TMI Blog2018 (12) TMI 278X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that:- as per clause (a) of sub section (1) of section 153A, at the stage of issue of notice u/s 153A, the only requirement is to ask the assessee to file return of income for relevant six years covered by section 153A and whether after filing of return of income, the assessment to be made by the AO will be assessment or reassessment has to be determined afterwards and not at the time of issue of notice u/s 153A. In this view of the matter, we find no merit in this technical objection raised by the assessee and the same is rejected. Additions made in these assessment orders passed u/s 153A are not arising from the seized material - Held that:- In this case incriminating material was found as noted in Para 2 of this judgment. This was held in this case that once the assessment is validly reopened, the AO has to take into account three types of income to complete the assessment or reassessment as the case may be. These three types of income are 1) income disclosed in the return of income, 2) Undisclosed income found during the search and 3) any other income which is not disclosed in the earlier return and not unearthed during the search. In our considered opinion, if incrimina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of the assessee and in spite of that, the revenue could not find out any material to show that the assessee is having any excess gold stock or that there was any evidence found in respect of any unaccounted sale of gold or gold items. Regarding this that the loss of gold could not be substantiated by bringing evidence on record, in our considered opinion, if the assessee is having any evidence in respect of loss of gold, the assessee will not allow such loss to happen. In our considered opinion, in the facts of present case, this loss of 0.047% of the loss of gold in only one year should be allowed in the facts and circumstances of the present case. We order accordingly. This issue on merit is decided in favour of the assessee. MAT computation - book profit as determined u/s. 115JB - Consideration of SEZ Income while computing book profit for the purpose of MAT - Held that:- the recomputation of book profit u/s. 115JB has been done by the AO in view of proviso to sub-section(6) of section 115JB which has been inserted in the statute book by Finance Act, 2011 w.e.f. 01.04.2012. On this issue, this is the only submission of the assessee that the assessee has challenged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not arising from the seized material and therefore, these additions are outside the scope of section 153A of the I. T. Act. There is no technical issue raised in A. Y. 2014 15. 3. First, we reproduce the grounds raised by the assessee in each year. These are as under:- a) A. Y. 2008 09, ITA 931/Bang/2017:- 1. The order of the learned Commissioner of Income Tax in so far it is against the appellant is opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the Appellant's case. 2. The Appellant denies itself liable to be assessed on a total income arrived at by making the additions as confirmed by the CIT (A) as against the returned income of NIL under the facts and circumstances of the case. 3. Granting of correct amount of deduction under Section 1OAA of the Act. a) The authorities below erred in not granting correct deduction under section 10 AA of the Act. b) The CIT (A) ought to have specifically adjudicated the relevant ground in respect of granting of the correct amount of deduction under Section 10 AA of the Act. c) Without Prejudice to grounds regarding the other additions sustained, the au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3A r.w.s 143(3) of the Act is restricted to the seized material if any and the present assessment order passed is contrary to the scheme of the Act and consequently the assessment order is liable to be annulled/ cancelled on the facts and circumstances of the case. 7. The assessing officer ought not to have made any changes to the return of income and the CIT(A) ought not to have sustained any part of the change made by the assessing officer on the facts and circumstance of the case. 8. Without prejudice to the right to seek waiver as per the parity of reasoning of the decision of the Hon'ble Apex Court in the case of Karanvir Singh 349 ITR 692, the Appellant denies itself liable to be charged to interest under section 234A, 234B and 234C of the Income Tax Act under the facts and circumstances of the case. 9. Without prejudice the levy of interest under section 234 A, 234B and 234C are bad in law as the period, rate, quantum and method of calculation adopted on which interest is levied are all not discernable and are wrong on the facts of the case. 10. The Appellant craves leave to add, alter, amend, substitute, change and delete any of the grounds of appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case. b) The learned authorities below have not demonstrated that the search initiated in the case of the appellant is valid and legal and consequently the order of assessment is exifacie bad in law as the mandatory conditions for initiating a search as contemplated under the provisions of section 132(1)(a), (b) (c) of the Act did not exist and hence the order is required to be annulled on the facts and circumstance of the case. c) The learned authorities below failed to appreciate that a valid search is a sine qua non for making a valid assessment under section 153A of the Act and hence the assumption of jurisdiction under Section 153 A of the Act is bad in law and consequently the entire assessment requires to be cancelled. 