SMT. SEEMA MUNDRA,KOTA vs. DEPUTY COMMISSIONER OF INCOME TAX, KOTA

PER BHAGCHAND, AM

The appeal filed by the assessee emanates from the order of the ld.

CIT(A)-4, Jaipur dated 1-02-2018 for the Assessment Year 2014-15

raising therein following grounds of appeal.

‘’1. That under the facts and circumstances of the case the ld. CIT(A) erred in not considering that F.Y. 2013-14 being the search year the issuance of notice u/s 142(1) r.w.s.s 153A for Asstt.Year 2014-15 was beyond legislative powers of the AO and therefore, entire proceedings based on this illegal notice being void the order u/s 143(3) r.w.s. 153B(1) deserves annulment.

ITA No.431/JP/2018 Smt. Seema Mundra vs DCIT, Central Circle, Kota 2. That without prejudice to GOA 1 above the ld. CIT(A) erred in confirming addition/ disallowance of Rs. 7,34,042/- from interest a/c. 3. That without prejudice to GOA 1 and 2 above the ld. CIT(A) further erred in not considering that interest Rs. 2,98,920/- is already charged from Pawan Mundra and therefore, addition, if any should be Rs. 4,35,122/- (734042 – 298920) only with corresponding relief in Pawan Mundra who is also taxed for Asstt. Year 2014-15 u/s 143(3) r.w.s. 158B(1).’’

2.1 Apropos Ground No. 1 of the assessee, the facts as emerges from

the order of the ld. CIT(A) are as under:-

‘’3. In the present case, it is seen that appellant derived income from job work in her proprietorship concern namely M/s. Preet Stone Industries, interest income and also declared agricultural income. Appellant e-filed her original return of income on 29-11-2014 for the A.Y. 2014-15 declaring total income at Rs. 2,81,210/- and also declared agricultural income of Rs. 1,72,000/-

Appellant belongs to Mundra Group, Kota on whose premises, a search u/s 132 of the Act was carried out on 13- 08-2013. Various assets/books of accounts and documents were found, inventorized and seized as per annexure prepared during the course of search. Pursuant to this, AO issued a notice u/s 142(2) r.w.s. 153A of the Act to the appellant, in compliance of which, appellant filed her return of income on 19-01-2015 for the A.Y. 2014-15 declaring total income at Rs. 2,81,210/- and also declared agricultural income of Rs. 1,72,000/-. Finally, AO completed assessment u/s 143(3) r.w.s. 153B(1)(b) of the Act vide order dated 29- 01-2016 at a total income of Rs. 10,15,250/-. 4….

ITA No.431/JP/2018 Smt. Seema Mundra vs DCIT, Central Circle, Kota has cited Sec 153A to state that for this A. Yr. notice cannot be issued.

I have perused the ground and submission made. I am of the view, though notice u/s 153A need not be issued for the instant A.Yr. being search assessment year (date of search being 13-08-2013), it does not cause any prejudice to the appellant. Further, admittedly no dispute, legal or procedural, is raised by the appellant either before the AO or before me regarding completion of assessment u/s 143(3). Merely issue of notice u/s 153A and mentioning of same in the top header of assessment order does not vitiate the entire order. On the facts and in the circumstances of the, in my view the legal objection raised by the appellant deserves to be dismissed. Appellant’s appeal in Ground No. 1 is dismissed

2.2 During the course of hearing, the ld.AR of the assessee prayed for

quashing of the assessment order for which the ld.AR of the assessee

filed the following written submission.

‘’Before we proceed further we submit sec.153A has been amended by the Finance Act 2017 w.e.f. 01.04.2017. Because of amendment in section 153A(1)(a), 153A(1)(b), its three provisos, section 153B and 153C after six assessment years -‘and for the relevant assessment year or years’- is inserted. We however submit this amendment is effective from 01.04.2017; it does apply where search under section 132 of the Income-tax Act is initiated or requisition under section 132A of the Income-tax Act is made on or after the 1st day of April, 2017 and it applies to assessment years preceding to search years only. Though the Hon’ble CIT(A) has accepted that this Ass.Year being search year the AO should not have issued notice u/s 153A but to him as it has not caused any prejudice to assessee and as the AO has issued notice u/s 143(2) before assessment u/s 143(3) is finalized merely issue of notice u/s 153A and mentioning of same in the top header of assessment order does not vitiate the

ITA No.431/JP/2018 Smt. Seema Mundra vs DCIT, Central Circle, Kota entire order. We submitt Hon’ble CIT(A) failed to appreciate that there are plethora of judgments wherein because of failure to give notice u/s 143(2) assessment completed u/s 143(3) are vitiated. In circumstances akin to us Hon’ble Chandigarh Bench in Rajeev Kumar vs. ACIT (2017) 186 TTJ 522 relying on decision of Hon’ble Delhi Bench of ITAT in Upendra Kumara Sharma vs DCIT, Circle 9(1) (ITA No.3141/DEL/09 dated 12.04.2010) have quashed assessment order. We may add that decision of Hon’ble Chandigarh Bench (supra) does answer doubts raised by Hon’ble CIT(A) also. We therefore submit assessment order be quashed. ‘’ 2.3 On the other hand, the ld. DR supported the order of the ld.

CIT(A).

2.4 We have heard the rival contentions and perused the materials

available on record. It is not imperative to repeat the facts and

circumstances of the case as the ld. CIT(A) has elaborately discussed the

issue in his order. However, it is noted that on the similar issue the ITAT

Chandigarh Bench in the case of Rajeev Kuamr vs ACIT (2017) 186 TTJ

522 relying on decision of ITAT Delhi Bench in the case of Upendra

Kumar Sharma vs DCIT Circle – 9(1) (ITA No.3141/Del/09 dated 12-04-

2010) has quashed the assessment order. The relevant observation of

ITAT Chandigarh Bench is as under:-

‘’11…..It is well settled that an assessment is to be framed for the previous year which precedes the assessment year. Therefore, for the previous year 2006-07, the assessment year 2007-08, this assessment year succeeds the period of search and not precedes. From the plain language of the provisions contained in cl. (b) of sub-s(1) of section 153A of the Act, it is clear that the assessment under section 153A of the Act could have been framed for the 6 Assessment Years

ITA No.431/JP/2018 Smt. Seema Mundra vs DCIT, Central Circle, Kota which precedes the assessment year 2007-08. Therefore, we are of the confirmed view that the assessment under section 153A of the Act could have been framed from the Assessment Years 2001-02 to 2006- 07 only and not for the Assessment Year 2007-08. As the assessment for the Assessment Year under consideration was framed by the AO under section 153A of the Act, therefore, this assessment was not valid in the eyes of law and of initio. Thus the same is quashed. Since we have quashed the assessment order under consideration considering the same as invalid, no findings are given on other grounds raised by the assessee.’’

Respectfully following the decision of ITAT Chandigarh Bench in the

case of Rajeev Kumar vs ACIT (supra), it is noted that the legal objection

raised by the assessee before the ld. CIT(A) has merit and we concur

with the submissions of the assessee. Thus Ground No. 1 of the assessee

is allowed.

3.1 Apropos Ground No. 2 and 3 of the assessee, the facts as emerges

from the order of the ld. CIT(A) are as under:-

‘’6. With reference to Ground No. 2, it is seen that on perusal of details filed by the appellant AO revealed that the appellant paid processing charges and interest to bank at Rs. 7,34,042/-. However, interest free loans were advanced to various persons/ concerns which also includes persons covered u/s 40A(2)(b). Accordingly, the appellant was required to justify the payment of interest w.r.t. not charging of interest on interest free loan. The reason furnished by the appellant that loan taken from bank was advance to Shri Pawan Mundra has not supported with any evidences therefore, nexus for payment of processing charges and interest to bank has not been proved. Therefore, the processing charged and interest paid to bank of Rs.

ITA No.431/JP/2018 Smt. Seema Mundra vs DCIT, Central Circle, Kota 7,34,042/- was disallowed and addition made by the AO to the income of the appellant.

The legal pleas is untenable as on the date of search (13-08-2013) no return was filed for the A.Yr. 2014-15. In fact the return was filed on 29-11-2014. Since on the date of search the assessment was pending the judgements cited are NOT applicable. The legal plea thus is dismissed.

Coming to the merits of the issue, the AO has made disallowance in para 6 of the assessment order with a crucial observation that ‘’the reason furnished by the appellant that loan taken from was advanced to Shri Pawan Mundra has not supported with any evidence therefore, nexus for payment of processing charge and interest to bank has not been proved.’’ Perusal of submissions made (entire portion reproduced above) does not address nor rebut the finding by the AO. Under these facts and in the circumstances of the case, addition made by the AO of Rs. 7,34,042/- is confirmed.’’

3.2 During the course of hearing, the ld.AR of the assessee prayed that

the disallowance of Rs. 7,34,042/- be deleted and the ld.AR further

submitted that assessee has already charged interest of Rs. 2,98,920/-

from Shri Pawan Mundra for which the AO be directed to restrict the

ITA No.431/JP/2018 Smt. Seema Mundra vs DCIT, Central Circle, Kota disallowance to Rs. 4,35,122/- (Rs. 7,34,042 minus 2,98,920) only with a

corresponding set off relief to Pawan Mundra.

3.3 On the other hand, the ld. DR supported the order of the ld.

CIT(A).

3.4 We have heard the rival contentions and perused the materials

available on record. In this case it is noted that the interest paid and

received are appearing in Assessee's paper book page 5 from which it is

apparent that interest received from 4 persons and paid to bank is shown

in Profit & Loss Account where there is surplus of Rs. 1,01,394/- and it

is shown in computation statement at assessee's paper book page 3 under

Business Income Head. It is noted that the lower authorities have

confirmed the addition because assessee failed to furnish the nexus of

loan taken from bank qua advanced to Shri Pawan Mundra. It is further

noted that the assessee has submitted the bank statements of self (Central

Bank of India, Kota) and also of M/s. Stone Edge Co. (a proprietary

concern of Shri Pawan Mundra – Punjab National Bank, Kota)

wherefrom nexus is verifiable (APB 14-15). In this view of the matter,

the disallowance of Rs. 7,34,042/- made by the AO is directed to be

deleted. As regards the charging of interest by the assessee of Rs.

2,98,920/- from Shri Pawan Mundra, the AO is directed to restrict the

ITA No.431/JP/2018 Smt. Seema Mundra vs DCIT, Central Circle, Kota disallowance to Rs. 4,35,122/- (Rs. 7,34,042 minus 2,98,920) only with a corresponding set off relief to Pawan Mundra in view of the submissions made before us. Thus the Ground No. 2 and 3 of the assessee are allowed. 4.0 In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 21 -06-2018.

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