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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Chandra Poojari & Shri Soundararajan K.
Santhimadam Agrofarm Trust ACIT, Central Circle -2 South Nalluvazhi Kandamkulathi Towers vs. North Parur, Kochi 68351 M.G. Road, Kochi 682011 PAN – AAFTS8295L (Appellant) (Respondent) Assessee by: Shri Mathew Joseph, CA Revenue by: Shri Ilaiyaraja K.S., Sr. DR Date of hearing: 04.07.2024 Date of pronouncement: 06.08.2024 O R D E R Per: Soundararajan K., J.M. These appeals are filed by the assessee challenging the orders of the CIT(A) -3, Kochi dated 30.01.2023 in respect of Assessment Years (AY) 2005-06 & 2006-07 and 01.02.2023 in respect of AYs 2007-08 & 2008-09.
As common issues are involved in all the appeals, these are heard together, taking as lead case and disposed off by this common order for the sake of convenience. The findings of the Tribunal in this appeal are mutatis mutandis apply to the appeals of all other assessment years. In respect of the other issues the same are dealt with separately.
The brief facts of the case are that the assessee, a trust, did not file their returns. There was a search u/s. 132 of the Income Tax Act, 1961 (the Act) on 17.09.2008 at the residence of the Trustees as well as the business of the trust
2 to 223/Coch/2023 Shantimadam Agrofarm Trust and the department seized copies of the Trust Deed and documents relating to purchase of properties by the trust. Thereafter the Assessing Officer (AO) issued notice u/s. 153C of the Act requesting the assessee to file return of income for which also the assessee had not filed the return of income. Therefore, after serving notice u/s. 142(1) of the Act the assessment was completed on 28.12.2010 by taking the credits in the bank account as unexplained investments. In the assessment order the AO stated that, after analysing more than 750 land documents and bank statements the assessment was completed. Against the above said order of the AO the assessee filed appeal before the CIT(A) but the same was dismissed by the ld. CIT(A). Thereafter the assessee filed second appeal before the Tribunal and the Tribunal had set aside the assessment and restored the same to the file of the AO.
On the basis of the remand order of the Tribunal the AO took up the matter by issuing notice and the Authorised Representative of the assessee appeared before the AO and explained that the seized materials are nothing but the land documents. The learned A.R. also produced the books of account of the assessee and after detailed verification of the accounts the AO had again passed an order in which the AO had treated a sum of Rs.5,73,799/- as unexplained cash credit u/s. 68 of the Act. The AO also disallowed the advertisement expenses of Rs.4,41,080/- for the reason that the assessee had not deducted TDS as per sec. 194C of the Act. The AO also imposed interest u/s. 234A & 234B of the Act in the tax calculation sheet. The assessee challenged the above order before the CIT(A) and contended that the additions are not sustainable since the same were not based on any incriminating materials. In respect of addition made by disallowing the advertisement expenditure on account of non deduction of TDS the assessee submitted that the person who received the payment had paid the tax to the department and the addition is not based on the materials seized at the time of search and 3 to 223/Coch/2023 Shantimadam Agrofarm Trust prayed to allow the same. Similarly, in respect of levy of interest u/ss. 234A & 234B the assessee contended that the ld. CIT(A) rejected the same in view of the order of the Hon'ble Karnataka High Court. As against the said order of the ld. CIT(A) the assessee is now before us and raised the following grounds of appeal: - “1. The learned Commissioner went wrong in upholding the disallowance of Rs. 4,41,080 u/s 40(a)(ia) without appreciating that no materials evidencing non deduction of TDS from advertisement charge was seized in search warranting the disallowance and that without such a seizure no disallowance u/s 40(a)(ia) can be made in a search assessment as held by the Ho'ble High Court of Delhi in the case of Meeta Gutgutia (2017) (the SLP flied by the Revenue against this judgment was dismissed by the apex court (2018) 96, taxman.com 468(SC). He ought to have found that the materials seized as noted in the assessment orders are copy of the Trust deed and documents / accounts evidencing purchase of land.
