Wilfred D'souza, Mangaluru V. Assistant Commissioner Of Income Tax, Central Circle-2, Mangaluru

ITA 327/BANG/2022

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1513 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-10-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Next Hearing Date: 14-09-2022
• Assessment Year: 2012-2013
• Appeal Filed On: 27-04-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Business expenditure; Search and seizure; Document seized; Retrospective amendment; Question of law; Difference of opinion; Block assessment; Reason to believe; Documents seized; Change of opinion; Capital expenditure; Capital Gains
• Section: 147; 148; 37; 263; 132; 139; 143(3); 153A; 37(1); 143(1); 205; 250; 143(2); 192; 246A; 73; 72; 13; 153; 22; 153C

Judgement Text

ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru IN THE INCOME TAX APPELLATE TRIBUNAL “C’’ BENCH: BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA Nos.323 to 328/Bang/2022 Assessment Years: 2008-09 TO 2013-14 Wilfred D’Souza Flat No.903, 9 th Floor Plama Icon, Behind Plama Mall, Mangaluru 575 005. PAN NO : ABFPD3142C Vs. ACIT Central Circle-2 Mangaluru APPELLANT RESPONDENT Appellant by : Shri Narendra Sharma, A.R. Respondent by : Smt. S. Praveena, D.R. Date of Hearing : 15.09.2022 Date of Pronouncement : 07.10.2022 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: These appeals by assessee are directed against different orders of CIT(A) for the assessment years 2008-09 to 2013-14. The grounds in these appeals are common in nature, hence, these appeals are clubbed together, heard together and disposed of in same order for the same of convenience. 2. The assessee has raised various grounds in its appeal memorandum. However, assessee has filed written submission and we confine our adjudication to the written submissions filed by the assessee. ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 2 of 41 3. Facts of the case are that the assessee is an individual and running a cashew industry and finance corporation in the name and style of M/s Karnataka Cashew Corporation and M/s Great India Finance Corporation in Puttur, Karnataka. A search and seizure as per the provisions of section 132 of the Income-tax Act,1961 ['the Act' for short] was conducted in the residential premises of the assessee on 09/01/2013. As a consequence of search the case of the Assessee was centralised and notice under section 153A of the Act were issued for the A.Y’s 2008-09 to 2013-14 on 11/03/2014. The Assessee in response to the notice issued under section 153A of the Act filed a return of income for each of the six assessment years on 16/04/2014, declaring the following income which is tabulated as under: Sl.No. Assessment Year Amounts declared [i]. 2008 - 09 Rs.1,35,420/- [ii]. 2009 - 10 Loss of Rs.25,47,100/- [iii]. 2010 – 11 Rs.4,55,800/- [iv]. 2011 – 12 Rs.4,96,270/- [v]. 2012 – 13 Rs.6,60,660/- [vi]. 2013 – 14 Rs.NIL 3.1 The Assessing Officer called for certain details and explanations and the same were provided by the Assessee. The learned assessing officer concluded the assessments by passing an order of assessment under section 153A r.w.s. 143 [3] of the Act, dated 30/03/2015, determining the total income of the assessee as under for the six assessment years, which is tabulated as under: Sl.No. Assessment Year Income declared in ROI filed u/s. 153A Total Income assessed by the learned A.O. [i]. 2008 - 09 Rs.1,35,420/- Rs.1,06,18,970/- [ii]. 2009 - 10 Loss of Rs.25,47,100/- Loss of Rs.25,47,100/- [iii]. 2010 – 11 Rs.4,55,800/- Rs.26,81,926/- [iv]. 2011 – 12 Rs.4,96,270/- Rs.23,74,680/- [v]. 2012 – 13 Rs.6,60,660/- Rs.30,18,878/- [vi]. 2013 – 14 Rs.NIL Rs.7,61,996/- ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 3 of 41 3.2 Aggrieved by the order of assessments passed by the assessing officer under section 143 [3] r.w.s. 153A of the Act dated 30/03/2015 the assessee preferred statutory appeal before the learned Commissioner of Income-tax [Appeals]-2, Panaji, as per the provisions of section 246A of the Act. The learned Commissioner of Income-tax [Appeals] vide his appellate order dated 22/02/2022 for all the six assessment years, dismissed the appeal preferred by the assessee. 3.3 The assessee being aggrieved by the appellate order passed by the learned Commissioner of Income-tax [Appeals], has preferred these present appeals before this Tribunal. The assessee wishes to address the issue on hand in two folds one on legal issue and another being issue on merits of the matter; LEGAL ISSUE: Assumption of Jurisdiction under Section 132 & Section 153A of the Act 4. Ld. A.R. for the assessee submitted that as could be seen from the impugned orders of assessments passed by the assessing officer under section 143 [3] r.w.s. 153A of the Act for the six assessment years are concerned, no additions whatsoever has been made based on a seized material which are incriminating in nature. This itself clearly demonstrates that the entire search conducted under section 132 of the Act is basically on suspicion and surmises and not with a proper satisfaction recorded under section 132 of the Act which induced to issue a warrant of authorization to search the assessee. Thus, the search under section 132 of the Act is conducted not on the basis of any prior information or material inducing any belief but purely on the suspicion and therefore, the action under section 132 ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 4 of 41 [2] of the Act is bad in law and consequent assessment order passed under section 143[3] r.w.s. 153A of the Act is null and void-ab-inito on the parity of the ratio of the decision of the Hon’ble Apex Court in the case of Ajith Jain, reported in 260 ITR 80. 4.1 The Ld. A.R. submitted that the notice issued by the Assessing officer under section 153 A of the Act is not valid in law and without assumption of proper and valid jurisdiction. The said notice was issued pursuant to search action conducted which is ultra vires the provisions of section 132 [1] [a], [b] and [c] of the Act and consequently the notice issued under section 153 A of the Act pursuant to such illegal search action are bad in law and void ab- initio. 4.2 Ld. A.R. further submitted that reason to believe is sine qua non for conducting search and valid search only can lead to assessment under section 153 A of the Act. Reliance is placed on the of the decision of Hon’ble Jurisdictional Karnataka High Court in the case of CIT Vs. IBC Knowledge Park [P] Ltd. reported in 385 ITR 346. Hence, he submitted that the very initiation of search conducted under section 132 of the Act on the assessee itself is bad in law and consequently the order of assessments passed under section 143 [3] r.w.s. 153A of the Act has no legs to stand and requires to be cancelled. Additions are not based on incriminating material found during search: 4.3 In addition to the submissions made, the Assessee further submitted that the additions made to the declared income are not based on incriminating material seized during the search. A remand ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 5 of 41 report was called for by the learned CIT [A] which is reproduced in the appellate order, in the said Remand Report furnished by the Assessing Officer it is categorically mentioned that the additions have been made based on the documents submitted by the Assessee during the proceedings under Section 153A of the Act. Thus, the additions made in the impugned orders are not based on any incriminating materials. Assessment Year Date of Filing Return Return filed u/s Assessment concluded u/s 2008-09 18/10/2010 Filed in response to Notice u/s 148 declaring a loss of Rs.1,65,253/- Re-assessment was concluded u/s 147 read with 143(3) dated 30/12/2011. 2009-10 18/10/2010 Filed in response to Notice u/s 148 declaring a loss of Rs.1,34,699/- Re-assessment was concluded u/s 147 read with 143(3) dated 30/12/2011. 2010-11 19/02/2013 Filed in response to Notice u/s 153A Assessments were concluded under Section 143(3) read with Section 153A of the Act. 2011-12 19/02/2013 Filed in response to Notice u/s 153A Assessments were concluded under Section 143(3) read with Section 153A of the Act. 2012-13 19/02/2013 Filed in response to Notice u/s 153A Assessments were concluded under Section 143(3) read with Section 153A of the Act. 2013-14 19/02/2013 Filed in response to Notice u/s 153A Assessments were concluded under Section 143(3) read with Section 153A of the Act. 4.4 Ld. A.R. submitted that for the assessment years 2008-09 & 2009-10, there was an already concluded assessments as detailed in the tabulated chart and further the learned assessing officer in the impugned orders passed under section 143[3] r.w.s. 153A of the Act, reproduces the entire contents of the order passed under section 143[3] r.w.s. 147 of the Act dated 30/12/2011. Thus, it is very clear that for the assessment years 2008-09 & 2009-10, there was an ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 6 of 41 already concluded assessment and further on the date of initiation of search under section 132 of the Act, the said proceeding for the assessment years 2008-09 & 2009-10 were unabated assessment proceedings. 