TMI Blog2016 (9) TMI 1290X X X X Extracts X X X X X X X X Extracts X X X X ..... st search on 19.07.2007 and no new incriminating material was found or unearthed during search u/s 132(1) of the Act, having being brought on record before the Tribunal and the assessment framed vide orders dated 31.12.2009 being concluded assessment as framed prior to date of second search on 29/03/2011, we are of considered view that the concluded assessments in the instant appeal cannot be disturbed on the same set of material facts as prevailing when the assessment was framed u/s 153A read with Section 143(3) of the Act on 31.12.2009 in pursuant to first search on 19.07.2007 and hence, we dismiss the appeal filed by the Revenue - Decided in favour of assessee - I.T.A. No. 2151 & 2153/Mum/2015 - - - Dated:- 30-9-2016 - R. C. Sharma (Accountant Member) And Sandeep Gosain(Judicial Member) For the Appellant : Vijay Mehta, Anuj Kisnadwala For the Respondent : N. P. Singh ORDER Sandeep Gosain (Judicial Member) There are two appeals under consideration. These appeals are filed by the assessee against the orders of CIT(A)- 52, dated 23.01.2015 for the Asst Year: 2005-2006 and 2008-09. Since, the issues raised in these two appeals are identical, except for yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter dated 18.07.2007. It has been mentioned that no addition can be made, in respect of non-abated year, in the absence of any incriminating material was raised before CIT(A). However, the assessee intend to raise additional ground that disallowance made by AO is bad in law and in this respect contents of letter are reproduced below: Kindly refer to the above matter which has been fixed for hearing on 18.07.2016. the said appeal arises out of the order of the assessing officer passed u/s 143(3) of the act on 28.03.2013. in the appeal against the said order, a ground challenging that no addition can be made, in respect of non abated year, in absence of any incriminating material found during the course of search was raised before the ld. CIT(A) but the same was dismissed. Aggrieved by the order of the learned CIT(A), the assessee has filed the present appeal before Your Honours. In the grounds of appeal filed before Your Honours, ground no.1 challenges that the disallowance made by the assessing officer is bad in law. It is submitted that the assessee intends to raise a ground stating that the additions made by the Assessing Officer are bad in law since they are not based o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring on behalf of assessee submitted before us that for non-abated year wherein assessment was completed u/s 143(1) of the Act, an addition to the income can be made in an assessment made u/s 153A/153C of the Act only on the basis of material found during the course of search. In this respect ld. AR mentioned the chronology of events which are reproduced below: Sr. No. Particulars A.Y. 2005-06 1. Original return filed u/s 139 of the Act 31.08.2006 2. Time limit for issuing notice u/s 143(2) of the Act 31.08.2007 3. Search and seizure action u/s 132 of the Act 29.03.2011 6.1 From the afore mentioned chronology it is reflected that the present assessment is non abated. Ld. AR relied upon the following judgments in order to show that no addition in the income can be made in any assessment u/s 153A/153C of the Act without any incrementing material found during the course of search: 1. All Cargo Global Logistics (374 ITR 645 (Bom)] 2. CIT v. Kabul Cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the case and in law, the CIT(A) was correct in holding that there existed a nexus between the interest expense and interest income solely on the basis of the Bank Statements. 2. The Appellant craves to leave, to add, to amend and/or to alter any of grounds of appeal, if need be. 3. The Appellant, therefore, prays that on the grounds stated above, the order of the CIT(A)-40, Mumbai may be set aside and that of the Assessing Officer restored. . 3. We shall take Revenue's appeal in ITA No. 3187/Mum/2014 for the assessment year 2007-08 as lead appeal. 4. The Brief facts of the case are that the assessee is Managing Director of Kanakia Spaces Pvt. Ltd. and in-charge of the project planning and construction activity. The Kanakia Group is primarily engaged in the real estate, hospitality, entertainment and education sectors of the economy. The assessee group has numerous commercial and residential projects in Mumbai with quality construction and layouts. . 