BABITA MALKANI,MUMBAI vs. DCIT CC 25, MUMBAI

Facts in brief are that the search operation u/s. 132 of the Income Tax Act 1961 was conducted on 16/12/2010 in the case of M/s. Patel Engineering Ltd. Group of cases. The assessee was, inter-alia, covered in the search operation. The original return of income for AY 2006-07 was filed by the assessee during October, 2006 declaring total income at Rs. 15,85,167/- and the same return of income was filed pursuant to notice u/s. 153C. The assessee is engaged in the business of readymade garments under its proprietary concern. The assessee earned exempt income of Rs. 2,87,363/- from investments made in certain bonds, mutual funds and shares. An ad-hoc addition of 5% of exempt income which amounted to Rs. Rs. 14,368/- was made under Section 14A and assessment u/s. 143(3) r.w.s. 153C was completed at Rs. 15,99,540/- vide Assessing Officer (AO) order dated 25/03/2013. The assessee preferred first appeal before CIT(A) but the same was dismissed vide order dated 24/03/2015. The assessee contended that routine disallowance u/s. 14A could not be made in assessment order passed u/s. 143(3) r.w.s. 153(3) and no incriminating material has been found during search. Moreover, time period for issue of notice u/s. 143(2) in respect of original return has already been expired and the assessment has attained finality. Further, exempt income was earned from personal investments made and no expenses in respect thereof has been claimed in the books of accounts and there is no borrowings. But the same could not find favour with the CIT(A) and appeal was dismissed.

Aggrieved, the assessee is in appeal before us. None is present for assessee at the time of hearing. DR relies on the order of CIT(A).

We have perused the material on record and found that no incriminating material has been found during the search and original assessment has already attained finality. The exempt income has been earned only out of personal investment, no expenses in respect thereof has been claimed in the books of accounts and therefore, addition u/s 14A in the circumstances is not called for. Therefore, the addition of Rs. 14,368/- made u/s. 14A is hereby deleted and the appeal of the assessee is allowed.

Similar are the facts in ITA 3351/Mum/2015 filed by the assessee for AY 2011- 12. The return of income in this case was filed post search operations during September, 2011 declaring total income of Rs. 33,70,426/- which included Rs. 15 Lacs unexplained cash found during search and offered by the assessee in the return of income. The assessment was completed at Rs. 34,78,730/- vide Assessing Officer order dated 25/03/2013 after making similar addition of Rs. 1,08,308/- u/s 14A, Rule 8D(2)(ii). The same was contested unsuccessfully before CIT(A). The unexplained cash of Rs. 15 Lacs found during search was seized and the assessee filed rectification application u/s. 154 before Assessing Officer to treat the same as advance taxes payment but the same were rejected on the ground that there was no mistake apparent from the record. These contentions of the assessee was rejected by the CIT(A) also on the grounds that there was no express request by assessee to treat the same as advance tax and no such claim has been made by the assessee before any authority.

Aggrieved, the assessee is in appeal before us. Regarding, addition u/s 14A, the same are hereby deleted reiterating our stand in the preceding paragraph number 4. Regarding assessee’s claim to treat the seized cash as payment of advance tax on behalf of the assessee, the same is restored back to the file of CIT(A) to verify the claim of the assessee in the light of Section 132B of the Income Tax Act and any other applicable provision. The appeal of the assessee is allowed with respect to Section 14A and allowed for statistical purposes with respect to claim in respect of seized cash. 5. In nutshell, both the appeals of the assessee are allowed. Order pronounced in the open court on 10th August, 2016.