DCIT CEN CIR 23 CEN RG 7, MUMBAI V. RASESH B KANAKIA, MUMBAI

ITA 3194/MUM/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4255 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 05-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K SRIVASTAVA
• Keywords: Search and seizure; Loose papers; Rule of consistency; Difference of opinion; Change of opinion; Capital expenditure
• Section: 143(3); 142(1); 153A; 14A; 132; 11

Judgement Text

D IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 3192 /MUM/2014 ( / ASSESSMENT YEAR : 2005-06) ./ I.T.A. NO. 3193 /MUM/2014 ( / ASSESSMENT YEAR : 2006-07) ./ I.T.A. NO. 3194 /MUM/2014 ( / ASSESSMENT YEAR : 2007-08) ./ I.T.A. NO. 3195 /MUM/2014 ( / ASSESSMENT YEAR : 2008-09) ./ I.T.A. NO. 3196 /MUM/2014 ( / ASSESSMENT YEAR : 2009-10) DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 23, R. NO. 409, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, CHURCHGATE, MUMBAI 400 020. / V. SHRI RASESH B. KANAKIA, 5 TH FLOOR,349,BUSINESS POINT, WESTERN EXPRESS HIGHWAY, ANDHERI(E) MUMBAI 400 057. ./ PAN :AABPK3454F ( / APPELLANT ) .. ( / RESPONDENT ) REVENUE BY SHRI A.K.SRIVASTAVA CIT DR ASSESSEE BY : SHRI VIJAY MEHTA, / DATE OF HEARING : 10-02-2016 / DATE OF PRONOUNCEMENT : 10-02-2016 ITA 3192-3196/MUM /14 2 / O R D E R PER BENCH : THESE FIVE APPEALS BY THE REVENUE ARE DIRECTED AGAI NST FIVE SEPARATE ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS)- 40 , MUMBAI (HEREINAFTER CALLED THE CIT(A)) ALL DATED 18-2-20 14 PERTAINING TO THE ASSESSMENT YEARS 2005-06 TO 2009-10. SINCE SIMILAR GROUNDS OF APPEAL ARE RAISED IN ALL THESE FIVE APPEALS, WE HAVE DISPOSED OF ALL THESE FIVE APPEALS BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND B REVITY. 2. THE COMMON GROUNDS OF APPEAL RAISED BY THE REVEN UE IN ALL THESE FIVE APPEALS FILED WITH THE TRIBUNAL READS AS UNDER:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) WAS CORRECT IN HOLDING THAT THERE EXISTED A N EXUS BETWEEN THE INTEREST EXPENSE AND INTEREST INCOME SOLELY ON THE BASIS OF THE BANK STATEMENTS. 2. THE APPELLANT CRAVES TO LEAVE, TO ADD, TO AMEND AN D / OR TO ALTER ANY OF GROUNDS OF APPEAL, IF NEED BE. 3. THE APPELLANT, THEREFORE, PRAYS THAT ON THE GROUND S STATED ABOVE, THE ORDER OF THE CIT(A)-40, MUMBAI MAY BE SET ASIDE A ND THAT OF THE ASSESSING OFFICER RESTORED. 3. WE SHALL TAKE REVENUES APPEAL IN ITA NO. 3192/M UM/2014 FOR THE ASSESSMENT YEAR 2005-06 AS LEAD APPEAL. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS CHAIRMAN OF KANAKIA SPACES PVT. LTD. AND IS IN-CHARGE OF THE OVERALL AD MINISTRATION AND BUSINESS DEVELOPMENT . THE KANAKIA GROUP IS PRIMARILY ENGAGE D IN THE REAL ESTATE, HOSPITALITY, ENTERTAINMENT AND EDUCATION SECTORS OF THE ECONOMY. ITA 3192-3196/MUM /14 3 5. THERE WAS A SEARCH AND SEIZURE ACTION U/S 132 OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) CONDUCTED BY THE INV ESTIGATION UNIT-V(2) , MUMBAI, ON 29-03-2011 AT THE BUSINESS AND RESIDENTI AL PREMISES OF THE DIRECTORS OF THE ASSESSEES GROUP COMPANIES WHICH W AS CONCLUDED ON 24-05- 2011. DURING THE COURSE OF THE SEARCH PROCEEDINGS U /S 132(1) OF THE ACT, CASH OF RS. 7,12,340/- ALONG WITH JEWELLERY OF RS. 2,57, 80,635/- WAS FOUND FROM THE RESIDENTIAL PREMISES OF THE ASSESSEE. THE CASH OF RS.6,00,000/- WAS SEIZED DURING THE COURSE OF SEARCH OPERATIONS FROM THE ASSESSEE BUT THERE WAS NO SEIZURE OF JEWELLERY FROM THE ASSESSEE DURIN G THE COURSE OF THE SEARCH PROCEEDINGS U/S 132(1) OF THE ACT. HOWEVER, DURING THE COURSE OF SEARCH OPERATIONS AGAINST DIFFERENT ASSESSEES OF THE GROU P, BOOKS OF ACCOUNTS, DOCUMENTS, VALUABLES, DIARIES AND OTHER LOOSE PAPER S WERE SEIZED. BASED UPON THE SEARCH AND POST SEARCH ENQUIRIES, THE ASSE SSEE MADE DISCLOSURE OF JEWELLERY OF RS.27,34,940/- AND CASH OF RS.6,00,00 0/- , AGGREGATING TO DISCLOSURE OF RS.33,34,940/- BY THE ASSESSEE. 6. NOTICE U/S 153A OF THE ACT WAS ISSUED TO THE ASS ESSEE ON 04.01.2012 AND IN RESPONSE THEREOF THE ASSESSEE FILED HIS RETURN O F INCOME ON 31.01.2012 DECLARING TOTAL INCOME OF RS. 20,04,659/-. NOTICES DATED 09-7-2012 U/S 143(2) AND 142(1) OF THE ACT WERE ISSUED TO THE ASS ESSEE AND SERVED UPON THE ASSESSEE. DURING THE COURSE OF THE ASSESSMENT PROC EEDINGS U/S 153A OF THE ACT, THE ASSESSEE REPLIED THE RELEVANCE OF THE SEIZ ED MATERIAL. THE LEARNED ASSESSING OFFICER(HEREINAFTER CALLED THE AO) OBSE RVED THAT THE ASSESSEE HAS EARNED INTEREST INCOME OF RS. 92,99,866/- AND CLAI MED INTEREST EXPENSES OF RS. 91,87,619/- AGAINST THE SAME. THE BREAK UP IS AS UNDER:- NAME OF THE PARTY INTEREST (RS) AMOUNT(RS.) INTEREST EARNED BABUBHAI KANAKIA 92,96,982 INCOME TAX REFUND 2,884 92,99,866 INTEREST PAID ITA 3192-3196/MUM /14 4 THAKUR FININVEST P LTD. 90,24,661 L H JOSHI 54,000 BANK INTEREST 1,08,958 (91,87,619) TOTAL: 1,12,247 THE ASSESSEE OFFERED THE BALANCE NET INTEREST OF RS . 1,12,247/- TO TAX ALONG WITH CERTAIN OTHER DISALLOWANCES , AS ASSESSED IN T HE ORDER DATED 31-12-2009 PASSED U/S 143(3) READ WITH SECTION 153A OF THE ACT PURSUANT TO THE FIRST SEARCH CONDUCTED BY REVENUE ON 19-07-2007. THE A.O . OBSERVED THAT THE ASSESSEE CLAIMED DEDUCTION AGAINST INCOME FROM OTHE R SOURCES U/S 57(III) OF THE ACT , WHICH STIPULATES AS UNDER:- (III) ANY OTHER EXPENDITURE (NOT BEING IN THE NATU RE OF CAPITAL EXPENDITURE) LAID OUT OR EXPENDED WHOLLY AND EXCLUS IVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. THE A.O. OBSERVED THAT THE EXPENDITURE CLAIMED BY T HE ASSESSEE AS A DEDUCTION AGAINST INCOME FROM OTHER SOURCES HAS TO BE EXPENDED WHOLLY AND EXCLUSIVELY FOR EARNING SUCH INCOME. THE ASSESSEE W AS SHOW CAUSED VIDE NOTICE DATED 12.03.2013 TO EXPLAIN THE CLAIM OF DED UCTION OF INTEREST EXPENSES AGAINST THE INTEREST INCOME , THE ASSESSEE REPLIED VIDE LETTER DATED 25-3-2013, WHICH IS REPRODUCED BELOW:- THIS IS IN REFERENCE TO YOUR SHOW CAUSE NOTICE U/S . 142 (1) OF THE INCOME TAX ACT, 1961 DATED 12.03.2013. IN RESPONSE TO THE SAID NOTICE, UNDER THE INSTRUCTIONS FROM OUR ABOVE CLIENT, WE SU BMIT AS UNDER: REGARDING INTEREST EXPENSES CLAIMED AGAINST INTERES T INCOME, WE REPLY IS AS UNDER- WE HAVE TO DREW YOUR HONOURS ATTENTION TOWARDS THE FACT THAT SIMILAR ISSUE WAS ALREADY CONSIDERED IN THE ORDER THAT WAS PASSED IN CONNECTION WITH THE EARLIER SEARCH. SINCE, ORDER WAS PASSED UN DER SECTION 153A, IT WAS ALSO PASSED WITH THE APPROVAL OF THE THEN LEARN ED ADDITIONAL COMMISSIONER INCOME TAX, CENTRAL RANGE - 7, MUMBAI. WE DRAW YOUR HONOUR'S ATTENTION TO THE ORDER FOR AY, 2007-08 THA T WAS PASSED U/S. 153 A ON 31/12/2009. ITA 3192-3196/MUM /14 5 RELEVANT PART FROM THE SAID ORDER IS REPRODUCED AS UNDER: I HAVE CONSIDERED THE SUBMISSION OF THE ASSESSE AN D THE FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSE HAS PAID INT EREST OF RS.54,000/- TO SHRI L H JOSHI ON A LOAN OF RS. 3,00,000/- @ 18% . THE INTEREST PAID TO SHRI L H JOSHI WAS DISALLOWED FOR THE REASONS DISCU SSED IN EARLIER ASSESSMENT YEARS. THERE IS NO DIFFERENCE IN THE FAC TS OF THE CASE. ACCORDINGLY, INTEREST OF RS. 54,000/- PAID TO SHRI L H JOSHI IS DISALLOWED AND ADDED TO THE TOTAL INCOME. KEEPING IN VIEW