TMI Blog2017 (5) TMI 420X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee himself had admitted inflation of hostel expenditure mainly with regard to the purchase of vegetables and other provisions. We further observed that the expenditure incurred towards purchase of vegetables and other provisions is supported by self-made vouchers and did not have proper evidence to prove the veracity of the expenditure, therefore, we are of the view that the A.O. was right in disallowing inflation of expenditure. The CIT(A) after considering the relevant explanations of the assessee has rightly upheld additions made by the A.O. We do not find any error in the order of the CIT(A). - Decided against assessee. Additions towards unexplained deposit in the bank account - Held that:- In the absence of any specific finding as to utilization of source available in the form of additional income out of inflation of expenditure, the A.O. ought to have telescoped the sources available towards additions made towards unexplained cash deposits in the bank account in the name of the employees. The CIT(A) without appreciating the facts, simply upheld additions made by the A.O. Therefore, we direct the A.O. to allow the benefit of telescope towards additional inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Since, the facts are identical and issues are common, they are clubbed, heard together and disposed-off by way of this common order for the sake of convenience. ITA Nos.443 to 446 of 2013 (Revenue): 2. The brief facts of the case extracted from ITA No.443/Vizag/2013 are that the assessee is an individual, deriving income from remuneration from company, income from business and income from other sources, filed his original return of income u/s 139(1) of the Income Tax Act, 1961 (hereinafter called as 'the Act'). A search and seizure operation u/s 132 of the Act, was conducted in the group cases of Bhashyam Group, Guntur on 10.2.2009. During the course of search seizure proceedings, certain incriminating documents relating to the assessee were found and seized. Consequent to search, the case has been centralized to Central Circle, Vijayawada vide notification no.F.No.CIT/GNT/Centralisation/2009-10 dated 31.7.2009. A notice u/s 153A of the Act, dated 30.11.2009 was issued, calling for return of income for the assessment year 2003-04 to 2008-09. In response to notices, the assessee has filed his return of income for the assessment year 2003-04 to 2008-09 on 18.1.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing officer retains the original jurisdiction as well as jurisdiction u/s 153A of the Act. In other cases, where the assessment has not been abated, additions can be made in the assessment u/s 153A of the Act, only on the basis of incriminating material i.e. books of accounts 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 this case, the A.O. has made additions only on the basis of financial statements filed by the assessee along with original return of income without there being any incriminating materials and hence, additions made by the A.O. towards disallowance of interest and deemed dividend cannot sustained in the eyes of law. With these observations, deleted additions made by the A.O. for the assessment year 2003-04, 2005-06, 2006-07 2008-09. In so far as additions made towards inflation of expenditure, unexplained deposit in the bank account in the name of employees, unexplained investment in purchase of site and suppression of receipts, the CIT(A) for the detailed discussion in his order, confirmed additions made by the A.O. As regards d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment years 2003-04 to 2008-09 are already concluded and no proceedings are pending as on the date of initiation of search and hence, the A.O. is precluded from making additions without any seized materials. In support of his arguments, relied upon the decision of ITAT, Visakhapatnam bench in the case of Hari Prasad Bhararia in ITA Nos.435 to 441/Vizag/2014 dated 9.9.2016. 8. On the other hand, the Ld. D.R. submitted that once a search is initiated, the assessment for 6 assessment years immediately preceding to the date of search gets re-opened and the A.O. will get jurisdiction to assess/re-assess total income of those 6 assessment years, whether or not any incriminating material found during the course of search. The D.R. further argued that the provisions of section 153A of the Act, shall be attracted by the initiation of search proceedings u/s 132 of the Act, in which case, the concluded assessments will be re-opened as per the provisions of section 153A of the Act, and such re-opening is not depending upon existence or otherwise of undisclosed income. The D.R. further submitted that the provisions of section 153A of the Act, gets powers to the assessing officer to re-assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 143(3) r.w.s. 153A of the Act and made additions towards deemed dividend under the provisions of section 2(22)(e) of the Act. The A.O. was of the opinion that transactions between the assessee and his company is coming within the definition of deemed dividend under the provisions of section 2(22)(e) of the Act. It is the contention of the assessee that the assessment order passed by the A.O. u/s 143(3) r.w.s. 153A of the Act, for the assessment years 2005-06 to 2009-10 is null and void as the A.O. has made additions towards deemed dividend u/s 2(22)(e) of the Act without any incriminating materials. The assessee further contended that as per section 153A of the Act, de-novo assessment can be made only in respect of assessment year for which the assessment proceedings has been abated and that in respect of assessment years for which the assessment had already been completed, no additions can be made u/s 153A of the Act unless there was incriminating material found during the course of search. 