4.5 Reliance is placed on the decision of the Hon’ble Jurisdictional Karnataka High Court in the case of Pr. CIT Vs Delhi International Airport Pvt Ltd., in ITA No. 322/2018, by order dated 29 th September 2021, wherein it has been categorically held that, the assessments which were made prior to initiation of search cannot be disturbed when no incriminating material, pertaining to those assessment years, was found during the search on the Assessee under section 132 of the Act. In other words, the presence of incriminating material is a sine qua non for making additions in respect of those assessment years where assessments were already completed under section 143[3] of the Act prior to initiation of search. 4.6 The Hon’ble Jurisdictional Karnataka High Court in yet another recent decision in the case of Sri. S.M. Kamal Pasha Vs. DCIT, in ITA No. 155/2017, judgement dated 02/08/2022 has reiterated and affirmed the judgement passed by the Hon’ble Karnataka High Court in the case of Pr. CIT Vs Delhi International Airport Pvt Ltd., in ITA No. 322/2018. A copy of the judgement has already been furnished during the course of hearing before this Tribunal by Ld. A.R. 4.7 Reliance is also placed by Ld. A.R. on the decision of the Hon’ble Delhi High Court in the case of CIT Vs. Kabul Chawla, reported in 380 ITR 573 and submitted that unless incriminating material leading to an inference of undisclosed income is found, invocation of provisions of section 153 A of the Act is not possible. ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 7 of 41 4.8 Thus, Ld. A.R. submitted that the additions made by the learned assessing officer in the impugned order of assessment passed under section 143[3] r.w.s. 153 A of the Act for the Assessment Years 2008-09 & 2009-10 are not based on any alleged incriminating materials found during the course of search, and the additions are based purely only on estimation and suspicion and surmises and consequently no income was required to be declared by the assessee nor any additions could have been made by the learned assessing officer. 4.9 Further, Ld. A.R. placed reliance on the decision of the Hon’ble Delhi High Court in the case of Principal CIT Vs. Ms. Lata Jain, reported in 384 ITR 543. The Hon’ble Court has approved the view taken by the Tribunal that there had to be incriminating material recovered during the course of search qua the assessee in each of the years for the purposes of framing an assessment under section 153 A of the Act. 4.10 It was submitted that the order of assessment passed under section 143[3] r.w.s. 153 A of the Act, the additions made by the learned assessing officer to the income reported by the assessee for the assessment years 2008-09 & 2009-10 are not based upon any incriminating materials found or seized during the course of search. Since, the assessments under section 153 A are for bringing to tax the undisclosed income hence, if no incriminating based on which no additions are made then the provisions of section 153 A and more so the notice under section 153 A of the Act cannot be issued. 4.11 Thus, the Ld. A.R. for the assessee prayed before us that the impugned order of assessment passed by the learned assessing ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 8 of 41 officer requires to be cancelled on this count as well for the advancement of substantial cause of justice. 5. On the other hand, Ld. D.R. relied on the order of lower authorities and submitted that once the assessment is reopened, the AO is bound to assess or re-assess the entire income of the assessee for the relevant assessment years and there is no bar in computation of total income of the assessee for these two assessment years i.e. 2008-09 & 2009-10. 5.1. The Ld. D.R. submitted that regarding the legality of the action u/s 132 of the Act and subsequent order passed u/s 153A r.w.s. 143 (3) of the Act. Assessee's main argument for the aforesaid grounds is that the search was conducted purely on suspicion and hence was not valid ab-initio. No admissible evidence exists in support of this contention. Further, Ld. D.R. stated that the supposition that conduct of a search merely on basis of some suspicion would make it invalid will need to be seen in light of the following judicial pronouncements: - • Assessee merely contended that Director of Investigation has no valid information on the basis of which he could issue warrant of search —Assessee not supporting contention with cogent material — Department cannot be asked to produce records to show information having been received. Sriram Jaiswal Vs Union of India & Ors.(All.) 176 ITR 261 • "Reason to believe" need not be disclosed when a mere allegation made by petitioner — Illegality of search does not vitiate evidence collected during search. Dr. Pratap Singh & Another Vs Director of Enforcement & Ors.(SC) 155 ITR 166; Genom ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 9 of 41 Biotech (P) Ltd. &Ors. Vs DIT(Inv.) & Ors. (Born) 23 DTR 241; 224 CTR 270 720 • The fact that the issue on which search was initiated (as evident from the Satisfaction note) was enquired by TPO and Ld. CIT(A) in the past and allowed in favour of assessee, will not affect the reasonable belief formed by DIT as neither TPO nor CIT(A) examined the issue in the angle of genuineness of transaction as a related party was the ultimate recipient of the remittances abroad Genom Biotech (P) Ltd. & Ors. Vs. DIT (Inv.) & Ors. (Bom) 23 DTR 241; 224 CTR 270 • Authorization issued by competent authority on the basis of material in its position — Court cannot examine adequacy or sufficiency of such information under writ jurisdiction. Doctors X-ray and Pathology Institute P. Ltd. Vs DC1T(All.) 318 ITR 125 • Search in Bank and details found — Not a case of collecting information but a case of search in respect of person named in the warrant of authorization — Banks also can be searched in the case of any other person — Common authorization in respect of more than one person is permissible. Raghu Raj Pratap Singh Vs ACIT(All) 307 ITR 450 • Any person including a non-resident Indian is amenable to search and seizure u/s 132 Ram Kumar Dhanuka Vs Union of India (Raj) 252 ITR 205 ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 10 of 41 • Warrant of Authorization need not specify the particulars of books of accounts and documents to be unearthed in search ITO Vs Seth Bros. (SC) 74 ITR 836 • Evidence collected during an illegal search can be used against the searched party. Pooran Mal Vs Director of Inspection (Investigation) & Ors. (SC) 93 ITR 505; State of Punjab Vs Baldev Singh etc. (SC) 157 CTR 3 • Tribunal cannot go into validity or otherwise of administrative decision for conducting search & seizure when hearing an appeal against the order of assessment. CIT Vs Para Rice Mills (P&H) 313 ITR 182. 5.2 Ld. D.R. submitted that assessee has neither been able to show that his claim in the aforesaid grounds is based on any documentary evidence nor is the claim, even if taken as correct, vitiates the proceedings in any manner. The ground of appeal 1 is accordingly dismissed by Ld. CIT(A). 6. We have heard the rival submissions and perused the materials available on record. The scope of provisions of section 153A of the Act could be summarized as follows as per the order of the Mumbai Special Bench in the case of All Cargo Global Logistics Ltd. Vs. Deputy Commissioner of Income-tax (23 taxmann.com 103):- Scenario Scope of Section 153A 1. No return of income is filed by the assessee (whether or not time limit to file return of income has expired. Since no return has been filed, the entire income shall be regarded as undisclosed income. ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 11 of 41 Consequently, AO would have the authority/jurisdiction to assess the entire income, similar to jurisdiction in regular assessment u/s 143(3). No requirement to restrict to documents found during the course of search. 2. Return of Income just filed by the assessee – return yet to be processed u/s 143(1) – Time limit for issue of notice u/s 143(2) not expired. Since return filed is even pending to be processed, the return would be treated as pending before the AO. Consequently, AO would have authority/jurisdiction to assessee the entire income, similar to jurisdiction in regular assessment u/s 143(3). 3. Return of Income filed by the assessee – return processed and intimation issued u/s 143(1) – Time limit for issue of notice u/s 143(2) not expired. Since intimation is not akin to assessment and time limit for notice u/s 143(2) hs not expired, even though return has been processed, it will be case where return has not attained finality. Consequently, AO would have authority/jurisdiction to assess the entire income, similar to jurisdiction in regular assessment u/s 143(3). 4. Return of income filed by the assessee. Intimation passed or not u/s 143(1) and time limit for issue of notice u/s 143(2) has expired. Return of income of the assessee shall be treated as having being accepted and attained finality. AO loses jurisdiction to verify the return of income Since, no assessment would be pending there would be no abatement of any proceedings. Accordingly, the scope of assessment u/s 153A would be restricted to incriminating material found during the course of search. ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 12 of 41 5. Notice u/s 143(2) issued and assessment pending u/s 143(3) Pending regular assessment proceedings would abate and would converge/merge in proceedings u/s 153A. Accordingly the scope of assessment under section 153A would cover the pending return filed as well and would not be restricted to incriminating material found during the course of search. 