2. The learned commissioner went wrong in making an addition of Rs 5,73,799 as unexplained investment u/s 69. He ought to have found that the deposit and withdrawal reflected in the said bank account represent unaccounted purchase and sale and that the difference would only constitute income.
3. The learned Commissioner went wrong in making an addition of Rs 5,73,799 as unexplained investment u/s 69 by overlooking the fact that under similar circumstance, deposits, net of withdrawals, in undisclosed bank account were only taken in the computation of income in the assessments of V.N Radhakrishnan, the person searched in this group.
4. Without prejudice to the grounds above, the learned Commissioner went wrong in upholding the disallowance of Rs 4,41,080 u/s 40 (a) (ia) and making an addition of Rs 5,73,799 as unexplained investment u/s 69 without appreciating the fact that the appellant is engaged in growing and sale of herbal plants and that the income derived is agricultural income which shall not include total by virtue of section 10(1). He ought to have appreciated that this claim was made in the return filed on 31/12/2010; this position was found, but, not disputed as discussed in the assessment order and that this claim in appeal proceedings is not an afterthought as presumed by the Commissioner.
5. The learned Commissioner went wrong in upholding the interest charged u/s 234A for a period commencing from the due date of filing the return u/s 139(1)[(01/08/2005]without appreciating the fact that an voluntary return was filed u/s 139 on 29/08/2006 declaring total income of Rs 19,700 and paid self assessment tax of Rs 6028 together with interest. He ought to have found in this case that the interest is chargeable under sub section (3) of section 234A from the due date for filing return in response to notice u/s 153C as held by the jurisdictional high court in the case of B Lakshmi kandan.
6. The learned Commissioner went wrong in upholding the interest charged u/s 234B for a period commencing from first day of the assessment 4 to 223/Coch/2023 Shantimadam Agrofarm Trust year(01/04/2005) by overlooking the fact that since the return filed u/s 139 was processed u/s 143(1) before the reassessment u/s153C, the interest is chargeable under sub section (3) of section 234B as was held by the jurisdictional high court in the case of B Lakshmi kandan. He ought to have appreciated that such interest is chargeable for a period commencing from the date of order u/s 143(1) 7. The learned Commissioner went wrong in upholding the interests charged u/s 234A and u/s 234B by taking the order passed u/s 153C r.w.s. 254 on 30/08/2014 as the regular assessment/reassessment. He ought to have appreciated that the return filed u/s 139 was processed u/s 143(1) and that the assessment originally made u/s1153C on 28/12/2010 is the regular assessment/reassessment for the purpose of charging interests u/s 234A and u/s 234B.
8. The learned Commissioner went wrong in applying the judgment of the Hon'ble Karnataka High Court in the case of Mahesh Investments Vs ACIT (277 Taxman 161/429ITR284) to hold that interests are chargeable up to the date of modified order. He ought to have found that such a finding was not present in the said judgment and that the finding was charge interests up to the date of first assessment order as per paragraph8 which is extracted below. "8.........It is also not in dispute that if an order of assessment get effaced, it ceases to exist and a fresh order of assessment has to be passed. The Supreme Court in the case of MODI INDUSTRIES, supra, has held that the expression 'regular assessment' has to be deemed to have been completed on the date when first order of assessment has been passed and not when modified order of assessment has been passed, as the assessee cannot be penalized for lapse of time between the first assessment order and modified assessment order without there being any fault on his part. Therefore, the interest under Section 234A can be levied upto the date of first assessment order only".
At the time of hearing the assessee filed a paper book comprising of written submission in respect of the grounds raised in the appeal as follows: - “Ground No.1 Disallowance of Rs 4,41,080 u/s 40(a)(ia)- Addition without any incriminating materials unearthed in search In the original assessment dated 28/12/2010 there was no disallowance for want of TDS deduction. In the revised assessment the assessee produced the books of accounts and based on that the assessing officer has disallowed the advertisement expenses. The contention of the appellant was that the addition of Rs 4,41,080/- had not been based on any incriminating material unearthed in search and, as such, the addition is not sustainable in law. The issue regarding the validity of addition in unabated assessment u/s 153C without based on incriminating material unearthed in search was settled finally in favour of the assessee now by the judgments of the apex court in PCIT Vs Abhisar Buildwel Pvt Ltd dated 12/04/2023 and PCIT Vs King Buildcon Pvt Ltd dated
5 to 223/Coch/2023 Shantimadam Agrofarm Trust 10/07/2023. The apex court had held that in an assessment u/s 153C, additions made not based on incriminating material unearthed in search is not sustainable. In the case of the appellant the issue revolves around is whether the total addition of Rs 4,41,080/- was made on the basis of incriminating materials relating to the addition; such materials were found and seized during the course of search in the case of Radhakrishnan and whether this fact was recorded in the satisfaction note prepared for the initiation of proceedings u/s 153C in appellant's case. Copy of satisfaction note was not provided to the appellant as it was a departmental matter and, as such, it was not able to offer any comments as to the satisfaction note recorded u/s 153C in regard to the availability of any incriminating material which threw light in respect of escapement of income to the tune of Rs 4,41,080/-. The original assessment order dated 28/12/2010 and the fresh order dated 30/08/2014 do not indicate that the addition made in the case of the appellant for this year was based on any incriminating materials found and seized in the search in the case of Radhakrishnan. Ground No.2,3 & 4- These three grounds may kindly be treated as withdrawn Ground No. 5, 6,7 & 8 are in respect of the levy of interest under section 234 A and 2348. The Hon. Tribunal vide its order in ITA No.916 to 919/Coch/2022 dated 2/05/2024 in the case of Santhimadom Ayurniketan Trust has remanded the issue back to CIT(A) for fresh consideration. Copy of the ITAT order is attached herewith.” In the above said written submission, the assessee is not pressing ground Nos. 2 to 4 and prayed to treat the same as withdrawn. In respect of ground Nos. 5 to 8 regarding interest levied u/ss. 234A & 234B of the Act, the learned A.R. made submission on merits and also relied on the order of the coordinate bench in ITA Nos. 916 to 919/Coch/2022 dated 02.05.2024 in the case of Santhimadom Ayurnikethan Health Resort & Research Institute Trust and prayed to allow the appeals. The AR relied on the orders of the Hon'ble Supreme Court in Civil Appeal No. 6580 of 2021 dated 24.04.2023 in the case of PCIT v. Abhisar Buildwell P. Ltd. in respect of the additions made dehors the materials seized at the time of search.
The learned D.R. relied on the orders of the lower authorities and prayed to dismiss the appeal.
6 to 223/Coch/2023 Shantimadam Agrofarm Trust 7. We have heard the rival contentions and perused the material on record. We found from the earlier assessment order dated 28.12.2010 and also from the order dated 30.08.2014, at the time of survey the officials had recovered only the land documents and the bank statements. The department has not seized any incriminating records and the addition is based on the books of account of the assessee which was not seized at the time of search. Therefore, while making the assessment u/s. 153C of the Act, in the original order as well as in the second order, the AO had not relied on any seized document for making the addition of Rs. 4,41,080/- by disallowing the advertisement expenses for not deducting the TDS. We find that the said amount was added based on the figures found place in the books of account and not based on the incriminating materials seized during the search. Therefore, when the AO made an assessment u/s. 153C of the Act, he cannot make addition u/s. 68 or 69 since the same was not made based on the seized materials. We have perused the records but nowhere we found that there is a correlation between the addition and the seized materials. Therefore, we find some force in the argument of the learned A.R. that the addition cannot be sustained in view of the non-linking of the seized material with the addition. We have also gone through the judgement of the Hon'ble Supreme Court in the case of Abhisar Buildwell P. Ltd. (supra) in which it has been categorically held as under: - “iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132A of the Act, 1961. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under Sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved. The question involved in the present set of appeals and review petition is answered accordingly in terms of the above and the appeals and review petition preferred by the Revenue are hereby dismissed. No costs.”
7 to 223/Coch/2023 Shantimadam Agrofarm Trust We therefore find that the orders of the lower authorities are not in accordance with the law laid down by the Hon'ble Supreme Court and therefore we set aside the addition of Rs.4,41,000/-made by the AO dehors the seized documents and therefore Ground No. 1 is allowed in favour of the assessee.
