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2016 (4) TMI 805 - AT - Income TaxAssessment u/s 153A - disallowance of interest U/s 36 - Held that - The notices U/s 153A were issued on 15/1/2010 in all the years. Even for A.Y. 2007-08 in both the cases, no notice U/s 143(2) was issued on or before 31/8/2008. It is settled law when no assessment proceedings are abated on the date of search, no notice can be sent U/s 153A of the Act to the assessee in the case of no incriminating documents were found and seized during the course of search. Therefore, we have considered view that notice issued by the Assessing Officer U/s 153A for A.Y. 2004-05, 2005-06 and 2007-08 in the case of Damodar Das Agarwal and for A.Y. 2004-05 and 2007-08 in the case of Nirmal Kumar Agarwal are out of jurisdiction, accordingly we quash the order of the Assessing Officer and confirmed by the ld CIT(A). We do not find any reason to make disallowance of interest U/s 36 of the Act for A.Y. 2009-10 in the case of Damodar Das Agarwal as the assessee has capital ₹ 1.72 crores against the investment of ₹ 1.26 crores and loan and advances of ₹ 42.36 lacs. Capital is more than investment made and loan advance given. The decision of Hon ble Bombay High court in the case of CIT Vs. Reliance Utilities & power Ltd. (2009 (1) TMI 4 - BOMBAY HIGH COURT ) is squarely applicable in the case of assessee. Further the ld Assessing Officer has not established the nexus between the interest bearing loan with interest free advances given, therefore, we also delete the addition made in the A.Y. 2009-10 in regular assessment. - Decided in favour of assessee
Issues Involved:
1. Legality of the assessment under Section 153A of the IT Act, 1961. 2. Disallowance of interest expenses. Issue-Wise Detailed Analysis: 1. Legality of the Assessment under Section 153A of the IT Act, 1961: The primary contention of the assessees was that the assessments completed under Section 153A were invalid as no incriminating material was found during the search operations. The assessees argued that the assessments for the years in question were already completed and no proceedings were pending at the time of the search. They relied on various judicial precedents, including the Special Bench decision in All Cargo Global Logistics Ltd. Vs DCIT, which held that in the absence of incriminating material, the Assessing Officer cannot make additions under Section 153A. The Tribunal observed that the search did not yield any incriminating documents, and the time limit for issuing notices under Section 143(2) had expired for the relevant years. The Tribunal referred to the judgments in the cases of Kabul Chawla and Jai Steel India, which support the view that assessments under Section 153A cannot be made without incriminating material. Consequently, the Tribunal quashed the assessments for the years 2004-05, 2005-06, and 2007-08 in the case of Damodar Das Agarwal and for the years 2004-05 and 2007-08 in the case of Nirmal Kumar Agarwal. 2. Disallowance of Interest Expenses: The Assessing Officer disallowed interest expenses on the grounds that the assessees had not established a direct nexus between the borrowed funds and their business use. The disallowance amounts were ?64,235/- for A.Y. 2004-05, ?1,54,996/- for A.Y. 2005-06, ?1,40,740/- for A.Y. 2007-08, and ?43,065/- for A.Y. 2009-10 in the case of Damodar Das Agarwal. For Nirmal Kumar Agarwal, the disallowance amounts were ?93,568/- for A.Y. 2004-05 and ?1,09,450/- for A.Y. 2007-08. The Tribunal noted that the assessees had sufficient interest-free funds to cover the investments and advances made. Citing the judgment in CIT Vs. Reliance Utilities & Power Ltd., the Tribunal held that when an assessee has both interest-free and interest-bearing funds, the presumption is that the interest-free funds are used for making investments. The Tribunal found that the Assessing Officer had not established a nexus between the interest-bearing loans and the interest-free advances. Therefore, the Tribunal deleted the disallowance of interest expenses for all the assessment years in question. Conclusion: The Tribunal allowed the appeals of both assessees for all the assessment years. It quashed the assessments made under Section 153A due to the absence of incriminating material and deleted the disallowance of interest expenses, citing sufficient interest-free funds and the lack of a direct nexus established by the Assessing Officer.
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