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Shri Vimal Kumar Rathi Versus DCIT, Central Circle 17 & 18, Mumbai and Vica-Versa

2016 (1) TMI 215 - ITAT MUMBAI

Validity of assessment u/s 153A - accounted nature of the transactions in respect of the disputed gift - Held that:- It is noted that the additions were made not on account of "gifts" but on account of "source of funds for repayment of loans". In this regard, we find the said loans are repaid through journal entries. Therefore, Revenue Authorities are not supposed to make such additions in the assessment. Considering the factual matrix of the case as well considering the above settled legal posi .....

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e present case, to decide whether the said amount paid by the assessee to his landlord in respect of the legal expenses, is subject to deduction of TDS or not, the following points need to be ascertained viz., (i) what is the relationship between the assessee and the actually payer of the legal fees ie "principal to principal" relationship or "principal to an agent relationship"; (ii) whether it is a case of reimbursement or not; (iii) whether the co-owner effected the TDS when he made payment a .....

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013, I.T.A. No.3096/M/2013, I.T.A. No.2823/M/2013, I.T.A. No.2824/M/2013 - Dated:- 16-10-2015 - SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER For The Assessee : Shri G.P. Mehta For The Revenue : Shri G.M. Doss ORDER PER D. KARUNAKARA RAO, AM: There are five appeals under consideration. Out of these five appeals, three appeals are filed by the assessee and two appeals are filed by the Revenue. Since, the issues raised in all these appeals are connected, therefore .....

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Authorities are bad in law and in facts. 2. The assessment order passed / upheld u/s 153A r.w.s 143(3) of the Act by the lower authorities is ab-initio void, inasmuch as, as no form of return of income was prescribed for the assessment year under appeal by the rule making authority, the whole assessment mechanism failed. 3. The learned lower authorities have grossly erred in completing / upholding the assessment on the basis of an invalid ROI filed in Form 2D as the said form 2D was not a prescr .....

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in making / confirming an addition of ₹ 3,18,54,658/- to the returned income by holding that the reduction of liabilities by an amount of ₹ 3,18,54,658/- was out of income from undisclosed sources without bringing any material or evidence on record in support of their allegations. 6. The Ld lower authorities have grossly erred in making / confirming an addition of ₹ 3,18,54,558/- without showing as to under what provisions of law the impugned addition was made / confirmed, more .....

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material was found during the course of search proceedings carried out on 3.8.2006 at appellant‟s residence. Consequently, the provisions contained in section 153A of the IT Act, 1961 including abatement of pending assessment are not attracted at all. 2. The learned lower authorities have grossly erred in making / upholding an addition of ₹ 3,18,54,658/-, not based on or relatable to the material found or seized during the course of search. 4. Since, the issue raised in the additiona .....

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A search and seizure action u/s 132 of the Act was conducted on the said Euro Group on 3.8.2006 and the assessee being an associated person of this group, his residential premises was also covered. Responding to the notice issued u/s 153A of the Act, assessee filed the return of income on 22.7.2008 declaring the total income of ₹ 6,52,665/-. In the process, AO completed the assessment u/s 143(3)(ii) r.w.s 153A of the Act and the assessed income was determined at ₹ 3,84,98,320/- which .....

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₹ 60 lakhs, CIT (A) directed the AO to verify the concerned bank statements of the donor and to ascertain the genuineness of the gift. He further directed the AO to delete the addition in case the genuineness of the gift is treated as explained. Aggrieved with the said decision of the CIT (A), assessee is in appeal before the Tribunal by raising the abovementioned grounds. 7. During the proceedings before us, narrated the above facts and brought our attention to the financial statements of .....

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transactions are already accounted for in the books of accounts of the assessee. Further mentioning that the said gifts were actually never received but for the book entries by way of journal entries. He also submitted that the loans repaid out these gifts were also never involved movement of cash therefore, the said transactions do not amount to unaccounted transactions‟. Explaining the same, Ld Counsel for the assessee submitted that the addition made by the Assessing Officer has no nexu .....

