TMI Blog2014 (4) TMI 1111X X X X Extracts X X X X X X X X Extracts X X X X ..... he sale proceeds on shares of Database Finance Ltd came up for discussion and adjudication in the case of Nikki Agarwal (2014 (2) TMI 937 - ITAT MUMBAI ) wherein we held that there is no case of addition in that case. Disallowance u/s 14A - Held that:- t is a fact that the relevant assessment years i.e., 2006-07 and 2007-08 under consideration are outside the scope of provisions of Rule 8D. The said provisions cannot be treated as applicable to the A.Y.2006-07 & 2007-08 under consideration when the same is precluded by the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT, reported in (2010 (8) TMI 77 - BOMBAY HIGH COURT ). Thus we restrict the disallowance to 5% of the total exempt income. - I.T.A. No.8912/M/2010, I.T.A. No.8911/M/2010, I.T.A. No.8913/M/2010, C.O. No.185/M/2013, I.T.A. No.881/M/2011, I.T.A. No.882/M/2011, I.T.A. No.883/M/2011, I.T.A. No.4546/M/2011, I.T.A. No.4548/M/2011, I.T.A. No.4530/M/2011, I.T.A. No.4545/M/2011 - - - Dated:- 10-4-2014 - SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER Appellant by : Shri Devendra Mehta Respondent by : Shri Santosh Kumar, DR ORDER PER B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Disallowance u/s 14A: ₹ 609/- 3.0 The Ld CIT (A) erred in directing the Assessing Officer to recomputed disallowance u/s 14A on the basis of judgment of the Hon‟ble Bombay High Court in the case of Godrej Boyce Manufacturing Company Ltd vs. DCIT (328 ITR 81) without realizing that no expenditure whatsoever was incurred by the assessee and claimed as a deduction while computing his total income. 3. Briefly stated relevant facts of the case are that the assessee is an individual. The assessee‟s income consists of capital gains and income from other sources. Assessee originally filed the return of income on 28.11.2003 declaring the total income of ₹ 3,38,770/-. A search and seizure action was carried out at the office and residential premises of the assessee on 3.1.2008. In connection with the search action u/s 132 and in response to the notice u/s 153A, assessee filed the return of income on 4.9.2008 without making any change in the original return. Assessment was completed u/s 143(3) r.w.s 153A of the Act after determining the assessed income at ₹ 1,02,76,782/-. Matter travelled to the first appellate authority. 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this regard, Ld Counsel relied on the Rajasthan High Court judgment in the case of Jai Steel (India) Ltd (supra); Coordinate Bench decisions in the case of Pratibha Industries Ltd (supra) and Gurinder Singh Bawa (supra) and Special Bench decision in the case of All Cargo Global Logistics Ltd vs. DCIT 2012-TIOL-391-ITAT-Mum-SB. Ld Counsel argued in respect of the completed assessment, such as the present one, assessment will be made only on the basis of books of accounts or other documents not produced in the original assessment but in the course of the search and undisclosed income or property discovered in the course of the search. None of these conditions are met by the Revenue before issuing of the notice u/s 153A of the Act or before making additions. Therefore, as per the Ld counsel, the impugned notice is invalid one and additions should be deleted. Fairly referring to the Delhi High Court judgment in the case of CIT vs. Anil Kumar Bhatia vide ITA No.1626/2010, dated 7.8.2012 (Del.), Ld Counsel mentioned that this issue regarding the addition to be made in a completed assessment where no incriminating material was found, was left open. Para 23 of the said judgment is relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing material and the AO should not rely on such reports for issuance of notice u/s 153A of the Act and for making additions u/s 143(3) r.w.s 153A of the Act. As per the Ld Counsel such reports are mere estimates and the additions are not sustainable in the search assessment. In this regard, Ld Counsel relied on the judgment of the Hon‟ble Supreme Court in the case of Assistant Commissioner of Income-tax v. Dhariya Construction Co, 328 ITR 515 which is relevant for the proposition that having examined the records, we find in that case Department sought reopening of the assessment based on the opinion given by the DVO. The opinion given by the District Valuation Officer is not per se information for the purpose of reopening an assessment under section 147 of the Income-tax Act, 1961 . AO has to apply his mind and form a belief there from. The Department was not entitled to reopen the concluded assessment based on such DVO‟s report. Such reports are mere an opinion of the valuer, the third party and never can be equated to the opinion of the AO and relied on the Guwahati High Court judgment in the case of Bhola Nath Majumdar v. Income-tax Officer 221 ITR 608 and the judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition was made u/s 14A of the Act and not based on any seized material found during the search. Though such disallowance was deleted for other reasons