6. Assessment u/s 143(3) completed. Since regular assessment proceedings have been completed & are not pending, there would be no abatement of proceedings. AO loses jurisdiction to review the completed assessment. Accordingly, the scope of assessment u/s 153A would be restricted to incriminating material found during the course of search. 7. Proceedings u/s 147 pending where: (a) Assessment originally completed u/s 143(3) OR (b) No assessment earlier completed u/s 143(3) Pending assessment/reassessment proceedings u/s 147 would abate and would converge/merge in proceedings u/s 153A. Accordingly, the powers of the AO, in both the cases, shall extent to: (a) Assess income that would validly be assessed in the pending proceedings u/s 147, and 6.1 Being so, the assessment in this case was to be completed u/s 153A of the Act and the AO was under a statutory obligation to consider entire material irrespective of the place from where it was found whether assessee’s own place or some other place. At this ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 13 of 41 point, it is appropriate draw support from judgement of jurisdictional High Court in the case of Canara Housing Development Company Vs. DCIT (274 CTR 122), wherein held as follows:- “10. Section 153A of the Act starts with a non obstante clause. The fetters imposed upon the Assessing Officer by the strict procedure to assume jurisdiction to reopen the assessment under Sections 147 and 148, have been removed by the non obstante clause with which sub- section (1) of Section 153A opens. The time-limit within which the notice under Section 148 can be issued, as provided in Section 149 has also been made inapplicable by the non obstante clause. Section 151 which requires sanction to be obtained by the Assessing Officer by issue of notice to reopen the assessment under Section 148 has also been excluded in a case covered by Section 153A. The time-limit prescribed for completion of an assessment or reassessment by Section 153 has also been done away with in a case covered by Section 153A. With all the stops having been pulled out, the Assessing Officer under Section 153A has been entrusted with the duty of bringing to tax the total income of an assessee whose case is covered by Section 153A, by even making reassessments without any fetters, if need be. Therefore, it is clear even if an assessment order is passed under Section 143(1) or 143(3) of the Act, the Assessing Officer is empowered to reopen those proceedings and reassess the total income taking note of the undisclosed income, if any, unearthed during the search. After such reopening of the assessment, the Assessing Officer is empowered to assess or reassess the total income of the aforesaid-years. The condition precedent for application of Section 153A is there should be a search under Section 132. Initiation of proceedings under Section 153A is not dependent on any undisclosed income being unearthed during such search. The proviso to the aforesaid section makes it clear the Assessing Officer shall assess or reassess Lhe total income in respect of each assessment year falling within such six assessment years. If any assessment proceedings are pending within the period of six assessment years referred to in the aforesaid sub-section on the date of initiation of the search under Section 132, the said proceeding shall abate. If such proceedings are already concluded by the Assessing Officer by initiation of proceedings under Section 153A, the legal effect is the assessment gets reopened. The block assessment roped in only the undisclosed income and the regular assessment proceedings were preserved; resulting in multiple assessments. Under Section 153A, however, the Assessing Officer has been given the power to assess or reassess the total income of the six assessment years in question in separate assessment orders. The Assessing Officer is empowered to reopen those proceedings and reassess the total, income, taking note of the undisclosed income, if any, unearthed during the search. He has been entrusted with the ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 14 of 41 duty of bringing to tax the total income of an assessee whose case is covered by Section 153A, by even making reassessments without any fetters. This means that there can be only one assessment order in respect of each of the six assessment years, in which both the disclosed and the undisclosed income would be brought to tax. When once the proceedings are initiated under Section 153A of the Act, the legal effect is even in case where the assessment order is passed it stands reopened. In the eye of law there is no order of assessment. Re-j opened means to deal with or begin with again. It means the Assessing Officer shall assess or reassess the total income of six assessment years. Once the assessment is reopened, the assessing authority can take note of the income disclosed in the earlier return, any undisclosed income found during search or and also any other income which is not disclosed in the earlier return or which is not unearthed during the search, in order to find out what is the "total income" of each year and then pass the assessment order. Therefore, the Commissioner by virtue of the power conferred under Section 263 of the Act gets no jurisdiction to initiate proceedings under the said provision because the condition precedent for initiating proceedings under Section 263 is any order passed under the Act by the Assessing officer is erroneous insofar as it is prejudicial to the interest of the revenue. Once the order passed by the Assessing officer gets reopened, there is no order which can be said to be erroneous insofar as it is prejudicial to the- interest of the revenue which confers jurisdiction on the Commissioner to exercise the power of the jurisdiction.” 6.2 Further, jurisdictional High Court in the case of Delhi International Airport Pvt. Ltd. In ITA No.322/2018 vide judgement dated 29.9.2021, wherein it was held as under:- “30. Thus, it is clear that the Assessing Office: while passing the order under Section 153A read with Section 143[3] of the Act, ordinarily cannot disturb the assessment/reassessment order which has attained finality, unless the materials gathered in the course of the proceedings establishes that. the finalized assessments are contrary to the material unearthed during the, course of 153A proceedings, as held by the Co- ordinate Bench of this Court in the case of IBC Knowledge Park (P) Ltd., supra. A concluded assessment could not be disturbed without there being any basis for doing so which is impermissible in law. Even in case of a searched person, the same reason would hold good. As observed in Canara Housing Development Company supra, the Assessing Officer is empowered to assess or reassess the total income of six assessment years i.e., the income which was returned in the earlier return, the income which was unearthed during search and also any income which was not disclosed in the earlier return or which was not unearthed during the search by separate assessment orders but in our considered view the completed assessments ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 15 of 41 should be subject to the safeguards provided in IBC Knowledge Park (P) Ltd. supra. "54. On a consideration of the relevant sections as well as judicial precedent referred to above, what emerges is that, Section 158BD of the Act deals with undisclosed income of a third party. However, insofar as the incriminating material of the searched person or other person detected during the course of search is concerned, the same can be considered during the course of assessment. Further, such incriminating material must relate to undisclosed income which would empower the Assessing Officer to upset or disturb a concluded assessment of the other person. Otherwise, a concluded assessment would be disturbed without there being any basis for doing so which is impermissible in law. Even in case of a searched person, the same reason would hold good as in case of any other person as observed by us, detection or the existence of incriminating material is a must for disturbing the assessment already made and concluded. But, at the same time, such can be at three stages: one, at the stage when. the re- assessment is initiated, the second, at the stage during the course of reassessment and third, at u stage where the reassessment is altered by a different assessment in respect of searched person or in respect of third party. In this regard, reference may be made to the decision of Apex Court in case of M/ s. Calcutta Knitwear (supra) and based on the said decision, the CJ3DT has also issued circular dated 31.12.2015 vide No.24/ 2015.The relevant extract of the circular for ready reference can be extracted as under: “.......................”” As regards the pending assessments are concerned only one assessment shall be made separately for each assessment year on the basis of the income unearthed during search and any other material existing or brought on the record of the Assessing Officer. Even in the absence of any incriminating material abated „Assessment or reassessment could be done. The returns filed under Section 139 of the Act gets replaced by the returns filed under Section. 