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Income Tax Appellate Tribunal, “E”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI, JM
आदेश / O R D E R PER R.C.SHARMA (A.M):
These are the cross appeals filed by the assessee and revenue against the order of CIT(A)-36, Mumbai dated 12/11/2014 for A.Y.2005- 06,2006-07,2008-09,2009-10,2010-11 & 2011-12 in the matter of order passed u/s.143(3) r.w.s.153C of the IT Act.
Grounds taken by Revenue in the A.Y.2005-06 reads as under:- 1. "Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the additions made on issues not based on any incriminating material found during the course of search ignoring the decision of the Kamataka High Court in the case of M/s. Canara Housing Development Company in dated 25.07.2014." 2. "Whether in the facts and circumstances of the case and in law, the Ld.CIT(A) is justified in allowing the deduction of Rs. 10,97,05,670/- claimed on account of write off of the-interest on OCDs." 3. "Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in allowing the loss on sale of shares held as Investment by the Assessee Company as Business Loss and allowing the Loss to be set off against Business Income." 4. "Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in allowing the Foreign Travel Expenses ignoring the decision of the Kamataka High Court in the case of M/s. Cananara Housing Development Company in ITA No, 38/2014 dated 25.07.2014." 5. "Whether in the facts and circumstances of the case an in law, the Ld. CIT(A) is justified in deleting the disallowance u/s. 14A of the Act while computing the book profits u/s. 115JB of the Act ignoring the decision of the Karnataka High Court in the case of M/s.
M/s. Sun Investment Pvt. Ltd., Canara Housing Development Company in dated 25.07.2014." The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the Assessing Officer be restored. The appellant craves leave to amend or alter any ground and/or add new grounds which may be necessary.
Rival contentions have been heard and record perused.
The brief facts of the case are that the assessee company is an investment company belonging to JSW Group, Search/ Survey Actions were conducted on 16.03.2011 in the case of various JSW Group Companies. Subsequently the assessee's case was subjected to search assessment u/s 153C rws 143(3) of the Act for period AY 2005-06 to 2011-12. For AY 2005-06, the assessee filed return of income u/s.139 of the Act on 27.10.2005 declaring Nil income. Scrutiny assessment for the year was completed u/s.143(3) on 24.12.2007. Certain additions/ disallowances were made in the assessment order against which assessee preferred appeal before Ld. CTT(A). Ld. CIT(A)-XII, New Delhi vide order dated 24.10.2008 confirmed addition made on account of interest and foreign .travelling expenses of directors while disallowance made u/s 14A was deleted. Revenue preferred appeal against the order of CIT(A) which was dismissed by Hon'ble ITAT Delhi G Bench vide order dated 16.12.2009. The assessment was reopened u/s 147 of the Act vide notice u/s 148 dated 30.3.2010. The assessment order u/s 147 rws 143(3) was passed on 29.12.2010 determining total income of Rs 18,27,37,269/- by disallowing loss on sale of investment and write off of interest on OCD. In assessee's appeal M/s. Sun Investment Pvt. Ltd., Ld. CTT(A)-38, Mumbai vide order dated 28.2.2014 while holding that AO wrongly assumed jurisdiction u/s 147 in the matter also deleted both the additions on merit. In the meantime in response to notice u/s 153C assessee filed return of income on 3.04.2012 declaring Total Income of Rs 75,37,745/- In the assessment order passed u/s 153C rws 143(3), while the Assessing Officer has repeated the additions made in earlier assessments, he increased disallowance out of travelling expenses and also added the amount of the disallowance U/S.14A in the computation of the Book Profits u/s. 115JB of the Act ".
