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TMI Blog2018 (9) TMI 1749X X X X Extracts X X X X X X X X Extracts X X X X ..... absence of proper scrutiny and examination of such claim of expenses in the relevant assessment year, such claim cannot be accepted in the present assessment year, more so when such claim was not pressed for deduction for 1/5th of expenses in the previous assessment year. The appellant apart from furnishing break up of expenses has failed to establish admissibility of 20% of such expenses during the year under consideration, as in the then prevailing position of law the concept of deferred revenue expenses was not recognised. The claim has to be examined in view of the law as applicable in the relevant assessment year and on that count such claim fails. Addition in respect of interest u/s 220(2) - Held that:- In view of the CBDT circular No.334 dated 3.4.1982 and the decision of the coordinate bench in the case of M/s. Narad Investment & Trading Pvt. Ltd. Vs. DCIT [2011 (10) TMI 663 - ITAT MUMBAI], we direct the assessing officer to charge interest from the date when fresh assessment is made. This ground of the assessee’s appeal is allowed. Lease rent income treated as bogus - Held that:- After considering the totality of the facts and materials placed before us, we do not f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on whether the department was entitled to any extension of limitation u/s 153(2A) of the Income Tax Act, 1961. 2. That the learned CIT (A) erred in not annulling/quashing the fresh assessment order dated 12.07.2007 passed in pursuance to the order of the Hon'ble M.P. High Court as the said assessment order is barred by limitation u/s 153(2A) of the Income Tax Act, 1961. That on the facts and in the circumstances of the case, the said assessment order being illegal and bad in law, it is therefore, prayed that the same may very kindly be now annulled/quashed. That the learned CIT(A) also erred in overlooking the fact that in the absence of any stay granted by any court as envisaged under clause (ii) of Explanation 1 to section 153, the period of limitation had to be reckoned from the date of the ITAT order of 11.12.2000. That on the facts and in the circumstances of the case the period of limitation having expired, the assessment order thus barred by limitation is illegal, without jurisdiction and bad in law and hence deserves to be annulled/quashed. 3. Without prejudice to the above, assuming though not admitting, even if the period of limitation is reckoned from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the expiry of 35 days from the date of service of original assessment order and demand notice till the date of fresh assessment order irrespective of the fact that the original assessment order had reached finality post ITAT setting it aside and in absence of any challenge to the contrary. That on the facts and in the circumstances of the case the interest charged u/s 220(2) is not only contrary to the provisions of section 220(2) but also to CBDT Circular No.334 of 03.04.1982 and it is prayed that interest u/s 220(2), if any, be charged in accordance with law. 2. Ground Nos.1 to 3 in the present appeal are related to limitation. These grounds of the assessee s appeal were decided by a separate order dated 24.4.2012, whereby the grounds of the assessee s appeals were rejected. Ground Nos.4 to 6 are against disallowing the claim of depreciation on leased assets i.e. milk cans. 3. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s 143(3) of the Income Tax Act, 1961 (hereinafter called as the Act ). In the earlier ground of litigation, matter travelled to the stage of the Hon'ble M.P. High Court against or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t an indepth investigation was carried out, thereby it was revealed that entity where found, the assessee s claim to have purchased the asset was not capable of manufacturing such asset. He submitted that assesee instead of rebutting evidences gathered during the enquiry is making an attempt to find an escape route. 6. We have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below. The Ld. CIT(A) has given his finding of facts which are as under: 4.2 Now coming to the core issue of disallowance of depreciation on lease of milk canes of ₹ 1,08,27,800/-, it is to be stated at the very beginning itself that the enquiry conducted by AO in course of assessment proceedings and subsequent detailed enquiry conducted by this office, by which the appellant was confronted by detailed and specific show cause letter dated 24.8.2011, as has been extracted in para 3 above, have conclusively established beyond any doubt that no purchases of milk canes what so ever were made by the appellant company from Shri Mukesh Pantangiya. The appellant in response to such specific show cause notice issued, which is supported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in bank and other accounts were at the behest of the said Shri S.K. Bandi who had done it all by misusing and abusing the corporate personality of the appellant assessee, which is an instrumentality