Walden Properties Private Limited, Hyderabad, Hyderabad V. DCIT, Central Circle-2(1), Hyderabad, Hyderabad

ITA 644/Hyd/2017

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 3553 (ITAT-HYDERABAD)
• Duration Of Justice: 5 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB-A
• Assessment Year: 2013-2014
• Appeal Filed On: 09-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Invalid notice; Business income; Earning of tax free income; Rule 8D; Capital Gains
• Section: 132; 143(3); 153A; 14A; 143(2); 153C

Judgement Text

ITA Nos 643 and 644 of 2017 Walden Properties P Ltd Hyderabad Page 1 of 9 आयकर अपीलȣय अͬधकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ A‘ Bench, Hyderabad Before Shri R.K. Panda, Accountant Member AND Shri Laliet Kumar, Judicial Member ITA No.643 & 644/Hyd/2017 Assessment Years: 2012-13 & 2013-14 Walden Properties (P) Ltd Hyderabad PAN:AAACW5473C Vs. Dy. C.I.T Central Circle 2(1) Hyderabad (Appellant) (Respondent) Assessee by : Shri Mohd. Afzal, Advocate Revenue by: Shri Rajendra Kumar,CIT(DR) Date of hearing: 21/07/2022 Date of pronouncement: 25/07/2022 ORDER Per R.K. Panda, A.M The above two appeals filed by the assessee are directed against the order dated 29.11.2016 of the learned CIT (A)-12, Hyderabad relating to A.Ys.2012-13 & 2013-14 respectively. Since identical grounds have been raised by the assessee in both the appeals, therefore, these were heard together and are being disposed of in this common order. ITA No.643/Hyd/2017 A.Y 2012-13 2. Facts of the case, in brief, are that a search and seizure operation u/s. 132 of the Income Tax Act, 1961 was carried out on 18-07-2012 in the case of M/s. Indu Projects Ltd., Group of cases. During the search operations in the case of Sri. 1.Syam Prasad Reddy at Plot No.973/A, Road No 49, Jubilee ITA Nos 643 and 644 of 2017 Walden Properties P Ltd Hyderabad Page 2 of 9 Hills, Hyderabad a bunch of loose sheets were seized as per annexure A/ISPR/Res/01. Page No.68 to 71 of Annexure A/ISPR/Res/01 are provisional balance sheets of the assessee as on 31.03.2009. As the documents belonging to the assessee were found and seized in course of search proceedings in the case of Sri I.Syam Prasad Reddy proceedings u/s.153C were initiated in this case. Accordingly, notice u/s.153C dated.19/03/2014 was issued and served on the assessee. Return of Income in response to notice u/s.153C was filed on 22/04/2014 declaring a total income of Rs.1,61,46,330/-. Subsequently, the Assessing Officer issued notice u/s 143(2) which was duly served on the assessee. In response to the same, the assessee appeared before the Assessing Officer on various dates and furnished the details. The Assessing Officer completed the assessment u/s 143(3) r.w.s. 153C on 31.3.2015 determining the total income of the assessee at Rs.7,73,35,189/- wherein he made the following additions: A) Income from capital gain - Rs.25,55,33,574 B) Income from other sources – Rs. 1,61,46,326 C) Disallowance u/s 14A - Rs. 6,11,88,863 3. Before the learned CIT (A), the assessee challenged only the disallowance u/s 14A of the Act. However, the assessee raised a ground challenging the validity of provisions of section 153C in absence of any incriminating materials. However, the learned CIT (A) was not satisfied with the argument advanced by the assessee. So far as the validity of the proceedings initiated u/s 153C is concerned, he dismissed the same by observing as under: “5.0 During the course of the appellate proceedings, the appellant, elaborated on the issue of validity of proceedings initiated u/s.153C of I.T.Act, while supplementing the ground raised on the issue. In this regard, it may be relevant to observe that in this case, notice u/s. 153C it dt.19-03-2014 was issued consequent to seizure of incriminating material found during the course of search & seizure operation carried ITA Nos 643 and 644 of 2017 Walden Properties P Ltd Hyderabad Page 3 of 9 out in the case of M/s. Indu Projects Ltd., and Group of cases on 18-07- 2012. The assessee filed return on 22-04-2014 in response to the notice u/s.153C issued, by declaring an income of Rs. 1,61,46,330/- and the scrutiny proceedings were completed u/s. 143(3) r.w.s. 153C vide order dt.31-03-2015. The basic contention of the assessee on the issue is that the information found/traced during the search proceedings were nothing but assessee provisional Balance Sheet of company as on 31.03.09 and is not a prima facie material giving scope of inference of undisclosed income, as such could not have used for initiating proceedings u/s 153C of Income Tax Act. The appellant also raised objections on procedure followed in recording of reasons and in this regard, relied on certain judicial decisions. 