15:3A[I] of the Act. Pending proceedings in appeal, revision/application shall not abate subsequent to initiation of Section 153A proceedings. Further, recording of satisfaction under Section 153A may not be necessary unlike Section 153C of the Act which mandates recording of satisfaction. For the reasons aforesaid, substantial question of law in ITA Ncs.322/2018 to 324/2018, 354/2018 and 355/2018, substantial question of law No.1 in ITA Nos.380/2018, 382/2018 to 385/2018 and 197/2021 to 199/2021 and substantial question of law Nos.1 and 2 in ITA No.381/2018 are answered in favour of the assessee and against the Revenue. Substantial question of Law No.2 in ITA Nos.380/2018, 383/2018 to 385/2018 is squarely covered by the ruling of the coordinate Bench of this ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 16 of 41 'Court in ITA No.352/2018 and connecter? matters (DI) 25.05.2021) wherein the said substantial question of law has been answered ir favour of the assessee and against the Revenue. Substantial question of law No.2 in ITA No.382/2018 and substantial question of law No.3 in ITA Nos.380/2018, 383/2018 to 385/2018 does not arise for our consideration since the same are not pressed by the Revenue. Appeals stand disposed of accordingly.” 6.3 The assessment can be made u/s 153A of the Act in respect of each of the six assessment years, in which both the disclosed and undisclosed income would be brought to tax. U/s 153A of the Act, assessing officer is empowered to reopen those proceedings and reassess the total income taking note of the undisclosed income, if any, unearthed during search. After such reopening of the assessment, the AO is empowered to assess or reassess the total income of the six years. The condition precedent for application of section 153A of the Act is there should be a search u/s 132 of the Act. Initiation of proceedings u/s 153A of the Act is not dependent on any undisclosed income being unearthed during search. The proviso to the aforesaid section makes it clear that AO shall asses or reassess the total income in respect of each assessment year falling within such six assessment years. If any assessment proceedings are pending within the period of six assessment years, referred to in sub-section of section 153A of the Act on the date of initiation of the search u/s 132 of the Act, the said proceedings shall abate. If such proceedings are already concluded by the AO, by initiation of proceedings u/s 153A of the Act, the legal effect is that assessment gets reopened. The block assessment roped in, only the undisclosed income, and the regular assessment proceedings were preserved; resulting in multiple assessments. U/s 153A of the Act, however, the AO has been given the power to assess or reassess the total income of the six assessment years in question in separate assessment ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 17 of 41 orders. When, once the proceedings are initiated under the section 153A of the Act, the legal effect is, even in case, where the assessment order is passed, it stands reopened. In the eye of law, there is no order of assessment. Reopen means to deal with or begin with again. It means the assessing officer shall assess or reassess the total income of six assessment years. Once the assessment is reopened, the assessing authority can take note of the income disclosed in the earlier return, any undisclosed income found during the search or/and also any other income which is not disclosed in the earlier return or which is not unearthed during the search, in order to find out what is the “total income” of each year, and then pass the fresh assessment order. 6.4 In the light of above, we will examine the facts of present cases. 2008-09:- 7. In this case, search was took place u/s 132 of the Act on 9.1.2013. The assessee has filed original return of income on 18.10.2008. There was a notice u/s 148 of the Act issued to the assessee consequent to which assessee has filed revised return on 18.10.2010 and this assessment has been completed u/s 147 r.w.s. 143(3) of the Act on 30.12.2011. Consequent to search action, the notice u/s 153A of the Act was issued on 11.3.2014. Now the contention of the Ld. A.R. is that there was no seized material relevant to this assessment year so as to reopen the concluded assessment and he relied on the judgement of Hon’ble Karnataka High Court in the case of Sri S.M. Kamal Pasha in ITA No.155 of 2017 dated 2.8.2022, wherein it was held as under:- “8. The Authority in Canara Housing relied upon by the ITAT has bee considered by this Court in Commissioner of Income-Tax, Bengaluru Vs. IBC ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 18 of 41 Knowledge Park Pvt. Ltd. and Principal Commissioner of Income Tax Vs. Delhi International Airport Pvt. Ltd. It has also been considered by the Delhi High Court in Commissioner of Incom e-T ax (C entral-III) Vs. Kabul Chaw la 7 . 9. In IBC Knowledge Park, it is held as follows: " 54. On a consideration of the relevant sections as well as judicial precedent referred to above, what emerges is that, Sect/ . Jr) .158BD of the Act deals with undisclosed income of a third party . . However,insofar as the incriminating material of the searched person or other person detected during the course of search is concerned the same can be considered during the course of assessment. Further, such incriminating material must relate to undisclosed income which would empower the Assessing Officer to upset or disturb a concluded assessment of the other person. Otherwise, a concluded assessment would be disturbed without there being any basis for doing so which is impermissible in law. Even in case of a searched person, the same reason would hold good as in case of any other person. As observed by us, detection or the existence of incriminating material is a must for disturbing the assessment already made and concluded. But, at the same time, such can be at three stages: one, at the stage when the re-as sessment is initiated, the second, at the stage during the course of re-ass essment and third. at a stage where the re-ass essm ent is altered by a different assessm ent in res pect of searched pe rson or in respect of third party. In this r egard, reference may be made to the decision of Apex C ourt in case of M/s . Calcutta Knitw ear (supra) and ta:. - ,ed on the said decision, the CBDT has als o issued circular dated 31.12.2015 vide No.24/2015 " 10. In Kabul Chawla, it is held as follow s: " 37. On a conspectus of Section i 53.4(1) of the Act, r ead w ith the provisos thereto, and in the light of the law explained in the aforem entioned decisions, the legal position that emerges emer ges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 19 of 41 i i i. T h e A O w i l l e x e r c i s e n o r m a l a s s e s s m e nt po w e r s i n r e s p e c t of t h e s i x y e a r s p r e v io u s t o t h e rel evant AY in w hich the search takes pla ce. T he AO has the pow er to asses s and reass ess the 'tota l incom e' of the afore mentioned s ix y ears in separ ate as sess m e nt or der s for ea ch of the s ix years. In other w ords ther e will be onl y one assessment order in respect of each of the six AYs “in which both the disclosed and :he undisclosed income would be brought to tax". iv. Although Section 153 A does riot say that additions should be strictly made on the basis of evidence. found in the course of the search, or other post-search material or information available with the AC which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously, an assessment has to be made under this Section only on the basis of seized material." v. In absence of' any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. v i . I n s o f a r a s p e n d i n g a s s e s s m e n t s a r e c o n c e r n e d , th e j u r i s d i c t i o n t o m a k e t h e o r i g i n a l a s s e s s m e n t a n d t he a s s e s s m e n t u n d e r S e c t i o n 153A merges into one. Only one assessment s hall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A 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 were rot produced or not already disclosed or made known in the course of original assessment." (Emphasis Supplied) vii i. In D elhi Int e rnat io nal Ai rp ort P vt . L t d. , this C our t, in ad diti on t o the a bo v e , ha s e x haus ti ve l y consi d er e d othe r aut ho rit ie s on t he poin t an d answ er ed t h e s ubs t ant ial qu es tio n of law i n fa vo ur of th e as s e ss e e and again st the R ev e nue . W e m ay r e c or d th at th e s ubs tant ial q u es tion of law r ais e d in IT A N o. 354 an d 355/2 01 8 s upra ( D elh i I nt er nat ional Air por t) r ea ds a s foll ows : " Wh e t he r o n t he fa c t s an d i n t he c i r c um s t a nc e s o f the c a s e a nd in law , t he T rib unal w as c or r e c t i n l aw i n ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 20 of 41 h ol di ng th at in cr im i nat in g ma te ri al is n e c es s ar y c o nd iti on f or pr oc e ed ings u nd e r S ec tion 15 3A of t h e Ac t b y fo llow ing th e ju dge m e nt of this C ou rt i n t he case of C IT V s. L an c y C on stru c tio ns ?” 12. The substantial question of law framed in this appeal and the one recorded hereinabove, are identical. 