ORDER
Keshaw Prasad, A.M.
1. The appeal has been directed by the assessee against the order passed by the CIT(A) dt. 8th Nov., 2003 pertaining to the block period 1st April, 1989 to 19th Nov., 1999. Though various grounds have been raised, all the grounds related to the disallowance of claim under Section 80-IA of the Act for asst. yrs. 1994-95, 1995-96 and 1997-98 included in the block period.
2. Briefly, the facts of the case are that the assessee is a limited company mainly dealing in digital prints and photo furnishing etc. Search and seizure operation under Section 132(1) Act took place at the premises of the assessee as well as residential premises of the found and seized and notice under Section 158BC of the Act was issued. In response to such notice, the return of undisclosed income at nil was filed. During the course of assessment proceedings, the AO noted that the assessee has claimed deduction under Section 80-IA of the Act on account of its slitting activities of photographic paper at Silvasa claiming it to be manufacturing activity. The Silvasa Plant was also surveyed under Section 133A of the Act on 22nd Dec, 1999 and certain documents were identified. During the course of survey, the statement of Shri B.K. Sharma, slitting supervisor of Silvasa Plant was also recorded. In his statement, he stated that the name of the assessee was changed from Shiraj Colour Lab (P) Ltd. to Shiraj Photo-film Ltd. and thereafter to GMS Technology Ltd. The AO asked the assessee to explain as to whether the assessee-company satisfied all the conditions for grant of deduction under Section 80-IA of the Act. Vide its letter dt. 10th Jan., 2002, the assessee furnished its explanation. After perusing the submissions of the assessee while relying on the decision of Hon’ble Supreme Court in the case of CIT v. N.C. Budhiraja & Co. and Anr. (1993) 204 ITR 412 (SC), the AO held that the assessee was not engaged in the manufacturing activity. He also held that GMS Technology is nothing but reconstruction of a business activity already in existence which was also confirmed by the statement of Shri B.K. Sharma. He also observed that there were only four employees and, therefore, the assessee did not satisfy all the conditions for grant of deduction under Section 80-IA of the Act. He, therefore, disallowed deduction under Section 80-IA of the Act for asst. yrs. 1994-95 to 1997-98 aggregating Rs. 2.30 crores.
3. The order of the AO was challenged before the CIT(A). Subsequently, the AO vide his order under Section 154 of the Act dt. 3rd July, 2002, has withdrawn the disallowance for asst. yr. 1996-97 and, therefore, the disallowance to the extent of Rs. 1,66,37,275 was challenged before the CIT(A). When the CIT(A) upheld the disallowance, the appeal has been preferred before us. While assailing the order of the CIT(A), the learned counsel raised preliminary objection to the effect that notice under Section 158BC of the Act was issued by the ITO, whereas the same should have been issued by an officer not below the rank of Asstt. CIT. For this purposes, the reliance was placed on the provisions contained in Section 158BG of the Act. He also stated that after search and seizure operation, the ITO does not have jurisdiction and, therefore, the order under Section 158BC of the Act passed by the AO was illegal. He also stated that in the instant case, the original returns for the relevant years were filed. These were accepted under Section 143(1)(a) of the Act. It was stated that the claim of deduction under Section 80-IA of the Act was made in different years and the same was allowed. No documents were found during the course of search and seizure operation which suggested that the claim of the assessee in the years was false. The learned counsel stated that the scope of undisclosed income under Section 158BC of the Act was very limited. He stated that the return for asst. yr. 1994-95 was filed at nil after claiming deduction under Section 80-IA of the Act. The same was accepted under Section 143(1)(a) of the Act. The return for asst. yr. 1995-96 was filed on 30th Nov., 1995 at nil after claiming deduction under Section 80-IA of the Act. This income was accepted by the AO vide his order under Section 143(3) of the Act. Similarly, the return for asst. yr. 1996-97 was filed on 30th Nov., 1996 at nil. As, after claiming deduction under Section 80HHC, there was no positive income, no deduction under Section 80-IA of the Act was claimed. The same was also accepted by the AO under Section 143(3) of the Act. The return for asst. yr. 1997-98 was filed on 29th Nov., 1997 claiming deduction under Section 80-IA of the Act. The return was processed under Section 143(3)(a) of the Act and subsequently the AO accepted the claim of the assessee even in his order under Section 143(3) of the Act. It was stated that this is a case of an order under Chapter XIV-B. He stated that it is settled law that once the AO has accepted the books of all the years to be correct and has allowed deduction under Section 80-IA of the Act in their orders under Section 143(3) of the Act, the same cannot be disallowed in an order under Chapter XIV-B unless certain incriminating documents were found during the course of search suggesting that the claim of the assessee in respect of deduction under Section 80-IA of the Act in those years are false. The reliance was placed on the decisions reported in 67 ITD 119 (sic), CIT v. Vikram Doshi and Anr. (2002) 256 ITR 129 (Bom), Sunder Agencies v. Dy. CIT (1997) 59 TTJ (Mumbai) 610 : (1997) 63 ITD 245 (Mumbai), Parakh Foods Ltd. v. Dy. CIT (1998) 64 ITD 396 (Pune), Ms. Pooja Bhati v. Asstt. CIT (2000) 66 TTJ (Mumbai) 817 : (2000) 73 ITD 205 (Mumbai), Jaya S. Shetty v. Asstt. CIT (1999) 64 TTJ (Mumbai) 551 : (1999) 69 ITD 336 (Mumbai) and CIT v. Dr. M.K.E. Menon (2001) 112 Taxman 96 (Bom).
4. It was also argued that the block assessment has to be made for undisclosed income found during search operation. As per Section 158B(b), undisclosed income includes any money, bullion, jewellery or other valuable articles or things or any income based on any entry in the books of accounts or other documents or transactions, where such money, bullion, jewellery, valuable articles, thing, entry in the books of accounts or other documents or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purpose of this Act.
5. As per Section 158BA(2)(b), the total undisclosed income relating to the block period shall not include the income assessed in any regular assessment as income of such block period.
6. As per Section 158BB, undisclosed income shall be aggregating of the total income of the previous years falling within the block period on the basis of search material and documents etc. This income shall be reduced by the aggregate of total income or as the case may be, as increased by the aggregate of losses of the previous years as determined under Section 143 or Section 144 or Section 147, etc.
7. Learned counsel thereafter argued that the deduction under Section 80-IA of the Act, disallowed by the AO and confirmed by the CIT(A), was against the provisions of law and deserves to be deleted. On the other hand, learned Departmental Representative supported the order of the CIT(A).
8. We have considered the rival submissions. As regards, jurisdiction of the ITO in issuing notice under Section 158BC of the Act, we do not find any substance in the submissions of the learned counsel. Section 158 BC of the Act has used the word “AO”. This section requires an AO to issue notice to the searched person requiring him to furnish the return of undisclosed income. Sec. 158BG of the Act talks of an authority who will pass the assessment order. This section prescribes that an assessment order would not be passed by an officer who was below the rank of Asstt. CIT. In other words, the notice under Section 158BC of the Act for filing the return of undisclosed income could be issued by an officer below the rank of Asstt. CIT but the assessment under Chapter XIV-B has to be made by an officer not below the rank of Asstt. CIT. As the order is passed by the Dy. CIT, there was no infirmity in the assumption of jurisdiction.
9. Admittedly, the assessment has been made under Chapter XIV-B. An assessment order under Chapter XIV-B was different from the assessment in normal course. Chapter XIV-B has provided procedure for making assessment in search and seizure cases. In this Chapter, only the undisclosed income could be brought to tax. In other words, if certain income was already declared in earlier years, such income cannot be disturbed unless, during the course of search and seizure operation, certain documents were found relating to such income. In case nothing incriminating was found, no addition on account of undisclosed income could be made in an order under Chapter XIV-B. The cases relied on by the learned counsel mentioned earlier support this view.
10. We find that in his order, the AO has referred to various documents found during the course of survey under Section 133A and not any document found during the course of search and seizure operation relating to the claim under Section 80-1 of the Act. This is evident from the observations of the AO in para 5 of his order which are as under:
“5. The assessee has been claiming deduction under Section 80-IA on account of its slitting activities of photographic paper at Silvasa claiming it as manufacturing activity. The Silvasa Plant division was surveyed on 22nd Dec, 1999. Certain files were found and identified by the survey team and was brought to the head office by the general manager, Mr. Rana Krishnan as he could not be able to explain the entries properly. Subsequently, these papers were marked as Annexes. A-1, A-2 and A-3 seized from Worli Office, i.e., head office on 6th Jan., 2000”.
11. Again in para 5.3 of his order, the AO has observed as under :
“5.3 The facts reveal otherwise. During the course of survey, the statement of Mr. B.K. Sharma, slitting supervisor of Silvasa Plant, was recorded on 23rd Dec, 1999. When he was asked to briefly tell the changes that had taken place in the company, he stated “the name was changed from Shiraj Colour Lab. (P) Ltd. to Shiraj Photo Film Ltd. and then to GMS Technology Ltd. Firstly, all operations were carried out from a Gala which was taken on rent and then to the present place. Earlier also slitting was the main business and today also it is the same”. Therefore, it is evident that the GMS Technologies Ltd. is nothing but reconstruction of a business already in existence”.
12. Even in para 5.9 of his order, the AO has observed as under .
“5.9 During the course of survey, it was found that the unit at Silvasa was employing only four employees engaged in the slitting process. During the course of survey, Mr. Keshav Prashad Mishra, the office assistant, has admitted in reply to Q. No. II, recorded under Section 131 of the IT Act that only four employees were working in the slitting process. The assessee was asked to explain. In reply, the Authorised Representative of the assessee submitted that there were 14 regular employees and 7 temporary employees. In support of his contention, he also furnished salary bills though he was asked to produce the attendance register.”
13. We also find that the scope of the word “undisclosed income” was enlarged by amendment to Section 158BB(1) of the Act w.e.f. 1st July, 1995. As per amended provisions, the scope of undisclosed income was extended to any undisclosed income computed on the basis of evidence found as a result of search or acquisition of books of account or other documents and such other material or information as are available with the AO and relatable to such evidence (emphasise, italicised in print, by us). In other words, if certain material became available to AO after the search but was relatable to the evidence found during the search or requisition under Section 133A, the undisclosed income could be computed on the basis of such documents/information also. From the order of the AO, nothing comes out as to whether the information/documents found during survey were relatable to any evidence found during the course of search and seizure operation pertaining to the claim under Section 80-IA of the Act or not. If it was so then certainly the addition could be made but if no material was found during the search and seizure operation relating to claim under Section 80-IA and certain material/information was found only during survey under Section 133A, such material cannot be used for computing undisclosed income under Chapter X1V-B of the Act. We, therefore, set aside this issue and restore back to the AO with the directions that if the documents found during survey pertaining to the deduction under Section 80-IA of the Act was in continuation of any evidence found during the course of search and seizure operation pertaining to the claim of deduction under Section 80-IA, the addition made by the AO could be justified. But if it was not so, the addition based on the documents found during the course of survey only, will not be justified. The AO will re-examine the issue afresh and take a view keeping in line the directions mentioned above. While doing so, the AO will be at liberty to consider such documents during the course of regular assessment for the relevant period when the documents were found during the course of survey.
14. In the result, the appeal filed by the assessee is allowed for statistical purposes.