but the validity of the notice was upheld in this case. CIT-DR also brought our attention to the judgment of Andhra Pradesh High Court in the case of Gopal Lal Bhadruka vs. DCIT [2012] 27 Taxmann.com 167 (AP) in his favour. Of course, this is the case where assessments completed u/s 158BD of the Act and not u/s 153A as in the present case. Further, Ld DR also filed the judgment of Delhi High Court in the case of Madugula Venu vs. DIT [2013] 29 Taxmann.com 200 (Delhi), which is relevant for the proposition that the notice issued u/s 153A calling upon assessee to file the returns for earlier 6 AYs cannot be challenged on the ground that it would cause certain degree of hardship to assessee. Ld DR has brought our attention to para 7 of the said judgment of the Delhi High Court and mentioned that the section couched in mandatory language which implies that once there is a search, the AO has no option but to call upon the assessee to file the returns of the income for the earlier six assessment years. It is not merely the undisclosed inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eard 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 transactions. The instant case for the AY 2002-03 deals with the case of disturbing the completed assessment‟. Earlier the assessment was completed u/s 143(1) of the Act. Completeness of the summary assessment is considered and held in favour of the assessee vide many judgments cited above. In the assessment u/s 153A, the AO made (i) Addition u/s 68 on account of artificially inflated investment in house duly disclosed in the balance sheet of the assessee ₹ 31,33,070/-; and (ii) disallowance 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me in respect of each assessment year falling within the six assessment years, is merely reading the said provision in isolation and not in the context 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 also necessarily support the interpretation that for the completed assessments, the same can be tinkered only based on the incriminating material found during the course of search or requisition of documents. B. [2012] 28 Taxmann.com 328 (Mumbai Trib.) in the case of Gurinder Singh Bava vs. DCIT . Whether since assessment under section 153A was passed by Assessing Officer on basis of material available in return of income and there was no reference to any incriminating material found during search and since no assessment was abated, asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search but not produced in the course of original assessment, and (ii) undisclosed income or property discovered in the course of search. 14. Thus, in case of the completed assessments either u/s 143(1) or 143(3), the above extracts are uniform in advocating against making additions in routine manner in the assessments made u/s 153A of the Act when there is no incriminating material gathered in the search action. Statutory notice u/s 153A of the Act can also be issued to reiterate the returned income or for making additions based on the incriminating material 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 language, it does not dealt with the relevance or factum of incriminating material. Further, the judgment of Andhra Pradesh High Court in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s belonging to the assesse were found and seized in the premises of the other person. What was found was in the hard disk was only a confirmation of account that an attached annexures. Such documents cannot be said to be books of accounts or documents belonging to the assessee. (b) The Revenue has not produced the record of the searched person to demonstrate that satisfaction was recorded during the course of assessment proceedings in the case of M/s. Global Reality Ventures P. Ltd. On the date of recording of satisfaction, first notice u/s 153(c) was issued. There is no indication whatsoever, that the assessment proceedings in the case of Global Reality Ventures P. Ltd were in progress or not, at the point of time and that the AO during the course of that proceedings recorded this satisfaction. The procedure contemplated under the Act was not followed. (c) The satisfaction is recorded on 23rd July, 2010. The relevant AY would be 2011- 12. The six preceding AYs relevant to this AY would be 2005-06 / 2006-07 / 2007-08 / 2008-09 / 2010-11. Thus, the notice issued u/s 153‟C‟ for the AY 2004- 05 is clearly barred by limitation. (d) Even otherwise, as there is no in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, inasmuch as, in case nothing incriminating is found on account of search or requisition, then the question of reassessment of the concluded assessments does not arise, which would more reiteration . . Thus, the judgment of Hon‟ble High court in the case of Jai Steel Ltd, supra and above decisions of the Tribunal are categorical in concluding that, in case of the concluded assessments like the present one, the additions are made only based on the incriminating material discovered during the search action. The facts of the Jai Steel Ltd (supra) are identical 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 additions u/s 68 and 14A of the Act, which are not backed by the incriminating materials. In the absence of incriminating material, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n All Cargo Global Logistic Ltd. (supra), after analyzing the relevant provisions of the Act, came to the following conclusion and ratio: (a) In assessment that are abated, the Assessing Officer retains the original jurisdiction as well as jurisdiction conferred on him under section 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 under section 153A will be made on the basis of incriminating material which in the context of relevant provisions means books of account, other documents, found in the course of search but not produced in the course of original assessment and undisclosed income or property discovered in the course of search. 7. In this case, the question answered in clause (b) would be applicable as the addition in the assessment order passed under section 153A, can be made only on the basis of incriminating material found in the course of search in case where the assessment has already been finalized. Thus, in this case, no addition can be made over and above the returned income which has become final prior to the date of sear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as jurisdiction under section 153A for which assessment shall be made for each assessment year separately. Thus in case where assessment has abated the AO can make additions in the assessment, even if no incriminating material has been found. But in other cases the Special 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) had expired on the date of search. Therefore, there was no assessment pending in this case and in such a case there was no question of abatement. Therefore, addition could be made only on the basis of incriminating material found during search. Thus, on the facts of the case, we hold that the additions made by the Assessing Officer with regard to unexplained gift of ₹ 10,00,000, made under section 68 and disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that has already been assessed, the assessment under section 153A will be made on the basis of incriminating material which in the context of relevant provisions means books of account, other documents, found in the course of search but not produced in the course of original assessment and undisclosed income or property discovered in the course of search. 7. In this case, the question answered in clause (b) would be applicable as the addition in the assessment order passed under section 153A, can be made only on the basis of incriminating material found in the course of search in case where the assessment has already been finalized. Thus, in this case, no addition can be made over and above the returned income which has become final prior to the date of search and there is no material found at the time of search. The aforesaid Mumbai Special Bench decision of the Tribunal in All Cargo Global Logistic Ltd. (supra) has also been reaffirmed and applied by the co ordinate bench in Gurinder Singh Bawa (supra). The relevant observation of the Tribunal is reproduced herein below: 6. We have perused the records and considered the rival contentions carefully. The dispute raised i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) had expired on the date of search. Therefore, there was no assessment pending in this case and in such a case there was no question of abatement. Therefore, addition could be made only on the basis of incriminating material found during search. Thus, on the facts of the case, we hold that the additions made by the Assessing Officer with regard to unexplained gift of ₹ 10,00,000, made under section 68 and disallowance of ₹ 1,01,300 under section 14A, are beyond the scope of section 153A / 153C. Consequently, we set aside the impugned order passed by the learned Commissioner (Appeals) and on the preliminary ground itself, both the additions are deleted. Thus, the issues arising out of the ground are treated as allowed. 10. Considering the above settled position of the issue, we are of the opinion that the disallowance made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iii) Whether the Ld CIT (A) has erred in relying on the decision of Hon‟ble Jodhpur Tribunal in the case of ACIT vs. Chandresh Kumar Maheswari 120 TTJ 132 Jdh as the facts are distinguishable? iv) Whether on the facts and in the circumstances of the case the Ld CIT (A) was justified in deleting the addition of ₹ 4,90,223/- made on account of unexplained expenses incurred by the assesse for arranging the bogus long term capital gain. v) whether on the facts and in the circumstances of the case and in law, the Ld CIT (A) was justified to accept the genuineness of the questionable share transactions without taking into account the ratio decidendi laid down in the case of Somnath Maini vs. CIT [2008] 306 ITR 414 (P H) which has under similar facts and circumstances held that the burden to prove the genuineness of such transactions was primarily on the assessee and mere leading of evidence by the assessee that the transactions were genuine cannot be treated as conclusive. 