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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI D. KARUNAKARA RAO & SHRI SANJAY GARG
PER D. KARUNAKARA RAO, AM: There are five appeals under consideration. Out of these five appeals, three appeals are filed by the assessee and two appeals are filed by the Revenue. Since, the issues raised in all these appeals are connected, therefore, for the sake of convenience, they are clubbed, heard together and disposed of in this consolidated order. Appeal wise adjudication is given in the following paragraphs of this order.
I. Cross Appeals for the AY 2002-2003
This appeal filed by the assessee on 23.4.2013 is against the order of the CIT (A)-39, Mumbai dated 7.1.2013 for the AY 2002-03. In this appeal, assessee raised the following grounds which read as under:
“1. The orders passed by the Ld Lower Authorities are bad in law and in facts.
The assessment order passed / upheld u/s 153A r.w.s 143(3) of the Act by the lower authorities is ab-initio void, inasmuch as, as no form of return of income was prescribed for the assessment year under appeal by the rule making authority, the whole assessment mechanism failed.
The learned lower authorities have grossly erred in completing / upholding the assessment on the basis of an invalid ROI filed in Form 2D as the said form 2D was not a prescribed form of return u/s 153A of the Act. In the absence of compliance of mandatory provisions of section 153A of the Act by the rule making authority, the impugned assessment order should have been declared non-est.
The Ld lower authorities have grossly erred in holding, that the gift received at Rs. 4 Crs by the appellant was not a valid gift and have further erred in excluding the said gift amount from the capital account of the appellant. 5. the Ld lower authorities have grossly erred in making / confirming an addition of Rs. 3,18,54,658/- to the returned income by holding that the reduction of liabilities by an amount of Rs. 3,18,54,658/- was out of income from undisclosed sources without bringing any material or evidence on record in support of their allegations.
The Ld lower authorities have grossly erred in making / confirming an addition of Rs. 3,18,54,558/- without showing as to under what provisions of law the impugned addition was made / confirmed, more so when the amount in question was a discharge of liability and not a receipt.
Having regard to the facts of the case, the provisions of law and judicial propositions, the whole assessment order deserves to be annulled and additions made to returned income needs to be deleted.”
Assessee also raised additional grounds vide letter dated 20.8.2015 and the same read as under:
“1. The assessment order passed u/s 153A r.w.s 143(3) of the Act, 1961 is ab-initio void, inasmuch as, no incriminating material was found during the course of search proceedings carried out on 3.8.2006 at appellant‟s residence. Consequently, the provisions contained in section 153A of the IT Act, 1961 including abatement of pending assessment are not attracted at all.
The learned lower authorities have grossly erred in making / upholding an addition of Rs. 3,18,54,658/-, not based on or relatable to the material found or seized during the course of search.”
Since, the issue raised in the additional ground raised by the assessee, ie the validity of the additions made in the assessment in the absence of any incriminating material, being the legal ground, it needs to be adjudicated first so as to deciding the appeal on merits. Therefore, we shall first adjudicate this ground.
Briefly stated relevant facts of the case are that the assessee, who is an individual, is engaged in the business of trading in Plywood, Laminates & Timber etc and is an associate of the Euro Group of concerns. A search and seizure action u/s 132 of the Act was conducted on the said Euro Group on 3.8.2006 and the assessee being an associated person of this group, his residential premises was also covered. Responding to the notice issued u/s 153A of the Act, assessee filed the return of income on 22.7.2008 declaring the total income of Rs. 6,52,665/-. In the process, AO completed the assessment u/s 143(3)(ii) r.w.s 153A of the Act and the assessed income was determined at Rs.3,84,98,320/- which includes the additions (i) income from undisclosed sources towards payment of loan amounting to Rs. 3,18,54,658/- and (ii) income from undisclosed sources of Rs. 60 lakhs. Aggrieved, assessee carried the matter in appeal before the first appellate authority.
During the proceedings before the first appellate authority, after considering the submissions of the assessee, CIT (A) upheld the AO‟s decision on account of addition of Rs. 3,18,54,658/- and regarding the addition of Rs. 60 lakhs, CIT (A) directed the AO to verify the concerned bank statements of the donor and to ascertain the genuineness of the gift. He further directed the AO to delete the addition in case the genuineness of the gift is treated as explained. Aggrieved with the said decision of the CIT (A), assessee is in appeal before the Tribunal by raising the abovementioned grounds.
