ACIT, CC- 3(4), KOLKATA , KOLKATA V. M/S. HIMATSINGKA SEIDE LIMITED , BANGALORE

ITSSA 21/KOL/2018

AI Insights

The case involves cross appeals by M/s. Himatsingka Seide Limited and the Revenue against the order of the CIT(A)-22, Kolkata, concerning the assessment year 2009-10. The primary issues revolved around the disallowance of expenditure under section 14A read with Rule 8D of the Income Tax Act, 1961, and transfer pricing adjustments under section 92CA. The Tribunal's decision was significantly influenced by the Supreme Court's ruling in the Abhisar Buildwell case, which addressed the scope of assessment under section 153A in the context of unabated assessments and the requirement of incriminating material for making additions post-search.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 825315 (ITAT-KOLKATA)
• Duration Of Justice: 7 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 31-12-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 23-04-2018
• Other Referred Cases: Principal Commissioner of Income-tax, Central-3 vs. Abhisar Buildwell (P.) Ltd., Naini Plywood Private Limited vs. CIT(A)-20, Kolkata
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Reassessment proceedings; Search and seizure; Block assessment; Earning of tax free income; Initiation of penalty proceedings; Rule 8D
• Section: 142(1); 271(1)(c); 132; 153A; 14A; 10B; 92C

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘C’ BENCH, KOLKATA Before SHRI GEORGE MATHAN, JUDICIAL MEMBER & SHRI RAKESH MISHRA, ACCOUNTANT MEMBER I.T.(S.S.)A. Nos. Assessment Year Appellant Respondent 18/KOL/2018 2009-10 M/s. Himatsingka Seide Limited DCIT, Central Circle-XVI, Kolkata 21/KOL/2018 2009-10 ACIT, CC- 3(4), Kolkata M/s. Himatsingka Seide Limited PAN: AAACH3507N Appearances: Assessee represented by : Nageshwar Rao, AR. Department represented by : Praveen Kishore, CIT (DR). Date of concluding the hearing : 06-November-2025 Date of pronouncing the order : 31-December-2025 ORDER PER RAKESH MISHRA, ACCOUNTANT MEMBER: These cross appeals filed by the assessee and the Revenue are against the order of the Commissioner of Income Tax (Appeals)-22, Kolkata [hereinafter referred to as Ld. 'CIT(A)'] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AY 2009- 10 dated 30.01.2018. Since the issues are common, both the appeals were heard together and are being decided vide this common order for the sake of convenience and brevity. 2. The assessee is in appeal before the Tribunal raising the following grounds of appeal: I. IT(SS)A No. 18/KOL/2018; AY 2009-10: Printed from counselvise.com Page | 2 I.T.(S.S.)A. Nos.: 18 & 21/KOL/2018 Assessment Year: 2009-10 M/s. Himatsingka Seide Limited. “1. The order of the learned CIT(A) is based on incorrect interpretation of law and facts, and therefore bad in law; 2 The learned CIT(A) has erred, in law and in facts, by confirming with the learned Assessing Officer ('AO')/Transfer Pricing Officer ('TPO') on the disallowance of expenditure u/s 14A read with Rule 8D of the Act for earning exempt income of Rs. 22,96,804. 3. The learned CIT(A) has erred, in law and in facts, by confirming with the AO/TPO in disallowing the interest in spite of the fact that no borrowed funds were used for acquiring the investments resulting in dividend income. 4. The learned CIT(A) has erred, by upholding the initiation of penalty proceedings u/s 271(1)(c) of the Act.” 2.2 The assessee has also raised the following additional ground of appeal: “3. That the assessment order dated 31.03.2014 passed under section 153A of the Act is wholly without jurisdiction and bad in law.” 2.3 The Revenue is in appeal before the Tribunal raising the following grounds of appeal: II. IT(SS)A No. 21/KOL/2018; AY 2009-10: “1. That the Ld. CIT (A) has erred on facts & law in deleting the arm's length price adjustment of Rs. 5,53,95,850/- made by the AO/TPO on account of inter corporate loan to the AE 2. That the Ld. CIT (A) has erred on facts & law by not allowing the method of determining the cost of funds plus credit spread as the most appropriate method in the facts of the case of the assessee determining on the basis of Comparable Uncontrolled Price (CUP) method. 3. That the Ld. CIT (A) has erred on facts & law by not determining the arm's length rate of interest in accordance with Section 92C of the Income-tax Act'1961 (the Act) read with Rule 10B & 10C of Income Tax Rules' 1962 (the Rules). 4. That the Ld. CIT (A) has erred on facts & law to also ignore the fundamental fact that LIBOR is just the inter-bank rate to transact between banks and to determine arm's length interest rate for loan transactions between two companies (assessee and its associated enterprise), an Printed from counselvise.com Page | 3 I.T.