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2024 (1) TMI 213 - AT - Income TaxAssessment completed u/s 144 - treating the return of income filed in response to the notice issued u/s 153A of the Act as a defective return - HELD THAT - We have no hesitation in following the order of the Tribunal in case of M/s. Shobha City 2021 (4) TMI 1154 - ITAT BANGALORE and to hold that return filed by the assessee for these assessment years cannot be considered as defective return by invoking the clause (aa) to explanation to sub-section (9) of section 139 of the Act since the assessee has not paid the complete tax before filing the return of income in response to notice issued u/s 143 of the Act. Without prejudice to the above findings, we are of the opinion that once original return is processed u/s 143(1) of the Act, and thereafter assessee in response to notice u/s 153A of the Act to file the return of income, it has been stated that the return filed u/s 139(1) of the Act is to be treated as return filed in response to notice issued u/s 153A of the Act and when the original return is a valid return though the assessee has not made payment of tax as declared in the return, the return filed in response to section 153A of the Act cannot be treated as defective return. We are of the opinion that the returns cannot be treated as a defective return by invoking the deleted clause (aa) to explanation to sub-section (9) of section 139 of the Act. This ground of the assessee is allowed. Levy of interest u/s 234A of the Act from the date of filing return of income till the date of passing assessment order and computing the interest u/s 234B - HELD THAT - We have heard both the parties and perused the materials available on record. These grounds are not emanated from the order of the ld. CIT(A). As seen from the impugned orders of the CIT(A) in these two cases in these three assessment years i.e. 2010- 11, 2012-13 2015-16, there was no ground on this issue by assessees before CIT(A). Hence, we are refrained to adjudicate these grounds as it is not emanated from the impugned orders of ld. CIT(A). These grounds of appeal in both assesses cases are dismissed. Disallowance u/s 36(1)(iii) - Whether assessee is having sufficient own funds? - HELD THAT - This issue came for consideration before this Bench in 2023 (9) TMI 1420 - ITAT BANGALORE assessment year 2013-14 assessee is not able to explain the sources to make interest free advance to the parties. Hence, it should be considered that assessee has used the borrowed funds to advance these parties on which assessee claimed interest in its profit loss account in the assessment yaer under consideration which cannot be allowed u/s 36(1)(iii) of the Act, since the loan has been borrowed for the purpose of business and not satisfy the conditions laid down in section 36(1)(iii) of the Act. Accordingly, the disallowance made by the lower authorities is justified. Disallowance of loss - Addition being the business loss incurred by the assessee holding that the same was merely a paper loss - contention of the assessee is that he has been in Real Estate business and involved in buying and selling of properties and he was the confirming party to sale deed between SIDPL MDPL - existence of contractual obligation - HELD THAT - AO agreed in his order that this is a genuine contractual obligation imposed on the assessee and as such loss suffered in this transaction cannot be considered as a fictitious or paper loss in the hands of assessee. Once the ld. AO observed that this was the genuine contractual obligation imposed on assessee and there was no doubt with regard to registration value of the property with the sub-registrar, the ld. AO thereafter cannot hold that the loss of Rs. 8.62 crores is only the paper transaction or bogus. The ld. AO must not look at the matter from his point of view but that of a prudent business man. This is the contractual obligation imposed on the assessee and he has to discharge the same in the interest of his business. No business man can be compelled to maximize his profit. The revenue authorities must put themselves in the shoes of the assessee and see how a prudent business man would act. The assessee, being a prudent business man to keep up his promise, he incurred this liability. As he is able to find out a new party i.e. MDPL the sale was at the value fixed by State Government for the purpose of payment of stamp duty in respect of that impugned property and in that course of action, the loss suffered by the assessee to be allowed as a genuine business loss and accordingly, we direct the ld. AO to allow this loss while computing the income of the assessee. This ground of assessee is allowed. Addition u/s 28(iv) - Search u/s 132 in the case of M/s Reddy Veeranna Construction (P) Ltd (RVCPL), wherein the assessee was a Managing Director wherein physical cash balance was found less as compared to books of account reflecting cash - RVCPL claimed that it had placed the differential amount at the disposal of its MD (the assessee) for the purpose of identifying land for a project and it had accordingly reduced an amount from outstanding amount due towards him - AO concluded that the said amount as given by the RVCPL to the assessee was for the benefit to its MD - HELD THAT - Physical cash shortage found in the hands of the custodian of that cash belong to a company cannot be treated as income of that person who kept the cash i.e. the present assessee and also it cannot be considered as income from other sources in his hands as the assessee has an obligation to make good this loss to the company whose cash assessee is holding as a trustee and it cannot be brought to tax in the hands of assessee as an income. This ground of appeal of the assessee is allowed.
Issues Involved:
1. Validity of assessment orders under section 143(3) read with section 153A. 2. Treatment of returns filed in response to section 153A notices as defective. 3. Levy of interest under section 234A. 4. Computation of interest under section 234B. 5. Disallowance under section 36(1)(iii). 6. Addition under section 28(iv). 7. Ex-parte order under section 144. Summary: 1. Validity of assessment orders under section 143(3) read with section 153A: The Tribunal held that the framing of assessment orders under section 143(3) read with section 153A of the Act was valid despite the assessee's contention that no valid search was conducted. The Tribunal cited the Explanation to section 132(1) of the Act, which states that the reason to believe recorded by the Income Tax authority shall not be disclosed, and referenced the jurisdictional High Court's judgment in Prathibha Jewellery House Vs. CIT. 2. Treatment of returns filed in response to section 153A notices as defective: The Tribunal found that the returns filed by the assessees in response to section 153A notices could not be treated as defective under clause (aa) to Explanation to sub-section (9) of section 139. This clause was inserted by the Finance Act, 2013, and later omitted by the Finance Act, 2016. The Tribunal referenced the Karnataka High Court's decision in PCIT Anr Vs. Texport Overseas [P] Ltd. and concluded that the omission of the clause meant it never existed, thus the returns were valid. 3. Levy of interest under section 234A: The Tribunal did not adjudicate on the levy of interest under section 234A as this issue was not raised before the CIT(A). Therefore, these grounds of appeal were dismissed. 4. Computation of interest under section 234B: Similar to the issue under section 234A, the Tribunal refrained from adjudicating the computation of interest under section 234B as it was not raised before the CIT(A). These grounds of appeal were dismissed. 5. Disallowance under section 36(1)(iii): The Tribunal upheld the disallowance of interest under section 36(1)(iii) for the AY 2015-16, agreeing with the lower authorities that the assessee could not explain the purpose of the borrowing and had made interest-free advances to various parties. 6. Addition under section 28(iv): The Tribunal deleted the addition of Rs. 2,76,31,482/- under section 28(iv), stating that the benefit received must be in a form other than money. The Tribunal referenced the Supreme Court decision in CIT Vs. Mahindra & Mahindra, which held that section 28(iv) applies only to non-monetary benefits. 7. Ex-parte order under section 144: The Tribunal found that the CIT(A) had given a fair opportunity of hearing to the assessee, and thus, the ex-parte order under section 144 was upheld. Conclusion: The appeals were partly allowed for some issues and dismissed for others, with the Tribunal providing detailed reasoning for each decision based on the applicable laws and precedents.
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