OF THE FACTS OF THE CASE, THE INTER EST OF RS.54,000/- IS DISALLOWED OUT OF INTEREST PAID. COPY OF THE ORDER IS ENCLOSED FOR REFERENCE. AS IT IS EVIDENT FROM THE ABOVE, THE CLAIM OF INTER EST PAID OF RS.91,33,619/- WAS ALLOWED TO THE ASSESSEE AFTER DI SALLOWING SUM OF RS.54,000/- CONSIDERING FACTS OF THE CASE. ON THE BASIS OF THE SAME, IN THE RETURN FILED U/S 1 53A , ASSESSEE HAD ALREADY DISALLOWED SUM OF RS.54,000/- OUT OF TOTAL INTEREST PAID OF RS.91,87,619/- . THUS, CLAIM OF INTEREST EXPENSE NE EDS TO BE ALLOWED TO THE ASSESSEE. MOREOVER , WITHOUT PREJUDICE TO THE ABOVE, WE HAVE TO SUBMIT THAT THE ISSUE OF NETTING OF INTE REST HAS NOT EMERGED IN THE PRESENT SEARCH. YOUR HONOUR WILL APPRECIATE THA T THE SPECIAL BENCH OF MUMBAI ITAT IN THE CASE OF ALL CARGO GLOBAL LOGISTI CS LTD. V. DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-44 [2012 ] 23 TAXMANN.COM 103 (MUM) (SB) HELD THAT IN CASE OF ASSESSMENTS WHI CH DO NOT ABATE PURSUANT TO ISSUE OF NOTICE UNDER SECTION 153A, IN ADDITION TO INCOME THAT HAS ALREADY BEEN ASSESSED, ASSESSMENT WILL BE MADE ON BASIS OF INCRIMINATING MATERIAL FOUND IN COURSE OF SEARCH BU T NOT PRODUCED IN COURSE OF ORIGINAL ASSESSMENT AND UNDISCLOSED INCOM E OR PROPERTY DISCOVERED IN COURSE OF SEARCH. IN VIEW OF THE ABOVE DECISION, IN THE ABSENCE OF AN Y INCRIMINATING MATERIAL IN THE CASE OF THE ASSESSEE, NO FURTHER DI SALLOWANCE OF INTEREST IS POSSIBLE AND ACCORDINGLY NO DISALLOWANCE OF SUCH INTEREST CAN BE MADE IN THE CASE OF THE ASSESSE. WE HOPE THAT ABOVE EXPLANATIONS WILL MEET YOUR REQU IREMENTS. THE A.O. AFTER CONSIDERING THE REPLIES OF THE ASSES SEE HELD THAT THE ASSESSEE IS NOT ABLE TO ESTABLISH THE NEXUS BETWEEN THE FUNDS U SED FOR GIVING INTEREST ITA 3192-3196/MUM /14 6 BEARING LOANS TO OTHER PARTIES , ON WHICH INTEREST HAS BEEN EARNED; AND THE FUNDS WHICH HAVE BEEN TAKEN ON INTEREST BEARING LOA N FROM OTHER PARTIES. THE AO HELD THAT ONLY IF THE FUNDS TAKEN ON INTEREST BE ARING LOAN, WERE ADVANCED BY THE ASSESSEE TO OTHER PARTIES FROM WHOM HE IS CH ARGING INTEREST; CAN HE CLAIM DEDUCTION OF INTEREST PAID ON INTEREST EARNED , AS PER LAW. THE AO HELD THAT THE ASSESSEE'S SUBMISSION IS COMPLETELY SILENT ON THE ASPECT OF NEXUS BETWEEN THE FUNDS AS ABOVE AND HENCE THE ASSESSEE H AD FAILED TO ESTABLISH THIS NEXUS AT ALL. THE NECESSARY AND SUFFICIENT CON DITION LAID DOWN IN THE STATUTE IS NOT SATISFIED AND THE AO HELD THAT HE HA S REASONABLE BELIEF THAT THE CAPITAL OF THE ASSESSEE HAS BEEN UTILIZED FOR THE O THER PURPOSES AND THEREFORE THE ASSESSEE IS NOT ENTITLED TO CLAIM DEDUCTION U/S 57(III) OF THE ACT AND THUS THE DEDUCTION OF RS. 91,87,619/- CLAIMED BY THE ASS ESSEE WAS DISALLOWED BY THE A.O. VIDE ASSESSMENT ORDERS DATED 28-03-2013 PA SSED U/S 153A OF THE ACT READ WITH SECTION 143(3) OF THE ACT. THE A.O. ALSO CONSIDERED THE ALTERNATIVE SUBMISSION OF THE ASSESSEE THAT THERE IS A CHANGE OF OPINION WITH RESPECT TO THE CLAIM OF INTEREST IN COMPARISON TO THE LAST ASSESSMENT COMPLETED U/S 153A OF THE ACT V IDE ORDERS DATED 31.12.2009. THE ASSESSEE VIDE LETTER DATED 25-3-201 3 HAS SUBMITTED THAT SIMILAR ISSUE WAS CONSIDERED WHILE PASSING THE ORDE R DATED 31.12.2009 U/S 153A OF THE ACT WHICH WAS PASSED WITH THE APPROVAL OF ADDL. CIT, CENTRAL RANGE -7, MUMBAI. THE ASSESSEE HAS ALSO RELIED UPO N THE DECISION OF SPECIAL BENCH DECISION OF ITAT IN THE CASE OF ALL CARGO GLO BAL LOGISTICS LTD. V. DCIT (2012) 23 TAXMANN.COM 103 (MUM)[SB] AND THE RELEVAN T EXTRACTS OF THE DECISION ARE AS UNDER:- IN CASE OF ASSESSMENTS WHICH DO NOT ABATE PURSUANT TO ISSUE OF NOTICE UNDER SECTION 153A IN ADDITION TO INCOME THA T HAS ALREADY BEEN ASSESSED, ASSESSMENT WILL BE MADE ON BASIS OF INCRIMINATING MATERIAL FOUND IN COURSE OF SEARCH BUT NOT PRODUCED IN COURSE OF ORIGINAL ASSESSMENT AND UNDISCLOSED INCOME OR PROPE RTY DISCOVERED IN COURSE OF SEARCH. ITA 3192-3196/MUM /14 7 THUS , THE ASSESSEE CONTENDED IN NUTSHELL THAT ONC E THE ASSESSMENT HAS ALREADY BEEN FINALIZED EARLIER AFTER DUE DELIBERATI ON ON THE SAME ISSUE AND THAT NO INCRIMINATING MATERIAL HAS BEEN FOUND DURIN G THE COURSE OF SEARCH ON THE SAME ISSUE, ADDITIONS CANNOT BE MADE BY THE A.O . THE A.O. HOWEVER, REJECTED THE CONTENTIONS OF THE ASSESSEE BY HOLDIN G THAT IN CASE NOTICE U/S 153A OF THE ACT WAS ISSUED AND THE ASSESSMENT IS DE EMED TO BE DE-NOVO AND THE A.O. IS AT LIBERTY TO TAKE A DIFFERENT VIEW THA N THE VIEW TAKEN IN THE EARLIER ASSESSMENTS EVEN IF THE ASSESSMENTS HAVE BEEN EARLI ER COMPLETED U/S 143(3) R.W.S. 153A OF THE ACT AND THE ASSESSMENT CANNOT BE RESTRICTED TO THE SEIZED MATERIAL ONLY. AS PER AO, THE MANDATE OF SECTION 1 53A OF THE ACT GIVES THE ASSESSEE AN OPPORTUNITY TO FILE HIS CORRECT RETURN OF INCOME ONCE AGAIN AFTER THE SEARCH HAS BEEN CONDUCTED AND IT DOES NOT ABSOL VE THE ASSESSEE OF THE RESPONSIBILITY TO FURNISH THE CORRECT RETURN OF INC OME AS PER THE PROVISIONS OF LAW. THE A.O. HELD THAT IT IS THE MANDATE OF THE LA W THAT THE A.O. SHALL ASSESS OR REASSESS THE TOTAL INCOME OF THE ASSESSEE IN THE SIX IMMEDIATELY PRECEDING ASSESSMENT YEARS, IN RESPECT OF THE YEAR OF SEARCH. THE A.O. SHALL ASSESS OR REASSESS THE TOTAL INCOME OF SIX ASSESSMENT YEARS I MMEDIATELY PRECEDING THE SEARCH YEAR. THUS THE A.O. IN THE ASSESSMENT PROCE EDINGS U/S 153A OF THE ACT SHALL EXAMINE ALL THE ISSUES THAT COULD BE TAKE N UP IN PURSUANCE OF FILING OF REGULAR RETURN OF INCOME AND THE CONCEPT OF UNDI SCLOSED INCOME DOES NOT PREVAIL ANY LONGER WHILE FRAMING THE ASSESSMENTS/RE ASSESSMENTS UNDER THE PROVISIONS OF SECTION 153A OF THE ACT. THE LEGISLA TURE HAS PURPOSELY OMITTED THE UNDISCLOSED INCOME FROM THE NEW PROVISIONS THER EFORE THE ASSESSMENT OR REASSESSMENT SHALL BE MADE AS A NORMAL SCRUTINY ASS ESSMENT U/S 143(3) OF THE ACT, TAKING INTO EFFECT THE MATERIAL/DOCUMENTS FOUND IN THE COURSE OF SEARCH ACTION, IF ANY. THE A.O. HELD THAT ASSESSME NT INCLUDES REASSESSMENT AND THEREFORE EVEN IF THE INCOME OF AN EARLIER YEAR MAY BE UNDERGOING THE PROCESS OF REASSESSMENT, IT CAN STILL BE ASSESSED A FRESH ON THE BASIS OF THE MATERIAL WHICH WAS ALREADY ON RECORD AT THE TIME OF COMPLETION OF THE ORIGINAL ITA 3192-3196/MUM /14 8 ASSESSMENT. THE AO HELD THAT THE ISSUE OF INCRIMIN ATING DOCUMENT FOUND DURING THE COURSE OF SEARCH IS NOT A BINDING PRINCI PLE ON THE AO. THE A.O. RELIED UPON THE RATIO OF THE DECISION OF HONBLE DE LHI HIGH COURT IN THE CASE OF CIT V. ANIL KUMAR BHATIA DELIVERED ON 7 TH AUGUST, 2012 AND HELD THAT THE DECISION OF SPECIAL BENCH OF ITAT IN THE CASE OF AL L CARGO GLOBAL LOGISTICS (SUPRA) IS CONTRARY TO THE DECISION OF HONBLE DELH I HIGH COURTS DECISION (SUPRA) AND SINCE DECISION OF HONBLE DELHI HIGH CO URT IS A LATER DECISION, IT SHALL SUPERSEDES THE SPECIAL BENCH DECISION DATED 0 6-07-2012 IN THE CASE OF ALL CARGO GLOBAL LOGISTICS (SUPRA). THE AO HELD TH AT THE TOTAL INCOME CAN BE ASSESSED DE-NOVO OF THE ASSESSEE BASED UPON SOUND R EASONING AND A WELL REASONED ORDER, ON ANY ISSUE, HENCE, THE ALTERNATIV E CONTENTION OF THE ASSESSEE IS REJECTED AND INTEREST INCOME IS ASSESSE D AT RS. 92,99,866/- AND CLAIM OF DEDUCTION OF INTEREST OF RS.91,87,619/- AG AINST INTEREST INCOME WAS DISALLOWED VIDE ASSESSMENT ORDER DATED 28-03-2013 P ASSED U/S 143(3) OF THE ACT READ WITH SECTION 153A OF THE ACT. 7.AGGRIEVED BY THE ASSESSMENT ORDERS DATED 28-03-20 13 PASSED BY THE A.O. U/S 143(3) OF THE ACT READ WITH SECTION 153A OF THE ACT , THE ASSESSEE PREFERRED FIRST APPEAL BEFORE THE CIT(A). 8. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT T HE A.O. ERRED IN DISALLOWING THE ASSESSEES CLAIM OF DEDUCTION OF RS . 78,51,111/- TOWARDS INTEREST PAID ON LOANS WHILE THE A.O. TAXED THE ENT IRE INTEREST INCOME OF RS. 92,99,866/- ON THE GROUND THAT THERE WAS NO DIRECT CORRELATION BETWEEN THE LOAN TAKEN AND LOAN ADVANCED. THE ASSESSEE SUBMITT ED THAT THE ASSESSEE VOLUNTARILY DISALLOWED INTEREST OF RS. 13,36,508/- WHICH INCLUDED AN AMOUNT OF RS.54,000/- PAID TO SH. L H JOSHI ON LOAN TAKEN FROM HIM AND RS.12,82,508/- U/S 14A OF THE ACT AND THIS WAS ACCE PTED BY THE A.O. DURING THE COURSE OF SEARCH ASSESSMENT PROCEEDINGS U/S 153 A OF THE ACT PURSUANT TO FIRST SEARCH U/S 132(1) OF THE ACT INITIATED ON 19- 07-2007, VIDE ORDER DATED ITA 3192-3196/MUM /14 9 31-12-2009. THE ASSESSEE SUBMITTED THAT THE A.O. FA ILED TO CONSIDER THAT THE SEARCH U/S 132(1) OF THE ACT WAS FOR THE FIRST TIME CARRIED OUT ON 19.07.2007 AND VIDE THE ASSESSMENT ORDER FRAMED U/S 153A OF TH E ACT DATED 31-12-2009, SUCH CLAIM OF THE ASSESSEE HAS BEEN EXAMINED IN DET AIL BY THE A.O. WHO ALLOWED THE SAME. THE ASSESSEE FURTHER SUBMITTED T HAT NO INCRIMINATING MATERIAL WAS FOUND OR UNEARTHED DURING THE COURSE O F SECOND SEARCH CONDUCTED ON 29-3-2011 AND AS ENTIRE ISSUE HAD ALRE ADY BEEN EXAMINED IN DETAIL DURING THE COURSE OF THE EARLIER SEARCH ASSE SSMENT PROCEEDINGS PURSUANT TO THE FIRST SEARCH CARRIED OUT U/S 132(1) OF THE ACT ON 19.07.2007, DISALLOWANCE MADE IS UNCALLED FOR AS IT AMOUNTS TO CHANGE OF OPINION AT THE END OF A.O. TO THE SAME MATERIAL FACTS AND HENCE TH E ADDITION MADE IS UNJUSTIFIED. THE ASSESSEE SUBMITTED BEFORE THE CIT(A) THAT THE O RDER PASSED U/S 143(3) READ WITH SECTION 153A OF THE ACT DATED 31-12-2009 AND PRESENT ASSESSMENT ORDERS DATED 28.03.2013 PASSED U/S 153A OF THE ACT READ WITH SECTION 143(3) OF THE ACT, THERE IS NO CHANGE IN THE MATERIAL FACT S. EARLIER THE A.O. WAS CONVINCED THAT THERE IS NEXUS BETWEEN THE INTEREST INCOME AND INTEREST EXPENSES AND SINCE THE ORDER PASSED WITH THE APPROV AL OF LEARNED ADDL. CIT, THE SAME FINDING NEEDS TO BE ACCEPTED BY THE SUCCES SOR OFFICER UNLESS THERE IS ANY NEW FINDING OR MATERIAL CHANGE, HENCE, CONSISTE NCY NEEDS TO BE FOLLOWED IN THE INCOME TAX PROCEEDINGS. THE ASSESSEE RELIED ON THE FOLLOWING CASE LAWS TO SUPPORT ITS CONTENTIONS:- (I) RADHA SWAMI SATSANG V. CLT (1962) 193 ITR 32 1 (SC) (II) CLT V. DARIUS PANDOLE (2011) 330 ITR 48 5 (BOM) (III) DCIT V. GUJARAT NARMADA VALLEY FERTILIZERS CO . LTD. (2013) 215 TAXMAN 616 (GUJARAT) (IV) CONSOLIDATED FIBRES & CHEMICALS LTD. V. CLT - 273 ITR 353 (CAL.) (V) CLT, WEST BENGAL-3 V. RAJAN PRASAD MOODY - 115 ITR 516 ITA 3192-3196/MUM /14 10 (VI) CLT V. SUJANI TEXTILE PVT. LTD. - 151 ITR 65 3 (VII) CLT V. AMRITABEN SHAH 238 ITR 777 (DEL.) (VIII) CLT V. NEO POLY PACK PVT. LTD. - 245 ITR 4 92 (IX) PARSHURAM POTTERY WORKS CO. LTD. V. ITO - 10 6 ITR 1 (SC) THUS, THE ASSESSEE CONTENDED THAT THE ADDITION OF R S. 78,51,111/- MADE BY THE AO TO THE INCOME OF THE ASSESSEE NEEDS TO BE DE LETED ON ACCOUNT OF CONSISTENCY AS NO NEW MATERIAL FACT HAS COME ON REC ORD. THE CIT(A) AFTER CONSIDERING THE FACTS OF THE CASE AND SUBMISSION OF THE ASSESSEE AND THE ORDERS OF THE A.O. OBSERVED THAT THE EARLIER SEARCH AND SEIZURE ACTION U/S 132(1) OF THE ACT WAS CARRIED OU T IN THE YEAR 2007 ON 19.07.2007 AND SUBSEQUENTLY THE ASSESSMENT ORDER U/ S 153A READ WITH SECTION 143(3) OF THE ACT WAS PASSED ON 31-12-2009 FOR THE ASSESSMENT YEARS 2005-06 TO 2008-09 , WHEREIN NO DISALLOWANCE OF INT EREST PAID ON LOAN TAKEN WAS MADE UNDER IDENTICAL CIRCUMSTANCES AND THE ASSE SSEES CLAIM TOWARDS PAYMENT OF INTEREST ON FUNDS BORROWED WAS ALLOWED A S EXPENDITURE U/S 57(III) OF THE ACT AND THE CONTENTION OF THE ASSESSEE THAT WHEN THERE IS NO INCRIMINATING MATERIAL FOUND DURING THE COURSE OF S EARCH U/S 132(1) OF THE ACT CARRIED OUT FOR THE SECOND TIME ON 29-3-2011 AN D NO NEW MATERIAL FACTS HAVE BEEN BROUGHT ON RECORD IN THE ASSESSMENT PROCE EDINGS, THE ADDITION CANNOT BE SUSTAINED AND THE A.O.S ACTION IN DISALL OWING THE CLAIM OF THE ASSESSEE TOWARD INTEREST IS TOTALLY UNJUSTIFIED AN D UNWARRANTED. THE CIT(A) ALSO OBSERVED THAT SINCE THE ASSESSEE IS OFFERING I NCOME FROM INTEREST, EQUITY DEMANDS THAT ANY EXPENDITURE INCURRED IN THE NATURE OF INTEREST ON LOAN TAKEN SHOULD ALSO BE ALLOWED. THE FACTS REVEALED T HAT THE FUNDS HAVE COME TO THE BANK ACCOUNT OF THE ASSESSEE AND THE LOANS HAVE BEEN GIVEN FROM THE SAME BANK ACCOUNT OF THE ASSESSEE, THEREFORE, THE F LOW OF FUNDS I.E. INCOMING AND OUTGOING IS NOT IN DISPUTE. SINCE THE ISSUE HA S ALREADY BEEN EXAMINED IN THE HANDS OF THE ASSESSEE AT THE TIME OF EARLIER SE ARCH ASSESSMENTS U/S 153A ITA 3192-3196/MUM /14 11 READ WITH SECTION 143(3) OF THE ACT VIDE ORDER DATE D 31-12-2009 AND THERE IS NO REASON TO DISALLOW SUCH A CLAIM TWO YEARS LATER THROUGH ANOTHER ASSESSMENT ORDERS ON SAME SET OF MATERIAL FACTS AND FURTHER NO INCRIMINATING MATERIAL HAVING BEEN FOUND OR UNEARTHED AGAINST THE ASSESSEE DURING THE COURSE OF SECOND SEARCH PROCEEDINGS U/S. 132(1) OF THE ACT ON 29.03.2011, RULE OF CONSISTENCY HAS TO BE FOLLOWED AS LAID DOWN BY SEVERAL DECISIONS REFERRED TO BY THE ASSESSEE , THE CIT(A) HELD THAT INTEREST EXPENDITURE ON LOAN TAKEN IS A VALID AND ALLOWABLE CLAIM IN THE EYE OF LAW AND SHOULD BE ALLOWED. THE CIT(A) ALSO HELD THAT THE ASSESSEE HAS VOLUNTAR ILY DISALLOWED TOTAL INTEREST OF RS. 13,36,508/- (RS.54,000 + RS.12,82,508/- ) IN THE RETURN OF INCOME FILED BY THE ASSESSEE APPEARS TO BE FAIR AND REASONABLE. THE ASSESSEE HAS OFFERED FOR TAXATION INTEREST INCOME OF RS.14,48,755/- . TH E CIT(A) OBSERVED THAT IN THE CURRENT YEAR AVERAGE LOAN TAKEN WORKS OUT TO RS . 5,13,44,989/- AND AVERAGE LOAN GIVEN WORKS OUT TO RS. 8,08,43,322/-, THUS , THE LOAN GIVEN IS HIGHER THAN THE LOAN TAKEN , AND , THEREFORE NO DIS ALLOWANCE IS CALLED FOR, EXCEPT AN AMOUNT OF RS.54,000/- IN CASE OF SH. L H JOSHI , FROM WHOM A LOAN OF RS.3,00,000/- WAS TAKEN IN EARLIER YEARS, WHICH HAS BEEN TREATED AS UNEXPLAINED, AND , THEREFORE THE INTEREST PAID TO H IM IS BEING DISALLOWED, WHICH HAS BEEN ACCEPTED BY THE ASSESSEE. FURTHER DI SALLOWANCE OF RS. 12,82,508/- U/S 14A OF THE ACT ON INVESTMENT IN SHA RES AMOUNTING TO RS.6.49 CRORES , DIVIDEND INCOME FROM WHICH HAS BEE N CLAIMED AS EXEMPTED INCOME . THE TOTAL DISALLOWANCE OF INTEREST OF RS. 13,36,508/- WHICH HAS BEEN VOLUNTARILY DISALLOWED BY THE ASSESSEE APPEARS TO B E FAIR AND REASONABLE. THE CIT(A) ON PERUSAL OF BANK STATEMENT OF THE ASSESSEE GAVE CATEGORICAL FINDING THAT BY AN LARGE , THERE IS DIRECT AND STRONG CO-RE LATION BETWEEN LOAN GIVEN AND TAKEN. THE CIT(A) OBSERVED THAT THE AO HAS NOT DOUBTED THE GENUINENESS OF LOAN TAKEN AND LOAN GIVEN. THUS, AS PER CIT(A) A DDITION OF RS. 78,51,111/- IS UNSUSTAINABLE AND UNJUSTIFIED AND DIRECTED THE A .O. TO DELETE THE SAME VIDE ORDERS DATED 18.02.2014. ITA 3192-3196/MUM /14 12 9.AGGRIEVED BY THE ORDERS OF THE CIT(A) DATED 18.02 .2014, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 10. THE LD. CIT-D.R. RELIED UPON THE ORDER OF THE A .O. AND CONTENDED THAT THE A.O. HAS RIGHTLY DISALLOWED THE EXPENSES OF RS. 78,51,111/- AS PER THE WELL REASONED ORDER PASSED BY THE A.O. 11. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IDENTICAL ISSUE AROSE IN THE CASE OF BROTHER OF THE ASSESSEE , MR HIMANSHU B . KANAKIA FOR THE ASSESSMENT YEARS 2007-08 TO 2009-10 AND THE MUMBAI TRIBUNAL IN ITA NOS. 3187-3189/MUM/2014 VIDE ORDERS DATED 18-01-2016 HAS CONSIDERED THE MATTER IN DETAIL AND ALLOWED THE APPEAL AND THE DEC ISION OF THE MUMBAI TRIBUNAL IN THE AFORE-STATED APPEAL IS SQUARELY APP LICABLE TO THE CASE OF THE ASSESSEE AND THE APPEALS SHOULD BE ALLOWED. THE LD COUNSEL FOR THE ASSESSEE FILED COPIES OF THE ORDERS DATED 18-01-2016 OF THE TRIBUNAL IN THE AFORE-STATED APPEALS. THE LD COUNSEL SUBMITTED THAT THERE WAS FI RST SEARCH U/S 132(1) OF THE ACT BY REVENUE AGAINST THE ASSESSEE ON 19-07-20 07 AND THERE WAS ALSO SECOND SEARCH AGAINST THE ASSESSEE U/S 132(1) OF TH E ACT BY THE REVENUE ON 29-03-2011 . THE LD. COUNSEL SUBMITTED THAT NO INCR IMINATING MATERIAL HAS BEEN FOUND DURING THE COURSE OF SECOND SEARCH ON 29 -03-2011 WITH RESPECT TO THE ADDITIONS MADE BY THE AO IN THE IMPUGNED ASSESS MENT YEAR VIDE ORDERS DATED 28-03-2011 PASSED U/S. 143(3) READ WITH SECTI ON 153A OF THE ACT. THE ASSESSMENTS FRAMED BY THE REVENUE AGAINST THE ASSES SEE FOR THE ASSESSMENT YEAR 2005-06 IS UN-ABATED ASSESSMENT AS PER PROVISI ONS OF SECTION 153A OF THE ACT AND SINCE NO INCRIMINATING MATERIAL WAS FOU ND DURING THE COURSE OF SEARCH, NO ADDITION IS WARRANTED IN THE CASE OF THE ASSESSEE. 12. WE HAVE CONSIDERED THE RIVAL CONTENTION AND ALS O PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ISSU E IN THIS APPEAL IS SQUARELY COVERED BY THE DECISION VIDE ORDERS DATED 18-01-2016 OF THE ITA 3192-3196/MUM /14 13 MUMBAI TRIBUNAL IN ITA NOS. 3187-3189/MUM/2014 , I N WHICH ONE OF US (ACCOUNTANT MEMBER) WAS MEMBER OF THE DIVISION BENC H WHO ADJUDICATED THE AFORE-STATED APPEALS WHEREBY REVENUE APPEALS WERE DISMISSED, WHICH IS REPRODUCED BELOW : THESE THREE APPEALS BY THE REVENUE ARE DIRECTED AG AINST THREE SEPARATE ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS)- 40 , MUMBAI (HEREINAFTER CALLED THE CIT(A)) ALL DATED 18-2-2014 PERTAINING TO THE ASSESSMENT YEARS 2007-08 TO 2009-10. SINCE S IMILAR GROUNDS OF APPEAL ARE RAISED IN ALL THESE THREE APPEALS, WE HA VE DISPOSED OF ALL THESE THREE APPEALS BY THIS COMMON ORDER FOR THE SA KE OF CONVENIENCE AND BREVITY. 2. THE COMMON GROUNDS OF APPEAL RAISED BY THE REVEN UE IN ALL THESE APPEALS FILED WITH THE TRIBUNAL READS AS UNDER:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE CIT(A) WAS CORRECT IN HOLDING THAT THERE EXISTE D A NEXUS BETWEEN THE INTEREST EXPENSE AND INTEREST INCOME SOLELY ON THE BASIS OF THE BANK STATEMENTS. 2. THE APPELLANT CRAVES TO LEAVE, TO ADD, TO AMEND AND / OR TO ALTER ANY OF GROUNDS OF APPEAL, IF NEED BE. 3. THE APPELLANT, THEREFORE, PRAYS THAT ON THE GROU NDS STATED ABOVE, THE ORDER OF THE CIT(A)-40, MUMBAI MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 3. WE SHALL TAKE REVENUES APPEAL IN ITA NO. 3187/M UM/2014 FOR THE ASSESSMENT YEAR 2007-08 AS LEAD APPEAL. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS MANAGING DIRECTOR OF KANAKIA SPACES PVT. LTD. AND IN-CHARGE OF THE PR OJECT PLANNING AND CONSTRUCTION ACTIVITY. THE KANAKIA GROUP IS PRIMARI LY ENGAGED IN THE REAL ITA 3192-3196/MUM /14 14 ESTATE, HOSPITALITY, ENTERTAINMENT AND EDUCATION SE CTORS OF THE ECONOMY. THE ASSESSEE GROUP HAS NUMEROUS COMMERCIAL AND RESI DENTIAL PROJECTS IN MUMBAI WITH QUALITY CONSTRUCTION AND LAYOUTS. 5. THERE WAS A SEARCH AND SEIZURE ACTION U/S 132 OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) CONDUCTED BY TH E INVESTIGATION UNIT- V(2) , MUMBAI, ON 29-03-2011 AT THE BUSINESS AND RE SIDENTIAL PREMISES OF THE DIRECTORS OF THE ASSESSEES GROUP COMPANIES WHI CH WAS CONCLUDED ON 24-05-2011. DURING THE COURSE OF THE SEARCH PROCEED INGS U/S 132(1) OF THE ACT, CASH OF RS. 28,550/- ALONG WITH JEWELLERY OF RS. 1,68,36,786/- WAS FOUND FROM THE RESIDENTIAL PREMISES OF THE ASSE SSEE. HOWEVER, THERE WAS NO SEIZURE OF CASH AND JEWELLERY FROM THE ASSES SEE DURING THE COURSE OF THE SEARCH PROCEEDINGS U/S 132(1) OF THE ACT. HOWEVER, DURING THE COURSE OF SEARCH OPERATIONS AGAINST DIFFERENT A SSESSEES OF THE GROUP, BOOKS OF ACCOUNTS, DOCUMENTS, VALUABLES, DIARIES AN D OTHER LOOSE PAPERS WERE SEIZED. BASED UPON THE SEARCH AND POST SEARCH ENQUIRIES, THE ASSESSEE MADE DISCLOSURE OF RS. 49,750/- AS SALE OF SCRAP. 6. NOTICE U/S 153A OF THE ACT WAS ISSUED TO THE ASS ESSEE ON 04.01.2012 AND IN RESPONSE THEREOF THE ASSESSEE FILED HIS RETU RN OF INCOME ON 31.01.2012 DECLARING A TOTAL INCOME OF RS. 14,74,33 ,828/-. NOTICES DATED 11-7-2012 U/S 143(2) AND 142(1) OF THE ACT WE RE ISSUED TO THE ASSESSEE AND SERVED UPON THE ASSESSEE. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS U/S 153A OF THE ACT, THE ASS ESSEE REPLIED THE RELEVANCE OF THE SEIZED MATERIAL. THE LEARNED ASSE SSING OFFICER(HEREINAFTER CALLED THE AO) OBSERVED THAT THE ASSESSEE HAS EARNED INTEREST INCOME OF RS. 99,01,472/- AND CLAI MED INTEREST EXPENSES OF RS. 96,24.943/- AGAINST THE SAME. THE BREAK UP IS AS UNDER:- ITA 3192-3196/MUM /14 15 NAME OF THE PARTY INTEREST (RS) AMOUNT(RS.) INTEREST EARNED KANAKIA CONSTRUCTIONS PVT. LTD. 5805208 KANAKIA HOSPITALITY PVT. LTD. 1833985 SUPREME REAL ESTATE DEVELOPERS P. LTD. 2262279 99,01,472 INTEREST PAID BABUBHAI M. KANAKIA 1395443 EVERGREEN FINANCIAL SERVICES 8139500 M J CHOTANI 90000 (96,24,943) TOTAL: 2,76,529 THE ASSESSEE OFFERED THE BALANCE NET INTEREST OF RS . 2,76,529/- TO TAX ALONG WITH CERTAIN OTHER DISALLOWANCES , AS ASSESSE D IN THE ORDER DATED 31-12-2009 PASSED U/S 143(3) READ WITH SECTION 153A OF THE ACT PURSUANT TO THE FIRST SEARCH CONDUCTED BY REVENUE O N 19-07-2007. THE A.O. OBSERVED THAT THE ASSESSEE CLAIMED DEDUCTION A GAINST INCOME FROM OTHER SOURCES U/S 57(III) OF THE ACT , WHICH STIPUL ATES AS UNDER:- (III) ANY OTHER EXPENDITURE (NOT BEING IN THE NATU RE OF CAPITAL EXPENDITURE) LAID OUT OR EXPENDED WHOLLY AND EXCLUS IVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. THE A.O. OBSERVED THAT THE EXPENDITURE CLAIMED BY T HE ASSESSEE AS A DEDUCTION AGAINST INCOME FROM OTHER SOURCES HAS TO BE EXPENDED WHOLLY AND EXCLUSIVELY FOR EARNING SUCH INCOME. THE ASSESS EE WAS SHOW CAUSED VIDE NOTICE DATED 12.03.2013 TO EXPLAIN THE CLAIM O F DEDUCTION OF INTEREST EXPENSES AGAINST THE INTEREST INCOME , THE ASSESSEE REPLIED VIDE LETTER DATED 25-3-2013, WHICH IS REPRODUCED BELOW:- THIS IS IN REFERENCE TO YOUR SHOW CAUSE NOTICE U/S . 