DEEPEN A. PAREKH, MUMBAI V. ACIT CEN. CIR 20, MUMBAI

ITA 460/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 5016 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 10-09-2013
• Assessment Year: 2001-2002
• Appeal Filed On: 17-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Search and seizure; Earning of tax free income
• Section: 143(3); 153A; 14A; 2

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, M UMBAI . . , , BEFORE SHRI R.S.SYAL, AM, AND, SHRI VIVEK VARMA, JM / I.T.A. NO.467 /MUM/2011 ( / ASSESSMENT YEAR: 2006-07) /. I.T.A. NO.469 /MUM/2011 ( / ASSESSMENT YEAR: 2007-08) /. I.T.A. NO.46O /MUM/2011 ( / ASSESSMENT YEAR: 2001-02) SHRI DEEPEN A. PAREKH 601 AUTO COMMERCE HOUSE, NANA CHOWK, KENNEDY BRIDGE, MUMBAI-400 007 / VS A.C.I.T., CENTRAL CIRCLE-20 AAYKAR BHAVAN, MUMBAI, /. /. PAN/GIR NO. : AAIPP6817G ( / APPELLANT ) : ( ! / RESPONDENT ) ' / APPELLANT BY : SHRI PRAKASH PANDIT ! # ' / RESPONDENT BY : SHRI SANTOSH KUMAR $% # & / DATE OF HEARING : 10.09.2013 '() # & /DATE OF PRONOUNCEMENT : 13.09.2013 / O R D E R PER : VIVEK VARMA (JM) THE THREE APPEALS ARE FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-39, MUMBAI, ALL DATED 01.11.2010. 2. THE GROUNDS RAISED IN THE GROUNDS OF APPEAL AS PER FORM NO. 36 ARE COMMON IN ALL THE THREE YEARS IMPUGNED BEFORE US, WHICH READ AS UNDER . (I) IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED C.I.T.(APPEALS) ERRED IN CONFIRMING THE A.O.S ACTI ON OF INVOKING PROVISIONS OF 2 SECTION 14A OF THE INCOME TAX ACT, 1961 R.W. RULE 8 D OF I.T. RULES, 1962 AND THEREBY ERRED IN DIRECTING THE A.O. TO REWORK THE D ISALLOWANCE OF RS. XXXXXXXX UNDER RULE 8D(2)(II) OF I.T. RULES, 1962; (II) THE REASONS GIVEN BY THE C.I.T. (APPEALS) ERRE D IN CONFIRMING THE A.O.S ACTION OF INVOKING PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT, 1961 R.W. RULE 8D OF I.T. RULES, 1962 AND THEREBY ERRED IN DIRECTING THE A.O., TO REWORK THE DISALLOWANCE OF RS. XXXXXXXX- UNDER RULE 8D (2)(II) OF I.T. RULE S, 1962 IS WRONG, INSUFFICIENT AND CONTRARY TO FACTS AND EVIDENCE ON RECORD; (III) IN THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED C.I.T. (APPEALS) OUGHT TO HAVE RESTRICTED THE SAID DISALLOWANCE OF RS. XXXXXX X MADE BY THE A.O. BY INVOKING THE PROVISIONS OF SECTION 14A TO RS. XXXXX BEING DI SALLOWANCE MADE BY THE A.O. IN A.Y. 2002-2003; 3. IN SO FAR AS THE APPEALS FOR ASSESSMENT YEARS 2 006-07 AND 2007-08 ARE CONCERNED, THE AR POINTED OUT AT THE ISSUE IS COVERED BY THE ORDER OF THE CO-ORDINATE BENCH AND IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09 , IN ITA NO. 8131/MUM/2011 DATED 10.07.2012, WHEREIN THE ISSUE IS RESTORED TO THE FI LE OF THE AO, VIDE THE OBSERVATION: WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E FINDINGS OF THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS) AS W ELL AS THE MATERIAL PLACED ON RECORD. IN SO FAR AS THE DISALLOWANCE OF INDIRECT I NTEREST EXPENDITURE OF RS. 37,885 IS CONCERNED, WE AGREE WITH THE CONTENTIONS OF THE LEA RNED COUNSEL THAT THE SAME CANNOT BE DISALLOWED IN THE ASSESSEES