2021 (8) TMI 70 - AT - Income Tax

Validity of assessment u/s 153A - According to the assessee no notice for scrutiny assessment was received within the time permitted under proviso to section 143(2) - HELD THAT - As rightly contended by the DR there is no requirement for an assessment made under section 153A of the Act being based on any material seized in the course of search. Further under the second proviso to section 153A pending assessment or re-assessment proceedings in relation to any assessment year falling within the period of six assessment years referred to in section 153A(b) of the Act shall abate.Assessing Officer gets jurisdiction for six years assessment years referred to in section 153A(b) of the Act for making an assessment or re-assessment. It is not the complaint of the assessee that any income which is already subjected to assessment under section 143(3) or under section 148 of the Act completed prior to the search in respect of six assessment years referred to in section 153A(b) of the Act and in the second proviso to section 153A has also been included in the assessment framed under section 153A of the Act. In such circumstances the plea of the assessee cannot be accepted. Accordingly the action of the AO in issuing notice u/s. 153A in these assessment years 2009-10 to 2012-13 is justified. This ground of the assessee is therefore dismissed. As per clause (a) of sub section (1) of section 153A at the stage of issue of notice u/s 153A the only requirement is to ask the assessee to file return of income for relevant six years covered by section 153A and after filing of return of income the assessment to be made by the AO will be assessment or reassessment has to be determined afterwards and not at the time of issue of notice u/s 153A. In this view of the matter we find no merit in this technical objection raised by the assessee and the same is rejected. Income accrued in India - Status of Non Resident - number of days of stay in India - Whether the status of assessee is resident or non-resident ? - whether the assessee is to be treated as Non Resident or to hold him as Resident as being interpreted by the AO - test for determining the status as Non Resident - HELD THAT - Determinative test for the status of Non Resident being number of days of stay in India and in assessee s case in these four years the days of stay being less than 182 days; even after considering the days as recorded by the AO in his order; the status to be applied in this case is to be held as Non Resident as claimed by assessee. Thus the assessee will be liable to tax on income accrued in India only. The assessee s grounds in this behalf are allowed. Additions u/s. 69C / 28(iv) - Whether payments made by RAL to various persons is for the benefit of the appellant and therefore the above sums have to be added u/s 28(iv) of the Act or u/s 69C? - HELD THAT - AO has failed to discharge the burden cast on him to prove that the appellant is the shareholder of RAL. AO has utterly failed to bring on record any tangible and acceptable material to hold that the appellant is the shareholder of RAL or is the beneficial owner of RAL. The AO also unjustly rejected the letter furnished by the Director of RAL that the appellant is not a shareholder. AO having failed to make further enquires to establish that the appellant is the shareholder or beneficial owner of RAL could not have held so in the assessment order. Further in our opinion the Appellant and M/s. RAL are Distinct Persons and it cannot be said that the business carried on by RAL is the business carried on by the appellant. There is no doubt that RAL is a separate legal entity and the appellant is also a separate legal person. The Hon ble Supreme Court in Bacha F. Guzdar 1954 (10) TMI 2 - SUPREME COURT has held that the shareholder and the company are two separate legal entities and the business carried on by the company cannot said to be a business carried on by the shareholder. Hence the finding of the AO that the appellant will be taxed in respect of the activities carried out by M/s. RAL is totally untenable in law. While discussing the applicability of S.28(iv) of the Act the AO has held that the business of RAL is nothing but the conduct of the business of Shri. Jitendra Virwani. This finding is contrary to the decision of the Hon ble Supreme Court in Bacha F. Guzdar s case. The observations indirectly suggest that the AO has lifted the corporate veil in coming to the above conclusion. It is submitted that the corporate veil cannot be lifted at the whims and fancies of the AO. There has to be cogent and compelling reasons as to why the corporate veil has to be lifted. It cannot be lifted for an asking. The assessing officer has not discharged the burden cast on him to prove that the appellant is the shareholder/beneficial owner of RAL. The quantification of the addition based solely on the amounts mentioned in the Board resolution defies logic and is totally perverse. It is also not known whether the amount mentioned in the Board Resolution has been spent for the purpose mentioned therein. S.28(iv) of the Act is not applicable as the appellant is not carrying on any independent business. S.69C of the Act is not applicable for the very simple reason that the appellant has not incurred the expenditure and the source for various payments is the funds of RAL.No seized material to sustain the addition. Addition of house warming expenses - HELD THAT - Once the farmhouse is owned by the above mentioned company the relevant expenditure relating to that farm house to be relating to that company only. Just because the name of the assesse mentioned in the invitation as his house or he s staying in that premises that cannot be reason to treat the expenditure incurred by said company in hands of assesse. The assesse being Chairman and Managing Director got allotted that farmhouse for his stay in India and that cannot be reason to treat the housewarming expenses as deemed income of the assessee and being a Chairman of the company he invited the various dignitaries and customers of the company which is nothing but a sales promotion expenses in the hands of Embassy Knowledge Infrastructure Private Limited and at any stretch of imagination it could be considered as income for assessee u/s 28(iv) of the IT Act. Accordingly the addition is deleted. Farm maintenance charges disallowance - HELD THAT - The fact that separate disclosure has not been made regarding the existence of farmhouse as an assets is also not relevant. The AO has failed to note that there is no requirement in law to make a separate disclosure. Statutory auditor of the company has not made any adverse comment on that. The guesthouse is disclosed as a fixed asset in the balance sheet of the company. The AO has failed to note the fundamental point that it is the company which owns the asset and therefore it is its primary responsibility to maintain the asset i.e. the guesthouse. Just because the appellant is staying in the guesthouse it cannot be said that the guesthouse maintenance expenses are for the benefit of the appellant. Therefore the provisions of S.28(iv) of the Act are not applicable.