13. Having given our anxious consideration, we are in respectful agreement with the authorities in IBC Knowledge Park Pvt. Ltd., Kabul Chawla and Delhi International Airport Pvt. Ltd. In view of the above, the following: ORDER (a) Appeal is allowed. (b) The substantial question of law is answered in favour of the assessee and against the Revenue. (c) The order passed by the ITAT in ITA No.445/Bang/2015 dated 18.11.2016 is set aside and the order in ITA No.477/CIT(A)- V/2011-12 dated 30.7.2014 passed by CIT(A) is restored.” 7.1 In the light of above judgement, we examine the facts of the present case to see whether there is any seized material relevant to this assessment year. As seen from the assessment order itself, the AO recorded in assessment order at page 16 as follows:- “I fully agree with the views and assessment of the earlier assessing officer recording taxability of capital gains and trading income of M/s. Karnataka Cashew Corporation. But, I differ in allowing the loss from Great India Finance Corporation”. 7.2 Thus, it is clear that the AO while issuing notice u/s 153 of the Act have no seized material or incriminating material so as to reopen the concluded assessment before date of search action. Accordingly, as held by the jurisdictional High Court in the case of S.M. Kamal Pasha cited (supra), concluded assessment cannot be reopened without any seized material. Accordingly, assessment for the A.Y. 2008-09 is quashed. ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 21 of 41 2009-10:- 8. The assessee has filed return of income u/s 139 of the Act on 8.10.2010. Later, the assessment was reopened by issuing notice u/s 148 of the Act on 18.10.2010 and assessment u/s 147 r.w.s. 143(3) of the Act dated 30.12.2011 was completed. Consequent to search action u/s 132 of the Act on 9.1.2013, the notice u/s 153A of the Act was issued on 11.3.2014. As discussed in earlier assessment year 2008-09 herein also, there is no seized material whatsoever in the assessment year 2009-10. The facts of the present assessment year 2009-10 is similar to assessment year 2008-09. Accordingly, following the ratio laid down by Hon’ble Karnataka High Court in the case of S.M. Kamal Pasha cited (supra) for the assessment year 2009- 10 is quashed. Since we have quashed the assessment itself, we refrain from going into other grounds of appeal raised by the assessee in these two assessment years. 8.1 In the result, ITA Nos.323 & 324/Bang/2022 are allowed. ITA Nos.325 to 328/Bang/2022 for the AYs 2010-11 to 2013-14:- Legal Issue:- 9. The assessee though made substantial argument with regard to framing of assessment u/s 153A of the Act in these assessment years, in our opinion, there are seized material brought on record by AO, which were unearthed during the course of search action u/s 132 of the Act dated 9.1.2013 and these assessments are not concluded before the search action. The assessment reopened in these assessment years validly opened u/s 153A of the Act. Accordingly, the legal issue raised in these appeals are dismissed. ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 22 of 41 On merit:- Disallowance of loss claimed from M/s. Great India Finance Corporation: 10. The Ld. A.R. submitted in his written submissions that the assessing officer in the impugned orders of assessment passed under section 143[3] r.w.s. 153A of the Act for all the assessment years 2008-09 to 2010-11 has made an addition by disallowing the loss from the Assessee’s proprietary concern M/s Great India Finance Corporation which was formed on dissolving nine partnership firms wherein the Assessee was a partner. The learned assessing officer has held that the Reserve Bank of India had banned private firms from accepting and deposits or giving loans and hence all the firms of the Assessee were defunct from 1998-99. He has also held that the assessee is evading tax by adjusting the expense of paying interest in to the depositors from whom the deposits were accepted in the above mentioned financing concern against the personal income of the Assessee. The following are the details of disallowance made by the learned assessing officer which is tabulated in the chart below: Assessment Year Disallowance of Loss on Finance Corporation 2010-11 Rs.19,90,171/- 2011-12 Rs.18,78,414/- 2012-13 Rs.28,25,322/- 2013-14 Rs.14,48,901/- 10.1 In this regard the assessee submitted that the Assessee along with his wife had floated 9 firms namely:  M/s Great India Investment Corporation, Balmata; ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 23 of 41  M/s Souza Commercial Corporation, Puttur;  M/s Souza Investment Corporation, Balmatta;  M/s Great India Firm Corporation, Puttur;  M/s Great India Credit Corporation, Balmatta;  M/s Souza Finance Corporation, Kinnigoli;  M/s Souza Finance Corporation, Puttur;  M/s Great India Finance Corporation, Kinnigoli;  M/s Great India Trading & Finance Corporation. 10.2 These firms were formed because the Reserve Bank Of India allowed to accept deposit from 250 persons per firm. During, 1998- 99, the Reserve Bank of India introduced certain restrictions on acceptance of deposits and since the acceptance/renewal of deposits were stopped and repayment of deposits was started. Consequently, the said partnership firms were dissolved on and from 01/04/2007. As per the terms and conditions as per the deed of dissolution the assessee under the sole proprietary concern, M/s Great India Finance Corporation formed in A.Y 2008-09, continued the business of the dissolved firms. As per the directions of this Tribunal the assessee filed copies of the dissolution deed for disallowing the above 9 partnership firms. 10.3 Ld. A.R. further submitted that the Assessee was a Proprietor of a Finance Corporation named M/s. Great India Finance Corporation which was formed by dissolving many Partnership Firms wherein the Assessee was Partner. To elaborate, the earlier Partnership Firms were engaged in the business of money lending. Assessee being a Partner of such firms was obligated to repay the deposits accepted from the Investors. The relevant clauses from the deed of dissolution was reproduced hereunder by the Ld. A.R. for our reference: ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 24 of 41 “2. That the business of the firm henceforth shall be continued by the Continuing Partner namely, Mr. Wilfred D’souza as Sole proprietor under the name & style M/s. GREAT INDIA FINANCE CORPORATION at Oriental Cashew Industries Premises, Chikkamudnoor Post, Kemmai, Puttur, D.K. 574203 on and from the 1 st day of April 2007, who shall be entitled to all assets, goodwill and all profits and benefits and remain solely responsible for its past and future liabilities and losses if any. 3. ....................... 4. ....................... 5. ....................... 6. The Retiring Partner hereby confirm that she do not and shall not have any manner or right, title or interest whatsoever in or upon the Continuing Partner or in or upon the assets and liabilities so taken over by the Continuing Partner except the amount referred in clause 3 above. 7. That the assets and liabilities of the Partnership firm including the good-will of the firm, all licences, permits, books of accounts, documents, and papers etc., of the Partnership business shall belong to the Continuing Partner and he shall continue the business of the said firm as going concern with full and irrevocable authority to collet all the outstanding assets of the Partnership and ask for, demand, to institute suits and continue the existing suits for recovery of monies due to the firm in courts of Law, defend proceedings, enforce the decree, recover and receive all assets and outstanding debts and give valid and effectual receipts and discharge and to settle all accounts, compromise any dispute or differences, either in his name or firm’s name and the Retiring Partner shall not have any right thereto. 8. The Continuing Partner who has taken over the business of the firm with all assets and liabilities shall be liable for all dues, levies and taxes of the Government Bodies including firm’s Sales Tax, Profession Tax and Income Tax liability if any whether past, present or future and the Retiring Partner is not liable for any of the liabilities whatsoever whether past or present or future.” 10.4 Thus, he submitted that as could be seen from the relevant extract of the deed of dissolution of one firm among 9 disallowed firms which is reproduced above, it is very clear that the assessee has ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 25 of 41 taken over all the assets and liabilities and is continuing the business of the disallowed firm as a going concern. The Assessee submitted that when the Partnership Firms were dissolved, as a Partner and further as a matter of contractual obligation, the Assessee was liable to repay the Investors. Wherefore, he took over such deposits from the Firms and disclosed the same as his liability in his Financial Statements. The above mentioned facts are not disputed by the assessing officer either in the order of assessment nor in the Remand Report or by the learned CIT[A]. It is also a fact that the learned assessing officer in the earlier concluded assessments under section 143[3] r.w.s. 147 of the Act for the assessment years 2008-09 & 2009-10 having examined this issue has infact allowed the claim of interest expenditure in the hands of the assessee. 