and a creation of Shri S.K. Bandi for his own vicious tax planning directly hit by the Apex Court judgement in the case of McDowel Co. Ltd. Vs. CTO (1985) 154 ITR 148 (SC) and ( iv) Depreciation on the assets viz. the milk cans as claimed by the appellant @ 100% of the alleged cost which has been refused by the A.O. is quite in order, the said assets having never been acquired nor therefore, owned and used by the appellant company for its business; and 4.2.1 Before concluding it would be further appropriate to extract observations made by Hon'ble High Court of M.P. in this behalf in para 18 of its order: What was more a matter of serious concern was the forged and bogus claims made by assessee in claiming depreciation. All these claims on a detailed inquiry made by Director of Investigation at Bombay exposed the assessee in indulging in evading payment of tax. The assessee was given full opportunity to defend. They did avail of full opportunity and contested ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd part of claim being 20% of deferred revenue expenses of ₹ 42,52,163/-, the same are claimed to be incurred in the preceding financial year relevant to Assessment year 1995-96. Such a claim cannot be entertained both in facts and in law, during the year under consideration as the fact whether such expenses were genuinely incurred were never examined in the relevant assessment year and looking to the state of affairs of the appellant company in absence of proper scrutiny and examination of such claim of expenses in the relevant assessment year, such claim cannot be accepted in the present assessment year, more so when such claim was not pressed for deduction for 1/5th of expenses in the previous assessment year. The appellant apart from furnishing break up of expenses has failed to establish admissibility of 20% of such expenses during the year under consideration, as in the then prevailing position of law the concept of deferred revenue expenses was not recognised. The claim has to be examined in view of the law as applicable in the relevant assessment year and on that count such claim fails and is accordingly second part of ground no.4 is hereby dismissed. 11. From t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 5,63,599/- Rs.1,14,75,715/- Add: Depreciation for separate consideration ₹ 12,09,877/- Rs.1,26,85,592/- Less: Depreciation to the extent allowed ₹ 6,58,815/- Net assessed income Rs.1,20,26,777/- R/O Rs.1,20,26,800/- From the above it is clear that in the assessment, only two disallowances were made. a) Disallowance u/s 35D ₹ 5,57,761/- b) Depreciation on milk canes Rs.1,08,27,800/- The above two disallowances were in dispute before the Appellate Authority apart from other claims raised by the assessee company at appeal stage. The above two disallowances were set aside by the ITAT, vide Para 31,32,33 35 of ITAT's order dated 11/12/2000 and only other hand annulled t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he date of original assessment is not only contrary to the provisions of section 220(2) but is even contrary to CBDT Circular No 334 dated 03-04-1982. 6) The CBDT clarified the chargeability of interest u/s 220(2) of the Act vide circular No. 334 dt. 03.04.1982 as under :- These issues were comprehensively examined in consultation with the Ministry of Law and the Board has been advised: i) Where an assessment order is cancelled u/s 146 or cancelled/set aside by an appellate/ revisional authority and the cancellation/setting aside becomes final (i.e., it is not varied as a result of further appeals I revisions), no interest under s. 220(2) can be charged pursuant to the original demand notice. The necessary corollary of this position will be that even when the assessment is reframed, interest can be charged only after the expiry of 35 days from the date of service of demand notice pursuant to such fresh assessment order. ii) Where the assessment made originally by the ITO is either varied or even set aside by one appellate authority but, on further appeal, the original order of the ITO is restored either in part or wholly, the interest payable under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore in view of the circular of CBDT (Supra), the interest can be levied only from the date of default of the demand notice issued in pursuance of the fresh assessment order. The order of CIT(A) holding that interest uls 220(2) has to be levied from the date of default as per the original assessment order therefore cannot be sustained . (Copy of CBDT circular dated 03.04.1982 and ITAT Mumbai order in Appeal No. ITA NO.3JGO/Mum/2010 dated 19.10.2011 are submitted at page No.676 to 689 of Paper book compilation II). Considering the above submissions it is prayed that interest u/s 220(2) may kindly be deleted. 13. On the contrary, Ld. D.R. opposed the submissions. 14. The contention of the assessee is that the original assessment order was set aside by the ITAT with direction to make fresh assessment. It is further stated that the interest is charged only in respect of the demand raised as per the fresh assessment order. In support of this, Ld. Counsel for the assessee had relied upon the decision of the coordinate bench of M/s. Narad Investment Trading Pvt. Ltd. Vs. DCIT and also the CBDT circular No.334 dated 3.4.1982. 15. We find merit in the contention of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usively established and held that the appellant never acquired any assets which were. the subject matter of lease transaction, then as a natural corollary to such finding, there cannot be any lease transaction from same non-existent assets from which the income could be earned. It is true that it is often the Hon'ble Supreme Court has stressed the concept of real income in many tax decisions. Therefore, if a hypothetical and bogus claim of deduction and depreciation cannot be allowed then naturally the corresponding income which was never in existence could not be brought to tax, if done so, in a way it would amount to rather admission on the part of the department that such transaction was a real transaction which is not the case of AO in any manner. Considering the aforesaid the Learned CIT (A) had correctly reduced the Lease Rent Income ofRs.20,57,142/- offered in the P L account on leasing of such bogus claim of acquisition of milk cans 2 . Regarding Ground No. 2 for deleting the addition of ₹ 8,88,593/- In this respect we would like to mention that the company during that year took on lease office premises at Mumbai w.e.f from 01/04/95 and paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeds to be considered in accordance with law irrespective of wrong stand adopted by the appellant in this behalf in the final accounts, filled, more so when it is so directed by Hon'ble ITAT. Further there being no adverse material and finding on the issue and the claim being otherwise prima facie a genuine claim of expenses, incurred in regular course of business, is hereby directed to be allowed and AO shall accordingly allow deduction of ₹ 8,8'8,593/- from income assessed. Considering the above the Ld. CIT (A) has correctly directed to allow deduction ofRs.8,88,593/- from income assessed. 3. Regarding Ground No.3 for excluding Merchant Banking income of ₹ 27 Lacs :- The appellant had claimed exclusion of merchant banking fees of ₹ 27,00,0001- which was wrongly credited under the head income from merchant banking fee receivable from Mis Alaska Capital Market Pvt Ltd towards marketing of public issue of Mis Vikas Spinning Weaving Mills Ltd. An MOU was entered into between the appellant company and MIs Alaska Capital Market Pvt Ltd on 20.09.1995. such MOV was conditional and was effective only if Public issue of MIs Vikas Spinning Wea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 144 (SC). d) ITO vs. Dyestuffs Chemicals (P) Ltd. (1983) 6 lTD 513 (Hyd) The Ld. CIT(A) has correctly observed that the documents on record clearly established that such company was in existence at the relevant period of time and even assessment uls 143(3) was completed for the same Asst. Year 1996-97. Thus the Merchant banking income offered at ₹ 27 lacs being not a real and genuine income accrued to the income in terms of MOD and other evidences on record and could not he validly brought to tax merely on the basis of accounting entry as has been held by Hon 'ble Supreme court in the case of Bokaro Steel, Godhra Electricity Co. Ltd. and Shoorji Vallabhdas Co ... (Supra) as noted above and Ld. CIT(A) accor.lingly directed the AO to exclude the Merchant banking income at ₹ 27 lacs from the total income assessed by him. It is, therefore, prayed that the above submission may kindly be taken on record and present Departmental Appeal may kindly be dismissed. 20. Ground No.1 is related to deleting the lease rent income of ₹ 20,57,148/-. 21. We have heard the rival submissions, perused the materials available on record and gone thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anking income of ₹ 27 lakhs. The Ld. CIT(A) has given his findings on this ground as under: 4.5.1 In course of appeal proceedings the A.R. invited attention to the relevant facts pertaining to crediting of such income being a MOU signed between the appellant and said Alankar and the terms of MOU being not in fact carried out as agreed, the amount was not actually receivable and was reliable to be reversed as wrongly offered for taxation. It is further emphasized that the said amount in the year in which it was credited or in the subsequent years and thus it is emphasized that there being no such real income and such income should not be brought to tax and reliance have been placed on celebrated decisions of the Hon'ble Supreme Couirt in this behalf as noted hereunder: a) CIT Vs. Bokaro Steel Ltd. (1999) 236 ITR 315 (SC) b) Godhra Electricity Co. Ltd. Vs. CIT (1997) 225 ITR 746 (SC) c) CIT Vs. Shoorji Vallabhadas Co. (1962) 46 ITR 144 (SC) 4.5.2 It has already been noticed above that the appellant resorted to dubious accounting procedure and resorted to disclose highly inflated income by pressing a non genuine claim of lease rent of bogus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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