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Facts
The assessee's income tax returns for AYs 2009-10, 2012-13, and 2013-14 were reassessed based on information from the Investigation Wing regarding alleged accommodation entries. Reassessment notices under Section 148 were issued beyond four years from the end of the relevant assessment years. The Ld. CIT(A) sustained part of the additions and interest disallowances for loans to sister concerns.
Held
For AY 2009-10 and 2012-13, the reassessment proceedings were quashed by the Tribunal as the Assessing Officer failed to record his satisfaction regarding the assessee's failure to disclose material facts fully and truly, which is a jurisdictional condition for notices issued beyond four years. For AY 2013-14, Ground 1 (consequential to the quashed reassessment) was allowed. Ground 2 regarding disallowance of interest on loans to sister concerns was partly allowed, restricting the disallowance to Rs. 6,00,000/- corresponding to the loan advanced after borrowing.
Key Issues
1. Whether reassessment proceedings initiated beyond four years are valid if the Assessing Officer fails to record the assessee's failure to disclose material facts fully and truly. 2. Whether interest disallowance is justified for interest-free advances to sister concerns when the assessee has sufficient own funds or where the loan was advanced prior to borrowing.
Sections Cited
Section 68, Section 36, Section 147, Section 148, Section 143(3), Section 153C, Section 234B, Section 151, Explanation 2 to Section 147, Section 36(1)(iii), Section 132, Section 132(4)
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Income Tax Appellate Tribunal, MUMBAI BENCH “G” MUMBAI
Before: SHRI OM PRAKASH KANT & MS. KAVITHA RAJAGOPAL
PER OM PRAKASH KANT, AM
These appeals by the assessee are directed against separate orders, each dated 09.08.2023, passed by the Ld. Commissioner of Income-tax (Appeals), Pune -11 [in short ‘the Ld. CIT(A)’] for assessment years 2009-10, 2012-13 and 2013-14 respectively. Being common grounds in dispute involved in these appeals, same were heard together and disposed off by way of this consolidated order for convenience.
M/s Gujarat Realtors 2 ITA Nos. 3523 to 3525/Mum/2023 ITA Nos. 3523 to 3525/Mum/2023
First we take up the appeal for assessment year 2009 First we take up the appeal for assessment year 2009 First we take up the appeal for assessment year 2009-10. The relevant grounds raised by the assessee are reproduced as under: relevant grounds raised by the assessee are reproduced as under: relevant grounds raised by the assessee are reproduced as under:
The learned CIT(A) has erred in law and o The learned CIT(A) has erred in law and on facts in making the n facts in making the addition of unsecured loans amounting to Rs. 90,00,000/ addition of unsecured loans amounting to Rs. 90,00,000/ addition of unsecured loans amounting to Rs. 90,00,000/- (i.e., upholding the addition of Rs. 80,00,000/ upholding the addition of Rs. 80,00,000/- done by the Ld. done by the Ld. Assessing Officer and making enhancement of Rs. 10,00,000/ Assessing Officer and making enhancement of Rs. 10,00,000/ Assessing Officer and making enhancement of Rs. 10,00,000/-) u/s. 68 of the Act alleging the same to be accommod u/s. 68 of the Act alleging the same to be accommod u/s. 68 of the Act alleging the same to be accommodation loan transactions. transactions. 2. The learned CIT(A) has erred in law and on facts by enhancing the The learned CIT(A) has erred in law and on facts by enhancing the The learned CIT(A) has erred in law and on facts by enhancing the income by disallowing the interest amounting to Rs. 10,23,317/ income by disallowing the interest amounting to Rs. 10,23,317/ income by disallowing the interest amounting to Rs. 10,23,317/- u/s 36 of the Act on the alleged accommodation loan taken. u/s 36 of the Act on the alleged accommodation loan taken. u/s 36 of the Act on the alleged accommodation loan taken. 3. The learned CIT(A) ought to have held that The learned CIT(A) ought to have held that the learned AO has the learned AO has erred in initiating proceedings u/s 147 of the Income Tax Act, 1961 erred in initiating proceedings u/s 147 of the Income Tax Act, 1961 erred in initiating proceedings u/s 147 of the Income Tax Act, 1961 by issuing notice u/s 148 of the Act. The Hon'ble CIT(A) ought to by issuing notice u/s 148 of the Act. The Hon'ble CIT(A) ought to by issuing notice u/s 148 of the Act. The Hon'ble CIT(A) ought to have held that the proceedings have held that the proceedings-initiated u/s 147 of the Income Tax initiated u/s 147 of the Income Tax Act is bad Act is bad-in-law and hence the notice issued u/s 148 of the Act is ice issued u/s 148 of the Act is itself void and needs to be quashed. itself void and needs to be quashed. 4. The learned CIT(A) ought to have held that the learned AO has The learned CIT(A) ought to have held that the learned AO has The learned CIT(A) ought to have held that the learned AO has erred in law and on facts in not initiating the proceedings u/s 153C erred in law and on facts in not initiating the proceedings u/s 153C erred in law and on facts in not initiating the proceedings u/s 153C and passing order u/s 147 of the Act. and passing order u/s 147 of the Act. 5. The learned CIT The learned CIT (A) has erred in law and on facts by levying the (A) has erred in law and on facts by levying the interest u/s 234B of the act. interest u/s 234B of the act. 3. Briefly stated facts of the case are that the assessee filed Briefly stated facts of the case are that the assessee filed Briefly stated facts of the case are that the assessee filed return of income for the year under consideration on 02.09.2009 return of income for the year under consideration on 02.09.2009 return of income for the year under consideration on 02.09.2009 declaring Nil income. The case of the assessee was selected for declaring Nil income. The case of the assessee wa declaring Nil income. The case of the assessee wa scrutiny and assessment u/s 143(3) of the Income scrutiny and assessment u/s 143(3) of the Income-tax Act, 1961 (in tax Act, 1961 (in short ‘the Act’) was completed on short ‘the Act’) was completed on 22/03/2013. Subsequently, the Subsequently, the Assessing Officer received information from the Investigation Wing Assessing Officer received information from the Investigation Wing Assessing Officer received information from the Investigation Wing that assessee had obtained accommodation en that assessee had obtained accommodation entries and accordingly tries and accordingly he recorded the reason to believe he recorded the reason to believe that income escaped assessment income escaped assessment and he issued notice u/s 148 of the Act and he issued notice u/s 148 of the Act on 30.03.2016. Thereafter, on 30.03.2016. Thereafter, he issued statutory notices under the Act and completed the he issued statutory notices under the Act and completed the he issued statutory notices under the Act and completed the reassessment determining total income at R reassessment determining total income at Rs.1,10,23,320/ s.1,10,23,320/-. On further appeal, the Ld. CIT(A) sustained part of the additions. further appeal, the Ld. CIT(A) sustained part of the additions. further appeal, the Ld. CIT(A) sustained part of the additions.
