Friends Bulk Handlers Ltd., GANDHIDHAM V. The Dy. Commr. of Income Tax, Cen. Cir.-2(3), Ahmedabad

ITA 154/RJT/2016

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 6017 (ITAT-RAJKOT)
• Duration Of Justice: 5 year(s) 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 03-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 263; 132; 143(3); 153A; 14A; 153

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT Before: Shri Waseem Ahmed, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member [Conducted through E-Court at Ahmedabad] Friends Bu lk Handlers Ltd . Maitri Bhavan , Plot No. 1 8, Sector-8 , Gandhidh am, Kutch-37020 1 PAN: AAACF895 1G (Appellant) Vs Dy . CIT, CC-2(3) Ah med abad (Resp ondent) Asses see by : Shri K. C. Thacker, A. R. Revenue by : Shri Rajesh Ku m ar, CIT-D. R. Date of hearing : 08-03 -2 022 Date of pronouncement : 25-03 -2 022 आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- These are two appeals filed by the assessee against the orders passed by the Principal Commissioner of Income Tax, Rajkot-1 u/s. 263 of the Act dated 29-02-2016 for Assessment Years 2007-08 & 2008-09. 2. As the facts and issues involved in both the appeals are similar, so, we shall take ITA No. 153/Rjt/2016 A.Y. 2007-08 as the lead case and its ITA Nos. 153 & 154/Rjt/2016 Assessment Year 2007-08 & 2008-09 I.T.A Nos. 153 & 154/Rjt/2016 A.Y. 2007-08 & 2008-09 Page No Friends Bulk Handlers Ltd. vs. Dy. CIT 2 findings will be applicable to ITA No. 154/Rjt/2016 (A.Y. 2008-09) for the sake of convenience. ITA No. 153/Rjt/2016 A.Y. 2007-08 3. The assessee has raised following grounds of appeal:- “1. The learned Pr. CIT has erred in law and on facts in cancelling the order passed U/s. 143(3) r.w.s. 153A(1)(b) of the Act dated 28.03.2014 and in directing to make a fresh assessment. 2. On the facts and in the circumstances of the case and in law, the learned PCIT ought not have cancel the order passed U/s. 143(3) r.w.s. 153A(1)(b) of the Act dated 28.03.2014 and ought not have issued direction for making fresh assessment. 3. It is therefore prayed that the order passed U/s. 263 of the Act may be cancelled. 4. Your appellant craves to add, alter or amend any ground of appeal at the time of hearing.” 4. The brief facts of the case are that for the captioned year the original assessment in the case of the assessee was finalized u/s. 143(3) of the Act on 10-12-2009 on a total income of Rs. 5,08,546/-. The assessee is a part of the “Friends Group” in which a search operation u/s. 132 of the Act was carried out by the Department on 15-06-2011. Notice u/s. 153A of the Act was issued to the assessee on 02-01-2013. In response to the same, the assessee had filed the return of income on 29-06-2013 declaring total income of Rs. 5,08,546/-. The assessment u/s. 143(3) r.w.s. 153(1)(b) of the Act was completed on 28-03-2014 by determining total income of Rs. 5,08,546/- as declared by the assessee in the return of income. I.T.A Nos. 153 & 154/Rjt/2016 A.Y. 2007-08 & 2008-09 Page No Friends Bulk Handlers Ltd. vs. Dy. CIT 3 4.1 On examining the record, the ld. Pr. CIT noticed that the assessee had debited “foreign exchange” rate difference of Rs. 2,97,796/- in its profit and loss account but assessee had not shown any export income and nor had incurred any expense towards import of goods or services. The Assessing Officer had however allowed the aforesaid expenditure on foreign exchange rate difference. Second point noticed by ld. Pr. CIT was that assessee had debited interest expense of Rs. 55,22,432/- in its profit and loss account but as per balance sheet assessee had made an investment of Rs. 23,12,78,015/- in equity shares of Kutch Salt Allied Industries Ltd. which was an investment yielding exempt income. The assessee had however not disallowed any part of the expenditure u/s. 14A of the Act in the statement of total income. The Assessing Officer has also not made any disallowance u/s. 14A of the Act. The Pr. CIT accordingly in view of the above two issues issued show cause notice u/s. 263 of the Act on 23-11-2014. 4.2 In response to the notice, the assessee filed a written submission dated 27-01-2016. Before ld. Pr. CIT, the assessee submitted that original assessment in this case was finalized u/s. 143(3) of the Act on 10-12-2009 at a total income of Rs. 5,08,546/-. Thus, original assessment was not pending when the search took place. Subsequently, search took place at the premises of the assessee on 15-06-2011 wherein no incriminating material was found during the course of search warranting addition to the returned income. The assessment made u/s. 143(3) r.w.s.153(1)(b) pursuant to aforesaid search was finalized on 28-03-2014 determining total income at Rs. 5,08,546/- i.e. same income as declared by the assessee in the return of income. The assessee submitted that the original assessment was not pending when the I.T.A Nos. 153 & 154/Rjt/2016 A.Y. 2007-08 & 2008-09 Page No Friends Bulk Handlers Ltd. vs. Dy. CIT 4 search took place in his premises. The assessment did not abate as per the provisions of second proviso to section 153A(1) of the Act. The assessee submitted before Pr. CIT that it is a settled position of law that in case of an unabated assessment to be made u/s. 153A of the Act, no addition could be made de-hors the material found during the search. Since no material was found during the search, the previously made original assessment was to be reiterated. In the instant case, there was no incriminating material found during the search warranting addition to the returned income. The assessee placed reliance on the decision passed by the Delhi High Court in the case of Kabul Chabla (2015) 93 CCH 210 Delhi High Court wherein Delhi High Court held that completed assessment can be interfered by the Assessing Officer while making assessment u/s. 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which ware not produced or not already disclosed or made in the course of original assessment. The assessee also placed reliance on the ITAT, Ahmedabad Bench decision in the case of Saumya Construction Pvt. Ltd. in ITA No. 03/Ahd/2014 wherein the addition was deleted on the ground that the said addition was not on the basis of any incriminating document found during search operations on the assessee. Without prejudice to the above, the assessee submitted before Pr. CIT that even on the merits of the case, the view taken by the Assessing Officer for allowing foreign exchange rate difference of Rs. 2,97,796/- and also the interest expenses of 55,22,432/- in the profit and loss account was a legally sustainable view and could not be disturbed in proceedings u/s. 263 of the Act. The Pr. CIT however rejected the assessee’s submission and placed I.T.A Nos. 153 & 154/Rjt/2016 A.Y. 2007-08 & 2008-09 Page No Friends Bulk Handlers Ltd. vs. Dy. CIT 5 reliance on the Delhi High Court decision in the case of Flatex India Ltd. vs. CIT (2015 229 taxman 55) (Delhi) which has held that the additions need not be restricted or limited to incriminating material found during the course of search. Further, the Pr. CIT noted that regarding foreign exchange rate, it is noticed that during the assessment proceedings, no verification was made with regard to the claim of foreign exchange rate difference of Rs. 2,97,796/- and no investigation was made whether the borrowed funds were utilized for the purpose of business. The Assessing Officer was therefore directed to ascertain whether the loan taken was for the purpose of business and accordingly decide admissibility of foreign exchange rate difference expense of Rs. 2,97,796/-. With regard to the claim u/s. 14A of the Act, the Pr. CIT held that as per CBDT Circular No. 5/2014 dated 11-02-2014, it has been clarified that Rule 8D r.w.s. 14A of the Act provides for disallowance of expenditure even where assessee in a particular year has not earned any exempt income. The Assessing Officer was accordingly directed to verify the details of investment, interest expense and total assets and work out the disallowance u/s. 14A of the Act accordingly. For the above reasons, the Pr. CIT held that the order passed by the Assessing Officer u/s. 143(3) r.w.s. 153A(1)(b) of the Act dated 28- 03-2014 to be erroneous and prejudicial to the interest of the Revenue. 