5. Notice issued u/s 153A was bad in law: a) The authorities below failed to appreciate that the notice issued u/s 153A of the Act is bad in law on the ground that the notice does not indicate as to whether it is proposed to assess or reassess and is thus vague, consequently the assessment order passed on an invalid notice is bad in law on the facts and circumstances of the case. b) The learned authorities below have not dealt in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d income of Rs. NIL under the facts and circumstances of the case. 3. On addition of interest on Inter corporate Deposits (ICDs): a) The learned CIT (A) is not justified in confirming the order of the Assessing officer of an amount of ₹ 28,79,68,656/- as accrued interest on ICDs on the facts and circumstances of the case. b) The learned authorities below failed to appreciate that the non receivable interest on ICDs were shown as income in the books of accounts of the appellant and subsequently claimed as bad debt in the books of the appellant. c) The learned authorities below failed to appreciate that the accounting procedure of the appellant and the entries passed by the appellant in its books of accounts satisfy the conditions for claiming bad debts on the facts and circumstances of the case. d) The learned authorities below erred in observing that the procedure to claim bad debt is by disclosure in the profit and loss account by way of writing off a debt as an expenditure corresponding to an amount which has been already offered as an income in the same or earlier previous year and such observations are contrary to the plain language of the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssess or reassess and is thus vague, consequently the assessment order passed on an invalid notice is bad in law on the facts and circumstances of the case. b) The learned authorities below have not dealt in the respective order on the objection filed by the appellant in respect of assumption of jurisdiction u/s 153A and have also not provided the satisfaction note and reasons recorded for issue of notice u/s 153A of the Act and consequently an adverse inference may be drawn that the material does not exist and assessment order passed is bad in law on the facts and circumstances of the case. 7. Scope of assessment pursuant to notice issued under Section 153 A of the Act. The learned authorities below failed to appreciate that the scope of assessment in the proceedings under section 153A r.w.s 143(3) of the Act is restricted to the seized material if any and the present assessment order passed is contrary to the scheme of the Act and consequently the assessment order is liable to be annulled/ cancelled on the facts and circumstances of the case. 8. The assessing officer ought not to have made any changes to the return of income and the CIT(A) ought not to have su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debt as an expenditure corresponding to an amount which has been already offered as an income in the same or earlier previous year and such observations are contrary to the plain language of the Income Tax Act which only contemplates writing off in the accounts and hence the addition requires to be deleted on the facts and circumstance of the case. e) Without prejudice, the said amount of ₹ 29,73,46,928/ - is not taxable as it is not real income of the appellant and consequently the addition made is liable to be deleted on the facts and circumstances of the case. 4. On Addition of ₹ 19,39,23,044/-: a) The learned authorities below failed to appreciate that it is normal in the gold business to incur loss of gold while dealing with various activities like Manufacturing, Inventory Management, Marketing, Import and Export. b) The learned authorities below erred in not accepting the explanation of the assessee without any reason. c) The learned authorities below failed to appreciate that the assessee had provided all the details as asked for by the assessing officer, as there were no further details asked by the assessing officer, the assessee had n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consequently the entire assessment requires to be cancelled. 7. Notice issued u/s 153A was bad in law: a) The authorities below failed to appreciate that the notice issued u/ s 153A of the Act is bad in law on the ground that the notice does not indicate as to whether it is proposed to assess or reassess and is thus vague, consequently the assessment order passed on an invalid notice is bad in law on the facts and circumstances of the case. b) The learned authorities below have not dealt in the respective order on the objection filed by the appellant in respect of assumption of jurisdiction u/s 153A and have also not provided the satisfaction note and reasons recorded for issue of notice u/s 153A of the Act and consequently an adverse inference may be drawn that the material does not exist and assessment order passed is bad in law on the facts and circumstances of the case. 8. Scope of assessment pursuant to notice issued under Section 153 A of the Act. The learned authorities below failed to appreciate that the scope of assessment in the proceedings under section 153A r.w.s 143(3) of the Act is restricted to the seized material if any and the present asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) The learned CIT (A) erred in upholding the assessment under Section 153A of the Act without appreciating that there were no incriminating materials found in the course of search to justify the impugned addition in block assessment proceedings. 