M/s Gujarat Realtors 3 ITA Nos. 3523 to 3525/Mum/2023 ITA Nos. 3523 to 3525/Mum/2023
Aggrieved, the assessee is in appeal before the Tribunal Aggrieved, the assessee is in appeal before the Tribunal Aggrieved, the assessee is in appeal before the Tribunal bu way of raising grounds raising grounds as reproduced above.
The Ld. counsel for the assessee referred to ground No. 3 The Ld. counsel for the assessee referred to ground No. 3 The Ld. counsel for the assessee referred to ground No. 3 challenging the reassessment proceedings allenging the reassessment proceedings. The Ld. counsel for the The Ld. counsel for the assessee submitted that in this case reassessment notice has been assessee submitted that in this case reassessment notice has been assessee submitted that in this case reassessment notice has been issued beyond the period from four year from the end of the issued beyond the period from four year from the end of the issued beyond the period from four year from the end of the relevant assessment year and therefore, the Assessing Officer was relevant assessment year and therefore, the Assessing Officer was relevant assessment year and therefore, the Assessing Officer was required to record whether there was any failure on the part of the required to record whether there was any failure on the part of the required to record whether there was any failure on the part of the assessee in disclosing the assessee in disclosing the material facts fully and truly. The Ld. facts fully and truly. The Ld. counsel referred to the decision of the Hon’ble Bombay High Court counsel referred to the decision of the Hon’ble Bombay High Court counsel referred to the decision of the Hon’ble Bombay High Court in the case of Hindustan in the case of Hindustan Lever Ltd. v. R.B. Wadkar Lever Ltd. v. R.B. Wadkar Assistant Commissioner reported in 268 ITR 332 (Bombay) and submitted Commissioner reported in 268 ITR 332 (Bombay) and submitted Commissioner reported in 268 ITR 332 (Bombay) and submitted that in absence of any recording by the Assessing Officer that there that in absence of any recording by the Assessing Officer that there that in absence of any recording by the Assessing Officer that there was any failure on the part of the assessee to disclose fully and was any failure on the part of the assessee to disclose fully and was any failure on the part of the assessee to disclose fully and truly the material facts truly the material facts, the reassessment proceedi the reassessment proceedings being without application of the mind by the Assessing Officer should be without application of the mind by the Assessing Officer without application of the mind by the Assessing Officer held as unsustainable in law and accordingly liable to be quashed. unsustainable in law and accordingly liable to be quashed. unsustainable in law and accordingly liable to be quashed.
We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in dispute and perused the relevant material on dispute and perused the relevant material on record. The Ld. record. The Ld. counsel for the assessee has challenged the reassessment counsel for the assessee has challenged the reassessment counsel for the assessee has challenged the reassessment proceedings on the ground that the Assessing Officer has not proceedings on the ground that the Assessing Officer has not proceedings on the ground that the Assessing Officer has not recorded satisfaction as to the failure recorded satisfaction as to the failure was on the part of the on the part of the assessee in disclosing material facts fully and truly. The Hon’ble assessee in disclosing material facts fully and truly. The assessee in disclosing material facts fully and truly. The Bombay High Court in the case of Punia Capital Pvt. Ltd. Writ Bombay High Court in the case of Punia Capital Pvt. Ltd. Writ Bombay High Court in the case of Punia Capital Pvt. Ltd. Writ
M/s Gujarat Realtors 4 ITA Nos. 3523 to 3525/Mum/2023 ITA Nos. 3523 to 3525/Mum/2023
Petition No. 1091 of 2022 has Petition No. 1091 of 2022 has followed the decision of the Hon’ble decision of the Hon’ble Bombay High Court in the case of Hindustan Lever Ltd. (supra). The Bombay High Court in the case of Hindustan Lever Ltd. (supra) Bombay High Court in the case of Hindustan Lever Ltd. (supra) Hon’ble High Court has referred to the relevant provisions u/s 147 Hon’ble High Court has referred to the relevant prov Hon’ble High Court has referred to the relevant prov of the Act and thereafter concluded that in absence of any such of the Act and thereafter concluded that in absence of any such of the Act and thereafter concluded that in absence of any such recording on failure on the part of the assessee to disclose material recording on failure on the part of the assessee to disclose recording on failure on the part of the assessee to disclose facts fully and truly, t facts fully and truly, the reassessment proceedings cannot be he reassessment proceedings cannot be sustained. The relevant finding of the Hon’bl sustained. The relevant finding of the Hon’ble High C e High Court(supra) is reproduced as under : reproduced as under :
“9 Section 147 of the Act as it stood prior to its substitution with effect from 9 Section 147 of the Act as it stood prior to its substitution with effect from 9 Section 147 of the Act as it stood prior to its substitution with effect from 01.04.2021 by Finance Act, 2021 envisaged that if the assessing offcer has 01.04.2021 by Finance Act, 2021 envisaged that if the assessing offcer has 01.04.2021 by Finance Act, 2021 envisaged that if the assessing offcer has reason to believe in any assessment year, he may subjec reason to believe in any assessment year, he may subject to provisions of t to provisions of Section 148 to 153, assess or reassess such income and also any other Section 148 to 153, assess or reassess such income and also any other Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes income chargeable to tax which has escaped assessment and which comes income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings. The frst proviso to his notice subsequently in the course of the proceedings. The frst proviso to his notice subsequently in the course of the proceedings. The frst proviso of Section 147 furt of Section 147 further envisages that if an assessment under sub her envisages that if an assessment under sub-section (3) of Section 143 has been made for the relevant assessment year, no action of Section 143 has been made for the relevant assessment year, no action of Section 143 has been made for the relevant assessment year, no action shall be taken under that section after the expiry of four years from the end shall be taken under that section after the expiry of four years from the end shall be taken under that section after the expiry of four years from the end of the relevant assessment year unless any inco of the relevant assessment year unless any income chargeable to tax has me chargeable to tax has escaped assessment for such assessment year by reason of failure on the escaped assessment for such assessment year by reason of failure on the escaped assessment for such assessment year by reason of failure on the part of the assessee inter alia to disclose fully and truly all material facts part of the assessee inter alia to disclose fully and truly all material facts part of the assessee inter alia to disclose fully and truly all material facts necessary for his assessment, for that assessment year. necessary for his assessment, for that assessment year.
