2018 (12) TMI 278 - AT - Income Tax

Assessment u/s 153A - validity of search raised in A. Ys. 2008-09 to 2013-14 - Disclosure of reason to believe or reason to suspect - Held that - Hon ble apex court rendered in the case of N. K. Jewellers vs. CIT 2017 (9) TMI 1299 - SUPREME COURT as held that in view of the amendments made in section 132 by Finance Act, 2017, the reason to believe or reason to suspect as the case may be, shall not be disclosed to any person or authority or Appellate Tribunal as recorded by the Income Tax Authority u/s 132. Reliance was also placed on a judgment of Hon ble Karnataka High Court rendered in the case of Pratibha Jewellery House vs. CIT 2017 (11) TMI 1744 - KARNATAKA HIGH COURT and the retrospective amendment in section 132 w,r.e.f. 01.04.1962 was taken note of and it was held that even the appellate authorities are prohibited from going into the reasons recorded by the concerned income tax authority against the assessee or tax payer. Learned AR of the assessee was also heard. - decided against the assessee. Notice issued by the AO u/s 153A is bad in law - Held that - 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 whether 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. Additions made in these assessment orders passed u/s 153A are not arising from the seized material - Held that - In this case incriminating material was found as noted in Para 2 of this judgment. This was held in this case that once the assessment is validly reopened, the AO has to take into account three types of income to complete the assessment or reassessment as the case may be. These three types of income are 1) income disclosed in the return of income, 2) Undisclosed income found during the search and 3) any other income which is not disclosed in the earlier return and not unearthed during the search. In our considered opinion, if incriminating material is found in course of search, in the assessment u/s 153A, all three types of income noted above has to be assessed by the AO and therefore, we find no merit in this third technical objection also. We reject the same. Accrual of income - Addition in respect of interest accrued on ICDs - Revenue recognition - Held that - he case of the assessee is this that the interest income is not receivable at all and therefore, the assessee has passed entries in memorandum books by debiting the debtor and crediting the interest account and before the year end, such entries were reversed and as a result, at the year end, no debit remains in the accounts of the debtors and no credit remains in any account being interest receipt account or interest suspense account or any other account by whatever name. But this claim of the assessee was not examined by the lower authorities that the income has not accrued or arisen and it is irrecoverable since very beginning - matter should go back to the file of the AO for a fresh decision - we set aside the order of CIT (A) on this issue and restore this issue back to the AO for a fresh decision with the direction that the AO should first examine this aspect as to whether the interest income has arisen/accrued or not in the facts of the present case. Calculation of exemption u/s. 10AA - Held that - The assessee s claim for exemption u/s. 10AA of IT Act is to be reworked in the light of this relief allowed by CIT(A) in these four years. Hence on this issue, we set aside the order of CIT(A) and restore the matter back to the file of AO for fresh decision. The AO should provide reasonable opportunity of being heard to assessee and recompute the amount of deduction / exemption allowable to assessee u/s. 10AA of IT Act in the light of the relief allowed by CIT(A) in these four years. This issue is also decided in favour of the assessee for statistical purposes. Loss of gold - this issue is only in one year i.e. Assessment Year 2011-12 - submission of assessee that the inventory of 99.055 Kgs. of gold which was untraceable was about 0.047% of the total gold transacted during the year and the loss could have been due to various reasons like loss in manufacturing, excess delivery made to clients, short delivery received from clients, regular pilferage or due to any other reason - Held that - There was a search conducted in the case of the assessee and in spite of that, the revenue could not find out any material to show that the assessee is having any excess gold stock or that there was any evidence found in respect of any unaccounted sale of gold or gold items. Regarding this that the loss of gold could not be substantiated by bringing evidence on record, in our considered opinion, if the assessee is having any evidence in respect of loss of gold, the assessee will not allow such loss to happen. In our considered opinion, in the facts of present case, this loss of 0.047% of the loss of gold in only one year should be allowed in the facts and circumstances of the present case. We order accordingly. This issue on merit is decided in favour of the assessee. MAT computation - book profit as determined u/s. 115JB - Consideration of SEZ Income while computing book profit for the purpose of MAT - Held that - the recomputation of book profit u/s. 115JB has been done by the AO in view of proviso to sub-section(6) of section 115JB which has been inserted in the statute book by Finance Act, 2011 w.e.f. 01.04.2012. On this issue, this is the only submission of the assessee that the assessee has challenged the amendment and the matter is pending in Writ Appeal before the Honorable Division Bench of the High Court of Karnataka but this is not the case of the assessee that any stay has been granted by Hon ble Karnataka High Court in this regard. Hence in our considered opinion, action taken by the AO in this regard is perfectly in order and in case, the assessee gets any relief from Hon ble Karnataka High Court, then only, the assessee can get some benefit in this regard. At present, there is no merit in this claim of the assessee. Hence this issue on merit is decided against the assessee. Levy of interest u/s. 234A, 234B and 234C - Held that - This issue is consequential. This is the only request of the assessee before us that the AO should be directed to correctly calculate the interest after considering the relief granted by CIT(A) and by the Tribunal - no specific direction is required for this because this is admitted legal position that the issue of interest is consequential and if any relief is allowed by CIT(A) and/or Tribunal, while calculating the interest u/s. 234A, 234B and 234C, consequential relief has to be allowed by AO to assessee.

