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TMI Blog2016 (2) TMI 1060X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 3192/Mum/2014 for the assessment year 2005-06 as lead appeal. 4. The Brief facts of the case are that the assessee is Chairman of Kanakia Spaces Pvt. Ltd. and is in-charge of the overall administration and business development . The Kanakia Group is primarily engaged in the real estate, hospitality, entertainment and education sectors of the economy. 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 business and residential premises of the Directors of the assessee's group companies which was concluded on 24-05- 2011. During the course of the search proceedings u/s 132(1) of the Act, cash of Rs. 7,12,340/- along with jewellery of Rs. 2,57,80,635/- was found from the residential premises of the assessee. The cash of Rs. 6,00,000/- wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst 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 interest expenses claimed against interest income, we reply is as under- We have to drew your honour's attention towards the fact that similar issue was already considered in the order that was passed in connection with the earlier search. Since, order was passed under section 153A, it was also passed with the approval of the then Learned Additional Commissioner Income Tax, Central Range - 7, Mumbai. We draw your honour's attention to the order for AY, 2007-08 that was passed u/s. 153 A on 31/12/2009. Relevant part from the said order is reproduced as under: "I have considered the submission of the assesse and the facts and circumstances of the case. The assesse has paid interest of Rs. 54,000/- to Shri L H Joshi on a loan of Rs. 3,00,000/- @ 18%. The interest paid to Shri L H Joshi was disallowed for the reasons discussed in earlier assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had failed to establish this nexus at all. The necessary and sufficient condition laid down in the statute is not satisfied and the AO held that he has reasonable belief that the capital of the assessee has been utilized for the other purposes and therefore the assessee is not entitled to claim deduction u/s 57(iii) of the Act and thus the deduction of Rs. 91,87,619/- claimed by the assessee was disallowed by the A.O. vide assessment orders dated 28-03-2013 passed u/s 153A of the Act read with Section 143(3) of the Act. The A.O. also considered the alternative submission of the assessee that there is a change of opinion with respect to the claim of interest in comparison to the last assessment completed u/s 153A of the Act vide orders dated 31.12.2009. The assessee vide letter dated 25-3-2013 has submitted that similar issue was considered while passing the order dated 31.12.2009 u/s 153A of the Act which was passed with the approval of Addl. CIT, Central Range -7, Mumbai. The assessee has also relied upon the decision of Special Bench decision of ITAT in the case of All Cargo Global Logistics Ltd. v. DCIT (2012) 23 taxmann.com 103 (Mum)[SB] and the relevant extracts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar may be undergoing the process of reassessment, it can still be assessed afresh on the basis of the material which was already on record at the time of completion of the original assessment. The AO held that the issue of 'incriminating document found during the course of search is not a binding principle on the AO. The A.O. relied upon the ratio of the decision of Hon'ble Delhi High Court in the case of CIT v. Anil Kumar Bhatia delivered on 7th August, 2012 and held that the decision of Special Bench of ITAT in the case of All Cargo Global Logistics (supra) is contrary to the decision of Hon'ble Delhi High Court's decision (supra) and since decision of Hon'ble Delhi High Court is a later decision, it shall supersedes the Special Bench decision dated 06-07-2012 in the case of All Cargo Global Logistics (supra). The AO held that the total income can be assessed de-novo of the assessee based upon sound reasoning and a well reasoned order, on any issue, hence, the alternative contention of the assessee is rejected and interest income is assessed at Rs. 92,99,866/- and claim of deduction of interest of Rs. 91,87,619/- against interest income was disallowed vide assessment order dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eds to be followed in the income tax proceedings. The assessee relied on the following case laws to support its contentions:- "(i) Radha Swami Satsang v. ClT (1962) 193 ITR 321 (SC) (ii) ClT v. Darius Pandole (2011) 330 ITR 485 (Bom) (iii) DCIT v. Gujarat Narmada Valley Fertilizers Co. Ltd. (2013) 215 Taxman 616 (Gujarat) (iv) Consolidated Fibres & Chemicals Ltd. v. ClT - 273 ITR 353 (Cal.) (v) ClT, West Bengal-3 v. Rajan Prasad Moody - 115 ITR 516 (vi) ClT v. Sujani Textile Pvt. Ltd. - 151 ITR 653 (vii) ClT v. Amritaben Shah - 238 ITR 777 (Del.) (viii) ClT v. Neo Poly Pack Pvt. Ltd. - 245 ITR 492 (ix) Parshuram Pottery Works Co. Ltd. v. ITO - 106 ITR 1 (SC)" Thus, the assessee contended that the addition of Rs. 78,51,111/- made by the AO to the income of the assessee needs to be deleted on account of consistency as no new material fact has come on record. The CIT(A) after considering the facts of the case and submission of the assessee and the orders of the A.O. observed that the earlier search and seizure action u/s 132(1) of the Act was carried out in the year 2007 on 19.07.2007 and subsequently the assessment order u/s 153A read with section 143(3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t an amount of Rs. 54,000/- in case of Sh. L H Joshi , from whom a loan of Rs. 3,00,000/- was taken in earlier years, which has been treated as unexplained, and , therefore the interest paid to him is being disallowed, which has been accepted by the assessee. Further disallowance of Rs. 12,82,508/- u/s 14A of the Act on investment in shares amounting to Rs. 6.49 crores , dividend income from which has been claimed as exempted income . The total disallowance of interest of Rs. 13,36,508/- which has been voluntarily disallowed by the assessee appears to be fair and reasonable. The CIT(A) on perusal of Bank statement of the assessee gave categorical finding that by an large , there is direct and strong co-relation between loan given and taken. The CIT(A) observed that the AO has not doubted the genuineness of loan taken and loan given. Thus, as per CIT(A) addition of Rs. 78,51,111/- is unsustainable and unjustified and directed the A.O. to delete the same vide orders dated 18.02.2014. 9. Aggrieved by the orders of the CIT(A) dated 18.02.2014, the Revenue is in appeal before the Tribunal. 