10 In Hindustan Lever L 10 In Hindustan Lever Ltd Vs. R.B. Wadkar, Assistant Commissioner of td Vs. R.B. Wadkar, Assistant Commissioner of Income-tax this Court held : this Court held :
“….The reasons recorded should be clear and unambiguous and “….The reasons recorded should be clear and unambiguous and “….The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must should not suffer from any vagueness. The reasons recorded must should not suffer from any vagueness. The reasons recorded must disclose his mind. The reasons are the manifestation of disclose his mind. The reasons are the manifestation of disclose his mind. The reasons are the manifestation of the mind of the Assessing Offcer. The reasons recorded should be self the Assessing Offcer. The reasons recorded should be self the Assessing Offcer. The reasons recorded should be self- explanatory and should not keep the assessee guessing for the explanatory and should not keep the assessee guessing for the explanatory and should not keep the assessee guessing for the reasons. Reasons provide the link between conclusion and evidence. reasons. Reasons provide the link between conclusion and evidence. reasons. Reasons provide the link between conclusion and evidence. The reasons recorded must be based on evidence. The Asse The reasons recorded must be based on evidence. The Asse The reasons recorded must be based on evidence. The Assessing
M/s Gujarat Realtors 5 ITA Nos. 3523 to 3525/Mum/2023 ITA Nos. 3523 to 3525/Mum/2023
Officer, in the event of challenge to the reasons, must be able to , in the event of challenge to the reasons, must be able to , in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must justify the same based on material available on record. He must justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclose in the reasons as to which fact or material was not disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for as disclosed by the assessee fully and truly necessary for as disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish the vital link between the of that assessment year, so as to establish the vital link between the of that assessment year, so as to establish the vital link between the reasons and evidence. That vital link is the safeguard against reasons and evidence. That vital link is the safeguard against reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment.” arbitrary reopening of the concluded assessment.”
11 In Hindustan Lever Ltd. (supra), the Court set aside the not 11 In Hindustan Lever Ltd. (supra), the Court set aside the not 11 In Hindustan Lever Ltd. (supra), the Court set aside the notice impugned issued under Section 148 only on this ground. In the said judgment, the issued under Section 148 only on this ground. In the said judgment, the issued under Section 148 only on this ground. In the said judgment, the Court had noticed that the Assessing Offcer nowhere stated that there was Court had noticed that the Assessing Offcer nowhere stated that there was Court had noticed that the Assessing Offcer nowhere stated that there was failure on the part of the assessee to disclose fully and truly the material failure on the part of the assessee to disclose fully and truly the material failure on the part of the assessee to disclose fully and truly the material facts necessary for facts necessary for the assessment of that assessment year, without the assessment of that assessment year, without touching upon any of the other grounds. touching upon any of the other grounds.
12 From a reading of the reasons recorded although it has been mentioned 12 From a reading of the reasons recorded although it has been mentioned 12 From a reading of the reasons recorded although it has been mentioned that income chargeable to take had escaped assessment on account of that income chargeable to take had escaped assessment on account of that income chargeable to take had escaped assessment on account of failure on the part of the failure on the part of the assessee to disclose fully and truly material facts, assessee to disclose fully and truly material facts, yet juxtaposed with the later part of the reasons, which states that no yet juxtaposed with the later part of the reasons, which states that no yet juxtaposed with the later part of the reasons, which states that no scrutiny assessment had been made and that the only requirement was to scrutiny assessment had been made and that the only requirement was to scrutiny assessment had been made and that the only requirement was to initiate proceedings under Section 147 on the basis of ‘rea initiate proceedings under Section 147 on the basis of ‘rea initiate proceedings under Section 147 on the basis of ‘reason to believe’ goes to prove that the assessing goes to prove that the assessing officer had reopened the assessment only had reopened the assessment only on the basis of ‘reason to believe’ and not failure to disclose material facts on the basis of ‘reason to believe’ and not failure to disclose material facts on the basis of ‘reason to believe’ and not failure to disclose material facts fully and truly, on which too the assessing fully and truly, on which too the assessing officer ought to have been ought to have been satisfied as mat as matter pertained to reopening beyond the period of four years. ter pertained to reopening beyond the period of four years.
13 In our opinion, the manner in which the assessing 13 In our opinion, the manner in which the assessing officer officer proceeded reflects total non reflects total non-application of mind, which neither application of mind, which neither satisfies the jurisdictional condition, which was required to be follo jurisdictional condition, which was required to be followed in terms of wed in terms of Section 147 nor does it in the least satisfy the conditions prescribed in the Section 147 nor does it in the least satisfy the conditions prescribed in the Section 147 nor does it in the least satisfy the conditions prescribed in the case of Hindustan Lever Ltd. (supra), as the assessing offcer had failed to case of Hindustan Lever Ltd. (supra), as the assessing offcer had failed to case of Hindustan Lever Ltd. (supra), as the assessing offcer had failed to highlight in the reasons recorded as to which was that material fact, which highlight in the reasons recorded as to which was that material fact, which highlight in the reasons recorded as to which was that material fact, which was not disclosed by the assessee in its return. sclosed by the assessee in its return.