CASE, FIRSTL Y, THE ASSESSEE HAS NOT CLAIMED ANY INTEREST IN THE PROFIT & LOSS ACCOUNT AND, SECO NDLY, THE SAME HAS BEEN DEBITED TO THE ASSESSEES OWN CAPITAL ACCOUNT. THUS, THE DI SALLOWANCE OF RS. 37,885, ON ACCOUNT OF INDIRECT EXPENDITURE IS DELETED. AS REGA RDS DISALLOWANCE OF INTEREST ON THE DIVIDEND INCOME EARNED IN THE HANDS OF THE MINO R, NO EXPENDITURE CAN BE DISALLOWED BECAUSE APPARENTLY NO EXPENDITURE HAS BE EN DEBITED TO THE MINORS ACCOUNT. THUS, THE LEARNED COMMISSIONER (APPEALS) H AS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 1,15,464, BEING % OF THE DIVI DEND INCOME EARNED BY THE MINOR. NOW, COMING TO THE DISALLOWANCE OF RS. 4,48,753, BE ING ATTRIBUTABLE TO % OF THE AVERAGE INVESTMENTS, IT IS NOTICED THAT BEFORE THE ASSESSING OFFICER, THE ASSESSEE HIMSELF SUBMITTED THAT HISTORICAL VALUE OF THE SHAR ES SHOULD BE TAKEN FOR THE PURPOSE OF DISALLOWANCE UNDER SECTION 14A, WHICH HAS BEEN A CCEPTED BY THE ASSESSING OFFICER. THE LEARNED COMMISSIONER (APPEALS) HAS ALS O GIVEN A CATEGORICAL FINDING THAT THE ASSESSEE HAS FAILED TO PROVE THAT NO INTER EST BEARING FUNDS WAS USED FOR ACQUISITION OF SHARES WHICH REMAINS UN-REBUTTED AT THIS STAGE ALSO. IF THE ASSESSEE IS UNABLE TO SHOW THAT THE SHARES HAVE BEEN ACQUIRED O UT OF SURPLUS FUNDS OR NON- INTEREST BEARING FUNDS, THE PROVISIONS OF RULE 8D H AS TO BE APPLIED AND DISALLOWANCE HAS TO BE WORKED OUT UNDER THE SAID RULE. TO WRIGGL E OUT FORM THE PROVISIONS OF RULE 8D, THE ASSESSEE HAS TO PLACE SUFFICIENT MATERIAL A ND HAS TO PROVE THAT IT HE NOT INCURRED ANY EXPENDITURE IN RELATION TO THE EXEMPT INCOME AND INVESTMENT HAS BEEN MADE OUT OF INTEREST FREE/SURPLUS FUNDS. IF THE ASS ESSING OFFICER GETS SATISFIED WITH THE SAME, THEN THERE IS NO NEED TO COMPUTE DISALLOW ANCE AS PER RULE 8D. HOWEVER, THE LEARNED COUNSEL HAS PLEADED BEFORE US THAT THE ASSESSEE HAS INTEREST FREE FUNDS ALSO AND MOST OF THE INVESTMENTS HAVE BEEN MADE OUT OF SUCH FUNDS. WE, THUS, SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED COMM ISSIONER (APPEALS) AND RESTORE THE ISSUE OF DISALLOWANCE UNDER RULE 8D TO THE EXTENT OF % OF THE AVERAGE INVESTMENT TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE WHETHER OR NOT THE 3 ASSESSEE HAD MADE ACQUISITION IN THE INVESTMENT OUT OF INTEREST FREE FUNDS. THE ASSESSEE IS DIRECTED TO PROVIDE ALL THE NECESSARY D ETAILS FOR ADJUDICATION OF THIS ISSUE. CONSEQUENTLY, THE GROUND RAISED BY THE ASSES SEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 4. SINCE, THE ISSUE IN THE IMPUGNED APPEALS ARE COV ERED BY THE DECISION IN ASSESSEES, OWN CASE, FOR CONSISTENCY, WE SET ASIDE THE ORDER O F THE CIT(A) AND RESTORE THE ISSUE TO THE FILE OF THE AO, SO THAT A CONSISTENT VIEW COMES OUT . IN THE RESULT, THE APPEALS IN ASSESSMENT YEARS 2006-07 AND 2007-08 ARE TREATED AS ALLOWED FO R STATISTICAL PURPOSES. 5. IN ASSESSMENT YEAR 2001-02, THE AR POINTED OUT T HE ADDITION HAS BEEN MADE ON ROUTINE BASIS, AS NO INCRIMINATING DOCUMENT HAD BEE N FOUND IN THE COURSE OF SEARCH AND SEIZURE OPERATIONS. THE ASSESSEE, HAS THEREFORE, RA ISED ADDITIONAL LEGAL GROUND, IN ADDITION TO THE GROUNDS, WHICH ARE IDENTICAL AND COMMON IN THE OTHER TWO APPEALS. TO PURSUE THE ISSUE ON LEGAL GROUNDS, THE ASSESSEE HAS RAISED ADDITIONA L GROUND, WHICH READS AS UNDER. WHETHER, IN THE FACTS AND IN LAW, THE SCOPE OF A SSESSMENT UNDER SECTION 153A ENCOMPASSES ADDITIONS, NOT BASED ON ANY INCRIMINATI NG MATERIAL FOUND DURING THE COURSE OF SEARCH? 6. AT THE TIME HEARING, THE AR POINTED OUT THAT THE PROCEEDINGS IN THE IMPUGNED ASSESSMENT YEAR HAD BEEN FINALIZED LONG BEFORE THE SEARCH TOOK PLACE AND NEITHER ANY PROCEEDINGS OF ANY KIND ARE PENDING, NOR THERE WAS ANY INCRIMINATING MATERIAL CONCERNING FINANCIAL YEAR 2000-01, RELEVANT TO ASSESSMENT YEAR 2001-02. IN SUCH A CASE, THE AR PLACED RELIANCE ON THE DECISION OF ITAT SPECIAL BENCH IN A LL CARGO GLOBAL LOGISTICS LTD VS DCIT REPORTED IN 137 ITD 287 AND THE DECISION IN THE CAS E OF DELHI HIGH COURT IN CIT VS ANIL KUMAR BHATIA, REPORTED IN 211 TAXMAN 455 AND REQUES TED THAT THE DISALLOWANCE, AS MADE BE DELETED. 7. THE DR ON THE OTHER HAND SUBMITTED THAT PATENTLY WHAT THE AR SUBMITTED LOOKS TO THE CORRECT, BUT SINCE THERE IS NO EVIDENCE, THE IS SUE BE RESTORED TO THE FILE OF THE AO, WHO SHALL RELOOK INTO THE ISSUE. 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND WE ARE OF THE VIEW THAT IN THE INSTANT YEAR, THE AO SHALL VERIFY FROM RECORDS, THE PENDENCY POSITION, IF THERE IS NO 4 PENDENCY, AS ON THE DATE OF SEARCH ON 14.03.2007. T HE ISSUE SHALL BE COVERED BY THE 2 ND PROVISO TO SECTION 153A(1). 9. IF, ON THE OTHER HAND, THERE WAS PENDENCY THEN T HE ISSUE SHALL REST ON THE INCRIMINATING DOCUMENTS. IN THAT CASE, ONCE AGAIN T HE AO SHALL GIVE DEFINITE FINDING AS TO WHETHER THERE WAS ANY INCRIMINATING DOCUMENTS PERTA INING TO FINANCIAL YEAR, RELEVANT TO ASSESSMENT YEAR 2001-02. IN SUCH A SITUATION, THE I SSUE IS COVERED BY THE DECISION IN THE CASE OF ACIT VS PRATIBHA INDUSTRITIES LTD, REPORTED IN 1 41 ITD 151 (MUM), WHEREIN, IT HAS BEEN HELD THAT IN CASE THERE IS NO INCRIMINATING MATERIA L, IN SUCH A CASE ASSESSMENT U/S 143(3) READ WITH 153A SHALL BE MADE AT THE ORIGINAL FIGURE OF F INALIZED ASSESSMENT. WE, THEREFORE, SET ASIDE THE ORDER OF CIT(A) ON THE LEGAL ISSUE AND DI RECT THE AO TO FRAME THE ASSESSMENT AFRESH, IN VIEW OF THE DECISION RENDERED IN THE CAS E OF ALL CARGO GLOBAL (SUPRA), ANIL KUMAR BHATIA (SUPRA) AND PRATIBAHA INDUSTIRES (SUPRA). 10. IN THE RESULT, THE APPEALS IN ITA NO. 460/MUM/2011, ITA NO. 467/MUM/2011 AND ITA NO. 469/MUM/2011 ARE ALLOWED FOR STATISTICAL PURPOSES. * &+ ,$ -*& # /# 012 34 %& # 5 & 67 ORDER PRONOUNCED ON , 13 TH SEPTEMBER, 2013. 89 # '() :8$+ ( # ; . SD/- SD/- ( R.S. SYAL ) ( VIVEK VARMA) 8 / ACCOUNTANT MEMBER , 8 / JUDICIAL MEMBER MUMBAI: :8$ DATED : 13.09.2013. ,$ . /. PRAMOD KUMAR, PS !'# $ ' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 5 2. ! / THE RESPONDENT 3. <& ) ( / THE CIT(A) CONCERNED; 4. <& / THE CIT CONCERNED; 5. =%>; ,&,$ , , / DR, ITAT, MUMBAI; 6. ; - ? / GUARD FILE % / BY ORDER, / / TRUE COPY / / & / ' ( (DY./ASSTT. REGISTRAR) ) * , / ITAT, MUMBAI