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M/s. Mudra Lifestyle Ltd. Versus ACIT, Central Circle-38, Mumbai And Vice-Versa

2017 (10) TMI 592 - ITAT MUMBAI

Assessment made u/s 143(3) r.w.s. 153A - proof of incriminating material being seized/ found during the course of search - Held that:- It is the settled law that in a case of non-abated assessment addition can be made in the assessment completed under section 143(3) r.w.s. 153A on the basis of the material found/seized during the course of the search. - So far the additions in respect disallowance of PF, ESIC, 5% of the expenses disallowed under section 35D and disallowance for depreciation .....

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s and sales - disallowances were made by the AO on the basis of the statement of Shri Murarilal Agarwal who is one of the Directors of the company recorded under section 132(4) - Held that:- The issue involved is duly covered by the decision of the Hon'ble Kerala High Court in the case of CIT vs. St. Francis Clay Decor Tiles [2016 (6) TMI 378 - KERALA HIGH COURT] wherein held that the statement recorded during the course of search is a valuable piece of evidence while interpreting the phraseolog .....

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incurred by way of commission on sales - ITA Nos.1313, 1314, 1601 & 1602/Mum/2014, ITA Nos.1672 & 1673 /Mum/2014 - Dated:- 10-10-2017 - Shri P K Bansal, Vice President And Shri Pawan Singh, Judicial Member Assessee by : Shri Dharmesh Shah & Dhaval S. Shah Revenue by : Shri Ravijit Singh Arneja ORDER Per P. K. Bansal, Vice President In the assessment years 2004-05 & 2005-06 the appeals have been filed by the while in assessment years 2006-08 & 2007-08 there are cross appeals against .....

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permissible time. We, therefore, condone the delay. 3. In all the appeals filed by the assessee the assessee has taken a common legal ground that the CIT(A) has erred in confirming the action of the AO in making additions in the assessment made under section 143(3) r.w.s. 153A in the absence of any incriminating material being seized/ found during the course of search and, therefore, all these additions are bad in law. Since the ground taken by the assessee is a legal ground we, therefore, decid .....

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rned Income u/s. 115JB 2004-05 25.10.2004 ₹ 14,14,250/- 2005-06 31.10.2005 ₹ 46,07,491/- ₹ 3,13,23,636/- 2006-07 30.11.2006 ₹ 1,33,25,450/- ₹ 1,43,58,760/- 2007-08 27.10.2007 ₹ 3,61,21,877/- ₹ 17,95,10,788/- Income Tax Return for assessment years 2004-05 to 2006-07 were processed under section 143(1) while assessment for A.Y. 2007-08 has been completed under section 143(3) on 09.03.2009 at and income of ₹ 3,80,73,480/-. After the search notice unde .....

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33,26,542 9,82,41,542 6,05,03,680 9,82,41,542 2007-08 3,72,62,465 17,95,10,788 7,84,98900 7,84,98900 5. The learned A.R. before us vehemently contended that in each of the assessment year the AO while completing the assessment made the following additions: - Assessment Year - 2004-05 ESIC ₹ 1,428/- Disallowance @5% of Expenses ₹ 8,58,947/- ₹ 8,60,375/- ₹ 8,60,375/- Assessment Year - 2005-06 PF & ESIC ₹ 54,902/- Disallowance @5% of Expenses ₹ 22,42,949/- &# .....

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n on Goodwill & Brand Value ₹ 1,58,95,519/- Commission on Purchases ₹ 9,57,372/- Commission on Sales ₹ 9,57,372/- ₹ 4,23,77,020/- The learned A.R. before us relied on the order of the Hon'ble Jurisdictional High Court in the case of CIT vs. Continental Warehousing Corporation Ltd. 68 taxmann.com 78 which confirms the order of the Special Bench of this Tribunal in the case of All Cargo Global Logistics Ltd. vs. DCIT 137 ITD 287 (SB) (Mum). On the basis of this deci .....

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sment year none of the addition has been made on the basis of the material found/seized during the course of search. Thus, it was contended that the addition so made are invalid and the assessment completed without any incriminating material being brought on record is bad in law. 6. The learned D.R., on the other hand, supported the order of the tax authorities below and drawn our attention towards the assessment order of A.Y. 2007-08 and on that basis it was contended that so far the addition m .....

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eleted. In this regard attention was drawn towards the decision of the Hon'ble Kerala High Court in the case of CIT vs. St. Francis Clay Decor Tiles 385 ITR 624. 7. We have heard the rival submissions and carefully considered the same along with the orders of the tax authorities below. We noted that in this case the assessment orders have been passed by the AO in consequence of the search carried out at the premises of the assessee under section 132 of the Income Tax Act on 12.08.2009. We no .....

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ents is found during the course of search, a Special Bench was constituted in the case of All Cargo Global Logistics Ltd vs. DCIT (2012) 137 ITD 287 (SB)(Mum) on the following question: - "Whether, on the facts and in law, the scope of assessment u/s 153A encompasses additions, not based on any incriminating material found during the course of search? Before the Special Bench, Ld Sr. Counsel relied on the decision of LMG International Ltd as is apparent from para 16 of that order. We noted .....