13. The issues raised by the Revenue in this appeal relates to the additions made by the AO on account of sale proceeds on shares of Database Finance Ltd‟, which are otherwise accounted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the companies are dead investments as no provisions are made by the management in the accounts and there is no disclosure made by tax auditor in the notes of accounts on this issue. Further, it is found that these companies have realized fully all the investments without any difficulty. II Whether, on the facts and in the circumstances of the case and in law, the ld CIT (A) is justified in not confirming the addition of ₹ 1,38,30,250/- when preponderance of probabilities show that assessee has made unexplained investments and the decision of the Supreme Court in the case of Smt. Sumati Dayal Vs. CIT 80 Taxman 89 is applicable in the facts of this case. III Whether on the facts and in the circumstances of the case and in law, the CIT (A) has erred in directing the AO to re-compute the disallowance u/s 14A by adopting reasonable basis for effecting appointment of the expenditure. IV Whether on the facts and in the circumstances of the case and in law the CIT (A) erred in holding that provisions of Rule 8D does not have retrospective effect by following decision of Mumbai High Court in the case of M/s. Godrej and Boyce Manufacturing Company. 16. The issues raised by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory‟, the value of the investments may be deemed to be the income of the assessee of such financial year . On plain reading of the provision, it is clear that two conditions given in this section are to be satisfied cumulatively i.e. the assessee should have made investment which are not recorded in the books of accounts and the assessee offers either no explanation about the nature and source of investment or explanation offered is not satisfactory in the opinion of the AO. In the present case, the assessee has made investment in the purchase of shares and recorded in the books of accounts. No documentary evidence was found and seized to prove that the assessee has made investment over and above what is reflected in the books of accounts. In section 68 of the Income tax Act, the responsibility is on the assessee to prove the onus of credit entries in the books of accounts, however, u/s. 69 the onus shifts to the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. 69 is not applicable in this case. The first appellate authority possibly realizing this difficulty has chosen to invoke Sec.28(4) and not to give a decisive finding as to whether Sec. 69 is applicable or not. It is not the case of the revenue that the assessee company has paid a certain amount in excess of what is recorded in the books of account for the purchase of the shares. There is not even an allegation, much less any evidence, that the apparent consideration is not the real consideration. The only grouse the revenue authority have is that the assessee company has purchased the shares at a price which is much lesser than the market price which. This, as already stated is not a disputed fact. Thus, on these facts, no addition is sustainable under section 69. In totality of the facts and circumstances, it is held that the shares were purchased by the assessee and family members at lower price than the fair market value. The same price was entered in the books of accounts and no document even in the search was found and seized to prove that any further payment was made over and above the payment shown in the books of accounts. Merely on the basis of the method of account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 934 of 2011, dated 8.1.2013, has held that percentage of the exempt income can constitute a reasonable estimate for making disallowance in the years earlier to the assessment year 2008-09. The relevant portion of the said judgment of the Bombay High Court (supra) reads as under: 4. So far as question (b) is concerned, the Tribunal in its impugned order dated 17.9.2010 while applying the decision of this court in the matter of Godrej (supra) has disallowed the expenditure only to the extent of 2% of the total exempt income earned by the respondent-assessee on the basis its order dated 27.2.2009 for the assessment year 2002-2003 and order dated 10.9.2009 for the Assessment Years 2003-2004 and 2004-2005 wherein disallowance was restricted to 2% of the exempt income. Further; the Tribunal has remanded the matter to the AO to verify the disallowance claimed and restrict the disallowance only to the extent to 2% of the total exempt income. We find no fault with the order of the Tribunal. 