(S.S.)A. Nos.: 18 & 21/KOL/2018 Assessment Year: 2009-10 M/s. Himatsingka Seide Limited. appropriate adjustment for difference between international transaction and comparable uncontrolled transaction as envisaged under Rule 10B & 10C of the Rules becomes imperative. 5. That on the facts and the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the adjustment made by the AO/TPO amounting to Rs. 3,63,836/- for international transaction in respect to the share application money given to it's AE. 6. That on the facts and the circumstances of the case and in law, the Ld. CIT(A) has erred in challenging the power of revenue authorities to recharacterize the sham transaction as done by the TPO in this case. 7. That on the facts and in the circumstances of the case, the Ld. CIT (A) has erred in not appreciating that the creditworthiness of the AE has increased That on the facts and the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the adjustment made by the AO/TPO amounting to Rs. 27,84,827/- for international transaction in respect to the corporate guarantee to its AE. 8. That on the facts and in the circumstances of the case, the Ld. CIT (A) has erred in not appreciating that the creditworthiness of the AE has increased substantially on account of corporate guarantee provided by the assessee company to its AE and hence, the provision of corporate guarantee is not a shareholder activity and an arm's length charge needs to be determined in relation to the said transaction. 9. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in not appreciating that the receipt of loan by the AE from an independent lender by virtue of the corporate guarantee provided by the assessee company to its AE increases the profit potential of the AE thereby generating substantial benefit for the business of the AE and hence, the provision of corporate guarantee is not a shareholder activity and an arm's length charge needs to be determined in relation to the said transaction 10. That the appellant craves leave to add to and/or alter, amend, modify or rescind the grounds hereinabove before or hearing of this appeal.” 3. We will first take up IT(SS)A No. 18/KOL/2018 for adjudication. The additional ground of appeal is admitted as it is a legal issue which goes to the root of the matter. Brief facts of the case are that a search and seizure operation u/s 132 of the Act was conducted in ‘Himatsingka Group’ of cases on 22.09.2011 and on subsequent dates. The main Printed from counselvise.com Page | 4 I.T.(S.S.)A. Nos.: 18 & 21/KOL/2018 Assessment Year: 2009-10 M/s. Himatsingka Seide Limited. business activities of the group are manufacturing and processing of silk fabrics and build line business. In the course of the search and seizure operation, panchanamas were drawn in the name of M/s. Himatsingka Seide Ltd. and others. Accordingly, notice u/s 153A of the Act was issued calling for the return of income for AY 2009-10. The assessee filed the return of income in response to the notice disclosing the loss of ₹75,17,48,165/-. Thereafter, notices u/s 143(2) and 142(1) of the Act along with the questionnaire were duly issued and served upon the assessee, in response to which the authorised representative of the assessee company appeared from time to time and filed submissions and requisitioned the details. The Assessing Officer (hereinafter referred to as Ld. 'AO') made certain additions under the normal provision as disallowance of ₹22,96,804/- u/s 14A of the Act read with Rule 8D for the Income Tax Rules, 1962 and transfer pricing adjustment of ₹5,85,44,513/- u/s 92CA of the Act; in addition to that, additions under the MAT provision, and assessed the total income of the assessee at ₹4,76,74,708/- u/s 153A/143(3) of the Act. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A) who partly allowed the appeal of the assessee vide order dated 30.01.2018. 4. Aggrieved with the order of the Ld. CIT(A), the assessee has filed the appeal before the Tribunal. 5. Rival contentions were heard and the submissions made have been examined. At the outset, the Ld. AR submitted that there is no incriminating material in this case. Search and seizure action was carried out in this case on 22.09.2011 and the assessment for A.Y. 2009-10 was unabated assessment and, therefore, in view of the Printed from counselvise.com Page | 5 I.T.