2) The learned CIT (A) ought to have followed the jurisdictional High Court judgments and refrained from upholding the impugned addition. 3) The learned CIT (A) ought to have appreciated that the later judgment of the Karnataka High Court would prevail over the earlier judgment and consequently he ought to have followed the later judgment in preference to the earlier judgment to justify the upholding of validity of the assessment. 4) The learned CIT (A) erred in upholding the book profit as determined by the AO for the purpose of Section 115JB of the Act. 5) The learned CIT (A) ought to have appreciated that the deduction under Section 10AA/ 10B of the Act cannot be included while computing the book profit for the purpose of Section 115JB of the Act and accordingly the computation of book profit as made by the AO is unsustainable. 6) The learned CIT (A) ought to have appreciated that the Writ Appeal filed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter judgment in preference to the earlier judgment to justify the upholding of validity of the assessment. 4) The learned CIT (A) erred in upholding the book profit as determined by the AO for the purpose of Section 115JB of the Act. 5) The learned CIT (A) ought to have appreciated that the deduction under Section 10AA/ 10B of the Act cannot be included while computing the book profit for the purpose of Section 115JB of the Act and accordingly the computation of book profit as made by the AO is unsustainable. 6) The learned CIT (A) ought to have appreciated that the Writ Appeal filed by the Appellant challenging the validity of amendment is pending and consequently the impugned addition as made for the relevant year is unsustainable and accordingly liable to be deleted. 7) The learned CIT (A) is not justified in confirming the order of the AO of an amount of ₹ 45,02.26.725/- as accrued interest on ICD's on the facts and circumstances of the case. 8) The learned authorities below failed to appreciate that the nonreceivable interest on ICD's were shown as income in the books of accounts of the Appellant and subsequently claimed as bad debt in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Calculation of exemption u/s 10AA 2008-09, 2010-11, 2011-12, 2012-13 5. Addition of Interest not received on inter corporate deposits 2009-10, 2010-11 ,2011-12, 2013-14, 2014-15 6. Loss of Gold 2011-12 7. Book Profit as determined u/s 115 JB 2012-13, 2013-14, 2014-15 8. Levy of interest u/s 234A, 234B and 234C Consequent to the relief We are herewith submitting our written statement for each of the issues as follows, 1. Validity of Search: This issue exists in 6 appeals for the respective Assessment Years 2008-09, 200910, 2010-11, 2011-12,2012-13 and 2013-14. The Appellant humbly submits that there was no valid reason for the search which was conducted by the department pursuant to which the Assessment for seven years was done under section 153A r.w.s 143 (3) of the Act. The mandatory condition for initiating a search as contemplate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht out in the Appeal order but in spite of valid submissions the learned Commissioner (A) has dismissed the contentions of the Appellant. We have made detailed submissions in the statement of facts and the grounds of appeal filed along with the Form of Appeal, we have also cited various judgments of the Honourable Courts in the statement of facts and the grounds of appeal. We humbly request your Honour to consider these submissions. In view of the above submissions the notice issued u/s 153(A) by the learned assessing officer and confirmed by the Commissioner of Income Tax (A) is without jurisdiction and consequently the notice issued u/s 153A is required to be considered as bad at law and null and void. 3.Scope of Assessment pursuant to search proceedings: This issue exists in 6 appeals for the respective Assessment Years 2008-09, 2009- 10, 2010-11, 2011-12, 2012-13, 2013-14. The Appellant humbly submits that the additions made in the assessment order were not arising from the seized material. The learned assessing officer has failed to demonstrate that the additions made were arising from the seized material. It is a settled law that the existence of seize ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he interest in spite of it's best efforts, the Appellant debited the interest account and had written off the receivables of the party by crediting the party's account. This action of the Appellant was clearly as per the law. The learned assessing officer added back the written off interest to the income of the Appellant by contending that the Appellant was following dual system of accounting wherein the Appellant was following the Cash Accounting system with regard to the accrued interest to be received on the inter corporate deposits and was following mercantile accounting system in all other accounting. The learned assessing officer contended that the Act did not permit dual accounting system and hence the accrued interest on the inter corporate deposits was added back to the income of the Appellant. The Appellant submitted that it had not followed