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TMI Blog2024 (1) TMI 213X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 144 of the Act in the case of Reddy Veeranna for the assessment year 2010-11. Similar is the position in the assessment year 2012-13 2014-15. Now the contention of the ld. A.R. is that assessment was passed u/s 143(3) r.w.s. 153A of the Income-tax Act,1961 ['the Act' for short] is bad in law and void-ab-initio since there was valid search conducted in the premises of the assessee. Consequently, the provisions of section 153A of the Act have no application and therefore, the assessment order passed deserve to be cancelled. The ld. A.R. also submitted before us that there was no justification to issue the warrant to search the premises of the assessee as the conditions specified in terms of section 132(1) of the Act did not exist and therefore, the search action is illegal and consequently the impugned assessment order deserves to be quashed. In our opinion, this ground has no merit since validity of search cannot be questioned before this Tribunal in view of the insertion of Explanation to section 132(1) of the Act/Finance Act, 2017 with retrospective effect from 1.4.1962. For the purpose of clarity we reproduce the said explanation:- Explanation: For the removal of do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned CIT(A)cannot be faulted and it stands to the reason for the learned CIT(A) to have followed the Chattisgarh HighCourt's decision and refused to do so. 3.3 Being so, in our opinion, there is no merit in the argument of ld. A.R. regarding validity of search carried out by the department u/s 132 of the Act and consequently framing of assessment cannot be questioned on this reason. Hence, this common ground in all these three appeals are dismissed. 4. Next common in ground nos.3, 4 5 in ITA No.1145/Bang/2022 for the AY 2010-11 and ITA No.1112/Bang/2022 for the AY 2012-13 (Two appeals only) in the case of Shri Reddy Veeranna and in ITA No.1111/Bang/2022 for the AY 2015-16 in the case of Smt. Reddy Sangeetha is with regard to treating the return of income filed by assessee in response to notice issued u/s 153A of the Act as defective return. Thereafter, completing the assessment u/s 144 of the Act is not in accordance with law. 4.1 The ld. A.R. submitted that the learned AO was not correct in treating the return of income filed in response to the notice issued under section 153A of the Act as a defective return and therefore completing the assessment u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 153A of the Act. 4.6 Consequently, there is no dispute that the assessment order passed u/s. 153A r.w.s. 143[3] has to be in consonance with the intimation passed u/s. 143[1] of the Act and there cannot be any variation either in the total income assessed or tax and interest to be discharged by the assessee. 4.7 He further submitted that the learned AO for the above said two AY's has treated the return filed by the assessee in response to the notice issued u/s. 153A of the Act as defective return u/s. 139[9] of the Act, by holding that the assessee has not paid complete taxes before filing the return of income in response to notice u/s. 153A of the Act and consequently, the return of income filed is defective as per clause [aa] to Explanation to sub-section [9] of section 139 of the Act. The said clause reads as under:- (aa)* the tax together with interest, if any, payable in accordance with the provisions of section 140A, has been paid on or before the date of furnishing of the return; *Inserted clause (aa) by Finance Act, 2013 w.e.f. 1.6.2013 and clause (aa) Omitted by the Finance Act, 2016 w.e.f 1.4.2017 4.8 He submitted that the above clause [aa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the omission goes into effect, it cannot be granted afterwards. Savings of the nature contained in Section 6 or in special Acts may modify the position. Thus the operation of repeal or deletion as to the future and the past largely depends on the savings applicable. In a case where a particular provision in a statute is omitted and in its place another provision dealing with the same contingency is introduced without a saving clause in favour of pending proceedings then it can be reasonably inferred that the intention of the legislature is that the pending proceedings shall not continue but fresh proceedings for the same purpose may be initiated under the new provision. 