During the proceedings before us, narrated the above facts and brought our attention to the financial statements of the assessee and submitted that the issue revolves around the gift of Rs. 4 Crs reflected in the assessee‟s capital account. As per the Ld Counsel, during the search action, certain gift deeds were found and there was an inquiry into the genuineness of the gifts. During the search proceedings, the assessee replied / demonstrated the accounted nature of the said gifts. Therefore, the gift deeds found and seized during the search do not amount to “incriminating material” as the connected transactions are already accounted for in the books of accounts of the assessee. Further mentioning that the said gifts were actually never received but for the book entries by way of journal entries. He also submitted that the loans repaid out these gifts were also never involved movement of cash therefore, the said transactions do not amount to „unaccounted transactions‟. Explaining the same, Ld Counsel for the assessee submitted that the addition made by the Assessing Officer has no nexus whatsoever to the said seized gift deeds. In this regard, he brought our attention that no addition was made on account of „gifts‟ but the additions made on account of sources for repayment of loans. This is not the issue to be considered for addition in search assessment without conveying back-up of the seized / incriminating material in case of assessments non-abated as per the provisions of section 153A of the Act. Further, Ld Counsel for the assessee submitted that on the date of the search no assessment proceedings were pending and the assessee filed the return of income on 31.10.2002. It was further submitted that no notice u/s 143(2) / 143(1) of the Act was issued within the stipulated time initiating the assessment proceedings. Further also, the prescribed time limit for issue of notice u/s 143(2) of Act was expired before the said date of search and therefore, the assessment completed u/s 143(1) of the Act did not abate. Ld Counsel for the assessee demonstrated that as and when the assessments involved are non-abated assessment (either regular assessments are completed u/s 143(3) and the quantum proceedings are not pending or the due date for issue of notice us 143(2) has expired), the additions, if any, in the search assessment can be made basing on any incriminating material seized u/s 132 of the Act and forwarded to the concerned AO as per the procedure laid down in the Act. Drawing our attention to each of the assessment order and the additions made by the AO, Ld Counsel for the assessee demonstrated that there is no reference to the seized material in any of the additions made by the AO. Ld Counsel for the assessee also argued that such additions are unsustainable in law. Ld Counsel for the assessee also demonstrated that the reduction in the balances of loans and advances was attributable to transfer entries passed through journal as detailed in respective accounts, where the details of loans and advances were explained. In support of his contention that when there is finding or discussion about the any incriminating material seized during the search, the assessment order
passed u/s 153A r.w.s 143(3) of the Act is not tenable in law, Ld Counsel for the assessee filed written submissions and also relied on following decisions viz., (i) CIT vs. Smt Shaila Agarwal, 346 ITR 130; (ii) All Cargo Global Logistics Ltd vs. DCIT [18 ITR 106] (Mum.) (SB); (iii) Spacewood Furnishers Pvt Ltd Ors vs. DGIT & Ors. [340 ITR 393 (Bom)] (iv) Shri Govind Agarwal v. ACIT being ITA No: 3389/Mum/2011 dated 10.01.2014; (v) SKS Ispat and Power Limited vs. DCIT and others.
On the other hand, Ld DR relied on the order of the AO and the CIT (A). Further, on the legal propositions, Ld DR has nothing to controvert except relying on the decisions of the Revenue Authorities.