In so far as grounds 5 to 8, regarding the crucial date for charging the interest, the issue was covered by the order of this Tribunal, in the case of Santhimadom Ayurnikethan Health Resort & Research Institute (supra) wherein similar issue came up for consideration and the coordinate bench of the Tribunal after considering the judgement of the Hon'ble Karnataka High Court in the case of Mahesh Investments reported in [2020] 429 ITR 284 (Kar), which was relied on by the ld. CIT(A) for rejecting the claims of the assessee, has remitted the issue with the following findings: - ”4.10 The issue in the instant case pertains to the termini point for reckoning the period of interest u/ss. 234A and 234B, where the original assessment stands set aside in the appellate proceedings for fresh assessment. The original demand surviving no longer, the Revenue claims the subsequent assessment as the regular assessment, while the assessee claims it to be the first one. The issue stands considered by the Tribunal in Santhimadom Herbal City Trust (supra). The said decision, however, does not consider and, accordingly, issues no finding qua the legal effect of a ‘set aside’, while the same is the basis of the Revenue’s objection, found valid on the basis of settled jurisprudence in the matter. True, the Tribunal in Santhimadom Herbal City Trust (supra) does speak of no obliteration of demand consequent to an assessment being set aside, but the question of the status of the assessment, a regular assessment, i.e., consequent to it’s set aside, remains unanswered, with it being axiomatic that a demand could arise only w.r.t. a legally valid assessment. Why, much less a total set aside, even on a partial one, as where the set aside, for fresh assessment, is qua one or more grounds of appeal
, it is difficult to say as to what is the demand that survives the set aside, which would only be on it being confirmed, deleted – wholly or partially, or enhanced. This restrains us from following the said order; there being no estopple against law. There is equally no finding in Mahesh Investments (supra), relied upon by the assessee, as indeed by the Revenue, whose reliance though, we agree with the assessee, is misplaced. As explained in CIT vs. Prakash Chand Lunia [2023] 454 ITR
61. (SC), for a precedent to be binding there has to be a conscious consideration of an issue involved (also see: Hussain Bhai & Ors. v. CIT [1966]
64. ITR 456 (Cal)). The decision in Modi Industries Ltd. (supra), however, settles the issue qua the ‘date of regular assessment’, clarifying it to be for the purpose of determination of interest payable to or, as the case may be, by the assessee, i.e., ss. 214, 215, also adverting to ss. 243 and 244 of the Act. The said provisions are no longer operative, with, further, there being legislative changes, the legal import of which is to be judicially determined. The decision in 8 to 223/Coch/2023 Shantimadam Agrofarm Trust Mahesh Investments (supra), and by the Tribunal in Santhimadom Herbal City Trust (supra), stand rendered de hors the same. There being no consideration of the changed legal scenario, we only consider it fit and proper to restore this issue, i.e., computation of interest u/ss. 234A & 234B, back to the file of the ld. CIT(A) for a consideration afresh, who shall adjudicate thereon per a speaking order after allowing adequate opportunity of hearing to the parties before him, in accordance with law, considering all the decisions that may be relied upon by them, or that he may wish to rely upon, confronting them therewith. All contentions qua this issue, whether raised and considered in this order or not, are, without reservation, open to both the sides. We may not be construed as having expressed any final view in the matter, save as to the instant appeals, as indeed the assessments from which they arise, as being maintainable. Two, we may clarify that the nature of levy as mandatory, as well as compensatory, and of the default being a continuing one, is not in dispute, so that demand, where paid, would automatically close the interest, even as found in CIT v. Pranoy Roy [2009] 309 ITR 231 (SC). The compensatory aspect, which also prevailed with the Apex Court in Modi Industries Ltd. (supra), stands met by the extant law providing for interest up to the date of grant of interest; a statutory confirmation of the interest being compensatory. The dispute concerns only the aspect of ‘date of regular assessment’ in the given facts and circumstances of the case, and the law in the matter. We decide accordingly.” Respectfully following the above said findings of the coordinate bench, we remit the interest issue to the file of the AO to decide the issue afresh by taking note of the above order of the Tribunal. In fine Ground nos. 5- 8 are partly allowed for statistical purposes.
