ACIT-CENTRAL-CIRCLE-2(3), Nagpur V. SHRI SHAKTI KUMAR SANCHETI, Nagpur

ITA 203/NAG/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3132 (ITAT-NAGPUR)
• Duration Of Justice: 1 year(s) 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 09-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 153A; 14A; 132; 139

Judgement Text

1 ITA NO. 203/NAG/2014 IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR. BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T.A. NO. 203/NAG/2014 ASSESSMENT YEAR : 2005 - 06. ASSTT. COMMISSIONER OF INCOME - TAX, LATE SHRI SHAKTIKUMAR SANCHETI, CENTRAL CIRCLE - 2(1), NAGPUR. VS. LEGAL HEIRS SMT. VIJAYA S SANCHETI (WIFE), SHRI AJAY S SANCHETI (SON), SHRI ANAND S SANCHETI (SON). NAGPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A.R. MEENA. RESPONDENT : SHRI MUKESH AGRAWAL. DATE OF HEARING : 0 8 - 12 - 2015. DATE OF PRONOUNCEMENT : 5 TH FEBRUARY, 2016. O R D E R PER MUKUL K. SHRAWAT, J.M. THIS IS AN APPEAL FILED BY THE REVENUE ARISING FROM THE ORDER OF LEARNED CIT(APPEALS) - III, NAGPUR DATED 07 - 01 - 2014. GROUNDS RAISED ARE REPRODUCED BELOW: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, WHETHER THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.15,41,922/ - MADE ON ACCOUNT OF INTEREST DISALLOWED UNDER THE PROVISIONS OF SECTION 14A OF THE I.T. ACT, 1961? 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, WHETHER THE LD. CIT(A) HAS ERRED IN OBSERVING THAT THE DISALLOWANCE OF INTEREST U/S 14A, MADE BY THE AO, IS NOT BASED ON ANY DOCUMENT OR MATERIAL FOUND AS A RESULT OF THE SEARCH? 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, WHETHER THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE ADDITION MADE IN ASSESSMENT UNDER PROVISION OF SECTION 14A OF THE ACT, WOULD BE TOTAL INCOME, 2 ITA NO. 203/NAG/2014 WHICH INCLUDES THE INCOME COMPUTED AS PER THE PROVISIONS OF THE ACT, TILL THE DATE OF SEARCH? 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, WHETHER THE L D. CIT(A) HAS ERRED IN RELYING ON DECISIONS, WHICH ARE DISTINGUISHABLE FROM THE FACTS OF THE PRESENT CASE? 2. AN ASSESSMENT WAS MADE U/S 153A READ WITH SECTION 153(3) DATED 10 - 12 - 2009. A SEARCH U/S 132 WAS CONDUCTED ON SANCHETI GROUP ON 07 - 09 - 2007. AN O BSERVATION WAS MADE BY THE AO THAT ORIGINALLY A RETURN U/S 139 WAS FILED ON 31 - 10 - 2005 DECLARING AN INCOME OF RS.10,00,010 AND AGRICULTURAL INCOME OF RS.1,02,762/ - . THAT RETURN WAS PROCESSED VIDE AN ORDER U/S 143(1) DATED 04 - 05 - 2006. THEREAFTER IN COMPLIAN CE OF A NOTICE U/S 153A A RETURN WAS FIL E D ON 01 - 01 - 2009 DECLARING THE SAME INCOME AS IT WAS ORIGINALLY DECLARED. DURING THE PROCEEDINGS U/S 153A THE ONLY ISSUE WHICH WAS RAKED - UP BY THE AO WAS A DISALLOWANCE U/S 14A OF THE I.T. ACT. ACCORDING TO THE AO TH E ASSESSEE HAD EARNED SHARE INCOME FROM A FIRM WHICH WAS AN EXEMPT INCOME. THE OBSERVATION OF THE AO WAS THAT THE ASSESSEE HAD CLAIMED INTEREST PAID OF RS.32,56,467/ - WHICH WAS CONNECTED WITH THE PROFIT EARNED FROM THE SAID FIRM WHICH DID NOT FORM PART OF THE TOTAL INCOME. IT WAS ALSO COMMENTED BY THE AO THAT IT WAS NOT POSSIBLE THAT THE ENTIRE BORROWED FUNDS WERE UTILIZED TOWARDS GETTING INTEREST INCOME. IN HIS OPINION PART OF THE INTEREST CLAIMED WOULD HAVE RELATED TO EARNING THE SHARE OF PROFIT FROM THE SAID FIRM. HOWEVER, A PROPORTIONATE DISALLOWANCE WAS COMPUTED AMOUNTING TO RS.15,41,922/ - . 3. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY, THE BASIC CONTENTION OF THE ASSESSEE WAS THAT UNDER THE PROCEEDINGS U/S 153A THERE WAS NO MENTIO N OF ANY INCRIMINATING MATERIAL. IT WAS ALSO PLEADED THAT WHEN THE IMPUGNED ORDER WAS PASSED, NO PROCEEDINGS WERE PENDING FOR THE YEAR UNDER CONSIDERATION . AFTER CONSIDERING FEW CASE LAWS, LEARNED CIT(APPEALS) HAS HELD AS UNDER : 3 ITA NO. 203/NAG/2014 I HAVE CONSIDERED ORDER OF THE AO, WRITTEN SUBMISSIONS OF THE APPELLANT AND ORAL ARGUMENTS PUT FORTH BY THE COUNSEL DURING HEARING OF THE CASE. IT IS NOT IN DISPUTE THAT THE ASSESSEE IS EARNING INTEREST INCOME (TAXABLE) AS WELL AS SHARE OF PROFIT (EXEMPT) INCOME FROM THE FIRM. TH E ASSESSEE HAS CLAIMED SET OFF OF INTEREST PAID AGAINST INTEREST INCOME IN THE ORIGINAL AS WELL AS SUBSEQUENT RETURN OF INCOME. IT IS ALSO SEEN FROM THE DOCUMEN TS THAT DURING SEARCH PROCEEDINGS, NO NEW DOCUMENT RELATING TO THIS DEDUCTION WAS FOUND FROM AS SESSEES PREMISES. ON THE DATE OF SEARCH, RETURN FILED U/S 139 STOOD PROCESSED AND NO PROCEEDING RELATING TO AY UNDER REFERENCE WAS PENDING. HERE, IT IS CRUCIAL TO OBSERVE THAT THE DISALLOWANCE OF INTEREST U/S 14A MADE BY A.O. IS NOT BASED ON ANY DOCUMENT OR MATERIAL FOUND AS A RESULT OF THE SEARCH. THE HONBLE ITAT, MUMBAI IN ALL CARGO GLOBAL LOGISTICS LTD. V. DCIT (137 ITD 287) (MUM)(SB) HAS HELD THAT IN CASE OF COMPLETED ASSESSMENTS, ASSESSMENT U/S 153A SHOULD BE MADE ON THE BASIS OF INCRIMINATING MATER IAL I.E. (A) THE BOOKS OF ACCOUNTS AND OTHER DOCUMENTS FOUND IN THE COURSE OF THE SEARCH BUT NOT PRODUCED IN THE COURSE OF ORIGINAL ASSESSMENT AND (B) UNDISCLOSED INCOME OR PROPERTY DISCLOSED IN THE COURSE OF SEARCH. THIS VIEW HAS BEEN FOLLOWED BY THE ITAT DELHI IN MGF AUTOMOBILES LTD. V. ACIT (ITA NOS. 4212 & 4213/DEL/2011) WHEREIN THE HONBLE BENCH HAS RULED THAT AS THE ASSESSMENTS WERE COMPLETED AND THERE WAS NO INCRIMINATING MATERIAL FOUND DURING THE SEARCH, THE AO WAS NOT ENTITLED TO MAKE ANY ADDITION. RESPECTFULLY FOLLOWING THE JUDGMENT OF SPECIAL BENCH ( SUPRA), I DIRECT TO DELETE THE DISALLOWANCE OF RS. 15 ,41,922/ - . 4. FROM THE SIDE OF THE REVENUE, LEARNED D.R. MR. A.R. MEENA HAS SUPPORTED THE ACTION OF THE AO AND ALSO PLACED RELIANCE ON THE FOLLOWING JUDGMENTS: 1. FILATEX INDIA LTD . VS. CIT 49 TAXMANN.COM 465 (DELHI) 2. SUNNY JACOB JEWELLERS AND WEDDING CENTRE VS. DCIT 48 TAXMANN.COM 347 (KERALA). 3. ALL CARGO GLOBAL LOGISTICS LTD. VS. DCIUT 23 TAXMANN.COM 103 (MUMBAI) (SB). 5. ON THE OTHER HAND, FROM THE SIDE OF THE RESPONDENT - ASSESSEE LEARNED A.R. MR. MUKESH AGRAWAL APPEARED AND PLACED RELIANCE ON THE DECISION OF CONTINENTAL WAREHOUSING 120 DTR 089 (BOMBAY). 