13. The A.O. has passed assessment orders u/s 153A of the Act, for all the six assessment years, immediately preceding the year in which the search was conducted. According to the A.O., a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment proceedings, the assessee was asked to produce books of accounts and relevant bills vouchers in support of expenditure claimed. In response, the assessee filed written submission and stated that the books of accounts are not available and hence cannot be furnished. Therefore, the A.O. issued a show cause notice and asked to explain why the net profit from the business shall not be estimated. In response to show cause notice, the assessee has filed a written reply and contended that the income for the assessment year 2004-05, 2005-06 and 2007-08 cannot be tinkered with, as there was no incriminating material found during the course of search for the above assessment years and as such no additions can be made to the returned income. It is further submitted that as per sec. 153A of the Act, de-novo assessment can be made only in respect of the assessment year for which the assessment proceedings had been abated and that in respect of assessment years for which the assessment had already been reached a finality, such assessment could not be made u/s 153A of the Act unless there was seized materials. 20. The A.O. has passed reassessment orders u/s 153A/153C of the Act for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment should be treated so as to understand that those assessments are reached finality and which cannot be tinkered with unless there was a seized document. Therefore, we are of the considered opinion that where search is initiated, all pending assessments are merge into one and only one assessment for each assessment year shall be made separately on the basis of findings of search and other material existing or brought on record by the A.O. In respect of non abated or completed assessments, the assessment will be made on the basis of books of accounts or other relevant documents found during the course of search, but not produced in the course of original assessment. 22. In the present case on hand, on perusal of the document available on record, we find that the assessment for the assessment year 2004-05 to 2007-08 were not pending as on the date of search. The fact that the assessment has been completed u/s 143(1) 143(3) of the Act are not material. The time limit for issue of notice u/s 143(2) of the Act has been expired. On further verification of the documents available on record, we find that there was no incriminating documents found during the course of searc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yudu in ITA No.373 to 379/Vizag/2014. The coordinate bench, under similar circumstances held the issue in favour of the assessee. The relevant portion is reproduced hereunder: 22. In this regard, it is also pertinent to refer to the following observations made by the Special bench in the case of All Cargo Global logistics Ltd (supra):- 57 (f) In the case of Parashuram Pottery works co. Ltd Vs. ITO (106 JTR 57)(SC), it has been mentioned in the last paragraph of the judgment that the court has to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi judicial controversies as it must in other spheres of human activity. Our decision is in consonance with this observation . The decision rendered by the Special bench that the assessing officer can make additions in the case of concluded assessments on the basis of incriminating materials is also based upon the decision rendered by Honble supreme Court in the case of Parashuram Pottery works Co. Ltd (supra). 23. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctional High Court comes to the support of the assessee in respect of the legal proposition in addition to the decision rendered by the Hon'ble Bombay High Court. Accordingly, we find merit in the contentions of the assessee on the legal issue. 26. Considering the facts and circumstances of the case and also respectfully following the coordinate bench decision in the case of All Cargo Logistics Pvt. Ltd. (supra), we are of the opinion that the A.O. has made reassessment u/s 153A/153C of the Act on the basis of information/material available in the return of income, without referring to any seized material. Therefore, following the special bench decision (supra) we hold that the A.O. had no jurisdiction to make additions u/s 153A of the Act for the assessments which are not pending as on the date of search. In this case, the search was conducted on 14.7.2009. The assessment for the assessment years 2004-05 to 2007-08, were not pending as on the date of search. The time limit for issue of notice under sec. 143(2) has been expired. Therefore, the A.O. has no jurisdiction to reassess the income for the assessment year 2004-05 to 2007-08 in the absence of any incriminating ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s towards disallowance of interest and on account of deemed dividend without any incriminating materials. Therefore, we are of the view that the A.O. has no jurisdiction to make additions for the assessment years 2003-04, 2005-06, 2006-07 2008-09, in the absence of any incriminating materials. We further observed that the A.O. has made additions towards disallowance of interest and on account of deemed dividend based on the books of accounts and financial statements, which were already part of regular return filed by the assessee u/s 139(1) of the Act, but not based on any incriminating materials unearthed during the course of search. Therefore, we are of the considered view that the A.O. has no jurisdiction to make additions in the absence of seized materials for the assessment years which are concluded as on the date of search. The CIT(A) after considering relevant facts has rightly directed the A.O. to delete additions made towards disallowance of interest and deemed dividend u/s 