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Income Tax Appellate Tribunal, “B” BENCH, CHENNAI
Before: HON’BLE SHRI V. DURGA RAO & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
सुनवाईकीतारीख/ : 10-02-2022 Date of Hearing घोषणाकीतारीख / : 05-04-2022 Date of Pronouncement आदेश / O R D E R Per Bench
Aforesaid appeals by assessee are for Assessment Years (AY) 2007-08 to 2013-14. The appeal for AY 2007-08 arises out of the order of learned Commissioner of Income Tax (Appeals)-18, Chennai [CIT)] dated 28.03.2019 whereas the remaining appeals arises out of common to 1688/Chny/2019 - 2 - order dated 25.03.2019. The assessments, for all the years, have been framed by learned Assessing Officer (AO) u/s 143(3) r.w.s. 153A vide separate orders dated 31.03.2015 except for AY 2013-14 wherein the assessment has been framed u/s 143(3). First, we take up appeal for AY 2007-08 wherein the grounds taken by the assessee read as under: -
1. The order of the Commissioner of Income Tax (Appeals) - 18, Chennai dated 28.03.2019 in I.T.A.No.953/15-16 for the above-mentioned Assessment Year is contrary to law, facts, and in the circumstances of the case.
The CIT (Appeals) erred in sustaining the validity of the search assessment upon rejecting the technical issues raised including lack of search/seized materials in para 7.25 of the impugned order without assigning proper reasons and justification. 3. The CIT (Appeals) failed to appreciate that the order of search assessment was passed out of time, invalid, passed without jurisdiction and not sustainable both on facts and in law on various grounds. 4. The CIT (Appeals) failed to appreciate that the cleavage of judicial opinion on the jurisdictional issue would fortify the plea for adopting the view favourable to the tax payer and ought to have appreciated further that the analysis of the decisions on the said technical issue was completely erroneous and tangentpial in nature while vitiating the related findings. 5. The CIT (Appeals) erred in rejecting the grounds challenging the validity of the assessment order in para 5.6 of the impugned order without assigning proper reasons and justification and ought to have appreciated that the perversity in recording the facts relating to the dispatch of the assessment order would fortify the plea of invalidity in passing the said assessment order beyond the limitation period. 6. The CIT (Appeals) erred in partly sustaining the addition in consequence to the disallowance of the claim of interest payments in the computation of income from house property in para 8.7 & para 8.8 of the impugned order without assigning proper reasons and justification. 7. The CIT(Appeals) went wrong in recording the findings in paras 8.3 to 8.6 of the impugned order with reference to the interpretation of the provisions in section 24(b) of the Act without assigning proper reasons and justification. 8. The CIT (Appeals) failed to appreciate that there was no proper opportunity given before passing of the impugned order and any order passed in violation of the principles natural justice would be nullity in law. 9. The Appellant craves leave to file additional grounds/arguments at the time of hearing. As evident, the assessee challenges the additions confirmed by Ld. CIT(A) on legal grounds as well as on merits. to 1688/Chny/2019 - 3 - Arguments Before us 2. The Ld. AR, at the outset, submitted that in the absence of any incriminating material as found during the course of search proceedings, the additions could not have been made as per the decision of Hon’ble Delhi High Court in Pr. CIT V/s Meeta Gutgutia (82 Taxmann.com 287). It was brought to the notice that Special Leave Petition filed by the revenue against this decision has already been dismissed by Hon’ble Supreme Court on 02.07.2018. The Ld. AR also assailed the additions on merits. 3. The Ld. CIT-DR, on the other hand, maintained that as per the scheme of the Act, the Ld. AO was required to reassess the income of preceding 6 years and was free to make any additions while framing the assessment. The Ld. CIT-DR also filed a paper book which, inter-alia, contain screenshots of assessment framed, approval of JCIT u/s 153D and the inventory of cash found and seized during the course of search operations. The Ld. CIT-DR has also relied on as many as 10 judicial decisions in support of the submissions. 