142 (1) OF THE INCOME TAX ACT, 1961 DATED 12.03.2013. IN RESPONSE TO THE SAID NOTICE, UNDER THE INSTRUCTIONS FROM OUR ABOVE CLIENT, WE SU BMIT AS UNDER: REGARDING INTEREST EXPENSES CLAIMED AGAINST INTERES T INCOME, WE REPLY IS AS UNDER- ITA 3192-3196/MUM /14 16 WE HAVE TO DREW YOUR HONOURS ATTENTION TOWARDS THE FACT THAT SIMILAR ISSUE WAS ALREADY CONSIDERED IN THE ORDER THAT WAS PASSED IN CONNECTION WITH THE EARLIER SEARCH. SINCE, ORDER WAS PASSED UN DER SECTION 153A, IT WAS ALSO PASSED WITH THE APPROVAL OF THE THEN LEARN ED ADDITIONAL COMMISSIONER INCOME TAX, CENTRAL RANGE - 7, MUMBAI. WE DRAW YOUR HONOUR'S ATTENTION TO THE ORDER FOR AY, 2007-08 THA T WAS PASSED U/S. 153 A ON 31/12/2009. RELEVANT PART FROM THE SAID ORDER IS REPRODUCED AS UNDER: I HAVE CONSIDERED THE SUBMISSION OF THE ASSESSE AND THE FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSE HAS PAID INT EREST OF RS.90,000/- TO SHRI M J CHOTANI ON A LOAN OF RS. 5,00,000/- @ 1 8%. THE INTEREST PAID TO SHRI M.J. CHOTANI WAS DISALLOWED FOR THE REASONS DISCUSSED IN EARLIER ASSESSMENT YEARS. THERE IS NO DIFFERENCE IN THE FAC TS OF THE CASE. ACCORDINGLY, INTEREST OF RS. 90,000/- PAID TO SHRI M.J. CHOTANI IS DISALLOWED AND ADDED TO THE TOTAL INCOME. FURTHER, THE ASSESSE HAS RECEIVED INTEREST OF RS. 9 9,01,472/- ON THE AVERAGE VALUE OF LOANS GIVEN DURING THE YEAR RS. 8, 25,12,267/- AS AGAINST, THE ASSESSE HAS PAID INTEREST OF RS. 95,34 ,933/- (EXCLUDING THE INTEREST OF RS. 90,000/- PAID TO SHRI M.J. CHOTANI AS DISCUSSED ABOVE) ON AVERAGE VALUE OF LOAN RECEIVED DURING THE YEAR OF R S. 11,43,43,933/- (EXCLUDING THE LOAN OF RS. 5,00,000/- RECEIVED FROM SHRI M.J. CHOTANI). THE ASSESSE HAS PAID EXCESS INTEREST RS, 38,19,800/ - (@ 12% ON THE EXCESS AVERAGE VALUE OF LOANS GIVEN OF RS.3,18,31,6 66/-). KEEPING IN VIEW OF THE FACTS OF THE CASE, THE INTER EST OF RS. 38,19,800/- IS DISALLOWED OUT OF INTEREST PAID. COPY OF THE ORDER IS ENCLOSED FOR REFERENCE. AS IT IS EVIDENT FROM THE ABOVE, THE CLAIM OF INTER EST PAID OF RS.57,15,143/- WAS ALLOWED TO THE ASSESSE AFTER DIS ALLOWING SUM OF RS. 39,09,800/- CONSIDERING FACTS OF THE CASE. ON THE BASIS OF THE SAME, IN THE RETURN FILED U/S. 153 A, ASSESSEE HAD ALREADY DISALLOWED SUM OF RS. 39,09,800/- OUT OF TO TAL INTEREST PAID OF RS. 96,24,943/-. THUS, CLAIM OF INTEREST EXPENSE NE EDS TO BE ALLOWED TO THE ASSESSE. MOREOVER, WITHOUT PREJUDICE TO THE ABOVE, WE HAVE TO SUBMIT THAT THE ISSUE OF NETTING OF INTE REST HAS NOT EMERGED IN THE PRESENT SEARCH. YOUR HONOUR WILL APPRECIATE THA T THE SPECIAL BENCH OF MUMBAI ITAT IN THE CASE OF ALL CARGO GLOBAL LOGISTI CS LTD. V. DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-44 [2012 ] 23 TAXMANN.COM 103 (MUM) (SB) HELD THAT IN CASE OF ASSESSMENTS WHI CH DO NOT ABATE PURSUANT TO ISSUE OF NOTICE UNDER SECTION 153A, IN ADDITION TO INCOME THAT ITA 3192-3196/MUM /14 17 HAS ALREADY BEEN ASSESSED, ASSESSMENT WILL BE MADE ON BASIS OF INCRIMINATING MATERIAL FOUND IN COURSE OF SEARCH BU T NOT PRODUCED IN COURSE OF ORIGINAL ASSESSMENT AND UNDISCLOSED INCOM E OR PROPERTY DISCOVERED IN COURSE OF SEARCH. IN VIEW OF THE ABOVE DECISION, IN THE ABSENCE OF AN Y INCRIMINATING MATERIAL IN THE CASE OF THE ASSESSEE, NO FURTHER DI SALLOWANCE OF INTEREST IS POSSIBLE AND ACCORDINGLY NO DISALLOWANCE OF SUCH INTEREST CAN BE MADE IN THE CASE OF THE ASSESSE. WE HOPE THAT ABOVE EXPLANATIONS WILL MEET YOUR REQU IREMENTS. THE A.O. AFTER CONSIDERING THE REPLIES OF THE ASSES SEE HELD THAT THE ASSESSEE IS NOT ABLE TO ESTABLISH THE NEXUS BETWEEN THE FUNDS USED FOR GIVING INTEREST BEARING LOANS TO OTHER PARTIES , ON WHICH INTEREST HAS BEEN EARNED; AND THE FUNDS WHICH HAVE BEEN TAKEN ON INTE REST BEARING LOAN FROM OTHER PARTIES. THE AO HELD THAT ONLY IF THE FU NDS TAKEN ON INTEREST BEARING LOAN, WERE ADVANCED BY THE ASSESSEE TO OTHE R PARTIES FROM WHOM HE IS CHARGING INTEREST; CAN HE CLAIM DEDUCTION OF INTEREST PAID ON INTEREST EARNED, AS PER LAW. THE AO HELD THAT THE ASSESSEE'S SUBMISSION IS COMPLETELY SILENT ON THE ASPECT OF NEXUS BETWEEN TH E FUNDS AS ABOVE AND HENCE THE ASSESSEE HAD FAILED TO ESTABLISH THIS NEX US AT ALL. THE NECESSARY AND SUFFICIENT CONDITION LAID DOWN IN THE STATUTE IS NOT SATISFIED AND THE AO HELD THAT HE HAS REASONABLE BE LIEF THAT THE CAPITAL OF THE ASSESSEE HAS BEEN UTILIZED FOR THE OTHER PURPOS ES AND THEREFORE THE ASSESSEE IS NOT ENTITLED TO CLAIM DEDUCTION U/S 57( III) OF THE ACT AND THUS THE DEDUCTION OF RS. 96,24,943/- CLAIMED BY THE ASS ESSEE WAS DISALLOWED BY THE A.O. VIDE ASSESSMENT ORDERS DATED 28-03-2013 PASSED U/S 153A OF THE ACT READ WITH SECTION 143(3) OF THE ACT. THE A.O. ALSO CONSIDERED THE ALTERNATIVE SUBMISSION OF THE ASSESSEE THAT THERE IS A CHANGE OF OPINION WITH RESPECT TO THE CL AIM OF INTEREST IN COMPARISON TO THE LAST ASSESSMENT COMPLETED U/S 153 A OF THE ACT VIDE ORDERS DATED 31.12.2009. THE ASSESSEE VIDE LETTER D ATED 25-3-2013 HAS ITA 3192-3196/MUM /14 18 SUBMITTED THAT SIMILAR ISSUE WAS CONSIDERED WHILE P ASSING THE ORDER DATED 31.12.2009 U/S 153A OF THE ACT WHICH WAS PASS ED WITH THE APPROVAL OF ADDL. CIT, CENTRAL RANGE -7, MUMBAI. T HE ASSESSEE HAS ALSO RELIED UPON THE DECISION OF SPECIAL BENCH DECISION OF ITAT IN THE CASE OF ALL CARGO GLOBAL LOGISTICS LTD. V. DCIT (2012) 23 TAXMANN.COM 103 (MUM)[SB] AND THE RELEVANT EXTRACTS OF THE DECISION ARE AS UNDER:- IN CASE OF ASSESSMENTS WHICH DO NOT ABATE PURSUANT TO ISSUE OF NOTICE UNDER SECTION 153A IN ADDITION TO INCOME THA T HAS ALREADY BEEN ASSESSED, ASSESSMENT WILL BE MADE ON BASIS OF INCRIMINATING MATERIAL FOUND IN COURSE OF SEARCH BUT NOT PRODUCED IN COURSE OF ORIGINAL ASSESSMENT AND UNDISCLOSED INCOME OR PROPE RTY DISCOVERED IN COURSE OF SEARCH. THUS , THE ASSESSEE CONTENDED IN NUTSHELL THAT ONC E THE ASSESSMENT HAS ALREADY BEEN FINALIZED EARLIER AFTER DUE DELIBERATI ON ON THE SAME ISSUE AND THAT NO INCRIMINATING MATERIAL HAS BEEN FOUND D URING THE COURSE OF SEARCH ON THE SAME ISSUE, ADDITIONS CANNOT BE MADE BY THE A.O. THE A.O. HOWEVER, REJECTED THE CONTENTIONS OF THE ASSES SEE BY HOLDING THAT IN CASE NOTICE U/S 153A OF THE ACT WAS ISSUED AND THE ASSESSMENT IS DEEMED TO BE DE NOVO AND THE A.O. IS AT LIBERTY TO TAKE A DIFFERENT VIEW THAN THE VIEW TAKEN IN THE EARLIER ASSESSMENTS EVEN IF THE ASSESSMENTS HAVE BEEN EARLIER COMPLETED U/S 143(3) R.W.S. 153A OF THE ACT AND THE ASSESSMENT CANNOT BE RESTRICTED TO THE SEIZED MATER IAL ONLY. AS PER AO, THE MANDATE OF SECTION 153A OF THE ACT GIVES THE AS SESSEE AN OPPORTUNITY TO FILE HIS CORRECT RETURN OF INCOME ONCE AGAIN AFT ER THE SEARCH HAS BEEN CONDUCTED AND IT DOES NOT ABSOLVE THE ASSESSEE OF T HE RESPONSIBILITY TO FURNISH THE CORRECT RETURN OF INCOME AS PER THE PRO VISIONS OF LAW. THE A.O. HELD THAT IT IS THE MANDATE OF THE LAW THAT THE A.O . SHALL ASSESS OR REASSESS THE TOTAL INCOME OF THE ASSESSEE IN THE SI X IMMEDIATELY PRECEDING ASSESSMENT YEARS, IN RESPECT OF THE YEAR OF SEARCH. THE A.O. SHALL ASSESS OR REASSESS THE TOTAL INCOME OF SIX AS SESSMENT YEARS ITA 3192-3196/MUM /14 19 IMMEDIATELY PRECEDING THE SEARCH YEAR. THUS THE A. O. IN THE ASSESSMENT PROCEEDINGS U/S 153A OF THE ACT SHALL EXAMINE ALL T HE ISSUES THAT COULD BE TAKEN UP IN PURSUANCE OF FILING OF REGULAR RETUR N OF INCOME AND THE CONCEPT