TMI Blog2013 (9) TMI 194X X X X Extracts X X X X X X X X Extracts X X X X ..... or making of requisition as the case may be the assessment u/s 153A would be in the nature of reassessment. Thus, the legislature has carved out the nature of assessment u/s 153A as assessment or reassessment in the respective situation. Since the assessment was completed vide assessment order dated 7.11.2007 prior to the date of initiation of search on 15.11.2007. Therefore, this case falls under the category of reassessment u/s 153A. - following the decision in Pratibha Industries Ltd (2012 (12) TMI 760 - ITAT MUMBAI) - Decided against the assessee. Disallowance u/s 14A of the Income Tax Act – Held that:- Rule 8D is not applicable for the Assessment Year under consideration in view of the decision of the Hon'ble jurisdictional High Court in the case of Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] - Therefore, the disallowance made by the Assessing Officer in the reassessment proceedings u/s 153A by applying rule 8D without detecting any material or record to show that the assessee had incurred any expenditure for earning of the exempt income is not justified – Decided in favor of Assessee. Disallowance of short term capital loss and restr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not get abated u/s 153A. Thus the learned CIT(A) erred in not appreciating that, in the absence of any incriminating material, relooking into legal issues already considered in the original assessment passed before the search is bad in law. 2. Disallowance of Rs 3.77,803/- u/s 14A. On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the disallowance of Rs 3,77,803/- made u/s 14A vide Rule 8D(2)(iii) {calculated @ 0.5% of average investments/ without appreciating that the expenses debited to the profit and loss account are incurred for the purpose of the business income. Thus the disallowance being bad-in-law needs to be deleted. 3. Disallowance of short term capital loss of Rs 54,41,911/-. On the facts and circumstances of the case and in law, the CIT(A) erred in disallowing short term capital loss of Rs 54,4 1 ,911/- not claimed by the appellant. The appellant has included the said item in its books of account as a part of cost of Biocon shares aggregating to Rs.21,201,299. Thus the disallowance being bad in law needs to be deleted. 4. Restricting deletion of addition u/s 115U to Rs 1,03,17,477/-. On the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has further submitted that the additions made by the Assessing Officer in the assessment order passed u/s 143(3) r.w.s 153A are not based on any seized material found during the search. Therefore, the Assessing Officer has no jurisdiction to reopen the completed assessment u/s 143(3) by invoking the provisions of sec. 153A. When the additions made in the assessment passed u/s 153A are not based on any seized material, then the assessment is not sustainable in view of the decision of the Special Bench of the Tribunal in the case of All Cargo Global Logistics Ltd. v. Dy.CIT [2012] 137 ITD 287 4.1 On the other hand, the ld DR has submitted that as per the provisions of sec. 153A, the Assessing Officer bound to assess or reassess the income for each assessment year falling with six Assessment Years immediately preceding the Assessment Year relevant to the previous year in which search took place. In support of his contention, he has relied upon the decision of the Hon'ble Delhi High Court in the case of CIT v Anil Kumar Bhatia . The ld DR has further submitted that in the original assessment, the Assessing Officer has not considered the issue of disallowance u/s 14A as well as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment order in respect of each of the six assessment years, in which both the disclosed and the undisclosed income would be brought to tax. 20. A question may arise as to how this is sought to be achieved where an assessment order had already been passed in respect of all or any of those six assessment years, either under Section 143())(a) or Section 143(3) of the Act. If such an order is already in existence, having obviously been passed prior to the initiation of the search /requisition, the Assessing Officer is empowered to reopen those proceedings and reassess the total income, fating note of the undisclosed income, if any unearthed during the search. For this purpose. the fetters imposed upon the Assessing Officer by the strict procedure to assume Jurisdiction to reopen the assessment under Sections 147 and 148, have been removed by the non obstante clause with which such section (1) of Section 153A opens. The time-limit within which the notice under Section 148 can be issued as provided in Section 149 has also been made inapplicable by the non obstante clause. Section 151 which requires sanction to be obtained by the Assessing Officer by issue of notice to reopen t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer to determine the total income of the assessee in which the undisclosed income would also be included, but in cases where the assessment or reassessment proceedings have already been completed and assessment orders have been passed determining the assessee's total income and such orders are subsisting at the time when the search or the requisition is made, there is no question of any abatement since no proceedings are pending, in this latter situation, the Assessing Officer will reopen the assessments or reassessments already made (without having the need to follow the strict provisions or complying with the strict conditions of Sections 147, 148 and 151} and determine the total income of the assessee. Such determination in the orders passed under Section 153A I would be similar to the orders passed in any reassessment, where the total income determined in the original assessment order and the income that escaped assessment are clubbed together and assessed as the total income. In such a case, to reiterate, there is no question of any abatement of the earlier proceedings for the simple reason that no proceedings for assessment or reassessment were pending since they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be, shall abate. Therefore, the assessment u/s 53A in respect of those Assessment Years which stand abated because of the reason of pending on the date of initiation of search or requisition shall be the original/first assessment. In the second category, where the assessment or reassessment has already been completed on the date of initiation of search or making of requisition as the case may be the assessment u/s 153A would be in the nature of reassessment. Thus, the legislature has carved out the nature of assessment u/s 153A as assessment or reassessment in the respective situation. 5.5 In the case before us, since the assessment was completed vide assessment order dated 7.11.2007 prior to the date of initiation of search on 15.11.2007. Therefore, this case falls under the category of reassessment u/s 153A. 5.6 Similar view has been taken by the coordinate Bench of this Tribunal in the case of Pratibha Industries Ltd (supra). The relevant part of the findings of the Tribunal in paras 54 to 56 are as under: "54. When we read section 153A along with the observations made in Anil Kumar Bhatia (supra) and in All Cargo (supra), we are of the opinion that the AO was correct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 14A. 6.1 During the assessment proceedings u/s 153A, the Assessing Officer noticed that the assessee has claimed exempt income on account of dividend income to the tune of Rs. 7,98,854/-. The Assessing Officer asked the assessee as to why the expenses attributable to the earning exempt income should not be disallowed. In response, the assessee submitted that it had not claimed any expenses under any head of income and therefore, no disallowance is called for u/s 14A. The Assessing Officer did not accept the contention of the assessee and disallowed a sum of Rs. 3,77,803/- under sec. 14A by applying Rule 8D. 6.2 On appeal, the Commissioner of Income Tax(Appeals) has confirmed the disallowance made by the Assessing Officer. 7. We have heard the rival submissions and considered the relevant material on record. At the outset, we note that rule 8D is not applicable for the Assessment Year under consideration in view of the decision of the Hon'ble jurisdictional High Court in the case of Godrej Boyce Mfg. Co. Ltd. v. Dy. CIT [2010] 328 ITR 81. Therefore, the disallowance made by the Assessing Officer in the reassessment proceedings u/s 153A by applying rule 8D without detecting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,911/-and the balance addition of Rs. 1,03,17,477/- has been deleted. Thus, both the assessee as well as the revenue are aggrieved by the order of the Commissioner of Income Tax(Appeals) on this issue. 9. Before us, the ld AR of the assessee has submitted that the assessee has acquired units in India Value Fund (IVF), a venture capital fund registered with SEBI and managed by GW Capital Pvt Ltd. He has further submitted that as per the provisions of sec. 115U and sec 10(23FB) of the Act, IVF is only a pass through arrangement. IVF has purchased equity shares of Biocon and also received its equity shares as bonus. IVF proposed to divest a part or whole of its stake in Biocon within 3 months of listing, depending upon market condition. Accordingly, IVF gave option to all its investors to either receive its attributable share of net proceeds as divested investment in Biocon shares in cash or to receive its attributable share of investment in Biocon. The assessee and some other investors opted to receive their attributable share of Biocon shares and accordingly, IVF transferred 2.43,181 equity shares to those investors. The assessee received 53,771 equity shares of Biocon as transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital gains in the hand of the assessee. He has referred the order of the Assessing Officer and submitted that distribution of shares as well as other amount to their investors by IVF is in the form of a return received by the assessee on investment and therefore, the same has to be assessed as short term capital gain in the hand of the assessee. 10. We have considered the rival contention as well as the relevant material on record. As we have mentioned in the foregoing paragraphs, the assessee acquired the units in IVF, a venture capital fund registered with SEBI which is managed by GV Capital P Ltd . As per the proposal of the IVF the assessee opted for attributable shares of Biocon to be transferred by IVF and accordingly, 53711 equity shares of Biocon were transferred to the assessee. Apart from the shares, the assessee also received its shares in capital loss suffered by IVF due to sale of Biocon shares. The total amount which the assessee received including the value of the transfer shrares of Biocon were given in the form 64 as under; Sr. No Particulars Appellant's share Amount Rs. 1 Notional value of transferred shares of Biocon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arising or to receive by a person out of investment made in venture capital company or venture capital fund shall be chargeable to tax in the same manner as if such person had made investment directly in the venture capital undertaking. Thus, as per section 115U, trustee venture capital Company or venture capital fund is given the status of pass through vehicle for the purpose of the treatment of the income received on account of investment made in the venture capital undertaking. Meaning thereby, a person who makes investment in the Venture Capital Company or venture capital fund and earned the income out of such investment, such income shall be treated as if the investment was directly in the venture capital undertaking and venture capital fund or Venture Capital Company, is only a pass through vehicle. 11. Chapter XII-F and section 115U have been introduced in the statute vide Finance Act 2000 for making VCF/VCC as a pass through vehicle and taxing investors as if they had received income directly from the Venture Capital undertaking. This section has been introduced corresponding to the insertion of new clause (23FB) in section 10 being an enabling provision for taxing invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduction of sec. 115U is to exempt the income received by investor from VCC or VCF, then the provisions should have found place u/s 10 in a similar manner as provided under clause 23FB of section 10. 12. In view of the above discussion, we are of the considered opinion that the income received by the assessee from IVF is taxable in the manner as prescribed u/s 115U and discussed above. Since the Assessing Officer has assessed the income as short term capital gain; therefore, the claim of the assessee as short term capital loss has to be allowed. Accordingly, we find merit and substance in the alternative plea of the ld AR regarding the claim of short term capital loss against the short term capital gains. 13. Before parting with the issue, we make it clear that having held that initiation of proceedings u/s 153A is valid, the Assessing Officer, cannot resort to a roving and fishing enquiry to find out whether any income has escaped assessment during the reassessment proceedings when there is no incriminating material found or seized during the course of search action u/s 132. 13.1 In the case in hand the income, which is otherwise assessable to tax was escaped assessment and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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