4. Having heard rival submissions and after going through relevant material on record including judicial pronouncements as cited before us during the course of hearing, our adjudication would be as given in succeeding paragraphs. Assessment Proceedings 5. The assessee being resident individual was searched u/s 132 on 11.05.2012. In response to notice u/s 153A, the assessee offered return of income declaring income of Rs.35.30 Lacs. The assessee offered rental income of Rs.32.72 Lacs and claimed interest on borrowed capital for Rs.8.51 Lacs. Upon perusal of documents, it was noted that the loan to 1688/Chny/2019 - 4 - was given to the assessee against future rental rather than for construction of building. Accordingly, the interest as claimed under the head ‘income from house property’ was disallowed. The assessee was saddled with another addition of Rs.0.38 Lacs under the head ‘income from other sources’, being amenities & others charges received from tenants. The last addition of Rs.25.84 Lacs represents unexplained investment in gold jewellery, silver and diamond. Though the assessee had filed wealth tax return and submitted that there were no fresh purchases during the year, however, it was found that the returns were filed after due date and hence, it was an invalid return. Accordingly, the amount was added to assessee’s income as unexplained investments. Appellate Proceedings 6.1 During appellate proceedings, the assessee raised various legal grounds. One of the grounds was that in respect of assessment completed prior to the date of search that have not been abated, the scope of proceedings u/s 153A has to be confined only to material unearthed during search. Since no material was found, no such additions could be made u/s 153A. To support the same, reliance was placed on various judicial pronouncements notable amongst the same was the decision of Hon’ble High Court of Delhi in CIT V/s Kabul Chawla (380 ITR 573) as well as the decision of Hon’ble High Court of Bombay in CIT V/s Continental Warehousing (Nhavasheva) Ltd. (374 ITR 645) and also the decision of special bench of Mumbai Tribunal in All Cargo Global Logistics Ltd. V/d DCIT (137 ITD 287). 6.2 However, Ld. CIT(A), considering the statutory provisions of Sec.153A, held that Ld. AO was duty bound to issue notice for preceding 6 years and assess total income. The notice u/s 153A was mandatory ITA Nos. 1682 to 1688/Chny/2019 - 5 - and the assessee was bound to furnish return of income even if no books of accounts / assets / documents were seized or no statement was made by the assessee during the course of search. Reliance was placed on the decision of Hon’ble Kerala High Court in the case of E.N.Gopakumar V/s CIT (75 Taxmann.com 215; 03.10.2016) which was not considered in the decision of Meeta Gutgutia (supra). Further, this issue had not attained finality since no law was laid down by Hon’ble Supreme Court on this issue. Therefore, the legal grounds were dismissed. The issue, on merits, was partly allowed. Aggrieved, the assessee is in further appeal before us. Our findings & Adjudication 7. Upon careful consideration of factual matrix as enumerated in preceding paragraphs, the undisputed position that emerges is that all the three additions / disallowances as made by Ld. AO in the assessment order are only based on the return of income filed by the assessee without there being any incriminating material on record to justify the disallowances. The Ld. AO has not referred to any incriminating material and the revenue is unable to demonstrate that there was any incriminating material found from the assessee during the course of search operations. Undisputedly, on the date of search no assessment proceedings for this year were pending against the assessee. The time limit to scrutinize the returns had already expired on the date of search. Thus, this was a case of non-abated assessment and therefore, the additions, which could have been made by Ld. AO was to be strictly based on incriminating material found during the course of search operations as held by Hon’ble Bombay High Court in CIT V/s Continental Warehousing Corporation [2015; 374 ITR 645]. In other to 1688/Chny/2019 - 6 - words, unless any incriminating material was unearthed, no additions could be sustained in the hands of the assessee.
We find that similar view has been expressed by Hon’ble Delhi High Court in CIT Vs. Kabul Chawla (380 ITR 573) which has summarized the legal position as under: -
On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs in which both the disclosed and the undisclosed income would be brought to tax. iv. Although Section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material. v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or to 1688/Chny/2019 - 7 - property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. Nothing has been shown to us that the aforesaid decisions have subsequently been reversed or stayed in any manner by higher judicial forum. 9. We find that similar is the view of Hon’ble Delhi High Court in Pr. CIT V/s Meeta Gutgutia (82 Taxmann.com 287) which has primarily followed the decision of Kabul Chawla (supra). We also find that Special Leave Petition filed by the revenue against this decision has already been dismissed by Hon’ble Supreme Court on 02.07.2018 which is reported at 96 Taxmann.com 468. The decision of Hon’ble Court was as under: -
1. 1. Delay condoned.
2. We do not find any merit in this petition. The special leave petition is, accordingly, dismissed.
3. Pending application stands disposed of.
The Ld. CIT-DR has relied on the decision of Hon’ble Kerala High Court in the case of E.N. Gopakumar V/s CIT (75 Taxmann.com 215; 03.10.2016) which has taken contrary view by relying upon its earlier decision in CIT V/s St. Francis Clay Décor Tiles (70 Taxmann.com 234; 22.03.2016). However, upon perusal of decision of Hon’ble Court in CIT V/s St. Francis Clay Décor Tiles (supra), we find that the said case is factually distinguishable. In that case, the admitted facts were that the Managing Partner of the assessee had given voluntary statement to the Assessing Officer that there is a undisclosed income of Rs.2.75 Crores. The admission was retracted by the Managing Partner subsequently. On the basis of these facts, it was concluded by Hon’ble Court that since there was a disclosure made by giving a statement to 1688/Chny/2019 - 8 - during the course of search and therefore, the Assessing Officer, by virtue of the power conferred on him under section 153A, was competent to issue notice under the said provision and require the assessee firm to furnish the returns as provided there-under. It was further held that neither under section 132 nor under section 153A, is the phraseology “incriminating” used by the Parliament. Therefore, any material which was unearthed during search operations or any statement made during the course of search by the assessee is a valuable piece of evidence in order to invoke the provisions of Section 153A of the Income Tax Act, 1961. In the present case, no such admission is shown to have been made by the assessee. The revenue could not place any incriminating material before us. Therefore, these case laws are distinguishable on facts.
The second decision as referred by Ld. CIT-DR is the Special Leave Petition (SLP) filed by the revenue and accepted by Hon’ble Supreme Court in the case of Pr. CIT V/s Gahoi Foods Pvt. Ltd. (117 Taxmann.com 118). We find that SLP has been filed by the revenue against the decision of Hon’ble High Court of Madhya Pradesh as reported at 117 Taxmann.com 117. In this case, Hon’ble Court chose to follow the decision of Hon’ble Delhi High Court in CIT V/s Kabul Chawla (380 ITR 573) and concurred with the views expressed therein. The revenue preferred SLP against the same which has been admitted and tagged with other appeals. However, there is no stay by Hon’ble Supreme Court on the operation of the order of Hon’ble High Court. Similar is the position with case law of Hon’ble Delhi High Court in Pr. CIT V/s Gaurav Arora (ITA No.524 of 2018; 02.05.2018) wherein Hon’ble Court has chosen to follow the decision in CIT V/s Kabul to 1688/Chny/2019 - 9 - Chawla (380 ITR 573) and dismissed the appeal of the revenue. The revenue preferred SLP against this decision which has been admitted by Hon’ble Supreme Court which is reported at 133 Taxmann.com 293. However, there is no stay on the operation of the order. Similar is the status of decision of Hon’ble Delhi High Court in Pr. CIT V/s Param Dairy Ltd. (133 Taxmann.com 147) wherein Hon’ble Apex Court has admitted the SLP (133 Taxmann.com 148) but there is not stay on the operation of the order. 12. The Ld. CIT-DR has also referred to the decision of Hon’ble Delhi High Court in Filatex India Ltd. V/s CIT (49 Taxmann.com 465). Upon perusal of para-2 of this decision, we find that in that case Ld. AO, in the proceedings u/s 153A, had made several additions, relying upon the incriminating material found in the course of search. It was undisputed fact that there was incriminating material unearthed by the revenue including statement of Shri Sanjay Agrawal, GM (Marketing). It was never the case of the assessee that the initiation of proceedings u/s 153A was bad or unwarranted in law as no incriminating material was found during the search. Therefore, this decision, in our opinion, has no application to the present case before us. 13. The next decision as referred to be Ld. CIT-DR is the decision of Hon’ble Allahabad High Court in CIT V/s Rajkumar Arora (52 Taxman.com 172). Upon perusal, we find that incriminating material was found by the revenue during the course of search operations. It is in this context, Hon’ble Court held that Ld. AO had power to reassess returns of assessee not only for undisclosed income, which was found during search operation but also with regard to material that was available at time of original assessment. to 1688/Chny/2019 - 10 - Similar is the case law of Hon’ble Karnataka High Court in Canara Housing Development Co. V/s DCIT (49 Taxmann.com 98) wherein incriminating material leading to undisclosed income was seized. 14. Another decision referred to by Ld. DR is the decision of Chennai Tribunal in ACIT V/s KI International Ltd. (ITA Nos.897 & 898/Mds/2017 dated 24.08.2017). After perusal of this decision, we find that in that case the assessee was searched on 18.12.2012 and another search action was carried out by revenue in the case of alleged accommodation entry provider Shri Praveen Kumar Jain on 01.10.2013 wherein in statement u/s 132(4), Shri Praveen Kumar Jain admitted to have indulged in providing accommodation entry and explained the modus operandi of providing such entries. The assessee did not furnish the specific details of the allotment of shares. Going by the factual matrix, the bench upheld the validity of assessment proceedings u/s 143(3) r.w.s. 153A & 153C of the Act. However, none of the case laws as enumerated by us in the preceding paragraphs has been considered rather the adjudication is purely based on factual matrix of the case. Therefore, the ratio of this decision could not be applied to the facts of the present case before us. 15. The decision of Chennai Tribunal in ACIT V/s Leela Distilleries (P) Ltd. (ITA Nos.2714-16/Mds/2016) do not consider the favorable decisions rendered by Hon’ble Delhi High Court as well as Hon’ble Bombay High Court since this order is an ex-parte order qua the assessee. 16. Finally, on the given facts and circumstances, all the additions as confirmed by Ld. CIT(A) in the impugned order are liable to be deleted since the same are not based on any incriminating material unearthed ITA Nos. 1682 to 1688/Chny/2019 - 11 - during the course of search operations. We order so. The assessee’s legal grounds succeed. The issue, on merit, has been rendered mere academic in nature. Assessee’s Appeal for AYs 2008-09 to 2010-11 17.1 The impugned order is common order for AYs 2008-09 to 2013-14. We find that the facts as well as issues in assessee’s appeal for AY 2008-09 are quite identical. The assessee has been saddled with disallowance of interest on borrowed capital and amenities charges have been brought to tax under ‘income from other sources’. In AY 2009-10 as well as in AY 2010-11, the assessee has been saddled with disallowance of interest on borrowed capital under similar circumstances. The legal grounds urged by the assessee have been dismissed whereas the ground on merits has been partly allowed. Aggrieved, the assessee is in further appeal before us. 17.2 Facts being pari-materia the same as in AY 2007-08, our findings as well as adjudication as contained therein shall apply with full force to AYs 2008-09, 2009-10 & 2010-11. All these years are non-abated years and the time limit to scrutinize the returns of income had already expired. Accordingly, the legal grounds raised
in AYs 2008-09 to 2010-11 stands allowed. The issues, on merits, have been rendered academic in nature. All these appeals stand allowed in terms of our above order. Assessee’s Appeal, AY 2011-12
18. In this year, the time limit to issue notice u/s 143(2) had not expired. The original return of income was filed by the assessee on 14.03.2012 at Rs.30.97 Lacs and search took place on 11.05.2012. Therefore, the ratio of earlier years would not apply to this year. to 1688/Chny/2019 - 12 -
19. In response to notice u/s 153A, the assessee filed return on 26.03.2013 and admitted income of Rs.30.58 Lacs. The issue which forms subject matter of appeal before us are adjudicated as under: - (i) Interest on borrowed capital The assessee claimed interest in borrowed capital for Rs.8.74 under the head ‘Income from House Property’. Upon perusal of documents, it was noted that the loan was given by Indian Overseas Bank (IOB) against future rental rather than for construction of building. Accordingly, the interest was disallowed. The property was purchased by the assessee jointly with her mother in the year 2006. The loan obtained by the assessee in that year was partly satisfied and substituted by fresh loans. The Ld. AO noted that new loan was taken neither against construction not purchase of property. The balance amount after settling the old loan was used by the assessee in the business. Therefore, the claim was denied. The Ld. CIT(A) held that interest on subsequent loan could be allowed provided the same was taken to repay earlier loans and deduction would be allowable only to the extent of interest on earlier loan used for acquiring the property and not on the unpaid interest on earlier loans. It was noted that Rs.45 Lacs out of new loan was utilized to discharge the pending loan of Rs.45.09 Lacs. Therefore, the interest on Rs.45 Lacs would be allowable u/s 24(b). The Ld. AO was directed to rework the allowable interest. After going through the impugned order, we concur with the findings of Ld. CIT(A) since the same are based on facts. The interest is allowable only if the loan has been utilized to acquire the property. To that extent, interest has already been allowed to the assessee. Finding no infirmity in to 1688/Chny/2019 - 13 - the impugned order, on this issue, we dismiss the ground raised by the assessee. (ii) Rental Income of Flat No.7D, Suraj Towers This property fetched rent of Rs.25,000/- per month for two months and Rs.35,000/- for 5 months. It was submitted that it remained vacant for 5 months. However, in the absence of any satisfactory documentary evidences, Ld. AO estimated rent of Rs.25,000/- for 5 vacant months. The Ld. CIT(A) confirmed the addition, against which the assessee is in further appeal before us. We find that in case of property which has been let out for part of the year, the assessee would be entitled for vacancy allowance if the property remains vacant for part of the year. It is undisputed position that the property has remained unoccupied for part of the year. Therefore, the assessee is entitled for vacancy allowance and this addition has no legs to stand. By deleting the same, we allow the ground of appeal.
20. So far as the legal grounds are concerned, we find that the assessee was subjected to search action on 11.05.2012. The assessee had already filed return of income on 14.03.2012. However, the time limit to issue notice u/s 143(2) had not expired and Ld. AO could have issued said notice by 30.09.2012. Therefore, it is not a case of concluded assessment. Rather Ld. AO was well within his right to make any addition after examination of assessee’s books of account. The legal proposition laid down by Hon’ble Delhi High Court in Kabul Chawla (supra) also supports this view. No infirmity has been shown to us in the jurisdiction acquired by Ld. AO. Therefore, the legal grounds urged by the assessee stand dismissed for this year as well as for AY 2012-13. The appeal stands partly allowed in terms of our above order.
ITA Nos. 1682 to 1688/Chny/2019 - 14 - Assessee’s Appeal, AY 2012-13 21. In this year, the subject matter of appeal is disallowance of interest on borrowed capital and notional rental income on three properties which is on same line as in AY 2011-12. Another notional addition of interest of Rs.0.40 Lacs has been made since the assessee advanced interest free loans. Upon further appeal, Ld. CIT(A) rendered its decision on similar lines with respect to first two issues whereas the addition of Rs.0.40 Lacs was not pressed by the assessee.
Facts being pari-materia the same as in AY 2011-12, we confirm the stand of Ld. CIT(A) qua interest on borrowed capital. The three additions of notional rent stand deleted. The addition of 0.40 Lacs stands deleted since Ld. AO has merely computed notional interest income on interest free loans without reference to any statutory provisions. The appeal stands partly allowed. Assessee’s Appeal, ITA No.1688/Chny/2019, AY 2013-14 23. In this year, the assessment has been framed u/s 143(3). The subject matter of appeal is disallowance of interest on borrowed capital, notional rental income on three properties and addition of notional interest for Rs.2.40 Lacs. Upon further appeal, Ld. CIT(A) rendered its decision on similar lines as in AY 2012-13. Aggrieved, the assessee is in further appeal before us.
Facts being pari-materia the same as in AY 2012-13, we confirm the stand of Ld. CIT(A) qua interest on borrowed capital. The other additions stand deleted. The appeal stands partly allowed.
Conclusion to 1688/Chny/2019 - 15 - 25. The appeals for AYs 2007-08 to 2010-11 stands allowed whereas the appeals for AYs 2011-12 to 2013-14 stands partly allowed in terms of our above order. Order pronounced on 05th April, 2022 Sd/- Sd/- (V. DURGA RAO) (MANOJ KUMAR AGGARWAL) �ाियक सद� /JUDICIAL MEMBER लेखा सद� /ACCOUNTANT MEMBER चे�ई/ Chennai; िदनांक/ Dated : 05-04-20522 JPV आदेशकी�ितिलिपअ�ेिषत/Copy of the Order forwarded to : 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकरआयु� (अपील)/CIT(A) 4. आयकरआयु�/CIT 5. िवभागीय�ितिनिध/DR 6. गाड�फाईल/GF