4.3 Before us, the ld. counsel for the assessee reiterated the submissions made before the Pr. CIT and submitted that at the time of search, the original assessment had not abated and since no incriminating material was found during the course of search proceedings, the Assessing Officer had no option but to pass an order reiterating the income originally assessed. The assessee I.T.A Nos. 153 & 154/Rjt/2016 A.Y. 2007-08 & 2008-09 Page No Friends Bulk Handlers Ltd. vs. Dy. CIT 6 drew our attention to pages 11-12 of the paper book and submitted that the issues raised in the assessment order passed pursuant to search proceedings were the same as at the time of original assessment. The assessee placed reliance on the case of Kusumlata Santhalia (2020) 82 ITR (Trib) 382 (ITAT Kolkata) wherein the ITAT Kolkata Bench held that when the original assessment was completed prior to the date of search and no incriminating documents were found during search, Statute does not confer any power to justify findings on completed assessment. 4.5 The ld. Departmental Representative placed reliance on the observations of Pr. CIT. 5. We have heard the rival contentions and perused the material on record. The Gujarat High Court in the of PCIT v. Rameshbhai Jivraj Desai[2020] 121 taxmann.com 333 (Gujarat) held that where no incriminating material in respect of an earlier assessment year for which assessment had already attained finality was unearthed during course of proceedings under section 153A, Assessing Officer while completing assessment under said section could not disturb completed assessment of assessee in respect of such earlier assessment year. The Bombay High Court in the case of CIT v. Continental Warehousing Corporation (Nhava Sheva) Ltd [2015] 58 taxmann.com 78 (Bombay) held that no addition can be made in respect of assessments which have become final if no incriminating material is found during search. The Kolkata Tribunal in case of Majestic Commercial (P.) Ltd [2020] 116 taxmann.com 412 (Kolkata - Trib.) held that in case of unabated I.T.A Nos. 153 & 154/Rjt/2016 A.Y. 2007-08 & 2008-09 Page No Friends Bulk Handlers Ltd. vs. Dy. CIT 7 assessment of an assessee, no addition is permissible in order under section 153A unless it is based on any incriminating material found during course of search. Again in the case of Mani Square v. ACIT, [2020] 118 taxmann.com 452 (Kolkata - Trib.), the Kolkata Tribunal held in case of unabated assessments of an assessee, no addition is permissible in order under section 153A, unless it is based on any tangible, cogent and relevant incriminating material found during course of search qua assessee and qua assessment year. The Mumbai Tribunal in the case of Wind World India Infrastructure (P.) Ltd.v. PCIT [2017] 86 taxmann.com 279 (Mumbai) held that in case of an unabated assessment, no addition in absence of any incriminating material emerging during course of search and seizure proceedings conducted under section 132(1) can be made in hands of assessee. In our view, the cases cited above squarely applied to assessee’s set of facts wherein, the original assessment was completed on 10-12-2009 at a total income of Rs. 5,08,546/-. A search operation was carried by the Department on 15-06-2011 wherein no incriminating material was discovered. The assessment u/s 143(3) r.w.s. 153(1)(b) of the Act was completed on 28-03-2014 by determining the total income at Rs. 5,08,546/- as declared by the assessee. We note that at the time when the search operations were carried out on 15-06-2011, the original assessment proceedings had been finalized. We also note that during the course of search operation no fresh material or incriminating evidence was found by the Department. Thus, the assessment was not pending when the search took place in this case. The assessment therefore did not abate as per the provisions of second proviso to section 153A(1) of the Act. It is a settled position of law that in case of unabated assessment to be made u/s. 153A of I.T.A Nos. 153 & 154/Rjt/2016 A.Y. 2007-08 & 2008-09 Page No Friends Bulk Handlers Ltd. vs. Dy. CIT 8 the Act no addition could be made de-hors the material found during the search. If there is no fresh and incriminating material found during the search, the previously made assessment is to be reiterated. In view of the above factual and legal position, in our view, the ld. Pr. CIT has erred in law and in fact in initiating proceedings u/s. 263 of the Act. The ground of appeal raised by the assessee is thus allowed. 