5. Before the CIT(A), assessee has alleged that AO was not justified in making fresh addition or recomputing book profit for the purpose of MAT u/s.115 JB of the Act, as the same does not arise out of the seized material and findings of search. The finding and observation of CIT(A) on this issue was as under:- 7.3. The appellant's submission is that AO was not justified in making fresh additions or recomputing Book Profits for the purposes of MAT u/s 115JB of the Act in the proceedings u/s 153C rws 143(3) as the same does not arise out of seized material or findings of search. It is a fact that original assessment proceedings and reassessment proceedings u/s 147 for AY 2005-06 have been completed u/s 143(3) by making certain disallowances which have been subject matter of appeal before various appellate forums and decided accordingly. As on date of initiation of search, no assessment proceedings were pending before AO for this year which could be abated in terms of second proviso to section 153A of the Act In the assessment order passed u/s 153C rws 143(3) while the AO has retained certain additions made in earlier assessment orders, he has made fresh disallowances, which the appellant disputes as the same has not arisen out of findings of search action. I find that the issue has been covered by decision of Hon'ble Bombay High Court in the case of CIT Vs. Murli Agro Products Limited (ITA 36 of 2009) order dated 29.10.2010. The Hon'ble Court while examining the issue whether the revision order u/s 263 passed by CIT against order u/s 153A rws 143(3) passed by AO for not making M/s. Sun Investment Pvt. Ltd., certain adjustments which were not there in the original assessment order also, held as follows: "12) Once it is held that the assessment finalised on 29.12.2000 has attained finality, then the deduction allowed under section 80 HHC of the Income-tax Act as well as the loss computed under the assessment dated 29-12-2000 would attain finality. In such a casef the A.O. while passing the independent assessment order under Section 153A read with Section 143 (3) of the I.T. Act could not have disturbed the assessment/ reassessment order which has attained finality, unless the material gathered in the course of the proceedings under Section 153A of the Income-tax Act establish that the reliefs granted under the finalised assessment/reassessment were contrary to the facts unearthed during the course of 153 A proceedings. 13) In the present case, there is nothing on record to suggest that any material was unearthed during the search or during the 153A proceedings which would show that the relief under Section 80 HHC was erroneous. In such a case, the A.O. while passing the assessment order under Section 153A read with Section 143(3) could not have disturbed the assessment order finalised on 29.12.2000 relating to Section 80 HHC deduction and consequently the C.I.T. could not have invoked jurisdiction under Section 263 of the Act." The Hon'ble jurisdictional High Court has held that the AO, while passing the independent assessment order u/s 153A rws 143(3) of the Act cannot disturb the assessment/ reassessment order which has attained finality, unless the materials gathered in the course of the proceedings u/s 153A of the Act establish that the reliefs granted under the finalised assessment/ reassessment were contrary to the facts unearthed during the course of 153A proceedings. The Special Bench decision of ITAT, Mumbai in the case of All Cargo Global Logistics Ltd. vs. DC1T (2012) 137 ITD 287 while considering the question as to whether the scope of assessment u/s 153A encompasses additions, not based on any incriminating material found during the course of search, held as follows: "a) In assessments that are abated, the AO retains the original jurisdiction as well as jurisdiction conferred on him u/s l53Afor which assessments shall be made for each of the six assessment years separately; b) In other cases, in addition to the income that has already been assessed, the assessment u/s 153A will be made on the basis of incriminating material, which in the context of relevant provisions means - (i) books of account, other documents, found in the course of search but not produced in the course of original assessment, and (it) undisclosed income or property discovered in the course of search.
M/s. Sun Investment Pvt. Ltd., However, it may be stated that the Karnataka High Court in the case of M/s Canara Housing Development Company (ITA No.38/2014 dated 25.7.2014) recently held that the assessing authority shall determine the total income of the assessee taking into consideration the materials which were subject matter of earlier return and the undisclosed income unearthed during search and also any other income which comes to his notice. The Honourable ITAT Mumbai has not distinguished the higher forum decision in the case of M/s Canara Housing Development Company of Honourable Karnataka High Court The issue is not yet settled. Hence, respectfully following the decisions of Hon'ble Jurisdictional High Court and Special Bench decision of ITAT, Mumbai Bench, it is held that the AO was not right in enhancing disallowances or making fresh additions in absence of any incriminating material found during the search. Accordingly this ground of appeal is allowed. .
6. During the course of assessment u/s.143(3) r.w.s.153C, AO also disallowed assessee’s claim write off interest receivable on OCD amounting to Rs.10,97,05,670/-
7. By the impugned order, CIT(A) deleted the addition after observing as under:- i. This ground of appeal pertains to disallowance of Rs 10,97,05,670/-on account of write off of interest on OCDs. The AO has made the disallowance as per stand taken in earlier assessment order u/s 147 rws 143(3) dated 29.12.2010. I find that the issue has been decided by Ld. CIT(A)-38, Mumbai in favour of assessee in appellate order dated 28.2.2014. Respectfully following the same, AO is directed to delete the addition. This ground of appeal is allowed.
8. AO has also treated profit on sale of shares as capital gains instead of business income.
9. Before CIT(A), assessee has taken following grounds:-
9. Grounds No. 3 & 4: 3) "In the facts and circumstances of the case and in law, the Learned Assessing Officer has erred in treating the Business Loss on sale of shares as Capital Loss and hence not eligible for set off against the other business-incomes.