10.5 The Ld. A.R. further submitted that the assessing officer in the impugned order of assessments passed under section 143[3] r.w.s. 153A of the Act for the Assessment Years 2008-09 & 2009-10 has clearly stated that “I fully agree with the views of assessment of earlier Assessing Officer regarding taxability of capital gains and trading income of M/s. Karnataka Cashew Corporation. But I defer in allowing the loss from M/s. Great India Finance Corporation.” Thus, it is very clear that the very same issue as regard to the allowability of the loss from M/s. Great India Finance Corporation was examined by the then learned assessing officer and the same was allowed in the original assessment proceedings for the assessment years 2008-09 & 2009-10. Thus, in the proceedings under section 153A of the Act the learned assessing officer has taken a diametrically opposite view which in the opinion of the assessee would amount to change of opinion and consequently without any incriminating materials no addition is permissible on a change of opinion. ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 26 of 41 10.6. The Ld. A.R. submitted that the Assessee has incurred expenditure in M/s Great India Finance Corporation to meet the business obligations undertaken by him on dissolution, which if not met would lead to consequences and hence it is business expenditure itself. The Assessee has arrived at the taxable income by considering the profits and losses of all the businesses and professions under him and hence the aforementioned expenses are claimed by the Assessee in his return of income. 10.7 The Reserve Bank has not banned the money lending activity as a whole. Only a few restrictions were introduced on acceptance of deposits from public. Thus, the observation of the learned CIT[A] that the said interest expenditure is hit by explanation to section 37[1] of the Act is not correct and misconceived. 10.8 Ld. A.R. submitted that the learned assessing officer failed to appreciate the contractual obligations existed on the Assessee. Interest is a compulsory expenditure to be incurred and paid to the investors and hence qualifies as a business expenditure under the facts and circumstances of the case. The Loans and Advances appearing in the Financial Statements of the Assessee have been accepted by the Assessing Officer in the order of assessment. The interest has been paid by the assessee to the creditors through proper banking channels. 10.9 Ld. A.R. placed reliance on the decision of this Tribunal of Ahmedabad in the case of Soham Securities Vs. ITO in ITA No. 2208/Ahd/2015 dated 02-11-2018 wherein the Tribunal held that: “Assessee has been carrying on the business of money lending in a systematic manner without having the registration with RBI as NBFC. Merely, the fact that assessee was not registered with RBI as NBFC, could not lead to draw an inference that ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 27 of 41 assessee was not carrying out business activity. The registration with RBI as NBFC and business activity of the assessee, both were different aspects and could not be applied for holding that the assessee was not engaged in the business activity. Thus, the interest income of assessee should have been treated as income from business and profession.” 10.10 Applying the parity to the instant case, the interest expenditure has to be treated as Business Expenditure and allowed. Ld. A.R. submitted that the interest expenditure is deductible both under the provisions of Section 37 and Section 36[1][iii] of the Act due to the commercial expediency of the same. The Assessee is following cash system of accounting and hence any interest paid has to be allowed as a deduction. 10.11 Ld. A.R. further placed reliance on the decision of the Hon’ble Madras High Court in the case of CIT Vs. Shriram Investments reported in [2020] 422 ITR 528 [Mad]. He submitted that an expenditure may not be incurred under any legal obligation but it is allowable as business expenditure if it is incurred on ground of commercial expediency. He placed reliance on the decision of Addidas India Marketing [P] Limited Vs. AO, 10 Taxmann.com 18. 10.12 The Ld. A.R. for the assessee also stated that the Assessing Officer who completed the Assessment under section 147 r.w.s 143[3] of the Act had allowed all the expenses of M/s Great India Finance Corporation for the A.Y’s. 2008-09 & 2009-10 but while concluding assessment under section 153A of the Act, the learned Assessing Officer has disallowed the same. Subsequently the same has been followed in the other years. This clearly shows that the disallowance is merely on the basis of change of opinion and not tenable under law. ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 28 of 41 10.13 Without prejudice, regarding the past years as submitted for the assessment years 2008-09 & 2009-10, Ld. A.R. submitted that the Assessee’s claim for interest deductions were not in dispute. Hence, the interest on opening balance of capital standing to the credit cannot be disallowed in the impugned assessment year. He placed reliance on the parity of reasoning of the decision of the Hon’ble Jurisdictional High Court in the case of CIT Vs. Sridev Enterprises reported in 192 ITR 165. 10.14 Ld. A.R. for the assessee further contended that the above additions on account of disallowance is not based on incriminating materials and it is only a routine disallowance made by the learned assessing officer, which is not permissible in the proceedings under section 153A of the Act. As could be seen from the impugned order of assessments passed by the learned assessing officer under section 153 A r.w.s. 143[3] of the Act, the said impugned assessment have been concluded by the learned assessing officer not based on any incriminating documents or materials seized during the course of search and as such there are no additions to the effect of any undisclosed income based on any alleged seized documents or materials. 10.15 In view of the above submissions, the Ld. A.R. for the assessee humbly prayed before us to allow the claim of loss by the assessee from M/s. Great India Finance Corporation, for the all the above mentioned assessment years i.e. from 2008-09 to 2013-14, for the advancement of substantial cause of justice. 10.16 Ld. A.R. lastly submitted that in the light of the above facts and circumstances of the case and also considering the ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 29 of 41 submissions made by the assessee, he requested to allow the appeal of the Assessee and justice may be rendered or to pass any such orders as deemed fit and proper for the advancement of substantial cause of justice. 11. Regarding disallowance of expenses incurred by the assessee’s proprietary concern M/s. Great India Finance Corporation and their consequent carry forward for 8 years, the Ld. D.R. submitted that this issue has been addressed by the AO in para 4 of the assessment order which is reproduced as under:- “5. Income from M/s Great India Finance Corporation The assessee, his wife and certain employees had floated nine finance firms by way of partnership viz., a) M/s Great India Investment Corporation, Balmatta b) M/s Souza Commercial Corporation, Puttur c) M/s Souza Investment Corporation, Balmatta d) M/s Great India Firm Corporation, Puttur e) M/s Great India Credit Corporation, Balmatta f) M/s Souza Finance Corporation, Kinnigoli g) M/s Souza Finance Corporation, Puttur h) M/s Great India Finance Corporation, Kinnigoli i) M/s Great India Trading & Finance Corporation These firms had different branches also. Until FY 2006-07, they were maintaining separate identity as partnership firms. The assessee has resorted to an unconventional method to evade tax by dissolving all these firms with effect from 01.04.2007 and voluntarily accepting all the liabilities like payment of the name of M/s. Great India Finance, a proprietary concern from 01.04.2007. It may be noted that with effect from 1998-99, Reserve Bank of India had banned private firms from accepting deposits or giving loans. Hence these firms were defunct since then. The only function carried out was payment of interest. As cash system was followed, the assessee clamed interest payment even while the persons who have taken loan did not give any interest. Thus huge loss was being claimed by these firms. Now by converting these firms and taking up the liability, the assessee is evading tax by accounting for interest on payment to the depositors of the finance firm while his own proprietor ship concern that is M/s. Karnataka Cashew Corporation and his another firm. M/s. Souza Cashew Corporation were not releasing any interest to the finance firm. Since the liability of the finance firm was voluntarily taken up by the ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 30 of 41 assessee. any loss arising out of the finance cannot be c44u.sted against this regular income from M/s. Karnataka Cashew Corporation. Else, this arrangement will be used as a tool to evade tax i.e. while the finance firm accounts for interest and claim loss, the other business and firms which are due to pay interest never accounts for the same under the pretext of cash system of accounting and thus huge loss is created in the name of finance company. This cannot be adjusted against the personal income of the assessee. Any excess payment for interest over and above that received from the persons or firms who have taken loan should be from the income of the assessee after taxation and it cannot be allowed as a loss adjustable from the regular income of the assessee. Hence all claims of loss from the finance business M/s. Great India Finance Corporation Rs. I4,48,901/- is proposed to be rejected.” 