TMI Blog2016 (2) TMI 1060X X X X Extracts X X X X X X X X Extracts X X X X ..... rest paid on loan borrowed against the interest income earned on loans advanced by the assessee and no new incriminating material has been found or unearthed during the course of second search on 29-03-2011 . See Commissioner of Income Tax (Central) -III Versus Kabul Chawla [2015 (9) TMI 80 - DELHI HIGH COURT ] - Decided in favour of assessee - I.T.A. No. 3192 to 3196/Mum/2014 - - - Dated:- 10-2-2016 - Shri Amit Shukla, Judicial Member And Shri Ramit Kochar, Accountant Member For the Petitioner : Shri A.K.Srivastava CIT DR For the Respondent : Shri Vijay Mehta ORDER Per Bench These five appeals by the Revenue are directed against five separate orders of the learned Commissioner of Income Tax (Appeals)- 40 , Mumbai (Hereinafter called the CIT(A) ) all dated 18-2-2014 pertaining to the assessment years 2005-06 to 2009-10. Since similar grounds of appeal are raised in all these five appeals, we have disposed of all these five appeals by this common order for the sake of convenience and brevity. 2. The common grounds of appeal raised by the Revenue in all these five appeals filed with the Tribunal reads as under:- 1. Whether on the facts and circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vance of the seized material. The learned assessing officer(Hereinafter called the AO ) observed that the assessee has earned interest income of ₹ 92,99,866/- and claimed interest expenses of ₹ 91,87,619/- against the same. The break up is as under:- Name of the party Interest (Rs) Amount(Rs.) INTEREST EARNED Babubhai Kanakia 92,96,982 Income Tax Refund 2,884 92,99,866 INTEREST PAID Thakur Fininvest P Ltd. 90,24,661 L H Joshi 54,000 Bank Interest 1,08,958 (91,87,619) TOTAL: 1,12,247 The assessee offered the balance net interest of ₹ 1,12,247/- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same, in the return filed u/s 153A , assessee had already disallowed sum of ₹ 54,000/- out of total interest paid of ₹ 91,87,619/- . Thus, claim of interest expense needs to be allowed to the assessee. Moreover , without prejudice to the above, We have to submit that the issue of netting of interest has not emerged in the present search. Your honour will appreciate 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 [2012] 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 assesse. We hope that above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er due deliberation on the same issue and that no incriminating material has been found during the course of search on the same issue, additions cannot be made by the A.O. The A.O. however, rejected the contentions of the assessee by holding that in case notice u/s 153A of the Act was issued and the assessment is deemed to be de-novo and the A.O. is at liberty to take a different 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 A.O. shall assess or reassess the total income of six assessment years immediately preceding the search ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of ₹ 92,99,866/- on the ground that there was no direct correlation between the loan taken and loan advanced. The assessee submitted that the assessee voluntarily disallowed interest of ₹ 13,36,508/- which included an amount of ₹ 54,000/- paid to Sh. L H Joshi on loan taken from him and ₹ 12,82,508/- 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 on 19-07-2007, vide order dated 31-12-2009. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 132(1) of the Act carried out for the 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 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has considered the matter in detail and allowed the appeal and the decision of the Mumbai Tribunal in the afore-stated appeal is squarely applicable to the case of the assessee and the appeals should be allowed. The ld counsel for the assessee filed copies of the orders dated 18-01-2016 of the Tribunal in the afore-stated appeals. The ld Counsel submitted that there was first search u/s 132(1) of the Act by Revenue against the assessee on 19-07-2007 and there was also second search against the assessee u/s 132(1) of the Act by the Revenue on 29-03-2011. The ld. Counsel submitted that no incriminating material has been found during the course of second search on 29-03-2011 with respect to the additions made by the AO in the impugned assessment year vide orders dated 28-03-2011 passed u/s. 143(3) read with Section 153A of the Act. The assessments framed by the Revenue against the assessee for the assessment year 2005-06 is un-abated assessment as per provisions of Section 153A of the Act and since no incriminating material was found during the course of search, no addition is warranted in the case of the assessee. 12. We have considered the rival contention and also perused the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,36,786/- was found from the residential premises of the assessee. However, there was no seizure of cash and jewellery from the assessee during the course of the search proceedings u/s 132(1) of the Act. However, during the course of search operations against different assessee s of the group, books of accounts, documents, valuables, diaries and other loose papers were seized. Based upon the search and post search enquiries, the assessee made disclosure of ₹ 49,750/- as sale of scrap. 