) has no power to set aside the issue to AO. He submitted that once, ld. CIT(A) was convinced that expenditure 12 ITA Nos.107 1/Hyd/201 4 an d others M/s Reliance Granit e Pvt. Ltd.

under the head gift is a business expenditure he should not have directed the AO to verify again in stead of deleting the addition. After considering the submissions of assessee, we are of the view, ld. CIT(A) in principle, having held that expenditure incurred towards gift items is allowable as business expenditure should have deleted the addition. In the aforesaid facts and circumstances, we consider it appropriate to delete the addition of Rs. 34,000.

17. In the result, this appeal of assessee is allowed.

Pronounced in the open court on 14/01/2015.

Sd/- Sd/- (B. RAMAKOTAIAH) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER

Hyderabad, Dated: 14 th January, 2015 kv Copy to:-

1) DCIT, Central Circle - 7, 8 th Floor, Aayakar Bhavan, L.B. Stadium Road, Basheerbagh, Hyderabad - 500 004

2) M/s Reliance Granite Pvt. Ltd., 8-2-684/3/25 & 26, Road No. 12, Banjara Hills, Hyderabad - 500 004

3) CIT(A)-VI, Hyderabad

4) CIT(Central), Hyderabad

5) The Departmental Representative, I.T.A.T., Hyderabad.

Description Date Intls 1. Draft dictated on Sr.P.S. 2. Draft placed befor e auth or Sr.P.S Draft pro posed & placed before the secon d AM 3 Mem ber 4 Draft discussed/appr oved b y second Mem ber VP 5 Appro ved Draft com es to the Sr.P.S./PS Sr.P.S. 6. Kept for pro nou ncem ent on Sr.P S. 7. File sent to the Bench Clerk Sr.P.S. 8 Date on which file go es to the Head Cle rk 9 Date of Dispatch of or der 13 ITA Nos.107 1/Hyd/201 4 an d others M/s Reliance Granit e Pvt. Ltd.