dual accounting system and all it's accounting including the accounting of interest on the inter corporate deposits was under the mercantile accounting system. The Appellant submitted that writing off of the non recoverable interest did not amount to adopting cash accounting system. The Appellant submitted detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot decide the allowability under the Act. The method adopted by the appellant is one of the methods to write off bad debts and hence the transaction which is being proposed is revenue neutral and the assessing officer should not have added the aforesaid amount as income. The assessing Officer has taken one part of the transactions of the credit to interest account but ignored the other which is debited to interest account by way of bad debts resulting in income which is contrary to law. The Appellant had written off the interest which the Appellant did not receive as bad debts in the book of the Appellant and whatever the interest which was received and which was receivable which was not a bad debt was accounted in the profit and loss account. The Appellant further submitted that the method of writing off in the books is not important and similarly the method of preparing the profit and loss account is not important as long as there is no difference in the net result. The learned Assessing officer and the CIT (A) without appreciating the submission of the Appellant observed that the procedure to claim bad debt is by disclosure in the profit and loss account by way of wr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to be received and which has been written off as bad debts cannot be taxed at all. The addition is bad in law and also on facts of the case. The CIT (A) has confirmed the above addition on three grounds namely (a) that the appellant is following the cash system of accounting (b) the procedure contemplated under section 36(2) has not been followed (c) the appellant had not informed the position at the time of search before the DDIT. The finding of CIT (A) are perverse both in law and on facts as he after having exhaustively reproduced most of the detailed submissions of the Appellant in his order has cryptically given his decision without even adjudicating the same and addressing the issues raised in detail. He has reproduced the submissions of the appellant but has not given a finding as to how the order of the assessment officer is tenable in law and on the facts of the case. The CIT (A) apparently has gone by the statement of the auditor that Appellant is following cash system of accounting. Further the CIT (A) states that we have not filed a letter from the auditor during the assessment or appellate proceedings. The Appellant appeared on several occasions a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Appellant Company advanced inter corporate deposits on interest. The interest received and the interest accrued were credited to the interest account and offered to tax. The accrued interest was credited to the interest account and was debited to the parties account. Whenever the accrued interest turned bad and was not recoverable in spite of all efforts, such interest was written off by crediting the parties account and debiting the interest account. Due to these entries the written off amount did not form a part of the annual profit and loss account as the same was written off by crediting the parties account and debiting the interest account, which effectively reduced the interest received and nullified the parties account as the interest was not recoverable. Even if the write off was effected in the annual profit and loss account the net result would have been the same as in both the cases the actual interest received and receivable only would have been offered to tax. The learned assessing officer concluded that this method of writing the books was a cash accounting system and not mercantile accounting system. The learned AO further concluded that the Act did not perm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accounts as per the provisions of the Act hence the accrued interest of the inter corporate deposits added back to the income of the Appellant is required to be deleted in the interest of justice and equity. 6.Loss of Gold: This issue exists in the appeal for the Assessment Year 2011-12. The Appellant is in the business of gold and gold jewellery and other products of gold. At the closing of the year, the Appellant reconciles all the inventory of gold and gold products in it's various locations by physically weighing the same. The reconciled and physically weighed inventory would be the closing stock of the Appellant which usually matches with the closing stock arrived from the books of the Appellant. During the A.Y 2011-12, the Appellant at the close of the year reconciled all it's inventory at various locations and found that there was shortage of 99.055 Kilos of gold between the book inventory and the physical inventory. In spite of repeated and best efforts put in by the expert team of the Appellant Company they were not able to find out the actual cause of the shortage, the fact remained that there was a shortage of 99.055 kilos of gold. Due to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Loss is a reasonable loss in the business of gold and gold products. The learned assessing officer in spite of detailed explanation added back ₹ 19,39,23,044 to the income of the Appellant without offering any explanation or logic. We have made detailed submissions in the statement of facts and the grounds of appeal filed along with the Form of Appeal and also in the paper books submitted by us. We humbly request your Honour to consider these submissions. In view of the above submissions it is clear that the learned AO has erred in adding back the amount of ₹ 19,39,23,044 to the income of the Appellant and the same is required to be deleted in the interest of justice and equity. 