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Facts
The assessee filed an appeal against the order of the CIT(A) regarding disallowance of expenses under Section 14A and an addition for on-money receipt. The Revenue also filed appeals against the deletion of these additions by the CIT(A). The assessment for the relevant years was conducted under Section 153A following a search action.
Held
The Tribunal held that the addition made by the Assessing Officer was not based on any incriminating material seized during the search. The additions were based on material already available on record or post-search analysis. Therefore, the order under Section 153A was considered bad in law. No disallowance under Section 14A was called for.
Key Issues
Whether the assessment order passed under Section 153A was valid without any incriminating material seized during search for unabated years, and whether disallowance under Section 14A was justified.
Sections Cited
14A, 143(3), 153A, 139(1), 132, 68, 115BBE, 250
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Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: DR. B.R.R. KUMAR, VICE-MS. SUCHITRA KAMBLE
(Appellant) .. (Respondent) Assessee by : Shri Biren Shah, AR Revenue by: Shri A.P. Singh, CIT-DR Date of Hearing 16.01.2025 Date of Pronouncement 14.02.2025 O R D E R PER DR. B.R.R. KUMAR, VICE-PRESIDENT:- IT(SS) A No. 1/Ahd/2024 is the appeal filed by the assessee against the order passed by the Ld. Commissioner of Income-Tax (Appeals)-12, Ahmedabad (hereinafter referred to as "CIT(A)" for short) under Section 250 of the Income-tax Act, 1961 [hereinafter referred to as "the Act" for short] dated 22.11.2023 for Assessment Year (AY) 2017-18, while the ITA
IT(SS)A No. 1/Ahd/2024, & 155/Ahd/2024 Assessee : Ghanshyam Mohanlal Patel Asst. Year : 2017-18, 2016-17, 2018-19 - 2– Nos. 154 & 155/Ahd/2024 are the appeals preferred by the Revenue against the orders passed by the Ld. CIT(A) under Section 250 of the Act of even dated 22.11.2023 for AYs 2016-17 and 2018-19, respectively. Since the issues are common and appeals are inter-connected, the same are being disposed of by this common order for the sake of convenience.
IT(SS)A No. 1/Ahd/2024 – Assessee’s appeal
The principal grounds raised
in this appeal are as follows:-
1. In law and in the facts and circumstances of the appellant's case, the Ld. CIT(A) has erred in sustaining the disallowance of Rs. 31,38,785/- made u/s. 14A when all the expenses claimed by the appellant were considered as allowable in earlier assessment order passed u/s. 143(3). The disallowance needs to be deleted.
2. Without prejudice to the above, in law and in the facts and circumstances of the appellant's case, the Ld. CIT(A) has erred in not appreciating the fact that the disallowance, if any, required to be made u/s. 14A of the Act cannot exceed the actual expenses incurred by the appellant.
3. In law and in the facts and circumstances of the appellant's case, the Ld. CIT(A) has erred in sustaining the addition of Rs. 1,72,814/- on account of alleged on money receipt, merely on the basis of assumption and without any evidence and hence, the same needs to be deleted.
Ground No. 3 not pressed, hence dismissed as not pressed.
The brief facts leading to the filing of this appeal are that the assessee filed his return of income u/s 139(1) of the Act for AY 2017-18 on 26.10.2017 declaring total income of Rs.3,93,44,650/-. A search action u/s 132 of the Act was carried out on ‘Ajay Shridhar Group’ on 28.01.2020 and the assessee was also covered u/s 132 of the Act. During the course of IT(SS)A No. 1/Ahd/2024, & 155/Ahd/2024 Assessee : Ghanshyam Mohanlal Patel Asst. Year : 2017-18, 2016-17, 2018-19 - 3– search proceedings at the residential and business premises of the assessee, certain incriminating documents were seized pertaining to the assessee. Subsequently, the Assessing Officer has passed the order u/s 153A r.w.s. 143(3) of the Act, determining the total income of the assessee at Rs.4,26,56,249/-, by making disallowance of Rs.31,38,785/- u/s 14A of the Act.
Aggrieved by the order of the Assessing Officer, the assessee filed appeal before the Ld. CIT(A) who dismissed the appeal of the assessee.
Aggrieved by the order of the ld. CIT(A) confirming the addition/disallowance made by the Assessing Officer, the assessee has filed appeal before the Tribunal.