M/s. Sun Investment Pvt. Ltd., 4) In the facts and circumstances of the case and in law, the Learned Assessing Officer has erred in not appreciating the fact that the losses and gains on the sale of shares was consistently being treated as Business Loss or income by the appellant as per revenue's stand and that the same had been accepted by revenue in all past assessments. "
By the impugned order, CIT(A) allowed assessee’s claim of business income on sale of shares after observing as under:-
9.1 This ground of appeal pertains to disallowance of Rs 7,30/31,5997- being loss on sale of investments claimed as business loss. The AO has made the disallowance as per stand taken in earlier assessment order u/s 147 rws 143(3) dated 29.12.2010.1 find that the issue has been decided by Ld. CTT(A)-38/ Mumbai in favour of assessee in appellate order dated 28.2.2014. Respectfully following the same, AO is directed to delete the addition. This ground of appeal is allowed."
11. Against the above order of CIT(A), Revenue is in further appeal before us.
12. We have considered rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on the judicial pronouncements cited by learned AR and DR during the course of hearing before us as well as relied on by the lower authorities while passing their respective orders. With regard to the ground No.1 taken by the Department we found that additions were deleted by CIT(A) which were found to be without any incriminating document, hence not sustainable in the assessment proceedings u/s.153A of the Act for non- abated assessment years. While holding so, CIT(A) has relied on the decision of Mumbai Tribunal in the case of All Cargo Global Logistics Ltd., 137 ITD 287. Accordingly, CIT(A) was justified in deleting the additions M/s. Sun Investment Pvt. Ltd., made on issues other than those based on any incriminating material found during the course of search.
13. With regard to deleting disallowance of Rs.10,97,05,670/-, we found that issue is squarely covered by the order of the Tribunal in assessee’s own case in vide order dated 24/06/2016 wherein the Tribunal observed and held as under:- 4. Next issue is with regards to disallowance of bad debts of Rs.10,97,05,670/- made by Assessing Officer, which was confirmed by CIT(A). 4.1 In appeal, various contentions were raised on behalf of assessee and in response to same, remand report was called for and same was confronted to the assessee and having considered the facts and circumstances and including remand report and reply to same, CIT(A) granted relief to the assessee by observing that for A.Y. 2004-05 assessee company debited provision for doubtful interest receivable of Rs. 10,97,05,670/- in the P&L account but added the same in the computation of income since mere provision cannot be allowed as deduction. During A.Y. 2005-06 assessee has written off interest receivable and claimed the same as allowable deduction in the computation of income. Since the provision was debited in P&L account last year the same was not debited once again in the P&L account this year. Instead the assessee claimed deduction only in the computation of income for A.Y. 2005-06. Assessee explained necessary entries were passed in the books of account with reference to write off of bad debts. The entries passed by assessee have been verified and found to be correct. So, following the decision of Hon'ble Supreme Court in the case of TRF Ltd. vs CIT [323 1TR 397], the addition made on account of bad debts written off of Rs. 10,97,05,670/- was rightly deleted by CIT(A). This reasoned factual finding of CIT(A) needs no interference from our side. We uphold the same.
As a result, appeal filed by Revenue is dismissed.
Respectfully following the decision of the Tribunal in assessee’s own case as reproduced above, we do not find any infirmity in the order of CIT(A) for deleting the disallowance of interest.