7.Book Profit as determined as 115 JB: This issue exists in 3 appeals for the respective Assessment Years 2012-13, 2013-14, 2014-15. The learned AO did not allow the deduction under sec 10AA and 10B while calculating the book profit for the purpose of deciding the applicable MAT. This was due to the amendment to section 115 JB made in the finance bill. The Appellant has challenged the Amendment and the matter is pending in Writ Appeal before the Honorable Division B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Search :- 1.1 The Ld. CIT(A) dismissed this ground of the assessee stating that the Validity of Search cannot be questioned before the CIT(A). In this connection, it is submitted that the Hon'ble Supreme Court in the case of N.K.Jewellers Vs. CIT, New Delhi (2017) 85 taxmann.com 361(SC) held that in view of the amendment made in section 132A by Finance Act, 2017, the reason to believe or reason to suspect as the case may be, shall not be disclosed to any person or any Authority or Appellate Tribunal as recorded by income Tax Authority u/s.132 or section 132A. We, therefore, cannot go into that question at all. 1.2 The Hon'ble Jurisdictional High Court in the case of Prathibha Jewellery House Vs. CIT (2017) 88 taxmann.com 94 (Karnataka) dismissed the writ petitions and held that even the law has been amended by insertion of the aforesaid Explanation by Parliament in Section 132 of the Act by the Finance Act, 2017 with retrospective effect from 1.4.1962. The Court held that the Explanation also prohibits the Appellate Authorities to go into the reasons recorded by the concerned Income Tax Authority for directing Search against the assessee or tax payer. The relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to in clause (b) in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139 ; (b) Assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made: Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years : Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this (sub-section) pending on the date of initiation of the search under section 132 or making of requisition under section 132A as the case may be, shall abate. 2.2 In this connection, it is respectfully submitted that clause (a) of section 153A(1) deals with issue of notice to such person, where a search is initiated u/s.132 or books of accounts etc. are requisitioned u/s.132A, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 45,02,26,725 Total 1,47,42,19,526 3.2 Since there is seizure of incriminating material based on which additions are made, the ratio decided in the case of CIT vs. Lancy Constructions (2016) 66 taxmann.com 264 (Karnataka) by the Jurisdictional High Court has no application to the facts of this case. 3.3 The Hon'ble Karnataka High Court in the case of Canara Housing Development Company 62 taxman.com 250 (Karnataka) held that once the assessment is reopened, the assessing authority can take note of the income disclosed in the earlier return, any undisclosed income found during search or and also any other income which is not disclosed in the earlier return or which is not unearthed during the search, in order to find out what is the total income of each year and then pass the assessment order. The relevant portion of the Jurisdictional High court order is reproduced below: 10. Section 153A of the Act starts with a non obstante clause. The fetters imposed upon the Assessing Officer by the strict procedure to assume jurisdiction to reopen the assessment under Sections 147 and 148, have been removed by the non ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer is empowered to reopen those proceedings and reassess the total income, taking note of the undisclosed income, if any, unearthed during the search. He has been entrusted with the duty of bringing to tax the total income of an assessee whose case is covered by Section 153A, by even making reassessments without any fetters. This means that there can be only one assessment order in respect of each of the six assessment years, in which both the disclosed and the undisclosed income would be brought to tax. When once the proceedings are initiated under Section 153A of the Act, the legal effect is even in case where the assessment order is passed it stands reopened. In the eye of law there is no order of assessment. Re-opened means to deal with or begin with again. It means the Assessing Officer shall assess or reassess the total income of six assessment years. Once the assessment is reopened, the assessing authority can take note of the income disclosed in the earlier return, any undisclosed income found during search or and also any other income which is not disclosed in the earlier return or which is not unearthed during the search, in order to find out what is the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upheld the addition after thoroughly analyzing the issue. Therefore, I rely upon the CIT(A) order on this proposition. Prayer : 7. In view of the factual matrix and legal position as brought out in the foregoing paragraphs, it is prayed that this Hon'ble Tribunal may uphold the orders of the lower authorities for the cause of equitable justice. 6. We have considered the rival submissions. First we take note of various facts which are relevant for deciding these technical aspects and the issues on merit. The search in the present case was conducted on 17.12.2013. The AO issued notices u/s 153A of the I T Act on 04.07.2014 for these Assessment years except A.Y. 2014 15 asking the assessee to file return of income within 30 days from the receipt of these notices. In response to these notices, the assessee filed letter dated 19.09.2014 stating that the return of income already filed by the assessee for these 6 years may be treated as return in response to these notices u/s 153A of I T Act. 7. In Para 5 of the assessment order for A. Y. 2008 09, it had been noted by the AO that for this year, assessment order u/s 143 (3) was passed on 30.12.2010 determining a tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by CIT (A), the revenue is not in appeal before us but the assessee is in appeal before us for two additions, sustained by CIT (A) of ₹ 29,73,46,928/- being interest on ICDs and ₹ 19,39,23,044/- being value of 99.055 Kilos of gold claimed as misappropriated, total income was computed at ₹ 3655,82,68,783/-. In addition to this, one more issue on merit is raised by the assessee in this year. This issue is about calculation of exemption u/s 10AA. These objections on merit are in addition to three technical objections noted above. 11. For A. Y. 2012 13 also, the details of earlier assessment order, if any, is not available in the assessment order passed u/s 153A but in Para 2 of this assessment order also, this is noted that return of income was filed on 02.11.2012 declaring a loss of ₹ 19,45,15,739/- and as per page 6 of the assessment order, total income was computed on this basis that business income as per assessee s computation of income was ₹ 431,26,84,469/- and after allowing deduction u/s 10AA SEZ of ₹ 334,66,15,379/-, net business income was computed at ₹ 96,60,69,090/-. Income from house property is stated to be of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - after adding ₹ 212,17,19,682/- being SEZ Profit. In this year also, two issues on merit are raised by the assessee. One issue is about addition of Rs. . 212,17,19,682/- for determining the Book Profit u/s 115JB. The second issue on merit is about addition of ₹ 45,02,26,725/- on account of ICD Interest. There is no technical objection in this year. 14. First, we decide the technical aspects one by one. First technical aspect is about validity of search raised in A. Ys. 2008 09 to 2013 14. In this regard, various submissions are made by both sides. As per the learned DR of the revenue, reliance has been placed on a judgment of Hon ble apex court rendered in the case of N. K. Jewellers vs. CIT as reported in 85 Taxmann.com 361 and it is submitted that in this case, it was held that in view of the amendments made in section 132 by Finance Act, 2017, the reason to believe or reason to suspect as the case may be, shall not be disclosed to any person or authority or Appellate Tribunal as recorded by the Income Tax Authority u/s 132. Reliance was also placed on a judgment of Hon ble Karnataka High Court rendered in the case of Pratibha Jewellery House vs. CIT as report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue is relevant for six assessment years from A. Y. 2008 09 to 2013 14. In this regard, this is the submission on behalf of the assessee that the addition made in the assessment orders for these six years are not arising from the seized material. As against this, the submission of the learned DR of the revenue is this that as informed by the AO vide letter dated 05.02.2018,during the course of search, incriminating documents relating to loans/ICDs given by the assessee company were found and seized as bundle No. A/REL/01 to A/REL/05 from the assessee s premises at No. 1, Brunton Road, opp. Old passport office, M. G. Road, Bangalore and after examination and analysis of these documents, addition on account of interest accrued on ICDs has been made in each of these six years. Reliance was placed by the assessee on a judgment of Hon ble Karnataka High Court rendered in the case of CIT vs. Lancy Constructions, 295 CTR 454. Learned DR of the revenue has submitted that this judgment is not applicable in the present case because incriminating material was found in the present case. 19. We have considered the rival submissions. We find that this is reported by the AO in remand repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cantile accounting system. As against this, it is the stand of the AO that the assessee is following cash system of accounting in respect of accounting of interest on ICDs. In order to decide this issue we have to examine the factual aspects on this issue. Hence we have gone through the annual reports of the assessee company made available before us. As per the Annual Report for the year ending as on 31.03.2009 relevant to Assessment Year 2009-10, it has been stated in Schedule S that as per significant accounting policies followed by the assessee, the accounts have been prepared on accrual basis. Similarly as per annual reports for the year ending as on 31.03.2010 relevant to Assessment Year 2010-11 also significant accounting policies are stated in Schedule S as clause 6 thereof is the statement regarding the revenue recognition. For ready reference the same is reproduced herein below. 6. Revenue recognition: Sales are recorded net of trade discounts, rebates and value added tax, if any and are inclusive of foreign currency fluctuation. Some of the goods have been imported on provisional basis without fixing the gold price. Some of the goods have also been expo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other than bank deposits to cash basis instead of accrual basis and for this reason, the profit for the year ending as on 31.03.2011 has been understated by ₹ 33,08,58,068/-. 22. In the year ending as on 31.03.2012, the assessee has reported regarding revenue recognition in Note No. 24 that interest on bank deposits and other interest bearing loans is accounted for on accrual basis. Similar is the observation for annual accounts for the year ending 31.03.2013 that the interest on bank deposits and other interest bearing loans is accounted on accrual basis and identical note is there in annual report for the year ending as on 31.03.2014. In course of hearing before us, this query was made by the bench whether there is any change in the accounting system regarding revenue recognition in respect of interest on ICDs and in reply, it was submitted by ld. AR of assessee being Director of the assessee company that the method adopted is same in all the years but the reporting in the two years i.e. year ending as on 31.03.2011 and 31.03.2012 is different because of some confusion. Hence it is seen that the method of accounting adopted by the assessee for accounting of interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has accrued to the assessee. In the present case, the conduct of the assessee is different. As against debiting the account of the debtor by interest amount and crediting interest suspense account instead of interest receipt account, in the present case, the assessee has neither debited the account of the debtor nor credited interest account or interest suspense account or any other account by whatever name. In the present case, the case of the assessee is this that the interest income is not receivable at all and therefore, the assessee has passed entries in memorandum books by debiting the debtor and crediting the interest account and before the year end, such entries were reversed and as a result, at the year end, no debit remains in the accounts of the debtors and no credit remains in any account being interest receipt account or interest suspense account or any other account by whatever name. But this claim of the assessee was not examined by the lower authorities that the income has not accrued or arisen and it is irrecoverable since very beginning. Under these facts, we feel it proper that the matter should go back to the file of the AO for a fresh decision. We order accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relief allowed by CIT(A) in these four years. Hence on this issue, we set aside the order of CIT(A) and restore the matter back to the file of AO for fresh decision. The AO should provide reasonable opportunity of being heard to assessee and recompute the amount of deduction / exemption allowable to assessee u/s. 10AA of IT Act in the light of the relief allowed by ld. CIT(A) in these four years. This issue is also decided in favour of the assessee for statistical purposes. 25. The next issue on merit is in respect of loss of gold and this issue is only in one year i.e. Assessment Year 2011-12. In this year, this is the claim of the assessee that at the close of year i.e. as on 31.03.2011, the assessee could not reconcile its physical stock with book stock and it was found that there was a shortage of 99.055 Kgs. of gold in physical inventory as compared to the book inventory. The assessee valued the inventory on the basis of physical inventory found as on 31.03.2011 and in this manner, the inventory valued by the assessee was reduced by an amount of ₹ 19,39,23,044/-. The AO did not agree with this stand of the assessee and made addition of this amount in the income of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduction of proviso to sub section (6) of section 115JB of the Act with regard to the MAT is contrary to the scheme of SEZ and on this point the appellant filed a Writ Petition in the Honorable High Court of Karnataka. Consequent to the orders passed by the Honorable High Court of Karnataka in the Writ Petition the appellant has preferred a Writ Appeal with the Honorable Division Bench of Karnataka and the same is pending for disposal. The appellant disclosed these facts in the computation of income while filing the return of income and did not include the profit earned by it's SEZ Unit while calculating the book profit for the purpose of deciding the Minimum Alternate Tax (MAT). In this regard the AO observed in the assessment order as follows, Following the amendment to section 115 JB by the Finance Act 2011, sub section (6) to section 115 JB had been introduced and consequently, net profit from SEZ is required to be included in the book profit for calculation of Minimum Alternate TAX (MAT). In A.Y.'s 2012-13, 2013-14 and 2014-15 the assessee earned net profit from it's SEZ Unit but failed to include the same in the book profit for the purpose of MAT u/s 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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