6. Notice u/s 153A of the Act was issued to the assessee on 04.01.2012 and in response thereof the assessee filed his return of income on 31.01.2012 declaring a total income of ₹ 14,74,33,828/-. Notices dated 11-7-2012 u/s 143(2) and 142(1) of the Act were issued to the assessee and served upon the assessee. During the course of the assessment proceedings u/s 153A of the Act, the assessee replied the relevance of the seized material. The learned assessing officer(Hereinafter called the AO ) observed that the assessee has earned interest income of ₹ 99,01,472/- and claimed interest expenses of ₹ 96,24.943/- against the same. The break up is as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 ₹ 90,000/- to Shri M J Chotani on a loan of ₹ 5,00,000/- @ 18%. The interest paid to Shri M.J. Chotani was disallowed for the reasons discussed in earlier assessment years. There is no difference in the facts of the case. Accordingly, interest of ₹ 90,000/- paid to Shri M.J. Chotani is disallowed and added to the total income. Further, 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). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 therefore the assessee is not entitled to claim deduction u/s 57(iii) of the Act and thus the deduction of ₹ 96,24,943/- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ₹ 99,01,472/- and claim of deduction of interest of ₹ 96,24,943/- against interest income was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 new finding or material change, hence, consistency needs 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 ₹ 47,22,282/- made by the AO to the income of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 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 ₹ 51,79,190/- . The CIT(A) observed that in the current year average loan taken works out to ₹ 11,48,43,933/- and average loan given works out to ₹ 8,25,12,267/-, thus the difference of ₹ 3,23,31,666/-, the effective rate of interest works out to 12% i.e. 38,19,800/- which interest has been disallowed voluntarily by the assessee in the return of income field with the Revenue, which is fair and reasonable. The assessee also disallowed interest of ₹ 90,000/- paid to Sh. M J Chotani and further disallowance of ₹ 9,92,861/- u/s 14A of the Act on average investment in shares amounting to ₹ 5,13,43,681/- , dividend income from which has been claimed as exempted income . The total disallowance of interest of ₹ 49,02,661/- 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 there is strong direct co-relation between loan given and taken. The CIT(A) observed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 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 ₹ 47,22,282/- incurred on loans borrowed has been accepted and allowed as deduction from the interest income of ₹ 99,01,472/- earned on the loans advanced by the assessee. We have observed that it has not been brought to our notice by both the rival parties that any incriminating material has been found or unearthed during the second search u/s 132(1) of the Act conducted by the Revenue on 29-3-2011 related to the claim of deduction of interest expenditure of ₹ 47,22,282/- on the loans borrowed against the interest income of ₹ 99,01,472/- earned by the assessee on the loans advanced. We have also observed that the assessments u/s 153A of the Act pursuant to first search on 19.07.2007 have been concluded for the assessment year 2007-08 on 31.12.2009 which is prior to the date of second search conducted by Revenue on 29-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 ₹ 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 ₹ 99,01,472/- , on the short ground itself by holding that completed assessments can be interfered with by the AO while making assessment under section 153A of the Act only on basis of some incriminating material unearthed during the course of search which was not produced or not already disclosed or made known in course of original assessment and undisclosed income or property discovered in course of search , while in the instant appeal the AO has in the assessments framed vide orders dated 31.12.2009 u/s. 153A read with Section 143(3) of the Act in pursuance to the first search on 19.07.2007 has duly examined and allowed the claim of the assessee for deduction of interest of ₹ 47,22,282/- being interest paid on loan borrowed against the interest income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. We order accordingly. 13. With respect to the Revenue s appeals in ITA No. 3188/M/2014 for the assessment year 2008-09 and ITA No. 3189/Mum/2014 for the assessment year 2009-10, our above decision in ITA No 3187/Mum/2014 for the assessment year 2007-08 shall apply mutatis mutandis to the appeals for the assessment years 2008-09 2009-10 also. We order accordingly. 14. In the result, all the three appeals filed by the Revenue are dismissed. We have observed that issue in this appeal is identical to the issue in ITA No s. 3187-3189/Mum/2014 which was adjudicated by Mumbai Tribunal vide orders dated 18- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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