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TMI Blog2016 (9) TMI 1290X X X X Extracts X X X X X X X X Extracts X X X X ..... ment Services) and was deriving income from salary, other sources, etc. During the year, the assessee was also a partner in a firm, viz. M/s. D.V. Corporation. He filed his return of income originally on 31/08/2006, declaring income of Rs. 2,50,444/-. Later, a search and seizure action u/s 132(1) of the Act was carried out on Kanakia Group of companies on 29/3/2011, during the course of which residential premises of the assessee were also covered. Subsequently, a notice u/s 153A of the Act was issued to the assessee on 4/1/2012. In response, the assessee filed a return of income on 31/1/2012, declaring total income of Rs. 2,50,804/- (almost the same income which was disclosed in the original return of income). Thereafter, statutory notices u/s 143(2) and 142(1) of the Act were issued on 9/7/2012 and 10/7/2012, followed by a questionnaire dated 30/1/2013, calling for various details and clarifications. In due consideration to the facts of the case, the AO disallowed assessee's claim of deduction for business expenses to the tune of Rs. 1,82,715/- and interest paid on loan of Rs. 1,94,749/- by holding that these expenses were of personal nature and, therefore, could not be allowed ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is, therefore, humbly prayed that the additional rounds of appeal may kindly be admitted and adjudicated by Your Honours. In this regard, we rely upon the following decisions rendered by various courts. i. National Thermal Power Corporation v. CIT [229 ITR 383 (SC)] ii. Jute Corporation of India Ltd. v. CIT [187 ITR 688 (SC)] iii. Ahmedabad Electricity Co. Ltd. v. CIT [199 ITR 351 (Bom)(FB)]" 4.2 We have heard counsel for both the parties on application for raising additional grounds and considering the fact that the ground raised through the present application is purely legal in nature and no new evidence is required to be brought on record in deciding the pure question of law. Therefore considering the settled ratio laid down in the afore mentioned judgements we allow the assessee to file/raise additional grounds of appeal. "1 The learned CIT (A) erred in law and on facts in holding that the Assessing Officer had a jurisdiction to make additions in the order passed u/s 153A r.w.s. 143(3) of the Act even though the said additions were not based on any incriminating material found during the course of search. 2. The learned CIT(A) ought to have deleted the additions ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employee of Kanakia Group Companies (Kanakia Management Services) and regarding that search and subsequent additions were challenged before ITAT and the Hon'ble ITAT in ITA No. 3192 to 3196/Mum/2014 had already decided this issue in favour of respective assessee's vide order dated 10.02.2016 6.2 Before we decide the merits of the case it is necessary to evaluate the orders passed by the Hon'ble ITAT, the operative para of Hon'ble ITAT dated 10.09.2009 in ITA No. 3192 to 3196/Mum/2014 are reproduced below "We have considered the rival contention and also perused the material available on record. We find that the issue in this appeal is squarely covered by the decision vide orders dated 18-01-2016 of the Mumbai Tribunal in ITA No's. 31873189/Mum/2014, in which one of us (Accountant Member) was member of the Division Bench who adjudicated the afore-stated appeal's whereby Revenue appeal's were dismissed, which is reproduced below : "These three appeals by the Revenue are directed against three separate orders of the learned Commissioner of Income Tax (Appeals)- 40 , Mumbai (Hereinafter called "the CIT(A)") all dated 18-2-2014 pertaining to the assessment years 200708 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01.2012 declaring a total income of Rs. 14,74,33,828/-. Notices dated 11-7-2012 u/s 143(2) and 142(1) of the Act were issued to the assessee and served upon the assessee. During the course of the assessment proceedings u/s 153A of the Act, the assessee replied the relevance of the seized material. The learned assessing officer(Hereinafter called "the AO") observed that the assessee has earned interest income of Rs. 99,01,472/- and claimed interest expenses of Rs. 96,24.943/- against the same. The break up is as under- Name of the party Interest (Rs.) Amount (Rs.) INTEREST EARNED Kanakia Constructions Pvt. Ltd 5805208 Kanakia Hospitality Pvt. Ltd. 1833985 Supreme Real Estate Developers P. Ltd. 2262279 99,01,472 INTEREST PAID Babubhai M. Kanakia 1395443 Evergreen Financial Services 8139500 M J Chotani 90000 (96,24,943) TOTAL 2,76,529 The assessee offered the balance net interest of Rs. 2,76,529/- to tax along with certain other disallowances , as assessed in the order dated 31-12-2009 passed u/s 143(3) read with section 153A of the Act pursuant to the first search conducted by Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri M.J. Chotani). The assesse has paid excess interest Rs, 38,19,800/- (@ 12% on the excess average value of loans given ofRs.3,18,31,666/-). Keeping in view of the facts of the case, the interest of Rs. 38,19,800/- is disallowed out of interest paid." Copy of the order is enclosed for reference. As it is evident from the above, the claim of interest paid of Rs. 57, 15, 143/- was allowed to the assesse after disallowing sum of Rs. 39,09,800/- considering facts of the case. On the basis of the same, in the return filed u/s. 153 A, assessee had already disallowed sum of Rs. 39,09,800/- out of total interest paid of Rs. 96,24,943/-. Thus, claim of interest expense needs to be allowed to the assesse. Moreover, without prejudice to the above, We have to submit that the issue of netting of interest has not emerged in the present search. Your honour will appreciate that the special bench of Mumbai ITAT in the case of All Cargo Global Logistics Ltd. v. Deputy Commissioner of Income-tax, Central Circle-44 [2012J 23 taxmann.com 103 (Mum) (SB) held that in case of assessments which do not abate pursuant to issue of notice under section 153A. in addition to income that has already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision are as under:- In case of assessments which do not abate pursuant to issue of notice under section 153A in addition to income that has already been assessed, assessment will be made on basis of incriminating material found it1 course of search but not produced in course of original assessment and undisclosed income or property discovered in course of search. " Thus, the assessee contended in nutshell that once the assessment has already been finalized earlier after due deliberation on the same issue and that no incriminating material has been found during the course of search on the same issue, additions cannot be made by the A 0. The A 0. however, rejected the contentions of the assessee by holding that in case notice u/s 153A of the Act was issued and the assessment is deemed to be de novo and the A O. is at liberty to take a different view than the view taken in the earlier assessments even if the assessments have been earlier completed u/s 143(3) r. w.s .. 153A of the Act and the assessment cannot be restricted to the seized material only. As per AO, the mandate of section 153A of the Act gives the assessee an opportunity to file his correct return of income once ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment order dated 28-03-2013 passed u/s 143(3) of the Act read with Section 153A of the Act. 7. Aggrieved by the assessment orders dated 28-03-2013 passed by the A. O. u/s 143(3) of the Act read with Section 153A of the Act , the assessee preferred an first appeal before the CIT(A). 8. Before the CIT(A), the assessee submitted that the A.O. erred in disallowing the assessee's claim of deduction of Rs. 47,22,282/- towards interest paid on loans while the A.O. taxed the entire interest income of Rs. 99,01,472/- on the ground that there was no direct correlation between the loan taken and loan advanced. The assessee submitted that the assessee voluntarily disallowed interest of Rs. 39,09,800/- which included an amount of Rs. 90,OOO/- paid to Sh. M.J.Chotani on loan taken from him which was treated as unexplained in earlier years and an amount of Rs. 38, 19,800/- on the difference of average loan taken on which interest was paid vis-a-vis average loan given on which interest was received , at the rate of 12%. Besides, the assessee disallowed voluntarily an amount of 9,92,861/- as interest u/s 14A of the Act and this was accepted by the A. O. during the course of search assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct has come on record. The CIT(A) after considering the facts of the case and submission of the assessee and the orders of the A.O. observed that the earlier search and seizure action u/s 132(1) of the Act was carried out in the year 2007 on 19.07.2007 and subsequently the assessment order u/s 153A read with section 143(3) of the Act was passed on 31-12-2009 for the assessment years 2005-06 to 2008-09 , wherein no disallowance of interest paid on loan taken was made under identical circumstances and the assessee's claim towards payment of interest on funds borrowed was allowed as expenditure u/s 57(ifi) of the Act and the contention of the assessee that when there is no incriminating material found during the course of search u/s 132(1) of the Act carried out for the second time on 29-3-2011 and no new material facts have been brought on record in the assessment proceedings, the addition cannot be sustained and the A. O. 's action in disallowing the claim of the assessee toward interest is totally unjustified and unwarranted. The CIT(A) also observed that since the assessee is offering income from interest, equity demands that any expenditure incurred in the nature of int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- is unsustainable and unjustified and directed the A.O. to delete the same vide orders dated 18.02.2014. 9. Aggrieved by the orders of the CIT(A) dated 18.02.2014, the Revenue is in appeal before the Tribunal. 10. The ld. D.R. relied upon the order of the A.D. and contended that the A.O. has rightly disallowed the expenses of Rs. 47,22,282/- as per the well reasoned order passed by the A. O. 11. The ld. Counsel for the assessee submitted that there are two search and seizure action u/» 132(1) of the Act conducted in the case of the assessee, one in the year 2007 on 19.07.2007 and another on 29-3- 2011. The ld. Counsel submitted that for the assessment year 2007-08, the return of income was filed u/s 153A of the Act in respect of first search on 11th September, 2008 and the assessment order was passed u/s 143(3) r.w.s. 153(A) of the Act on 31-12-2009. The ld. Counsel submitted that the assessments have been concluded in the case of the assessment year 2007-08 on 31.12.2009 which is prior to the date of second search on 29-03-2011 and hence the assessment for the assessment year 2007-08 are concluded assessments which cannot be disturbed on same set off acts while frami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 282/- payable on loans borrowed by the assessee against the interest income from the loans advanced by the assessee company on the same set of material facts as existing while framing assessments u/s 153A read with Section 143(3) of the Act on 31.12.2009, in the absence of any incriminating material found during the course of second search on 29-03-2009. The decision in the case of All Cargo Global Logistics Ltd. (supra) relied upon by the assessee is squarely applicable to this case that In case of assessments which do not abate pursuant to issue of notice under section 153A, in addition to income that has already been assessed, assessment will be made on basis of incriminating material found in course of search but not produced in course of original assessment and undisclosed income or property discovered in course of search. The decision of Hon'ble Bombay High Court in the case of crr v. Continental Warehousing Corporation (Nhava She va) Limited (2015) 58 taxmann.com 78 (Bombay) is also squarely applicable to the instant appeal whereby Hon'ble Bombay High Court has held that no addition can be made in respect of assessments which have become final if no incriminating mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search on 29-03-2011. The relevant extract of the assessment orders u/s 153A of the Act dated 31.12.2009 in pursuance of first search u/s 132(1) of the Act on 19.07.2007, are as under: I have considered the submission of the assesse and the facts and circumstances of the case. The assesse has paid interest of Rs. 90, 000/- to Shri M J Chotani on a loan of Rs. 5,00,000/- @ 18%. The interest paid to Shri M.J. Chotani was disallowed for the reasons discussed in earlier assessment years. There is no difference in the facts of the case. Accordingly, interest of Rs. 90,000/- paid to Shri M.J. Chotani is disallowed and added to the total income. Further, the assesse has received interest of Rs. 99,01,472/- on the average value of loans given during the year Rs. 8,25,12,267/- as against, the assesse has paid interest of Rs. 95,34,933/- (excluding the interest of Rs. 90,000/- paid to Shri M.J. Chotani as discussed above) on average value of loan received during the year of Rs. 11, 43, 43, 933/- {excluding the loan of Rs. 5, 00,000/- received from Shri M.J. Chotani). The assessee has paid excess interest Rs. 38,19,800/- (@ 12% on the excess average value of loans given of Rs. 3,18,31,66 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iss the appeal of the Revenue. We order accordingly" 7. That the legal issue involved in the present case raised by the assessee is identical with the legal issue involved in the afore mentioned ITA No. 3192 to 3196/Mum/2014 therefore while maintaining the judicial consistency which is applicable mutatis mutandis in the case of assessee and while concurring with the decision of the coordinate bench in ITA No. 3192 to 3196/Mum/2014, we allow this additional grounds of appeal filed by the assessee and set aside the additions made by the AO and upheld by the CIT(A). 8. Since we have already passed detailed order while deciding additional grounds, therefore the other grounds raised by the assessee has become infructous. In the result, the appeal filed by the assessee is allowed. Now coming to the appeal No.2153/Mum/2015 ITA No. 2153/Mum/2015 (A.Y. 2008-09): Since the facts and circumstances of this appeal under consideration are similar. Therefore, following our own decision given in the afore said appeal, we also allow the present appeal of the assessee, and set aside the order of CIT(A). 6. In the net result, both the appeals filed by the assessee are allowed. Order pronounce ..... X X X X Extracts X X X X X X X X Extracts X X X X
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