9. Since the addition made without reference to the seized material were deleted, we also delete similar additions made in & 222/Coch/2023. In so far as the interest portion is concerned, we are remitting the issue to the AO for all the assessment years, i.e. ITA Nos. 220, 221, 222 and 223/Coch/2023 to decide the issue afresh by taking note of the order of the Tribunal cited supra.
11. In respect of ground Nos 3,4 &5, the assessee submitted that the advance amount received from Kristal Infrastructure Ltd was for procuring land and the same is taxable under the head business and not under the head Income from other sources. The assessee also submitted that this is a liability
9 to 223/Coch/2023 Shantimadam Agrofarm Trust and therefore the same cannot be taken as income. Also submitted that no addition could be made as income from other sources by virtue of judgement of the apex court in Abhisar Buildwell P Ltd as no incriminating material was found and seized.
We considered the arguments and the written arguments filed by the assessee and we are in full agreement with the findings given by the AO as well as the CIT(A).The CIT(A) had given the following finding in his order: - “(i) The submissions of the appellant have been considered. I am in agreement with the point raised by the appellant to the extent that the addition in the above issue cannot be made u/s.28(iv) of the IT Act. However, it needs to be appreciated that there is no dispute on the fact that the appellant has received Rs.85,00,000/- from M/s. Krystal Infrastructure Ltd. During the course of assessment proceedings and appeal proceedings, the appellant has taken a stand that the amount so received is an advance for procurement of land on behalf of M/s. Krystal Infrastructure Ltd. During the course of assessment proceedings the appellant was requested to submit the details of land acquired by it on behalf of M/s. Krystal Infrastructure Ltd. However, the appellant has stated that the land procurement for M/s. Krystal Infrastructure Ltd., did not materialize. Hence, during the course of assessment proceedings, the appellant was also requested to produce evidence to prove that the amount received from M/s. Krystal Infrastructure Ltd., is returned/returnable to the Company. (ii) Even during the course of appeal proceedings, the appellant could not adduce any evidence to prove that such amount was returned/returnable to M/s. Krystal Infrastructure Ltd. Despite a lapse of a considerable period of almost 15 years, it is found that the appellant has neither returned the purported advance money received from M/s. Krystal Infrastructure Ltd., nor could it submit any evidence to prove that the amount is payable/returnable to the Company. Since the CIT(Appeals) has powers co-terminus with the Assessing Officer, the amount received from M/s Krystal Infrastructure Ltd., (Rs.85,00,000) was proposed to be assessed as income from Other Sources' u/s.56 of the IT Act vide notice dated 24/01/2023 from the office of the undersigned. (iii) In response to the show cause notice, the Authorised Representative of the appellant appeared and submitted written submission dated 25/01/2023, which is extracted hereunder :- "A sum of Rs.1,00,00,000 has been received by the appellant during the A.Y.2007- 08 (Rs.85,00,000) and in A.Y. 2008-09 (Rs.15,00,000) from Kristal Infrastructure Ltd., as per agreement found and seized in the course of search in the case of V.N. Radhakrishnan. The payment was for procurement of 1000 acres of land for the company in Palakkad District. The sum received was accounted as such in the books of accounts of the appellant and appearing as a liability in the Balance sheet of the appellant. The assessing officer had held that the appellant had obtained a benefit or perquisite from the transaction which is chargeable to tax as deemed income
10 to 223/Coch/2023 Shantimadam Agrofarm Trust within the meaning of section 28 (iv) of the Act. Accordingly Rs.85,00,000 and Rs. 15,00,000 received during the AY 2007-08 and AY 2008-09 respectively were charged to tax as income for those assessment years. This is a liability appearing in our books of account which has not been cleared even now. The proposal to treat this as income from other source is against law and facts and is to be reconsidered. By this written submission we record our objection to the above proposal.” (iv) The submission of the appellant has been considered. The appellant has merely reiterated the submissions made earlier during the course of appeal proceedings and has brought his objection to the addition on record. One of such arguments reiterated by the appellant in his submission is that the amount of Rs.85,00,000/- is appearing as liability in the balance sheet of the appellant. As mentioned earlier, neither during the assessment proceedings, nor at the time of appeal proceedings, the appellant has given any evidence to the effect that the amount is returnable to M/s. Krystal Infrastructure Ltd. It is surprising to note that M/s. Krystal Infrastructure Ltd., has not made any attempt to recover the amounts purportedly due from the appellant, despite a lapse of almost 15 years. Nowhere on record, the appellant has been able to prove that any civil suit has been filed, or even a simple communication has been given to the appellant asking for recovery of the money advanced. (v) It may be worthwhile to mention here that during the course of assessment proceedings, as part of enquiry conducted with M/s. Krystal Infrastructure Ltd., u/s.133(6) of the IT Act information was sought regarding the ledger extract of those parties to whom payment were made. After repeated requests/enquiries, M/s. Krystal Infrastructure Ltd. stated that the books of account pertaining to the relevant period were destroyed in fire. Further, they failed to furnish the details of land procured through the appellant and were also unable to confirm that the amount paid by them was returned by the appellant or is returnable. They were unable to provide any details despite repeated requests. The conduct of the payee and payer in this case defies logic and is not in conformity with normal business practices. Hence, it has to be presumed that the amount is not meant to be returned at all. The reason for such payment/receipt is disclosed neither by the appellant nor by the payer for some strange reasons. However, there is no dispute on the fact that the appellant has received the money and that it has neither been returned nor demanded by the payer. Considering the facts and circumstances of the case, it can safely be assumed that the amount was never intended to be returned. (vi) There are a number of decisions by the Hon'ble Apex Court and the Hon'ble High Courts wherein it was held that when the entries made in the books of account stands in contradiction to common sense and realities of business practices, the revenue should adopt a stand in tune with the prevailing business practices and common sense, rather than mechanically following the entries in the books of account. The decision of the Hon'ble Supreme Court in the case of CIT Vs. T.V. Sundaram lyengar & Sons (222 ITR 344) (SC) and Gujtron Electronics (P) Ltd. Vs. Income Tax Officer (2017) 397 ITR 462 (Guj), M/s. West Asia Exports & Imports (P) Ltd. Vs. ACIT (412 ITR 208) are few of such examples where the Courts have held that in taxing a receipt, the actual nature of transactions have to be considered over the entries made in the books of accounts. In the present case, though the receipt is entered as an advance in the books of 11 to 223/Coch/2023 Shantimadam Agrofarm Trust account of the appellant, considering the facts and circumstances of this case, the amount so received is actually a miscellaneous receipt. (vii) In view of the facts mentioned above, the amount has to be treated as a miscellaneous receipt in the hands of the appellant in the year in which it was received, i.e. Financial Year relevant to A.Y.2007-08. (viii) As per section 56 of the IT Act income of every kind which is not to be excluded from the total income under this Act, shall be chargeable to income tax under the head 'Income from Other Sources', if it is not chargeable to income tax under any of the heads specified in section 14, items A to E. This case of the appellant squarely fits into the provisions of section 56 of the IT Act. (ix) Since this income, being a miscellaneous receipt, is not chargeable to income tax under any of the heads specified in section 14, items A to E, the same has to be taxed as per the provisions of section 56 of the IT Act in the Financial Year relevant to AY 2007-08 (the year in which the amount was received). (x) In view of the facts mentioned above, the addition of Rs.85,00,000/- is confirmed u/s.56 of the IT Act, instead of section 28(iv) as done by the Assessing Officer.” The assessee was not able to disprove the detailed findings of the CIT and therefore we upheld the order of the CIT(A) by dismissing the grounds. Further the judgement of the Hon'ble Supreme Court relied on by the assessee is not applicable to the facts of the case, since the addition is based on the seizure of the agreement at the time of search. In view of the above decision we are also dismissing the Gr No 1,2 &3 in ITA223/Coch/2023. Ground No 4 is dismissed as withdrawn. Ground Nos. 5 & 6 relates to the interest issue and the same is remitted to the AO with the very same directions given in .
In the result, the appeals filed by the assessee are partly allowed for statistical purposes. Order pronounced in the open Court on 6th August, 2024.