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PCIT vs. JSW Steel Ltd.

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PCIT vs. JSW Steel Ltd. Taxpundit.org

1. The present appeal under Section 260A of the Income Tax Act, 1961 takes exception to the order dated 28.09.2016 passed by the Income Tax Appellate Tribunal, ‘J’ Bench, Mumbai (hereinafter referred to as “ITAT/Tribunal”), interalia, allowing the assessee’s appeal i.e. ITA No.33/Mum/2015. The order has arisen out of the orders of CIT (Appeals)-39, Mumbai, in Appeal Nos. CIT-39/IT-14-15 and 16/2013- 14 both of even date 02.10.2014. Assessments were finalised by DCIT, Central Circle 18 & 19, Mumbai for Assessment Years 2008-09, 2009-10 and 2010-11 under the provisions of Section 153A read with Section 143(3) of the Income Tax Act, 1961(hereinafter referred to as “the said Act”) by order dated 25.03.2013. The impugned order is for the Assessment Year 2008-09.

2. The assessee is a widely held public limited company engaged in various activities including production of sponge iron, galvanized sheets and cold-rolled coils through its steel plants located at Dolve and Kalmeshwar in Maharashtra. The assessee filed original return of income on 30.09.2008 for Assessment Year 2008-09 declaring loss at Rs.104,17,70,752/- under the provisions of Section 139(1) of the said Act. The assessee’s case was selected for scrutiny under Section 143(2) of the said Act on 03.09.2009.

3. During pendency of the assessment proceedings, a search was conducted under Section 132 of the said Act on the ISPAT Group of companies on 30.11.2010.

3.1. Following the search, notice under Section 153A of the Act was issued. In response, assessee filed return of income declaring total loss at Rs.419,48,90,102/- on 29.03.2012. In this return of income assessee made a new claim for treating gain on pre-payment of deferred VAT/sales tax on Net Present Value (NPV) basis for an amount of Rs.318,10,93,993/- as “capital receipt”.

4. This new/fresh claim of assessee was disallowed by the Assessing Officer (hereinafter referred to as “AO) while finalising assessment under Section 143(3) read with Section 153A of the said Act vide the order dated 25.03.2013 by considering the same as “revenue receipt” instead of “capital receipt”. The reasoning given by the AO was that the assessee had availed of sales tax deferral scheme and the State Government had permitted premature re-payment of deferred sales tax liability at the NPV basis. Therefore, according to the AO, assessee treated this as capital receipt even though the same was credited to the assessee’s profit and loss account being difference between the deferred sales tax and its NPV.

5. However, the primary question that arose before the AO was whether the claim which was not made in the earlier original return of income filed under Section 139(1) of the said Act, could be filed and considered in the subsequent return filed by the assessee in pursuance to notice under Section 153A of the said Act (which was consequent to search action conducted under Section 132 of the said Act). AO held that the assessee could not raise a new claim in the return filed under Section 153A which was not raised in the original return of income filed under Section 139(1). Thereafter, the claim was disallowed and was treated as “revenue receipt”.

5.1 By order dated 15.04.2013, the first appellate authority i.e. the Commissioner of Income Tax (Appeals) (hereinafter referred to as “CIT(A)”) upheld the order passed by the A.O. In further appeal, the I.T.A.T., however, by the impugned order dated 28.09.2016, allowed the assessee’s appeal and set aside both the orders passed by the A.O. and C.I.T.(A).

5.2 Hence the appeal by the revenue.

6. Shri A.R. Malhotra, learned counsel appearing on behalf of the appellant opened his submissions by placing the admitted position on record. He submitted that in the original return dated 30.09.2008 filed under Section 139(1) of the said Act, no claim regarding gain on pre-payment of deferred VAT/sales tax on NPV basis was made by assessee. The assessee had in fact claimed the said as “revenue receipt”. He submitted that now the assessee claimed this as “capital receipt” in the subsequent return which was filed by the assessee pursuant to compliance of statutory notice received under Section 153A on 29.03.2012, which was in consequence to search action initiated under Section 132 of the said Act on 30.11.2010. He, therefore, submitted that the impugned order dated 28.09.2016 needs to be examined closely in the realm of the aforesaid admitted facts.