14 For the reasons mentioned above, in our opinion, notice under Section 14 For the reasons mentioned above, in our opinion, notice under Section 14 For the reasons mentioned above, in our opinion, notice under Section 148 of the Act dated 31 March 2021 as also the Order dated 14 December 148 of the Act dated 31 March 2021 as also the Order dated 14 December 148 of the Act dated 31 March 2021 as also the Order dated 14 December
M/s Gujarat Realtors 6 ITA Nos. 3523 to 3525/Mum/2023 ITA Nos. 3523 to 3525/Mum/2023
2021 are held to be unsustainable and are accordingly quashed. No Order 2021 are held to be unsustainable and are accordingly quashed. No Order 2021 are held to be unsustainable and are accordingly quashed. No Order as to costs.”
6.1 Therefore, for examining the facts of the instants case, for examining the facts of the instants case, for examining the facts of the instants case, it is relevant to reproduce the reasons recorded by the Assessing Officer relevant to reproduce the reasons recorded by the Assessing Officer relevant to reproduce the reasons recorded by the Assessing Officer available on Paper Book page No. 5 available on Paper Book page No. 5 , as under:
“Information has been received from the Director of Income T Information has been received from the Director of Income T Information has been received from the Director of Income Tax (Inv)-ll, Mumbai in the case of Bhanwarlal Jain Group: The group provides Mumbai in the case of Bhanwarlal Jain Group: The group provides Mumbai in the case of Bhanwarlal Jain Group: The group provides accommodation entries of bogus loan & advances through various accommodation entries of bogus loan & advances through various accommodation entries of bogus loan & advances through various benami concerns operated & managed by above groups. benami concerns operated & managed by above groups. Based on the documents found during the search & seizure action Based on the documents found during the search & seizure action Based on the documents found during the search & seizure action dated 03/10/2013 by the Investigation Wing, information has been received 03/10/2013 by the Investigation Wing, information has been received 03/10/2013 by the Investigation Wing, information has been received that M/s. Gujrat Realtors, PAN AAHFG0051C is one of the beneficiary that M/s. Gujrat Realtors, PAN AAHFG0051C is one of the beneficiary that M/s. Gujrat Realtors, PAN AAHFG0051C is one of the beneficiary who has got accommodation entry for A.Y. 2009 who has got accommodation entry for A.Y. 2009-10 from above group. As 10 from above group. As per information received, the assessee has o per information received, the assessee has obtained accommodation btained accommodation entry amounting to Rs 1, 10,23,317/ entry amounting to Rs 1, 10,23,317/- during A.Y. 2009-10. 1r 10. 1r In view of the above facts of the case, I have reason to believe that In view of the above facts of the case, I have reason to believe that In view of the above facts of the case, I have reason to believe that amount Rs. 1,10,23,317/ amount Rs. 1,10,23,317/- has escaped assessment within the meaning has escaped assessment within the meaning of provisions of Section 147 of the of provisions of Section 147 of the I.T. Act, due to failure on the part of the Act, due to failure on the part of the assessee to disclose fully and truly, all material facts necessary for its assessee to disclose fully and truly, all material facts necessary for its assessee to disclose fully and truly, all material facts necessary for its assessment for A.Y. 2009 assessment for A.Y. 2009-10.” 6.2 On perusal of the above reasons recorded, it is evident that On perusal of the above reasons recorded, it is evident that On perusal of the above reasons recorded, it is evident that though, the notice for reopening has been though, the notice for reopening has been issued beyond the period beyond the period of four years end of the relevant assessment year but the Assessing of four years end of the relevant assessment year but the Assessing of four years end of the relevant assessment year but the Assessing Officer has not recorded the reasons to believe that there was a Officer has not recorded the reasons to believe that there was a Officer has not recorded the reasons to believe that there was a failure on the part of the assessee in disclosing all the facts fully failure on the part of the assessee in disclosing all the facts fully failure on the part of the assessee in disclosing all the facts fully and truly. Thus, respectfull respectfully, following the finding of the Hon’ble following the finding of the Hon’ble Jurisdictional High Court in the case of Punia Capital Pvt. Ltd Jurisdictional High Court in the case of Punia Capital Jurisdictional High Court in the case of Punia Capital he reassessment proceedings in the case of the assessee (supra), the reassessment proceedings in the case of the assessee he reassessment proceedings in the case of the assessee cannot be sustained. The ground No. 3 of the appeal of the assessee cannot be sustained. The ground No. 3 of the appeal of the assessee cannot be sustained. The ground No. 3 of the appeal of the assessee is accordingly allowed. owed.
M/s Gujarat Realtors 7 ITA Nos. 3523 to 3525/Mum/2023 ITA Nos. 3523 to 3525/Mum/2023
6.3 Since, Since, Since, we we we have have have already already already quashed quashed quashed the the the reassessment reassessment reassessment proceedings, the other grounds raised by the assessee are rendered proceedings, the other grounds raised by the assessee are rendered proceedings, the other grounds raised by the assessee are rendered merely academic.
Now we take up the appeal of the assessee for assessment year Now we take up the appeal of the assessee for assessment year Now we take up the appeal of the assessee for assessment year 2012-13. The grounds raised by the assessee are 13. The grounds raised by the assessee are reproduced as 13. The grounds raised by the assessee are under:
The re-assessment order passed u/s 143(3) r.w.s.147 of the Act is assessment order passed u/s 143(3) r.w.s.147 of the Act is assessment order passed u/s 143(3) r.w.s.147 of the Act is void since the principles of natural justice are violated by the Ld. void since the principles of natural justice are violated by the Ld. void since the principles of natural justice are violated by the Ld. AO as the Ld. AO did not furnish copies of incriminating materials AO as the Ld. AO did not furnish copies of incriminating materials AO as the Ld. AO did not furnish copies of incriminating materials and statements of Shri Pravin Ku and statements of Shri Pravin Kumar Jain and others to the mar Jain and others to the appellant and made the impugned addition u/s 68 of the Act. appellant and made the impugned addition u/s 68 of the Act. appellant and made the impugned addition u/s 68 of the Act. 2. The learned CIT(A) ought to have held that the learned AO has The learned CIT(A) ought to have held that the learned AO has The learned CIT(A) ought to have held that the learned AO has erred in initiating proceedings u/s 147 of the Income Tax Act, 1961 erred in initiating proceedings u/s 147 of the Income Tax Act, 1961 erred in initiating proceedings u/s 147 of the Income Tax Act, 1961 by issuing notice u/s 148 of the Act. T by issuing notice u/s 148 of the Act. The Hon'ble CIT(A) ought to he Hon'ble CIT(A) ought to have held that the proceedings have held that the proceedings-initiated u/s 147 of the Income Tax initiated u/s 147 of the Income Tax Act is bad Act is bad-in-law and hence the notice issued u/s 148 of the Act is law and hence the notice issued u/s 148 of the Act is itself void and needs to be quashed. itself void and needs to be quashed. 3. The learned CIT(A) ought to have held that the learned AO The learned CIT(A) ought to have held that the learned AO The learned CIT(A) ought to have held that the learned AO has erred in law and on facts in not initiating the proceedings u/s 153C erred in law and on facts in not initiating the proceedings u/s 153C erred in law and on facts in not initiating the proceedings u/s 153C and passing order u/s 147 of the Act. and passing order u/s 147 of the Act. 4. The learned CIT(A) has erred in law and on facts in upholding the The learned CIT(A) has erred in law and on facts in upholding the The learned CIT(A) has erred in law and on facts in upholding the addition of unsecured loans amounting to Rs. 1,90,00,000/ addition of unsecured loans amounting to Rs. 1,90,00,000/ addition of unsecured loans amounting to Rs. 1,90,00,000/- made by the Ld. Ass by the Ld. Assessing Officer us. 68 of the Act alleging the same to essing Officer us. 68 of the Act alleging the same to be accommodation loan transactions. be accommodation loan transactions. 5. The learned CIT(A) has erred in law and on facts by enhancing the The learned CIT(A) has erred in law and on facts by enhancing the The learned CIT(A) has erred in law and on facts by enhancing the income by disallowing the interest amounting to Rs. 11,96,285/ income by disallowing the interest amounting to Rs. 11,96,285/ income by disallowing the interest amounting to Rs. 11,96,285/- u/s 36 of the Act on the alleged acc u/s 36 of the Act on the alleged accommodation loan taken during ommodation loan taken during the year by the appellant. the year by the appellant. 6. The learned CIT (A) has erred in law and on facts by The learned CIT (A) has erred in law and on facts by The learned CIT (A) has erred in law and on facts by charging interest u/s 234B of the A interest u/s 234B of the Act. 8. In the instant assessment year also the assessee has raised In the instant assessment year also the assessee has raised In the instant assessment year also the assessee has raised the ground No. 2 challenging the reassessment proceedings on the the ground No. 2 challenging the reassessment proceedings on the the ground No. 2 challenging the reassessment proceedings on the ground that the Assessing Officer has not referred any failure on ground that the Assessing Officer has not referred any failure on ground that the Assessing Officer has not referred any failure on the part of the assessee the part of the assessee in disclosing the fact fully and truly. in disclosing the fact fully and truly. The assessee in this respect has relied on the decision of the Hon’ble assessee in this respect has relied on the decision of the Hon’ble assessee in this respect has relied on the decision of the Hon’ble Bombay High Court in the case of Hindustan Lever Ltd. (supra) to Bombay High Court in the case of Hindustan Lever Ltd. (supra) to Bombay High Court in the case of Hindustan Lever Ltd. (supra) to
M/s Gujarat Realtors 8 ITA Nos. 3523 to 3525/Mum/2023 ITA Nos. 3523 to 3525/Mum/2023
decide the controversy the reasons recorded by the Assessing decide the controversy the reasons recorded by the Assessing decide the controversy the reasons recorded by the Assessing Officer available on Paper Book page 4 and 5 are reproduced as Officer available on Paper Book page 4 and 5 are reproduced Officer available on Paper Book page 4 and 5 are reproduced under:
The assessee is a Partnership Firm. On verification from ITD system, it is 01. The assessee is a Partnership Firm. On verification from ITD system, it is 01. The assessee is a Partnership Firm. On verification from ITD system, it is noticed that the assessee has filed its return of income for AY 2012 noticed that the assessee has filed its return of income for AY 2012 noticed that the assessee has filed its return of income for AY 2012-13 on 22.03.2013 declaring total income of Rs.2,38,61,360/ 22.03.2013 declaring total income of Rs.2,38,61,360/-. The assessment . The assessment u/s. 143(3) of the I. u/s. 143(3) of the I.T. Act, 1961 was completed by the ACIT, Circle T. Act, 1961 was completed by the ACIT, Circle-2, Thane on 24.03.2015 accepting the returned income of Rs.2,38,61,360/ on 24.03.2015 accepting the returned income of Rs.2,38,61,360/ on 24.03.2015 accepting the returned income of Rs.2,38,61,360/-. 