11.1 Ld. D.R. submitted that findings made in the assessment order are well reasoned. It is also seen that Section 37 of the Act under which this expenditure could have been allowed reads as under:- "37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or professions shall be allowed in computing the income chargeable under the head "Profits and gain of business or profession". 11.2 Conditions inherent for any expenditure to become allowable u/s 37 of the Act therefore are that it should be; • Not capital expenditure • Not personal expenses • Laid out or expended wholly and exclusively for the purpose of the business • Expenses for any purpose which is an offence or prohibited by law not eligible ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 31 of 41 • Expenditure incurred on advertisement in any souvenir, brochure, tract, pamphlet etc. published by a political party not eligible 11.3 Ld. D.R. submitted that Hon'ble Apex Court in the case of CIT Vs Indian Mollasses Co. (P) Ltd. (SC) 78 ITR 474 and in the case of J.K. Cotton Mfrs. Ltd. Vs CIT(SC) 101 ITR 221 has held that Sec. 37 will only apply for an expenditure (a) paid out wholly and exclusively for the purpose of the business or profession, and further (b) must not be: (i) capital expenditure; (ii) personal expense; or (iii) an allowance of the character described in sec. 30 to 36. In the instant case the expenditure claimed by the assessee can, by no stretch of imagination, be held as made wholly and exclusively for his business which consists of processing of cashews. The expenditure made in paying interest on the loans taken by another firm, which dealt in giving loans to people and could not lawfully continue its activity on account of RBI regulations, in which the assessee was earlier a partner and whose liability the assessee volunteered to take over is clearly not an expenditure made for the purpose of business of the assessee and cannot therefore be allowed. This is supported by the following judicial pronouncements: - • Every loss is not so deductible unless it is incurred in carrying out the operation of the business and is incidental to the operation. CIT Vs Nainital Bank Ltd. (SC) 55 ITR 707; CITVs Textool Co. Ltd. (Mad) 135 ITR 200. • Taxing authorities have right to consider whether expenditure was excessive. Lakshminarayan Madan Lal Vs CIT(SC) 86 ITR 439; Swadeshi Cotton Mills ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 32 of 41 Co. Ltd. Vs CIT(SC) 63 1TR 57; Lakshmiratan Cotton Mills Co. Ltd. Vs CIT(SC) 73 ITR 634. • Income tax authorities can examine reasonableness and genuineness of any payment like royalty even if such payment was made after obtaining permission from RBI CITVs Nestle India Ltd. (Del) 199 Taxman (Mag) 321. • The doctrine that the businessman is the best judge of business expediency does not affect the right, any duty, of the assessing authorities to know whether it was incurred for business purposes and not for other extraneous consideration Jaipur Electro (P.) Ltd. Vs CIT(Raj) 134 CTR 237. • The adverb 'wholly' in the phrase 'laid out or expended ....for business' refers to the quantum of expenditure — The adverb 'exclusively' has reference to the object or motive of the act behind the expenditure. Unless such motive is solely for promoting the business, the expenditure will not qualify for deduction CITVs T.S. HajeeMoosa& Co. (Mad) 153 ITR 422; Mysore Kirloskar Ltd. Vs CIT(Kar) 166 ITR 836; Siddho Mal & Sons Vs ITO (Del) 122 ITR 839. • Burden on assessee to prove that expenses were laid out wholly and exclusively for purposes of business. The words "Expenditure incurred" used in 37 relates to expenditure incurred wholly and exclusively for purposes of business. Goodlas Nerolac Paints Ltd. Vs ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 33 of 41 CIT(Bom) 137 ITR 58; Assam Pesticides &Agro Chemicals Vs CIT(Gau) 227 ITR 846. • The mere fact that payment has been made under contract or agreement is not conclusive that the expenditure is incurred wholly and exclusively for the purpose of business Jayshree Tea & Industries Ltd. Vs CIT(Cal) 272 ITR 193 CITVs Premier Breweries Ltd. (Ker) 279 ITR 51. • Transfer of shares of assessee company — Loss incurred due to personal settlement between directors of assessee company and rival factions — Business interest of assessee company not involved in such sale — Not Business loss CITVs Sharath Investments P. Ltd. (Kar) 317 ITR 294. • Chit loss not allowable as business expenditure since it was not a part of the business of the assessee. Soda Silicate and Chemical Works Vs CJT(P&H) 179 ITR 588. • Expenditure on products manufactured and marketed by subsidiary company not allowable as deduction since no nexus with assessee's business Acqua Minerals (P) Ltd. Vs DCIT(ITAT, Ahd) 96 ITD 417. • Furnishing guarantee is not in assessee's line of business though he is in money-lending business — No consideration received for giving guarantee — Loss incurred on transaction of miarantee not ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 34 of 41 allowable as had debt or business loss. CITVs T.N. Krishnaswami (Mad) 150 ITR 365; Brij Mohan Laxmi Narain Vs CIT(Punj) 36 ITR 147. • Guaranteeing of loan of selling agent was not a part of assessee’s business – No privity of contract between selling and assessee existed – Assessee under no legal obligation to finance selling agent of its managed company – Guarantee not in the interest nor in the course of business – Loss arising out of same is not deductible. CIT Vs. Birla Bros P. Ltd. (SC) 77 ITR 751. • Assessee received sum from its client for investment in securities – Assessee advanced it to brokers who misappropriated it – Assessee refunded money to its client – Not operational loss of assessee. ABN Amro Bank N.V. Vs. ADIT (ITAT, Kol-TM) 97 ITD 1. • Agreement by assessee company with its directors providing for payment to each of them @ 1.66% of its total collection for a period of 25 years — For services rendered by directors, they were paid salary separately. Hence these payments were not for the purpose of business — Not allowable as deduction I.D.O.R.I. (P.) Ltd': Vs Deputy Commissioner of Income-tax (ITAT, Pune) 112 ITD 149. • Assessee engaged in manufacture of spice extracts — Taking land on lease and cultivating white chillies to encourage better farming practices among local farmers — Expenditure incurred thereon not deductible from business income Kancor ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 35 of 41 Flavours & Extracts Ltd. Vs Deputy Commissioner of Income-tax (ITAT, Cochin) 123 ITD 97. • Company — Misappropriation by Director —No material to show company was unaware of misappropriation or had taken steps to recover amount – Not allowable as business exp. Yoosuf Sagar Abdulla & Sons (P) Ltd. Vs CIT(Ker) 185 ITR 371; CITVs Ashwani Kumar Liladhar (All) 225 ITR 576. • A profit-making company advances huge amount of money as subsidy to its loss-making subsidiary — Not allowable as BUSINESS INCOME 305 business expenditure — Even if it had stood guarantor or had furnished undertaking or assurance to the financial institutions for securing the loan raised by the sister company, it is not eligible as business deduction Hero Cycles Ltd. Vs CIT2011-TIOL-194-HC-P&H- IT. • Guarantee commission paid to Chairman of company — Though Chairman stood as a guarantor in his personal capacity, banks had lent money not on the personal guarantor but on assets of company which were offered as security —Further assessee and its group companies borrowed sum of Rs. 115 crores whereas net wealth of Chairman was hardly Rs. 70 lakhs — Guarantee commission paid to chairman is not wholly and exclusively for the purpose of business of assessee company CIT Vs. United Breweries Ltd. (Kar) 204 Taxman 244. • Where no business was undertaken by assessee during year but it had claimed business expenses to the tune of Rs. 1.78 crores, allowing such expenditure was not permissible. ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 36 of 41 Principal Commissioner of Income Tax, Panaji v. Zwari Maroc Phosphates Ltd, Tax Appeal No. 42 of 2016. 11.4 Ld. D.R. submitted that looking at the expenditure claimed from another angle, it is clear that the expenditure was incurred towards an activity of giving loans to people which, as per RBI guidelines were prohibited by law to be carried out by the assessee. This will need to be viewed in light of explanation to section 37 (1): - “The Explanation added by the Parliament to sub-section (1) of section 37 vide Finance (No. 2) Act, 1998 with retrospective effect from 1-4- 1962 reads as under: Explanation 1. - For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.” 11.5 Ld. D.R. stated that an Explanation to a section of the Act at times is appended to explain the meaning of words contained in the said section; the meaning to be given to an Explanation depends upon it's terms; if the language of the explanation shows a purpose, a construction consistent with that purpose has to be placed upon it vide Bengal Immunity Co. Ltd. v. State of Bihar [1955] 2 SCR 603 the language in which the above Explanation is couched leaves no manner of doubt that any expenditure which an assessee incurs for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the and no deduction or allowance shall be admissible in respect of such expenditure; the object of this Explanation is to discourage the businesses and professions that are tainted with illegality. Therefore, the expenditure incurred for paying the interest for the business of advancing loans could not have been deducted, as being the expenditure for the business in question. ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 37 of 41 She submitted that this view is supported by the decision of the Hon'ble Apex Court in Maddi Venkataraman & Co. (P.) Ltd. v. CIT 119981 96 Taxman 643/229 ITR 534. Further, in the case of Principal Commissioner of Income-tax (Central), Bengaluru v. M. Abdul Zahid 120211 133 taxmann.com 72 (Karnataka). Hon ’ ble HIGH COURT OF KARNATAKA held that since 'object of Explanation 1 to section 37(1) is to discourage businesses and professions that are tainted with illegality, no deduction or allowance shall be admissible in respect of expenditure incurred for business being carried out illegally. 11.6 Ld. D.R. stated that in view of the aforesaid, expenses claimed by the assessee towards meeting the liability of M/s Great India Finance may not be allowed. Since, expenditure itself cannot be allowed; no question subsists on the issue of the attendant loss on account of this expenditure being allowed to be carried forward. 12. We have heard the rival submissions and perused the materials available on record. The assessee in these assessment years claimed expenditure on account of payment of interest and collection of dues incurred by following companies:- a) M/s. Great India Investment Corporation, Balmatta b) M/s. Souza Commercial Corporation, Puttur c) M/s. Souza Investment Corporation, Balmatta d) M/s. Great India Firm Corporation, Puttur e) M/s. Great India Credit Corporation, Balmatta f) M/s. Souza Finance Corporation, Kinnigoli g) M/s. Souza Finance Corporation, Puttur h) M/s. Great India Finance Corporation, Kinnigoli i) M/s. Great India Trading & Finance Corporation 12.1. This has been disallowed by the AO on the reason that the assessee has used these concerns as a tool to evade tax and he cannot claim the loss incurred by these concerns as the expenditure ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 38 of 41 to earn business income of the assessee. The lower authorities are of the opinion that in excess payment of interest over and above received from the persons or firms who have taken loans should be from the income of the assessee after taxation and it cannot be allowed as a loans adjustable from the regular income of the assessee. Accordingly, the claim of loss from those concerns has been disallowed by the AO dated 1 st April, 2007. 12.2. We have carefully gone through the Deed of Resolution in the case of this assessee. All the dissolution deeds in all these cases are common in nature. For clarity as brought to our notice, we reproduce the relevant clauses of the Deed:- (iv) It is submitted that the Appellant was a Proprietor of a Finance Corporation named M/s. Great India Finance Corporation which was formed by dissolving many Partnership Firms wherein the Appellant was Partner. To elaborate, the earlier Partnership Firms were engaged in the business of money lending. Appellant being a Partner of such firms was obligated to repay the deposits accepted from the Investors. The relevant clauses from the deed of dissolution is reproduced hereunder for your Honours immediate reference: " 2. Th at th e busi n ess of the f ir m h e n ce for th s hal l b e co nti nu e d b y t h e C onti nuin g P ar tn er na me ly , Mr . Wilf r ed D 's ouz a as Sol e pr opr i eto r u nde r t he n am e Et s ty l e M/s . G R EA T IN D I A FIN AN C E C O RP O RAT IO N at Or i ent al C as h ew In dus tr i e s Pr em is e s, C hi k kam u dn oor P os t , K e m m ai, Puttu r, D. K. 5 7420 3 on a nd f r om the 1 " day of A pril 2007 , w ho s hall b e e nti tl ed to all a ss e ts , goo dw i ll an d all pro fit s an d ben e fit s and remain solely responsible for its past and future liabilities and losses if any. 3. ................... 4. ................... 5. .................... 6. The Retiring Partner hereby confirm that she do not and shall not have any manner or right, title or interest whatsoever in or upon the Continuing Partner or in or upon ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 39 of 41 the assets and liabilities so taken over by the Continuing Partner except the amount referred in clause 3 above. 7. That the assets and liabilities of the Partnership firm including the good-will of the firm, all licences, permits, books of accounts, documents, and papers etc., of the Partnership business shall belong to the Continuing Partner and he shall continue the business of the said firm as going concern with full and irrevocable authority to collet all the outstanding assets of the Partnership and ask for, demand, to institute suits and continue the existing suits for recovery of monies due to the firm in courts of Law, defend proceedings, enforce the decree, recover and receive all assets and outstanding debts and give valid and effectual receipts and discharge and to settle all accounts, compromise any dispute or differences, either in his name or firm's name and the Retiring Partner shall not have any right thereto. 8. The Continuing Partner who has taken over the business of the firm with all assets and liabilities shall be liable for all dues, levies and taxes of the Government Bodies including firm's Sales Tax, Profession Tax and income Tax liability if any whether past, present or future and the Retiring Partner is not liable for any of the liabilities whatsoever whether past or present or future." [v] Thus, as could be seen from the relevant extract of the deed of dissolution of one firm among 9 disallowed firms which is reproduced above, it is very clear that the appellant has taken over all the assets and liabilities and is continuing the business of the disallowed firm as a going concern. The Appellant submits that when the Partnership Firms were dissolved, as a Partner and further as a matter of contractual obligation, the Appellant was liable to repay the investors. Wherefore, he took over such deposits from th e F ir m s an d d i s c l os e d t he s am e a s hi s l i ab i l it y i n h i s F i na nc i a l S t ate m e nt s . T he ab o v e m e nt i o ne d f ac t s ar e n ot di s pu t e d by th e as s e s s i n g of f i c e r e i the r i n t he or de r of a s s e s s m e n t n or i n the R e m a nd R e p o r t o r by t he l ea r ne d C IT [A ] . I t i s a l s o a fa c t t ha t t he l e a r n e d as s e s s i ng o ff i c e r i n t h e e a r l i e r c o nc l u de d a s s e s s m e nt s u n de r s e c t io n 14 3[ 3] r . w . s . 14 7 of t h e A c t f or t he a s s es s m e n t y e a r s 2 00 8-0 9 E t 2 00 9- 1 0 h av i n g e x a m i ne d t hi s i s s u e ha s i n f a c t a l l ow e d t h e c l a im o f i n t e r e s t e x pe n d i tu r e i n t he h an ds o f th e ap p el l a n t, w hi c h f ac t r e qu i r e s to b e c on s i d e r e d an d a pp r e c i at ed b y t hi s H o n 'b le T r i bu n al .” ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 40 of 41 12.3 Hence, as seen from the above, those concerns not remained as partnership firms and they ceased to be partnership firms. The other partner Mrs. Nora D’Souza was retired from the firms as below:- Sl.No. Name of Firm Date of retirement by Mrs. Nora D’Souza 1 M/s. Great India Investment Corporation, Balmatta 01.04.2007 2 M/s. Souza Commercial Corporation, Puttur 01.04.2007 3 M/s. Souza Investment Corporation, Balmatta 01.04.2007 4 M/s. Great India Firm Corporation, Puttur 01.04.2007 5 M/s. Great India Credit Corporation, Balmatta 01.04.2007 6 M/s. Souza Finance Corporation, Kinnigoli 01.04.2007 7 M/s. Souza Finance Corporation, Puttur 01.04.2007 8 M/s. Great India Finance Corporation, Kinnigoli 01.04.2007 9 M/s. Great India Trading & Finance Corporation 01.04.2007 12.4 Once the other partner of the firm is retired, the firm has been converted into sole proprietorship concern and the present assessee Mr. Wilfred D’Souza has become the proprietor of that firm and all the loss incurred by these concerns are the loss of Mr. Wilfred D’Souza as a sole proprietor of that concern. Once he becomes the sole proprietor of that concern, all the income of the assessee is to be assessed as relating to one individual. Once the assessee has been assessed as one individual in respect of source of all income including business income of assessee, the profit or loss has to be clubbed together and not income to be arrived at. Once the net income is arrived at, all the loss incurred by the assessee has to be allowed in accordance with the strict commercial principles. In view of this, we are of the opinion that the claim of assessee with regard to loss incurred by above 9 concerns in these assessment years is to be allowed and the total income of the assessee has to be computed. Accordingly, the grounds raised by the assessee with regard to loss from Great India Finance Corporation are allowed. ITA Nos.323 to 328/Bang/2022 Wilfred D’Souza, Mangaluru Page 41 of 41 13. In the result, ITA Nos.323 & 324/Bang/2022 are allowed and the appeals filed by the assessee in ITA Nos.325 to 328/Bang/2022 are partly allowed. Order pronounced in the open court on 7 th Oct, 2022 Sd/- (Beena Pillai) Judicial Member Sd/- (Chandra Poojari) Accountant Member Bangalore, Dated 7 th Oct, 2022. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore.