2017 (6) TMI 1303 - AT - Income Tax

Assessment u/s 153A - additions in the absence of any incriminating material found during the course of search - HELD THAT - We do not accept the submissions of the learned authorised representative that no incriminating material was found for the assessment years 2008-09 2009-10 and 2010-11 for invoking the jurisdiction under section 153A as it is evident from the assessment orders for these assessment years the addition in respect to share application loose papers found from locker etc. unexplained deposits were made based on the material found during search - following the judicial principle laid down in Anil Mahavir Gupta 2016 (10) TMI 163 - ITAT MUMBAI it is held that the AO was not justified for making additions in the absence of any incriminating material for the assessment years 2004-05 to 2006-07. However this view is not applicable for the assessment years 2008-09 2009-10 and 2010-11 as the additions are based on the material found during search. Challenging the assessment order being passed contrary to the provisions of the law patently invalid unjustified illegal arbitrary and bad in law - HELD THAT - CIT(A) has legally erred in holding that issuance of notice under section 143(2) within statutory period is not required in the cases covered under section 153A of the Act. Thus this ground of appeal is being decided in favour of the assessee and accordingly in the absence of issuance of notice u/S 143(2) within the statutory time limit the assessment order is held void ab initio. Assessment under section 144 is bad in law - enough opportunity has been granted to the assessee to defend its case therefore the plea to annual the case on this aspect is dismissed. Further we are of the view that the averment made by the AO in proceeding under section 148 in the case of Shri Bharat Das Vaishnav is of no help to the assessee as these proceedings are separate proceedings. Thus ground No. 3 is allowed. No adequate opportunity of being heard was provided during assessment - We found that the assessee during course of assessment proceedings attempted to comply with the various notices issued by the AOr however on account of group assessment certain details were filed which were not found to be acceptable by the AO. Since application for additional evidences has been accepted by the CIT (Appeals) which is not challenged by the Department before us ground of appeal bearing No. 4 is dismissed. Cash seized during the course of search at Sadar Bazar Branch of the assessee-bank - HELD THAT - Without going into the merits of the addition we hereby set aside the order of the CIT (Appeals) as well as the AO and remand the issue back to the file of the Assessing Officer with the direction to adjudicate the issue on the merits after considering the evidences furnished by the assessee-bank. Deduction under section 80P to the assessee-bank - HELD THAT - CIT(Appeals) has correctly interpreted the provisions of section 80P for the benefit of the assessee engaged in the business of banking or providing credit facilities to its members - the assessee is engaged in the business of banking and holding banking licence and the said licence has not been revoked/cancelled therefore in the absence of any contrary evidence being put forth we are of the view the assessee-bank is eligible for deduction under section 80P Addition on account of depreciation repair and maintenance expenses - HELD THAT - CIT (Appeals) has given a categorical finding regarding the verification of amounts of depreciation from the books and the available record. Department has not brought on record any material to dislodge the findings of the CIT(Appeals) allowing the claim of depreciation and other business expenditure viz. repair and maintenance expenses to the assessee is upheld. Addition in relation to salary and incentive payments to Shri Mukesh Modi - HELD THAT - The salary and incentives to Shri Mukesh Modi were on account of linking of incentives with the increased profits of the assessee-bank on year to year basis therefore incentives were linked to the performance. Further we concur with the finding of the CIT(Appeals) that AO has not justified the basis of salary of Rs. 8 lakhs to Shri Mukesh Modi thus no comparison made. Further since the provisions of section 40(A)(2)(b) are not applicable in the instant case as discussed above there is no legal justification for making disallowance of salary and incentive payments by assuming the reasonable salary . Addition to be deleted Addition u/s 68 in relation to share application money - HELD THAT - Once the burden casted upon under section 68 is discharged there remain no case of addition being confirmed in the hands of the assessee-bank for the share application money received from various members whose identity remains proved by the assessee-bank as a few members presented themselves before the AO and the statement of Shri Mahendra Singh Chauhan Sukh Devi and Aarif and other members were recorded during assessment proceedings wherein they have owned up the investment in share application money made by them. Further all the members shareholders has given their confirmations which remain uncontroverted by the Department. In our considered view the provisions of section 68 cannot be applied in the same manner in the case of the assessee- bank as in the case of non-bank assessees as held in the judgment of CIT v. Pragati Co-operative Bank Ltd. 2005 (6) TMI 26 - GUJARAT HIGH COURT Addition of provisions for bad and doubtful debts claimed by the assessee- bank as deduction under section 36(1)(viia) - HELD THAT - As considered the legal position under section 36(1)(viia) of the Act relating to deduction of the provision for bad and doubtful debts to the extent of 7.5 per cent. of the total income before claiming deduction under sub-clause (viia) of section 36(1) - provisions of section 36(1)(viia) are made applicable to co-operative banks by the Finance Act 2007. Assessee-bank is legally entitled to claim such deduction within the legally permissible limits. We further