5. There was a search and seizure action u/s 132 of the Income Tax Act, 1961 (Hereinafter called the Act ) conducted by the Investigation Unit- V(2) , Mumbai, on 29-03-2011 at the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce net interest of ₹ 2,76,529/- to tax along with certain other disallowances , as assessed in the order dated 31-12-2009 passed u/s 143(3) read with section 153A of the Act pursuant to the first search conducted by Revenue on 19-07-2007. The A. O. observed that the assessee claimed deduction against income from other sources u/s 57(iii) of the Act, which stipulates as under:- (iii] any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income . The A. O. observed that the expenditure claimed by the assessee as a deduction against income from other sources has to be expended wholly and exclusively for earning such income. The assessee was show caused vide notice dated 12.03.2013 to explain the claim of deduction of interest expenses against the interest income , the assessee replied vide letter dated 25-3-2013, which is reproduced below:- This is in reference to your Show Cause Notice u/s. 142 (1) of the Income tax Act, 1961 dated 12.03.2013. In response to the said notice, under the instructions from our above client, we submit as under: Regarding inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preciate that the special bench of Mumbai ITAT in the case of All Cargo Global Logistics Ltd. v. Deputy Commissioner of Income-tax, Central Circle-44 [2012J 23 taxmann.com 103 (Mum) (SB) held that in case of assessments which do not abate pursuant to issue of notice under section 153A. in addition to income that has already been assessed. assessment will be made on basis of incriminating material found in course of search but not produced in course of original assessment and undisclosed income or property discovered in course of search. In view of the above decision, in the absence of any incriminating material in the case of the assessee, no further disallowance of interest is possible and accordingly no disallowance of such interest can be made in the case Of the assessee. We hope that above explanations will meet your requirements. The A. O. after considering the replies of the assessee held that the assessee is not able to establish the nexus between the funds used for giving interest bearing loans to other parties, on which interest has been earned; and the funds which have been taken on interest bearing loan from other parties. The AO held that only if the fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent view than the view taken in the earlier assessments even if the assessments have been earlier completed u/s 143(3) r. w.s .. 153A of the Act and the assessment cannot be restricted to the seized material only. As per AO, the mandate of section 153A of the Act gives the assessee an opportunity to file his correct return of income once again after the search has been conducted and it does not absolve the assessee of the responsibility to furnish the correct return of income as per the provisions of law. The A O. held that it is the mandate of the law that the A O. shall assess or reassess the total income of the assessee in the six immediately preceding assessment years, in respect of the year of search. The Ao shall assess or reassess the total income of six assessment years immediately preceding the search year. Thus the A O. in the assessment proceedings u/s 153A of the Act shall examine all the issues that could be taken up in pursuance of filing of regular return of income and the concept of undisclosed income does not prevail any longer while framing the assessments/reassessments under the provisions of section 153A of the Act. The legislature has purposely omitted the undi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in earlier years and an amount of ₹ 38, 19,800/- on the difference of average loan taken on which interest was paid vis-a-vis average loan given on which interest was received , at the rate of 12%. Besides, the assessee disallowed voluntarily an amount of 9,92,861/- as interest u/s 14A of the Act and this was accepted by the A. O. during the course of search assessment proceedings u/s 153A of the Act pursuant to first search u/s 132(1) of the Act initiated in the year 2007, vide order dated 31-122009. The assessee submitted that the A. O. failed to consider that the search u/s 132(1) of the Act was for the first time carried out on 19.07.2007 and vide the assessment order framed u/s 153A of the Act dated 31-12- 2009, such claim of the assessee has been examined in detail by the A.O. who allowed the same. The assessee further submitted that no incriminating material was found or unearthed during the course of second search conducted on 29-3-2011 and as entire issue had already been examined in detail during the course of the earlier search assessment proceedings pursuant to the first search carried out u/s 132(1) of the Act on 19.07.2007, disallowance made is uncalled for as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he second time on 29-3-2011 and no new material facts have been brought on record in the assessment proceedings, the addition cannot be sustained and the A. O. 