(S.S.)A. Nos.: 18 & 21/KOL/2018 Assessment Year: 2009-10 M/s. Himatsingka Seide Limited. decision of the Hon'ble Supreme Court in the case of Principal Commissioner of Income-tax, Central-3 vs. Abhisar Buildwell (P.) Ltd. [2023] 149 taxmann.com 399 (SC)/[2023] 293 Taxman 141 (SC)/[2023] 454 ITR 212 (SC)[24-04-2023] no addition could be made in the absence of any incriminating material as the assessments were unabated. The original return of income was filed on 28.08.2009(as mentioned in para 2.1 of the assessment order dated 31.03.2014) and the time to issue the notice under section 143(2) of the Act had expired before the date of the search. The search took place on 22.09.2011 and neither any proceeding was pending nor any notice u/s 143(2) of the Act had been issued. In the assessment order u/s 153A/143(3) of the Act, the disallowance under section 14A and Transfer Pricing related additions have been made, which have no connection with the findings of the search. The Ld. DR relied upon the order of the Ld. The Ld. AO and requested that the same may be upheld. 6. We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. CIT(A). Similar issue arose in the case of Naini Plywood Private Limited vs. CIT(A)-20, Kolkata in IT(SS)A Nos. 17 to 23/KOL/2021 for AYs 2005- 06 to 2011-12 order dated 29.08.2024 wherein the coordinate Bench of the Tribunal has followed the decision of the Hon'ble Supreme Court in the case of Principal Commissioner of Income-tax, Central-3 v. Abhisar Buildwell (P.) Ltd. [2023] 149 taxmann.com 399 (SC); the relevant extract from the order is as under: “11. At the outset, it may be mentioned that a search and seizure operation u/s 132 of the Act was conducted on 28.09.2010 at the official premises of the assessee at Kolkata, Both the disallowances u/s 80IC of the Act as well as on loss of sale of shares are routine disallowances and no reference to Printed from counselvise.com Page | 6 I.T.(S.S.)A. Nos.: 18 & 21/KOL/2018 Assessment Year: 2009-10 M/s. Himatsingka Seide Limited. any incriminating material found and seized during the course of the search has been made in any of the cases. Accordingly, the Ld. Sr. DR was requested to inform whether any proceeding stood abated. However, instead of informing, a copy of the letter F. No. CIT DR IT3/Kolkata dated 02.07.2024 addressed to the DCIT -2, Kolkata has been filed but till date, it has not been informed whether any incriminating material was the basis for the addition nor has it been informed whether any pending proceeding stood abated. In the case of Principal Commissioner of Income-tax, Central-3 v. Abhisar Buildwell (P.) Ltd. [2023] 149 taxmann.com 399 (SC) where the core issue involved in the appeal filed by revenue was the scope of assessment under section 153A, according to the revenue, the Assessing Officer was competent to consider all the material that was available on record including that found during the search, and make an assessment of 'total income', however, according to the assessee if no assessment proceeding was pending on the date of initiation of the search, the Assessing Officer might consider only the incriminating material found during the search and was precluded from considering any other material derived from any other source. It has been held as under: ■ “The question which is posed for consideration in the instant set of appeals is, as to whether in respect of completed assessments/unabated assessments, whether the jurisdiction of Assessing Officer to make assessment is confined to incriminating material found during the course of search under section 132 or requisition under section 132A or not, i.e., whether any addition can be made by the Assessing Officer in absence of any incriminating material found during the course of search under section 132 or requisition under section 132A or not. [Para 5] ■ At the outset, it is required to be noted that as such various High Courts have taken the view that no addition can be made in respect of completed/unabated assessments in absence of any incriminating material. [Para 7] ■ No addition can be made in respect of completed assessment in absence of any incriminating material. [Para 8] ■ While considering the issue involved, one has to consider the object and purpose of insertion of section 153A and when there shall be a block assessment under section 153A. [Para 9] ■ That prior to insertion of section 153A in the statute, the relevant provision for block assessment was under section 158BA. The erstwhile scheme of block assessment under section 158BA envisaged assessment of 'undisclosed income' for two reasons, firstly that there were two parallel Printed from counselvise.com Page | 7 I.T.