6. In fact, Coordinate Bench under similar circumstances had examined the effect of omission of sub-section (9) to Section 108 of the Act w.e.f. 01.04.2004 by Finance Act, 2003 and held that there was no saving clause or provision introduced by way of amendment by omitting sub-section (9) of Section 108. In the matter of GENERAL FINANCE CO. vs. ACIT, which judgment has also been taken note of by the tribunal while repelling the contention raised by revenue with regard to retrospectivity of Section 92BA(i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sonable interpretation and requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole. As per the Explanatory Notes to the Finance Act, 2016, the object for omitting the clause [aa] to Explanation to sub-section [9] of section 139 of the Act is to rationalize the provisions, as per the various decisions of the supreme court that any provision with an intention to rationalize and remove any ambiguity or hardship to the assessee, then such provision has to be given retrospective effect and is applicable retrospectively. Since the said clause [aa] to Explanation to sub-section [9] of section 139 of the Act was omitted w.e.f. 01/04/2017, the said effect of omission of clause [aa] to explanation to sub-section [9] of section 139 has to be given retrospectively and it has to be held that there was no requirement for complying the said clause [aa] of section 139[9] of the Act and therefore, the return of income filed by the assessee is to be treated as a valid return. 4.12 He further submitted that the third point to be stressed is that the original return filed by the assessee under section 139[1] of the Act was p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be furnished in the return of income to be filed u/s. 153A. Merely because of the phrase so far as may be employed in section 153A of the Act, the operation of the entire section 139, including the provisions of section 139[9] of the Act cannot be presumed. In other words, provisions of section 139[9] would have no application to the return required to be filed u/s. 153A since these provisions are relevant only for regular returns of income to be filed u/s. 139 of the Act and not the return to be filed in response to notice u/s. 153A of the Act. 5. The ld. D.R. submitted that the argument of the appellant that clause (aa) of the Section 139(9) of the Act was inserted vide Finance Act, 2013 w.e.f. 01.07.2013 and thus not applicable for AY 2010-11 is devoid of any merit. This is for the reason that clause (aa) of the Section 139(9) of the Act was applicable as on 28.12.2015, the date when the appellant filed a letter with a request that his earlier return filed on 30.11.2011 may be considered as a return filed in response to the notice dt. 17.11.2015 issued under Section I53A of the Act. The applicable law is thus one which existed as on 28.12.2015. 5.1 He further subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use (aa) to explanation to section 139(9) of the Act was omitted by the Finance Act, 2016 w.e.f. 1.4.2017 and the contention of the ld. A.R. is that the effect of refilling a statute or deleting a provision is to obliterate it from the statute book as completely as if it had never been passed, and the statute considered as law that never existed. For this purpose, he relied on the judgement of coordinate bench in the case of Texport Overseas Pvt. Ltd. cited (supra). According to the ld. A.R. that the view was expressed by jurisdictional High Court to be applicable to the assessee s case since the circumstances are the same. Accordingly, he submitted that the return filed by the assessee in response to notice issued u/s 153A of the Act cannot be treated as defective by applying the above deleted provisions of the Act. It has to be noted that the coordinate bench of Bangalore in the case of Cauvery Aqua Pvt. Ltd. in IT(TP)A No.2021/Bang/2019 vide order dated 17.2.2021, wherein the decision referred by the Hon ble Karnataka High Court in case of Texport Overseas Pvt. Ltd. cited (supra) were followed. For the sake of convenience, we extract below the decision of Cauvery Aqua Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces had examined the effect of omission of sub-section (9) to Section 10B of the Act w.e.f. 01.04.2004 by Finance Act, 2003 and held that there was no saving clause or provision introduced by way of amendment by omitting sub-section (9) of Section 10B. In the matter of GENERAL FINANCE CO. vs. ACIT, which judgment has also been taken note of by the tribunal while repelling the contention raised by revenue with regard to retrospectivity of Section 92BA(i) of the Act. Thus, when clause (i) of Section 92BA having been omitted by the Finance Act, 2017, with effect from 01.07.2017 from the Statute the resultant effect is that it had never been passed and to be considered as a law never been