We have heard both the parties and perused the orders of the Revenue Authorities as well as the cited decision of the Tribunal in the case of Shri Govind Agarwal v. ACIT being ITA No: 3389/Mum/2011 dated 10.01.2014 (supra); All Cargo Global Logistics v. Addl.CIT (supra); SKS Ispat and Power Limited vs. DCIT CC 45 (ITA 8746/M/12 and ITA 8747/M/12) (supra) as well as the judgment of the Hon‟ble Bombay High Court in the cases of CIT v. All Cargo Global Logistic (374 ITR 645) (supra), copies of which are placed on record. On perusal of the said decisions, we find they are relevant for the proposition that “when no assessment has abated, the question of making any addition or making disallowance which are not based on only material found during the search is bad in law”. In this regard, we find it relevant to extract the relevant paras from the decision of the Tribunal in the case of Shri Govind Agarwal (supra) and the same is as follows:
“12. We have heard the parties and their divergent stands on the legal issue and the validity of the instant assessment/reassessment with the routine additions u/s 68 and section 14A of the Act based on the accounted transactions. The instant case for the AY 2002-03 deals with the case of disturbing the „completed assessment‟. Earlier the assessment was completed u/s 143(1) of the Act. Completeness of the summary assessment is considered and held in favour of the assessee vide many judgments cited above. In the assessment u/s 153A, the AO made (i) Addition u/s 68 on account of artificially inflated investment in house duly disclosed in the balance sheet of the assessee Rs.31,33,070/-; and (ii) disallowance u/s 14A: Rs. 23,31,469/-. Admittedly, there is no incriminating material before the AO to support the above additions. The valuation report, which is garnered by the authorities constitutes mere estimates and the provisions of section 132 is not required to obtain such report from the DVO. As such, for making aforesaid additions of Rs 31,33,070/-, AO has not used even the said valuation report and the AO disallowed what is reported in the books. Similar is the case with the additions u/s 14A of the Act. Therefore, undisputedly, the impugned quantum additions are made merely based on the entries in the accounted books and certainly not based on either the unaccounted books of accounts of the assessee or books not produced to the AO earlier or the incriminating material gathered by the investigation wing of the revenue. Considering the legal propositions place before us by the assessee‟s counsel, we are of the opinion, such assessments or additions are unsustainable in law.
For the sake completeness of the assessee, we insert here some of the extracts from relevant judgments and they are: A. [2013 36 taxmann.com 523 (Rajasthan) in the case of Jai Steel (India) vs. ACIT - From Held portion: ….The requirement of assessment or reassessment under the said section has to be read in the context of sections 132 or 132A, inasmuch as, in case nothing incriminating is found on account of such search or requisition, then the question of reassessment of the concluded assessments does not arise, which would require more reiteration and it is only in the context of the abated assessment under second proviso which is required to be assessed. ....... ....... Para 26 of the Judgment: The plea raised on behalf of the assessee that as the first proviso provides for assessment or reassessment of the total income in respect of each assessment year falling within the six assessment years, is merely reading the said provision in isolation and not in the context of the entire section. The words 'assess' or 'reassess' have been used at more than one place in the Section and a harmonious construction of the entire provision would lead to an irresistible conclusion that the word 'assess' has been used in the context of an abated proceedings and reassess has been used for completed assessment proceedings, which would not abate as they are not pending on the date of initiation of the search or making of requisition and which would also necessarily support the interpretation that for the completed assessments, the same can be tinkered only based on the incriminating material found during the course of search or requisition of documents. B. [2012] 28 Taxmann.com 328 (Mumbai –Trib.) in the case of Gurinder …. Whether since assessment under section 153A was passed by Assessing Officer on basis of material available in return of income and there was no reference to any incriminating material found during search and since no assessment was abated, assessment under section 153A was to be quashed being made without juri iction available under section 153A - Held, yes [Para 6.2] [In favour of assessee] Para 6.1 of the Order: The Special bench in the case of Alcargo Global Logistics Ltd. (supra), has held that provisions of section 153A come into operation if a search or requisition is initiated after 31.5.2003 and on satisfaction of this condition, the AO is under obligation to issue notice to the person requiring him to furnish the return of income for six years immediately preceding the year of search. The Special Bench further held that in case assessment has abated, the AO retains the original juri iction as well as juri iction under section 153A for which assessment shall be made for each assessment year separately. Thus in case where assessment has abated the AO can make additions in the assessment, even if no incriminating material has been found. But in other cases the Special Bench held that the assessment under section 153A can be made on the basis of incriminating material which in the context of relevant provisions means books of account and other documents found in the course of search but not produced in the course of original assessment and undisclosed income or property disclosed during the course of search. In the present case, the assessment had been completed under summary scheme under section 143(1) and time limit for issue of notice under section 143(2) had expired on the date of search. Therefore, there was no assessment pending in this case and in such a case there was no question of abatement. Therefore, addition could be made only on the basis of incriminating material found during search. B. All Cargo Global Logistics Ltd. v. Deputy Commissioner of Income-tax, Central Circle-44 [2012] 23 taxmann.com 103 (Mum.) (SB)
Para 58 of SB decisions: Thus, question No.1 before us is answered as under :
(a) In assessments that are abated, the AO retains the original juri iction as well as juri iction conferred on him u/s 153A for which assessments shall be made for each of the six assessment years separately ; (b) In other cases, in addition to the income that has already been assessed, the assessment u/s 153A will be made on the basis of incriminating material, which in the context of relevant provisions means - (i) books of account, other documents, found in the course of search but not produced in the course of original assessment, and (ii) undisclosed income or property discovered in the course of search.
