ATR WAREHOUSING PRIVATE LIMITED,VISAKHAPATNAM vs. THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE,, VISAKHAPATNAM

PER BENCH :

The captioned three appeals are filed by the assessee against the orders of the Ld. Commissioner of Income Tax (Appeals)-3, Visakhapatnam [Ld. CIT(A)] in appeal No. 212, 213 & 214/2017-18/CIT(A)-3/VSP/2019-20, dated 31/10/2019 arising

2 out of the orders passed U/s. 143(3) r.w.s 153A of the Income

Tax Act, 1961 [the Act] for the AYs 2014-15, 2015-16 and 2016-

sake of convenience, these appeals are clubbed, heard together

and disposed off in this consolidated order. Appeal wise

adjudication is given in the following paragraphs of this order.

assessee-company is deriving income from business, house property,

other sources and agricultural income from warehousing filed its return

of income for the AY 2014-15 on 30/11/2014 declaring total income of

Rs. NIL (Loss of Rs. 2,83,99,853/-). The main source of business

income is license fee collected from the tenants for the ware housing

godowns at various places viz., Visakhapatnam, Kakinada and

Hyderabad. Sri AT Rayudu and Sri A. Avnash are the Directors of

the assessee-company who hold 45% each of the share-holding in

the company. The case was selected for scrutiny under CASS and a

notice U/s. 143(2) was issued on 31/08/2015 but the assessment

got abated as search and seizure operations u/s. 132 of the Act

were conducted on 14/10/2015 and in the cases of AT Rayudu, Sri

A. Avnash, Smt. A. Ammaji and Smt. Harshitha. In the course of

3 said proceedings several documents and loose sheets were found

and seized. Accordingly, notice U/s. 153A was issued to the

appellant on 18/07/2016 and served on the assessee. In response

to the said notice the assessee stated that the return of income filed

U/s. 139 on 30/11/2014 may be treated as the return filed in

response to the notice U/s. 153A. Subsequently a notice U/s.

143(2) was issued on 19/06/2017. In response to the said notice,

the assessee’s representative appeared and furnished a copy of the

computation of total income. Thereafter, a notice U/s. 142(1) and a

questionnaire was issued to the assessee and its Authorized

Representative to appear before the Ld. AO and the assessee was

asked to submit some basic information i.e., audit reports, financial

statements, TDS made details, bank account statements, copy of

WT return filed etc., and the assessee’s Representative furnished

the information called for. Thereafter, another notice U/s. 142(1)

was issued calling for further details like books of account, bills &

Vouchers, details of share holders, breakup of certain items in the P

& L Account, balance sheet, confirmation letters in respect of

unsecured loans, and applicability of section 14A, ledger extracts of

expenditure above Rs. 5 lakhs, sundry creditors and a detailed note

4 on the transactions with group concerns on the basis of material

found and seized in the course of search and seizure operations

conducted at the business premises of the applicant and residential

premise of the Directors etc. The assessee was asked to furnish the

information by 30/08/2017. After considering the submissions of

the assessee as well as the material available before the Ld. AO, the

Ld. AO rejected the claim of unsecured loans borrowed by the

assessee amounting to Rs. 30,00,000/- by holding that the

assessee failed to prove that the purported loan transactions with

the company, M/s. Transnational Growth Funds Ltd are genuine

unsecured loans and thereby, the assessee did not discharge the

onus cast on it. Accordingly, the Ld. AO treated the sum of Rs. 30

lakhs as unexplained cash credits U/s. 68 of the Act which is liable

to be taxed U/s. 115BBE @ 30%. The Ld. AO further made an

addition of Rs. 88,79,611/- rejecting the claim of the assessee that

the sum of Rs. 88,79,611/- was the interest on unsecured loans

and opined that since the loans relating to AY 2014-15 were held to

be not genuine and therefore the relatable interest expenditure is

also not allowable. The Ld. AO disallowed a sum of Rs.

1,07,38,770/- on account of the interest paid to APSFC as the

5 assessee failed to deduct the tax at source on the impugned interest

claimed. Further, the Ld. AO disallowed Rs. 7,77,952/-by invoking

the provisions of section 14A of the Act. Further, the Ld. AO made

addition of Rs. 6,47,948/- which is shown as ‘long term loans and

advances given’. The Ld. AO opined that these loans and advances

are not related to the business activities carried out by the assessee

and therefore the interest paid to bank relatable to such interest

free advances is not allowable U/s. 36(1)(iii) of the Act. Accordingly,

the Ld. AO completed the assessment U/s. 143(3) r.w.s 153A of the

Act and passed the assessment order on 29/12/2017. On being

aggrieved by the additions made by the Ld. AO, against the order of

the Ld. AO, the assessee went on appeal before the Ld. CIT (A). On

appeal, the Ld. CIT(A), after considering the submissions of the

assessee as well as discussing the issues at length, partly allowed

the appeal of the assessee. On being aggrieved by the decision of

the Ld. CIT(A), the assessee is in appeal before the Tribunal by

raising the following Grounds of Appeal:

6 (i) That having regard to the facts and circumstances of the case, the present assessment pursuant to section 153A is not justified as the search conducted on the appellant was based on illegal search warrant. (ii) That having regard to the facts and circumstances of the case, the present assessment is not justified as no incriminating material was found in the course of search. (iii) That having regard to the facts and circumstances of the case, the Ld. AO has not erred in passing the impugned assessment order which was passed pursuant to a notice issued U/s. 153A which itself was perverse in law. (iv) The Ld. CIT(A) has erred in law and on facts by treating the sum of Rs. 53,10,429/- as unexplained expenditure for the mere reason that the same was not recorded in the books of account.”

argued that since the assessee has repaid the loans it should be

treated as genuine loan and pleaded for allowing the same.