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l is found during the search. Ultimately, in respect of question referred to the Special Bench, the Special Bench in para 58 of its order held as under: "8. Thus, question No. 1 before us is answered as under: a) In assessments that are abated, the AO retains the original jurisdiction as well as jurisdiction conferred on him u/s 153A for which assessments shall be made for each of the six assessment years separately. b) In other cases, in addition to the income that has already been assesse .....

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e by the A.O. only on the basis of incriminating material found during the course of search. The decision of the Special Bench has duly been approved by the Hon'ble Jurisdictional High Court in the case of CIT vs. Continental Warehousing Corporation Ltd. 68 taxmann.com 78 in which the Hon'ble High Court has held as under: - Under section 153A of the Income-tax Act, 1961, which enables carrying out of search or exercise of power of requisition, assessment in furtherance thereof is contemp .....

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be made in pursuance of the notice is in relation to the six years. An order will have to be made in that regard. While making the order, the income or the return of income filed for all these assessment years is to be taken into account. A reference will have to be made to the income disclosed therein. However, the scope of enquiry though not confined essentially revolves around the search or the requisition under section 132A, as the case may be. The provision deals with those cases where ass .....

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f the search or making of the requisition. The assessee was engaged in the operation of a container freight station. It claimed deduction under section 80-IA(4) producing a certificate dated July 13,2006, from the Jawaharlal Nehru Port Trust Nhava Sheva declaring that the assessee was considered an extended arm of port-related services. The deduction was disallowed on the ground that the certificate was withdrawn on October 5, 2007. The Commissioner (Appeals) confirmed the view of the Assessing .....

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that by the clear language of section 153A together with its provisos, pending assessments abated and that the Assessing Officer was required to make one assessment for each of the six years on the basis of the search and any other material existing or brought on record by the Assessing Officer, that in other cases assessments would be made on the basis of the books of account and other documents found during the search and not produced during assessment and also on any other undisclosed income .....

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utinely, should be exercised if the search revealed any incriminating material. If that was not found then in relation to the second phase of three years, there was no warrant for making an order within the meaning of this provision. (ii) That when the proposal to set up a central freight station had been accepted by the Government, there was no requirement of a specific agreement. Nor could it be said that by virtue of any certification of the Jawaharlal Nehru Port Trust Nhava Sheva and its sub .....

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[2012] 18 ITR (Trib) 106 (Mumbai) [SB] affirmed. Therefore, in view of the Hon'ble Jurisdictional High Court, which is binding on us, it is the settled law that in a case of non-abated assessment addition can be made in the assessment completed under section 143(3) r.w.s. 153A on the basis of the material found/seized during the course of the search. We noted that the AO in the impugned case has made the following additions in each of the assessment year: - Assessment Year - 2004-05 ESIC &# .....

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6/- Assessment Year - 2007-08 PF & ESIC ₹ 23,23,217/- Disallowance u/s. 35D ₹ 1,62,43,558/- Disallowance u/s. 35DD ₹ 39,512/- Disallowance @5% of Expenses ₹ 59,60,470/- Depreciation on Goodwill & Brand Value ₹ 1,58,95,519/- Commission on Purchases ₹ 9,57,372/- Commission on Sales ₹ 9,57,372/- ₹ 4,23,77,020/- 8. So far the additions in respect disallowance of PF, ESIC, 5% of the expenses disallowed under section 35D and disallowance for depr .....

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mains the additions in respect of disallowances on account of commission on purchases and sales amounting to ₹ 9,57,372/- each in A.Y. 2007-08. In this regard we noted that these disallowances were made by the AO on the basis of the statement of Shri Murarilal Agarwal who is one of the Directors of the company recorded under section 132(4) on 13.08.2009during the course of the search. In this statement the assessee has accepted the payment of commission on bogus purchases and sales. The le .....

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s Ltd (supra) as well as the decision of the Hon'ble Bombay High Court in the case of Continental Warehousing Corporation Ltd. (supra). In this decision the question before the Hon'ble High Court was as under: - "1.(a) Whether on the facts and in the circumstances of the case, is not the Tribunal erroneous in holding that addition in pursuance to notice issued under Section 153A can be made only if incriminating material is found and seized in case where there is also abatement of r .....

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of this judgement held that the statement recorded during the course of search is a valuable piece of evidence while interpreting the phraseology incriminating is used by the Parliament. They have also clarified that neither under section 132 or under section 153A the phraseology incriminating is used by the Parliament. Since the Hon'ble Kerala High Court has taken the recorded statement as a valuable piece of evidence and no contrary evidence was brought to our notice by the learned A.R. w .....

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aken the following two effective grounds of appeal: - (1) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of depreciation of ₹ 1,37,50,0007- (A.Y. 2006-07) ₹ 1,58,95,519/- (for A.Y. 2007-08) on brand value & goodwill while goodwill and brand value has arisen as a result of amalgamation, the difference between consideration for amalgamation and net value of assets of amalgamating company has been regarded .....

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