02. In this case information has been received from the GIT (Inv), Pune, 02. In this case information has been received from the GIT (Inv), Pune, 02. In this case information has been received from the GIT (Inv), Pune, which is forwarded to this office by the DCIT, Circle which is forwarded to this office by the DCIT, Circle-2, Thane 2, Thane vide letter No. THN/ACIT/C2/Case Tfr/2017 THN/ACIT/C2/Case Tfr/2017-18/1440 dated 28.02.2018. The information 18/1440 dated 28.02.2018. The information states that a search and seizure action u/s 132 of the I.T. Act was carried states that a search and seizure action u/s 132 of the I.T. Act was carried states that a search and seizure action u/s 132 of the I.T. Act was carried out in the case of Shri Pravin Kumar Jain and his associates on 01.10.2013. out in the case of Shri Pravin Kumar Jain and his associates on 01.10.2013. out in the case of Shri Pravin Kumar Jain and his associates on 01.10.2013. During the course o During the course of search action various clinching evidences were f search action various clinching evidences were gathered which go to establish that Shri Pravin Kumar Jain is operating gathered which go to establish that Shri Pravin Kumar Jain is operating gathered which go to establish that Shri Pravin Kumar Jain is operating various bogus concerns in his own name and in the name of various various bogus concerns in his own name and in the name of various various bogus concerns in his own name and in the name of various associates/ relatives/ employees. All such persons are dummy director associates/ relatives/ employees. All such persons are dummy director associates/ relatives/ employees. All such persons are dummy directors in these concerns which are used by Shri Pravin Kumar Jain in providing these concerns which are used by Shri Pravin Kumar Jain in providing these concerns which are used by Shri Pravin Kumar Jain in providing accommodation entries of bogus unsecured loans, share application money accommodation entries of bogus unsecured loans, share application money accommodation entries of bogus unsecured loans, share application money and purchases. Statements of his various associates were recorded during and purchases. Statements of his various associates were recorded during and purchases. Statements of his various associates were recorded during the course of search, where all of th the course of search, where all of them have accepted that these concerns em have accepted that these concerns are controlled and operated by Shri Pravin Kumar Jain and are bogus are controlled and operated by Shri Pravin Kumar Jain and are bogus are controlled and operated by Shri Pravin Kumar Jain and are bogus concerns, engaged in the activity of providing accommodation entries only. concerns, engaged in the activity of providing accommodation entries only. concerns, engaged in the activity of providing accommodation entries only. When all these evidences and examination details of his associates were When all these evidences and examination details of his associates were When all these evidences and examination details of his associates were confronted to Shri Pravin Kumar Jain during the course of recording of his ronted to Shri Pravin Kumar Jain during the course of recording of his ronted to Shri Pravin Kumar Jain during the course of recording of his statement u/s 132(4) of the I.T. Act, he also admitted that he operates a statement u/s 132(4) of the I.T. Act, he also admitted that he operates a statement u/s 132(4) of the I.T. Act, he also admitted that he operates a number of bogus concerns number of bogus concerns 03. The assesses M/S. GUJARAT REALTORS, (AAHFG0051C) is one of the 03. The assesses M/S. GUJARAT REALTORS, (AAHFG0051C) is one of the 03. The assesses M/S. GUJARAT REALTORS, (AAHFG0051C) is one of the beneficiaries, who beneficiaries, who had availed the accommodation entries from the following had availed the accommodation entries from the following concerns which are operated and managed by Shri Pravin Kumar Jain. concerns which are operated and managed by Shri Pravin Kumar Jain. concerns which are operated and managed by Shri Pravin Kumar Jain. 1. Atharv Business Pvt. Ltd. Atharv Business Pvt. Ltd. Faststone Trade(I) Pvt. Ltd.) (PAN: AAACF9430A) Faststone Trade(I) Pvt. Ltd.) (PAN: AAACF9430A) Rs. 50,00,000/- Rs. 50,00,000/ 2. Duke Business Pvt. Ltd Duke Business Pvt. Ltd (JPK Trading (JPK Trading (1):Pvt. Ltd. (PAN: AABCFJ6245N) Rs. 40,00,000/- Rs. 40,00,000/ 3. Nakshatra Business Pvt. Ltd. Nakshatra Business Pvt. Ltd. (Hema Trading Co. Pvt. Ltd. (PAN: AABCH4279G) (Hema Trading Co. Pvt. Ltd. (PAN: AABCH4279G) Rs. 52,00,000/- Rs. 52,00,000/ 4. Nakshatra Business Pvt. Ltd, Nakshatra Business Pvt. Ltd, (Hema Trading Co. Pvt. Lid. (PAN: AABCH4279G) (Hema Trading Co. Pvt. Lid. (PAN: AABCH4279G) Rs.48,00,000/- Rs.48,00,000/ TOTAL Rs.1,90,00,000/- Rs.1,90,00,000/
As per the information from DGIT (Investigation), Pune, the assessee has As per the information from DGIT (Investigation), Pune, the assessee has As per the information from DGIT (Investigation), Pune, the assessee has obtained accommodation entries from the above parties totalling to Rs. obtained accommodation entries from the above parties totalling to Rs. obtained accommodation entries from the above parties totalling to Rs. 1,90,00,000/- and these parties are operated and managed by Shri Pravin and these parties are operated and managed by Shri Pravin Kumar Jain and Kumar Jain and therefore the genuineness of these transactions is therefore the genuineness of these transactions is suspicious and has remained unexplained suspicious and has remained unexplained
M/s Gujarat Realtors 9 ITA Nos. 3523 to 3525/Mum/2023 ITA Nos. 3523 to 3525/Mum/2023
In view of the above, I have reason to believe that the assessee has 04. In view of the above, I have reason to believe that the assessee has 04. In view of the above, I have reason to believe that the assessee has indulged into such activity to route its unaccounted money through sham indulged into such activity to route its unaccounted money through sham indulged into such activity to route its unaccounted money through sham transactions which h transactions which has resulted into escapement of income of more than as resulted into escapement of income of more than Rs.1 lakh within the meaning of provisions of clause (b) of Explanation 2 to Rs.1 lakh within the meaning of provisions of clause (b) of Explanation 2 to Rs.1 lakh within the meaning of provisions of clause (b) of Explanation 2 to section 147 of the Income tax Act, 1961 for AY 2012 section 147 of the Income tax Act, 1961 for AY 2012-13. 05. It is pertinent to mention that the assessee has filed its return of 05. It is pertinent to mention that the assessee has filed its return of 05. It is pertinent to mention that the assessee has filed its return of income for the year under consideration and the scrutiny assessment in this case for the year under consideration and the scrutiny assessment in this case for the year under consideration and the scrutiny assessment in this case was completed u/s 143(3) of the I.T Act on 24.03.2015 on by the ACIT, was completed u/s 143(3) of the I.T Act on 24.03.2015 on by the ACIT, was completed u/s 143(3) of the I.T Act on 24.03.2015 on by the ACIT, Circle-2, Thane, accepting the returned income. 2, Thane, accepting the returned income. However, the case is However, the case is required to be reopened on the required to be reopened on the basis of information from DGIT basis of information from DGIT (Investigation). Therefore, the provisions of clause (b) of explanation 2 to (Investigation). Therefore, the provisions of clause (b) of explanation 2 to (Investigation). Therefore, the provisions of clause (b) of explanation 2 to section 147 are applicable to the facts of the case and the assessment year section 147 are applicable to the facts of the case and the assessment year section 147 are applicable to the facts of the case and the assessment year under consideration is deemed to be a case where income chargeable to ta under consideration is deemed to be a case where income chargeable to ta under consideration is deemed to be a case where income chargeable to tax has escaped assessment. has escaped assessment. 06. In this case more than four years have lapsed from the end of the 06. In this case more than four years have lapsed from the end of the 06. In this case more than four years have lapsed from the end of the assessment year under consideration. Hence, necessary sanction to issue assessment year under consideration. Hence, necessary sanction to issue assessment year under consideration. Hence, necessary sanction to issue notice u/s 148 of the Income tax Act, 1961 in the his case for A.Y. 2012 notice u/s 148 of the Income tax Act, 1961 in the his case for A.Y. 2012 notice u/s 148 of the Income tax Act, 1961 in the his case for A.Y. 2012-13 is required to be obtained from the Pr.Commissioner of Income tax to be obtained from the Pr.Commissioner of Income tax to be obtained from the Pr.Commissioner of Income tax-I, Thane separately as per the provisions of section 151 of the I.T. Act. Accordingly, a separately as per the provisions of section 151 of the I.T. Act. Accordingly, a separately as per the provisions of section 151 of the I.T. Act. Accordingly, a proposal for sanction for issue of notice u/s 148 of the I.T. Act, 1961 is proposal for sanction for issue of notice u/s 148 of the I.T. Act, 1961 is proposal for sanction for issue of notice u/s 148 of the I.T. Act, 1961 is submitted.” 8.1 It is evident in the c It is evident in the case assessment proceedings u/s 143(3) of ase assessment proceedings u/s 143(3) of the Act was completed by the Ld. CIT(A) on the Act was completed by the Ld. CIT(A) on 24.03.2015 and notice 24.03.2015 and notice u/s 148 is issued beyond the period of four years from the end of is issued beyond the period of four years from the end of is issued beyond the period of four years from the end of the relevant assessment year the relevant assessment year, thus the Assessing Officer was thus the Assessing Officer was required to record that required to record that there was failure on the part of the assessee there was failure on the part of the assessee in disclosing the material facts fully and truly. However, no such in disclosing the material facts fully and truly. However, no such in disclosing the material facts fully and truly. However, no such observation/satisfaction /satisfaction has been recorded by the Assessing Officer recorded by the Assessing Officer in the reasons to believe, thus believe, thus relying on the decision of the Hon’ble relying on the decision of the Hon’ble Bombay High Court in the case of Punia Capital Pvt. Ltd. (supra) bay High Court in the case of Punia Capital Pvt. Ltd. (supra), bay High Court in the case of Punia Capital Pvt. Ltd. (supra) the Assessing Officer the Assessing Officer has not applied mind while recording reasons has not applied mind while recording reasons to believe , hence, the reassessment proceedings cannot be hence, the reassessment proceedings cannot be hence, the reassessment proceedings cannot be sustained and same are quashed. Since, we have already quashed sustained and same are quashed. Since, we have already quashed sustained and same are quashed. Since, we have already quashed
M/s Gujarat Realtors 10 ITA Nos. 3523 to 3525/Mum/2023 ITA Nos. 3523 to 3525/Mum/2023
the reassessment proceedings, the other grounds raised by the reassessment proceedings, the other grounds raised by the reassessment proceedings, the other grounds raised by the assessee are rendered academic. assessee are rendered academic.
Now we take the appeal of the assessee for assessment year Now we take the appeal of the assessee for assessment year Now we take the appeal of the assessee for assessment year 2013-14. The grounds raised by the assessee are reproduced as 14. The grounds raised by the assessee are reproduced as 14. The grounds raised by the assessee are reproduced as under:
The learned CIT(A) has erred i he learned CIT(A) has erred in law and on facts in upholding the n law and on facts in upholding the disallowance of the interest amounting to Rs. 7,91,274/ disallowance of the interest amounting to Rs. 7,91,274/- U/s 36 of the act U/s 36 of the act on the alleged accommodation loan taken by the on the alleged accommodation loan taken by the appellant. 2. The learned CIT(A) has erred in law and on facts in upholding the The learned CIT(A) has erred in law and on facts in upholding the The learned CIT(A) has erred in law and on facts in upholding the disallowance of th of the interest amounting to Rs. 4,36,642/- u/s 36(1)(iii) of the u/s 36(1)(iii) of the act on the alleged interest act on the alleged interest-free loan given by the appellant to the sister free loan given by the appellant to the sister concern. 3. The learned CIT(A) has erred in law and on facts by charging interest u/s The learned CIT(A) has erred in law and on facts by charging interest u/s The learned CIT(A) has erred in law and on facts by charging interest u/s 234B of the Act. 234B of the Act. 10. The ground No. 1 is consequential to the additions made in . 1 is consequential to the additions made in . 1 is consequential to the additions made in assessment year 2012 assessment year 2012-13, but the reassessment proceedings assessment proceedings for same has already been quashed has already been quashed by us therefore, this ground is also therefore, this ground is also allowed in favour of the assessee. allowed in favour of the assessee.
