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Wednesday, 30 November 2016 14:44

Taxation of Gifts of Rs. 2.25 Crore - AO Has No Jurisdiction u/s 153A when the Assessment Attained Finality - Mumbai Tribunal

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Ramesh Sumermal Shah. vs. DCIT - Mumbai Tribunal Ramesh Sumermal Shah. vs. DCIT - Mumbai Tribunal Taxpundit.org

Whether the addition of Rs.2.25 crores made by the AO u/s 68 is to be deleted as the AO has no jurisdiction u/s 153A of the Act and the additional ground filed by the assessee is allowed - Held Yes

Whether an assessment which had attained finality can be disturbed - Held No

Whether addition made qua the gift received by the assessee de hors any material found during the course of search, can be roped in the assessment made under section 143(3) r.w.s. 153A of the Act by the AO - Held No

 

Assessment which had attained finality cannot be disturbed unless incriminating material was found in the course of search. The addition of Rs. 2.25 crores made by the AO u/s 68 is to be deleted as the AO has no jurisdiction u/s 153A of the Act

Facts

Facts of the case 1. Main Grounds of Appeal - “On the facts and in the circumstances of the case the ld. CIT(A)  has erred in law in confirming the addition of Rs.2,25,00,000/- made by the AO on disbelieving gift received by the appellant”

2. Additional Grounds - 3.1 The assessing officer ("the A.O") erred in initiating reassessment proceedings and framing assessment of the Appellant by invoking the provisions of Section 143(3) r.w.s.153A of the Income tax Act, 1961 ["the Act"]. 3.2 While doing so, the A.O. failed to appreciate that the addition made was beyond the scope of assessment under section 153A of the Act. 3.3 It is submitted that in the facts and the circumstances of the case, and in law, the initiation as well as completion of the assessment proceedings were bad, illegal and void

3. Additional grounds were admitted by the Tribunal stating that the said additional ground raised deserved to be admitted for adjudication as it required no investigation or verification of facts and accordingly we admit the same by following the ratio laid down in the above mentioned case laws by the Hon‟ble Supreme Court and jurisdictional high court

4. Assessee filed its return of income on 31.7.2001 declaring total income of Rs.7,17,610/-

5. No notice u/s 143(2) of the Act was issued with the time prescribed under the Act and thus the income returned by the assessee was assessed and attained finality

6. Thereafter a search and seizure action was carried out under section 132 of the Income Tax Act, 1961 on Sumer Group of cases including the assessee on 6.1.2006

7. Accordingly, notice u/s 153A was issued on assessee on 20.8.2007 to file returns for six assessment years prior to the year of search including the year under consideration which was complied by the assessee by filing return on 27.11.2007 declaring a total income of Rs.7,17,610/- the same income as filed in the original return of income

8. During the course of assessment in search proceedings, the AO, on perusal of the capital of the assessee for the financial year 2000-01 found that the assessee had received a sum of Rs.2,25,00,000/- from Mr N. K. Rajgharia and asked the assessee to prove the identity and creditworthiness of the donor and genuineness of the transaction

9. Disbelieving the explanation of the assessee the AO added the same to the total income of the assessee as income from other sources u/s 68 of the Act while framing the assessment u/s 143(3) read with section 153A of the Act vide order dated 3.10.2008 by assessing the total income at Rs.23,217,610/- by inter alia making other additions also

10. The additions were challenged before the first appellate authority on merit and the issue of gift received was sustained

11. Honb. Tribunal decided the issue in favour of the Assessee

Assessee's Arguments

Taxation of GiftsThe ld. AR submitted that the addition by the AO qua gift received by the assessee Rs.2.25 crores under section 68 of the Act as income from other sources was without jurisdiction as the same was based upon any incriminating materials seized during the course of search proceedings. The ld. AR submitted that the assessee had duly disclosed said gift in the original return of income filed on 31.7.2001 by crediting the same in the capital account of the assessee. The ld. AR while referring to the provisions of section 153A of the Act submitted that in the case of completed assessment which are not pending on the date of search, the addition could only be made on the basis of seized material and not otherwise. In the present case, the assessee filed return of income was filed 31.7.2001 and no notice u/s 143(2) of the Act was issued the time limit for which elapsed on 31.7.2002. The date on which the search was 6.11.2006 and thus the original return of income filed by the assessee u/s 139 of the Act has attained finality and was not pending on the date of search. The ld. AR prayed that in view of the provisions of section 153A of the Act the addition as made by the AO qua gift received and credited in the capital account was without jurisdiction and be deleted as the addition could be made on the basis incriminating materials seized during the search action. In defence of his argument the ld.AR heavily relied on the decision of the Hon‟ble Bombay High Court in the cases of CIT V/s Continental Warehousing Corporation (Nhava Sheva) Ltd. [2015] 374 ITR 645 (Bombay) and CIT vs. Murli Agro Products Ltd (Nagpur Bench of the Bombay High Court) 2014] 49 taxmann.com 172 (Bombay) and the decision of the co-ordinate Bench of the Tribunal in the case of Jignesh P Shah V/s DCIT in ITA Nos. 1553 and 3173/Mum/2010 (AY-2002-03 and 2004-05) dated 13.2.2015, wherein the identical issue has been decided in favour of the assessee

Revenue's Arguments

Taxation of GiftsOn the other hand, the ld. DR strongly opposed the arguments advanced by the ld.AR by submitting that it was only in the proceedings under section 153A that the assessee was found to have received a gift of Rs.2.25 lakhs from Shri N. K. Rajgharia on 6.6.2000 which the assessee could not prove to be genuine and identity of the creditor could not be proved and genuineness of the transaction could not be established and therefore the AO rightly added the same u/s 68 of the Act and there was no need of any incriminating document or material in order to make said addition. The ld. DR heavily relied on the decision in the case of Satish L Babladi V/s DCIT in ITA No.1732 and 2109/Mum/2010 Assessment Years: 2004-05 & 2006-07 order dated 19.3.2013 and prayed that the orders of authorities below be confirmed by dismissing the appeal of the assessee.

In the rebuttal, the ld.AR argued that the case law relied upon by the ld. DR, of Satish L Babladi (supra) has been considered and distinguished by the decision of the Co-ordinate Bench of the Tribunal in the case of Jignesh P Shah (supra) as referred to and relied upon by the assessee and therefore need not be taken into consideration for adjudicating the issue as the issue is covered by the jurisdictional High Court and by the Hon‟ble Apex Court

Adjudication

Taxation of Gifts"Respectfully following the ratio laid down by the jurisdictional High Courts we hold that the addition made qua the gift received by the assessee de hors any material found during the course of search, cannot be roped in the assessment made under section 143(3) r.w.s. 153A of the Act by the AO. The decision of Mumbai Tribunal in the case of Satish L Babladi (supra) has been examined by us and it is seen that the Tribunal has strongly relied upon the decision of Hon‟ble Delhi High Court in the case of CIT V/s Anil Kumar Bhatia reported in (2013) ITR 493 (Delhi), the Hon‟ble High Court with regard to the question, as to whether any addition can be made in respect of completed assessment when no incriminating material was found has been left open to be answered. The other objection made by the Hon‟ble High Court is in the form of „Obiter dicta‟ because this specific issue has been left open. Moreover, the Hon‟ble Jurisdictional High Court in the case of Murli Agro Products Ltd (supra), National Thermal Power Co Ltd and All Cargo Global Logistics Ltd (supra) categorically held that the assessment which had attained finality cannot be disturbed unless incriminating material was found in the course of search, therefore, the decision of the Tribunal in the case of S L Babladi‟s case cannot be relied upon as the Tribunal has not considered the ratio laid down lby the Hon‟ble High Courts. Accordingly, the addition of Rs.2.25 crores made by the AO u/s 68 is to be deleted as the AO has no jurisdiction u/s 153A of the Act and the additional ground filed by the assessee is allowed. In view of our findings given above, we are not going into the merits of the case and addition as discussed by the AO as well as by the ld.CIT(A) as they have become purely academic.

Cases Referred to

1. National Thermal Power Co Ltd Vs CIT(1998) 229 ITR 383 (SC)

2. All Cargo Global Logistics Ltd Vs Dy. CIT (2012) 137 ITD 26 (Mum) (SB)

3. CIT V/s Continental Warehousing Corporation (Nhava Sheva) Ltd. [2015] 374 ITR 645 (Bombay)

4. CIT Vs. Anil Kumar Bhatia reported in (2013) ITR 493 (Delhi)

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