find that claim of Rs. 1, 00, 00, 000 by the assessee-bank is within the statutorily available limits therefore no interference is required in the decision of the CIT (Appeals) Disallowance made under section 40(a)(ia) - DR argued that the provisions of section 40(a)(ia) does not apply to expend- iture already paid - CIT- A deleted the addition - HELD THAT - In view of the recent judgment of Palam Gas Service v. CIT 2017 (5) TMI 242 - SUPREME COURT we do not concur with the decision of CIT (Appeals) and the order of the Commissioner of Income-tax (Appeals) in this respect is set aside and the order of the Assessing Officer is restored. Accordingly the addition confirmed in the hands of the assessee-bank. Addition in respect of the contents in loose papers found from locker during the course of search - HELD THAT - It is evidently clear that these are basically rough notings/calculations made by the account holders/depositors themselves on the reverse of the counter foils. No adverse inference can be drawn against the appellant in the absence of corroborative evidence to establish any unaccounted receipts or expenditure of the assessee-bank because none of these documents indicates whether it at all relates to the assessee and if any income or expenses of the appellant can at all be inferred. Even the Assessing Officer is not sure whether the contents mentioned on the same are relating to any receipts or expenditure of the appellant-bank therefore he has made an addition without invoking any provision of the Income-tax Act. CIT-A was justified in deleting the addition Addition in respect of property which has been made on substantive basis in the hands of the assessee and on protective basis in the hands of Smt. Meenakshi Modi - HELD THAT - Documents placed on record relating to charge created in favour of the assessee-bank it is evident that charge was created on in favour of the assessee- bank over an agricultural land and thus the assessee-bank was merely a mortgagee and property never belonged to the assessee therefore the role of the assessee-bank was nothing more than mortgagee and this fact is acknowledged by the Assessing Officer. Therefore there remains no reasons to confirm the addition in the hands of the assessee-bank. Source of property in the hands of Smt. Meenakshi Modi is also evident and explained. Thus in view of the facts and circumstance of the case we find that there is no merit in the ground raised by the Department in its appeal before us. Disallowance of loss on sale of assets and deduction of service tax liability - HELD THAT - Provision for service tax is ascertained liability as the fact of liability has been mentioned in the notes to accounts and further the asses- see being engaged in the business of banking is liable for service tax therefore there is no merit in the ground raised by the Department - amount regarding loss on sale of assets has already been added in the returns of income by the assessee therefore this addition is also uncalled for. Addition u/s 68 in respect of deposits and peak credit amount in the accounts of customer of the assessee-bank - HELD THAT - Applicability of the provisions of section 68 in the context of the assessee-bank vis-a-vis the burden of the asses- see-bank under section 68 the issue involved in this ground raised is fundamentally similar as the addition has been made by invoking the provisions of section 68 in respect of the amount credited in the accounts of the customers of the assessee-bank therefore we upheld the CIT(A) order and his findings given Determination of the status of the assessee-bank - AOP association of persons determined by the Assessing Officer as against the co-operative society within the meaning of section 2(19) claimed by the assessee - HELD THAT - We hold that the assessee-bank is co- operative society within the meaning of section 2(19) therefore the assessment made by the AO considering it to be an asso- ciation of persons is uncalled for. As far as the contentions regarding alleged violation of various laws is concerned we find no infirmity in the order of the CIT (Appeals) negating the various such alleged violation which are based on incorrect and misconceived interpretation and beyond the domain of the AO. Thus this ground of appeal is decided in favour of assessee Provisions of section 167B of the Act are not applicable to the assessee and accordingly there is no merit in the various other grounds of appeal raised by the Department relating to various addition deleted by the CIT (Appeals) as the same are the result disallowance and addition made by the Assessing Officer as a consequence of treating the assessee as an association of persons by disturbing its legal status Allowable business expenditure - commission and incentive payment made to agents/advisor by the asses- see-society - HELD THAT - Without incurring such expenditure the assessee cannot run its business therefore we hold that commission and incentive payment made to agents/advisor by the assessee-society is business expenditure deductible under section 37 of the Act Addition in relation to FDR and consequent deletion of estimated interest - HELD THAT - There is no justification of making addition in the hands of the assessee-society as the same would otherwise amount to double addition. In view of the above the addition and consequent estimated interest income is not justified in the hands of the assessee and the same is directed to be deleted Addition in respect of interest expenditure in relation to FDR made by Smt. Sushila Modi - HELD THAT - We find no merit in the ground raised by the Department as interest income from FDR has been shown in the returns filed by Smt. Sushila Modi available in the paper book - interest on FDRs is a deductible expenditure for the appellant society carrying on the business of providing credit facilities. Therefore disallowance of the interest expenses on FDRs is not legally sustainable. Thus ground No. 2 is dismissed. Addition in respect of entries in a diary seized from the premises of the Adarsh Society - HELD