Issues Involved:
1. Validity of Search
2. Notice issued u/s 153A being bad in law
3. Scope of Assessment pursuant to search proceedings
4. Calculation of exemption u/s 10AA
5. Addition of Interest not received on inter-corporate deposits (ICDs)
6. Loss of Gold
7. Book Profit as determined u/s 115JB
8. Levy of interest u/s 234A, 234B, and 234C

Detailed Analysis:

1. Validity of Search:
The assessee contended that the search conducted on 17.12.2013 was invalid as the mandatory conditions under section 132(1)(a), (b), and (c) of the Act did not exist. The Tribunal, however, rejected this argument, citing the Supreme Court decision in N.K. Jewellers vs. CIT and the Karnataka High Court decision in Prathibha Jewellery House vs. CIT. These judgments clarified that the reasons for the search need not be disclosed to the assessee, appellate authorities, or the Tribunal due to retrospective amendments made by the Finance Act, 2017.

2. Notice issued u/s 153A being bad in law:
The assessee argued that the notice issued u/s 153A was vague as it did not specify whether it was for assessing or reassessing the income. The Tribunal found no merit in this argument, stating that the notice's purpose under clause (a) of sub-section (1) of section 153A is to ask for the return of income for the relevant years. The assessment or reassessment decision is made subsequently under clause (b).

3. Scope of Assessment pursuant to search proceedings:
The assessee claimed that the additions made in the assessment orders were not based on seized material. The Tribunal noted that during the search, incriminating documents related to loans/ICDs were found, and the additions were made based on these documents. The Tribunal referred to the Karnataka High Court's decision in Canara Housing Development Company vs. CIT, stating that once the assessment is reopened, the AO can assess any income, including undisclosed income found during the search. Thus, the Tribunal rejected the assessee's argument.

4. Calculation of exemption u/s 10AA:
The assessee argued that the AO had reworked the exemption u/s 10AA based on various additions, some of which were deleted by the CIT(A). The Tribunal directed the AO to recompute the deduction/exemption u/s 10AA in light of the relief allowed by the CIT(A) in the relevant years.

5. Addition of Interest not received on inter-corporate deposits (ICDs):
The assessee contended that it followed the mercantile system of accounting and had written off non-receivable interest as bad debts. The AO had added back the interest, claiming the assessee followed a cash system for ICDs. The Tribunal noted discrepancies in the assessee's accounting policies over different years and remanded the matter to the AO for fresh examination. The AO was directed to determine whether the interest had accrued or become irrecoverable before accrual.

6. Loss of Gold:
The assessee claimed a loss of 99.055 Kgs of gold, which was about 0.047% of the total gold transacted during the year, and reduced the closing inventory accordingly. The AO and CIT(A) had disallowed this claim. The Tribunal allowed the assessee's claim, noting that the loss was minimal and no evidence of unaccounted gold or sales was found during the search.

7. Book Profit as determined u/s 115JB:
The AO included SEZ profits in the book profits for computing MAT, following an amendment by the Finance Act, 2011. The assessee had challenged this amendment in the Karnataka High Court. The Tribunal upheld the AO's action, noting that the amendment was valid and applicable unless stayed or overturned by the High Court.

8. Levy of interest u/s 234A, 234B, and 234C:
The Tribunal noted that the levy of interest is consequential and directed the AO to recalculate the interest based on the reliefs granted by the CIT(A) and the Tribunal.

Conclusion:
The Tribunal partly allowed the appeals, providing relief on certain issues while upholding the AO's and CIT(A)'s decisions on others. The AO was directed to re-examine specific issues and recompute deductions and interest as per the Tribunal's findings.

← Previous Next →