6. In the result, the appeal of the assessee is allowed. ITA No. 154/Rjt/2016 A.Y. 2008-09 7. The assessee has raised following grounds of appeal:- “1. The learned Pr. CIT has erred in law and on facts in cancelling the order passed U/s. 143(3) r.w.s. 153A(1)(b) of the Act dated 28.03.2014 and in directing to make a fresh assessment. 2. On the facts and in the circumstances of the case and in law, the learned PCIT ought not have cancel the order passed U/s. 143(3) r.w.s. 153 A (1)(b) of the Act dated 28.03.2014 and ought not have issued direction for making fresh assessment. 3. It is therefore prayed that the order passed U/s. 263 of the Act may be cancelled. 4. Your appellant craves to add, alter or amend any ground of appeal at the time of hearing.” 8. The brief facts of this case are almost identical to facts for immediately preceding year i.e. A.Y. 2007-08. Briefly stated, the facts of the case are that for the captioned year i.e. A.Y. 2008-09, the original assessment in the case of assessee was finalized u/s. 143(3) of the Act on 13-03-2010 at a total income of Rs. 2,52,680/-. The assessee is a part of I.T.A Nos. 153 & 154/Rjt/2016 A.Y. 2007-08 & 2008-09 Page No Friends Bulk Handlers Ltd. vs. Dy. CIT 9 “Friends Group”. Search operation u/s. 132 of the Act was carried out by the Department on 15-03-2011. Notice u/s. 153A of the Act was issued to the assessee on 02-01-2013. In response to the same, the assessee filed return of income on 29-06-2013 declaring total income of Rs. 2,52,681. The assessment u/s. 143(3) r.w.s. 153(A)(b) of the Act was completed on 28-03- 2014 by determining total income at Rs. 2,52,681/- which is the same income as declared by the assessee in the return of income. 8.1 On examining the record, the Pr. CIT noted that the assessee had debited “foreign exchange” rate difference of Rs. 3,64,118/- in its profit and loss account but it had not shown any export income and nor had incurred any expense towards import of goods or services. The Assessing Officer had further allowed the aforesaid expenditure of foreign exchange rate difference. Second point noted by the ld. Pr. CIT was that the assessee had debited interest expense of Rs. 44,13,595/- in the profit and loss account but as per balance sheet assessee had made an investment of Rs. 23,12,78,015/- in equity shares of Kutch Salt Allied Industries Ltd. which was an investment yielding exempt income. The assessee had however not disallowed any part of the expenditure u/s. 14A of the Act in the statement of total income. The Assessing Officer has also not made any disallowance u/s. 14A of the Act. The Pr. CIT accordingly in view of the above two issues issued show cause notice u/s. 263 of the Act on 23-11-2015 and proceeded to pass orders u/s. 263 of the Act dated 29-02-2016 holding that the order passed by the Ld. A.O. u/s. 143(3) r.w.s. 153A(1)(b) of the Act on 28-03-2014 is erroneous and prejudicial to the interest of the Revenue. I.T.A Nos. 153 & 154/Rjt/2016 A.Y. 2007-08 & 2008-09 Page No Friends Bulk Handlers Ltd. vs. Dy. CIT 10 9. As the facts and issues involved in this appeal is similar to that of appeal ITA No. 153/Rjt/2016 A.Y. 2007-08, so after applying the decision of appeal ITA 153/Rjt/2016 A.Y. 2007-08, this appeal of the assessee is allowed. 10. In the result, both the appeals of the assessee are allowed. Order pronounced in the open court on 25-03-2022 Sd/- Sd/- (WASEEM AHMED) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 25/03/2022 आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order, Assistant Registrar, Income Tax Appellate Tribunal, Rajkot