OF UNDISCLOSED INCOME DOES NOT PREVAIL ANY LONGER WHILE FRAMING THE ASSESSMENTS/REASSESSMENTS UNDER THE PROVISIONS OF SECTION 153A OF THE ACT. THE LEGISLATURE HAS PURPOSELY OMITTED THE UNDISCLOSED INCOME FROM THE NEW PROVISIONS THEREFORE THE ASSESSMENT OR REASSESSMENT SHALL BE MADE AS A NORMAL SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT, TAKING INTO EFFECT THE MATERIAL/DOCUMENTS FOUND IN THE COU RSE OF SEARCH ACTION, IF ANY. THE A.O. HELD THAT ASSESSMENT INCLUDES REASSE SSMENT AND THEREFORE EVEN IF THE INCOME OF AN EARLIER YEAR MAY BE UNDERGOING THE PROCESS OF REASSESSMENT, IT CAN STILL BE ASSESSED A FRESH ON THE BASIS OF THE MATERIAL WHICH WAS ALREADY ON RECORD AT THE TIM E OF COMPLETION OF THE ORIGINAL ASSESSMENT. THE AO HELD THAT THE ISSUE OF INCRIMINATING DOCUMENT FOUND DURING THE COURSE OF SEARCH IS NOT A BINDING PRINCIPLE ON THE AO. THE A.O. RELIED UPON THE RATIO OF THE DECIS ION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. ANIL KUMAR BHATIA DELIVERED ON 7 TH AUGUST, 2012 AND HELD THAT THE DECISION OF SPECIAL BENCH OF ITAT IN THE CASE OF ALL CARGO GLOBAL LOGISTICS (SUPRA) IS CONTR ARY TO THE DECISION OF HONBLE DELHI HIGH COURTS DECISION (SUPRA) AND SIN CE DECISION OF HONBLE DELHI HIGH COURT IS A LATER DECISION, IT SHALL SUPE RSEDES THE SPECIAL BENCH DECISION DATED 06-07-2012 IN THE CASE OF ALL CARGO GLOBAL LOGISTICS (SUPRA). THE AO HELD THAT THE TOTAL INCOME CAN BE ASSESSED DE-NOVO OF THE ASSESSEE BASED UPON SOUND REASONING AND A WELL REASONED ORDER, ON ANY ISSUE, HENCE, THE ALTERNATIVE CONTENTION OF THE ASSESSEE IS REJECTED AND INTEREST INCOME IS ASSESSED AT RS. 99,01,472/- AND CLAIM OF DEDUCTION OF INTEREST OF RS.96,24,943/- AGAINST INT EREST INCOME WAS DISALLOWED VIDE ASSESSMENT ORDER DATED 28-03-2013 P ASSED U/S 143(3) OF THE ACT READ WITH SECTION 153A OF THE ACT. ITA 3192-3196/MUM /14 20 7.AGGRIEVED BY THE ASSESSMENT ORDERS DATED 28-03-20 13 PASSED BY THE A.O. U/S 143(3) OF THE ACT READ WITH SECTION 153A O F THE ACT , THE ASSESSEE PREFERRED AN FIRST APPEAL BEFORE THE CIT( A). 8. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT T HE A.O. ERRED IN DISALLOWING THE ASSESSEES CLAIM OF DEDUCTION OF RS . 47,22,282/- TOWARDS INTEREST PAID ON LOANS WHILE THE A.O. TAXED THE ENT IRE INTEREST INCOME OF RS. 99,01,472/- ON THE GROUND THAT THERE WAS NO DIR ECT CORRELATION BETWEEN THE LOAN TAKEN AND LOAN ADVANCED. THE ASSE SSEE SUBMITTED THAT THE ASSESSEE VOLUNTARILY DISALLOWED INTEREST O F RS. 39,09,800/- WHICH INCLUDED AN AMOUNT OF RS.90,000/- PAID TO SH. M.J.CHOTANI ON LOAN TAKEN FROM HIM WHICH WAS TREATED AS UNEXPLAINE D IN EARLIER YEARS AND AN AMOUNT OF RS.38,19,800/- ON THE DIFFERENCE O F AVERAGE LOAN TAKEN ON WHICH INTEREST WAS PAID VIS--VIS AVERAGE LOAN G IVEN ON WHICH INTEREST WAS RECEIVED , AT THE RATE OF 12%. BESIDES, THE ASS ESSEE DISALLOWED VOLUNTARILY AN AMOUNT OF 9,92,861/- AS INTEREST U/S 14A OF THE ACT AND THIS WAS ACCEPTED BY THE A.O. DURING THE COURSE OF SEARCH ASSESSMENT PROCEEDINGS U/S 153A OF THE ACT PURSUANT TO FIRST S EARCH U/S 132(1) OF THE ACT INITIATED IN THE YEAR 2007, VIDE ORDER DATE D 31-12-2009. THE ASSESSEE SUBMITTED THAT THE A.O. FAILED TO CONSIDER THAT THE SEARCH U/S 132(1) OF THE ACT WAS FOR THE FIRST TIME CARRIED OU T ON 19.07.2007 AND VIDE THE ASSESSMENT ORDER FRAMED U/S 153A OF THE AC T DATED 31-12- 2009, SUCH CLAIM OF THE ASSESSEE HAS BEEN EXAMINED IN DETAIL BY THE A.O. WHO ALLOWED THE SAME. THE ASSESSEE FURTHER SU BMITTED THAT NO INCRIMINATING MATERIAL WAS FOUND OR UNEARTHED DURIN G THE COURSE OF SECOND SEARCH CONDUCTED ON 29-3-2011 AND AS ENTIRE ISSUE HAD ALREADY BEEN EXAMINED IN DETAIL DURING THE COURSE OF THE EA RLIER SEARCH ASSESSMENT PROCEEDINGS PURSUANT TO THE FIRST SEARCH CARRIED OUT U/S 132(1) OF THE ACT ON 19.07.2007, DISALLOWANCE MADE IS UNCALLED FOR AS IT ITA 3192-3196/MUM /14 21 AMOUNTS TO CHANGE OF OPINION AT THE END OF A.O. TO THE SAME MATERIAL FACTS AND HENCE THE ADDITION MADE IS UNJUSTIFIED. THE ASSESSEE SUBMITTED BEFORE THE CIT(A) THAT THE O RDER PASSED U/S 143(3) READ WITH SECTION 153A OF THE ACT DATED 31- 12-2009 AND PRESENT ASSESSMENT ORDERS DATED 28.03.2013 PASSED U/S 153A OF THE ACT READ WITH SECTION 143(3) OF THE ACT, THERE IS NO CHANGE IN THE MATERIAL FACTS. EARLIER THE A.O. WAS CONVINCED THAT THERE IS NEXUS BETWEEN THE INTEREST INCOME AND INTEREST EXPENSES AND SINCE THE ORDER PA SSED WITH THE APPROVAL OF LEARNED ADDL. CIT, THE SAME FINDING NEE DS TO BE ACCEPTED BY THE SUCCESSOR OFFICER UNLESS THERE IS ANY NEW FINDI NG OR MATERIAL CHANGE, HENCE, CONSISTENCY NEEDS TO BE FOLLOWED IN THE INCO ME TAX PROCEEDINGS. THE ASSESSEE RELIED ON THE FOLLOWING CASE LAWS TO S UPPORT ITS CONTENTIONS:- (I) RADHA SWAMI SATSANG V. CLT (1962) 193 ITR 32 1 (SC) (II) CLT V. DARIUS PANDOLE (2011) 330 ITR 48 5 (BOM) (III) DCIT V. GUJARAT NARMADA VALLEY FERTILIZERS CO . LTD. (2013) 215 TAXMAN 616 (GUJARAT) (IV) CONSOLIDATED FIBRES & CHEMICALS LTD. V. CLT - 273 ITR 353 (CAL.) (V) CLT, WEST BENGAL-3 V. RAJAN PRASAD MOODY - 115 ITR 516 (VI) CLT V. SUJANI TEXTILE PVT. LTD. - 151 ITR 65 3 (VII) CLT V. AMRITABEN SHAH 238 ITR 777 (DEL.) (VIII) CLT V. NEO POLY PACK PVT. LTD. - 245 ITR 4 92 (IX) PARSHURAM POTTERY WORKS CO. LTD. V. ITO - 10 6 ITR 1 (SC) THUS, THE ASSESSEE CONTENDED THAT THE ADDITION OF R S. 47,22,282/- MADE BY THE AO TO THE INCOME OF THE ASSESSEE NEEDS TO BE DELETED ON ACCOUNT OF CONSISTENCY AS NO NEW MATERIAL FACT HAS COME ON RECORD. ITA 3192-3196/MUM /14 22 THE CIT(A) AFTER CONSIDERING THE FACTS OF THE CASE AND SUBMISSION OF THE ASSESSEE AND THE ORDERS OF THE A.O. OBSERVED THAT THE EARLIER SEARCH AND SEIZURE ACTION U/S 132(1) OF THE ACT WAS CARRIED OU T IN THE YEAR 2007 ON 19.07.2007 AND SUBSEQUENTLY THE ASSESSMENT ORDER U/ S 153A READ WITH SECTION 143(3) OF THE ACT WAS PASSED ON 31-12-2009 FOR THE ASSESSMENT YEARS 2005-06 TO 2008-09 , WHEREIN NO DISALLOWANCE OF INTEREST PAID ON LOAN TAKEN WAS MADE UNDER IDENTICAL CIRCUMSTANCES A ND THE ASSESSEES CLAIM TOWARDS PAYMENT OF INTEREST ON FUNDS BORROWED WAS ALLOWED AS EXPENDITURE U/S 57(III) OF THE ACT AND THE CONTENTI ON OF THE ASSESSEE THAT WHEN THERE IS NO INCRIMINATING MATERIAL FOUND DURIN G THE COURSE OF SEARCH U/S 132(1) OF THE ACT CARRIED OUT FOR THE SECOND TI ME ON 29-3-2011 AND NO NEW MATERIAL FACTS HAVE BEEN BROUGHT ON RECORD IN T HE ASSESSMENT PROCEEDINGS, THE ADDITION CANNOT BE SUSTAINED AND T HE A.O.S ACTION IN DISALLOWING THE CLAIM OF THE ASSESSEE TOWARD INTERE ST IS TOTALLY UNJUSTIFIED AND UNWARRANTED. THE CIT(A) ALSO OBSER VED THAT SINCE THE ASSESSEE IS OFFERING INCOME FROM INTEREST, EQUITY D EMANDS THAT ANY EXPENDITURE INCURRED IN THE NATURE OF INTEREST ON L OAN TAKEN SHOULD ALSO BE ALLOWED. THE FACTS REVEALED THAT THE FUNDS HAVE COME TO THE BANK ACCOUNT OF THE ASSESSEE AND THE LOANS HAVE BEEN GIV EN FROM THE SAME BANK ACCOUNT OF THE ASSESSEE, THEREFORE, THE FLOW O F FUNDS I.E. INCOMING AND OUTGOING IS NOT IN DISPUTE. SINCE THE ISSUE HA S ALREADY BEEN EXAMINED IN THE HANDS OF THE ASSESSEE AT THE TIME O F EARLIER SEARCH ASSESSMENTS U/S 153A READ WITH SECTION 143(3) OF T HE