2(22)(e) of the Act. We do not find any error or infirmity in the order of the CIT(A), hence, we inclined to uphold the CIT(A) order and dismiss appeal filed by the revenue for the assessment years 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h includes ` 10 lakhs found credit in the account of the employees G. Srinivasa Rao. The A.O. further observed that the said cash deposit in the bank account are outside the books of accounts of the assessee. The A.O. further observed that the assessee has admitted cash deposits in the bank account in the name of the employees during the course of search and also agreed to disclose additional income towards cash deposits. The assessee contended that though he had admitted unexplained deposits in the bank account in the name of the employees and also agreed to offer additional income, because of admission of higher income for the relevant assessment year, the A.O. ought to have telescoped the additions made towards unexplained deposits in the bank account in the name of the employees. The assessee further contended that in addition to inflation of expenditure, the assessee also admitted an additional undisclosed income for the relevant assessment years, the source of which is available to explain the cash deposits in the bank account of the employees, therefore, telescoping should be done for the additions made on account of unexplained cash deposits. 14. Having heard both the si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the books of accounts maintained at the head office in respect of fees collection, the assessee has accounted an amount of ` 2,12,46,750/- including fees receivable of ` 10,62,000/-, thus there was a difference of ` 5,72,500/- for which the assessee has failed to furnish proper explanations. Though the assessee stated that on account of further concession allowed to some students, the receivable from the Bhashyam public school has reduced from ` 15,78,750/- to ` 10,62,000/-, therefore, the assessee made a provision of ` 10,62,000/- in the books of accounts, which results short admission of fees receipts of ` 5,72,500/-, failed to prove the same with necessary supporting evidences. It is the claim of the assessee that the MIS report sent from branch office to head office is on tentative basis, whereas the books shows actual fees collected from the students, according to which the assessee has allowed additional concession of ` 5,72,500/- to few students because of which there is a difference which has been explained before the A.O. with necessary evidences. The assessee further contended that it is not the case of the A.O. that the assessee has collected fees from the students, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d each other, therefore, the A.O. was totally erred in treating the loans as loans and advances, which comes under the purview of deemed dividend u/s 2(22)(e) of the Act. 18. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. There is no dispute with regard to the loans borrowed from the company and accumulated profit as on the date of loan. The only dispute with regard to the nature of loan borrowed from the company. The assessee claims that the amount borrowed from the company is not a gratuitous payment,but only a short term advance received in the normal course of business, which has been repaid. The assessee further contended that the transaction between the assessee and company is mutually benefitted, because he had allowed his personal properties to be mortgaged with the banks for availing loan for the business purpose of the company. In turn, the company has advanced short term loan, therefore, the transaction cannot be recorded as loans and advances which attracts the deeming fiction provided u/s 2(22)(e) of the Act. We find merits in the arguments of the assessee, for the reason that it is an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant of the sanction letters from various banks supports this contention and the details of the mortgage loans taken from various banks along with sanction letters and the properties provided by the appellant as collateral security to obtain loans from the said banks is tabulated below. Date of sanction Name of the bank Name of the borrower Credit facility (Rs.) Property mortgaged 23.3.2004 State Bank of Hyderabad, Siripuram junction, Vizag M/s. Sampath Vinayak Steels Pvt. Ltd. 30 lakhs Agricultural land 10.2.2006 State Bank of Hyderabad, Siripuram junction, Vizag M/s. Sampath Vinayak Steels Pvt. Ltd. 100 lakhs 4 storyed building on 555 sq.yds situated at Rajendranagar, Vizag in the name of (a) Hari Prasad Bhararia (b) Shivlal Bhararia (brothers) Renewal State Bank of Hyderabad, Siripuram junction, Vizag M/s. Sampath Vinayak Steels Pvt. Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r reference which is given below. The phrase by way of advance or loan appearing sub-clause(e) of section 2(22) of the Income tax Act, 1961 must be construed to mean those advances or loans which a shareholder enjoys simply on account of being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) ho/ding not less than ten per cent of the voting power; but if such loan or advance is given to such shareholder as a consequence of any further consideration which is beneficial to the company received from such a shareholder, in such case, such advance or loan cannot be said to be deemed dividend within the meaning of the Act. Thus, gratuitous loan or advance given by a company to those classes of shareholders would come within the purview of section 2(22) but not cases where the loan or advance is given in return to an advantage conferred upon the company by such shareholder. The assessee had substantial shareholding in a private company. The assessee permitted his immovable property to be mortgaged to the bank for enabling the company to take the benefit of loan and ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