Thus, in case of the completed assessments either u/s 143(1) or 143(3), the above extracts are uniform in advocating against making additions in routine manner in the assessments made u/s 153A of the Act when there is no incriminating material gathered in the search action. Statutory notice u/s 153A of the Act can also be issued to reiterate the returned income or for making additions based on the incriminating material or unproduced books of account. Otherwise, additions made in routine matter as in the present appeal are not sustainable. Further, for the sake completeness of the order, we have perused the orders/judgments relied upon by Ld DR for the revenue and found they are distinguishable on facts for one reason or other. To start with, we have perused the judgment of Honble Hon‟ble Delhi High Court in the case of Madugula Venu (supra) and find that, though explained the provisions in plain language, it does not dealt with the relevance or factum of incriminating material. Further, the judgment of Andhra Pradesh High Court in the case of Gopal Lal Bhadruka (supra) is not on the notices issued u/s 153A of the Act and the same is pronounced in the context of the notice u/s 153C of the Act. Further, also, the Coordinate Bench decision in the case of Scope (P) Ltd (supra) has granted relief to the assessee though the notice issued u/s 153A of the Act was upheld. However, this order has not considered the then existing decision of the Coordinate Bench decision in the case of Pratibha Industries Ltd (supra) which is relevant for the proposition that the completed assessment may not be disturbed in the absence of any incriminating material specific to the assessee. In fact, all these judgments take spirit from the Special Bench decision in the case of All Cargo Global Logistics Ltd (supra), which is relevant for the proposition that the assessment u/s 153A will be made on the basis of incriminating material such as books of accounts, other documents found in the search but not produced in the course of original assessment and undisclosed income or property discovered in the course of the search. 15. .......
In these circumstances, we have no doubt about the absence of any seized material which are incriminating in nature to back the additions u/s 68 or 14A of the Act made in the assessment made u/s 153A of the Act for the AY under consideration. Regarding the DVO‟s report gathered during the search action, we find that the report suffers from certain deficiencies qua cost of construction of residential property and the land obtained thereto. The said report constitutes an opinion of the third party which cannot be used by the AO for making additions and such additions, if any, cannot be sustained legally. As such, we find that the AO has not used the said report of the DVO also for making additions of Rs. 31,33,007/-, the difference between accounted amount of Rs. 46,13,007/-, claimed as the amount spent on construction of house and acquisition of land as on 31.3.2002 minus Rs. Rs. 14.8 lakhs, the investment made on the land plots. AO made addition for assessee‟s failure to provide evidences / bills in support of the claim of expenditure on the construction. It the presumption of the AO that the plots since acquired only by July 2001, the assessee would not have spend Rs. 31,33,007/- by 31.3.2002. This is merely a presumption rather conclusion based on any evidences. Such additions are unsustainable in law in the assessments made u/s 153A r.w.s 143(3) of the Act.
Rajasthan High Court judgment in the case of Jai Steel (India) (supra), vide para 18, it is categorically mentioned that “the requirement of assessment or reassessment under the said section (153A) has to be read in the context of sections 132 or 132A of the Act, inasmuch as, in case nothing incriminating is found on account of search or requisition, then the question of reassessment of the concluded assessments does not arise, which would more reiteration………….”. Thus, the judgment of Hon‟ble High court in the case of Jai Steel Ltd, supra and above decisions of the Tribunal are categorical in concluding that, in case of the concluded assessments like the present one, the additions are made only based on the incriminating material discovered during the search action. The facts of the Jai Steel Ltd (supra) are identical to the present one ie AO made additions by reassessing u/s 153A on the completed assessment u/s 143(1) of the Act. Thus, considering the judgment in the case of the Jai Steel Ltd (supra), the arguments on the legal issue raised before us stands covered. Therefore, considering the Rajasthan High Court‟s judgment in the case of Jai Steels Ltd, supra, we have no difficulty in (i) upholding the issue of notice u/s 153A of the Act and (2) in disapproving the making of the impugned additions u/s 68 and 14A of the Act, which are not backed by the incriminating materials. In the absence of incriminating material, the role of the AO is only to reiterate the returned income filed in response to the notice u/s 153A of the Act. Accordingly, in substance, the common legal issue raised in the grounds for both the appeals of the assessee (ITA NO 3389&3390/M/2011) is allowed.”
