TaxTMI 
TaxTMI 
2007 (9) TMI 447
X X X X Extracts X X X X
X X X X Extracts X X X X
....the fact that no search action under section 132 was on the appellant firm and the appellant was not covered by the search on the SSKI Group by warrant dated 1-8-2003. No warrant has been issued in the name of the appellant firm. 4. The ACIT Cent. Circle - 22 Mumbai has erred in not considering our letter dated 17-7-2005 filed in his office on 5-8-2005. 5. The Learned CIT(A) has confirmed disallowance a sum of Rs. 27,59,046 - (in assessment year 1998-99) Rs. 33,62,100 (in assessment year 1999-00) Rs. 29,55,598 (in assessment year 2000-01) Rs. 17,27,812 - (in assessment year 2004-05) being the interest paid on loans and advances under section 14A of the Income-tax Act, 1961. 6. The disallowance of interest made by the Assessing Officer under section 14A is bad in law and as well, as on fact of the case." 3. The assessee further raised ground No. 7 in assessment years 1999-2000 and 2004-05, which is as under : "7. The DC Cent. Circle - 22 Mumbai has erred in disallowing other business administrative expenses amounting to Rs. 2,96,770 (such as Electricity Charges Rs. 2,00,000 - Staff Salary Rs. 50,000 - Motor Car expenses Rs. 38.263 and Telephone....
X X X X Extracts X X X X
X X X X Extracts X X X X
....riginal assessment in all the abovesaid years except 2004-05 were completed under section 143(3) of the Income-tax Act on different dates and certain additions were made on account of disallowances out of salary expenses, telephone expenses, motor car expenses and also disallowance under section 14A of the Act. Since the assessee had not contested the initial order under section 143(3) of the Income-tax Act, all the additions and disallowances were again made in the order under section 143(3) read with section 153A of the Income-tax Act. The Assessing Officer further made disallowance out of interest account and in some years out of electricity expenses. 7. The CIT(A) dismissed the plea of assessee against the issue of notice under section 153A of the Income-tax Act that there was no search action on the assessee. On verification of the warrant issued from the office of DG (Inv.), Mumbai, it was found that the said warrant was standing in the name of M/s. J.M. Trading Corporation i.e., assessee herein. Accordingly, the CIT(A) held that the notice issued under section 153A was validly issued. The CIT(A) upheld the additions on account of interest under section 14A of the Income-t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tected during the course of search. The learned AR further pointed out that though in the new section 153A of the Act there is no mention of undisclosed income for the Block Period but the provisions of section 132 are still on statute. He further stated that under the garb of section 153A of the Act, the Assessing Officer by way of change of opinion cannot make roving enquiries to make additions when nothing was found during the course of search. Elaborate submissions were made on the merits of the additions made during the respective years, which shall be referred to under the respective grounds of additions. 10. The learned DR for the revenue stressed that the assessee has not challenged the search carried out on the assessee. The learned DR stressed that under section 132(1) of the Act, when the officer has information and reason to believe, then such Officers can be authorized to enter and search any building belonging to the assessee. It was further stated that the validity of search cannot be challenged before the ITAT as held by Special Bench of Lucknow Tribunal in Nawal Kishore & Sons Jewels v. Dy. CIT [2003] 87 ITD 407 . The learned DR further stated that once the warr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... at 701, 702, 703, 704, 803 and 804, Tulsiyan Chambers, Nariman Point, Mumbai - 400 021. As per the Panchnama, the search was initiated at the above said flats in Tulsiyan Chambers, Nariman Point, Mumbai on 2-8-2003 at 8.00 a.m. and was concluded on 3-8-2003 at 4.00 pm. The perusal of the Panchnama reveals the warrant of search was issued in the undermentioned names : -'Shri Shreyas S. Morakhia Shripal S. Morakhia, Directors of S.S. Kantilal Ishwarlal Securities (P.) Ltd. -SSKI Investor Services (P.) Ltd. -SSKI Securities (P.) Ltd. -SSKI Corporate Finance (P.) Ltd. -SSKI Finance Ltd., Indrian Production (P.) Ltd. and -J.M. Trading Corporation' 13. During the course of appellate proceedings, a query letter was sent to the Assessing Officer to obtain a copy of warrant from the office of DG (Inv.), Mumbai to categorically comment whether the warrant was in the name of the assessee. The Assessing Officer sent the copy of warrant to the CIT(A), which in-turn was shown to the Learned AR for the assessee and it revealed that the warrant was actually standing in the name of J.M. Trading Corporation i.e., the assessee herein. 14. S....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as reason to suspect that such books of account, other documents, money, bullion, jewellery or other valuable article or thing are kept; (ii) break open the lock of any door, box, locker, safe, almirah or other receptacle for exercising the powers conferred by clause (i) where the keys thereof are not available; (iia) search any person who has got out of, or is about to get into, or is in, the building, place, vessel, vehicle or aircraft, if the authorised officer has reason to suspect that such person has secreted about his person any such books of account, other documents, money, bullion, jewellery or other valuable article or thing; (iib) require any person who is found to be in possession or control of any books of account or other documents maintained in the form of electronic record as defined in clause (t) of sub-section (1) of section 2 of the Information Technology Act, 2000 (21 of 2000), to afford the authorised officer the necessary facility to inspect such books of account or other documents; (iii) seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing found as a result of such s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....such [Joint Director] or [Joint Commissioner] as may be empowered in this behalf by the Board to take action under clauses (i) to (v) of sub-section (1) are or is kept in any building, place, vessel, vehicle or aircraft not mentioned in the authorisation under sub-section (1), such [Chief Commissioner or Commissioner] may, notwithstanding anything contained in section [120], authorise the said officer to take action under any of the clauses aforesaid in respect of such building, place, vessel, vehicle or aircraft. (2) The authorised officer may requisition the services of any police officer or of any officer of the Central Government, or of both, to assist him for all or any of the purposes specified in sub-section (1) or sub-section (1A) and it shall be the duty of every such officer to comply with such requisition. (3) The authorised officer may, where it is not practicable to seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing, for reasons other than those mentioned in the second proviso to sub-section (1), serve an order on the owner or the person who is in immediate possession or control thereof that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (7) ****** (8) The books of account or other documents seized under sub-section (1) [or sub-section (1A) shall not be retained by the authorised officer for a period exceeding thirty days from the date of the order of assessment under [section 153A or] clause (c) of section 158BC] unless the reasons for retaining the same are recorded by him in writing and the approval of the [Chief Commissioner, Commissioner], Director General or Director] for such retention is obtained : Provided that the [Chief Commissioner, Commissioner, Director General or Director shall not authorise the retention of the books of account and other documents for a period exceeding thirty days after all the proceedings under the Indian Income-tax Act, 1922 (11 of 1922) ], or this Act in respect of the years for which the books of account or other documents are relevant are completed. (8A) An order under sub-section (3) shall not be in force for a period exceeding sixty days from the date of the order. (9) The person from whose custody any books of account or other documents are seized under sub-section (1) [or sub-section (1A) ] may make copies thereof, or take extracts th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....igned to it in Explanation 2 to section 158BE. Explanation 2.-In this section, the word 'proceeding' means any proceeding in respect of any year, whether under the Indian Income-tax Act, 1922 (11 of 1922), or this Act, which may be pending on the date on which a search is authorised under this section or which may have been completed on or before such date and includes also all proceedings under this Act which may be commenced after such date in respect of any year. 15. Under the provisions of section 132 of the Income-tax Act, where the officers have information in his possession that any person shall not comply with the condition in clauses (a), (b) and (c) to section 132 (1) of the Income-tax Act, then, he may authorize such officers to enter and search any building, place, vehicle etc. of the person and seize any books of account other documents, money, bullion, jewellery or other valuable articles or things found as a result of search. It has been provided further under the section 132 (1) of the Income-tax Act that where it is not possible or practicable to take physical possession of any valuable, article or thing and remove it to a place due to its characteristi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed officer'] and thereafter the duties and powers of such authorised officer are enumerated in sub-clauses (i) to (v) under section 132(1) of the Income-tax Act. Further powers and duties are enumerated in the Provisos under section 132(1) and thereafter also in sub-sections (2) to (9A) of section 132 of the Income-tax Act. 17. Under the provisions section 132 of the Income-tax Act, the authorized officer has reason to believe because of information in his possession that; (a) Where the person to whom notice under section 142 of the Act has been issued fails to produce the books of account or other documents as requisitioned; (b) The person to whom notice has been issued will not produce the books of account in lieu of issue of notice under section 142 of the Act; (c) The person who is in possession of any money, bullion or valuable article or thing which constitutes his undisclosed income. 18. In the facts of the present case, search on SSKI Group was carried out, who are carrying out their business activity from the premises owned by the assessee. The said premises are rented by the assessee and its sister-concern to the SSKI group of companies. T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s made : Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years : Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate. Explanation.-For the removal of doubts, it is hereby declared that,- (i) save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to the assessment made under this section; (ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year." 20. The perusal of the section reveals that in case a person against whom search is initiated under section 132 of the Act or books of account or other document are requisitioned under section 132A of the Act, then notwithstanding anything contained in s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Assessing Officer also observes that 'there was search and seizure action under section 132 of the Income-tax Act on SSKI Group and by warrant dated 1-8-2003, the assessee was also covered under the search. The premises whereas the assessee was found was not searched. 22. The fact that search under section 132 of the Act have been conducted on the assessee, is a condition precedent to be satisfied before start of any proceedings against the assessee. Section 158BC of the Income-tax Act, provides the procedure for block assessment in all such cases where search has been conducted under section 132 or books of account or other documents requisitioned under section 132A of the Income-tax Act for searches conducted upto 31-5-2003. Thus, the jurisdictional fact of a search being conducted prior to issue of notice under section 158BC of the Act need to be satisfied. The Special Bench of Bangalore Tribunal in C. Ramaiah Reddy v. Asstt. CIT (Inv.) [2004] 268 ITR (AT) 49 held as under: ". . . . . . . .The Income-tax Appellate Tribunal need be satisfied only about the validity of the search under section 132 based on valid authorization. The jurisdictional fact that needs to ....