's action in disallowing the claim of the assessee toward interest is totally unjustified and unwarranted. The CIT(A) also observed that since the assessee is offering income from interest, equity demands that any expenditure incurred in the nature of interest on loan taken should also be allowed. The facts revealed that the funds have come to the bank account of the assessee and the loans have been given from the same bank account of the assessee, therefore, the flow of funds i.e. incoming and outgoing is not in dispute. Since the issue has already been examined in the hands of the assessee at the time of earlier search assessment's u/s 153A read with Section 143(3) of the Act vide order dated 31-12-2009 and there is no reason to disallow such a claim two years later through another assessment orders on same set of material facts and further no incriminating material having been found or unearthed against the assessee during the course of second search proceedings u/s. 132(1) of the Act on 29.03.2011, rule of consis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act in respect of first search on 11th September, 2008 and the assessment order was passed u/s 143(3) r.w.s. 153(A) of the Act on 31-12-2009. The ld. Counsel submitted that the assessments have been concluded in the case of the assessment year 2007-08 on 31.12.2009 which is prior to the date of second search on 29-03-2011 and hence the assessment for the assessment year 2007-08 are concluded assessments which cannot be disturbed on same set off acts while framing assessment u/s 153A r.w.s. 143(3) of the Act in pursuant to second search unless there is any incriminating material found or unearthed during the course of second search on 29-03-2011. The ld. Counsel stated before us that there is no incriminating material found or unearthed during the course of second search conducted on 29-3-2011 with respect to the issue in dispute i.e. allowability of claim of deduction of interest paid on loans borrowed against interest income on loan advances by the assessee, hence, in view of the ratio of decision of Special Bench of ITAT in the case of All Cargo Global Logistics Ltd. v. DCfT [2012J 23 taxmann.com 103 (Mum) [SBJ, this addition of ₹ 47,22,282/- being disallowance of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l found in course of search but not produced in course of original assessment and undisclosed income or property discovered in course of search. The decision of Hon'ble Bombay High Court in the case of crr v. Continental Warehousing Corporation (Nhava She va) Limited (2015) 58 taxmann.com 78 (Bombay) is also squarely applicable to the instant appeal whereby Hon'ble Bombay High Court has held that no addition can be made in respect of assessments which have become final if no incriminating material is found during search. The Hon'ble Delhi High Court in the case of crr v. Kabul Chawla (2015) 61 taxmann.com 412(Delhi) has taken a similar view by holding that completed assessments can be interfered with by Assessing Officer while making assessment under section 153A of the Act only on basis of some incriminating material unearthed during course of search which was not produced or not already disclosed or made known in course of original assessment. However, We also note that in the case of crr v. Continental Warehousing Corporation (Nhava Sheva) Ltd., Hon'ble Supreme Court has granted special leave and admitted appeal of Revenue in SLP No. (C) No. 18506 of2015, da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assesse has received interest of ₹ 99,01,472/- on the average value of loans given during the year ₹ 8,25,12,267/- as against, the assesse has paid interest of ₹ 95,34,933/- (excluding the interest of ₹ 90,000/- paid to Shri M.J. Chotani as discussed above) on average value of loan received during the year of ₹ 11, 43, 43, 933/- {excluding the loan of ₹ 5, 00,000/- received from Shri M.J. Chotani). The assessee has paid excess interest ₹ 38,19,800/- (@ 12% on the excess average value of loans given of ₹ 3,18,31,666/-). Keeping in view of the facts of the case, the interest of ₹ 38,19,800/- is disallowed out of interest paid. Thus, as could be seen from the above that the AO has duly examined the claim of the assessee with respect to the deduction of interest expenses on loan borrowed from the interest income earned from the loans advanced and has disallowed ₹ 38,19,800/- and ₹ 90,000 out of the interest expenditure claim of ₹ 96,24,943/-. Apart from the above, the assessee has also voluntarily offered disallowance of interest of ₹ 9,92,861/- u/s 14A of the Act. Thus, the assessee claimed d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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