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TMI Blog2014 (4) TMI 1133X X X X Extracts X X X X X X X X Extracts X X X X ..... l first deal with the grounds raised by the Revenue in its appeals. The grounds raised by the revenue in its appeals are common grounds and therefore we deem it proper to pass a consolidated order. ITA No.903/Bang/2013 (AY 2004-05) 3. Ground No.1 raised by the revenue is general in nature and calls for no adjudication. 4. Grounds 3 & 4 deal with the issue of allowing depreciation on DG Sets, transformers, photocopier system and security camera. 5. The assessee is a company engaged in the business of engineering, property development, contractors, designers and incidental activities in relation to properties. There was a search action u/s. 132 of the Act carried out in the case of Mr. Yunus Zia, Mr. Ziaulla Sheriff and M/s. India Builders Corporation on 17.6.2008. In the course of search, certain documents belonging to the assessee were found. The documents were accordingly considered by the AO for initiating proceedings and making assessment u/s. 153C of the Act. The assessee was incorporated in the previous year relevant to A.Y. 2004-05 and therefore proceedings u/s. 153C of the Act was initiated for the A.Ys. 2004-05 and upto 2008-09. 6. The assessee had let out premi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of maintenance amenities for which he received a separate fee. The AO's contention was that items like Elevators, transformers, DG sets etc., are integral to a modern commercial building. The assessee has pointed out that in the assessment order the AO has computed such income under the head 'Profits and gains of business and profession' and therefore, depreciation is to be allowed. The Clause 3(c) of the Agreement mandates the assessee to furnish various facilities and clause 3(f) specifics the consideration for such facilities. In this case, it is necessary to examine the relevant provisions of the Agreement between the owner of the property and the user (tenant). The assessee was supposed to provide services like lift, transformer, DG sets which require employment of personnel to discharge such responsibility. The various arrangements that the assessee has to make on a day to day basis to ensure availability of services and amenities to the user (tenant) in accordance with the Agreement reflects a clear manifestation of organized activity and therefore the income appears to have been correctly computed. In our view, denying depreciation on lift is not justified whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the setting up of the interiors on behalf of M/s.Accenture Services Pvt. Ltd. This fact is also not denied by the revenue. When this being the actual position it is impossible to carry out the supervision activity without the help of the consultants and other recurring expenses. Merely because the assessee could not directly identify expenses incurred under the head 'professional charges', it cannot be concluded that no expenses have been incurred. At the time of hearing, learned DR supported the orders of the authorities below whereas the learned counsel for the assessee pointing out to several details filed in the paper book contended that at least 25% of the gross fee should be allowed as expenses. According to the revenue, the expenses incurred under the head professional charges of Rs. 1,29,08,375/- are to be disallowed as it is not meant for construction management. These expenses include a sum of Rs. 69,59,621/- being the expenses like advertisement, sales promotion etc. The income from construction management has been assessed under the head 'income from other sources. It was also stated that tax has not been deducted at source. 14. On going through various records, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Since he was of the view that loans on which interest was paid was not used for the purpose of constructing or acquiring the property, the claim for deduction on account of interest was disallowed by the AO. 16. On appeal by the assessee, the CIT(Appeals) relying on the order of the Tribunal in assessee's own case for the A.Y. 2004-05 in ITA No.1079/Bang/2008 dated 27.2.2009, deleted the addition made by the AO. 17. Before us, it is not in dispute that identical issue has already been considered by the Tribunal in the case relied upon by the CIT(A). The relevant observations of the Tribunal were as follows:- "7. The next issue in the revenue's appeal relates to disallowance of interest of Rs. 72 lakhs. The learned DR contended that as there was no income from business in respect of sale of building, interest cannot be allowed. He further submitted that perusal of the investment funds as made out by the AO as also replied by the assessee, revealed that the entire transaction carried out only for acquiring land and constructing property and leasing out. The assessee had not established that any business has been carried out. Under sec.24, only interest on amount borrowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seen that the sum of Rs. 72 lakhs is not with reference to any particular project. This is apparent from the finding of the AO in para 4 and 5 of the assessment order. The AO had noted the following in his order: Particulars Amount (In Crores) Investment in fixed assets 52.56 Advance for acquiring the property 10.05 Fixed deposit towards bank guarantee 1.00 Advance to suppliers and contractors 4.36 Deposit with Government authorities 0.68 Prepaid expenses 0.04 Advance for acquisition of property 45.19 Total 114.45 The AO had stated that out of the above, a sum of Rs. 52.56 crores relates to the towers which have been let out and proportionate interest is allowed u/s 24. The balance of Rs. 72 lakhs was disallowed on the ground that the building in respect of which the loan is taken has not been let out. The Learned counsel for the assessee submitted that the major portion of other advance is towards acquiring properties. The projects in these properties have not yet commenced. Learned counsel for the assessee relied on the order of this Tribunal in the case of K.Raheja Development Corporation in ITA NO.240/1997 wherein it has been held that where interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in directing the AO to allow the interest. 