6.1. Mr. A.R.Malhotra drew our attention to the proposed question of law in the present appeal which reads thus :

“Whether on the facts and in the circumstances of the case and in Law, the Hon’ble Tribunal was justified in holding that in the return of Income filed u/s. 153 A of the I.T. Act, 1961 or even during the course of assessment proceedings undertaken u/s. 153A of the I.T.Act, 1961 the assessee can lodge new claims, deduction or exemption or relief which remained to be claimed in regular return of income?”

6.2. Shri A.R.Malhotra submitted that the Tribunal failed to interpret the language and applicability of the provisions of Section 153A in the facts and circumstances of the present case in its right perspective and true meaning. He submitted that it was incorrect on the part of the Tribunal to hold and conclude that the assessee could lodge new claims, deductions, exemption or relief (which the assessee had failed to claim in his regular return of income) which came to be filed by the assessee under the provisions of Section 153A of the said Act. He submitted that the conclusion arried at by the Tribunal that the assessee could make fresh claim in the return of income filed under Section 153A of the said Act was incorrect in law in as much as once the assessment got abated under the second proviso to Section 153A(1)of the said Act, the assessee was precluded from making any new claim, deduction or exemption or relief which had remained to be claimed by the assessee in the original regular return of income which was filed earlier. He submitted that the assessee had treated the said receipts in the original return of income as “revenue receipt” and credited the same to his profit and loss account. Subsequently the assessee had however made a fresh claim in the return of income which came to be filed on 29.03.2012 under the provisions of Section 153A of the said Act in consequence of the search action, in which the assessee had treated the same receipts as “capital receipt”. He submitted that this change of stand on the part of the assessee in the subsequent return should not have been allowed as it was contrary to the stand taken by the assessee in his original return of income. He fairly submitted that the original return of income filed under Section 139(1) of the said Act was processed under Section 143(1) of the Act, but notice under Section 143(2) of the said Act for scrutinizing the said return of income was pending as on the date of search conducted on the assessee. 

6.3. Shri A.R.Malhotran also drew our attention to the order passed by the CIT(A) and more specifically to para Nos. 6 to 6.3 of the said order. He submits that CIT(A) has correctly analyzed the provisions of Section 153A and come to the conclusion that the assessment or reassessment made pursuant to the notice under Section 153 A of the said Act “ are not de novo assessments.” He submitted that CIT(A) has correctly held that the assessee could lodge new claim, deduction, exemption or relief which had remained to be claimed in the earlier regular return of income in the course of assessment proceedings undertaken under Section 153A of the said Act. He submitted that primary objection of the revenue was that the claim was not made by the assessee in the original return of income nor revised return of income was filed under Section 139(5) of the said Act. Therefore, it was not open to the assessee to use the proceedings initiated under Section 153A of the said act to lodge a fresh claim.

6.4. Shri A.R.Malhotra has clarified that the assessee had contended : (i) that there was no specific inhibition or restriction on the assessee to make a new claim, deduction, exemption and/or relief which was not claimed in the original assessment; (ii) that under Section 153A of the said Act, a return filed is deemed to be a return filed under Section 139(1) of the Act; (iii) that the provisions of the said Act would apply to the same accordingly; (iv) that once assessment got abated, the assessee was at liberty to make such claim/ addition as per normal assessment proceedings because the assessment got abated and therefore the AO retained original jurisdiction as well as jurisdiction conferred on him under Section 153A of the said Act which was in consequence to search under Section 132 of the said Act.

6.5. He, however, fairly referred to the following two cases delivered by this Hon’ble Court, viz; CIT Vs Continental Warehousing Corporation (Nhava Sheva) Ltd. (2015) 374 ITR 645 (Bom) and DCIT Vs Eversmile Construction Co. Pvt. Ltd. 65 DTR 39 in support of the proposition that the assessee was entitled to make a fresh claim in the return filed in pursuance to initiation of proceedings under Section 153A of the Act which were referred to by the Tribunal in the impugned order. This stand of Mr. Malhotra is appreciated.

7. Submissions made by learned standing counsel have been considered.

8. At the outset, we may advert to Section 153-A of the Act. It deals with assessment in case of search or requisition. Sub-section (1) is relevant. It says that notwithstanding anything contained in Sections 139, 147, 148, 149, 151 and 153, in the case of a person where a search is initiated under Section 132 or books of account, etc. are requisitioned under Section 132-A, after 31.05.2003, the assessing officer shall - (a) issue notice to such person for furnishing return of income in respect of each assessment year falling within six assessment years, within such time as may be specified and upon such return of income being filed, the provisions of the Act shall apply as if such return were a return required to be furnished under Section 139; and (b) assess or re-assess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made.