5.1 Perused the submissions of appellant in this regard and as could be seen from the facts of the case, scrutiny proceedings were initiated Consequent to seizure of some information/documents belonging to the appellant company found during the course of search operations in the case of M/s. Indu Projects Ltd., Group of cases on 18/07/2012, during which statement was also recorded from the main promoter of the group as Mr.Shyam Prasad Reddy, wherein he had admitted incomes, based in the seized material, more so the findings related to the issue under reference, i.e., disallowances u/s 14A. It is also a fact that the appellant not only participated in the proceedings, but also furnished revised computation of incomes, enhancing the admitted income by computing the disallowance u/s 14A on their own, having admitted the facts of the case, as borne out or seized documents. Thus, it is reasonable to hold that there is no ground/basis for assessee to question the proceedings u/s 153C and the Case laws relied are held to be distinguishable on fact. Accordingly, the grounds related to the issue are treated as Dismissed” 4. So far as the disallowance of Rs.6,11,88,863/- is concerned, the learned CIT (A) upheld the same by observing as under: “6.3 Perused the submissions of appellant and the observations of thee Assessing Officer in the Assessment Order as well as the findings of search proceedings. As could be seen from the facts that have emerged from the search proceedings, the appellant company had admitted on diversion of business funds for the purpose of non-core business as well as the investments that yielded incomes which are exempted from tax. On these lines, the MD of the company had agreed in principle that disallowances need to be worked out by applying the provisions of Sec.14A, for the purpose of offering for tax, based on the information originated from the search findings. However, while furnishing the Return of Income such computation was not considered and return of income was furnished admitting the income of Rs. 1,61,46,330/-, which comprised business income and capital gains, but not the disallowance u/s.14A. The AO proposed to make addition on the lines of findings of search and statement recorded from the MD (Mr. Shyam Prasad Reddy) ITA Nos 643 and 644 of 2017 Walden Properties P Ltd Hyderabad Page 4 of 9 of the company, to work out the disallowance u/s 14A, during which the appellant furnished the revised computation of the income, which included the disallowance of Rs. 6,11,88,863/- by applying the provisions of Sec. 14A, on basis of which the total income of Rs. 7,73,35,190/- was arrived and what the A.O assessed in assessment order is same amount of Rs.7,73,35,190/- as worked out by the assessee during the assessment proceedings. 6.3.1 It may be further relevant to observe that the business 6.3.1 investments were quantified at Rs.13.12 Cr., being made in Indu projects Ltd., and Rs.50.00 Cr., in Corner Stone Property investment, apart for Rs.84.93 Cr., in equity shares of Indu group and other companies. It was admitted by the assessee himself that dividend was only received in investments of Rs.84.93 Cr., and no exempted income was derived for investment of RS. 63.12Cr. (50.00+ 13.12Cr.), as observed by the AO. In this context, it may be further relevant to observe, that once it is accepted that dividend is earned by company, which is exempted income, there is no basis for the assessee to state that there is no exempted income and provisions of Sec.14A are not applicable to them. Thus, based on the facts of the case, it is reasonable to hold that the provisions of sec. 14A are applicable to the case, and the case laws relied on by the assessee in this regard, are held to be distinguishable on facts. 6.3.2 It may be further relevant to observe that, the disallowance of Rs. 6,11,88,663/- as worked by the AO, was based on the investments of RS. 63.12 Cr., which might have not earned dividend for the assessee, but the investments of Rs. 84.93 Cr., had indeed earned dividend for the assessee which is an exempted income. Thus, once the finding has been made to show that there are exempted income and certain expenses are attributable to such investments but the segregation of accounts/amounts attributable them is not possible, the role of Sec. 14A Comes into picture Thus, there is no doubt on application of the section 14A and computation of disallowances. While quantification of disallowance is never contested by the assessee, the disallowance as made by the assessee in revised computation, as agreed by the M.D. of the company vide statement recorded during search proceedings and replicated in assessment order by the AO, which is to the tune of Rs.6,11,88,663/-, is justified and upheld. On these lines, the grounds related to this issue are treated as Dismissed”. 5. Aggrieved with such order of the learned CIT (A), the assessee is in appeal before the Tribunal by raising the following grounds of appeal: “1. The order of the learned Commissioner of Income Tax (Appeals) is against the law, 1 weight of evidence and probabilities of case. 2. The Commissioner erred in confirming the order of the Assessing Officer made u/s 143(3) r.w.s 153C of the IT Act, as no incriminating material was found and and seized belonging to the assessee in the searched premises. ITA Nos 643 and 644 of 2017 Walden Properties P Ltd Hyderabad Page 5 of 9 3. The learned Commissioner ought to have held that the notice issued u/s 153C is an invalid notice as there was no incriminating material belonging to the assessee found and seized from the searched person and further ought to have held that the provisional balance sheet referred in the assessment order is not the incriminating material to apply the provisions of section 153C of the IT Act. 4. The learned Commissioner ought to have deleted the disallowance made u/s 14A amounting to Rs.6,11,88,863/- as the assessee has not earned any income which is exempt, on such investments. 5. The learned Commissioner erred in confirming the order of the Assessing Officer wherein, the income was assessed at Rs.7,73,35, 189/- by making an addition of Rs.6,11,88,863/- u/s 14A in an order u/s 143(3) r.w.s 153C where, no incriminating material was found belonging to the assessee in the searched premises. 6. The appellant craves leave to add to, amend or modify the above grounds of appeal either before or at the time of 6 hearing of the appeal, if it is considered necessary”. 6. The assessee has also raised the following additional grounds: “1. The learned Commissioner (Appeals) ought to have appreciated that have satisfaction as appreciated that enjoined in section 153C of the IT Act appellant had 1961, that the appellant had undisclosed income, on account of material found in the searched person belonging to the assessee and not belonging searched to person, not having been the recorded by the Assessing Officer in the case of I Shyam Prasad Reddy, who was subjected to 132 of proceedings u/s the IT Act and therefore, the order u/s 143(3) r.w.s 153C in the case of appellant for the assessment year 2012-13 is without jurisdiction and therefore, wholly unsustainable in law and facts. 2. The learned Commissioner ought to have restricted the disallowance to the extent of exempt income earned i.e. Rs.49,09,241/-, therefore, erred in confirming the disallowance of Rs.6, 11,88,863/-“. 7. The learned Counsel for the assessee referring to the decision of the Hon'ble Supreme Court in the case of NTPC and various other decisions submitted that the additional ground are legal in nature and all the material fact necessary for adjudication of the same are available on record, therefore, these grounds should be admitted for adjudication. ITA Nos 643 and 644 of 2017 Walden Properties P Ltd Hyderabad Page 6 of 9 8. After hearing both the sides and considering the fact that the additional grounds are legal in nature and no new fact are required to be investigated, the additional ground raised by the assessee are admitted for adjudication. 9. So far as the grounds including the additional ground relating to the validity of the initiation of proceedings u/s 153C is concerned, we do not find any infirmity in the order of the learned CIT (A) on this issue. Admittedly, the impugned A.Y falls within the period of six years as envisaged in the provisions of section 153C of the Act and the Assessing Officer has completed the assessment u/s 143(3) r.w.s. 153C of the Act. The basis of initiation of proceedings u/s 153C is the documents being provisional balance sheet of the assessee seized from the premises of Shri I. Shyam Prasad Reddy during the course of search at his premises on 18.7.2012. The satisfaction note was duly received by the Assessing Officer of the assessee from the Assessing Officer of the searched person. Therefore, in our opinion, there is no infirmity or illegality in the order of the Assessing Officer in initiating the proceedings u/s 153C and the order of the learned CIT (A) in upholding the order u/s 153C. Accordingly, grounds raised by the assessee on this issue including the additional grounds are dismissed. 10. So far as the ground challenging the addition/disallowance of Rs.6,11,88,863/- u/s 14A is concerned, we find the Assessing Officer applying the provisions of section 14A r.w. Rule 8D computed the disallowance of Rs.6,11,88,863/-. The learned CIT (A) has upheld the action of the Assessing Officer, the reasons of which have already been reproduced in the ITA Nos 643 and 644 of 2017 Walden Properties P Ltd Hyderabad Page 7 of 9 preceding paragraph. It is the submission of the learned Counsel for the assessee that since the assessee has received exempt income of Rs.49,09,241/- only therefore, such disallowance at best can be made to the extent of the exempt income and not the amount as computed by the Assessing Officer at Rs.6,11,88,863/- and upheld by the learned CIT (A). We find the Finance Act, 2022 has drastically amended the provisions of section 14A w.e.f. 1.4.2022 and one of the Coordinate Bench of the Tribunal has held such amendment to be retrospective in nature. Therefore, considering the totality of the fact of the case and in the interest of justice, we deem it fit and proper to restore the issue to the file of the Assessing Officer with a direction to adjudicate the issue afresh and in accordance with law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. Grounds raised by the assessee on the issue of addition 14A are accordingly allowed for statistical purposes. ITA No.644/Hyd/2017 – A.Y 2013-14 11. The grounds raised by the assessee are as under: “1. The order of the learned Commissioner of Income Tax (Appeals) is against the law, weight of evidence and probabilities of case. 2. The Commissioner erred in confirming the order of the Assessing Officer made u/s 143(3) of the IT Act, as no incriminating material was found and seized belonging to the assessee in the searched premises, as the Assessing Officer acquired jurisdiction by issuing 153C notice for earlier years. 3. The learned Commissioner ought to have appreciated that the learned Assessing officer acquired jurisdiction to make an assessment as provided in section 153A of the IT Act by issuing notice u/s 153C, in view of the facts and circumstances the notice u/s 153C issued for earlier years have no legs to stand, therefore, ought to have held that this assessment is also an invalid assessment. 4. The learned Commissioner ought to nave deleted the addition of Rs.6,95,94,485/ which is disallowance made u/s 14A as 4 the assessee has not earned any income which is exempt, on investments. ITA Nos 643 and 644 of 2017 Walden Properties P Ltd Hyderabad Page 8 of 9 5. The learned Commissioner erred in confirming the order of the Assessing Officer wherein, the income was assessed at Rs.3,06,64,061/- by making an addition of Rs.6,95,94,485/- u/s 14A of the IT Act. 6. The appellant craves leave to add to, amend or modify the above grounds of 6 appeal either before or at the time of hearing of the appeal, if it is considered necessary” 12. The assessee has raised additional grounds which are as under: “The learned Commissioner ought to have appreciated that the Commissioner ought to have satisfaction is deemed to have been recorded on 19.03.2014, therefore, appreciated that the assessment year 2013-14, is also falls in the block of 6 assessment years (2008-09 to 2013-14), therefore, in the absence of a satisfaction as envisaged in section 153C of the IT Act, the order may u/s 143(3) is an invalid order. 2. The learned Commissioner (Appeals) ought to have appreciated that satisfaction as enjoined in section 153C of the IT Act 1961, that the appellant had undisclosed income, on account of material found in the case oi searched person belonging to the assessee and not belonging to searched person, not having been recorded by the Assessing Officer in the case of I Shyam Prasad Reddy, who was subjected to proceedings u/s 132 of the IT Act and therefore, the order u/s 143(3) r.w.s 153C in the case of appellant for the assessment year 2013-14 is without jurisdiction and therefore, wholly unsustainable in law and facts. 3. The learned Commissioner ought to have restricted the disallowance to the extent of exempt income earned i.e., Rs.2,61,156/-, therefore, erred in confirming the disallowance of Rs.6,95,94,485/-“. 13. After hearing both the sides, we find the grounds raised by the assessee as well as the additional grounds are identical to the grounds as well as the additional grounds raised in ITA No.643/Hyd/2017. We have already adjudicated the issue and dismissed the grounds challenging the validity of proceedings u/s 153C of the Act and restored the issue of disallowance u/s 14A to the file of the Assessing Officer for fresh adjudication. Following similar reasoning, the grounds including the additional grounds challenging the validity of proceedings u/s 153C are dismissed and the grounds including the additional grounds ITA Nos 643 and 644 of 2017 Walden Properties P Ltd Hyderabad Page 9 of 9 challenging the disallowance u/s 14A are restored to the file of the Assessing Officer for fresh adjudication. 14. In the result, both the appeals filed by the assessee are partly allowed for statistical purposes. Order pronounced in the Open Court on 25 th July, 2022. Sd/- Sd/- (LALIET KUMAR) JUDICIAL MEMBER (R.K. PANDA) ACCOUNTANT MEMBER Hyderabad, dated 25 th July, 2022. Vinodan/sps Copy to: S.No Addresses 1 Walden Properties (P) Ltd C/o Mohd. Afzal, Advocate, No.402, Sherson’s Residency, 11-5-465, Criminal Court Road, Red Hills, Hyderabad 500004 2 Dy.CIT, Central Circle 2(1) Aayakar Bhavan, Basheerbagh, Hyderabad 3 CIT (A)- 12,Hyderabad 4 Pr. CIT-Central, Hyderabad 5 DR, ITAT Hyderabad Benches 6 Guard File By Order