10. We have heard rival submissions and perused the records. The assessee had filed letter dated 30-9 2006 before the AO which was furnished to the learned CIT(A) as well. It was specifically pointed out to para,21 of the letter wherein it is stated that the detailed working of interest on borrowings for Tower A are furnished. It was further submitted that Tower A had been let out and the interest pertaining to this amounting to Rs. 1,91,14,354/- was paid during the previous year. Considering this factual position, the learned CIT(A) held as under: " He further cited two Supreme Court decisions viz. (i) CIT vs Shoorji Vallahhdas & Co. (46 ITR 144) and (ii) Kedarnath Jute Manufacturing Co. Ltd. V. CIT (82 ITR 363) to claim that treatment of expenditure in the books of account does not determine the allowability or otherwise of an expenditure. I have considered the submissions and the facts. It is by now settled that taxability of an income is not determined by the nomenclature given to it by the assessee but by its true nature. By the same logic it appears to reason that treatment of expenditure in the books of account by an asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds are identical to grounds No.3 & 4 decided for the A.Y. 2004-05. For the reasons stated therein, these grounds of appeal of the revenue are dismissed. 30. Ground No.5 reads as follows:- "5. The learned CIT(A) erred in allowing a sum of Rs. 1,17,39,685/- being the capitalized amount of interest which was not routed through the profit and loss account, without appreciating that the same was not an allowable deduction under section 24 of the Income-tax Act, 1961." 31. This ground is identical to ground No.9 raised by the revenue in A.Y. 2004-05. For the reasons stated while deciding similar ground in A.Y. 2004-05, this ground of appeal raised by the revenue is dismissed. 32. Grounds 6 & 7 raised by the revenue are general in nature and call for no specific adjudication. 33. In the result, the appeal by the revenue is dismissed. 34. Ground Nos.1 & 2 are identical to ground Nos.1 & 2 raised by the revenue for the A.Y. 2004-05. Ground Nos. 3 & 4 relate to depreciation on DG Sets, transformers etc. These grounds are identical to grounds No.3 & 4 decided for the A.Y. 2004-05. For the reasons stated therein, these grounds of appeal of the revenue are dismissed. 35. Ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed. If the searched premises also happen to be the premises from where another person is carrying on business, obviously documents belonging to such person would also be found there. In this regard the learned counsel pointed out that the persons searched and the premises which were searched was also occupied by the Assessee as its corporate office. In other words, the premises searched was used in common by the persons who were subjected to a search u/s.132 of the Act as well as by the Assessee. It was his contention that in order to assume jurisdiction under section 153C of the Act, it is necessary to prove that the documents found in the premises of the searched person ought not to have been there because they belong to somebody else. In order to ensure that such other person has disclosed the income, section 153C of the Act provides for a special procedure wherein such other person should also be subject to the rigors of a search assessment. Our attention was drawn to the decision of the Hon'ble Delhi High Court in SSP Aviation Limited vs DCIT 346 ITR 177 at page 189, para 17 wherein the Hon'ble Court explaining the rationale of section 153C of the Act observed that the sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of search in the forefront. Therefore, it was submitted that unless the documents seized prima facie shows undisclosed income, section 153C of the Act cannot he invoked. It was further submitted that in any case, before the satisfaction under section 153C of the Act, the AO must make enquiries and find out prima facie the documents represents undisclosed income. 43. Without prejudice to the above, the assessee submitted that it is not necessary that an assessment under section 153A read with section 153C should necessarily be made in respect of each of the six assessment years referred to in section 153C. Even if it is assumed that section 153C applies if merely the documents are found without them being incriminating in nature, the assessment under section 153A read with section 153C can be made only in respect of those assessment years covered by the documents. In this regard our attention was drawn to the remand report dated 30/10/20I2 of the AO filed before CIT(A) in which the documents pertain to previous year ended 31/03/2007 were alone found and the relevant assessment year is 2007-08. Similarly the other documents pertaining to assessment year 2004-05, 2006-07 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a 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 within the period of six assessment years referred to in this sub-section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate. (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 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or (b) a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under subsection (2) of section 143 has expired, or (c) assessment or reassessment, if any, has been made, before the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person, such Assessing Officer shall issue the notice and assess or reassess total income of such other person of such assessment year in the manner provided in section 153A." 46. A plain reading of the aforesaid provisions show that the provisions of section 147, 148, 149, 151 & 153 stand over-ridden when the provisions of Sec.153A and 153C of the Act are applicable. Sec.153C of the Act will apply in a case where the AO of the person who is subjected to search u/s. 132 of the Act, finds that the documents found in the course of such search belong to a person other than the person who was searched; In such case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e do not think that the proposition canvassed by the learned counsel for the Assessee can be accepted. 