HIREN N. PATEL, MUMBAI V. ACIT CEN CIR-10, MUMBAI

ITA 40/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8692 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 09-10-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 04-01-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K C P PATNAIK
• Assessee Lawyers: V G GINDE
• Keywords: Search and seizure; Validity of assessment
• Section: 153A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H , MUMBAI BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. 39/MUM/2010 ASSESSMENT YEAR : 2004-05 ITA NO. 40/MUM/2010 ASSESSMENT YEAR : 2005-06 ITA NO. 41/MUM /2010 ASSESSMENT YEAR : 2006-07 HIREN N. PATEL 43/11, RAJABAHADUR BLDG. 2 ND FLOOR, TAMRIND LANE, FORT MUMBAI-400 001. PAN NO. AAFPP 1153 Q ASSTT. COMMISSIONER OF INCOME TAX , CENTRAL CIRCLE-10 8 TH FLOOR, OLD CGO ANNEXE M.K. ROAD MUMBAI. (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI V.G. GINDE RESPONDENT BY : SHRI K.C.P. PATNAIK DATE OF HEARING : 9.10.2012 DATE OF PRONOUNCEMENT : 12.10.2012 O R D E R PER RAJENDRA SINGH, AM: THESE APPEALS OF THE ASSESSEE ARE DIRECTED AGAINST THE COMMO N ORDER DATED 23.10.2009 OF CIT(A) FOR THE ASSESSMENT YEA RS 2004-05 TO 2006-07. THE DISPUTES RAISED IN THESE APPEALS RELATE TO DISALLOWANCE OF INTEREST. THE ASSESSEE HAS ALSO RAISED ADDITIONAL GROUND S CHALLENGING THE JURISDICTION TO MAKE ASSESSMENT UNDER SECT ION 153A OF ITA NO.39,40 & 41//10 A.Y.04-05, 05-06 & 06-07 2 THE INCOME TAX ACT, 1961 (THE ACT) AND THE LEGAL VALID ITY OF DISALLOWANCE OF INTEREST UNDER THE SAID SECTION. 2. WE FIRST TAKE UP THE ADDITIONAL GROUND TAKEN BY T HE ASSESSEE FOR ALL ASSESSMENT YEARS AS THIS IS THE BASIC GROUND HAVING BEAR ING ON LEGAL VALIDITY OF ASSESSMENT ITSELF. THE ADDITIONAL GROU NDS BEING LEGAL WHICH COULD BE ADJUDICATED ON THE BASIS OF FACTS AVAILABLE ON RECORD WERE ADMITTED AFTER HEARING BOTH THE PARTIES. THE FA CTS IN BRIEF ARE THAT A SEARCH AND SEIZURE OPERATION HAD BEEN CONDUCTED IN CASE OF THE ASSESSEE ON 4.10.2006 SUBSEQUENT TO WHICH NOTICES UNDER SECTIO N 153A HAD BEEN ISSUED TO THE ASSESSEE ON 16.3.2007 FOR A LL THE ASSESSMENT YEARS. UNDER THE PROVISIONS OF SECTION 153A, THE AO IS EMPOWERED TO ASSESS OR RE-ASSESS TOTAL INCOME FOR SIX ASSESSMENT YEARS PRECEDING YEAR OF ASSESSMENT IN WHICH THE SEARCH HAD T AKEN PLACE. THERE HAS TO BE ONLY ONE ASSESSMENT ORDER IN RESPE CT OF SIX ASSESSMENT YEARS. FURTHER, AS PER THE SECTION, THE ASSESSMENT PROCEEDINGS WHICH ARE PENDING ON THE DATE OF SEARCH GET ABATED AND AO HAS TO COMPLETE THE ASSESSMENT ON THE TOTAL INCOME INCLU DING DISCLOSED AND UNDISCLOSED. HOWEVER IN CASE ASSESSMENT PROCEEDING S HAVE ALREADY BEEN COMPLETED OR ATTAINED FINALITY, TH ERE WILL BE NO CASE FOR ABATEMENT BUT AO WILL BE IN POWER TO ASSESS OR RE-A SSESS INCOME IN RESPECT OF THESE YEARS ALSO. ITA NO.39,40 & 41//10 A.Y.04-05, 05-06 & 06-07 3 2.1 THE LD. AR FOR THE ASSESSEE SUBMITTED THAT DURING TH E COURSE OF SEARCH NO INCRIMINATING MATERIAL HAD BEEN FOUND AND TH EREFORE, AO HAD NO JURISDICTION TO MAKE ANY ADDITION UNDER SECTION 153A OF THE ACT. IT WAS ALSO SUBMITTED THAT THE SAME ISSUE HAD ALREAD Y BEEN CONSIDERED AND DECIDED BY THE SPECIAL BENCH OF THE TRIBU NAL IN THE CASE OF M/S. ALL CARGO GLOBAL LOGISTICS LTD. VS. DCIT IN ITA NO.5108 TO 5022 AND 5059/M/2010 ORDER DATED 6.7.2010 IN WHICH T HE TRIBUNAL HAS HELD THAT IN THE CASE WHERE ASSESSMENT HAD GOT ABATED, AO RETAINS ORIGINAL JURISDICTION AS WELL AS JURISDICTION CONF ERRED ON HIM UNDER SECTION 153A TO ASSESS/RE-ASSESS TOTAL INCOME AND IN OT HER CASES ASSESSMENT UNDER SECTION 153A HAD TO BE MADE ON THE B ASIS OF ONLY INCRIMINATING MATERIAL. IT WAS ALSO SUBMITTED THA T THIS ISSUE WAS COVERED BY THE DECISION OF THE TRIBUNAL IN THE CASE OF SHRI ATITHI N. PATEL (ITA NO.43/M/2010) THE BROTHER OF THE ASSESSEE IN WHICH FACTS WERE IDENTICAL. THE LD. DEPARTMENTAL REPRESENTATIVE FAIRLY CONCEDED THAT THE ISSUE WAS COVERED. 2.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATER CAREFULLY. THE DISPUTE IS REGARDING JURISDICTION OF AO U NDER SECTION 153A AND LEGAL VALIDITY OF ADDITION MADE IN THE ASSESSM ENT UNDER SECTION 153A. WE FIND THAT THIS LEGAL ISSUE HAD BEEN CON SIDERED BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF M/S. ALL CA RGO GLOBAL LOGISTICS LTD. VS. DCIT (SUPRA), IN WHICH THE TRIBUNAL HELD THAT IN CASE ITA NO.39,40 & 41//10 A.Y.04-05, 05-06 & 06-07 4 WHERE ASSESSMENT GOT ABATED, THE AO RETAINS ORIGINAL JU RISDICTION AS WELL AS JURISDICTION CONFERRED UNDER SECTION 153A AND ASSESSMENT HAD TO BE MADE ACCORDINGLY. IT HAS ALSO BEEN HELD THAT IN O THER CASES IN WHICH ASSESSMENTS WERE NOT ABATED AND HAD ATTAINED FINAL ITY, THE ASSESSMENT/RE-ASSESSMENT HAS TO BE MADE ON THE BASIS OF INCRIMINATING MATERIAL WHICH WOULD MEAN (I) BOOKS OF ACCOUNT AND OTHER DOCUMENTS FOUND IN THE COURSE OF SEARCH BUT NOT PRO DUCED IN THE COURSE OF ORIGINAL ASSESSMENT. (II) UNDISCLOSED INCOME OR P ROPERTY DISCOVERED IN THE COURSE OF SEARCH. 2.3 IN THE CASE, OF THE ASSESSEE NO ASSESSMENT UNDER SECTION 14 3(3) HAD BEEN MADE FOR ASSESSMENT YEAR 2002-03 AND TIME PERI OD FOR ISSUE OF NOTICE UNDER SECTION 143(2) HAD EXPIRED ON 31.3.20 06 I.E. BEFORE DATE OF SEARCH AND TIME LIMIT FOR ISSUE OF INTIMATION H AD ALSO EXPIRED ON THAT DATE. THEREFORE, ASSESSMENT IN ASSESSMENT YEAR 2002 -03 HAD ATTAINED FINALITY AND, THERE WAS NO QUESTION OF ABATE MENT OF ANY PROCEEDINGS. THEREFORE, IN VIEW OF DECISION OF SPECIAL BENCH (SUPRA), IN ASSESSMENT YEAR 2004-05, ADDITION CAN BE MADE ONLY ON TH E BASIS OF INCRIMINATING MATERIAL FOUND IN THE COURSE OF SEARCH. IN THIS CASE THE DISALLOWANCE OF INTEREST WAS NOT BASED ON SEIZED MATERIAL AND THEREFORE, AO HAD NO JURISDICTION TO MAKE IN ASSESSMENT U NDER SECTION 153(3) OF THE ACT. THE SAME VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN CASE OF BROTHER OF THE ASSESSEE SHRI ATITHI N. PATEL IN W HICH ON IDENTICAL ITA NO.39,40 & 41//10 A.Y.04-05, 05-06 & 06-07 5 FACTS THE TRIBUNAL HAS DELETED ADDITION MADE BY AO. NO DISTINGUISHING FEATURES HAVE BEEN BROUGHT TO OUR NOTICE BY THE LD. D EPARTMENTAL REPRESENTATIVE. THEREFORE, FOLLOWING THE SAID DECISION NO ADDITION CAN BE MADE IN CASE OF ASSESSEE IN ASSESSMENT YEAR 2004-05. WE, THEREFORE, SET ASIDE THE ORDER OF CIT(A) AND DELETE THE ADDITION MADE BY AO IN ASSESSMENT YEAR 2004-05. 3. AS REGARDS, THE ASSESSMENT YEARS 2005-06 AND 2006-07, T HE POSITION IS ENTIRELY DIFFERENT AS NONE OF THE ASSESSMENTS H AD ATTAINED FINALITY. THE TIME PERIOD FOR ISSUE OF NOTICE FOR THESE ASSESSMENT ORDERS WERE UP TO 31.3.2007 AND 31.3.2008 RESPECTIVELY AND T HEREFORE, THE PROCEEDINGS AT THE TIME OF SEARCH HAD NOT ATTAINED FINA LITY AND IN VIEW OF THE DECISION OF THE SPECIAL BENCH(SUPRA), THE AO RET AINED THE ORIGINAL JURISDICTION AS WELL AS JURISDICTION CONFERRED ON HIM U/S. 153A. THE LEGAL GROUND RAISED BY THE ASSESSEE THAT THE AO HAD NO JURISDICTION AND NO POWER TO DISALLOW INTEREST HAS THER EFORE NO MERIT AND IS THEREFORE DISMISSED. 4. COMING TO THE ORIGINAL GROUNDS RAISED BY THE ASSESSEE REGARDING MERIT OF DISALLOWANCE OF INTEREST, THE DISALLOWANCE HAS TO BE DELETED IN CASE OF ASSESSMENT YEAR 2004-05 AS HELD EARLIER AS AO HAD N O JURISDICTION TO MAKE ANY ASSESSMENT SINCE THERE WAS NO INCRI MINATING MATERIAL. HOWEVER IN CASE OF ASSESSMENT YEARS 2005-06 AND 2006-07, ITA NO.39,40 & 41//10 A.Y.04-05, 05-06 & 06-07 6 THE AO DID HAVE JURISDICTION AND DISALLOWANCE HAD TO B E CONSIDERED ON MERIT. THE FACTS RELATING TO MERIT OF THE CASE ARE THAT THE ASSESSEE HAD TAKEN INTEREST BEARING LOAN FOR THE PURPOSE OF BUSINESS BUT THE SAME WERE UTILIZED IN M/S. ATITHI BUILDERS AND CONSTRUCTIONS PVT. LTD. IN WHICH THE ASSESSEE WAS A DIRECTOR. THE ASSESSEE HAD NO BUSINESS DEALING WITH THE COMPANY EXCEPT BEING THE DIRECTOR. T HE ASSESSEE SUBMITTED BEFORE AO THAT THE ASSESSEE HAD UTILIZED LOANS IN THE COMPANY SO AS TO SUSTAIN THE EARNING CAPACITY OF THE ASSE SSEE. IT WAS ALSO SUBMITTED THAT IT WAS NOT NECESSARY TO EARN INCOME IN THE YEAR IN WHICH EXPENDITURE WAS INCURRED. THE AO HOWEVER, OBSERVE D THAT THE ASSESSEE HAD NOT EARNED ANY INCOME FROM THE USE OF BORROW ED FUNDS AND, THEREFORE, SAME COULD NOT BE FOR SUSTAINING EARNIN G CAPACITY OF THE ASSESSEE. THE ASSESSEE COULD EARN ONLY DIVIDEND FROM SHAR E CAPITAL INVESTMENT WHICH WAS EXEMPT FROM TAX AND THEREFORE, EX PENDITURE WAS NOT ALLOWABLE UNDER SECTION 14A. THE AO THEREFORE DISALLOWED THE CLAIM. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY AO AGG RIEVED BY WHICH ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4.1 BEFORE US, THE LD. AR FOR THE ASSESSEE FAIRLY CONCEDED THAT IDENTICAL ISSUE HAS ALREADY BEEN DECIDED BY THE TRIBUNAL IN CASE OF SHRI ATITHI N. PATEL THE BROTHER OF ASSESSEE IN WHICH THE TRI BUNAL HAD CONFIRMED THE DISALLOWANCE. IT WAS POINTED OUT THAT THE FACTS WERE ITA NO.39,40 & 41//10 A.Y.04-05, 05-06 & 06-07 7 IDENTICAL AND ONLY FIGURES WERE DIFFERENT. THE LD. DR PLACED RELIANCE ON THE ORDERED OF AUTHORITIES BELOW. 4.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTE R CAREFULLY. THE DISPUTE IS REGARDING DISALLOWANCE OF IN TEREST ON BORROWED FUNDS UTILIZED IN THE COMPANY SHRI ATITHI BU ILDERS AND CONSTRUCTORS PVT. LTD. IN WHICH ASSESSEE WAS A DIRECTOR. WE F IND THAT IDENTICAL ISSUED HAD BEEN CONSIDERED BY THE TRIBUNAL IN THE CASE OF SHRI ATITHI N. PATEL IN ITA NOS.44 & 45/M/10 FOR ASSESSMENT Y EARS 2005-06 AND 2006-07. THE LD. AR HAS FAIRLY ADMITTED THAT TH E FACTS IN CASE OF THE ASSESSEE ARE IDENTICAL. IN CASE OF THE BROTHER, THE TR IBUNAL HELD THAT THE BORROWED FUNDS COULD NOT BE HELD TO BE UTILI ZED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AS SAME WERE INV ESTED IN THE COMPANY WITH WHICH THE ASSESSEE HAD NO BUSINESS. ASSESSEE WAS ONLY DIRECTOR AND ENTITLED TO ONLY DIVIDEND WHICH WAS HIT B Y SECTION 14A. THERE WAS NO MATERIAL ON RECORD TO SHOW THAT THE BORRO WINGS HAD DIRECT OR INDIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE. T HE TRIBUNAL THEREFORE, CONFIRMED THE DISALLOWANCE OF INTEREST IN AL L THE YEARS. THE FACTS IN CASE OF THE ASSESSEE ARE IDENTICAL AND THEREFORE FO LLOWING THE DECISION OF THE TRIBUNAL IN CASE OF SHRI ATITHI N. PATE L (SUPRA), WE CONFIRM THE DISALLOWANCE OF INTEREST MADE BY AO AND OR DER OF CIT(A) IS ACCORDINGLY UPHELD. IN ASSESSMENT YEAR 1996-97 IN ADDITIO N TO DISALLOWANCE OF INTEREST, THERE IS DISALLOWANCE OF CAR HIR E CHARGES OF ITA NO.39,40 & 41//10 A.Y.04-05, 05-06 & 06-07 8 RS.96,000/-. THE LD. AR HAS PLACED NO MATERIAL ON RECOR D TO SHOW THAT THE CAR HIRE CHARGES WERE INCURRED FOR THE PURPOSE OF AN Y BUSINESS. NO WORTHWHILE ARGUMENTS WERE ADVANCED IN SUPPORT OF THE C LAIM. THEREFORE, DISALLOWANCE OF CAR HIRE CHARGES IS ALSO UPHELD . 5. IN THE RESULT, APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2004-05 IS ALLOWED AND THOSE FOR ASSESSMENT YEARS 2005-06 AND 2006-07 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 12.10.2012. SD/- SD/- (VIVEK VARMA ) JUDICIAL MEMBER (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED: 12.10. 2012. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.