Further, in the recent past, similar issue was adjudicated by the Hon‟ble Delhi High Court in the case of CIT vs. Kabul Chawla vide ITA Nos. 707/2014 and others, dated 28.8.2015, wherein the Hon‟ble Delhi High Court has reiterated the above settled legal proposition that since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed. In this regard, we find it relevant to extract the summary of the legal propositions and the conclusion of said judgment of the Hon‟ble Delhi High Court which is as follows:
Summary of the legal position:
On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. Assessments and reassessments pending on the date of the search shall ii. abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. The AO will exercise normal assessment powers in respect of the six iii. years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs “in which both the disclosed and the undisclosed income would be brought to tax”. Although Section 153 A does not say that additions should be strictly iv. made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment “can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material.” In absence of any incriminating material, the completed assessment can v. be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. Insofar as pending assessments are concerned, the juri iction to make vi. the original assessment and the assessment under Section 153A merges
into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. Completed assessments can be interfered with by the AO while making vii. the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.
Conclusion
The present appeals concern AYs, 2002-03, 2005-06 and 2006-07.On the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed.
The question framed by the Court is answered in favour of the Assessee and against the Revenue.” Further, we find it relevant to mention here that on perusal of the paper book 11. filed before us, page 23 of the said paper books shows the accounted nature of the transactions in respect of the disputed gift amount of Rs. 4 Crs. It is also noted that the additions were made not on account of „gifts‟ but on account of „source of funds for repayment of loans‟. In this regard, we find the said loans are repaid through journal entries. Therefore, Revenue Authorities are not supposed to make such additions in the assessment. Considering the factual matrix of the case as well considering the above settled legal position of the issue that in the absence of any incriminating material found during search, additions made on the assessed income are unsustainable in law, we are of the considered opinion that the additions made in the instant case are not sustainable and accordingly, we delete the same. Considering our decision on the legal issue in favour of the assessee, the other grounds demand no specific adjudication. Thus, on the legal ground the assessee succeeds and rest of the grounds are dismissed as academic.
Accordingly, appeal of the assessee is allowed. ITA No.2823/M/2013 (AY 2002-03) (Revenue’s appeal)
This appeal filed by the Revenue on 10.4.2013 is against the said order of the CIT (A)-39, Mumbai dated 7.1.2013 for the AY 2002-03. In this appeal, Revenue raised the following grounds which read as under:
“1. On the facts and in the circumstances of the case and in law, the Ld CIT (A) has erred in directing the Assessing Officer to verify the issue of advancement of gifts of Rs. 60,00,000/- against the action of the Assessing Officer in assessing the same as income from undisclosed sources.
On the facts and in the circumstances of the case and in law, the Ld CIT (A) has erred in not considering that as per her own decisions in assessee‟s case for the year under consideration, the assessee‟s capital account was not credited with any physical transaction of Rs. 4,00,00,000/- and hence the assessee was not left with any amount to give away the huge gifts totalling to Rs. 60,00,000/-.”
Considering our decision given on the legal ground raised by the assessee in his appeal ITA No.3094/M/2013 in the above paragraphs of this order, which is decided in favour of the assessee, the adjudication of the grounds raised by the Revenue in the present appeal becomes academic. Accordingly, both the grounds raised by the Revenue are dismissed.
In the result, appeal of the Revenue is dismissed.
II. Cross Appeals for the AY 2004-2005
This appeal filed by the assessee on 23.4.2013 is against the order of the CIT (A)-39, Mumbai dated 7.1.2013 for the AY 2004-05. In this appeal, assessee raised the following grounds which read as under:
“1. The orders passed by the Ld Lower Authorities are bad in law and in facts.
The assessment order passed / upheld u/s 153A r.w.s 143(3) of the Act by the lower authorities is ab-initio void, inasmuch as, as no form of return of income was prescribed for the assessment year under appeal by the rule making authority, the whole assessment mechanism failed.
The learned lower authorities have grossly erred in completing / upholding the assessment on the basis of an invalid ROI filed in Form 2D as the said form 2D was not a prescribed form of return u/s 153A of the Act. In the absence of compliance of mandatory provisions of section 153A of the Act by the rule making authority, the impugned assessment order should have been declared non-est.