(S.S.)A. Nos.: 18 & 21/KOL/2018 Assessment Year: 2009-10 M/s. Himatsingka Seide Limited. assessments envisaged under the erstwhile regime, i.e., (i) block assessment under section 158BA to assess the 'undisclosed income' and (ii) regular assessment in accordance with the provisions of the Act to make assessment qua income other than undisclosed income. Secondly, that the 'undisclosed income' was chargeable to tax at a special rate of 60 per cent under section 113 whereas income other than 'undisclosed income' was required to be assessed under regular assessment procedure and was taxable at normal rate. Therefore, section 153A came to be inserted and brought on the statute. Under section 153A regime, the intention of the legislation was to do away with the scheme of two parallel assessments and tax the 'undisclosed' income too at the normal rate of tax as against any special rate. Thus, after introduction of section 153A and in case of search, there shall be block assessment for six years. Search assessments/block assessments under section 153A are triggered by conducting of a valid search under section 132. The very purpose of search, which is a prerequisite/trigger for invoking the provisions of section 153A/153C is detection of undisclosed income by undertaking extraordinary power of search and seizure, i.e., the income which cannot be detected in ordinary course of regular assessment. Thus, the foundation for making search assessments under section 153A/153C can be said to be the existence of incriminating material showing undisclosed income detected as a result of search. [Para 9.1] ■ On a plain reading of section 153A, it is evident that once search or requisition is made, a mandate is cast upon the Assessing Officer to issue notice under section 153 to the person, requiring him to furnish the return of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made and assess or reassess the same. [Para 10] ■ As per the provisions of section 153A, in case of a search under section 132 or requisition under section 132A, the Assessing Officer gets the jurisdiction to assess or reassess the 'total income' in respect of each assessment year falling within six assessment years. However, it is required to be noted that as per the second proviso to section 153A, the assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years 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. As per sub-section (2) of section 153A, if any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or Printed from counselvise.com Page | 8 I.T.(S.S.)A. Nos.: 18 & 21/KOL/2018 Assessment Year: 2009-10 M/s. Himatsingka Seide Limited. section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner. Therefore, the intention of the legislation seems to be that in case of search only the pending assessment/reassessment proceedings shall abate and the Assessing Officer would assume the jurisdiction to assess or reassess the 'total income' for the entire six years period/block assessment period. The intention does not seem to be to reopen the completed/unabated assessments, unless any incriminating material is found with respect to concerned assessment year falling within last six years preceding the search. Therefore, on true interpretation of section 153A, in case of a search under section 132 or requisition under section 132A and during the search any incriminating material is found, even in case of unabated/completed assessment, the Assessing Officer would have the jurisdiction to assess or reassess the 'total income' taking into consideration the incriminating material collected during the search and other material which would include income declared in the returns, if any, furnished by the assessee as well as the undisclosed income. However, in case during the search no incriminating material is found, in case of completed/unabated assessment, the only remedy available to the revenue would be to initiate the reassessment proceedings under section 147/48, subject to fulfilment of the conditions mentioned in section 147/148, as in such a situation, the revenue cannot be left with no remedy. Therefore, even in case of block assessment under section 153A and in case of unabated/completed assessment and in case no incriminating material is found during the search, the power of the revenue to have the reassessment under section 147/148 has to be saved, otherwise the revenue would be left without remedy. [Para 11] ■ If the submission on behalf of the revenue that in case of search even where no incriminating material is found during the course of search, even in case of unabated/completed assessment, the Assessing Officer can assess or reassess the income/total income taking into consideration the other material is accepted, in that case, there will be two assessment orders, which shall not be permissible under the law. At the cost of repetition, it is observed that the assessment under section 153A is linked with the search and requisition under sections 132 and 132A. The object of section 153A is to bring under tax the undisclosed income which is found during the course of search or pursuant to search or requisition. Therefore, only in a case where the undisclosed income is found on the basis of incriminating material, the Assessing Officer would assume the jurisdiction to assess or reassess the total income for the entire six years block assessment period even in case of completed/unabated assessment. As per the second proviso Printed from counselvise.com Page | 9 I.T.