Summary

Issues Involved:
1. Validity of assessment under Section 153A of the Income Tax Act.
2. Determination of residential status of the assessee.
3. Addition of amounts under Sections 28(iv) and 69C of the Income Tax Act.
4. Addition of housewarming expenses as income.
5. Addition of farm maintenance charges as income.

Detailed Analysis:

1. Validity of Assessment under Section 153A:
The primary issue was whether the assessments made under Section 153A were valid in the absence of any incriminating material found during the search. The Tribunal noted that the search conducted on 07.01.2015 did not yield any incriminating material. The assessments for AYs 2009-10 to 2012-13 were already completed, and the time for issuing notice under Section 143(2) had lapsed, making these assessments non-pending and non-abating. The Tribunal referred to several judgments, including CIT Vs Kabul Chawla and CIT Vs Continental Warehousing Corporation Ltd, which held that completed assessments can only be interfered with if incriminating material is found during the search. Consequently, the Tribunal concluded that the assessments made under Section 153A for AYs 2009-10 to 2012-13 were without jurisdiction and invalid.

2. Determination of Residential Status:
The Tribunal examined whether the assessee was a resident or non-resident. The assessee claimed non-resident status, arguing that he was in India for less than 182 days each year and had left India for employment in Singapore. The AO contended that the assessee did not discharge the onus of proving his non-resident status. The Tribunal referred to the Co-ordinate Bench decision in Manoj Kumar Reddy Vs ITO and the Hon'ble Karnataka High Court in DIT Vs Manoj Kumar Reddy Nare, which held that the date of arrival should be excluded while calculating the number of days present in India. The Tribunal concluded that the assessee was a non-resident for AYs 2009-10 to 2012-13, as he was present in India for less than 182 days each year.

3. Addition of Amounts under Sections 28(iv) and 69C:
The AO added various amounts under Sections 28(iv) and 69C, alleging that the assessee was the beneficial owner of Romulus Assets Limited (RAL) and had derived benefits from its payments. The Tribunal found that the AO had not provided sufficient evidence to prove that the assessee was the beneficial owner of RAL. The Tribunal noted that the AO had acted on suspicion and had not conducted necessary enquiries to substantiate his claims. The Tribunal held that the AO had failed to discharge the burden of proof and that the additions made under Sections 28(iv) and 69C were not justified.

4. Addition of Housewarming Expenses:
The AO added housewarming expenses incurred by Embassy Knowledge Infrastructure Pvt Ltd as income of the assessee under Section 28(iv). The Tribunal found that the farmhouse belonged to the company and the expenses were recorded in the company's books. The Tribunal held that just because the assessee stayed in the farmhouse and referred to it as "my house" in invitations, it did not mean that the expenses were for his personal benefit. The Tribunal concluded that the housewarming expenses could not be treated as the assessee's income under Section 28(iv).

5. Addition of Farm Maintenance Charges:
The AO added farm maintenance charges incurred by the company as income of the assessee under Section 28(iv). The Tribunal held that the farmhouse was owned by the company and it was the company's responsibility to maintain it. The Tribunal found no basis to treat the maintenance expenses as the assessee's income, as the expenses were for maintaining the company's asset. The Tribunal deleted the addition of farm maintenance charges for both AYs 2014-15 and 2015-16.

Conclusion:
The Tribunal allowed the appeals in ITA Nos. 1215 to 1217/Bang/2019 and partly allowed the appeals in ITA Nos. 1211 to 1214/Bang/2019, concluding that the assessments under Section 153A were invalid, the assessee was a non-resident, and the additions under Sections 28(iv) and 69C, as well as the housewarming and farm maintenance expenses, were unjustified.