ACT VIDE ORDER DATED 31-12-2009 AND THERE IS NO REASON TO DISALLOW SUCH A CLAIM TWO YEARS LATER THROUGH ANOTHER ASSESSMENT ORDERS ON SA ME SET OF MATERIAL FACTS AND FURTHER NO INCRIMINATING MATERIAL HAVING BEEN FOUND OR UNEARTHED AGAINST THE ASSESSEE DURING THE COURSE OF SECOND SEARCH PROCEEDINGS U/S. 132(1) OF THE ACT ON 29.03.2011, RULE OF CONSISTENCY HAS TO BE FOLLOWED AS LAID DOWN BY SEVERAL DECISION S REFERRED TO BY THE ASSESSEE , THE CIT(A) HELD THAT INTEREST EXPENDITUR E ON LOAN TAKEN IS A ITA 3192-3196/MUM /14 23 VALID AND ALLOWABLE CLAIM IN THE EYE OF LAW AND SHO ULD BE ALLOWED. THE CIT(A) ALSO HELD THAT THE ASSESSEE HAS VOLUNTARILY DISALLOWED TOTAL INTEREST OF RS. 49,02,661/- (RS.90,000 + RS.38,19,8 00/- + RS. 9,92,861/- ) IN THE RETURN OF INCOME FILED BY THE ASSESSEE APP EARS TO BE FAIR AND REASONABLE. THE ASSESSEE HAS OFFERED FOR TAXATION I NTEREST INCOME OF RS.51,79,190/- . THE CIT(A) OBSERVED THAT IN THE CU RRENT YEAR AVERAGE LOAN TAKEN WORKS OUT TO RS. 11,48,43,933/- AND AVER AGE LOAN GIVEN WORKS OUT TO RS. 8,25,12,267/-, THUS THE DIFFERENCE OF RS. 3,23,31,666/-, THE EFFECTIVE RATE OF INTEREST WORKS OUT TO 12% I.E . 38,19,800/- WHICH INTEREST HAS BEEN DISALLOWED VOLUNTARILY BY THE ASS ESSEE IN THE RETURN OF INCOME FIELD WITH THE REVENUE, WHICH IS FAIR AND RE ASONABLE. THE ASSESSEE ALSO DISALLOWED INTEREST OF RS. 90,000/- P AID TO SH. M J CHOTANI AND FURTHER DISALLOWANCE OF RS. 9,92,861/- U/S 14A OF THE ACT ON AVERAGE INVESTMENT IN SHARES AMOUNTING TO RS.5,13,43,681/- , DIVIDEND INCOME FROM WHICH HAS BEEN CLAIMED AS EXEMPTED INCOME . TH E TOTAL DISALLOWANCE OF INTEREST OF RS. 49,02,661/- WHICH H AS BEEN VOLUNTARILY DISALLOWED BY THE ASSESSEE APPEARS TO BE FAIR AND R EASONABLE. THE CIT(A) ON PERUSAL OF BANK STATEMENT OF THE ASSESSEE GAVE CATEGORICAL FINDING THAT THERE IS STRONG DIRECT CO-RELATION BET WEEN LOAN GIVEN AND TAKEN. THE CIT(A) OBSERVED THAT THE AO HAS NOT DOUB TED THE GENUINENESS OF LOAN TAKEN AND LOAN GIVEN. THUS, AS PER CIT(A) A DDITION OF RS. 47,22,282/- IS UNSUSTAINABLE AND UNJUSTIFIED AND DI RECTED THE A.O. TO DELETE THE SAME VIDE ORDERS DATED 18.02.2014. 9. AGGRIEVED BY THE ORDERS OF THE CIT(A) DATED 18.0 2.2014, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 10. THE LD. D.R. RELIED UPON THE ORDER OF THE A.O. AND CONTENDED THAT THE A.O. HAS RIGHTLY DISALLOWED THE EXPENSES OF RS. 47,22,282/- AS PER THE WELL REASONED ORDER PASSED BY THE A.O. ITA 3192-3196/MUM /14 24 11. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE ARE TWO SEARCH AND SEIZURE ACTION U/S 132(1) OF THE ACT CON DUCTED IN THE CASE OF THE ASSESSEE, ONE IN THE YEAR 2007 ON 19.07.2007 AND ANOTHER ON 29-3- 2011. THE LD. COUNSEL SUBMITTED THAT FOR THE ASSES SMENT YEAR 2007-08, THE RETURN OF INCOME WAS FILED U/S 153A OF THE ACT IN RESPECT OF FIRST SEARCH ON 11 TH SEPTEMBER, 2008 AND THE ASSESSMENT ORDER WAS PASSE D U/S 143(3) R.W.S. 153(A) OF THE ACT ON 31-12-2009. THE LD. COUNSEL SUBMITTED THAT THE ASSESSMENTS HAVE BEEN CONCLUDED IN THE CASE OF THE ASSESSMENT YEAR 2007-08 ON 31.12.2009 WHICH IS PRIO R TO THE DATE OF SECOND SEARCH ON 29-03-2011 AND HENCE THE ASSESSMEN T FOR THE ASSESSMENT YEAR 2007-08 ARE CONCLUDED ASSESSMENTS W HICH CANNOT BE DISTURBED ON SAME SET OF FACTS WHILE FRAMING ASSESS MENT U/S 153A R.W.S. 143(3) OF THE ACT IN PURSUANT TO SECOND SEARCH UNLE SS THERE IS ANY INCRIMINATING MATERIAL FOUND OR UNEARTHED DURING TH E COURSE OF SECOND SEARCH ON 29-03-2011. THE LD. COUNSEL STATED BEFOR E US THAT THERE IS NO INCRIMINATING MATERIAL FOUND OR UNEARTHED DURING TH E COURSE OF SECOND SEARCH CONDUCTED ON 29-3-2011 WITH RESPECT TO THE I SSUE IN DISPUTE I.E. ALLOWABILITY OF CLAIM OF DEDUCTION OF INTEREST PAID ON LOANS BORROWED AGAINST INTEREST INCOME ON LOAN ADVANCES BY THE ASS ESSEE, HENCE, IN VIEW OF THE RATIO OF DECISION OF SPECIAL BENCH OF ITAT I N THE CASE OF ALL CARGO GLOBAL LOGISTICS LTD. V. DCIT [2012] 23 TAXMANN.COM 103 (MUM) [SB] , THIS ADDITION OF RS.47,22,282/- BEING DISALLOWANCE OF THE INTEREST CANNOT BE SUSTAINED. THE LD. COUNSEL FURTHER RELIED UPON THE ORDER OF THE CIT(A). 12. WE HAVE CONSIDERED THE RIVAL CONTENTION AND ALS O PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THIS ISS UE OF ALLOWABILITY OF DEDUCTION OF INTEREST PAID ON LOAN BORROWED BY THE ASSESSEE AMOUNTING TO RS.47,22,282/- AGAINST THE INTEREST IN COME OF RS.99,01,472/- EARNED BY THE ASSESSEE FROM LOAN ADV ANCED HAS ITA 3192-3196/MUM /14 25 ALREADY BEEN EXAMINED AND ACCEPTED BY THE A.O. IN C OURSE OF PROCEEDINGS FOR THE ASSESSMENTS U/S 153A OF THE ACT PURSUANT TO THE FIRST SEARCH AND SEIZURE OPERATIONS U/S 132(1) OF T HE ACT CONDUCTED IN THE YEAR 2007 ON 19.07.2007 BY THE REVENUE WHEREBY THE INTEREST EXPENDITURE OF RS.47,22,282/- INCURRED ON LOANS BOR ROWED HAS BEEN ACCEPTED AND ALLOWED AS DEDUCTION FROM THE INTEREST INCOME OF RS.99,01,472/- EARNED ON THE LOANS ADVANCED BY THE ASSESSEE. WE HAVE OBSERVED THAT IT HAS NOT BEEN BROUGHT TO OUR N OTICE BY BOTH THE RIVAL PARTIES THAT ANY INCRIMINATING MATERIAL HAS B EEN FOUND OR UNEARTHED DURING THE SECOND SEARCH U/S 132(1) OF TH E ACT CONDUCTED BY THE REVENUE ON 29-3-2011 RELATED TO THE CLAIM OF DEDUCTION OF INTEREST EXPENDITURE OF RS.47,22,282/- ON THE LOANS BORROWED AGAINST THE INTEREST INCOME OF RS.99,01,472/- EARNED BY THE ASSESSEE ON THE LOANS ADVANCED. WE HAVE ALSO OBSERVED THAT THE ASSE SSMENTS U/S 153A OF THE ACT PURSUANT TO FIRST SEARCH ON 19.07.2 007 HAVE BEEN CONCLUDED FOR THE ASSESSMENT YEAR 2007-08 ON 31.12. 2009 WHICH IS PRIOR TO THE DATE OF SECOND SEARCH CONDUCTED BY REV ENUE ON 29-03- 2011 AND HENCE IN OUR CONSIDERED VIEW, NO ADDITION CAN BE MADE WITH RESPECT TO THE CLAIM OF DEDUCTION OF INTEREST EXPENDITURE OF RS.47,22,282/- PAYABLE ON LOANS BORROWED BY THE ASS ESSEE AGAINST THE INTEREST INCOME FROM THE LOANS ADVANCED BY THE ASSESSEE COMPANY ON THE SAME SET OF MATERIAL FACTS AS EXISTI NG WHILE FRAMING ASSESSMENTS U/S 153A READ WITH SECTION 143(3) OF TH E ACT ON 31.12.2009, IN THE ABSENCE OF ANY INCRIMINATING MAT ERIAL FOUND DURING THE COURSE OF SECOND SEARCH ON 29-03-2009 . THE DECISION IN THE CASE OF ALL CARGO GLOBAL LOGISTICS LTD. (SUPRA) RELIED UPON BY THE ASSESSEE IS SQUARELY APPLICABLE TO THIS CASE THAT IN CASE OF ASSESSMENTS WHICH DO NOT ABATE PURSUANT TO ISSUE OF NOTICE UNDER SECTION 153A, IN ADDITION TO INCOME THAT HAS ALREAD Y BEEN ASSESSED, ASSESSMENT WILL BE MADE ON BASIS OF INCRIMINATING M ATERIAL FOUND IN ITA 3192-3196/MUM /14 26 COURSE OF SEARCH BUT NOT PRODUCED IN COURSE OF ORIG INAL ASSESSMENT AND UNDISCLOSED INCOME OR PROPERTY DISCOVERED IN CO URSE OF SEARCH. THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CA SE OF CIT V. CONTINENTAL WAREHOUSING CORPORATION (NHAVA SHEVA ) LIMITED (2015) 58 TAXMANN.COM 78 (BOMBAY) IS ALSO SQUARELY APPLICABLE TO THE INSTANT APPEAL WHEREBY HONBLE BOMBAY HIGH COUR T HAS HELD THAT NO ADDITION CAN BE MADE IN RESPECT OF ASSESSME NTS WHICH HAVE BECOME FINAL IF NO INCRIMINATING MATERIAL IS FOUND DURING SEARCH. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. KABU L CHAWLA (2015) 61 TAXMANN.COM 412(DELHI) HAS TAKEN A SIMILAR VIEW BY HOLDING THAT COMPLETED ASSESSMENTS CAN BE INTERFERED WITH BY ASS ESSING OFFICER WHILE MAKING ASSESSMENT UNDER SECTION 153A OF THE A CT ONLY ON BASIS OF SOME INCRIMINATING MATERIAL UNEARTHED DURI NG COURSE OF SEARCH WHICH WAS NOT PRODUCED OR NOT ALREADY DISCLO SED OR MADE KNOWN IN COURSE OF ORIGINAL ASSESSMENT . HOWEVER, WE ALSO NOTE THAT IN THE CASE OF CIT V. CO NTINENTAL WAREHOUSING CORPORATION (NHAVA SHEVA) LTD. , HONB LE SUPREME COURT HAS GRANTED SPECIAL LEAVE AND ADMITTED APPEAL OF RE VENUE IN SLP NO. (C) NO. 18506 OF 2015, DATED OCTOBER, 12, 2015 AGAINST THE HONBLE BOMBAY HIGH COURT RULING THAT NO ADDITION CAN BE MADE IN R ESPECT OF ASSESSMENT WHICH HAS BECOME FINAL IF NO INCRIMINATING MATERIAL IS FOUND DURING THE COURSE OF SEARCH. RESPECTFULLY FOLLOWING THE BINDING DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I.E. HONBLE BOMBAY HIGH COURT IN THE CA SE OF CENTRAL WAREHOUSING CORPORATION (NHAVA SHEVA) LIMITED(SUPRA ) AS WELL DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF KABUL CH AWLA(SUPRA) AND SPECIAL BENCH DECISIONS IN ALL CARGO GLOBAL LOGISTI CS LTD. (SUPRA) , WE ITA 3192-3196/MUM /14 27 UPHOLD THE ORDERS OF THE CIT(A) AND DELETE THE ADDI TIONS MADE BY THE AO OF RS.47,22,282/- ON ACCOUNT OF DISALLOWANCE OF THE CLAIM OF THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE ON LOANS BORRO WED AGAINST THE INTEREST INCOME OF RS. 99,01,472/- , ON THE SHORT G ROUND ITSELF BY HOLDING THAT COMPLETED ASSESSMENTS CAN BE INTERFERED WITH BY THE AO WHILE MAKING ASSESSMENT UNDER SECTION 153A OF THE ACT ONL Y ON BASIS OF SOME INCRIMINATING MATERIAL UNEARTHED DURING THE COURSE OF SEARCH WHICH WAS NOT PRODUCED OR NOT ALREADY DISCLOSED OR MADE KNOWN IN COURSE OF ORIGINAL ASSESSMENT AND UNDISCLOSED INCOME OR PROPE RTY DISCOVERED IN COURSE OF SEARCH , WHILE IN THE INSTANT APPEAL THE AO HAS IN THE ASSESSMENTS FRAMED VIDE ORDERS DATED 31.12.2009 U/S . 153A READ WITH SECTION 143(3) OF THE ACT IN PURSUANCE TO THE FIRST SEARCH ON 19.07.2007 HAS DULY EXAMINED AND ALLOWED THE CLAIM OF THE ASSE SSEE FOR DEDUCTION OF INTEREST OF RS.47,22,282/- BEING INTEREST PAID O N LOAN BORROWED AGAINST THE INTEREST INCOME EARNED ON LOANS ADVANC ED BY THE ASSESSEE AND NO NEW INCRIMINATING MATERIAL HAS BEEN FOUND OR UNEARTHED DURING THE COURSE OF SECOND SEARCH ON 29-03-2011 . THE REL EVANT EXTRACT OF THE ASSESSMENT ORDERS U/S 153A OF THE ACT DATED 31.12.2 009 IN PURSUANCE OF FIRST SEARCH U/S 132(1) OF THE ACT ON 19.07.2007 , ARE AS UNDER: I HAVE CONSIDERED THE SUBMISSION OF THE ASSESSE AN D THE FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSE HAS PAID INT EREST OF RS.90,000/- TO SHRI M J CHOTANI ON A LOAN OF RS. 5,00,000/- @ 18%. THE INTEREST PAID TO SHRI M.J. CHOTANI WAS DISALLOWED FOR THE REASONS DISCUSSED IN EARLIER ASSESSMENT YEARS. THERE IS NO DIFFERENCE IN THE FACTS OF THE CASE. AC CORDINGLY, INTEREST OF RS. 90,000/- PAID TO SHRI M.J. CHOTANI IS DISALLOWED AN D ADDED TO THE TOTAL INCOME. FURTHER, THE ASSESSE HAS RECEIVED INTEREST OF RS. 9 9,01,472/- ON THE AVERAGE VALUE OF LOANS GIVEN DURING THE YEAR RS. 8,25,12,26 7/- AS AGAINST, THE ASSESSE HAS PAID INTEREST OF RS. 95,34,933/- (EXCLUDING THE INTEREST OF RS. 90,000/- PAID TO SHRI M.J. CHOTANI AS DISCUSSED ABOVE) ON AVERAGE VALUE OF LOAN RECEIVED DURING THE YEAR OF RS. 11,43,43,933/- (EXCLUDING TH E LOAN OF RS. 5,00,000/- RECEIVED FROM SHRI M.J. CHOTANI). THE ASSESSE HAS P AID EXCESS INTEREST RS, 38,19,800/- (@ 12% ON THE EXCESS AVERAGE VALUE OF L OANS GIVEN OF RS.3, 18,31,666/-). ITA 3192-3196/MUM /14 28 KEEPING IN VIEW OF THE FACTS OF THE CASE, THE INTER EST OF RS. 38,19,800/- IS DISALLOWED OUT OF INTEREST PAID. THUS, AS COULD BE SEEN FROM THE ABOVE THAT THE AO H AS DULY EXAMINED THE CLAIM OF THE ASSESSEE WITH RESPECT TO THE DEDUC TION OF INTEREST EXPENSES ON LOAN BORROWED FROM THE INTEREST INCOME EARNED FROM THE LOANS ADVANCED AND HAS DISALLOWED RS.38,19,800/- AN D RS.90,000 OUT OF THE INTEREST EXPENDITURE CLAIM OF RS. 96,24,943/ - . APART FROM THE ABOVE, THE ASSESSEE HAS ALSO VOLUNTARILY OFFERED DI SALLOWANCE OF INTEREST OF RS.9,92,861/- U/S 14A OF THE ACT. THUS, THE ASSE SSEE CLAIMED DEDUCTION OF BALANCE AMOUNT OF INTEREST EXPENDITURE OF RS.47,22,282/- TOWARDS LOAN BORROWED AGAINST INTEREST INCOME OF RS .99,01,472/- FROM LOAN ADVANCES , WHICH CLAIM WAS DULY EXAMINED AND A LLOWED BY THE AO WHILE FRAMING THE ASSESSMENT ORDERS DATED 31.12.200 9 U/S 153A READ WITH SECTION 143(3) OF THE ACT PURSUANT TO FIRST SE ARCH ON 19.07.2007 AND NO NEW INCRIMINATING MATERIAL WAS FOUND OR UNEARTHE D DURING SEARCH U/S 132(1) OF THE ACT, HAVING BEING BROUGHT ON RECORD BEFORE THE TRIBUNAL AND THE ASSESSMENT FRAMED VIDE ORDERS DATED 31.12.2009 BEING CONCLUDED ASSESSMENT AS FRAMED PRIOR TO DATE OF SECOND SEARCH ON 29/03/2011, WE ARE OF CONSIDERED VIEW THAT THE CONCLUDED ASSESSMEN TS IN THE INSTANT APPEAL CANNOT BE DISTURBED ON THE SAME SET OF MATER IAL FACTS AS PREVAILING WHEN THE ASSESSMENT WAS FRAMED U/S 153A READ WITH SECTION 143(3) OF THE ACT ON 31.12.2009 IN PURSUANT TO FIRS T SEARCH ON 19.07.2007 AND HENCE, WE DISMISS THE APPEAL FILED BY THE REVEN UE. WE ORDER ACCORDINGLY. 13. WITH RESPECT TO THE REVENUES APPEALS IN ITA NO . 3188/M/2014 FOR THE ASSESSMENT YEAR 2008-09 AND ITA NO. 3189/MUM/20 14 FOR THE ASSESSMENT YEAR 2009-10, OUR ABOVE DECISION IN ITA NO 3187/MUM/2014 FOR THE ASSESSMENT YEAR 2007-08 SHALL APPLY MUTATIS ITA 3192-3196/MUM /14 29 MUTANDIS TO THE APPEALS FOR THE ASSESSMENT YEARS 20 08-09 & 2009-10 ALSO. WE ORDER ACCORDINGLY. 14. IN THE RESULT, ALL THE THREE APPEALS FILED BY T HE REVENUE ARE DISMISSED. WE HAVE OBSERVED THAT ISSUE IN THIS APPEAL IS IDEN TICAL TO THE ISSUE IN ITA NOS. 3187-3189/MUM/2014 WHICH WAS ADJUDICATED BY M UMBAI TRIBUNAL VIDE ORDERS DATED 18-01-20116 WHEREBY REVENUE APPEA LS WERE DISMISSED , IN THE CASE OF BROTHER OF THE ASSESSEE MR HIMANSHU B. KANAKIA AND RESPECTFULLY FOLLOWING THE DECISION OF THE MUMBAI T RIBUNAL IN AFORE-STATED APPEALS , WE DISMISS THE APPEAL OF THE REVENUE. WE ORDER ACCORDINGLY. 13. WITH RESPECT TO THE REVENUES APPEALS IN ITA NO . 3193/M/2014 FOR THE ASSESSMENT YEAR 2006-07,ITA NO 3194/MUM/2014 FOR TH E ASSESSMENT YEAR 2007-08, ITA NO. 3195/MUM/2014 FOR THE ASSESSMENT Y EAR 2008-09 AND ITA NO. 3196/MUM/2014 FOR THE ASSESSMENT YEAR 2009-10, OUR ABOVE DECISION IN ITA NO 3192/MUM/2014 FOR THE ASSESSMENT YEAR 2005-0 6 SHALL APPLY MUTATIS MUTANDIS TO THE APPEALS FOR THE ASSESSMENT YEARS 2006-07 TO 2009- 10 ALSO. WE ORDER ACCORDINGLY. 14. IN THE RESULT, ALL THE FIVE APPEALS FILED BY TH E REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH FEBRUARY, 2016. # $% &' 10.02.2016 ( ) SD/- SD/- (AMIT SHUKLA) ( RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 10.02.2016 [ ITA 3192-3196/MUM /14 30 NEELAM PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 9 ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. 9 / CIT- CONCERNED, MUMBAI 5. <=( >>?@ , ?@ , $ / DR, ITAT, MUMBAI H BENCH 6. (BC D / GUARD FILE. / BY ORDER, < > //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI