M/s. Poonam Builders v. ACIT, Central Circle - 8(4), Mumbai & Ors.

1. On the facts and in the circumstances of the case, the assessment framed u/s. 153A/C of the Income Tax Act, 1961 by the learned Assessing Officer is illegal as there was no search on the appellant and no incriminating material or evidence was found or seized in case of the appellant during the course of search in case of the members of the group reflecting undisclosed income.

2. On the facts and in the circumstances of the case, the learned Assessing Officer erred in disallowing the claim of deduction u/s. 80-IB(10) of the Income Tax Act, 1961 of Rs.4,47,30,649/- although all the prescribed conditions as laid down in the Income Tax Act, were fulfilled.

3. On the facts and in the circumstances of the case, the learned Assessing Officer erred in holding that the appellant has not commenced a legally approved project in terms of Income tax Act which may be termed as "an approved project".

4. On the facts and in the circumstances of the case, the learned Assessing Officer erred in concluding that the commencement certificate is not in the name of the appellant.

5. On the facts and in the circumstances of the case, the learned Assessing Officer erred in concluding that the project was not commenced by the appellant within the prescribed time as laid down under the Income Tax Act.

6. On the facts and in the circumstances of the case, the learned Assessing Officer erred in levying interest u/s. 234B and 234C.

10 Mr. Dada, therefore, submitted that since the claim of deduction under Section 80-IB(10) of the Act of Rs.4,47,30,649/- was the subject matter of appeal, reopening was barred on that claim of deduction. Mr. Dada further submitted that it is immaterial that the CIT(A) may not have given a finding on merits because the proviso does not say "should have been a subject matter of any appeal and decision thereon should have been given". The proviso only says which was "a subject matter of an appeal" and it was restricted to that because an assessee cannot control or decide how an order will be written. The reason Mr. Dada submitted this restriction has been put is because the same issue cannot be reopened and if done, the effect thereof will be the Assessing Officer will sit in appeal over the matter which the CIT(A) has heard or decided.

11 Mr. Suresh Kumar submitted basically what is stated in the affidavit in reply that the CIT(A) has not given a finding on merits. Mr. Suresh Kumar submitted that the moment the order under Section 153A/C read with Section 143(3) of the Act was set aside or quashed by the CIT(A), the whole assessment order itself becomes null and void and the proviso would not be applicable. Mr. Suresh Kumar further submitted, relying on a judgment of the Hon’ble Apex Court in Principal Commissioner of Income Tax, Central - 3 v/s. Abhisar Buildwell (P.) Ltd.1, that in case where no incriminating material is found and a notice or an order issued under Section 153A or 153C of the Act is set aside, in case of completed/unabated assessment, the only remedy available to the Revenue would be to initiate the reassessment proceedings under Sections 147/148 of the Act. We agree with Mr. Suresh Kumar that the Hon’ble Apex Court has said this is the remedy which the Revenue will have but that has also been qualified by saying “subject to fulfillment of the conditions mentioned in Sections 147/148 of the Act”. Paragraphs 20 to 23 of Abhisar Buildwell (P.) Ltd. (Supra) read as under:

20. As per the provisions of Section 153A, in case of a search under Section 132 or requisition under Section 132A, the AO gets the jurisdiction to assess or reassess the ‘total income’ in respect of each assessment year falling within six assessment years. However, it is required to be noted that as per the second proviso to Section 153A, the assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search under Section 132 or making of requisition under Section 132A, as the case may be, shall abate. As per sub-section (2) of Section 153A, if any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub- section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner. Therefore, the intention of the legislation seems to be that in case of search only the pending assessment/reassessment proceedings shall abate and the AO would assume the jurisdiction to assess or reassess the ‘total income’ for the entire six years period/block assessment period. The intention does not seem to be to re-open the completed/unabated assessments, unless any incriminating material is found with respect to concerned assessment year falling within last six years preceding the search. Therefore, on true interpretation of Section 153A of the Act, 1961, in case of a search under Section 132 or requisition under Section 132A and during the search any incriminating material is found, even in case of unabated/completed assessment, the AO would have the jurisdiction to assess or reassess the ‘total income’ taking into consideration the incriminating material collected during the search and other material which would include income declared in the returns, if any, furnished by the assessee as well as the undisclosed income. However, in case during the search no incriminating material is found, in case of completed/unabated assessment, the only remedy available to the Revenue would be to initiate the reassessment proceedings under sections 147/48 of the Act, subject to fulfilment of the conditions mentioned in sections 147/148, as in such a situation, the Revenue cannot be left with no remedy. Therefore, even in case of block assessment under section 153A and in case of unabated/completed assessment and in case no incriminating material is found during the search, the power of the Revenue to have the reassessment under sections 147/148 of the Act has to be saved, otherwise the Revenue would be left without remedy.

21. If the submission on behalf of the Revenue that in case of search even where no incriminating material is found during the course of search, even in case of unabated/completed assessment, the AO can assess or reassess the income/total income taking into consideration the other material is accepted, in that case, there will be two assessment orders, which shall not be permissible under the law. At the cost of repetition, it is observed that the assessment under Section 153A of the Act is linked with the search and requisition under Sections 132 and 132A of the Act. The object of Section 153A is to bring under tax the undisclosed income which is found during the course of search or pursuant to search or requisition. Therefore, only in a case where the undisclosed income is found on the basis of incriminating material, the AO would assume the jurisdiction to assess or reassess the total income for the entire six years block assessment period even in case of completed/unabated assessment. As per the second proviso to Section 153A, only pending assessment/reassessment shall stand abated and the AO would assume the jurisdiction with respect to such abated assessments. It does not provide that all completed/unabated assessments shall abate. If the submission on behalf of the Revenue is accepted, in that case, second proviso to section 153A and sub-section (2) of Section 153A would be redundant and/or re-writing the said provisions, which is not permissible under the law.

22. For the reasons stated hereinabove, 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) and the decisions of the other High Courts taking the view that no addition can be made in respect of the completed assessments in absence of any incriminating material.

23. In view of the above and for the reasons stated above, it is concluded as under: i) that in case of search under Section 132 or requisition under Section 132A, the AO assumes the jurisdiction for block assessment under section 153A; ii) all pending assessments/reassessments shall stand abated; iii) in case any incriminating material is found/ unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the ‘total income’ taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no 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 132A of the Act, 1961. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under Sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/ mentioned under sections 147/148 of the Act and those powers are saved.

12 Section 147 of the Act deals with situations where income has escaped assessment. It provides that “If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under Section 147 …….. for the assessment year concerned”. It further states that “provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matter of any appeal, reference or revision, which is chargeable to tax and has escaped assessment”. Therefore, the Section provides for a clear bar that where an income, which is subject matter of any appeal, reassessment of such income is not permissible. The reason to believe escapement of income provides “Notice u/s. 153A/C of the IT Act, 1961 dated 12.7.2010 was issued. During the year under consideration the assessee has shown that the project is completed and in its P&L A/c. credited to the total sale consideration and arrived at a profit of Rs.4,47,30,649/-. The entire profit was claimed as deduction u/s. 80IB(10). The AO has made addition on account of deduction in WIP amounting to Rs.3,94,572/- and denied the deduction u/s. 80IB(10) amounting to Rs.4,47,30,649/- on the following reasons. That the project is not as approved project in the hands of the assessee because the commencement certificate is not issued to Mr. Harshad Doshi nor his AOP Poonam Builders. Secondly the first approved plan is dated 27.11.1997 which is before 1.10.1998. Thus by no means, the assessee is eligible to claim the benefit of deduction u/s. 80IB(10)”. In the appeal filed by assessee before CIT(A) against the order of assessment dated 29th October 2010, the grounds, as quoted in paragraph 9 above, indicate that this was subject matter of the appeal. The grounds, as recorded in the order dated 30th March 2015 passed by the CIT(A), read as under: xxxxxxxxxxxxxxxx

2. On the facts and in the circumstances of the case, the learned Assessing Officer erred in disallowing the claim of deduction u/s. 80-IB(10) of the Income Tax Act, 1961 of Rs.4,47,30,649/- although all the prescribed conditions as laid down in the Income Tax Act, were fulfilled.

3. On the facts and in the circumstances of the case, the learned Assessing Officer erred in holding that the appellant has not commenced a legally approved project in terms of Income tax Act which may be termed as "an approved project".

4. On the facts and in the circumstances of the case, the learned Assessing Officer erred in concluding that the commencement certificate is not in the name of the appellant.

5. On the facts and in the circumstances of the case, the learned Assessing Officer erred in concluding that the project was not commenced by the appellant within the prescribed time as laid down under the Income Tax Act.

13 Therefore, the escapement of income due to claim of deduction under Section 80-IB(10) of the Act of Rs.4,47,30,649/- was certainly a subject matter of appeal and admittedly so and, therefore, in our view, on this income reassessment is not permissible. As held by the Hon’ble Apex Court in Abhisar Buildwell (P.) Ltd. (Supra), the Revenue could initiate reassessment proceedings subject to fulfilment of the conditions mentioned in Sections 147/148 of the Act, i.e., so long as it is not hit by the third proviso to Section 147 of the Act.

14 In the circumstances, Rule issued on 10th August 2016 is made absolute in terms of prayer clause – (a) which reads as under: (a) this Hon'ble Court in its jurisdiction under Article 226 of the Constitution of India be pleased to issue a Writ of mandamus and/or any other appropriate writ order or direction in the nature of mandamus quashing the notice under Section 148 in toto as the same is wholly arbitrary, illegal and unsustainable in the eyes of law and also against the principles of natural justice.

15 We agree with the observations made in the order while admitting the petition that the basis of the impugned reopening notice is the very issue which was subject matter of appeal which led to the order dated 30th March 2015. (DR.