As far as ground No. 2 of the appeal is concerned, the As far as ground No. 2 of the appeal is concerned, the As far as ground No. 2 of the appeal is concerned, the Assessing Officer disallowed the interest out of interest charged in Assessing Officer disallowed the interest out of interest charged Assessing Officer disallowed the interest out of interest charged profit and loss account on the profit and loss account on the ground that assessee had ground that assessee had advanced loans to sister’s concern without any commercial expediency loans to sister’s concern without any commercial expediency loans to sister’s concern without any commercial expediency ,therefore, interest corresponding to such loan was not allowable. ore, interest corresponding to such loan was not allowable. ore, interest corresponding to such loan was not allowable. The Ld. CIT(A) dismissed the ground of the appeal observing as The Ld. CIT(A) dismissed the ground of the appeal observing as The Ld. CIT(A) dismissed the ground of the appeal observing as under:
“33. I have considered the facts of the case and the submissions made 33. I have considered the facts of the case and the submissions made 33. I have considered the facts of the case and the submissions made by the appellant. It is not under dispute that the appel by the appellant. It is not under dispute that the appellant has taken lant has taken
M/s Gujarat Realtors 11 ITA Nos. 3523 to 3525/Mum/2023 ITA Nos. 3523 to 3525/Mum/2023
interest bearing loan of Rs. 30,00,000/ interest bearing loan of Rs. 30,00,000/- from its sister concern namely from its sister concern namely M/s Span Associates and on the other hand, the appellant firm has given M/s Span Associates and on the other hand, the appellant firm has given M/s Span Associates and on the other hand, the appellant firm has given interest free loan to another sister concern namely M/s Gujarat interest free loan to another sister concern namely M/s Gujarat interest free loan to another sister concern namely M/s Gujarat Construction. The submission of t Construction. The submission of the appellant further suggests that it is he appellant further suggests that it is not the claim of the appellant that the loan to M/s Gujarat Construction not the claim of the appellant that the loan to M/s Gujarat Construction not the claim of the appellant that the loan to M/s Gujarat Construction was advanced for any commercial expediency. The only contention of the was advanced for any commercial expediency. The only contention of the was advanced for any commercial expediency. The only contention of the appellant is that there is no one appellant is that there is no one-to-one matching of the loan taken fro one matching of the loan taken from Span Associates and the loan given to M/s Gujarat Construction. In my Span Associates and the loan given to M/s Gujarat Construction. In my Span Associates and the loan given to M/s Gujarat Construction. In my opinion, this contention of the appellant is not valid because the appellant opinion, this contention of the appellant is not valid because the appellant opinion, this contention of the appellant is not valid because the appellant has utilized the interest has utilized the interest-bearing funds for advancing the interest free loan bearing funds for advancing the interest free loan to its sister concern without to its sister concern without any business purposes. In such a situation, any business purposes. In such a situation, the Assessing Officer is right in disallowing the interest corresponding to the Assessing Officer is right in disallowing the interest corresponding to the Assessing Officer is right in disallowing the interest corresponding to such interest free loan. Therefore, the addition of Rs. 4,36,642/ such interest free loan. Therefore, the addition of Rs. 4,36,642/ such interest free loan. Therefore, the addition of Rs. 4,36,642/- made by the Assessing Officer is upheld. The ground no. 2 raised by t the Assessing Officer is upheld. The ground no. 2 raised by t the Assessing Officer is upheld. The ground no. 2 raised by the appellant is DISMISSED.” ” 12. Before us, the Ld. counsel for the assessee submitted that Before us, the Ld. counsel for the assessee submitted that Before us, the Ld. counsel for the assessee submitted that sufficient fund and therefore, no assessee was having assessee was having own sufficient fund and therefore, no disallowance could be made out of interest paid by the assessee. In disallowance could be made out of interest paid by the assessee disallowance could be made out of interest paid by the assessee cision of the Hon’ble Bombay support, the assessee relied on the de the assessee relied on the decision of the Hon’ble Bombay High Court in the case of Reliance Utility reported in 313 ITR 314. High Court in the case of Reliance Utility reported in 313 ITR 314. High Court in the case of Reliance Utility reported in 313 ITR 314. Further, the Ld. counsel for the assessee submitted that loan in Further, the Ld. counsel for the assessee submitted that loan Further, the Ld. counsel for the assessee submitted that loan whereas the loan which was reference was borrowed on 12.12.2011 borrowed on 12.12.2011, whereas the loan which was advanced to M/s Gujarat Const advanced to M/s Gujarat Construction (related party) ruction (related party) is prior to , which was advanced said date except an amount of Rs.6,00,000/ amount of Rs.6,00,000/-, which was advanced subsequent to loan borrowed, subsequent to loan borrowed, therefore, at maximum therefore, at maximum, the disallowance of interest could be corresponding to the loan of disallowance of interest could be corresponding to the loan disallowance of interest could be corresponding to the loan Rs.6,00,000/- only.
We have heard rival submission of the parties and perused the d rival submission of the parties and perused the d rival submission of the parties and perused the relevant material on record. relevant material on record. Before us, the assessee has not filed Before us, the assessee has not filed any detailed in support of availability of the funds and therefore, any detailed in support of availability of the funds and therefore, any detailed in support of availability of the funds and therefore, the said ground can’t be allowed in favour of can’t be allowed in favour of assessee assessee, however, as far as the alternative ground of concerned the table of loan received as the alternative ground of concerned the table of loan received as the alternative ground of concerned the table of loan received
M/s Gujarat Realtors 12 ITA Nos. 3523 to 3525/Mum/2023 ITA Nos. 3523 to 3525/Mum/2023
from M/s Span Associates from M/s Span Associates and loan given to Gujarat Cons Gujarat Construction is reproduced as under: s reproduced as under:
Loan Taken from Span Associates Loan Taken from Span Associates Loan given to Gujarat Construction Loan given to Gujarat Construction Date Amount Amount Date Amount Amount 12-12-2011 2,00,00,000 2,00,00,000 29-12-2010 5,00,000 5,00,000 29-01-2011 10,00,000 10,00,000 26-02-2011 2,50,000 2,50,000 26-02-2011 1,00,000 1,00,000 11-03-2011 1,00,000 1,00,000 20-04-2011 1,00,000 1,00,000 31-10-2012 6,00,000 6,00,000 Total 2,00,00,000 2,00,00,000 Total 26,50,000 26,50,000 13.1 From the above table it is evident that a loan of Rs.6,00,000/ From the above table it is evident that a loan of Rs.6,00,000/ From the above table it is evident that a loan of Rs.6,00,000/- has been extended to the related party after the loan taken from has been extended to the related party after the loan taken has been extended to the related party after the loan taken Span associates ,therefore, we direct ,therefore, we direct the Assessing Officer the Assessing Officer to restrict disallowance of interest corresponding to loan amount of restrict disallowance of interest corresponding to loan restrict disallowance of interest corresponding to loan Rs.6,00,000/- only. The ground of the assessee is accordingly only. The ground of the assessee is accordingly only. The ground of the assessee is accordingly allowed partly.
In the result, the appeal for assessment year 2009 In the result, the appeal for assessment year 2009 In the result, the appeal for assessment year 2009-10 and 2012-13 are allowed whereas appeal for assessment year 2013 13 are allowed whereas appeal for assessment year 2013-14 13 are allowed whereas appeal for assessment year 2013 is partly allowed.
Order pronounced in the open C Order pronounced in the open Court on 30/05/2024. /05/2024.
Sd/ Sd/- Sd/- Sd/ (KAVITHA RAJAGOPAL KAVITHA RAJAGOPAL) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 30/05/2024 Rahul Sharma, Sr. P.S.
M/s Gujarat Realtors 13 ITA Nos. 3523 to 3525/Mum/2023 ITA Nos. 3523 to 3525/Mum/2023
Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai