CIT vs. Murli Agro Products Ltd (Bombay High Court)

S. 153A: No addition can be made in respect of an unabated assessment which has become final if no incriminating material is found during the search

In AY 1998-99, the AO passed an assessment order u/s 143(3) on 29.12.2000. Thereafter, on 3.12.2003, there was a search action u/s 132 wherein incriminating documents/ articles were seized. Pursuant to the search, the AO passed an order u/s 153A determining the concealed income at Rs.89 lakhs. The assessee filed an appeal before the CIT(A), who deleted the concealed income computed by the AO. The AO gave effect to the said order of the CIT(A) and recomputed the income at the same figure as it was in the s. 143(3) order. The CIT passed an order u/s 263 stating that as the income computed by the AO in the effect order was less than 30% of the book profit, the AO ought to have computed the total income by invoking s. 115JA. He also held that in the said order, the AO had incorrectly computed s. 80HHC deduction. The assessee filed an appeal before the Tribunal claiming that as the computation of s. 115JA book profit and s. 80HHC deduction were not the subject matter of the s. 153A proceedings, the CIT could not have invoked jurisdiction u/s 263. The Tribunal accepted the assessee’s plea. On appeal by the department to the High Court HELD dismissing the appeal:

(i) On initiation of proceedings u/s 153A, it is only the assessment proceedings that are pending on the date of conducting search u/s 132 or making requisition u/s 132A of the Act that stand abated and not the assessments already finalised. This is made clear in Circular No. 8 of 2003 dated 18.9.2003 (See 263 ITR (St) 61 at 107) issued by the CBDT. Therefore, the argument of the revenue, that on initiation of proceedings u/s 153A, the assessments finalised for the assessment years covered u/s 153A stand abated cannot be accepted. Similarly on annulment of assessment made u/s 153A (1) what stands revived is the pending assessment proceedings which stood abated as per s. 153A(1);

(ii) In the present case, the assessment for AY 1998-99 was finalised on 29.12.2000 and search was conducted thereafter on 3.12.2003. Therefore, initiation of proceedings u/s 153A would not affect the assessment finalised on 29.12.2000;

(iii) Once it is held that the assessment finalized on 29.12.2000 has attained finality, then the deduction allowed u/s 80HHC would attain finality. In such a case, the AO, while passing the independent assessment order u/s 153A could not have disturbed the assessment order which has attained finality, unless the materials gathered in the course of the proceedings u/s 153A establish that the reliefs granted under the finalized assessment were contrary to the facts unearthed during the course of s. 153 A proceedings. In the present case, there is nothing on record to suggest that any material was unearthed during the search or during the s. 153A proceedings which would show that the relief u/s 80HHC was erroneous. In such a case, the AO, while passing the assessment order u/s 153A could not have disturbed the assessment order finalised on 29.12.2000 relating to s. 80HHC deduction and consequently the CIT could not have invoked jurisdiction u/s 263. Moreover, since the AO had made addition on account of undisclosed income at Rs.89 lakhs in the s. 153A assessment order, there was no question of computing book profits u/s 115 JA. When the CIT (A) deleted the addition without any direction to compute the book profits, the AO was bound to modify the assessment order as directed by the CIT (A). Therefore, no fault could be found with the AO in giving effect to the order of the CIT (A). Consequently, the CIT could not invoke jurisdiction u/s 263 on the ground that the assessment u/s 153A was erroneous or prejudicial to the interests of the revenue.