THAT - The name of the asses- see-society is not mentioned and also the same is not signed. Further it is seen from the affidavit of Shri Prakash Suthar it has been confirmed that the amount mentioned on the relevant page of the diary does not relate to the affairs of the assessee-society and a perusal of the records shows that it was the diary of the employee only. These findings have not been dislodged by the Assessing Officer and the learned Departmental representative. Addition in respect of purchase of gold coins - HELD THAT - Purchase bill for purchase of gold stock registers and other details/ information were available for verification of the AO during proceedings and no contrary evidences has been brought on record to reject the explanation of the assessee. We find that investment/purchase of gold coins is duly recorded in the books of account therefore there is no case of any unaccounted/unexplained investment. The challan receipt found during the course of search is duly accounted for in the stock register and is also supported with the bill of purchase of Swarnparbha Jewellers. The purchase of gold coin is recorded in books account of the assessee therefore we find no merit in the appeal of the Department Addition in relation to non-charging of interest income on certain accounts - issue arose due to the observations of internal auditor - HELD THAT - We find with the help of the learned authorised representative that interest on various accounts has been duly accounted for in the accounts of the assessee and there is no non-charging of interest. Addition of donation expenditure - HELD THAT - It is seen that the amount of donation of Rs. 92, 72, 012 is added back in the computation of total income. Further the amount of Rs. 11, 00, 000 of donation paid to Mahaveer Public School (Mahveer Sansthan) is included in the total amount of donation of Rs. 92, 72, 012 as verifiable from the donation receipts and ledger accounts placed on record. In view of the above we confirm the deletion of donation Provisions of section 69C does not apply as the expenditure has been duly recorded in books of account of the assessee Expenses on bonus on Bitiya Samridhi Yojana should be spread over the tenure of the deposit and the assessee has accepted the order of the CIT(Appeals) upholding the view of the Assessing Officer. Even otherwise considering the availability of deduction under section 80P this addition does not affect the total income of the assessee Exemption under section 10(38) of the Act on sale of long-term shares - HELD THAT - Shares in question were held for considerable period and was not purchased during this year and was purchased in earlier assessment year. Therefore following Circular No. 4 of 2007 dated June 15 2007 we hold that the assessee was an investor in the shares for the year under consideration which he sold during year under consideration. Further as evident from the order of the Commissioner of Income-tax (Appeals) the claim has been allowed to the assessee after due verification. Therefore in the absence of any contrary evidence brought on record the claim of exemption under section 10(38) is allowable to the assessee Disallowance u/s 14A - shares held as stock-in- trade - HELD THAT - As decided in case of CIT v. India Advantage Securities Ltd. 2015 (6) TMI 140 - BOMBAY HIGH COURT no disallowance under section 14A read with rule 8D can be made on shares held as stock-in- trade. AO has not given any specific findings in his order for his dissatisfaction as to correctness of the accounts maintained by the assessee and prove the claim of the assessee wrong. AO has not discharged his burden as to whether borrowed funds were utilised for purchase of shares. It is seen from the balance-sheet of the assessee that the assessee has sufficient surplus funds to purchase shares for trading further shares were held as stock-in-trade and dividend income earned was incidental to shares purchased and held for trading. We also note that rule 8D is applicable from the assessment year 2008-09 only. Addition of property purchased - HELD THAT - We hold that the order of the CIT (Appeals) need no interference as definite finding as to verification of source of purchase of land and reflection of the same in the profit and loss account of the assessee has been recorded which has been verified by us from the record available before us. We find the same in the order and thus ground No. 1 is dismissed. Addition u/s 69 - unexplained investment - HELD THAT - Addition is in relation to sales made by the appellant during the year under consideration which is not sustainable under section 69 of the Act since the said section is applicable for unexplained investment made. Similarly the appellant has shown the net income from real estate business on sales of Rs. 6, 35, 000 shown in the audited profit and loss account. Thus it is clear that the sales of plot during the year is included in books of the appellant and thus this addition is also not justified Acceptance of additional evidence by the Commissioner of Income-tax (Appeals) under rule 46A(1)(c) - HELD THAT - We hold that the Commissioner of Income-tax (Appeals) was justified in admitting the addi- tional evidence further it is not a case where the Assessing Officer was not granted opportunity to rebut the evidences filed by the assessee as remand report was called for Addition in respect of rebate claimed under section 88E - HELD THAT - Addition on the face of it is misconceived as the amount of rebate claimed under section 88E in respect of securities transaction tax paid on share transaction cannot be added to the total income of the assessee. As the claim of securities transaction tax paid has been duly substantiated with form No. 10DB submitted during proceedings before the CIT (Appeals). No merit in the ground raised by the Department as form No. 10DB is prescribed form for proof of payment of securities transaction tax and we find that the submissions of the same with return is just a procedural requirement which in the instant case is not applicable in view of the fact that return being filed electronically the fact which is not dislodged by the learned Departmental representative Even otherwise as the rebate claimed under section 88E cannot be added to income of the assessee. Loss on sale of car - Held that - Addition is totally unjustified. Similarly the loss is verifiable from the return of income and computation thereof and also from the audited balance-sheet ; therefore the disallowance of loss is also not justified. Addition in respect of deposits balances - HELD THAT - Amount of account balances mentioned in the seized paper are not related to the assessee and belong to the family members/relatives of the assessee whose accounts confirmation and statement of accounts with Adarsh Society are placed - as regards the payment of life insurance we hold that the transaction is not related to the year under consideration and accordingly we upheld the findings of the CIT (Appeals). Addition in respect of entries in SMS printout - HELD THAT - As perused the certificate issued by Adarsh Society bank account statements with reference to SMS print out which forms part of the paper book filed. We find that various entries mentioned in the SMS print out are just balances in various banks and deposit position of Adarsh Society for which certificate issued by Adarsh Society is available in record clarifying that amount of Rs. 488.06 is actually Rs. 488.06 crore and the same is deposit position of Adarsh Society as on February 8 2010. The said certificate has not been rebutted by the Department by bringing on record any contrary evidences.Thus addition made is not justified Enhancement of income - HELD THAT - Commissioner of Income-tax (Appeals) has erred in law in enhancing the income for new source of income which was not disputed by Assessing Officer we also follow a recent judgment inRam Infrastructure Ltd. v. Jt. CIT 2017 (1) TMI 1057 - ITAT PUNE to support our decision. Thus ground No. 8 is allowed. Investment in FDR - HELD THAT - It is settled judicial principle that suspicion howsoever strong cannot be made the basis for addition. It is obvious that for making FDR transfer to amounts from one account to another is made as the FDRs in the instant case is undisputedly not made in the name of the assessee. Further we see that dates of transfer and dates of investment are the same therefore there is no reason to reject the explanation of the assessee. Expenditure on visit to US/ Canada - HELD THAT - Addition is on estimate basis only as the Assessing Officer could not bring on record any evidence/material to establish incurring of any expend- iture by the assessee. On the other hand no expenditure was incurred by assessee gets established from the certificate of Adarsh Society placed on record the expenditure on foreign visit to US/Canada was borne by Adarsh Society as the assessee had been the managing director of the Adarsh Society Addition in respect of estimated expenditure on medical treatment - HELD THAT - No addition can be sustained merely on suspicion. Revenue has not discharged its burden under section 69C of the Act to prove that any expenditure was incurred since the primary burden is not discharged addition is not justified. Since amount is estimated amount only we hold that it cannot be added as taxable perquisite in the hands of assessee. We have not examined the explanation by the assessee that Hinduja Hospital is an approved Hospital in terms of the proviso to section 17(2)(viii) Addition of gift - HELD THAT - We note that the assessee has declared the sources in her SBI bank statement to make any such gift being incentives from Adarsh Society is credited therein. Therefore in any case the question of non-availability of source does not arise. The assessee has discharged its burden by putting forth the evidences to rebut the fact of making gift as mentioned in the gift deed seized during search. We find no justification for sustaining the addition Dividend income from co-operative society is taxable and reflected in the return of income. The same is not exempt as Adarsh Society is not a company. Therefore the stand taken by CIT(Appeals) is legally not tenable and therefore disallowance under sections 14A and 57(iii) of the Act is unwarranted. Enhancement of income in respect of agriculture income by treating the same to be income from other sources - HELD THAT - Assessee furnished evidences in the form of Khasra Girdhawari and some sample sales bills and copy of completed assessment orders under section 143(3) of the Act during proceedings therefore earning of agricultural income is established. Therefore we direct deletion of the addition Addition in respect of certain investments - HELD THAT - Source of investment as capital contribution with the part- nership firm is interest earned on FDRs as reflected in SS-477 account of the assessee. Thus the source is established. Further the investment of Rs. 8, 919 is not made during year under consideration it is just an amount of renewal of FDRs made earlier on which interest accrued regularly. CIT (Appeals) was justified in deleting the additions Addition in respect of property on the basis of the report of the Valuation Officer - HELD THAT - An assessing authority cannot refer any matter to DVO without rejecting the books of account. Therefore following the judgment of Sargam Cinema 2009 (10) TMI 569 - SC ORDER we hold that in the present case the report of Valuation Officer cannot be the basis of addition as reference under section 142A of the Act is itself not legally justified. Addition directed to be deleted on this count itself. Addition u/s 69 - Ownership of property - documentary evidence placed on viz. the copy of electricity bill the statement of the assessee recorded under section 132(4) of the Act we find that the property under reference belongs to Smt. Ramila Vaishnav and further since the expenditure of construction are duly reflected in the books of account and the balance-sheet filed of Ramila Vaishnav there fore in the instant case the provisions of section 69 are not attracted