Further, the Ld. AR also pleaded that the advance given by M/s.

ATR Ware Housing Pvt Ltd., Visakhapatnam on long term basis

cannot be disallowed as they are part of the business activity and

interest free funds are also received from the customers and

hence no disallowance is called for U/s. 36(1)(iii) of the Act.

Hence the Ld. AR pleaded to delete the additions made by the Ld.

Revenue Authorities.

Per contra, the Ld. Departmental Representative [Ld. DR]

relied on the orders of the Ld. Revenue Authorities.

7 5. We have heard both the sides and perused the material

available on record and the orders of the Authorities below.

Grounds Nos. (i), (ii) and (iii) pertain to justification of the

search conducted and consequential order passed by the Ld.

AO which was considered perverse. It is not the fact that no

incriminating material found during the search operations.

The Ld. AO in his order has clearly corroborated the evidences

found at the time of search and seizure in para 5.5 of the order

and quoted the reference to the Annexure/A/ATR/PO/Res/1.

It is a settled law that once a search was made U/s. 132 of the

Act the Assessing Officer is bound to issue notice U/s. 153A of

the Act to the assessee. Consequently, the Ld. AO is also

empowered to assess or reassess the total income of the

assessee for a period of six assessment years. In the instant

case, it is also found that some incriminating material with

respect to the unsecured loans has been seized by the Ld.

Revenue Authorities. Assessments and reassessments pending

on the date of search shall abate and it empowers the Ld. AO

to re-do the assessment. In respect of non-abated assessments

if any incriminating material is found for the relevant

assessment year, section 153A empowers the Ld. AO to

reassess the income with respect to the assessment year in

8 which the incriminating material was found. In our considered

opinion this would be correct understanding of the provisions

of section 153A of the Act as otherwise the necessity of

bifurcation of abated and non-abated assessment in section

153A would become redundant and would lose its relevance.

In the instant case, the incriminating material found at the

time of search with respect to unsecured loans has been

reassessed by the Ld.AO with respect to the non-abated

assessment for the impugned assessment year. Therefore, we

are of the considered view that these grounds raised by the

assessee do not have legs to stand and hence dismissed.

Having dismissed the legal grounds we now proceed to

adjudicate the other grounds raised by the assessee on merits.

CIT(A) has disallowed a sum of Rs. 53,10,429/- being the

payment of interest in cash which has not been recorded in the

books of accounts as unexplained expenditure in the hands of

the assessee. The Ld. AR submitted that this enhancement of the

assessment by the Ld. CIT (A) was made without providing any

proper opportunity to the assessee and hence it is bad in law.

The Ld. AO argued that this issue was not before the Ld. AO.

Per contra, the Ld. DR supported the order of the Ld. CIT(A).

available before us as well as the orders of the Ld. Revenue

Authorities. We find merit in the argument of the Ld. AR that

when there is an enhancement to the assessment made by the

Ld. AO, an opportunity of being heard to the assessee shall be

provided to the assessee. However, in this case, we find that no

such opportunity was provided to the assessee. Therefore,

following the principles of natural justice, we are of the

considered view that the assessee shall be provided a reasonable

opportunity with respect to enhancement of disallowance of

interest of Rs. 53,10,429/-. Accordingly, in order to provide a

reasonable opportunity, we remit the issue back to the Ld. CIT(A)

for deciding the issue afresh after affording a reasonable

opportunity of being heard to the assessee. Thus, Ground No.4

raised by the assessee is allowed for statistical purposes.

for statistical purposes.

10 आयकर अपील सं./ I.T.A. No.90 & 91/Viz/2020 (�नधा�रण वष� / Assessment Year :2015-16 & 2016-17)

Pronounced in the open Court on the 21st December, 2022.

Sd/- Sd/- (दु�वू� आर.एल रे�डी) (एस बालाकृ�णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) �या�यकसद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER Dated : 21.12.2022 OKK - SPS

आदेश क� ��त�ल�प अ�े�षत/Copy of the order forwarded to:- �नधा�रती/ The Assessee – ATR Warehousing Private Limited, D.No. 1. 11-8-34, Daspalla Hills, Visakhapatnam, Andhra Pradesh, 530003. राज�व/The Revenue –DCIT, Central Circle-2, MVP Colony, Sector-8, 2. Pratyakshakar Bhavan, Beside Post Office, Visakhapatnam, Andhra Pradesh. 3. The Principal Commissioner of Income Tax, आयकर आयु�त (अपील)/ The Commissioner of Income Tax-3, 4. Visakhapatnam. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, �वशाखापटणम/ DR, ITAT, 5. Visakhapatnam गाड� फ़ाईल / Guard file 6. आदेशानुसार / BY ORDER

Sr. Private Secretary ITAT, Visakhapatnam