21. Considering the binding nature of the judgment and the overall factual matrix of the present case, we restrict the disallowance to 5% of the total exempt income. Accordingly, ground nos.III ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the case of Concold of India Insurance Co. Ltd vs. Smt. Nirmala Devi, 118 ITR 507 and some other decisions of the Hon‟ble High Courts of which are relevant for the proposition that the delay in filing of appeal due to lapse on part of assessee‟s Counsel who was looking after tax matters, is a sufficient cause for condonation of delay. 26. On the other hand, Ld DR vehemently opposed to the reasons given by the assessee for condonation of delay. In this regard, Ld DR relied on certain decisions in general and the decision of the Tribunal, wherein one of us (JM) is a party, in the case of Kunal Surana. Further, it is the submission of the Ld DR that the Cross Objection raised do not question the finding of the CIT (A) on facts. The reasons given by the assessee for condoning the delay are not substantiated. 27. On hearing the above submissions of the Ld Counsel as well as the Ld DR on the Cross Objection, we find that the Cross Objection does not relate to any of the findings of the CIT (A) on merits. As seen above, it is purely on legal issue on validity of addition u/s 153A without any incriminating material. As such, the main ground agitated by the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obabilities show that assessee has made unexplained investments and the decision of the Supreme Court in the case of Smt. Sumati Dayal Vs. CIT 80 Taxman 89 is applicable in the facts of this case. III Whether on the facts and in the circumstances of the case and in law, the CIT (A) has erred in directing the AO to re-compute the disallowance u/s 14A by adopting reasonable basis for effecting appointment of the expenditure. IV Whether on the facts and in the circumstances of the case and in law the CIT (A) erred in holding that provisions of Rule 8D does not have retrospective effect by following decision of Mumbai High Court in the case of M/s. Godrej and Boyce Manufacturing Company. 31. The issues raised by the Revenue in ground no. I II of this appeal relates to the additions made by the AO on account of undisclosed investment in shares of Dunstan Goods Pvt. Ltd. amounting to ₹ 2,37,89,500/- which are otherwise accounted in the books of accounts. No incriminating material suggesting the bogus nature of the transactions is brought to our notice by the Revenue. Considering the same, the CIT (A) deleted the addition by giving reasons and allowed the appeal of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applying the decision of this court in the matter of Godrej (supra) has disallowed the expenditure only to the extent of 2% of the total exempt income earned by the respondent-assessee on the basis its order dated 27.2.2009 for the assessment year 2002-2003 and order dated 10.9.2009 for the Assessment Years 2003-2004 and 2004-2005 wherein disallowance was restricted to 2% of the exempt income. Further; the Tribunal has remanded the matter to the AO to verify the disallowance claimed and restrict the disallowance only to the extent to 2% of the total exempt income. We find no fault with the order of the Tribunal. 36. Considering the binding nature of the judgment and the overall factual matrix of the present case, we restrict the disallowance to 5% of the total exempt income. Accordingly, ground nos.III and IV raised by the Revenue are partly allowed. 37. In the result, appeals of the Revenue are partly allowed. C.O.No.184/M/2013 (Arising from I.T.A. No.4530/M/2011) (AY: 2006-2007) (By assessee) 38. This Cross Objection filed by the assessee (Shri Devesh Agarwal) on 19.8.2013 against the order of the CIT (A)-41, Mumbai dated 25.3.2011. In this Cross Objection the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, Ld DR vehemently opposed to the reasons given by the assessee for condonation of delay. In this regard, Ld DR relied on certain decisions in general and the decision of the Tribunal, wherein one of us (JM) is a party, in the case of Kunal Surana. 42. On hearing the above submissions of the Ld Counsel as well as the Ld DR on the Cross Objection, we find that the Cross Objection does not relate to any of the findings of the CIT (A) on merits. As seen above, it is purely on legal issue on validity of addition u/s 153A without any incriminating material. As such, the main ground agitated by the Revenue in their appeals is already decided in favour of the assessee. Therefore, the admission and adjudication of the legal ground is academic in nature. Further, we find that the reasons given by the assessee for condonation is not supported by the supporting evidences. Ex consiquenti, we dismiss the Cross Objection as not maintainable without going into the merits of the same. 43. In the result, Cross objection of the assessee is dismissed. 44. Conclusively, in the case of Shri Deepak Agarwal, assessee‟s appeals for the AYs 2003-04 to 2005-06 are allowed and Cross Objection ..... X X X X Extracts X X X X X X X X Extracts X X X X
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