(S.S.)A. Nos.: 18 & 21/KOL/2018 Assessment Year: 2009-10 M/s. Himatsingka Seide Limited. to section 153A, only pending assessment/reassessment shall stand abated and the Assessing Officer would assume the jurisdiction with respect to such abated assessments. It does not provide that all completed/unabated assessments shall abate. If the submission on behalf of the revenue is accepted, in that case, second proviso to section 153A and sub-section (2) of section 153A would be redundant and/or rewriting the said provisions, which is not permissible under the law. [Para 12] ■ For the reasons stated hereinabove, no addition can be made in respect of the completed assessments in absence of any incriminating material. [Para 13] ■ In view of the above and for the reasons stated above, it is concluded as under: (i) in case of search under section 132 or requisition under section 132A, the Assessing Officer assumes the jurisdiction for block assessment under section 153A; (ii) all pending assessments/reassessments shall stand abated; (iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the Assessing Officer would assume the jurisdiction to assess or reassess the 'total income' taking into consideration the incriminating material unearthed during the search and the other material available with the Assessing Officer including the income declared in the returns; and (iv) in case no incriminating material is unearthed during the search, the Assessing Officer cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the Assessing Officer in absence of any incriminating material found during the course of search under section 132 or requisition under section 132A. However, the completed/unabated assessments can be reopened by the Assessing Officer in exercise of powers under section 147/148, subject to fulfilment of the conditions as envisaged/mentioned under section 147/148 and those powers are saved. The question involved in the instant set of appeals and review petition is answered accordingly in terms of the above and the appeals and review petition preferred by the revenue are hereby dismissed. [Para 14].” 12. In the instant appeal for the impugned assessment year since there is no reference to any incriminating documents/evidence found in the course of search nor any of the assessee’s assessments were abated nor has it Printed from counselvise.com Page | 10 I.T.(S.S.)A. Nos.: 18 & 21/KOL/2018 Assessment Year: 2009-10 M/s. Himatsingka Seide Limited. been informed till date whether assessment proceedings had abated, therefore, in view of the decision of the Hon’ble Supreme Court in the case of PCIT Vs. Abhisar Buildwell Pvt. Ltd. (supra), the additions which are in the nature of routine disallowance/addition to be made in regular assessment and not to be made in the assessment u/s 153A of the Act consequent to search in the absence of any incriminating document, are hereby deleted and the assessment order is hereby quashed and the appeal of the assessee for AY 2005-06 is allowed.” {emphasis supplied} 7. Thus, respectfully following the decision of the Hon'ble ITAT in the case of Naini Plywood Private Limited (supra) wherein the decision of the Hon'ble Supreme Court in the case of Abhisar Buildwell (P.) Ltd. (supra) has been followed, this appeal filed by the assessee in IT(SS)A No. 18/KOL/2018 is allowed and the additions made by the Ld. AO which are confirmed by the Ld. CIT(A) are hereby deleted. Hence, 1, 2, 3 and the additional ground of appeal raised are allowed. Ground No. 4 being premature, does not require any adjudication at this stage. 8. Further, respectfully following the decision of the Hon'ble Supreme Court in the case of Abhisar Buildwell (P.) Ltd. (supra), the appeal filed by the Revenue in IT(SS)A No. 21/KOL/2018 is dismissed. 9. In the result, the appeal filed by the assessee in IT(SS)A No. 18/KOL/2018 is allowed whereas the appeals filed by the Revenue in IT(SS)A No. 21/KOL/2018 is dismissed. Orders pronounced in the open Court on 31st December, 2025. Sd/- Sd/- [George Mathan] [Rakesh Mishra] Judicial Member Accountant Member Dated: 31.12.2025 Bidhan (Sr. P.S.) Printed from counselvise.com Page | 11 I.T.(S.S.)A. Nos.: 18 & 21/KOL/2018 Assessment Year: 2009-10 M/s. Himatsingka Seide Limited. Copy of the order forwarded to: 1. M/s. Himatsingka Seide Limited, 10/24, Kumara Krupa Road, High Grounds, Bengaluru, Karnataka, 560001. 2. DCIT, Central Circle-XVI, Kolkata. 3. ACIT, CC- 3(4), Kolkata. 4. CIT(A)-22, Kolkata. 5. CIT- 6. CIT(DR), Kolkata Benches, Kolkata. 7. Guard File. //True copy // By order Assistant Registrar ITAT, Kolkata Benches Kolkata Printed from counselvise.com "