Before us, Ld. Counsel for the assessee submitted that the Assessment Order itself is bad in law as the assessment was carried out mechanically on the basis of the fact that there was a search in the case of assessee. Therefore, the assessment for six years has been carried out by invoking the provisions of Section 153A of the Act, and the said order is, therefore, passed in violation of provisions of Section 153A of the Act. The Ld. Counsel for the assessee also submitted that there was no reference to any incriminating material found during the course of search in case of the assessee. The only additions made by the Assessing Officer in the assessment order is in respect of disallowance under section 14A and addition on account of alleged on-money receipt on sale of plot. He thus submitted that since the assessee's case for the year under consideration was already subjected to extensive scrutiny by invoking provisions of IT(SS)A No. 1/Ahd/2024, & 155/Ahd/2024 Assessee : Ghanshyam Mohanlal Patel Asst. Year : 2017-18, 2016-17, 2018-19 - 4– section 143(3) of the Act and there was no basis for invoking the said provisions again and passing an order to make a disallowance u/s. 14A of the Act. The Ld. Counsel for the assessee submitted that the assessee’s case for the year under consideration as well as earlier years was covered under assessment u/s. 153A/143(3) of the Act and all the expenses claimed by the assessee were allowed as deduction, without making any disallowance u/s. 14A. Therefore, there is no reason for not accepting the said position which was accepted by the department from year to year. It was also submitted that the Assessing Officer has computed the disallowance u/s. 14A of Rs. 31,38,785/-, by applying Rule 8D without identifying the actual expenses in connection with the earning of exempt income. In this regard, the Ld. Counsel for the assessee submitted that fund utilised for the said project are clearly identifiable as the Balance Sheet as well as Profit and Loss Account of the assessee’s proprietary concern viz. Suryam Developers which are separately prepared and audited. The copies of audited Balance sheet and Profit and Loss account were already available with the Assessing Officer. Therefore, Ld. Counsel for the assessee contended that the expenses incurred by the proprietary firm i.e. Suryam Developers cannot be attributed to any investments made by the assessee.
The Ld. DR, on the other hand, relied upon the orders of the authorities below and submitted that the assessee has earned exempt income during the year under consideration, however, no expense was attributed to earn such exempted income. Therefore, the Assessing Officer has rightly invoked the provisions of Section 14A by applying Rule 8D (ii),
IT(SS)A No. 1/Ahd/2024, & 155/Ahd/2024 Assessee : Ghanshyam Mohanlal Patel Asst. Year : 2017-18, 2016-17, 2018-19 - 5– which was calculated on the basis of the data provided by the assessee himself.
We have heard the rival submissions and perused the material available on record. We find that the assessee has earned Rs.20,012/- on account of dividend, Rs.2.08 crores on account of share of profit from partnership firm and Rs.1.99 lakhs on account of interest on PPF. Hence, we hold that no disallowance u/s 14A of the Act is called for.
In the result, the assessee’s is appeal is hereby allowed.
& 155 /Ahd/2024 – Department’s appeals AYs : 2016-17 and 2018-19 9. The grounds of appeal raised by the Revenue read as under:-
“1) "Whether, on the facts and in the circumstances of the case and in law, the ld. CIT(A) is correct in deleting the addition of Rs.62,47,484/- [AY 2016-17] & Rs.30,98,115/- [AY 2018-19] and made u/s.14A r.w.r. 8D without considering the para 14(iii) of judgement of Hon. Supreme Court in the case of PCIT Vs. Abhisar Buildwell P. Ltd [2023]"?
2) "Whether, on the facts and in the circumstances of the case and in law, the Id. CIT(A) is correct in deleting the addition of Rs.10,60,00,000/- [AY 2016-17] & Rs.10,25,00,000/- [AY 2018-19] made on account of unexplained income u/s.68 of the Act"?
3) Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is correct in deleting the disallowance of interest expenses of Rs.13,30,313/- [AY 2018-19].”
The Assessing Officer observed that the assessee has taken unsecured loans from various parties. He also observed that assessee had squared off unsecured loans amounting to Rs.2,25,00,000 from M/s.
IT(SS)A No. 1/Ahd/2024, & 155/Ahd/2024 Assessee : Ghanshyam Mohanlal Patel Asst. Year : 2017-18, 2016-17, 2018-19 - 6– Blackberry Commotrade Pvt Ltd and paid interest amounting to Rs.7,01,506/- at the rate of 6% p.a. to the said company. It is also found that the assessee has squared off unsecured loan amounting to Rs.8,30,00,00/- from M/s. Jai Ambe Vinimay Pvt Ltd and paid interest amounting to Rs.16,38,904/- at the rate of 6%. The Assessing Officer held that the transactions made by the assessee with the above-mentioned concerns in respect of unsecured loan and interest paid on such loans were bogus and liable to be disallowed, as per the reasoning given by him in the assessment order. He, thus, treated the unsecured loans amounting to Rs.10,60,00,000/- received from the aforesaid two companies, for the year 2016-17, as cash credits within the definition of Section 68 r.w.s. 115BBE of the Act and the same was added to the total income of the assessee.
Aggrieved by the aforesaid addition made by the Assessing Officer, the assessee filed appeal before the Ld. CIT(A) who deleted the said addition.
Aggrieved, the Revenue is in appeal before us. The Ld. DR submitted that the addition was based on seized material and the Ld. AR submitted that there was no addition based on seized material.
We have gone through the entire record before us. We find that the ld. CIT(A) deleted the addition by observing as under:- “6.3 In view of the above the matter is no longer res integra. Existence of incriminating material is a sine qua non for assuming jurisdiction under section 153A of the Act for the case of completed or unabated assessment year. It has been held that Section 153A was not meant to provide a second or a third inning to the AO so as to complete a normal scrutiny assessment. This would have to be seen on a year-to-year basis because under the scheme of Section 153A, every AY is to be taken
IT(SS)A No. 1/Ahd/2024, & 155/Ahd/2024 Assessee : Ghanshyam Mohanlal Patel Asst. Year : 2017-18, 2016-17, 2018-19 - 7– separately. So in cases, where assessment proceedings are completed or unabated, no addition other than those backed by incriminating document/s seized during the course of search u/s 132 of the Act is/are sustainable.
6.4 In the present case, following relevant incontrovertible facts emanate from the records:
A.Y. Date of Filing of Date upto which notice a Date of Return u/s 139(1) 143(2) could have been issued Search 2016-17 15.10.2016 30.09.2017 28.01.2020
Thus, on the date of search, assessment proceedings had already been completed or was unabated.
6.4.1 Further the AO has made addition u's 153A r/w 143(3) in the order under current appeal of which details are as under:
Sl. Description of Amount of addition Addition based on No. Addition by AO (from the Assessment Order
1 Disallowance of Rs.62,47,484/- No reference to any seized document. Based on analysis of expenses u/s the P&L a/c and Balance-sheet for the relevant FY 14A r/w Rule 8D
2 Bogus Rs.10,60,00,000/- Reference to seized material: YES unsecured Natere of the document seized an excel file viz. TDS-SHEET loans/ bogus 06-09-2019.xlsx having path interest E:\KEYWORD\AMOUNT\PARTY A: 14\MANUAL expenses EXTRACTION\LAPTOP 10 LENOVO\PRESENT FILE\EXCEL\TDS-SHEET 06-09-2019.xlsx which contained details of TDS deducted by SURYAM DEVELOPERS towards payment of bills of various companies. On perusal of the same, it was seen that TDS amounting Rs. 46,42,787/- had been deducted towards payment of bills to wo Kolkata Based companies viz. Blackberry Commotrade Pvt. Lad & JAI AMBE VINIMAY PVT. LTD Action taken by Assessing Officer post search – issued notice u/s 142(1) calling for details of interest paid, TDS law followed, Bank Statements as proof of payments the assessee furnished the details of unsecured loans availed and details of interest paid thereon and TDS deducted. The summary of the transactions between the assessee and these two concerns for the lad few years is as under M/s. Blackberry Commotrade Pvt. Lad total income Sr Unsecured loan Interest of the loan
IT(SS)A No. 1/Ahd/2024, & 155/Ahd/2024 Assessee : Ghanshyam Mohanlal Patel Asst. Year : 2017-18, 2016-17, 2018-19 - 8–
No. AY received (Rs.) Exp. On loan Provided as per its ITR 1 2016-17 8,75,00,000 - 915190 2 2018-19 5,50,00,000 17,91,518 1538326 3 2019-20 1,00,00,000 31,37,672 - 4 2020-21 - 7,01,506 2,22,64,390
M/s. Jai Ambe Vinimay Pvt. Ltd. total income Sr Unsecured loan Interest of the loan No. AY received (Rs.) Exp. On loan Provided as per its ITR 1 2016-17 1,85,00,000 - 338175 2 2018-19 4,75,00,000 19,52,153 9757250 3 2019-20 3,55,00,000 33,34,356 760994 4 2020-21 - 16,38,904 9473770
Reason for making the addition as mentioned by the AO o The companies are Kolkata based which is a hub of shell companies. Department has detected 16000 shell companies in Kolkata that are engaged in routing black money The addresses of the two companies is same o Financial Statements and income of the year show that they are paper concern and no active and genuine business o Open source i. e. Zaubacorp.com enquiry revealed that 18 other companies were registered at the same address o Concluded from analysis of data available on open source and other facts submitted that the unsecured loans and interest paid to these companies are bogus and added u/s 68 r/w 115BBE
6.5 It is evident that addition made was not based on any incriminating document/s seized during the course of search proceedings dated 28/01/2020 but material already available on record or post search analysis from information available on internet, details called for us 142(1) and conclusion drawn by the AO while invoking section 68 in this case based on his satisfaction arising out of that information only. The document seized and referred to is not at all incriminating in nature. This is a completed or unabated year. So, in view of the settled position of law, following the order of the Hon'ble Supreme Court in the case M/s Abisar Buildwell (P) Ltd et al (supra), it is held that the order under section 153A r/2 143(3) of the Act is bad in law and not sustainable.”
Accordingly, in the absence of any other material brought before us, we are in agreement with the categorical conclusion given by the Ld. CIT(A)
IT(SS)A No. 1/Ahd/2024, & 155/Ahd/2024 Assessee : Ghanshyam Mohanlal Patel Asst. Year : 2017-18, 2016-17, 2018-19 - 9– that addition made was not based on any incriminating document/s seized during the course of search proceedings dated 28.01.2020 but material already available on record or post search analysis from information available on internet, details called for us 142(1) and conclusion drawn by the Assessing Officer while invoking section 68 in this case based on his satisfaction arising out of that information only.
In the result, appeal of the assessee is allowed and the appeals filed by the Revenue are dismissed.