existed. Hence, decision taken by the Assessing Officer under the effect of Section 92BI and reference made to the order of Transfer Pricing Officer-TOP under Section 92CA could be invalid and bad in law. 7. It is for this precise reason, Tribunal has rightly held that order passed by the TPO and. DRP is unsustainable in the eyes of law. The said finding is based on the authoritative principles enunciated by the Hon'ble Supreme Court in Kolhapur Canosugar Works Ltd referred to herein supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Menich Aromatics India Pvt. Ltd. Vs. ACIT in ITA No.348/Mum/2014 dated 15.7.2020, wherein held as under: 13. We have heard the submissions of the learned authorised representative (ld AR) for the assessee and the learned Departmental Representative (ld. DR) for the revenue and deliberated on the case laws relied on behalf of the assessee. It is an admitted position that the assessee has neither filed Cross Objection for objecting the maintainability of the appeal filed by the revenue. However, the ld. AR for the assessee has raised legal objection, which goes to the root of amenability of the appeal filed by the revenue. Therefore, we admit the objection of the assessee on the maintainability of revenue s appeal. For appreciation of various legal aspects and effect of repeal or omission , we have gone through the various sections 6, 6A and 24 of General Clauses Act. The section(s) 6, 6A and 24 of General Clauses Act are read as under; 6. Effect of repeal .-Where this Act, or any (Central Act) or Regulation made after the commencement of this Act, repeals any enactment hitherto made or hereafter to be made, then, unless a different intention appears, the repeal shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereof the provisions of such Act or Regulations shall be deemed to have been repealed and re-enacted in such area or part within the meaning of this Section). 14. A careful reading of section 6 of General Clauses Act (this Act) makes it clear that made after the commencement of General Clauses Act, any Central Act or Regulation repeals any enactment hitherto made or hereafter to be made, then, unless a different intention appears, the repeal shall not effect affect any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid, and any such investigation, legal proceeding or remedy may be instituted, continued or enforced, and any such penalty, forfeiture or punishment may be imposed as if the repealing Act or Regulation had not been passed. 15. Further a careful reading of section 6A this Act make it clear that where any Central Act or Regulation made after the commencement of this Act repeals any enactment by which the text of any Central Act or Regulation was amended by the express omission, insertion or substitution of any matter, then, unless a different intention appears, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ble Apex Court took a view that in majority of the cases, this would cause great public mischief, and that the decision in Fibre Board case was therefore clearly delivered by their lordship for the public good, being, at the least reasonably possible view and that no aspect of the question at their hand was remained unnoticed in Fibre Board Case.(emphasis added by us) 19. With the aforesaid legal back ground and with utmost regard to the decision of coordinate bench the coordinate bench relied by ld AR for the assessee in Texport Overseas (supra), we have noted that the bench was not having the benefit of the latest judgment of the Hon ble Supreme Court in the matter of Fibre Boards P. Ltd [(2015) 52 taxmann.com 135] as well as in the matter of M/s. Shree Bhagwati Steel Rolling Mills [CANo.4280 of 2007, dt.24.11.2015] which were not brought to the notice of the bench by either of the parties. 20. The Hon ble Supreme Court in these two matters had elaborately discussed the issue of repeal /omission and after relying upon the decision of the coordinate bench had decided the issue that omission will also be repealed and therefore by virtue of section 6 and 6A the action ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision in Royala Corporation Ltd, loses its binding value. 17. As we have already noted that the Hon'ble Supreme Court in the case of Shree Bhagwati Steel Rolling Mills again reiterated that repeal would include repeal by way of an express omission. The Supreme Court further held that the decision in Fibre Boards Private Limited clarifies the law in holding than an omission would amount to repeal. As a result, the provisions of Sec. 6 of the General Clauses Act would apply to allow the previous operation of the provision so omitted or anything duly done or suffered thereunder, and such a view is reasonable and for the public good. 18. At the coast of repetition we may note that the Hon ble Supreme Court in the matter of Fibre Board (supra) and Bhagwati Steel Rolling (supra) had elaborately reproduced the paragraphs of General Finance Co., (supra) and also the earlier two judgments relied in General Finance Co., (supra), namely Rayala Corporation P. Ltd and Kolhapur Cane Sugar Works Ltd, and observed that even the court has not referred the matter to the larger bench. The Hon ble Supreme Court in Fibre Board (supra) and Bhagwati Steel Rolling (supra) had also discus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court is in the knowledge of the legal practitioner. We instead of going in further discussions are of the view that in view of the decision of Hon ble Apex Court in Fibre Boards (P) Ltd (supra), the word repeal includes omission . Thus, we do not find any merit in the objection raised by the ld. AR for the assessee which we are rejecting, being without any merit and held that appeal filed by the revenue with in currency of the sub-section 2A of Section 253 of the Act, is valid. 6.3 Thereafter, observed that decision rendered by coordinate bench of Bangalore Tribunal as well as upheld by the Hon ble Karnataka High Court in case of Texport Overseas Pvt. Ltd. cited (supra) to be followed. Further, the clause [aa] of section 139[9] of the Act came to be inserted by Finance Act, 2013 with effect from 01/06/2013 and later, the Finance Act, 2016 with effect from 01/04/2017 has omitted the said clause. 6.4 We note that there is an omission of the aforesaid clause [aa] to Explanation to sub-section [9] of section 139 of the Act, by the Finance Act 2016, w.e.f. 01/04/2017, without any saving clause for any actions taken during the period the said provision was in force. Thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led her return of income on 25.8.2016 itself. 8. 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. 9. Next common ground in these two appeals i.e. ITA No.1145/Bang/2022 for the AY 2010-11 ITA No.1112/Bang/2022 for the AY 2012-13 in the case of Shri Reddy Veeranna is that the ld. AO has erred in computing the interest u/s 234B of the Act without appreciating that the interest u/s 234B(1) of the Act has been already levied till the date of processing the return u/s 143(1) of the Act and in the impugned order, interest u/s 234B(3) of the Act is to be attracted on enhanced taxation determined in the reassessment. From the date of processing u/s 143(1) of the Act till the date of passing the assessment order having rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the AY 2015-16 in the case of Smt. Reddy Sangeetha, the assessee has raised one more ground that the ld. AO has erred in computing the interest u/s 234B of the Act without giving credit to the self-assessment tax paid by the assessee on 24.12.2015. 12.1 After hearing both the parties, we direct the ld. AO to give credit to the self-assessment tax paid, if any on 24.12.2015 while computing the interest u/s 234B of the Act. 13. In the result, the appeal of the assessee in ITA No.1111/Bang/2022 for the AY 2015-16 in the case of Smt. Reddy Sangeetha is partly allowed. 14. Next ground in ITA No.1113/Bang/2022 for the AY 2014-15 in the case of Shri Reddy Veeranna is with regard to disallowance of loss of Rs. 8,62,27,931/- made by ld. AO being the business loss incurred by the assessee holding that the same was merely a paper loss. 14.1 Facts of the case are that during assessment proceedings it was observed by the AO that the assessee had set of his income of Rs 9,19,66,584/- from profession against business loss of Rs 8,62,27,931/-. The said business loss was stated to be on account of sale and purchase rights on certain land. The AO noted that the assessee was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,51,89,062/- (so average cost per acre at Rs 1,05,15,385/-). The land was sold by SIDPL to MDPL for Rs 46,56,00,000/-. As such the assessee worked out his own loss at Rs 8,62,27,931/-. 14.3 In this regard, the ld. CIT(A) observed that the assessee had only taken over the rights and interests of EREPHPL in SIDPL. So he had just substituted himself in the books of SIDPL against EREPHPL, which was earlier lender to SIDPL. As regards the sale of land, the transaction was between SIDPL (a separate legal entity) and MDPL; and any profit or loss arising out of that transaction could that be of SIDPL and not that of the assessee. So he decided that the ld. AO is correct in holding that the assessee has just created a paper loss in his books of account with the purpose of evading the tax due from him. As an investor in SIDPL, by way of substituting EREPHPL, the assessee could have been eligible for interest on his investments, if so provided by the terms and conditions of loan, or dividend if the investment was by way of procurement of shares but not the losses or profits of the said company as such. Without prejudice to above, the working of cost for determining loss to the SIDPL on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actual obligation, which forced Mr. Reddy Veeranna to buy the land held by SIDPL and he observed that this is a genuine loss on the face of it. However, he observed that there was no reason to Mr. Reddy Veeranna to nominate MDPL as buyer on his behalf and incurred a loss. According to ld. A.R., the AO cannot justifiably claim to put himself in the arm chair of the business man and assume the role to decide too much is reasonably the act of assessee so as to maximize income of the assessee from business. 15. The ld. D.R. relied on the order of the lower authorities. 16. We have heard the rival submissions and perused the materials available on record. The contention of the assessee s counsel is that assessee 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. In 2005, EREPHPL SIDPL entered into an MoU. As per this MoU, EREPHPL had advanced Rs. 54 crores to SIDPL for identification of loss for purchase. Shri Reddy Veeranna signed as a Director of SIDPL of the said MoU. Since SIDPL could not fulfill its obligation towards EREPHPL, the rights on the land held by SIDPL were trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 17. Next ground in ITA No.1146/Bang/2022 for the AY 2015-16 is with regard to addition of Rs. 2,76,31,482/- u/s 28(iv) of the Act. 17.1 Facts of the case relate to the common issue of the action of the AO in making an addition of Rs. 2,76,31,482/-. In brief, it was observed by the AO that during search in the case of M/s Reddy Veeranna Construction (P) Ltd (RVCPL), wherein the assessee was a Managing Director, physical cash balance of Rs 1,63,370/- only was found whereas the books of account reflected cash in hand at Rs 17,27,94,852.12/-. No explanation to the above said discrepancy was provided during search either by the assessee or General Manager or Director of the said company. During assessment proceedings RVCPL claimed that it had placed the differential amount of Rs 17,26,31,482/- at the disposal of its MD (the assessee) for the purpose of identifying land for a project and it had accordingly reduced an amount of Rs 14.5 crores from outstanding amount due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d amount to income in his hand either as salary or as business/profession income. For the above reasons, the ld. CIT(A) upheld the action of the AO in making an addition of Rs. 2,76,31,482/- and dismissed the grounds. 18. We have heard the rival submissions and perused the materials available on record. In this case, there was search in the case of Mr. Reddy Veeranna u/s 132 of the Act wherein cash balance was found as per cash book of RVCPL at Rs. 17,26,31,482/- .The investigating authority questioned the General Manager, Director and the Managing Director of the RVCPL. Similarly, there was search in the case of Reddy Veeranna Constructions Pvt. Ltd. and they stated that a sum of Rs. 14.5 crores has been handed over to Mr. Reddy Veeranna for the purpose of venturing of the land for only Solar Energy, thus, there was a difference of Rs. 2,76,31,482/-. This amount has been considered by the ld. AO as income u/s 28(iv) of the AO in the hands of assessee. Alternatively, he also observed that it may be considered as income from other sources in the hands of the assessee as present assessee derived benefit of that amount to that extent of an amount of Rs. 2,76,31,482/-. 18.1 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent case. Hence, in our view, in no circumstances, it can be said that the amount of Rs 57,74,064/- can be taxed under the provisions of Section 28 (iv) of the IT Act. 18.3 Similar view has also been laid down in the following judgments: (i) CIT vs. Santogen Silk Mills Ltd. [(2015) 57 taxmann.com 208 (Bombay HC)] (ii) CIT vs. Xylon Holdings (P.) Ltd. [(2012) 26 taxmann.com 333 (Bombay HC)] (iii) Ravinder Singh vs. CIT [(1993) 71 Taxman 336 (Delhi HC] (iv) Mahindra Mahindra Ltd. vs. CIT /(2003) 128 Taxman 394 (Bombay HC)] (v) DCIT vs. Tosha International Ltd. [(2008) .116 TTJ 941 (Delhi 'Tribunal)] 18.4 Being so, the 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. 19. Next ground in ITA No. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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