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search no assessment proceedings were pending and the assessee filed the return of income on 31.10.2002. It was further submitted that no notice u/s 143(2) / 143(1) of the Act was issued within the stipulated time initiating the assessment proceedings. Further also, the prescribed time limit for issue of notice u/s 143(2) of Act was expired before the said date of search and therefore, the assessment completed u/s 143(1) of the Act did not abate. Ld Counsel for the assessee demonstrated that as .....

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AO, Ld Counsel for the assessee demonstrated that there is no reference to the seized material in any of the additions made by the AO. Ld Counsel for the assessee also argued that such additions are unsustainable in law. Ld Counsel for the assessee also demonstrated that the reduction in the balances of loans and advances was attributable to transfer entries passed through journal as detailed in respective accounts, where the details of loans and advances were explained. In support of his conte .....

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vind Agarwal v. ACIT being ITA No: 3389/Mum/2011 dated 10.01.2014; (v) SKS Ispat and Power Limited vs. DCIT and others. 8. On the other hand, Ld DR relied on the order of the AO and the CIT (A). Further, on the legal propositions, Ld DR has nothing to controvert except relying on the decisions of the Revenue Authorities. 9. We have heard both the parties and perused the orders of the Revenue Authorities as well as the cited decision of the Tribunal in the case of Shri Govind Agarwal v. ACIT bein .....

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ddition or making disallowance which are not based on only material found during the search is bad in law . In this regard, we find it relevant to extract the relevant paras from the decision of the Tribunal in the case of Shri Govind Agarwal (supra) and the same is as follows: 12. We have heard the parties and their divergent stands on the legal issue and the validity of the instant assessment/reassessment with the routine additions u/s 68 and section 14A of the Act based on the accounted trans .....

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nce u/s 14A: ₹ 23,31,469/-. Admittedly, there is no incriminating material before the AO to support the above additions. The valuation report, which is garnered by the authorities constitutes mere estimates and the provisions of section 132 is not required to obtain such report from the DVO. As such, for making aforesaid additions of ₹ 31,33,070/-, AO has not used even the said valuation report and the AO disallowed what is reported in the books. Similar is the case with the addition .....

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law. 13. For the sake completeness of the assessee, we insert here some of the extracts from relevant judgments and they are: A. [2013 36 taxmann.com 523 (Rajasthan) in the case of Jai Steel (India) vs. ACIT - From Held portion: ….The requirement of assessment or reassessment under the said section has to be read in the context of sections 132 or 132A, inasmuch as, in case nothing incriminating is found on account of such search or requisition, then the question of reassessment of the co .....

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of the entire section. The words 'assess' or 'reassess' have been used at more than one place in the Section and a harmonious construction of the entire provision would lead to an irresistible conclusion that the word 'assess' has been used in the context of an abated proceedings and reassess has been used for completed assessment proceedings, which would not abate as they are not pending on the date of initiation of the search or making of requisition and which would al .....

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ng search and since no assessment was abated, assessment under section 153A was to be quashed being made without jurisdiction available under section 153A - Held, yes [Para 6.2] [In favour of assessee] Para 6.1 of the Order: The Special bench in the case of Alcargo Global Logistics Ltd. (supra), has held that provisions of section 153A come into operation if a search or requisition is initiated after 31.5.2003 and on satisfaction of this condition, the AO is under obligation to issue notice to t .....

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l Bench held that the assessment under section 153A can be made on the basis of incriminating material which in the context of relevant provisions means books of account and other documents found in the course of search but not produced in the course of original assessment and undisclosed income or property disclosed during the course of search. In the present case, the assessment had been completed under summary scheme under section 143(1) and time limit for issue of notice under section 143(2) .....

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ins the original jurisdiction as well as jurisdiction conferred on him u/s 153A for which assessments shall be made for each of the six assessment 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 .....

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or unproduced books of account. Otherwise, additions made in routine matter as in the present appeal are not sustainable. Further, for the sake completeness of the order, we have perused the orders/judgments relied upon by Ld DR for the revenue and found they are distinguishable on facts for one reason or other. To start with, we have perused the judgment of Honble Hon‟ble Delhi High Court in the case of Madugula Venu (supra) and find that, though explained the provisions in plain languag .....

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nsidered the then existing decision of the Coordinate Bench decision in the case of Pratibha Industries Ltd (supra) which is relevant for the proposition that the completed assessment may not be disturbed in the absence of any incriminating material specific to the assessee. In fact, all these judgments take spirit from the Special Bench decision in the case of All Cargo Global Logistics Ltd (supra), which is relevant for the proposition that the assessment u/s 153A will be made on the basis of .....

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report gathered during the search action, we find that the report suffers from certain deficiencies qua cost of construction of residential property and the land obtained thereto. The said report constitutes an opinion of the third party which cannot be used by the AO for making additions and such additions, if any, cannot be sustained legally. As such, we find that the AO has not used the said report of the DVO also for making additions of ₹ 31,33,007/-, the difference between accounted a .....

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n rather conclusion based on any evidences. Such additions are unsustainable in law in the assessments made u/s 153A r.w.s 143(3) of the Act. 17. Rajasthan High Court judgment in the case of Jai Steel (India) (supra), vide para 18, it is categorically mentioned that the requirement of assessment or reassessment under the said section (153A) has to be read in the context of sections 132 or 132A of the Act, inasmuch as, in case nothing incriminating is found on account of search or requisition, th .....

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dentical to the present one ie AO made additions by reassessing u/s 153A on the completed assessment u/s 143(1) of the Act. Thus, considering the judgment in the case of the Jai Steel Ltd (supra), the arguments on the legal issue raised before us stands covered. Therefore, considering the Rajasthan High Court‟s judgment in the case of Jai Steels Ltd, supra, we have no difficulty in (i) upholding the issue of notice u/s 153A of the Act and (2) in disapproving the making of the impugned addi .....

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case of CIT vs. Kabul Chawla vide ITA Nos. 707/2014 and others, dated 28.8.2015, wherein the Hon‟ble Delhi High Court has reiterated the above settled legal proposition that since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed. In this regard, we find it relevant to extract the summary of the legal propositions and the conclusion of said judgment of the Hon‟ble Delhi High Court which is as follows: Summary o .....

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e. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be .....

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material. Obviously an assessment has to be made under this Section only on the basis of seized material. v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdi .....

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income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. Conclusion 38. The present appeals concern AYs, 2002-03, 2005-06 and 2006-07.On the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed. 39. The question framed by the Court is answered in favour of th .....

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Revenue Authorities are not supposed to make such additions in the assessment. Considering the factual matrix of the case as well considering the above settled legal position of the issue that in the absence of any incriminating material found during search, additions made on the assessed income are unsustainable in law, we are of the considered opinion that the additions made in the instant case are not sustainable and accordingly, we delete the same. Considering our decision on the legal issue .....

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e facts and in the circumstances of the case and in law, the Ld CIT (A) has erred in directing the Assessing Officer to verify the issue of advancement of gifts of ₹ 60,00,000/- against the action of the Assessing Officer in assessing the same as income from undisclosed sources. 2. On the facts and in the circumstances of the case and in law, the Ld CIT (A) has erred in not considering that as per her own decisions in assessee‟s case for the year under consideration, the assesseeR .....

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dingly, both the grounds raised by the Revenue are dismissed. 15. In the result, appeal of the Revenue is dismissed. II. Cross Appeals for the AY 2004-2005 ITA No.3095/M/2013 (Assessee s appeal) 16. This appeal filed by the assessee on 23.4.2013 is against the order of the CIT (A)-39, Mumbai dated 7.1.2013 for the AY 2004-05. In this appeal, assessee raised the following grounds which read as under: 1. The orders passed by the Ld Lower Authorities are bad in law and in facts. 2. The assessment o .....

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ompliance of mandatory provisions of section 153A of the Act by the rule making authority, the impugned assessment order should have been declared non-est. 4. The Ld lower authorities have grossly erred in holding, that the gift received at ₹ 4 Crs by the appellant was not a valid gift and have further erred in excluding the said gift amount from the capital account of the appellant. 5. Having regard to the facts of the case, the provisions of law and judicial propositions, the whole asses .....

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961 including abatement of pending assessment are not attracted at all. 2. The learned lower authorities have grossly erred in making / upholding an addition of ₹ 3,18,54,658/-, not based on or relatable to the material found or seized during the course of search. 18. In the present appeal, assessee raised the identical issues to that of the AY 2002-03 in ITA No.3094/M/2013, which is adjudicated by us in the above paragraphs of this order. While adjudicating the said appeal for the AY 2002 .....

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Thus, the legal issue is decided in favour of the assessee and the appeal of the assessee is allowed. 19. In the result, appeal of the assessee is allowed. ITA No.2824/M/2013 (AY 2004-05) (Revenue s appeal) 20. This appeal filed by the Revenue on 10.4.2013 is against the said order of the CIT (A)-39, Mumbai dated 7.1.2013 for the AY 2004-05. In this appeal, Revenue raised the following grounds which read as under: 1. On the facts and in the circumstances of the case and in law, the Ld CIT (A) h .....

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ng the year under consideration 21. Considering our decision given on the legal ground raised by the assessee in his appeal ITA No.3095/M/2013 in the above paragraphs of this order, which is decided in favour of the assessee, the adjudication of the grounds raised by the Revenue in the present appeal becomes academic. Accordingly, both the grounds raised by the Revenue are dismissed. 22. In the result, appeal of the Revenue is dismissed. III. ITA No.3096/M/2013 (AY 2009-2010) (Assessee s appeal) .....

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ly a reimbursement to a co-plaintiff and not a professional. Reasons assigned for the impugned disallowance are wrong and contrary to the facts on record. 3. Having regard to the facts of the case, provisions of law and judicial propositions, as nothing was payable as at the end of the year, provisions of sections 40(a)(ia) of the Act were not applicable at all. 4. The learned lower authorities have grossly erred in charging interest u/s 234A of the Act at ₹ 1,529/- even though ROI was fil .....

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a)(ia) fo the Act. In this regard, it is the submission of the assessee before the AO that the expenses were reimbursement in nature and therefore, the provisions relating to TDS are not applicable. Further, assessee submitted that the provisions of section 40(a)(ia) are applicable only on amounts payable shown in the balance sheet and not on amounts paid. AO did not consider the submissions of the assessee and came to a conclusion that the expenses reimbursed were in the nature of principal to .....

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her appeal before the Tribunal by raising the above mentioned grounds. 26. During the proceedings before us, Ld Counsel for the assessee submitted that the assessee‟s proprietary concern M/s. Bombay Sales Corporation was having tenancy rights in a property situated at Mohamad Ali Road, Mumbai. The landlord was filed an eviction suit against a sub-tenant and all the relevant legal expenses were paid directly by the landlord. Since, the tenancy rights of the assessee were also being affected .....

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iness premises, assessee shared the said legal expenses. In that case, assessee is not required to deduct TDS u/s 194J of the Act and no disallowance is required to be made in this regard. Ld Counsel for the assessee also relied on the judgment of the Hon‟ble Delhi High Court in the case of CIT vs. Opera Global (P) Ltd [2014] 109 DTR (Del) 121 and the decision of the Tribunal in the case of M/s. Utility Powertech Ltd vs. ACIT in ITA No.2561/M/2009 (AY 2005-06) reported in 2010-TIOL-545-ITA .....

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