M/s. Sun Investment Pvt. Ltd., 15. Next grievance of Revenue relates to CIT(A)’s action in allowing the loss on sale of shares amounting to Rs.7,30,31,599/- held as investment by the assessee company a Business Loss and allowing the loss to be set off against the business income. 16. We found that this issue is also covered by the decision of ITAT in assessee’s own case for the A.Y.2005-06, dated 24/06/2016, relevant finding on page 5 para 3 reads as under:-
3. Next issue is with regard to business loss of Rs.7,30,31,599/- on sale of shares treated as capital loss, which is disallowed by Assessing Officer. 3.1 In appeal, various contentions were raised on behalf of assessee and in response to same, remand report was called for and same furnished to the assessee for comment and having considered the same, CIT(A) observed that assessment was re-opened u/s.147 of the Act on the ground that assessee had debited an amount of Rs.7,30,31,599/- in P&L account towards „loss on sale of investments‟ which being long term capital gains should not be allowed as business loss. The loss is on account of sale of shares. Assessee has been showing the shares as investments in the balance sheet, however, for A.Y. 1992-93 and A.Y. 1993-94, Assessing Officer treated the sale of shares as business income/loss and completed the assessment u/s.143(3) of the Act. The said orders have also been confirmed by CIT(A) for both the years. Assessing Officer himself had assessed the income or loss on account of sale under the head „profit & gains from business‟ instead of „income of capital gains‟ shown by assessee, which has been followed by assessee consistently. Assessing Officer has not given any reason except stating that the assessee had shown the said shares as long term investments in the balance sheet. In this regard, CIT(A) observed that assessee has been showing said shares as investments in the balance sheet and since the department had altered the nature of income from capital gains to business income, assessee accepted the said decision of the department and has been offering the income under the head „business‟, though the said shares have been continued to be shown as investments in the balance sheet. Facts have not been different to the earlier A.Ys. 1992-93 & 1993-94, wherein Assessing Officer himself treated the sale of shares as business income/loss. In this view, Assessing Officer cannot keep M/s. Sun Investment Pvt. Ltd., changing the head of income without bringing new material on record. Therefore, loss on sale of shares of Rs.7,30,31,599/- was rightly directed to be treated as business loss. This reasoned factual finding of CIT(A) needs no interference from our side. We uphold the same.
Respectfully following the order of Tribunal in assessee’s own case, we do not find any infirmity in the order of CIT(A).
Next grievance of Revenue relates to CIT(A)’s action in allowing the Foreign Travel Expenses ignoring the decision of the Karnataka High Court of M/s. Canara Housing Development Company in dated 25/07/2014. 19. The AO has dealt with the issue at page 5 para 8, CIT(A) has given finding in appellate order in para 9 and para 10. The CIT(A) has held that no addition beyond amount disallowed in original proceedings, hence no further addition in 153A proceeding without any incriminating document. CIT(A) has reached to this conclusion after following the order of the Mumbai Tribunal in case of Allcargo (374 ITR 645). Since no incriminating material was found during course of search with regard to travelling expenses incurred for the purpose of business, there is no infirmity in the order of CIT(A) for holding that AO was not justified in making disallowance of travelling expenses. 20. Last grievance of Revenue relates to deleting addition in respect of 14A while computing book profit u/s.115JB. AO has dealt with the issue at page 7 para 9 whereas CIT(A) has dealt with the issue in his appellate order at page 11 para 11 wherein he has held that no addition in original M/s. Sun Investment Pvt. Ltd., proceedings, hence no addition in 153A proceeding without any incriminating document. We do not find infirmity in the order of CIT(A) for allowing the assessee’s claim by following the order of Allcargo reported at 374 ITR 645. Furthermore, the issue of adding the disallowance u/s.14A while computing book profit u/s.115JB is covered in favour of assessee by the decision of the Special Bench in the case of ITAT(Special Bench) in the case of M/s. Vireet Investment Pvt. Ltd., order dated 22/06/2017.
In the result, appeal of the Revenue for A.Y.2005-06 is dismissed.
Similar issue for disallowance of 25% of the travelling expenses was taken by the Revenue in the A.Y.2006-07 in ITA No.523/Mum/2015. Disallowance on account of travelling expenses was restricted by the CIT(A) at 25% after observing as under:- During the year total travelling expenses of Rs.52,53,129/- have been debited to P & L account which include Rs.47,74,540/- on foreign travelling expenses of Mrs.Sangita Jindal, Managing Director of the company. As per AO, such expense is not justified as the investment business is restricted to India only and there is no specific detail to mention that entire expenditure has been incurred wholly and exclusively for the purposes of business. Per contra appellant claims that entire expense is on account of travel of Managing Director for business activities of the company in context of the NBPC business and exploring possible financial tie ups and business opportunities in consultancy business. I find that similar issue arose in A.Y.2005-06, wherein 25% of the total travelling expenses of the company were disallowed in the assessment order for want of verification and justification of foreign travelling expenses being incurred wholly and exclusively for the purpose of business which was also confirmed by CIT(A). Thereafter, respectfully following the same, in my opinion, justice will be met if a stand consistent with earlier assessment year is disallowed for want of verification and possible non business expenses. The AO is directed to recomputed disallowance at 25% of total travelling expenses. The ground of appeal is disposed off accordingly as partly allowed.
M/s. Sun Investment Pvt. Ltd., 23. The detailed finding so recorded by the CIT(A) are as per material on record, accordingly we do not find any infirmity in the order of CIT(A) for restricting the disallowance to the extent of 25% of total travelling expenses.
In the result, appeal of the Revenue for A.Y.2006-07 is dismissed. A.Y.2008-09 25. In the Assessment Year 2008-09, as discussed in the A.Y.2005-06 we found that CIT (A) is justified in deleting the additions made on issues other than those based on any incriminating material found during the course of search ignoring the decision the decision of the Karnataka High Court in the case of M/s. Canara Housing Development Company in dated 25.07.2014.
Similarly, the CIT (A) is justified in allowing the Foreign Travel Expenses ignoring the decision of the Karnataka High Court of M/s. Canara Housing Development Company in ITA No.38/2014 dated 25.07.2014. Similarly, the CIT(A) was justified in deleting the disallowance u/s. 14A of the Act while computing the book profits u/s. 115JB of the Act.
The issue of adding the disallowance u/s.14A while computing book profit u/s.115JB is covered in favour of assessee by the decision of the Special Bench in the case of ITAT(Special Bench) in the case of M/s. Vireet Investment Pvt. Ltd., order dated 22/06/2017.
In the result, appeal of the Revenue for A.Y.2008-09 is dismissed.
M/s. Sun Investment Pvt. Ltd., A.Y.2009-10: 29. All the grounds taken by the Revenue are similar to the grounds taken in the A.Y.2008-09. Accordingly following reasoning given by us hereinabove in the A.Y. 2008-09, appeal of the Revenue is dismissed. A.Y.2010-11: 30. In this year, Revenue is aggrieved by the action of CIT(A) directing the AO to restrict disallowance of foreign expenses at 25% of total foreign travelling expenses. CIT(A) has given detailed finding for restricting disallowance at 25% after observing as under:- 8-2. The facts of case and submission have been considered. During the year total travelling expenses of Rs 41/22,465/- have been debited to P&Z. account which include Rs 38,84,674/- on foreign travelling expenses of Mrs Sangita Jindal, Managing Director of the company. As per AO, such expense is not justified as the investment business is restricted to India only and mere is specific detail to mention that entire expenditure has been incurred wholly and exclusively for the purposes of business. Per contra appellant claims that entire expense is on account of travel of Managing Director for business activities of the company in context of its NBFC business and exploring possible financial tie ups and business opportunities in consultancy business. I find that similar issue arose in AY 2005-05, wherein 25% of the total travelling expenses of the company were disallowed in the assessment order for want of verification and justification of foreign travelling expenses being incurred wholly and exclusively for the purposes of business which was also confirmed by QT(A). Respectfully, following the view of CIT(A)/ in my opinion, justice will be met if a stand consistent with earlier assessment year is followed in this year also and a sum equal to 25% of total travelling expenses is disallowed for want of verification and possible non business expenses. The AO is directed to recompute disallowance at 25% of total travelling expenses. The ground of appeal is disposed off accordingly as partly allowed”.
We have considered rival contentions and found that detailed finding and reasoning has been given by the CIT(A) for disallowing travelling expenses to the extent of 25%. The finding so given by CIT(A) are as per M/s. Sun Investment Pvt. Ltd., material on record which do not require any interference on our part. Accordingly, we confirm the action of CIT(A). A.Y.2011-12 32. In this year also Revenue is aggrieved by the action of CIT(A) for directing the AO to restrict the disallowance of foreign travelling expenses of 25%. The detailed finding given by the CIT(A) reads as under:- 7.2 The facts of case and submission have been considered. Dining the year total travelling expenses of Ks 55,9,/824/- have been debited to P&L account which include Rs 55,85,590/- on foreign travelling expenses of Mrs Sangita Jindal, Managing Director of the company. As per AO, such expense is not justified as the investment business is restricted to India only and there is specific detail to mention that entire expenditure has been incurred wholly and exclusively for the purposes of business. Per contra appellant claims that entire expense is on account of travel of Managing Director for business activities of the company in context of its NBFC business and exploring possible financial tie ups and business opportunities in consultancy business, I find that similar issue prose in AY 2005-06, wherein 25% of the total travelling expenses of the company were disallowed in the assessment order for want of verification and justification! of foreign 'travelling expenses being incurred wholly and exclusively for the purposes of business which was also confirmed by CIT(A). Respectfully, following the view of the CIT(A)/ in my opinion/ justice will be met if stand consistent with earlier assessment years is followed in this year also and a sum equal to 25% of total travelling expenses is disallowed for want of verification and possible non business expenses. The AO is directed to recompute disallowance at 25% of total travelling expenses. The ground of appeal is disposed off accordingly as partly allowed