The Ld lower authorities have grossly erred in holding, that the gift received at Rs. 4 Crs by the appellant was not a valid gift and have further erred in excluding the said gift amount from the capital account of the appellant.
Having regard to the facts of the case, the provisions of law and judicial propositions, the whole assessment order deserves to be annulled and additions made to returned income needs to be deleted.”
Assessee also raised additional grounds vide letter dated 20.8.2015 and the same read as under:
“1. The assessment order passed u/s 153A r.w.s 143(3) of the Act, 1961 is ab-initio void, inasmuch as, no incriminating material was found during the course of search proceedings carried out on 3.8.2006 at appellant‟s residence. Consequently, the provisions contained in section 153A of the IT Act, 1961 including abatement of pending assessment are not attracted at all.
The learned lower authorities have grossly erred in making / upholding an addition of Rs. 3,18,54,658/-, not based on or relatable to the material found or seized during the course of search.”
In the present appeal, assessee raised the identical issues to that of the AY 2002-03 in ITA No.3094/M/2013, which is adjudicated by us in the above paragraphs of this order. While adjudicating the said appeal for the AY 2002-2003, we have decided the legal issue, pertaining to the validity of the assessment order passed u/s 153A r.w.s 143(3) of the Act in the absence of any incriminating material found during the course of search, in favour of the assessee and accordingly, assessee‟s appeal is allowed. Considering the commonality of the issues raised in the present appeal to that of the assessee‟s appeal for the AY 2002-2003 (supra), our decision given therein squarely applies to the present appeal too. Thus, the legal issue is decided in favour of the assessee and the appeal of the assessee is allowed.
In the result, appeal of the assessee is allowed. (Revenue’s appeal)
This appeal filed by the Revenue on 10.4.2013 is against the said order of the CIT (A)-39, Mumbai dated 7.1.2013 for the AY 2004-05. In this appeal, Revenue raised the following grounds which read as under:
“1. On the facts and in the circumstances of the case and in law, the Ld CIT (A) has erred in directing the Assessing Officer to verify the issue of advancement of gifts of Rs. 72,00,000/- against the action of the Assessing Officer in assessing the same as income from undisclosed sources.
On the facts and in the circumstances of the case and in law, the Ld CIT (A) has erred in not considering that as per her own decisions in assessee‟s case for the year 2003-2004, the assessee had no creditworthiness or financial capacity to give gift of Rs. 72,00,000/- during the year under consideration”
Considering our decision given on the legal ground raised by the assessee in his appeal ITA No.3095/M/2013 in the above paragraphs of this order, which is decided in favour of the assessee, the adjudication of the grounds raised by the Revenue in the present appeal becomes academic. Accordingly, both the grounds raised by the Revenue are dismissed.
In the result, appeal of the Revenue is dismissed. III. ITA No.3096/M/2013 (AY 2009-2010) (Assessee’s appeal)
This appeal filed by the assessee on 23.4.2013 is against the order of the CIT (A)-39, dated 4.3.2013 for the assessment year 2009-2010. In this appeal, assessee raised the following grounds which read as under:
“1. The orders passed by the learned lower authorities are bad in law and bad in facts.
The learned authorities have grossly erred in disallowing / confirming an addition of Rs. 2,55,125/- by recourse to section 40(a)(ia) of the Act even though the payment in question was merely a reimbursement to a co-plaintiff and not a professional. Reasons assigned for the impugned disallowance are wrong and contrary to the facts on record.
Having regard to the facts of the case, provisions of law and judicial propositions, as nothing was payable as at the end of the year, provisions of sections 40(a)(ia) of the Act were not applicable at all.
The learned lower authorities have grossly erred in charging interest u/s 234A of the Act at Rs. 1,529/- even though ROI was filed well within the stipulated time limit prescribed vide section 139(1) of the Act.”
Briefly stated relevant facts of the case are that the assessee filed the return of income declaring the total income of Rs. 3,48,449/-. During the assessment assessment proceedings, AO noticed that the assessee failed to deduct TDS on professional fees amounting to Rs. 2,55,125/- out of the total professional fees of Rs. 3,70,125/-. Accordingly, AO proposed to invoke the provisions of section 40(a)(ia) fo the Act. In this regard, it is the submission of the assessee before the AO that the expenses were reimbursement in nature and therefore, the provisions relating to TDS are not applicable. Further, assessee submitted that the provisions of section 40(a)(ia) are applicable only on amounts payable shown in the balance sheet and not on amounts paid. AO did not consider the submissions of the assessee and came to a conclusion that the expenses reimbursed were in the nature of „principal to an agent‟ but the agent not deducted any TDS while paying the expenses and therefore, he made an addition of Rs. 2,25,125/- u/s 40(a)(ia) of the Act. Aggrieved, assessee carried the matter in appeal before the first appellate authority.