48. With regard to the argument of the ld. counsel for the assessee that the documents seized should prima facie show undisclosed income to invoke the provisions of section 153C of the Act, we are of the view that the same cannot be accepted. In this regard, the decision of the Hon'ble Delhi High court in the case of SSP Aviation ltd. v. DCIT, 346 ITR 177 (Del), clearly lays down that at the time of arriving at a satisfaction for proceeding against the other person u/s. 153C of the Act, it is not necessary that satisfaction should be recorded that such article or documents found in the course of search showed undisclosed income. 49. The next argument of the ld. counsel for the assessee was that proceedings u/s. 153A r.w.s. 153C should not be initiated for all the six assessment years and it should be restricted only to the assessment years relating to the incriminating documents found at the time of search. We are unable to appreciate this argument for the simple reason that once the condition for invoking the provisions of section 153C are satisfied, then the AO has to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cs Limited case squarely applies. As can be seen from the appellate orders, the additions made in the assessment order under section 153A read with section 153C are identical to the ones made in assessment order made on 27/12/2006. Since no undisclosed income has been found in respect of assessment year 2004-05, the assessment made under section 153A r.w. Sec.153C of the Act, is liable to be quashed. We are of the view that the ratio laid down by the Special Bench in the case of All Cargo Global Logistics Limited case will squarely apply to the Assessment made u/s.153C of the Act for AY 04- 05. Since already an assessment was made u/s.143(3) of the Act for this AY 04-05 prior to the Search, the assessment u/s.153C of the Act for AY 04-05 can be only in relation to undisclosed income detected as a result of search and no other income. The CIT(A) ought to have quashed the assessment on this ground as the additions made in the order u/s.153C of the Act for this assessment year do not emanate from the searched documents nor are they undisclosed income by nature. A.Y. 2005-06 52. In this year, the original return was filed in October 2006. Though order under section 143(3) was not pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd during the search, the assessment under section 153A of the Act is bad in law. 54. Reference was also made to the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Anil Kumar Bhatia 352 ITR 493 (Del) to para 19 to 21 wherein the Hon'ble Court by implication equated an intimation u/s.143(1) and order or assessment u/s.143(3) of the Act, as follows: "19. Under the provisions of Section 153A, as we have already noticed, the Assessing Officer is bound to issue notice to the assessee to furnish returns for each assessment year falling within the six assessment years immediately preceding the assessment year relevant to the previous year in which the search or requisition was made. Another significant feature of this Section is that the Assessing Officer is empowered to assess or reassess the "total income" of the aforesaid years. This is a significant departure from the earlier block assessment scheme in which the block assessment roped in only the undisclosed income and the regular assessment proceedings were preserved, resulting in multiple assessments. Under Section 153A, however, the Assessing Officer has been given the power to assess or reassess the 'tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at intimation u/s.143(1) of the Act is also an assessment. Therefore, it was submitted that if any intimation has been issued under section l43(1)(a), the assessment is not pending. If the assessment is not pending, it is not abated. S.153 A is applicable to abated assessments only to the extent of assessing undisclosed income based on seized incriminating documents. It is also clear from the facts that no notice under section 143(2) was issued before the date of search. Therefore, it was pleaded that assessment made u/s. 153A r.w.s. 153C is liable to be quashed. 56. To appreciate the contention raised by the learned counsel for the Assessee, we need to look into the question of law and the factual background in which the aforesaid observations were made by the Hon'ble Delhi High Court in para 20, in the case of Anil Kumar Bhatia (supra) on which strong reliance was placed. One of the questions of law considered by the Court was, whether the Income Tax Appellate Tribunal was right in holding that the Assessing Officer had wrongly invoked Section 153A of the Income Tax Act, 1961?. The factual background in which the aforesaid question arose was the Tribunal found that in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch of the assessee, then Section 153A is triggered. Once the Section is triggered, it appears mandatory for the Assessing Officer to issue notices under Section 153A calling upon the assessee to file returns for the six assessment years prior to the year in which the search took place. There are contradictions in the order of the Tribunal. We are unable to appreciate how the Tribunal can say in Para 9.6 that no material was found during the search and at the same time in Paragraph 10 deal with the merits of the additions based on the document recovered during the search which allegedly contain the loan transaction with Mohini Sharma. Therefore, both the reasons given by the Tribunal for holding that the assessments made under Section 153A were bad in law do not commend themselves to us. The result is that the first substantial question of law is answered in the negative, in favour of the Revenue and against the assessee. (emphasis supplied) 57. In the light of the above reasoning of the Hon'ble Delhi High Court given in para-22 of its judgment, it cannot be said that the Hon'ble Delhi High Court has held that for the purpose of Sec.153A/153C of the Act an intimation u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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