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer under section 153A.
2. Non-issuance of notice under section 143(2) within the statutory time limit.
3. Validity of search action under section 132.
4. Adequate opportunity of being heard during assessment.
5. Deduction under section 80P.
6. Disallowance of interest expenditure under section 14A.
7. Addition based on loose papers and unexplained investments.
8. Validity of reference to the Valuation Officer under section 142A.
9. Enhancement of income by the Commissioner of Income-tax (Appeals).
10. Admission of additional evidence under rule 46A.
11. Set off and adjustment of losses.

Detailed Analysis:

1. Jurisdiction of the Assessing Officer under section 153A:
The jurisdiction of the Assessing Officer to make additions without reference to any material found during the course of search was challenged. It was held that the additions for the assessment years 2004-05 to 2006-07 were not based on any material seized during the search, thus, the Assessing Officer was not justified in making the assessment under section 153A for these years. However, for the assessment years 2008-09, 2009-10, and 2010-11, the additions were based on material found during the search, and thus, the jurisdiction was upheld.

2. Non-issuance of notice under section 143(2) within the statutory time limit:
The Tribunal held that the issuance of notice under section 143(2) is mandatory even in cases falling under section 153A. Since the notice was issued beyond the statutory time limit, the assessment orders were held void ab initio.

3. Validity of search action under section 132:
The challenge to the search action was not pressed by the assessee with the liberty to challenge the same before the High Court under Article 226 of the Constitution of India. Thus, this ground was disposed of accordingly.

4. Adequate opportunity of being heard during assessment:
The Tribunal found that adequate opportunity was granted to the assessee to defend its case. The plea to annul the assessment on this ground was dismissed.

5. Deduction under section 80P:
The Tribunal upheld the deduction under section 80P for the assessee engaged in the business of banking. It was held that the assessee, being a co-operative society and holding a banking license, was eligible for the deduction.

6. Disallowance of interest expenditure under section 14A:
The Tribunal held that the disallowance under section 14A was not justified as the Assessing Officer failed to establish the nexus between the borrowed funds and the investment. Further, the provisions of rule 8D were not applicable for the assessment year 2006-07.

7. Addition based on loose papers and unexplained investments:
The Tribunal held that the addition based on loose papers found during the search was not justified unless corroborated with other evidence. The primary burden is on the Revenue to establish any undisclosed receipt or expenditure, which was not discharged in this case.

8. Validity of reference to the Valuation Officer under section 142A:
The Tribunal held that the reference to the Valuation Officer by the Additional Directorate of Income-tax (Investigation) was not valid as it can only be made by the Assessing Officer during the course of assessment. Further, the reference was made without rejecting the books of account, which is not justified.

9. Enhancement of income by the Commissioner of Income-tax (Appeals):
The Tribunal held that the Commissioner of Income-tax (Appeals) cannot enhance the assessment by discovering a new source of income not considered by the Assessing Officer. The enhancement made on this ground was set aside.

10. Admission of additional evidence under rule 46A:
The Tribunal upheld the admission of additional evidence by the Commissioner of Income-tax (Appeals) under rule 46A, stating that sufficient cause was shown for not producing the evidence during the assessment proceedings.

11. Set off and adjustment of losses:
The Tribunal directed the Assessing Officer to allow the claim of set off and adjustment of losses in accordance with Chapter VI of the Income-tax Act, if any, arises while giving effect to the order.

The appeals were partly allowed or dismissed based on the above findings, and the cross-objections were partly allowed.