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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI DUVVURU RL REDDY & SHRI G.MANJUNATHA
This appeal filed by the assessee is directed against order of the learned CIT(A)-19, Chennai dated 18.01.2019 and pertains to assessment year 2012-13.
The assessee has raised the following grounds of appeal:-
“1. Learned CIT (A) erred in holding that seized document formed a basis for issuing notice u/s 153C and hence 153C notice was validly issued while he himself admits In para 8 of his order that seized document dt.7-6-2011 belongs to Yennarkay R Chiranjeevirathinam, husband of appellant but not to the appellant and hence in the absence of any seized material linking the appellant, issue or notice u/s 153C and addition of Rs.48,48,821 made towards difference in interest Income not admitted by appellant is incorrect and learned CIT(A) erred In confirming this addition.
2. Without prejudice to the above as held by the CIT (A), entire loan having been wiped out by appellant in AY 11- 12 Itself , interest on loan of ` 50 lakhs availed by appellant and transferred to Co. Standard Press India P Ltd., cannot be assessed in AY 12-13 on accrual basis in the hands of the appellant.
3. Without prejudice to the above the Co.Standard Press India P Ltd., having credited the appellant interest for 4 years at one stroke to the account or the appellant only that interest which accrues for AY 12-13 has to be brought to tax In the hands of the appellant.
4. Even otherwise, in the absence of any seized material vide para 11 of CIT (A) order which belongs to Yennarkay R Chiranjeevirathinam, husband of appellant but not to the appellant and the appellant not being a searched party] time limit for issue of notice u/s 143(2) having already expired, the above addition made in AY 12-13 is incorrect and CIT (A) erred in rejecting the case laws relied on by appellant.
For the reasons stated above and those that may be adduced at the time or hearing appellant prays that Hon’ble ITAT be pleased to quash the assessment made u/s 143(3)/153C and/or delete the addition of ` 47,28,820. Appellant craves the leave of the ITAT to file additional grounds and/or evidence in support of the grounds of appeal.”
Brief facts of the case are that the assessee is an individual has derived income from salary from Standard Press (India) Pvt. Ltd, Sivakasi in which she is a director, in addition she derived interest income from pranic healing programme. The assessee has filed her return of income for the assessment year 2012-13 declaring total income of ` 5,38,464/-. A search u/s.132 of the Act, was carried out on 16.10.2014 in Standard Fire Works group in consequence thereof, notice u/s.153C read with section 153(A) was issued to the assessee on 17.01.2016, for which she had filed return of income on 30.11.2016 declaring total income as admitted in the return of income filed u/s.139(1) of the Act. The case was taken up for scrutiny and during the course of assessment proceedings, the Assessing Officer noticed that as per seized documents in annexure NRKRC/loose sheets/S/SNo.1(p.79 to 83), it was noticed that the assessee has unaccounted repayment of loan to Indus Ind Bank, therefore, after considering relevant submissions of the assessee and also taken note of material found during the course of search made addition of ` 56,00,000/- as unaccounted income of the assessee towards repayment of loan and interest thereon. Further, during the Assessing Officer noticed that the assessee has shown to have received interest income of ` 59,14,284/-, however, offered a sum of ` 11,85,464/- in the statement of total income. Therefore, difference of ` 47,28,820/- which was not admitted in the return of income filed in relevant year has been treated as income and added back to the total income.
Being aggrieved by the assessment order, the assessee preferred an appeal before learned CIT(A). Before learned CIT(A), the assessee has challenged issue of notice u/s.153C read with section 153(A) on the ground that satisfaction as required under law was not recorded by the Assessing Officer before issue of notice and thus, whole assessment proceedings become vitiated and liable to be quashed. The assessee has also challenged additions made towards loan taken from Indus Ind Bank along with estimated interest on the ground that said loan was repaid on or before 31.03.2011 and hence, no addition can be made for the impugned assessment year only on the basis of closure letter issued by the bank. The assessee has also challenged additions made towards interest income on the ground that additions made by the Assessing
Officer is not supported by any incriminating material found during the course of search. Therefore, unless there is nexus between incriminating material and escaped income, no addition can be made in the assessment framed u/s.153C read with section 153(A), where assessment has been unabated as on the date of search.
The learned CIT(A), after considering relevant submissions of the assessee and also taking note of incriminating material found during the course of search observed that entire loan of ` 50,00,000/- was wiped out on 17.03.2011 and the loan account became zero as on 31.03.2011. This fact is evident from copy of the said bank account filed by the assesse. Thus, loan account closed in the financial year 2010-11 relevant to assessment year 2011-12 cannot be added for the assessment year 2012-13 and accordingly, deleted additions made by the Assessing Officer towards loan taken from Indus Ind Bank and consequential interest estimated on such loan.
As regards additions towards interest income, the learned CIT(A) observed that interest income assessed is supported by seized documents in the form of loan document executed by Indus Ind Bank Ltd., Sivakasi in favour of the assessee and thus, there is no merit in the arguments of the assessee that there is no incriminating material to support additions made by the Assessing Officer. Further, interest income has to be assessed not on mercantile basis, but on receipt basis. Since the assessee has credited interest to her capital account for the impugned assessment year, the same needs to be taxed on receipt basis, accordingly, opined there is no error in the findings recorded by the Assessing Officer to make addition towards interest income, which was credited to capital account of the assessee . Aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.
The learned AR for the assessee submitted that the learned CIT(A) has erred in confirming additions made towards interest income without reference to any incriminating material found as a result of search in the assessments framed u/s.153C read with section 153(A), when such assessment is unabated as on the date of search. The AR further submitted that the original return of income was filed on 19.02.2013 and time limit for issue of notice u/s.143(2) of the Act was expired on 30.09.2013. The search has been conducted on 16.10.2014,
therefore, when the search took place assessment for the impugned assessment was unabated. Therefore, in absence of any incriminating material found as a result of search, no additions can be made in the concluded assessment. In this regard, he relied on the decision of the Hon'ble Supreme Court in the case of PCIT Vs. Meeta Gutgutia (2018) 257 Taxman 441 (SC) and also the decision of the ITAT., Chennai in the case of DCIT Vs. Shri R.P.Dharmalingam in ITA No.1103/Chny/2018.
The learned DR, on the other hand, submitted that there is no merit in the arguments of the learned AR for the assessee that addition made towards interest income is not supported by any incriminating material found as a result of search, because additions made towards interest received from the company is on account of amount advanced to the company out of loan taken from Indus Ind Bank and further, loan taken from Indus Ind Bank was undisclosed to the income-tax department, which is evident from material found during the course of search.
Therefore, there is a live nexus between incriminating material found during the course of search and additions made towards interest income and hence, the Assessing Officer was right in bringing to tax interest income on receipt basis and further, such addition is supported by incriminating material found during the course of search.
We have heard both the parties, perused materials available on record and gone through orders of the authorities below. It is a well settled principles of law by various decisions of High Courts and the Hon’ble Supreme Court, especially in the case of PCIT Vs. Meeta Gutgutia (supra) that unabated assessments cannot be disturbed or no additions can be made in concluded assessment, unless there is incriminating material found as a result of search which suggested undisclosed income for relevant assessment year. In this case, admittedly, assessment for the impugned assessment year was unabated as on the date of search, because search was conducted on 16.10.2014 and time limit for issue of notice u/s.143(2) was expired on 30.09.2013. Therefore, when the assessment is unabated or concluded on the date of search, no addition could be made in absence of incriminating material found as a result of search. In this legal background, if you examine the claim of the assessee that additions made towards interest received is not supported by any incriminating material found
during the course of search, we find that arguments taken by the assessee are devoid of merit, because the Assessing Officer has made additions towards interest income on the basis of document found during the course of search marked as annexure NRKRC/loose sheets/S/SNo.1(p.79 to 83), which contains documents related to unaccounted repayment of loan to Indus Ind bank. The said loan taken from Indus Ind Bank was not disclosed to the income-tax department including repayment made towards said loan. Although, additions made by the Assessing Officer towards unaccounted repayment of loan was deleted by learned CIT(A), but fact remains that documents found during the course of search clearly indicate that said loan was not disclosed to income tax department .
Further, out of the said loan, the assessee has advanced loan to M/s. Standard Press India Pvt. Ltd. and that company has paid interest for four years to the account of the assessee in the financial year 2011-12 relevant to assessment year 2012-
The assessee has credited interest received from company to the capital account, but was not offered to tax. The Assessing Officer has assessed interest received from said company in the assessment framed u/s.153C r.w.s 153A on the ground that interest received should be assessed to tax on receipt basis irrespective of the period for which said interest pertains to.
We have given our thoughtful consideration to the arguments advanced by the learned counsel for the assessee in light of facts brought out by the Assessing Officer and find that additions made towards interest income is having nexus with incriminating material found during the course of search and marked as annexure NRKRC/loose sheets/S/SNo.1(p.79 to 83). But, whether total interest received from the company is related to incriminating material found as a result of search or only interest received towards Indus Ind Bank loan account is related to said document has to be examined. The assessee has filed details of interest received of Rs 48,48,820/- out of which a sum of `36,20,263/- pertains to loan taken from SBI and said loan was disclosed in the regular return of income filed by the assessee. Therefore, interest to the extent of `36,20,263/- is not having any reference to incriminating material found during the course of search. Hence, no addition could be made to interest received towards loan given out of SBI loan. But, insofar as interest received towards Indus Ind
Bank loan amounting to `13,28,557/-, there is a direct nexus between incriminating material found during the course of search vide document in annexure NRKRC/loose sheets/S/SNo.1(p.79 to 83) and interest income assessed to tax for the impugned assessment year. Therefore, to this extent, it cannot be said that there is no reference to incriminating material found during the course of search. Hence, we are of the considered view that the arguments taken by the assessee that there is no incriminating material to support additions towards interest in respect of Indus Ind Bank loan amounting to ` 13,28,557/- cannot be accepted.
Therefore, considering facts and circumstances of the case and also taken note of various evidences field by the assesse, we are of the considered view that additions made by the Assessing Officer towards interest income on account of interest received for SBI loan to the extent of Rs.36,20,263/- cannot be sustained, because said addition was not based on any incriminating material found as a result of search . Insofar as, additions made towards Indus Ind Bank loan amounting to ` 13,28,557/-, the said addition was supported by incriminating material found as a result of search and consequently, addition
Assessing Officer is in accordance with law.
Hence, addition made towards Indus Ind bank loan interest amounting to `13,28,557 is sustained.
In the result, appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 31st March, 2021