ACIT vs Creamy Foods Ltd.

1.

That Ld. CIT(A) erred in holding that the reassessment proceedings u/s. 147 of the Act were invalid despite the fact that the AO had validly initiated action based on Explanation 2 to Section 148 post search operation.

2.

The ld. CIT(A) erred in holding that the escapement income was not represented in the form of an “asset” as contemplated u/s. 149(1)(b) and the fourth proviso to Sec. 153A. However, unsecured loans received by the assessee squarely falls within the definition of asset as per Explanation 2 to Section 153A.

3.

The Ld. CIT(A) wrongly misplaced the reliance on the Hon’ble Supreme Court’s judgement in the case of Union of India vs. Rajeev Bansal [2024]. However, the conditions for invoking extended limitation stood fully satisfied in this case as the escaped income exceeds Rs. 50 lakh and were represented in the form of financial ‘assets’.

4.

The Ld. CIT(A) failed in appreciating that the amended provisions of the Act introduced by the Finance Act, 2021 expressly permit reopening up to ten years where income represented in the form of assets has escaped assessment.

“4.3

As per information available with this office, the assessee has undertaken the following transactions:

“4.5

The above information clearly reveals that the income chargeable to tax has escaped assessment. Thus, income, as mentioned in para 4.3, represented in the form of entries in the books of account as gathered from the seized material, amounting to or is likely to amount to fifty lakh rupees or more has escaped assessment.”

“49.

The first proviso to Section 149(1)(b) requires the determination of whether the time limit prescribed under Section 149(1)(b) of the old regime continues to exist for the assessment year 2021-2022 and before. Resultantly, a notice under Section 148 of the new regime cannot be issued if the period of six years from the end of the relevant assessment year has expired at the time of issuance of the notice. This also ensures that the new time limit of ten years prescribed under Section 149(1)(b) of the new regime applies prospectively. For example, for the assessment year 2012-2013, the ten year period would have expired on 31 March 2023, while the six year period expired on 31 March 2019. Without the proviso to Section 149(1)(b) of the new regime, the Revenue could have had the power to reopen assessments for the year 2012- 2013 if the escaped assessment amounted to Rupees fifty lakhs or more. The proviso limits the retrospective operation of Section 149(1)(b) to protect the interests of the assesses.

54.

The proviso to Section 149(1)(b) of the new regime uses the expression “beyond the time limit specified under the provisions of clause (b) of sub-section (1) of this section, as they stood immediately before the commencement of the Finance Act, 2021.” Thus, the proviso specifically refers to the time limits specified under Section 149(1)(b) of the old regime. The Revenue accepts that without application of TOLA, the time limit for issuance of reassessment notices after 1 April 2021 expires for assessment years 2013-2014, 2014-2015, 2015-2016, 2016-2017, and 2017-2018 in the following manner: For the assessment years 2013-2014 and 2014-2015, the six year period expires on 31 March 2020 and 31 March 2021 respectively; and (ii) for the assessment years 2016-2017 and 2017-2018, the three year period expires on 31 March 2020 and 31 March 2021 respectively.”

16.

It is apparent from the above that the AO believed that the petitioner's income had escaped assessment for AY 2016-17 on essentially three grounds. First, that the petitioner had deducted expenses relating to amounts paid to certain persons who had not filed their income tax returns and the AO thus doubted the genuineness of the said transactions. Second, that the petitioner had booked expenses, which according to the AO, were personal expenses of its directors and had not been incurred wholly and exclusively for the purpose of the petitioner's business. And third, that the petitioner had paid certain amounts as expenses for availing contractual manpower services and the AO doubted the genuineness of the said payments.

17.

It is clear from the above that there is no allegation that the income which has escaped assessment was represented in the form of an asset. Therefore, the conditions as stipulated in Clause (a) of the fourth proviso to Section 153A(1) of the Act are not satisfied. The AO does not have the possession any books of account, other documents or evidence, which reveals that the petitioner's income that is represented in the form of an asset has escaped assessment.

18.

In terms of Explanation 2 to Section 153A(1) of the Act, the term 'asset' is defined to include immovable property being land or building or both, shares and securities, loans and advances, deposits in bank accounts.

19.

The AO seeks to disallow expenses on account of doubting the genuineness for the reason that the same were not incurred wholly or exclusively for the purpose of the petitioner's business. Absent any further material to establish that such expenses had resulted in the acquisition of any asset, the conditions stipulated in the fourth proviso to Section 153A(1) of the Act would remain unsatisfied.

20.

In the aforesaid view the period of limitation for issuing a notice under Section 153A of the Act, in the given facts of this case, would necessarily have to be confined to a period of six assessment years immediately preceding the assessment year relevant to the previous year in which the search under Section 132 of the Act was conducted.

21.

The search in question was conducted in financial year 2022-23; thus, the relevant block of six assessment years would be the six assessment years preceding AY 2023-24, being the assessment year relevant to the previous year in which the search was conducted. Accordingly, AY 2016-17 falls beyond the block of six years.

17.

Now on going through the above proviso, the important aspect is that whether the Assessing Officer had in his possession books of accounts or other documents or evidence which revealed that income represented in the form of asset has escaped assessment which amounts to or likely to amount Rs.50,00,000/- or more in the relevant Assessment Year or in aggregate in the relevant Assessment Years. In the instant case, search was conducted on 03/01/2018, so total ten Assessment Years would be from Assessment Year 2008-09 to 2017-18. From Assessment Year 2012-13 to 2017-18, are to be excluded for the purpose of 4th Proviso to Section 153A of the Act as provided under Explanation (1) extracted above. So the remaining four Assessment Years are 2008-09 to 2011-12. Though Assessment Year 2011-12 has been reopened by the Assessing Officer by issuing notice u/s 148 of the Act but for the purposes of 4th proviso in order to compute the amount being Rs.50,00,000/- or above in these four Assessment Years i.e., Assessment Year 2008-09 to 2011-12 would be relevant.

18.

Now, before going to the extent of examining whether the amount is more than Rs.50,00,000/- or more, the first hurdle to cross is as to whether any amount representing any “asset” is found by the Assessing Officer and in the books of accounts or other documents or evidence in his possession. Explanation (1) to 4th proviso states that the assets shall include immovable property being land or building or both, shares and securities, loans/advances, deposits in bank account. So this definition of asset for the purpose of 4th proviso to Section 153A of the Act is specific definition and only if the asset or information about such asset as stated above are found by the search team and they are not disclosed in the regular books of account and has escaped assessment, then only the Assessing Officer can open the window under 4th proviso.

18.1

However, in the instant case, the ld. Assessing Officer has not referred to any of such “asset” neither any information in their in the assessment order about any immovable property being land or building or both, shares and securities, loans and advance, deposits in bank account, in the assessment order. The assets referred in the 4th proviso are the assets which are appearing on the right side of the balance sheet whereas the Assessing Officer is referring to unsecured loan and shares capital and share premium which is on the liability side of the balance sheet. In other words, the 4th proviso to Section 153A of the Act talks about the assets whereas the Assessing Officer has invoked the 4th proviso by referring to liabilities which is completely inverse of what is provided under the Act.

18.2.

Now once the basic condition i.e., availability of “asset” as defined under explanation 2 to 4th proviso to Section 153A of the Act, if any, found during the course of search with the assessee/group concern is absent, nor there is any reference to any incriminating material referring to ownership of such undisclosed assets by assessee and only there is a reference of the credits received by the assessee/s which are duly disclosed in the regular books of accounts are part of the audited financial statements, issuing of notice u/s 153A of the Act then invoking the 4th proviso to Section 153A of the Act, is invalid and bad in law and beyond jurisdiction and thus on this ground itself, the assessment order passed u/s 153A of the Act, which is the subject matter of the instant appeals before us has rightly been quashed by the ld. CIT(A) and which thus does not call for any interference.