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2022 (8) TMI 134 - AT - Income TaxValidity of assessment u/s 153C - Presumption - Scope of documents belongs to assessee - absence of the Satisfaction Note required to be prepared by the A.O. of the searched person - plea of the assessee that the books of account / documents seized during the course of search do not belong to the assessee and, therefore, the proceedings initiated under section 153C of the Act are bad in law - HELD THAT - As in the present case, the documents which were found in possession of the Lexcorp Advisory Services Pvt. Ltd. (searched entity) were the draft financials provided by the assessee to the said entity for the purpose of finalisation of its accounts after perusing the same. It is not the case of the assessee that like the aforesaid two decisions, the original documents were in possession of the assessee, whereas, the photocopy was found in possession of the searched entity. We also don t find any merit in assessee s submission that draft financials were working papers of the searched entity, as the same were claimed to have been provided by the assessee. It has also not been denied that the draft financials were of the assessee company only. In the present case, even if the draft financials were provided by the assessee to the searched entity, the said documents continued to be belonged to the assessee, as the services of the searched entity were sought only for the purpose of finalising the accounts and if at all anything can be said to be belonging to the searched entity, it can only be the final outcome of such exercise, for which searched entity s services were availed. Analogically can be drawn with the situation where books / vouchers / bills etc. are provided to a consultant for preparation of accounts. In such a situation, the documents / books as provided and available with the consultant will always belong to the taxpayer. No infirmity in the impugned order passed by the learned CIT(A) on this issue. Accordingly, grounds raised in assessee s appeal are dismissed. Disallowance u/s 14A - Appellant prays that the disallowance be restricted to the exempt income earned by it - assessee suo moto made a disallowance under section 14A of the Act over and above the exempt income earned by the assessee - HELD THAT - Recently, it has been held by various Hon ble Courts that disallowance under section 14A has to be restricted to the dividend income earned. Accordingly, the assessee has made a fresh claim before us. We find that Hon'ble Supreme Court in Goetz India Ltd. 2006 (3) TMI 75 - SUPREME COURT and Pruthvi Brokers and Shareholders Pvt. Ltd. 2012 (7) TMI 158 - BOMBAY HIGH COURT has held that the appellate authority can entertain a fresh claim made by the assessee, even if such a claim was not made in return of income or by way of revised return of income. Further, as the issue raised by the assessee by way of additional ground of appeal is a legal issue, which can be decided on the basis of material available on record, we are of the view that the same can be admitted for consideration and adjudication in view of the ratio laid down by the Hon'ble Supreme Court in NTPC Ltd. 1996 (12) TMI 7 - SUPREME COURT This issue, now raised by the assessee by way of additional ground, was not examined by any of the lower authorities, therefore, we deem it fit and proper to restore the same to the file of the Assessing Officer. We further direct the Assessing Officer to examine the claim of the assessee and decide the same in accordance with law. As a result, additional ground is allowed for statistical purpose.
Issues Involved:
1. Validity of assessment under section 143(3) read with section 153C of the Income Tax Act, 1961. 2. Whether documents seized during the search belonged to the assessee. 3. Disallowance under section 14A of the Income Tax Act, 1961 exceeding the exempt income. Issue-wise Detailed Analysis: 1. Validity of assessment under section 143(3) read with section 153C of the Income Tax Act, 1961: The assessee challenged the assessment framed under section 143(3) read with section 153C of the Act, arguing the absence of a proper Satisfaction Note and the lack of incriminating material. However, during the hearing, the assessee chose not to press these grounds (1.1, 1.2, 2.1 to 2.5). Consequently, these grounds were dismissed as not pressed. 2. Whether documents seized during the search belonged to the assessee: The core issue revolved around the documents seized during the search and whether they belonged to the assessee. The documents in question were the Profit & Loss Account and Balance Sheet of the assessee, found in the possession of M/s. Lexcorp Advisory Services Pvt. Ltd. The assessee argued that these documents were in draft form and provided to Lexcorp for finalization, thus not belonging to the assessee. However, it was noted that the documents were indeed the draft financials of the assessee, provided to Lexcorp for finalizing accounts. The Tribunal held that even if the documents were in draft form, they still belonged to the assessee. The Tribunal referenced the Hon'ble Delhi High Court's decision in Pepsico India Holdings Pvt. Ltd. v/s ACIT, which distinguished between original documents and photocopies. In this case, the documents were original and provided by the assessee, thereby belonging to the assessee. The Tribunal dismissed the grounds (1.3 to 1.5) raised by the assessee, finding no merit in the argument that the documents did not belong to the assessee. 3. Disallowance under section 14A of the Income Tax Act, 1961 exceeding the exempt income: The assessee filed an additional ground seeking to restrict the disallowance under section 14A to the extent of exempt income earned, which was Rs. 26,81,157. The assessee had suo-moto disallowed Rs. 1,72,65,457 under section 14A, which was over and above the exempt income. The Tribunal noted that various courts have held that disallowance under section 14A should be restricted to the exempt income earned. The Tribunal admitted this additional ground for consideration and adjudication, referencing the Hon'ble Supreme Court's decision in NTPC Ltd. v/s CIT and the Hon'ble Jurisdictional High Court's decision in CIT v/s Pruthvi Brokers and Shareholders Pvt. Ltd., which allow appellate authorities to entertain fresh claims. The issue was restored to the file of the Assessing Officer for examination and decision in accordance with the law. Conclusion: The appeal by the assessee was partly allowed for statistical purposes. The Tribunal upheld the initiation of proceedings under section 153C, finding that the seized documents belonged to the assessee. However, the additional ground regarding disallowance under section 14A was admitted and remanded to the Assessing Officer for re-examination. Order Pronounced: The order was pronounced in the open court on 01/08/2022.
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