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2015 (11) TMI 289 - ITAT MUMBAI

2015 (11) TMI 289 - ITAT MUMBAI - TMI - Disallowance of expenditure under Section 153A - Held that:- No incriminating material was found during the search regarding the additions made in the assessment order, that the additions were not justified, that the order passed by the AO was non-est, that the AO had not complied with the section 153D of the Act - Decided in favour of assessee. - ITA No. 136/Mum/2013, ITA No. 1-37/Mum/2013, ITA No. 147 to 151/Mum/2013 - Dated:- 1-10-2015 - Sh. Rajendra, A .....

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ry Charges: a) On the facts and in the circumstances of the case and in law, the Hon'ble CIT (Appeals) erred in upholding the disallowance of Forwarding and Delivery charges of ₹ 1, 50, 0001- made on adhoc basis out of the total expenses of ₹ 11, 00, 542/- on the ground that since the expenditure was incurred in cash, it was not fully verifiable. (b) On the facts and in the circumstances of the case and in law, the Hon'ble CIT (Appeals) erred in not considering the fact that .....

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cash, it was not verifiable to be wholly and exclusively for the purpose of the business. 3. Bad debts - ₹ 5, 05, 584/-: (a) On the facts and in the circumstances of the case and in law, the Hon'ble CIT (Appeals) erred in upholding the disallowance of bad debts of ₹ 5, 05, 584/- on the ground that interest accrued was assessable as "income from other sources". (b) On the facts and in the circumstances of the case and in law, the Hon'ble CIT (Appeals) erred in not co .....

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penditure under Section 153A of the Act without appreciating the fact that no incriminating material was found during the course of search regarding the additions made in the assessment order by the AO, hence additions in the assessment order passed u/s 153A of the Act are not justified. 2. On the facts and in the circumstances of the case and in law the CIT(A) ought to have held that the assessment order under section 153A is non est and not in accordance with law and ought to have set aside th .....

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ould take the appeal for the AY. 2005-06. Brief facts: (A. Y. 2005-06): 2. A search and seizure action u/s. 132 of the Act was conducted on 16. 10. 2008 in the group cases. The office /residential premises of the company and its directors/connected persons were also covered. The assessee company is engaged in the business of ice manufacturing and running of cold storage. Consequent upon the search and seizure action u/s. 132, proceedings u/s. 153A were initiated. The AO completed the assessment .....

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uding the AY. under appeal. The additional grounds deal with a jurisdictional issue, therefore, we would deal with the additional grounds first. In the additional grounds, it has been argued that the order passed by the AO was bad in law. During the course of hearing before us, the Authorised Representative(AR) stated that no incriminating material was found during the search regarding the additions made in the assessment order, that the additions were not justified, that the order passed by the .....

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As per this office letter dated 20/12/2010, the Assessing Officers were asked to submit the draft orders for approval u/s. 153D on or before 24/12/2010. However, this draft order has been submitted on 31/12/2010. Hence, there is much time left to analise the issues of draft order on merit. Therefore, the draft order is being approved s it is submitted. 2. approval to the above said draft order is granted u/s. 153D of the I. T. Act, 1961. He also relied upon the case of All Cargo Global Logistics .....

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nd in the circumstance of the case and in law the CIT(A) ought to have held that the AO had not complied with the provisions of Sec. 153D of the Act and hence the assessment under section 153A of the Act is bad in law. 2. On the facts and in the circumstance of the case and in law the CIT(A) ought to have held the assessment order u/s. 153A is non est and not in accordance with law and ought to have set aside the assessment. If we compare the additional grounds raised by the assessee in the pres .....

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ness of Reality, paper, Textile and Finance. On the basis of the incriminating documents/books of account found during the course of search and seizure operation, assessment was made u/s. 143(3) of the Act r. w. Sec. 153A and as per the endorsement on page-11 of the assessment order this order is passed with the prior approval of the Addl. Commissioner of Income Tax, Central Range-7, Mumbai. 6. The additional ground raised before us is against this endorsement in the assessment order as the clai .....

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called approval brought on record cannot be considered as an approval within the frame work of the provisions of Sec. 153D of the Act. The Ld. Sr. Counsel continued to argue that the approval granted by the Addl CIT is devoid of application of mind and by any stretch of imagination the order made u/s. 143(3) r. w. Sec. 153A of the Act cannot be said to be made after receiving the approval as per the provisions of Sec. 153D of the Act. The entire arguments/submissions of Ld. Shri Mistry revolved .....

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take any interpretation which would defeat the provisions of the law. 10. We have given a thoughtful consideration to the rival contentions. We have also gone through the approval of the Addl CIT, Central Range-7, Mumbai carefully. The said approval read as under: No. Addl CIT/Cent. Rg-7/Approval 153D/2010-11/366 Dt. 31. 12. 2010 To: The DCIT (OSD)-1, Mumbai Sub: Approval u/s. 153D of draft order u/s. 143(3) r. w. s. 153A in the case of Smt. Shreelekha Nandan Damani for A. Y. 2007-08 reg. Ref: .....

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u/s. 153D of the I. T. Act, 1961. 11. The contents of this approval are res ipsa Loquiter in as much as the language is speaking for itself. The Addl CIT says that the draft order was placed before him on 31. 12. 2010. He further says that there was no much time left to analyze the issue of draft order on merit, therefore, the said order is approved as it is. The approval is also dated 31. 12. 2010. 11. 1. The issue which we have to decide is can this approval be treated as fulfilling the manda .....

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that nothing contained in this section shall apply where the assessment or reassessment order, as the case may be, is required to be passed by the Assessing Officer with the prior approval of the Commissioner under sub-section (12) of section 144BA. 11. 2. The Legislative intent can be gathered from the CBDT Circular No. 3 of 2008 dated 12. 3. 2008 which read as under: 50. Assessment of search cases Orders of assessment and reassessment to be approved by the Joint Commissioner. 50. 1 The existi .....

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sessment or reassessment passed under clause (b) of section 153A in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A. The provision has also been made applicable to orders of assessment passed under clause (b) of section 153B in respect of the assessment year relevant to the previous year in which search is conducted u .....

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authorities which also means that the superior authorities should apply their minds on the materials on the basis of which the officer is making the assessment and after due application of mind and on the basis of seized materials, the superior authoritis have to approve the assessment order. 11. 4. The question before us is has this been done in the present case . The language of the approval letter says no . Let us now consider some analogous provision in the Act. Sec. 142(2A): 142(2A) If, at .....

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e to get the accounts audited by an accountant, as defined in the Explanation below sub-section (2) of section 288, nominated by the Commissioner in this behalf and to furnish a report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed and such other particulars as the Assessing Officer may require. In this section also the AO may direct the assessee to get the accounts audited by an Accountant with the previou .....

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) the nature and complexity of the accounts of the assessee; and (ii) the interests of the revenue. The word "and" signifies conjunction and not disjunction. In other words, the twin conditions of "nature and complexity of the accounts" and "the interests of the revenue" are the prerequisites for exercise of power under section 142(2A) of the Act. Undoubtedly, the object behind enacting the said provision is to assist the Assessing Officer in framing a correct and p .....

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omplex or that is difficult to understand. However, all that is difficult to understand should not be regarded as complex. What is complex to one may be simple to another. It depends upon one s level of understanding or comprehension. Sometimes, what appears to be complex on the face of it, may not be really so if one tries to understand it carefully. " Thus, before dubbing the accounts to be complex or difficult to understand, there has to be a genuine and honest attempt on the part of the .....

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scrutinizing the accounts of an assessee and pass on the buck to the special auditor. Similarly, the requirement of previous approval of the Chief Commissioner or the Commissioner in terms of the said provision being an inbuilt protection against any arbitrary or unjust exercise of power by the Assessing Officer, casts a very heavy duty on the said high ranking authority to see to it that the requirement of the previous approval, envisaged in the section is not turned into an empty ritual. Needl .....

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f Calcutta in the case of Peerless General Finance & Investment Co. Ltd. Vs DCIT 236 ITR 671 has made the following observations which are pertinent to the facts of the case in hand before us. The factual matrix of the matter clearly shows that a proposal was made on March 10, 1998, and no prior approval therefore was granted by the Chief Commissioner of Income-tax but merely one G. P. Agarwal was nominated. An argument has been advanced to the effect that by making such a nomination, approv .....

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ioner of Income-tax or the Chief Commissioner of Income- tax, as the case may be, to show that he intends to take recourse to the said provision having regard to the nature and complexity of the accounts of the assessee and the interests of the Revenue. No such materials had been placed before the Chief Commissioner of Income-tax. It further appears that even no previous approval was sought for but merely a proposal was placed for perusal of the Chief Commissioner of Income-tax and for appointme .....

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iod shall be passed by an Assessing Officer not below the rank of an Assistant Commissioner or Deputy Commissioner or an Assistant Director or Deputy Director, as the case may be: Provided that no such order shall be passed without the previous approval of- (a) the Commissioner or the Director, as the case may be, in respect of search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A, after the 30th day of June, 1995, but before the 1 .....

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TD 573, at para-41 of its order the observations of the Tribunal are as under: In these cases, the Commissioner has passed an order granting approval under section 158BG of the Act through a single order passed on 31-3-1997 without giving any reason whatsoever. As we have recorded elsewhere above, the draft assessment orders of the block period in all these cases were made on 31-3-1997 and on the very same day, i. e. , on 31-3-1997 the Commissioner grants approval and that too without giving or .....

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roval to the assessment order accorded by the CIT Kanpur. The Tribunal at Para-47 has held as under: Coming to the aspect of the application of mind, while granting approval, we are of the view that requirement of approval pre-supposes a proper and thorough scrutiny and application of mind. In the case of Kirtilal Kalidas & Co. (supra), the I. T. A. T Madras Bench A has observed that the function to be performed by the Commissioner in granting previous approval requires an enquiry and judici .....

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e Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is satisfied that it is a fit case for the issue of such notice. The sanction under this section was considered by the Tribunal, Mumbai Bench in the case of Shri Amarlal Bajaj in ITA No. 611/M/2004 wherein at para-8, the Tribunal has considered the decision of the Hon ble High Court of Delhi Bench in the case of United Electrical Co. 258 ITR 317 which read as under: Hon ble Delhi High Court in the case .....

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ent arbitrary exercise of power by an 7 ITA Nos. 534 & 611/M/04 Assessing Officer to fiddle with the completed assessment . The Hon ble High Court further observed that what disturbs us more is that even the Additional Commissioner has accorded his approval for action under section 147 mechanically. We feel that if the Additional Commissioner had cared to go through the statement of the said parties, perhaps he would not have granted his approval, which was mandatory in terms of the proviso .....

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e constrained to observe that in the present case there has been no application of mind by the Additional Commissioner before granting the approval . 12. Coming to the facts of the case in hand in the light of the analytical discussion hereinabove and as mentioned elsewhere, the Addl. Commissioner has showed his inability to analyze the issues of draft order on merit clearly stating that no much time is left, inasmuch as the draft order was placed before him on 31. 12. 2010 and the approval was .....

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s put up to him for approval in the light of the material relied upon by the AO. The said power cannot be exercised casually and in a routine manner. We are constrained to observe that in the present case, there has been no application of mind by the Addl. Commissioner before granting the approval. Therefore, we have no hesitation to hold that the assessment order made u/s. 143(3) of the Act r. w. Sec. 153A of the Act is bad in law and deserves to be annulled. The additional ground of appeal is .....

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