8.1. In other words, Section 153-A(1) provides that where a person is subjected to a search under Section 132 or his books of accounts, etc. are requisitioned under Section 132-A after 31.05.2003, the assessing officer is mandated to issue notice to such person to furnish 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 search is conducted or requisition is made. Such returns of income shall be treated to be returns of income furnished under Section 139. Once returns are furnished, income is to be assessed or re-assessed for the six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made. Thus, once Section 153-A(1) is invoked, assessment for 6 assessment years immediately preceding the assessment year in which search is conducted or requisition is made becomes open to assessment or reassessment. Two aspects are crucial here. One is use of the expression “notwithstanding” in sub-section (1); and secondly, that returns of income filed pursuant to notice under Section 153-A (1)(a) would be construed to be returns under Section 139. The use of non obstante clause in sub-section (1) of Section 153-A i.e., use of the expression “notwithstanding” is indicative of the legislative intent that provisions of Section 153-A(1) would have overriding effect over the provisions contained in Sections 139, 147, 148, 149, 151 and 153.

8.2. Having noticed the above, we may also refer to the second and the third proviso to Section 153-A(1). For the sake of convenience, the second and third proviso to Section 153A(1) of the said Act which is relevant is reproduced below and reads thus : 

Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this [sub-section] 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:

[Provided also that the Central Government may by rules made by it and published in the Official Gazette (except in cases where any assessment or reassessment has abated under the second proviso), specify the class or classes of cases 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.

8.3. The second proviso says that any assessment or reassessment proceedings falling within the said period of six assessment years pending on the date of initiation of search under Section 132 or making of requisition under Section 132-A shall abate. The third proviso mentions that the Central Government may frame rules to specify such class or classes of cases in which the assessing officer shall not be required to issue notice for assessing or re-assessing the total income for the said six assessment years.

8.4. Reverting back to the second proviso what is to be noticed is that as per this proviso, any assessment or re-assessment in respect of any assessment year falling within the said period of six assessment years is pending on the date of initiation of search or making of requisition, those assessment or re-assessment proceedings shall abate. In other words, pending assessment or re-assessment proceedings on the date of initiation of search or making of requisition shall abate.

8.5. That brings us to the crucial expression, which is ‘abate’. The ordinary dictionary meaning of the word ‘abate’, as per Concise Oxford English Dictionary, Indian Edition, is to reduce or remove (a nuisance). Derivative of abate is abatement. In Black’s Law Dictionary, Eighth Edition, ‘abatement’ has been defined to mean an act of eliminating or nullifying; the suspension or defeat of a pending action for a reason unrelated to the merits of the claim. In Supreme Court on Words and Phrases (1950-2008), “abating” has been defined to mean “an extinguishment of the very right of action itself”; to “abate”, as applied to an action, is to cease, terminate, or come to an end prematurely

9. Therefore, from a critical analysis of the provisions contained in Section 153-A(1) of the Act more particularly the key expressions as referred to above, it is evident that assessments or reassessments pending on the date of initiation of search would stand abated. Return of income filed by the person concerned for the six assessment years in terms of Section 153-A(1)(a) would be construed to be a return of income under Section 139 of the Act.