10. The ld. CIT-D.R. relied upon the order of the A.O. and contended that the A.O. has rightly d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the Revenue in all these appeals filed with the Tribunal reads as under:- "1. Whether on the facts and 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 interest expenses claimed against interest income, we reply is as under We have to drew your honour's attention towards the fact that similar issue was already considered in the order that was passed in connection with the earlier search. Since, order was passed under section 153A, it was also passed with the approval of the then Learned Additional Commissioner Income Tax, Central Range - 7, Mumbai. We draw your honour's attention to the order for AY, 2007-08 that was passed u/s. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision, 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 assesse. 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 funds taken on interest bearing loan, were advanced by the assessee to other parties from whom he is charging interest; can he claim deduction of interest paid on interest earned, as per law. The AO held that the assessee's submission is completely silent on the aspect of nexus between the funds as above and hence the assessee had failed to establish this nexus at all. The necessary and sufficient condition laid down in the statute is not satisfied and the AO held that he has reasonable belief that the capital of the assessee has been utilized for the other purposes and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total income of the assessee in the six immediately preceding assessment years, in respect of the year of search. The A.O. 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 undisclosed income from the new provisions therefore the assessment or reassessment shall be made as a normal scrutiny assessment u/s 143(3) of the Act, taking into effect the material/documents found in the course of search action, if any. The A.O. held that assessment includes reassessment and therefore even if the income of an earlier year may be undergoing the process of reassessment, it can still be assessed afresh on the basis of the material which was already on record at the time of completion of the original assessment. The AO held that the issue of 'incriminating document found durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 it amounts to change of opinion at the end of A.O. to the same material facts and hence the addition made is unjustified. The assessee submitted before the CIT(A) that the order passed u/s 143(3) read with Section 153A of the Act dated 31-12-2009 and present assessment orders dated 28.03.2013 passed u/s 153A of the Act read with Section 143(3) of the Act, there is no change in the material facts. Earlier the A.O. was convinced that there is nexus between the interest income and interest expenses and since the order passed with the approval of learned Addl. CIT, the same finding needs to be accepted by the successor officer unless there is any n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue 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 consistency has to be followed as laid down by several decisions referred to by the assessee , the CIT(A) held that interest expenditure on loan taken is a valid and allowable claim in the eye of law and should be allowed. The CIT(A) also held that the assessee has voluntarily disallowed total interest of Rs. 49,02,661/- (Rs.90,000 + Rs. 38,19,800/- + Rs. 9,92,861/- ) in the return of income filed by the assessee appears to be fair and reasonable. The assessee has offered for taxation interest income of Rs. 51,79,190/- . The CIT(A) observed that in the current year average loan taken works out to Rs. 11,48,43,933/- and average loan given works out to Rs. 8,25,12,267/-, thus the difference of Rs. 3,23,31,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse 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. DCIT [2012] 23 taxmann.com 103 (Mum) [SB] , this addition of Rs. 47,22,282/- being disallowance of the interest cannot be sustained. The ld. Counsel further relied upon the order of the CIT(A). 12. We have considered the rival contention and also perused the material available on record. We find that this issue of allowability of deduction of interest paid on loan borrowed by the assessee amounting to Rs. 47,22,282/- against the interest income of Rs. 99,01,472/- earned by the assessee from loan advanced has already been examined and accepted by the A.O. in course of proceedings for the assessments u/s 153A of the Act pursuant to the first search and seizure operations u/s 132(1) of the Act conducted in the year 2007 on 19.07.2007 by the Revenue whereby the interest expenditure of Rs. 47,22,282/- incurred on loans borrowed has been accepted and allowed as de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome 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 CIT 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 of 2015, dated October, 12, 2015 against the Hon'ble Bombay High Court ruling that no addition can be made in respect of assessment which has become final if no incriminating material is found during the course of search. Respectfully following the binding decision of the Hon'ble Jurisdictional High Court i.e. Hon'ble Bombay High Court in the case of Central Warehousing Corporation (Nhava Sheva) Limited(supra) as well decision of Hon'ble Delhi High Court in the case of Kabul Chawla(supra) and Special Bench decisions in All Cargo Global Logistics Ltd. (supra) , we uphold the orders of the CIT(A) and delete the additions made by the AO of Rs. 47,22,282/- on account of disallowance of the claim of the interest expenditure incurred by the assessee on loans borrowed against the interest income of Rs. 99,01,472/- , on the sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advanced and has disallowed Rs. 38,19,800/- and Rs. 90,000 out of the interest expenditure claim of Rs. 96,24,943/- . Apart from the above, the assessee has also voluntarily offered disallowance of interest of Rs. 9,92,861/- u/s 14A of the Act. Thus, the assessee claimed deduction of balance amount of interest expenditure of Rs. 47,22,282/- towards loan borrowed against interest income of Rs. 99,01,472/- from loan advances , which claim was duly examined and allowed by the AO while framing the assessment orders dated 31.12.2009 u/s 153A read with Section 143(3) of the Act pursuant to first 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 dismi ..... 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