4 ITA NO. 203/NAG/2014 6. WE HAVE PERUSED THE IMPUGNED ASSESSMENT ORDER AND NOTICED THAT THERE WAS NO MENTION OF ANY INCRIMINATING MATERIAL ON THE BASIS OF WHICH THE IMPUGNED ADDITION WAS MADE. FURTHER IT IS ALSO AN ADMITTED FACTUAL POSITION THAT THE RETURN U/S 139 WAS FILED ON 31 - 10 - 2005 WHICH WAS PROCESSED U/S 143(1) ON 04 - 05 - 2006. IT IS ALSO NOT THE CASE THAT A NOTICE U/S 153A WAS ISSUED WITHI N 12 MONTHS FROM THE DATE OF FILING OF THE RETURN U/S 139, BECAUSE THE NOTICE U/S 153A WAS ISSUED ON 30 TH OF MAY, 2008 AND IN COMPLIANCE A RETURN WAS FILED BY THE ASSESSEE DECLARING THE SAME INCOME AS IT WAS ORIGINALLY DECLARED. FACTS OF THE CASE HAVE FUR THER REVEALED T HAT THE ASSESSMENT YEAR UNDER CONSIDERATION WAS NOT THE YEAR WHICH WAS ABATED UNDER ANY OF THE PROVISIONS OF LAW. REVENUE HAS NOT DEMONSTRATED THAT FOR THE YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2005 - 06 ANY PROCEEDINGS WERE PENDING OR THE PROCEEDINGS OF THE ASSESSMENT YEAR WERE YET TO BE FINALISED. 6.1 IN THE LIGHT OF THE ABOVE ADMITTED FACTUAL POSITION WE HAVE CAREFULLY PERUSED THE ORDER OF HONBLE JURISDICTIONAL HIGH COURT PRONOUNCED IN THE CASE OF CIT VS. CONTINENTAL WARE HOUSING CORPORATION 120 DTR 89 (BOM.) WHEREIN THE HONBLE COURT HAS HELD THAT IN RESPECT OF NON ABATED ASSESSMENTS THE ASSESSMENT WILL BE MADE ON THE BASIS OF BOOKS OF ACCOUNTS OR OTHER DOCUMENT NOT PRODUCED IN THE COURSE OF ORIGINAL ASSESSMENT BUT FOUND IN THE COURSE OF SEARCH OR UNDISCLOSED INCOME DISCOVERED IN THE COURSE OF SEARCH. THE COURT HAS FURTHER CLARIFIED T HAT THE SCOPE OF THE INITIATION OF PROCEEDINGS U/S 153A IS TO ASSESS OR REASSESS PROCEEDINGS PENDING ON THE DATE OF CONDUCTING THE SEARCH U/S 132 OR MAKING REQUISITION U/S 132A THAT HAS ABATED AND NOT THE ASSESSMENTS/REASS ESSMENTS ALREADY FINALISED FOR THOSE ASSESSMENT YEARS COVERED U/S 153A. THIS DECISION BEING AN ORDER OF JURISDICTIONAL HIGH COURT, HENCE BINDING UPON US. AS FAR AS THE DECISIONS CITED FROM THE SIDE OF THE REVENUE ARE CONCERNED, THE LEGAL PROPOSITION IS THE SAME AS HELD IN THE CASE OF ALL CARGO GLOBAL LOGISTICS LTD. VS. DCIT 23 TAXMANN.COM 103 (MUMBAI (S.B.) THAT THE 5 ITA NO. 203/NAG/2014 SCOPE OF ASSESSMENT U/S 153A IS CONFINED TO THE INCRIMINATING MATERIAL OR BOOKS OF ACCOUNTS UNEARTHED DURING THE COURSE OF SEARCH WHICH WERE NO T PRODUCED IN THE COURSE OF ORIGINAL ASSESSMENT AND THAT THE ASSESSMENT PROCEEDINGS ARE NOT FINALIZED. EVEN IN THE CASE OF FILATEX INDIA LTD. 49 TAXMANN.COM 465 (DEL.) AN OBSERVATION WAS MADE THAT THE ADDITION U/S 153A IS REQUIRED TO BE RESTRICTED TO THE I NCRIMINATING MATERIAL FOUND DURING THE COURSE OF SEARCH. 7. THEREFORE, UNDER THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED OPINION THAT THE LEARNED CIT(APPEALS) HAS RIGHTLY DIRECTED TO DELETE THE ADDITION MADE U/S 14A OF THE ACT BY INVOKING THE PROVISIONS OF SECTION 153A WHICH WAS NOT AN ABATED ASSESSMENT YEAR AS WELL AS THE IMPUGNED ADDITION WAS NOT BASED UPON ANY INCRIMINATING MATERIAL . WE FIND NO FORCE IN THE GROUNDS OF THE REVENUE. HENCE DISMISSED. 8. IN THE RESULT, A PPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 5 TH DAY OF FEBRUARY, 2016. SD/ - SD/ - (SHAMIM YAHYA) (MUKUL K. SHRAWAT) ACCOUNTANT MEMBER JUDICIAL MEMBER NAGPUR, DATED: 5 TH FEBRUARY, 2016. 6 ITA NO. 203/NAG/2014 COPY FORWARDED TO : 1. ASSESSEE 2. A.C.I.T., CENTRAL CIRCLE - 2(3), NAGPUR. 3. COMMISSIONER OF INCOME - TAX - ,NAGPUR. 4. CIT(APPEALS) - I II, NAGPUR. 5. D.R., ITAT, NAGPUR. 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, NAGPUR WAKODE.