During the proceedings before the first appellate authority, after considering the submissions of the assessee CIT (A) upheld the decision of the AO and dismissed the appeal. Again aggrieved with the said decision of the CIT (A), assessee is in further appeal before the Tribunal by raising the above mentioned grounds.
During the proceedings before us, Ld Counsel for the assessee submitted that the assessee‟s proprietary concern M/s. Bombay Sales Corporation was having tenancy rights in a property situated at Mohamad Ali Road, Mumbai. The landlord was filed an eviction suit against a sub-tenant and all the relevant legal expenses were paid directly by the landlord. Since, the tenancy rights of the assessee were also being affected, even though the assessee is not a co-plaintiff to the said suit, agreed to share the legal expenses incurred by the land lord. Accordingly, assessee paid Rs. 2,55,125/- to the Smt. Shamin Bano Rathi, the spouse of the landlord. It is the contention of the ld Counsel that as there was no privity of contract between the assessee and the solicitors / advocates who represent the landlord, the assessee was not under any obligation to pay the legal fees but only in the interest of the rented business premises, assessee shared the said legal expenses. In that case, assessee is not required to deduct TDS u/s 194J of the Act and no disallowance is required to be made in this regard. Ld Counsel for the assessee also relied on the judgment of the Hon‟ble Delhi High Court in the case of CIT vs. Opera Global (P) Ltd [2014] 109 DTR (Del) 121 and the decision of the Tribunal in the case of M/s. Utility Powertech Ltd vs. ACIT in ITA No.2561/M/2009 (AY 2005-06) reported in 2010-TIOL-545-ITAT- MUM dated 9.4.2010, which are relevant for the proposition when there is no element of income and the payment is only as a reimbursement of expenses incurred by the payee, then no disallowance can be made u/s 40(a)(ia) of the Act.
On the other hand, Ld DR for the Revenue heavily relied on the orders of the Revenue Authorities.
We have heard both the parties and perused the orders of the Revenue Authorities as well as the cited decisions of the Delhi High Court in the case of Opera Global (P) Ltd (supra) and the decision of the Tribunal in the case of Utility Powertech Ltd (suprea) and also the relevant material placed before us. Considering the facts of the present case, to decide whether the said amount of Rs. 2,25,125/-,
paid by the assessee to his landlord in respect of the legal expenses, is subject to deduction of TDS or not, the following points need to be ascertained viz., (i) what is the relationship between the assessee and the actually payer of the legal fees ie „principal to principal‟ relationship or „principal to an agent relationship‟; (ii) whether it is a case of reimbursement or not; (iii) whether the co-owner effected the TDS when he made payment and (iv) whether the actual respondent assessed to tax and made the payment. Therefore, in our considered opinion, the matter should be remanded to the file of the AO to adjudicate the issue afresh and pass a speaking order on the above mentioned points. It is need less to mention that the assessee should be provided a reasonable opportunity of being heard as per the principles of natural justice. Accordingly, all the grounds raised by the assessee are allowed for statistical purposes.
In the result, appeal of the assessee is allowed for statistical purposes.
Conclusively, assessee‟s appeals for the AYs 2002-03 & 2004-05 are allowed and the appeal for the AY 2009-10 is allowed for statistical purposes and the Revenue‟s appeals for the AYs 2002-03 & 2004-05 are dismissed. Order pronounced in the open court on 16th October, 2015. (SANJAY GARG) ACCOUNTANT MEMBER भुंफई Mumbai; ददनांक 16.10.2015 व.नन.स./ OKK , Sr. PS आदेश की प्रतिलऱपि अग्रेपिि/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent. 2. 3. आमकय आमुक्त(अऩीर) / The CIT(A)- 4. आमकय आमुक्त / CIT 5. ववबागीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भुंफई / DR, ITAT, Mumbai 6. गार्ड पाईर / Guard file.
15 सत्मावऩत प्रनत ////
आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt.