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2015 (10) TMI 2021 - ITAT VISAKHAPATNAM

2015 (10) TMI 2021 - ITAT VISAKHAPATNAM - TMI - Scope of assessments made u/s 153A - Held that:- The only reason for initiating the proceedings u/s 153C of the Act is the admission made in the sworn statement, which has been later retracted by the assessee. The materials found during the course of survey operations conducted in the hands of lessee, in our view, could not also be placed reliance, since the lessee himself has denied the entries made in the loose sheets found during the course of s .....

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iscussions, we set aside the order of the Ld CIT(A) passed for AY 2002-03 to 2007-08 and quash the assessment orders passed for these years. - Decided in favour of assessee.

Agricultural income declared by the assessee was assessed under section 68 of the Act by rejecting the claim of availability of agricultural activity - Held that:- In the case of A.T. Rayudu, the father of the assessee, we have directed the AO to disallow 25% of the agricultural income and we had followed the deci .....

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ssing officer by pointing out certain defects. In respect of the jewelleries claimed to belong to the sister of Shri Avnash, the same was rejected on the reasoning that the customs documents were not available. Similarly the claim made by his wife was rejected on the reasoning that the parents and grant parents of Avnas’s wife did not furnish wealth tax returns. However, in our view, what is required to be seen is –Whether the assessee could be considered to have made investment in jewellery out .....

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T(A) on this issue and direct the AO to delete the said addition. - Decided in favour of assessee.

Addition towards deemed dividend under section 2(22)(e) - Held that:- We notice from the details of loans availed by the sister concerns that the personal guarantee has been given by the assessee and also by the parents of the assessee. In some cases, the sister concerns have also provided guarantee. Hence, it is not really a case, where the assessee alone has given the personal guarante .....

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amount of advances received by the assessee - Decided in favour of assessee for statistical purposes.

Enhancement of rental income - Held that:- We have noticed that the loose sheets have been impounded from lessee and according to Ld A.R, the lessee himself has not accepted the contents of the loose paper. In our view, it is the lessee who has to first rebut the contents of the impounded materials. Only if it is conclusively established that the lessee has paid the rent as stated in .....

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be sustained. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to delete the addition made towards rental income. - Decided in favour of assessee. - I.T.A. Nos.313 to 319/Viz/2014, I.T.A. Nos.71 TO 77/Viz/2014, I.T.A. Nos.304 to 310/Viz/2014 - Dated:- 15-9-2015 - SHRI D.MANMOHAN, VICE PRESIDENT AND SHRI B.R.BASKARAN, ACCOUNTANT MEMBER For The Appellant : Shri G.V.N. Hari, Adv For The Respondent : Shri B. Narasimha Sharma, Sr. Standing Counsel and Shri G.Gur .....

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appeals filed by Shri A.T. Rayudu as lead case. The facts relating to the case of Shri A.T. Rayudu are stated in brief. The revenue carried out search and seizure operations under section 132 of the Act in the hands of the assessee on 04.12.2007. Consequent thereto, the assessee filed returns of income under section 153A of the Act for the years under consideration, which were taken up for scrutiny by issuing notices under section 143(2) of the Act. The Assessing Officer completed the assessment .....

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luded assessments, i.e., assessments which were not abated, only on the basis of seized materials. The provisions of sec. 153A of the Act read as under:- Assessment in case of search or requisition. 153A (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st .....

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return required to be furnished under section 139; (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made: Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years: Provided further that assessment or reassessment, if any, relating to any assessment year falling wi .....

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red to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made. (2) If any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any .....

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nt, if any, pertaining to the six assessment years pending as on the date of initiation of search shall abate. In the instant case, the assessment or reassessment pertaining to assessment years 2002-03 to 2006-07 were not pending on the date of initiation of search and hence the assessment or reassessment already concluded for these years shall not abate. Hence the assessment pertaining to AY 2002-03 to 2006-07 can be classified as concluded assessments . The Learned CIT(A) has discussed about t .....

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sakhapatnam Vs. JCIT, Central Circle, Visakhapatnam in ITA No.494/v/2007 d. All Cargo Global Logistics Limited vs. Dy.Commissioner of Income Tax 137 ITD 287 (Mum) (SB) Accordingly, it was contended that the additions made by the assessment relating to agricultural income and deemed dividend were not based upon any seized material and hence they are liable to be deleted. 5. The Learned CIT(A) noticed that the returns of income filed by the assessee for assessment years 2002-03 to 2006-07 have bee .....

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sue. 6. Learned standing counsel Shri B. Narasimha Sharma, the Learned Standing counsel appearing on behalf of the revenue, commenced his arguments explaining the methodologies prescribed under the Income tax Act for assessing the income of an assessee. He submitted that under the Income-Tax Act, various methodologies have been provided for assessing the total income of an assessee. First of all, the assessee is required to file his return of income disclosing all sources of income in terms of p .....

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tion about suppression of income by any person. Hence the Act provides for search and seizure proceedings in sec. 132 of the Act in order to unearth such kind of undisclosed income of an assessee. He submitted that the Income-Tax Act earlier provided a special procedure for assessment of search cases under chapter XIV-B of the Act (called block assessment ). According to the said chapter, the undisclosed income found during the course of search was assessed separately. Hence the disclosed income .....

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er, the said scheme of block assessment has been held to be not applicable for the search initiated under section 132 of the Act after 31st May 2003 as per the provisions of section 158BI of the Act. 7. The Learned Counsel submitted that the search in the hands of the assessee took place on 4.12.2007 and hence the special procedure prescribed under chapter XIV-B is not applicable. The Income-Tax Act provided separate assessment procedure in cases of search initiated after 31st of May, 2003 and a .....

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ng officer shall assess or reassess the total income in respect of each of the assessment year falling within such six assessment years. The Learned Standing Counsel submitted the said procedure is in contrast with the procedure that had been prescribed for assessment made under erstwhile Chapter XIV-B, where the assessing officer was required to pass a single assessment order for the block period. Under sec. 153A of the Act, the assessing officer is required to assess or reassess total income o .....

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ndisclosed income, whereas under the special procedure prescribed in the erstwhile Chapter XIV-B of the Act, the Assessing Officer was required to compute Undisclosed income on the basis of seized material only and further he was required to pass a single assessment order for the block period assessing undisclosed income only. Where as in the scheme prescribed under sec. 153A of the Act, the Assessing Officer is required to pass separate assessment order for each of the assessment years and furt .....

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e, availability of materials etc. are not applicable for the assessments initiated under section 153A of the Act, since the provisions of sec. 153A overrides the provisions of sec. 147 & 148 of the Act. Further the Act does not prescribe any condition in sec. 153A that the assessment should be based on the materials seized during the course of search only. Accordingly he submitted that the assessment proceedings under section 153A of the Act shall be automatically triggered once the search i .....

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. The Act has provided so in sec. 147 of the Act, for the reason that the assessing officer is required to assess the total income of the assessee in the re-opened assessment also. He further submitted that the same analogy should be extended to the assessment made under section 153A of the Act also, since the very object of search is to unearth the undisclosed income or income which had earlier escaped the assessment. Accordingly he submitted that the assessing officer is very much entitled to .....

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eized materials only are against the scheme of the provisions of sec. 153A of the Act. The Learned Standing counsel reiterated that the total income shall consist of both income disclosed by the assessee and the income undisclosed and/or escaped the assessment. Accordingly he submitted that the existence of incriminating material should not be considered as a pre-condition for assessing any escaped income while determining total income under section 153A of the Act. Accordingly, the Learned A.R .....

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60% (treating it as part of Computers ) and it was also allowed in the original assessment and in that case, can the Assessing Officer restrict the depreciation to 15% (rate applicable to machineries) in the 153A proceeding. The Learned A.R submitted that since it was a mistake that came to the notice of the Assessing Officer during the course of assessment proceedings and since it has resulted in escapement of income, it can very well be corrected, even if no material relating to the above said .....

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should not be taken support of, since they have been rendered without considering the first principles of taxation submitted by him. 11. The Learned Standing Counsel invited our attention to the decision rendered by Hon ble jurisdictional Andhra Pradesh High Court in the case of Gopal Lal Bhadruka Vs. Dy. Commissioner of Income Tax (2012) 346 ITR 0106 wherein the jurisdictional High Court has held that the conditions prescribed under chapter XIV-B of the Act is not applicable to the proceedings .....

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ation, no such limitation is found in so far as section 153A/153C of the Act are concerned. Therefore, it follows that for the purposes of section 153A/153C of the Act the Assessing Officer can take into consideration material other than what was available during the search and seizure operation for making an assessment of the undisclosed income of the assessee. The Learned Standing Counsel submitted that the decision rendered by jurisdictional High Court is binding on this bench. The Learned Co .....

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al 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 reassessmen .....

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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 had already culminated in assessment or reassessment orders when the search was initiated or the requisition was made. In the light of our discussion, we find it difficult to uphold the view of the Tribunal expressed in Para 9.6 of its order that since the returns of income filed by the assessee for all the six years under consideration .....

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dered by Hon ble Allahabad High Court in the case of CIT Vs. Raj Kumar Arora (2014) 367 ITR 517 wherein the High Court has made following observations: Consequently, we are of the opinion that in cases where the assessment or reassessment proceedings have already been completed and assessment orders have been passed, which were subsisting when the search was made, the assessing officer would be competent to reopen the assessment proceeding already made and determine the total income of the asses .....

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Income Tax (ITA No.38/2014 dated 25.7.2014) wherein following observations have been made by Hon ble High Court: Therefore, it is clear even if an assessment order is passed under section 143(1) or 143(3) of the Act, the Assessing Officer is empowered to reopen those proceedings and reassess the total income taking note of the undisclosed income, if any, unearthed during the search. After such reopening of the assessment, the Assessing Officer is empowered to assess or reassess the total income .....

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riod of six assessment years referred to in the aforesaid sub-section on the date of initiation of the search under section 132, the said proceeding shall abate. If such proceedings are already concluded by the assessing officer by initiation of proceedings under Section 153A, the legal effect is the assessment gets reopened. The block assessment roped in only the undisclosed income and the regular assessment proceedings were preserved, resulting in multiple assessments. Under Section 153A, howe .....

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etters. This means that there can be only one assessment order in respect of each of the six assessment years, in which both the disclosed and the undisclosed income would be brought to tax. When once the proceedings are initiated under Section 153A of the Act, the legal effect is even in case where the assessment order is passed it stands reopened. In the eye of law there is no order of assessment. Re-opened means to deal with or begin with again. It means the Assessing Officer shall assess or .....

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rnataka High Court has been followed by the Bangalore bench of Tribunal in the case of Nandini Deluxe Vs. ACIT (2015)(167 TTJ 0746). The Learned Standing counsel submitted that the decision rendered by the Special bench in the case of All Cargo global logistics Ltd (supra) is not correct law. He invited our attention to paragraph 58 of the order passed by the Special Bench, wherein it had answered the Question No.1 formulated by it. For the sake of convenience, we extract below the relevant ques .....

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years separately; b) In other cases, in addition to the income that has already been assessed, the assessment u/s 153A will be made on the basis of incriminating material, which in the context of relevant provisions means - (i) books of account, other documents, found in the course of search but not produced in the course of original assessment, and (ii) undisclosed income or property discovered in the course of search. The Learned standing counsel submitted that the decision rendered by the Sp .....

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, referred above. Accordingly, he submitted that the assessing officer is empowered to assess or reassess the total income of the assessee on the basis of material or information available with him even if no seized material relating to the same are found during the course of search. The Ld Standing Counsel also placed his reliance on the decision rendered by the Jurisdictional High Court in the case of Rajnik & Co. (251 ITR 561) and submitted that the extrapolation of income on the basis of .....

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ong with the appeal of another assessee named Continental warehousing corporation (ITA No. 523 of 2013) and also reported in the name of later. The Ld A.R submitted that the Hon ble Bombay High Court has also considered the decision rendered by the Hon ble Delhi High Court in the case of Anil Kumar Bhatia (supra) and the Hon ble Karnataka High Court in the case of Canara Housing Development Corporation (supra) and has observed in clear terms that the findings given in the above said decisions do .....

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he Special bench and finally concluded that the understanding of the Special Bench on the legal provision is not perverse nor does it suffer from any error of law apparent on the face of record (Para 31). 13. The Ld A.R further submitted that the assessment is made u/s 153A of the Act in pursuance of search and hence the scope of provisions o section 153A and also the scope of assessment made there under should be understood in the context of search proceedings & provisions of sec. 132 only. .....

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ue notices under section 153(1)(a) and assessee or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made. Thus, the crucial words search and requisition appear in the substantive provision and the provisos. That would throw light on the issue of applicability of the provision. It being enacted to a search or requisition that its construction would have to be accordingly. T .....

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he assessments / reassessments, which has already been concluded. The Hon ble Bombay High Court also referred to the Circular No.8 of 2003 dated 18-9-2003 (263 ITR (St.) 61 at 107) issued by the CBDT, wherein the CBDT has clarified that on initiation of proceedings under section 153A, the proceedings pending in appeal, revision or rectification proceedings against finalized assessment / reassessment shall not abate. In Murli Agro products, the assessing officer revisited the deduction allowed u/ .....

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A.O. while passing the independent assessment order under section 153A read with section 143(3) of the I.T Act could not have disturbed the assessment/reassessment order which has attained finality, unless the materials gathered in the course of proceedings under section 153A of the Income tax Act establish that the reliefs granted under the finalized assessment/reassessment were contrary to the facts unearthed during the course of 153A proceedings. 14. The Ld A.R submitted that the Hon ble Del .....

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ress no opinion as to whether Section 153A can be invoked in such a situation. That question is therefore left open. The Ld A.R further submitted that the decision of Hon ble Andhra Pradesh High Court in the case of Gopal Lal Bhadruka (supra) was rendered in the context of facts prevailing in that case. The assessee therein was power of attorney holder of the firm named Ahura Holdings and the said firm was engaged in real estate business. The search revealed receipt of on-money on sale of eight .....

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und during the course of search in the form of eight sale deeds and in the form of replies given by Gopal to the questions posed to him with regard to receipt of on-money were adequate to enable the AO to come to an informed conclusion in this regard. Accordingly, the High Court held that the appreciation of material is within the domain of the AO and this does not lead to any substantial question of law, unless the conclusions arrived at are perverse. Accordingly, the Learned A.R contended that .....

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o.368 of 2014) (b) M/s Hyderabad House Pvt Ltd (ITTA No.266 of 2013) (c) M/s AMR India ltd (ITTA No.357 /v/2014) He submitted that the Tribunal, in all the three cases, had taken the view that the additions can be made in the case of concluded proceedings, only on the basis of materials found during the course of search as pronounced in the case of All Cargo Global logistics Ltd by the Special bench. 16. We have heard the rival contentions on the legal issue and perused the record. With regard t .....

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t in the case of M/s Canara Housing Development Corporation supports the contentions of Ld Standing Counsel:- …..The condition precedent for application of Section 153A is there should be a search under section 132. Initiation of proceedings under section 153A is not dependent on any undisclosed income being unearthed during such search. The Ld Standing Counsel further submitted that the object of the provisions of sec. 153A is akin to the object behind the re-opening of assessment u/s 14 .....

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s empowered to assess or reassess all the income that comes to his notice, since the AO is required to determine the total income of the assessee in respect of each of six assessment years. On this proposition of law, the Ld Standing Counsel vehemently placed reliance on the following case law:- (a) CIT Vs. Anil Kumar Bhatia (2013)(352 ITR 493)(Delhi) (b) CIT Vs. Raj Kumar Arora (2014)(367 ITR 517)(All) (c) M/s Canara Housing Development Company Vs. DCIT (ITA 38/2014 dated 25th July, 2014). A ca .....

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go-by. Under section 153A, the AO is obliged to issue notices calling upon the searched person to furnish returns for the six assessment years immediately preceding the assessment year relevant to the previous year in which the search was conducted or requisition was made. (c) The assessing officer is empowered to assess or reassess the total income of the aforesaid years in separate assessment orders, meaning thereby, there can be only one assessment order in respect of each of the six assessme .....

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have been removed by the non obstante clause prescribed in sec. 153A(1). The total income determined in the original assessment order and the income that escaped assessment are clubbed together and assessed as the total income. There is no question of abatement of those proceedings, since the proceeding for assessment or reassessment of those years was pending at the time search was initiated. (e) If any assessment or reassessment proceedings are pending at the time when the search is initiated .....

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e Karnataka High Court has expressed the view that the condition precedent for application of Section 153A is there should be a search under section 132. It was further held that initiation of proceedings under section 153A is not dependent on any undisclosed income being unearthed during such search. It was further held by the Hon ble Karnataka High Court as under:- When once the proceedings are initiated under Section 153A of the Act, the legal effect is even in case where the assessment order .....

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the search, in order to find out what is the total income of each year and then pass assessment order. It can be noticed that the Special bench in the case of All Cargo Global logistics Ltd (supra) has classified the assessment years covered by sec. 153A of the Act into two categories and taken the view that the assessments which are not pending as on the date of initiation of search need not be re-opened. In paragraph 55(d) of its order, the Special bench has observed as under:- …..Readi .....

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The above said interpretation given by the Special bench is in contradiction to the interpretation made by Hon ble Delhi High Court and Hon ble Karnataka High Court. It is well settled proposition that the decision rendered by a High Court can be preferred over the decision rendered by the Special bench. In view of the decision rendered by Hon ble Delhi and Karnataka High Courts, we are inclined to agree with the contentions of the Ld Standing Counsel that the provisions of sec. 153A shall be tr .....

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nts u/s 153A of the Act, irrespective of the fact that the search operation has revealed any undisclosed income or not. We notice that the Ld Standing counsel seeks to canvass this proposition of law in respect of all the six assessment years. According to Ld A.R, the decision rendered by Hon ble Karnataka High Court supports the said proposition. However, in our view, the propositions laid down by the various High Courts, on which the Ld Standing Counsel placed heavy reliance, also do not suppo .....

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he second proviso to sec. 153(1) that the assessment or reassessment pending shall abate. The Courts have held that the assessments, which stood concluded on the date of initiation of search, shall not abate. In view of the dichotomy prescribed by the Act, the Special bench of Tribunal has interpreted the scope of provisions of sec. 153A as under in respect of the assessment years which abate and which do not abate:- a) In assessments that are abated, the AO retains the original jurisdiction as .....

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y discovered in the course of search. The above said conclusions reached by the Special Bench has since been approved by Hon ble Bombay High Court, vide its order dated 21-04-2015 passed in the cases of Continental warehousing corporation (ITA No.523 of 2013) and All Cargo global logistics Ltd (ITA No.1969 of 2013). The Hon ble Bombay High Court, in paragraph 30 of its order, has clearly held that the finalized assessment cannot be touched while exercising the power under section 153A of the Act .....

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s original jurisdiction gets merged with 153A proceedings. 19. However, since the assessments which are not pending on the date of initiation of search would not abate, those assessments will remain intact and they shall get re-opened by virtue of the provisions of sec. 153A of the Act. At this stage, a question that arises is as to when and how an assessment should be considered as pending as on the date of initiation of search. In this regard, the Ld A.R submitted that the assessments shall no .....

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wherein the Tribunal has observed that after the expiry of time limit prescribed for issuing notice u/s 143(2) of the Act, the assessment cannot be considered to be pending if no notice under that section was issued. We are inclined to agree with the said contentions. Under the scheme of the Act, after filing of return of income, the assessing officer can assume jurisdiction to assess the income by issuing notice u/s 143(2) of the Act. The return of income is accepted as it is, if the AO did no .....

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sidered to be pending as on the date of initiation of search, if the period for issuing notice u/s 143(2) of the Act had expired by the time the search is initiated u/s 132 of the Act and no notice was issued. In such kind of cases, the assessment shall be considered to have become final by operation of law after the expiry of time limit prescribed u/s 143(2) of the Act, if the AO did not issue notice u/s 143(2) of the Act. In the cases where the assessments were not considered to be pending, th .....

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eady assessed and the undisclosed income unearthed during the course of search. With regard to the scope of assessing the total income in respect of concluded assessment, the Hon ble Karnataka High Court has expressed the view that in the re-opened assessment, the assessing authority can take note of income disclosed in the earlier return, any undisclosed income found during search or and also any other income which is not disclosed in the earlier return or which is not unearthed during the sear .....

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can be exercised where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after 31st March, 2003. There is a mandate to issue notices under section 153(1)(a) and assessee or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made. Thus, the crucial words search and requisition appear in the substant .....

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cial words search and requisition appearing in the substantive provision and the proviso would throw light on the issue of applicability of provisions of sec. 153A. Further, the Hon ble Bombay High Court also considered decision rendered by the Hon ble Karnataka High Court, referred above, in paragraph 36 of the order and it has also extracted the relevant observations made by the Hon ble Karnataka High Court. It was further noticed that the Hon ble Karnataka High Court was considering the issue .....

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gh Court are relevant here:- 37. We do not see as to how while allowing the appeal of the assessee and setting aside the order of the Commissioner under section 263 could the judgment be said to be laying down a proposition and as canvassed by Mr. Pinto. True it is that the assessment which has to be made in pursuance of the notice is in relation to the six years. An order will have to be made in that regard. While making the order the income or return of income filed for all these assessment ye .....

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Bombay High Court has upheld the view expressed by the Special Bench in the case of All Cargo Global Logistics Ltd (supra) that in respect of non-abated assessments, the assessment will be made on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search, and undisclosed income or undisclosed property discovered in the course of search. Thus, in a nutshell, in the case of unabated assessments the assessing officer can de .....

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dering the decision rendered by the Hon ble Karnataka High Court also. 21. We further notice that the Hon ble Rajasthan High Court has also expressed identical view in the case of Jai Steel (India) Vs. ACIT (2013)(259 CTR 0281) in the following lines:- To consider the rival submissions made at the Bar in the context of the present case and the substantial question of law framed, the scope of assessment or reassessment of total income under Section 153A(1)(b) and the first and second proviso have .....

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ments have to be taken into consideration while assessing or reassessing the total income under the provisions of Section 153A of the Act. Even in a case where undisclosed income or undisclosed property has been found as a consequence of the search, the same would also be taken into consideration. The requirement of assessment or reassessment under the said section has to be read in the context of Sections 132 or 132A of the Act, in as much as, in case nothing incriminating is found on account o .....

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t has been mentioned in the last paragraph of the judgment that the court has to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi judicial controversies as it must in other spheres of human activity. Our decision is in consonance with this observation. The decision rendered by the Special bench .....

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he following cases:- (a) Sree Lalitha Constructions (ITTA No.368 of 2014) (b) M/s Hyderabad House Pvt Ltd (ITTA No.266 of 2013) (c) M/s AMR India ltd (ITTA No.357 /v/2014) Further we agree with the contentions of the assessee that the decision rendered by the jurisdictional High Court in the case of Gopal Das Bhadruka (supra) have been rendered on the facts prevailing in those cases, since the issue relating to concluded assessments and pending assessments was not before the Hon ble Andhra Prade .....

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aterials found during the course of search. If no incriminating material showing any undisclosed income was found in the case of concluded proceedings, then the question of making any addition does not arise. In that case, the assessing officer should complete the assessment of those years by determining the very same total income that was assessed in the earlier proceeding. 24. In view of the above, we are unable to agree with the contentions of Ld Standing Counsel that the assessing officer wo .....

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r, when two contradictory views have been expressed by the High Courts. In the instant case the Hon ble jurisdictional High Court comes to the support of the assessee in respect of the legal proposition in addition to the the decision rendered by the Hon ble Bombay High Court. Accordingly, we find merit in the contentions of the assessee on the legal issue. 25. Based on this legal proposition as discussed above, we shall examine other issues. We shall first take up the appeal filed by Shri A.T. .....

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med dividend in assessment years 2002-03, 2004-05 and 2006-07. 27. Ld A.R. submitted that the proceedings relating to assessment years 2002-03 to 2006-07 are not pending on the date of initiation of search and hence, they fall under the category of concluded proceedings. He submitted that the AO is entitled to make addition in respect of these years on the basis of incriminating materials found during the course of search. In this regard, ld A.R. furnished a chart showing following details: Part .....

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u/s 143(2) of the Act for scrutinizing the return of income filed by the assessee has expired by the date of initiation of search, provided the notice has not been issued by that date. A perusal of above chart would show that the proceedings of the assessment years 2003-04 to 2006-07 were not pending on the date of initiation of search, since the time limit for issuing notice u/s.143(2) of the Act has expired on the date of initiation of search and notices under that section have not been issue .....

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ed dividend 1586000 - 20312000 12487000 A perusal of assessment orders of these five years would show that the Assessing Officer did not refer to any of the materials found during the course of search for making both type of additions cited above. The basis for making both these types of addition is the information already available in the returns of income filed prior to the date of search. We have already discussed about the scope of 153A assessments in respect of concluded proceedings. Since .....

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ssessment years referred above and direct the AO to delete them. 30. There is no dispute between the parties that the proceedings relating to assessment years 2007-08 and 2008-09 were pending on the date of initiation of search and hence, the said proceedings shall abate by virtue of provisions of section 153A of the Act. For these two years also, the AO has rejected the claim of agricultural income and, accordingly, assessed the same u/s.68 of the Act. The assessee had declared agricultural inc .....

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ssessee herein named Smt. A. Ammaji vs ACIT (ITA No.337 to 343/Viz/2014) and the Tribunal, vide its order dated 21.7.2014 sustained the addition to the extent of 25% of the agricultural income. Accordingly, he prayed that the said order of the Tribunal may be followed in the present case also. Ld D.R., on the contrary, strongly supported the orders passed by the ld CIT(A). He submitted that, during the course of assessment proceedings, the enquiry made by the AO revealed that some of the agricul .....

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case of A Ammaji (supra) and also in the case of M/s. Avinash Estates & Restors Ltd in ITA No.299 to 302/Viz/2014 dated 4.7.2014. In all these cases, the coordinate bench has taken the view that the agricultural income to the extent of 25% can be disallowed, which shall be assessed as income from other sources. Since a uniform view has been taken in other cases falling in the group, we are inclined to follow the same in the present case also. Accordingly, we modify the orders passed by the l .....

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e years requesting the Bench to condone the delay. In the petition, it is stated that the Accountant to whom the job of filing the appeals was entrusted did not pay filing fees and also did not prefer the appeals in time. When it came to the notice of the assessee, it immediately took steps to file the appeals which resulted in a delay of 2 days. 34. We have heard the parties on preliminary issue. Having regard to the submissions made in the petition, we are of the view that there was a reasonab .....

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bsence of incriminating materials. 36. The facts relating to the case are that the assessee company is engaged in the business of construction and letting out of industrial godowns. A search and seizure operation was conducted in the hands of the assessee on 4.12.2007. During the course of search proceedings, the department seized following two documents: a) A letter dated 1.11.2007 written by State Bank of India to the assessee in connection with the proposal for availing term loan of ₹ 2 .....

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RENT PLUS SCHEME With reference to the captioned proposal, we have to advise that for urgent information of the appropriate authority, we request you to arrange to advise us on the following points. a. Submit the Audited Balance Sheet for the financial year 2006-2007. b. On perusal of provisional balance sheet for the ending March 2007, it is observed that the Tangible Net Worth (TNW) as on 31.03.2007 is ₹ 7.64 crores and the Total Outside Liabilities (TOL) is nearly ₹ 45.96 crores. .....

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ount of ₹ 13.50 crores in M/s Usha & Tubes & Pipes Pvt Ltd and also cross investments were observed in its associates. Please advise whether any impact of these investments on ATR Warehousing Pvt. Ltd. Yours faithfully, Sd/- Asst. General Manager b) A document containing audit queries, wherein the auditor had expressed the view that interest of 96 lakhs are to be disallowed, which is extracted below Seized document-ATR/B/2 2/15 dt.4.12.2007 Books of accounts of ATR Warehosuing:31.3 .....

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f 31.5.06. CARE WILL BE TAKEN HOT TO REPEAT THE MISTAKE It is not advisable to show transactions of Park Gusset real estate as a stock in Trade for the reasons that Memorandum does not specifically permit the same Either in A or B objects. Also, in the earlier year it is shown as a fixed assets. Any change in treatment now would attract closer look by Income Tax, Suggested method is to show the same as short term capital gain without Disturbing earlier year accounts. YOU MAY PL DO WHAT EVER YOU .....

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Is there any MOU between two companies before investment?. If so send us a copy. Balance sheet of Usha Tubes as on 31.3.06 and also 31.3.20O7 are required. Whether constitution of board of directors of Usha Tubes is same as ATR or other directors are also involved ? kindly clarify. I am mailing you the scanned copies for your reference. The directors of both the companies are same 3) The source of investment for the above is out of bank loan, Since the main business of the ATR is not that of in .....

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red take over of equity.. 4) IOB Vizag, Account No.2655 - on 3.10.06 bank has debited sum of ₹ 14,31,200 as margin money on LG. What is the transaction?. Did the company issued any letter of guarantee? If so what is the nature and purpose? If not please clarify/we have obtained a Ig to be issued to undertake works of M/s. slumberger which was later canceled. 5) Form No. 8 and 13 2B.12..Q5 charge creation forms - page no 6 II para contain a mention about modification of charge registered in .....

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as per section 58 A of companies act. She is an individual 7) Company has advanced sum of about ₹ 6.85 crores to various parties including sister concern. This would create problems as per section 2(22)(e) of the Act and shall be deemed to be an income in the nature of deemed dividend in the hands of the shareholder and company would be hauled up for non deduction of tax at source on such deemed dividend as per section m of the act. These moneys were Invested to buy the stake in those comp .....

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hat the interest paid on loans is liable for disallowance u/s.36 of the Act. Accordingly, the AO examined the details of advances given to sister concerns and disallowed the interest relating to those advances in all the years. 38. In the appellate proceedings, the ld CIT(A) gave partial relief. The relevant details are tabulated below: Particulars A.Y.2002 -03 AY 2003- 04 AY 2004-05 AY 2005-06 AY 2006- 07 AY.2007- 08 AY 2008-09 Addition made u/s.36 80,000 1710000 1824000 923000 768000 9281000 1 .....

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led to make addition in respect of these years on the basis of incriminating materials found during the course of search. In this regard, ld A.R. furnished a chart showing following details: Particulars A.Y.2002- 03 AY 2003- 04 AY 2004-05 AY 2005-06 AY 2006- 07 AY.2007-08 AY 2008- 09 Date of filing of original return 31.10.2002 24.11.200 3 1.11.2004 31.10.2005 29.11.200 6 15.11.2007 13.10.20 08 Income returned 103323 146186 834910 3651670 6555737 2428010 9777540 Last date for issue of notice u/s .....

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show that the proceedings of the assessment years 2003-04 to 2006-07 were not pending on the date of initiation of search, since the time limit for issuing notice u/s.143(2) of the Act has expired on the date of initiation of search and no notice has been issued. Accordingly, we find merit in the contentions of ld A.R. that addition can be made in respect of these five years only on the basis of incriminating materials found during the course of search. 41. Ld A.R. submitted that the only docume .....

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e on the decision rendered by Hon ble Bombay High Court in the case of Aroni Commercials Ltd vs DICT(2014) 101 DTR (Bom) 244, wherein the Hon ble Bombay High Court has held that tangible material would mean factual material and not inference/opinion on material already in existence. He further submitted that both bank and the auditor have drawn certain inferences or expressed their opinion on the materials already available on record and hence the view expressed by the auditors or the query rais .....

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for giving loans to sister concerns. With regard to the claim of commercial expediency, the Ld A.R submitted that the sister concerns are also engaged in similar line of business and further they have offered their respective immovable properties as collateral securities to the loans availed by the assessee from banks. In this regard, he invited our attention to a chart furnished by him giving the relevant details. Accordingly, he submitted that the disallowance of interest made by the AO in all .....

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year as given from borrowed funds. The assessing officer has not gone by direct nexus method in which case he would have considered for disallowance only those advances for which the immediate source is a borrowed fund. When such is the case, the availability of interest free funds is also to be examined from the Balance sheet of the appellant. As against this, the learned CIT(A) sought to examine this aspect by applying the direct nexus method in a superficial manner. While he ignored the open .....

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disallowance. (Details of the interest free funds are at page nos.268 and 269 of the paper book. ii) Secondly, the learned CIT(A) is not justified in justified in considering the following advances as advances for non-business purposes: a) Amount given to Usha Tubes & Pipes Private Limited ₹ 14,50,00,000 b) Amount given to Pragathi Fertilisers Limited ₹ 3,10,00,000 The above two companies are subsidiary companies of the appellant company as evident from the financial statements, .....

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ly, the appellant explained the purpose for which the advances were given to the sister concerns. The learned C1T(A) did not give due consideration to the following facts: a) That for the loans availed by the appellant company, properties of these sister concerns were offered as collateral security. b) The amounts were advanced to the sister concerns in order to promote the overall growth of the group as a whole which in turn benefits the appellant company as well. In this regard, the appellant .....

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ns. The ld CIT(A) has further examined the claim of availability of interest free funds in each of the assessment years and after recording details of interest free funds, set aside the matter to the file of the AO to examine the claim and take appropriate decision in accordance with law. Accordingly, ld D.R. submitted that there is no infirmity in the orders passed by the ld CIT(A). 44. We have heard the rival contentions and perused the record. Admittedly, in the assessment years under conside .....

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ered by Hon ble Bombay High Court in the case of Aroni Commercials Ltd(supra). The said decision has been rendered in the context of provisions of section 147 of the Act. For reopening of assessment u/s.147 of the Act, the existence of tangible material is one of the primary conditions. So in that context, Hon ble Bombay High court has examined the material that was available with the AO to initiate reassessment proceedings. The material that was available with the AO was internal auditor s repo .....

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of provisions of section 153A of the Act. While examining the scope of assessment u/s.153A of the Act, in earlier paragraphs, we have expressed the view that concluded assessments which have been reopened can be disturbed or addition could be made only on the basis of incriminating material found during the course of search proceedings. Hence, in the case of 153A proceedings also, the existence of material is a primary condition. Hence, in our view the ratio laid down by Hon ble Bombay High cour .....

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2002-03 to 2006-07. 45. Even otherwise, those letters cannot be considered as direct material warranting addition u/s.36(1)(vi) of the Act, since the question of disallowance to be made under that section is to be examined by considering various criteria. In fact, the ld CIT(A) has also set aside the matter to the file of the AO for assessment years 2006-07 to 2008-09 and the ld CIT(A) has granted partial relief in respect of this disallowance in assessment years 2003-04 and 2004-05. These fact .....

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erest disallowance in those years. 46. In respect of assessment years 2007-08 and 2008-09, the contention of the assessee is that the investment made in the following subsidiary companies have been made out of commercial expediency and hence the same cannot be considered as diversion of interest bearing funds:- a) Amount given to Usha Tubes & Pipes Private Limited ₹ 14,50,00,000/- b) Amount given to Pragathi Fertilisers Limited ₹ 3,10,00,000/- The assessee has placed reliance on .....

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l these cases it has been held that the investment made in subsidiary companies does not call for interest disallowance, since there is commercial expediency in making the investments. We further notice that the Hon ble jurisdictional High Court has expressed identical view in another case also, viz., CIT Vs. Ambience Properties (P) Ltd (ITTA No.441 of 2014 dated 16-07-2014), wherein also the Hon ble Andhra Pradesh High Court noticed that the above said assessee had invested borrowed funds in th .....

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ing officer to exclude the investment made by the assessee in the two companies referred above for the purpose of working out disallowance of interest. 48. In respect of investment made in other sister concerns, the contention of the assessee is that the own funds have been used for the said purposes. Even though the Ld A.R contended that there is commercial expediency involved in the investments made in other sister concerns also in as much as, the property belonging to them have been used by t .....

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er of Ld CIT(A) in respect of this issue in AY 2007-08 and 2008-09 stands modified accordingly. (c) A.AVNASH:- 49. We shall now take up the appeals filed by Shri A. Avnash for assessment years 2002-03 to 2008-09. In this case the assessments have been completed u/s 153C of the Act. The assessee has urged an additional ground in AY 2008-09 raising some legal issue. At the time of hearing, the Ld A.R did not press the additional ground and hence the same is dismissed as Not Pressed. 50 The assesse .....

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of two bank lockers held by assessee s parents. Accordingly, with the permission of assessee s mother, the lockers were opened and the jewelleries found therein were inventorised. In the sworn statement, the assessee submitted that the jewelleries belong to his parents, sister, wife and his daughter. However, the assessee admitted later that there exists excess jewellery and accordingly agreed to offer a sum of ₹ 30.00 lakhs as his income. Subsequently Shri Avnash retracted from the state .....

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statement cannot be considered as incriminating materials . He further submitted that the undisclosed investment in jewellery admitted by the assessee in the statement taken u/s 132(4) of the Act pertains to AY 2008-09 only and no material relating to other years was found. He further submitted that the search officials can record a statement u/s 132(4) of the Act from a person only in the cases, where any unaccounted money, unaccounted document or any incriminating material is found during the .....

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ad in law. In this regard, he placed reliance on the following case law:- (a) Sri Rama Educational Trust (ITA Nos. 31 to 35/Viz/2012 dt. 13-12-2013) (b) Gadiraju Venkata Subba Raju (ITA No.360 & 361/Viz/13 dt. 05-03-2014) (c) A.Ammaji (ITA No.337 to 343/Viz/2014 dated 21.07.2014) 52. The Ld A.R further submitted that the proceedings u/s 153C of the Act were initiated on 15.12.2008 and on that date the proceedings relating to AY 2002-03 to 2007-08 were not pending. Further, the revenue did no .....

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AY 2005-06 to 2007-08 on the basis of some loose materials found at the survey operations conducted in the hands of the lessee. The Ld A.R submitted that the lessee himself has denied payment of any excess rent and hence the AO was not justified in relying on those loose sheets. The Ld A.R further submitted that the materials found during the course of survey operations could not used to make additions in search assessment proceedings. In this regard, he placed reliance on the decision rendered .....

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er submitted that there is no restriction in sec. 153A of the Act for using the material found at the time of survey operations. He submitted that the same constitutes incriminating material and hence the proceedings initiated u/s 153C of the Act is valid. 55. We notice that the assessments relating to AY 2002-03 to 2007-08 has been completed u/s 143(3) r.w.s. 153C of the Act. In all these years, the assessing officer did not refer to any of the materials found during the course of search. The p .....

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₹ 30.00 lakhs relating to excess jewellery. On the basis of the said declaration, the assessing officer has initiated proceedings u/s 153C of the Act. At the time of completing the assessment, the AO has also placed reliance on certain loose sheets found during the course of survey operations conducted in the hands of a lessee, from which it was inferred by the AO that the assessee was receiving higher rent. It has been submitted that the lessee himself has denied the same and accordingly .....

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held to be valid for a moment, the additions made by the assessing officer by placing reliance on the information already available on record without referring to any of the seized materials is bad in law. 56. The co-ordinate bench of Visakhapatnam Tribunal has considered an identical issue in the case of Sri Rama Education Society (supra) G.Bangaramma (supra) and Smt. A.ammaji (supra) and in all the three cases, the Tribunal has quashed the proceedings initiated u/s 153C of the Act in the absen .....

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ssee, in our view, could not also be placed reliance, since the lessee himself has denied the entries made in the loose sheets found during the course of survey and hence the loose sheets itself remain uncorroborated. The admission made in the sworn statement may be sufficient to initiate proceedings u/s 153C of the Act. However the additions made without reference to any of the seized materials are liable to be deleted, since these assessment years fall under the category of completed proceedin .....

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me - 2,25,000 (b) Undisclosed jewellery - 30,00,000 (c) Deemed Dividend - 35,41,000 (d) Rental income - 13,71,000 59. The first issue relates to the additions relating to Agricultural income. The Ld CIT(A), however, granted partial relief. In the case of A.T. Rayudu, the father of the assessee, we have directed the AO to disallow 25% of the agricultural income and we had followed the decision rendered by the coordinate bench in the case of A.Ammaji and M/s Avnash estates & resorts Ltd. Consi .....

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hat the sworn statement u/s 132(4) of the Act was taken from Shri A.Avnash. He submitted that the jewellery belongs to his mother Smt. Ammaji, Sister Smt. Maitri and Wife Smt. Harshita and his daughter baby Aharya. He also submitted that the jewellery were reflected in their returns of income. However, he admitted that there is excess jewellery of 3 Kgs. (approx.) amounting to ₹ 30,00,000/-. He admitted that the same was his unexplained investment and agreed to offer the same for assessmen .....

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the assessee in the sworn statement taken u/s 132(4) of the Act states the two lockers stood in the name of assessee s parents and they were opened in the present of witnesses and the contents were brought as it is. In the reply the Shri A. Avnash states that the available cash & Jewellery were inventorised in the presence. Since the jewelleries were found in the lockers belonging to the parents of Shri A Avnash, the normal presumption is that the jewelleries found in the locker belong to th .....

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ng so, he stated that the jewellery 7.8 kgs is higher than what is reflected in the returns of income. After consulting his mother and wife, he admitted that there is excess jewellery of three kgs valued at ₹ 30.00 lakhs. He then admitted that the same is his unexplained investment for the F.Y 2007-08 relevant for assessment year 2008-09. 63. A careful perusal of the answer given by Shri Avnas would show that there is contradiction in the statements given by him. As stated earlier, the jew .....

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he was not available the sworn statement was taken from Shri Avnash. He has stated that the excess jewellery was arrived at after consulting his mother and wife. Then he owns up the undisclosed investment made in the jewellery. All these sequence of events would show that there is no clarity and link between the initial declaration and subsequent admission made. Subsequently Shri A.T.Rayudu has written a letter to the DDI for release of jewelleries. Further the assessee s sister and assessee s .....

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out certain defects. In respect of the jewelleries claimed to belong to the sister of Shri Avnash, the same was rejected on the reasoning that the customs documents were not available. Similarly the claim made by his wife was rejected on the reasoning that the parents and grant parents of Avnas s wife did not furnish wealth tax returns. However, in our view, what is required to be seen is -Whether the assessee could be considered to have made investment in jewellery out of his undisclosed income .....

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ect the AO to delete the said addition. 65. The next issue relates to the assessment of Deemed dividend income. In the appellate proceedings before Ld CIT(A), the assessee contended that the amount of accumulated profit and the amount of advances has been wrongly taken by the AO. Accordingly, the Ld CIT(A) directed the AO to rework the deemed dividend in all the years. 66. Before us, the Ld A.R submitted that the assessee had earlier advanced loans to the closely held companies and the amounts r .....

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hence the provisions of sec. 2(22)(e) of the Act shall not apply. 67. The Ld D.R, on the contrary, submitted that the fact of giving personal guarantee by the assessee and the receipt of advance are two different transactions. He submitted that the Ld CIT(A) has only set aside the matter to the file of the AO for considering the various submissions made by the assessee. 68. We heard the parties on this issue. We notice from the details of loans availed by the sister concerns that the personal gu .....

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uld be considered as normal business transactions. 69. However, we notice that the Ld CIT(A) has set aside the matter to the file of the AO in order to ascertain the correct amount of accumulated profits and also to work out the correct amount of advances received by the assessee. Hence, in our view, the order passed by the Ld CIT(A) on this issue does not call for any interference. 70. The next issue relates to the enhancement of rental income. The assessee had given a property located in R.K. .....

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AO assessed the difference rent of ₹ 8,88,000/-(Rs.74,000/- x 12 months) and also the rent advance of ₹ 4,83,000/- , both aggregating to ₹ 13,71,000/- as rental income of the assessee. 71. In the appellate proceedings, the Ld CIT(A) agreed with the contentions of the assessee that the rent advance cannot be assessed as rental income. With regard to the difference in rental income, the ld CIT(A) confirmed the addition with the reasoning that the assessee did not rebut the impou .....

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d hence the assessee has collected monthly rent of ₹ 8000/-. The Ld A.R submitted that the assessing officer did not refer to the municipal valuation of the property or the facts surrounding the issue. Accordingly, the Ld A.R submitted that the Ld CIT(A) was not justified in confirming the adoption of monthly rent at ₹ 80,000/-p.m. The Ld D.R, on the contrary, submitted that the AO has made the addition on the basis of material impounded during the course of survey operations in the .....

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her the contents of the loose papers were proved to be true in the assessment of the lessee. We further notice that the assessee has submitted that the building was in dilapidated condition at the time when the building was given on rent and the lessee has agreed to carry out repair works, in which case the rent shall be fixed lower than the market rates. We notice that these submissions have been ignored by the AO and he has fully placed reliance on the uncorroborated loose sheets found in the .....

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