“10. Section 153A of the Acts start with a non obstante clause. The fetters imposed upon the Assessing Officer by the strict procedure to assume jurisdiction to reopen the assessment under Sections 147 and 148, have been removed by the non obstante clause with which sub section (1) of Section 153A opens. The time-limit within which the notice under Section 148 can be issued, as provided in Section 149 has also been made inapplicable by the non obstante clause. Section 151 which requires sanction to be obtained by the Assessing Officer by issue of notice to reopen the assessment under Section 148 has also been excluded in a case covered by Section 153A. The time-limit prescribed for completion of an assessment or reassessment by Section 153 has also been done away with in a case covered by Section 153A. With all the stops having been pulled out, the Assessing Officer under Section 153A has been entrusted with the duty of bringing to tax the total income of an assessee whose case is covered by Section 153A, by even making reassessments without any fetters, if need be. Therefore, it is clear even if an assessment order is passed under Section 143(1) or 143(3) of the Act, the Assessing Officer is empowered to reopen those proceedings and reassess the total income taking note of the undisclosed income, if any, unearthed during the search. After such reopening of the assessment, the Assessing Officer is empowered to assess or reassess the total income of the aforesaid years. The condition precedent for application of Section 153A is there should be a search under Section 132. Initiation of proceedings under Section 153A is not dependent on any undisclosed income being unearthed during such search. The proviso to the aforesaid section makes it clear the assessing officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years. If any assessment proceedings are pending within the period of six assessment years referred to in the aforesaid subsection on the date of initiation of the search under Section 132, the said proceeding shall abate. If such proceedings are already concluded by the assessing officer by initiation of proceedings under Section 153A, the legal effect is the assessment gets reopened. The block assessment roped in only the undisclosed income and the regular assessment proceedings were preserved, resulting in multiple assessments. Under Section 153A, however, the Assessing Officer has been given the power to assess or reassess the “total income” of the six assessment years in question in separate assessment orders.The Assessing Officer is empowered to reopen those proceedings and reassess the total income, taking note of the undisclosed income, if any, unearthed during the search. He has been entrusted with the duty of bringing to tax the total income of an assessee whose case is covered by Section 153A, by even making reassessments without any fetters. This means that there can be only one assessment order in respect of each of the six assessment years, in which both the disclosed and the undisclosed income would be brought to tax. When once the proceedings are initiated under Section 153A of the Act, the legal effect is even in case where the assessment order is passed it stands reopened. In the eye of law there is no order of assessment. Re-opened means to deal with or begin with again. It means the Assessing Officer shall assess or reassess the total income of six assessment years. Once the assessment is reopened, the assessing authority can take note of the income disclosed in the earlier return, any undisclosed income found during search or and also any other income which is not disclosed in the earlier return or which is not unearthed during the search, in order to find out what is the “total income” of each year and then pass the assessment order. Therefore, the Commissioner by virtue of the power conferred under Section 263 of the Act gets no jurisdiction to initiate proceedings under the said provision because the condition precedent for initiating proceedings under Section 263 is any order passed under the Act by the Assessing Officer is erroneous insofar as it is prejudicial to the interest of the revenue. Once the order passed by the Assessing Officer gets reopened, there is no order which can be said to be erroneous insofar as it is prejudicial to the interest of the revenue which confers jurisdiction on the Commissioner to exercise the power of the jurisdiction.”

12. In this perspective we are called upon to decide the question projected by the revenue as substantial question of law arising from the order of the Tribunal. We have considered the grounds of appeal and the orders passed by the AO, CIT(A) and the Tribunal with the assistance of learned counsel for the Appellant. From a reading of the above it is clear that Section 153A of the said Act, provides for the procedure for assessment in search cases. As alluded to hereinabove, the said section starts with a non-obstante clause stating that it is, “notwithstanding anything contained in section 147, 148 and 149………..” Further sub Section(a) of Section 153A(1) provides for issuance of notice to the persons searched under Section 132 of the Act to furnish a return of income. However, the second proviso to Section 153 A of the said act makes it clear that assessment relating to any assessment year filed within a period of the six assessment years pending on the date of search under Section 132 of the Act shall abate. Thus if on the date of initiation of search under Section 132, any assessment proceeding relating to any assessment year falling within the period of the said six assessment years is pending, the same shall stand abated and the Assessing Authority cannot proceed with such pending assessment after initiation of search under section 132 of the said Act.

13. In the present case, search was conducted on the assessee on 30.11.2010. At that point of time assessment in the case of assessee for the assessment year 2008-09 was pending scrutiny since notice under Section 143(2) of the Act was issued and assessment was not completed.

Therefore, in view of the second proviso to Section 153A of the said Act, once assessment got abated, it meant that it was open for both the parties, i.e. the assessee as well as revenue to make claims for allowance or to make disallowance, as the case may be, etc. That apart, assessee could lodge a new claim for deduction etc. which remained to be claimed in his earlier/ regular return of income. This is so because assessment was never made in the case of the assessee in such a situation. It is fortified that once the assessment gets abated, the original return which had been filed looses its originality and the subsequent return filed under Section 153A of the said Act (which is in consequence to the search action under Section 132) takes the place of the original return. In such a case, the return of income filed under Section 153A(1) of the said Act, would be construed to be one filed under Section 139(1) of the Act and the provisions of the said Act shall apply to the same accordingly. If that be the position, all legitimate claims would be open to the assessee to raise in the return of income filed under Section 153A(1).

14. We would further like to emphasis on the judgment passed by this Court in the case of Continental Warehousing (supra) which also explains the second proviso to Section 153A(1). The explanation is that pending assessment or reassessment on the date of initiation of search if abated, then the assessment pending on the date of initiation of search shall cease to exist and no further action with respect to that assessment shall be taken by the AO. In such a situation the assessment is required to be undertaken by the AO under Section 153A(1) of the said Act.

15. In view of the above, we are in agreement with the findings given by the Tribunal in respect of allowing of the assessee’s appeal in paragraph -14 of the order under challenge dated 28.09.2016, which reads thus :

“14. From the above discussion and precedence, the scheme of assessment u/s 153A of the Act in case of search, the AO shall issue notice to searched person requiring him to furnish within such period as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b) of subsection (1) of section 153A and clause (b) postulates assessment or reassessment of the total income of six years immediately preceding the assessment year relevant to the previous year in which such search is conducted. The first proviso mandates that the AO shall assess or reassess the total income in respect of each assessment year falling within such six assessment years. The second proviso postulates that the assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in sub-section (1) is pending on the date of initiation of the search u/s 132 of the Act shall abate. In the present case before us, however, though the second proviso to sub-section (1) of section 153A would not apply in the first three years of this case, yet, as far as the second three year period is concerned (which are pending before us), the assessments were pending. The proceedings in relation thereto abate. Now the entire assessment in relation to the second phase of three years can be made. The pending assessment in that case may be undertaken u/s 153A of the Act. The abatement of pending assessment is for the purpose of avoiding two assessments for the same year i.e. one being regular assessment and the other being search assessment u/s 153A of the Act. In other words, these two assessments merge into one assessment. It means that completed assessments stand on different footing from the pending assessments. Hence, in so far as pending assessments are concerned, the jurisdiction to make original assessment and assessment u/s 153A of the Act merge into one and in that case only one assessment for the remaining set of years, where assessment is pending, is to be made separately on the basis of search materials and the regular material existing or brought on record before the AO/Revenue. It means that the assessee can make any new claim in the return of income filed u/s 153A of the Act or even during the course of assessment proceedings undertaken u/s 153A of the Act. In our view, and in view of the second proviso to Section 153A (1) of the Act, once assessment get abated it is opened both way i.e. for the Revenue to make any additions apart from seized material even regular items declared in the return can be subject matter if there is doubt about the genuineness of those items and similarly the assessee also can lodge new claim, deduction or exemption or relief which remained to be claimed in regular return of income, because assessment was never made in the case of the assessee in such situation. Hence, we allow this issue of assessee s appeal.” 

16. From the above we conclude that in view of the second proviso to Section 153A(1) of the said Act, once assessment gets abated, it is open for the assessee to lodge a new claim in a proceeding under Section 153A(1) which was not claimed in his regular return of income, because assessment was never made/finalised in the case of the assessee in such a situation.

17. We are therefore of the considered opinion that the present appeal filed by the Revenue does not give rise to any substantial question of law. Thus, the appeal filed by the Revenue is found to be devoid of merit and the same is liable to be dismissed.

18. The appeal filed by the Revenue is accordingly dismissed with no order as to costs.

Cases Referred to  

1. CIT Vs Continental Warehousing Corporation (Nhava Sheva) Ltd. (2015) 374 ITR 645 (Bom)

2.  DCIT Vs Eversmile Construction Co. Pvt. Ltd. 65 DTR 39

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Additional Info

  • Order Date: Wednesday, 05 February 2020
  • Court: High Courts
  • Cout Name: HIGH COURT OF BOMBAY
  • Section: 153A, 139(1), 132
  • Favouring: Assessee
Read 25 times Last modified on Thursday, 12 March 2020 11:43
Deepak Kumar

A Post Graduate and Chartered Accountant Deepak Sinha is a member of Taxpundit's core team. An analytical, result oriented professional with more than 10 years of combined experience in industry and consultancy.

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