TaxTMI 
TaxTMI 
2016 (2) TMI 567
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....nd circumstances of the case and in law, the CIT(A) was correct in holding that there existed a nexus between the interest expense and interest income solely on the basis of the Bank Statements. 2. The Appellant craves to leave, to add, to amend and / or to alter any of grounds of appeal, if need be. 3. The Appellant, therefore, prays that on the grounds stated above, the order of the CIT(A)-40, Mumbai may be set aside and that of the Assessing Officer restored." 3. We shall take Revenue's appeal in ITA No. 3187/Mum/2014 for the assessment year 2007-08 as lead appeal. 4. The Brief facts of the case are that the assessee is Managing Director of Kanakia Spaces Pvt. Ltd. and in-charge of the project planning and construction activity. The Kanakia Group is primarily engaged in the real estate, hospitality, entertainment and education sectors of the economy. The assessee group has numerous commercial and residential projects in Mumbai with quality construction and layouts. 5. There was a search and seizure action u/s 132 of the Income Tax Act, 1961 (Hereinafter called "the Act") conducted by the Investigation Unit-V(2) , Mumbai, on 29-03-2011 at the business a....
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....olly and exclusively for the purpose of making or earning such income". The A.O. observed that the expenditure claimed by the assessee as a deduction against income from other sources has to be expended wholly and exclusively for earning such income. The assessee was show caused vide notice dated 12.03.2013 to explain the claim of deduction of interest expenses against the interest income , the assessee replied vide letter dated 25-3-2013, which is reproduced below:- "This is in reference to your Show Cause Notice u/s. 142 (1) of the Income tax Act, 1961 dated 12.03.2013. In response to the said notice, under the instructions from our above client, we submit as under: Regarding interest expenses claimed against interest income, we reply is as under- We have to drew your honour's attention towards the fact that similar issue was already considered in the order that was passed in connection with the earlier search. Since, order was passed under section 153A, it was also passed with the approval of the then Learned Additional Commissioner Income Tax, Central Range - 7, Mumbai. We draw your honour's attention to the order for AY, 2007-08 that was passe....
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....covered in course of search. In view of the above decision, in the absence of any incriminating material in the case of the assessee, no further disallowance of interest is possible and accordingly no disallowance of such interest can be made in the case Of the assesse. We hope that above explanations will meet your requirements." The A.O. after considering the replies of the assessee held that the assessee is not able to establish the nexus between the funds used for giving interest bearing loans to other parties , on which interest has been earned; and the funds which have been taken on interest bearing loan from other parties. The AO held that only if the funds taken on interest bearing loan, were advanced by the assessee to other parties from whom he is charging interest; can he claim deduction of interest paid on interest earned, as per law. The AO held that the assessee's submission is completely silent on the aspect of nexus between the funds as above and hence the assessee had failed to establish this nexus at all. The necessary and sufficient condition laid down in the statute is not satisfied and the AO held that he has reasonable belief that the ....
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.... held that it is the mandate of the law that the A.O. shall assess or reassess the total income of the assessee in the six immediately preceding assessment years, in respect of the year of search. The A.O. shall assess or reassess the total income of six assessment years immediately preceding the search year. Thus the A.O. in the assessment proceedings u/s 153A of the Act shall examine all the issues that could be taken up in pursuance of filing of regular return of income and the concept of undisclosed income does not prevail any longer while framing the assessments/reassessments under the provisions of section 153A of the Act. The legislature has purposely omitted the undisclosed income from the new provisions therefore the assessment or reassessment shall be made as a normal scrutiny assessment u/s 143(3) of the Act, taking into effect the material/documents found in the course of search action, if any. The A.O. held that assessment includes reassessment and therefore even if the income of an earlier year may be undergoing the process of reassessment, it can still be assessed afresh on the basis of the material which was already on record at the time of completion of the origina....
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....that the search u/s 132(1) of the Act was for the first time carried out on 19.07.2007 and vide the assessment order framed u/s 153A of the Act dated 31-12-2009, such claim of the assessee has been examined in detail by the A.O. who allowed the same. The assessee further submitted that no incriminating material was found or unearthed during the course of second search conducted on 29-3-2011 and as entire issue had already been examined in detail during the course of the earlier search assessment proceedings pursuant to the first search carried out u/s 132(1) of the Act on 19.07.2007, disallowance made is uncalled for as it amounts to change of opinion at the end of A.O. to the same material facts and hence the addition made is unjustified. The assessee submitted before the CIT(A) that the order passed u/s 143(3) read with Section 153A of the Act dated 31-12-2009 and present assessment orders dated 28.03.2013 passed u/s 153A of the Act read with Section 143(3) of the Act, there is no change in the material facts. Earlier the A.O. was convinced that there is nexus between the interest income and interest expenses and since the order passed with the approval of learned Addl. CIT, t....
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....een given from the same bank account of the assessee, therefore, the flow of funds i.e. incoming and outgoing is not in dispute. Since the issue has already been examined in the hands of the assessee at the time of earlier search assessment's u/s 153A read with Section 143(3) of the Act vide order dated 31-12-2009 and there is no reason to disallow such a claim two years later through another assessment orders on same set of material facts and further no incriminating material having been found or unearthed against the assessee during the course of second search proceedings u/s. 132(1) of the Act on 29.03.2011, rule of consistency has to be followed as laid down by several decisions referred to by the assessee , the CIT(A) held that interest expenditure on loan taken is a valid and allowable claim in the eye of law and should be allowed. The CIT(A) also held that the assessee has voluntarily disallowed total interest of Rs. 49,02,661/- (Rs.90,000 + Rs. 38,19,800/- + Rs. 9,92,861/- ) in the return of income filed by the assessee appears to be fair and reasonable. The assessee has offered for taxation interest income of Rs. 51,79,190/- . The CIT(A) observed that in the current year a....
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....course of second search on 29-03-2011. The ld. Counsel stated before us that there is no incriminating material found or unearthed during the course of second search conducted on 29-3-2011 with respect to the issue in dispute i.e. allowability of claim of deduction of interest paid on loans borrowed against interest income on loan advances by the assessee, hence, in view of the ratio of decision of Special Bench of ITAT in the case of All Cargo Global Logistics Ltd. v. DCIT [2012] 23 taxmann.com 103 (Mum) [SB] , this addition of Rs. 47,22,282/- being disallowance of the interest cannot be sustained. The ld. Counsel further relied upon the order of the CIT(A). 12. We have considered the rival contention and also perused the material available on record. We find that this issue of allowability of deduction of interest paid on loan borrowed by the assessee amounting to Rs. 47,22,282/- against the interest income of Rs. 99,01,472/- earned by the assessee from loan advanced has already been examined and accepted by the A.O. in course of proceedings for the assessments u/s 153A of the Act pursuant to the first search and seizure operations u/s 132(1) of the Act conducted in the year 2....
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....ding that completed assessments can be interfered with by Assessing Officer while making assessment under section 153A of the Act only on basis of some incriminating material unearthed during course of search which was not produced or not already disclosed or made known in course of original assessment . However, We also note that in the case of CIT v. Continental Warehousing Corporation (Nhava Sheva) Ltd. , Hon'ble Supreme Court has granted special leave and admitted appeal of Revenue in SLP No. (C) No. 18506 of 2015, dated October, 12, 2015 against the Hon'ble Bombay High Court ruling that no addition can be made in respect of assessment which has become final if no incriminating material is found during the course of search. Respectfully following the binding decision of the Hon'ble Jurisdictional High Court i.e. Hon'ble Bombay High Court in the case of Central Warehousing Corporation (Nhava Sheva) Limited(supra) as well decision of Hon'ble Delhi High Court in the case of Kabul Chawla(supra) and Special Bench decisions in All Cargo Global Logistics Ltd. (supra) , we uphold the orders of the CIT(A) and delete the additions made by the AO of Rs. 47,22,282/- on account of dis....