TaxTMI 
TaxTMI 
2016 (8) TMI 871
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.....1.2007 in the business and residential premises of Shri Gunnder Singh Bawa, his family members and various family concerns including the office premises of the assessee company. Consequent to the search, notice u/s. 153A was issued to the assessee to file return of income and in response to said notice, assessee filed return of income on 29.8.2007 declaring income at Rs. 93,05,623/- for Assessment Year 2004-05. This income of Rs. 93,05,623/- includes income of Rs. 45,33,960/- which was declared at the time of search towards suppression of sales of Avalon Pub. The assessment was completed on 29.12.208 u/s. 143(3) r.w. Section 153A determining the total income of the assessee at Rs. 1,41,19,240/-. While completing the assessment, the Assessing Officer has taken income from unaccounted sales at Rs. 53,34,070/- without allowing the cost of liquor as claimed by the assessee. The assessee claimed Rs. 8,00,110/- being 15% of the Avalon Pub sale of Rs. 53,34,070/- as allowable expenses and reported income of Rs. 45,33,960/-. However, the Assessing Officer rejected the claim of the assessee stating that in the course of assessment proceedings, assessee was requested to produce invoices for....
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....y the assessee @ 15% of Pub sales towards cost of liquor is very much reasonable. The Ld. Counsel for the assessee further submits that the entire sale of liquor cannot be taxed and he places reliance on the decisions in the case of Abhishek Corporation Vs DCIT {63 TTJ 651(Ahd)}, Kishore Mohanlal Telwala Vs ACIT (64 TTJ 543) and in the case of Agarwal Motors Vs ACIT 68 ITD 407 (Jab). 7. We have heard the rival contentions, perused the orders of the authorities below and the materials placed before us. The Assessing Officer while completing the assessment considered the entire gross sales of Rs. 53,34,070/- from Avalon Pub as unaccounted sales from liquor. The assessee claimed before the Assessing Officer that 15% of such sales are towards cost of liquor and therefore it should be reduced and only the balance should be considered as sales and accordingly he offered Rs. 45,33,960/- after deducting 15% towards cost of liquor of Rs. 8,00,110/-. The contentions of the assessee that without there being any purchase, there cannot be sale at all and therefore 15% of such sales should be considered as cost of purchase of liquor is rejected by the Assessing Officer. The Ld. CIT(A) conside....
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....an be made towards interest u/s. 36(i)(iii) because addition/disallowance is not based on seized materials. Referring to page-5 at para-4 of the assessment order, the Ld. Counsel for the assessee submits that this table which was extracted by the Assessing Officer has been taken from the balance sheet and based on which he came to the conclusion that the bank overdraft was utilized for non business purposes and the assessee advanced interest free loans for non-business purposes and therefore interest u/s. 36(i)(iii) is disallowable. He submits that this conclusion was arrived only on the basis of the materials available in the balance sheet and not from the seized materials. The Ld. Counsel for the assessee submits that since the assessment for the Assessment Year 2004-05 has been completed u/s. 143(3) on 28.12.2008 and this assessment has become final and as on the date of initiation of search u/s. 132, there is no pending proceedings for Assessment Year 2004- 05, the assessment is not abated and in which circumstances there cannot be any addition or disallowance without there being any seized materials. He places reliance on the decision of the Bombay High Court in the case of Mu....
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....t later but the Ld. CIT(A) has not decided while disposing of the appeal. He submits that the issue has been decided on merits. With regard to the contentions of the Ld. Departmental Representative that some of the advances given for acquiring properties cannot be considered for the purpose of business, the Ld. Counsel for the assessee submits that the properties were purchased by the assessee and they were provided as accommodation to the Directors and therefore they are business assets of the assessee. 12. We have heard rival contentions, perused the orders of the authorities below and the decision relied on. The contention of the assessee is that the assessment proceedings for the Assessment Year 2004-05 have become final and in the absence of any pending proceedings, the assessment has not abated and therefore such assessment cannot be disturbed unless there are incriminating materials found suggesting undisclosed income and since in the assessee's case, the disallowance of interest u/s. 36(i)(iii) was made based on the materials already available in the balance sheet and not based on the seized materials. The addition cannot be sustained in view of the decision of the Juris....
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....aring funds. A sum of Rs. 10,68,637/- has been disallowed from the interest claimed which is more than reasonable on the facts of the case. I see no reasons for making any further disallowance from interest paid. The disallowance of bank interest is restricted to Rs. 10,68,637/- being interest already disallowed in the original assessment. Further, disallowance of Rs. 36,99,211/- is, therefore directed to be deleted. This ground of appeal, is accordingly, allowed." 13. The Jurisdictional High Court in the case of Reliance Utilities (supra) held that if there are interest free funds available with the assessee sufficient to meet its investment and at the same time assessee raised loan, it can be presumed that investments made were out of interest free funds available with the assessee only. The Jurisdictional High Court held as under: If there be interest-free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest-free funds available. In our opinion the Supreme Court in East India Pharmaceutical Works Ltd had the occasion to consider the decision of th....
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....for Assessment Year 2004-05 is dismissed. ITA No. 3293/M/2011 - A.Y. 2005-06 16. The grounds raised by the Revenue in this appeal is identical in Ground No.1&2 in ITA No.3291/M/2011 though quantum may differ. Since the first and second grounds are similar to the appeal in ITA No. 3291/M/11, the decision rendered therein applies mutatis and mutandis to these grounds. Therefore, on similar lines and for similar reasons, the grounds raised on 1st and 2nd issue of cost of liquor purchases and disallowance of interest u/s. 36(1)(iii) by the Revenue in ITA No. 3293/M/11 for assessment year 2005-06 are dismissed. ITA No. 3384/M/2011 - A.Y. 2006-07 16. The first and second ground raised by the Revenue in this appeal is identical in Ground No.1&2 in ITA No.3291/M/2011 though quantum may differ. Since first and second grounds are similar to the appeal in ITA No. 3291/M/11, the decision rendered therein applies mutatis and mutandis to these grounds. Therefore, on similar lines and for similar reasons, the grounds raised on 1st and 2nd issue of cost of liquor purchases and disallowance of interest u/s. 36(1)(iii) by the Revenue in ITA No. 3384/M/11 for assessment year 2006-07 are d....
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....its that since assessee company is not a registered shareholder of M/s. Gunjyot Properties Pvt. Ltd., addition u/s. 2(22)(e) cannot be made in the hands of the assessee. 21. We have heard the rival contentions and perused the orders of the authorities below and the decisions relied on. Admittedly, the assessee is not a shareholder in M/s. Gunjyot Properties Pvt. Ltd., and therefore in view of the decision of the Jurisdictional High Court holding that the provisions of Sec. 2(22)(e) are attracted only to register shareholders and since assessee is not the shareholder of lending company i.e. M/s. Gunjyot Properties Pvt. Ltd., no addition can be made u/s. 2(22)(e) of the Act in the hands of the assessee. Thus respectfully following the said decision of the Jurisdictional High Court, we uphold the orders of the Ld. CIT(A) on this issue. This ground is therefore rejected. ITA No. 3385/M/2011 - A.Y. 2007-08 22. The first and second ground raised by the Revenue in this appeal is identical in Ground No.1&2 in ITA No.3291/M/2011 for Assessment Year 2004-05 though quantum may differ therefore, on similar lines and for similar reasons, the grounds raised by the Revenue in ITA No. 338....
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....igh Court. Therefore, he submits that since assessee company is not a registered shareholder of M/s. Backbay Properties Pvt. Ltd ., addition u/s. 2(22)(e) cannot be made in the hands of the assessee. 28. We have heard the rival contentions and perused the orders of the authorities below and the decisions relied on. Admittedly, the assessee is not a shareholder in M/s. Backbay Properties Pvt. Ltd., and therefore in view of the decision of the Jurisdictional High Court holding that the provisions of Sec. 2(22)(e) are attracted only to register shareholders and since assessee is not the shareholder of lending company i.e. M/s. Backbay Properties Pvt. Ltd., addition u/s. 2(22)(e) of the Act is not warranted in the hands of the assessee. Thus respectfully following the said decision of the Jurisdictional High Court, we uphold the orders of the Ld. CIT(A) on this issue. This ground is therefore rejected. ITA No. 3241/M/2011 - Assessee's appeal 29. The assessee has raised following grounds of appeal: "1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the Assessing Officer to assessed rental received as Business income as against....
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....ness income and not under the head income from other sources or income from house property. 33. The Ld. Counsel for the assessee submits that terrace of the hotel building was given to Reliance Infocom for setting up of Antenna/tower and this is the case of simple let out of terrace place and assessee has neither erected nor maintained the antenna/tower. He further submits that day today maintenance is done by Reliance Infocom Ltd., and assessee has simply let out of its terrace place for setting up of Antenna. Therefore he submits that the rental income received by the assessee is nothing but income from property only and certainly not its business income. He strongly places reliance on the decision of the Co-ordinate Bench in the case of M/s. Kamlesh Real Estates Pvt. Ltd. Vs ACIT in ITA No. 1451/M/2010 dated 20.4.2011. The Ld. Counsel for the assessee submits that the decision of the Calcutta High Court relied on by the Assessing Officer in the case of Mukherjee Estate (P) Ltd (supra) has been considered by the Co-ordinate Bench in this case and on identical circumstances it has been held that income from letting out of the terrace for putting up its mobile tower by the telec....
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....m house property' or as assessed by the Assessing Officer under the head 'Income from other sources'. We find an identical issues has come up before the Delhi High Court in the case of Niagara Hotels & Builders (P) Ltd Vs CIT (supra) wherein the Assessing Officer treated the licence fee received by the assessee from Telecom company for renting out the terrace floor of the building for installing tower antenna and this income was assessed by the Assessing Officer under the head income from business as against income from house property treating the property as commercial asset. The Hon'ble Delhi High Court rejected the conclusion of the Tribunal in holding that agreement of renting and hiring terrace is in essence for hiring space and not hiring building or land appurtenant thereto. The Hon'ble High Court held that the licence fee received by the assessee for letting out the terrace space is to be taxed as income from house property. While coming to such conclusion, the Hon'ble High Court also considered the decision of the Calcutta High Court in the case of Mukherjee Estate (P) Ltd Vs CIT (supra). Similar issue has arisen in the case of Manpreet Singh Vs ITO (supra) wherein the Del....
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....e submits that the period of limitation to file suit is 3 years from the close of the year in which the last item admitted or proved is entered in the account. In respect of advance/loan, referring to Item 19 and 21 Part II to the aforesaid Schedule submits that the period of limitation to file suit is 3 years from the day when the loan is made. Thus he submits that the provisions of Sec 2(22)(e) will not be applicable to mutual, open and current account. 39. He places reliance on following decisions in support of the above contentions. 1. DCIT Vs Lakra Bros (207) 162 Taxman 170 (Chd.(Mag.) 2. CIT Vs Ambassador Travels (P) Ltd (208) 173 Taxman 407 (Del). 3. Shri Satchidanand S. Pandit Vs ITO (208) 19 SOT 213 (Mum) 4. NH Securities Ltd Vs DCIT (207) 11 SOT 302 (Mum) 39.1. He further submits that the concept of deeming certain payments or loans or advances to substantial shareholders as income was introduced with the object of curbing tax evasion. Upto 31.5.1997 dividend was taxed in the hands of the recipient of the dividend. However many closely held companies never declared any dividend and accumulated profits in the company itself. Since no dividend was declared....
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.... find any substance in the submissions of the Ld. Counsel for the assessee that the transaction is outside the purview of the provisions of Sec. 2(22)(e) of the Act. The decisions relied on by the assessee are distinguishable on facts and they are not applicable to the assessee. Thus we hold that the provisions of Sec 2(22)(e) are attracted in this case. However, the alternate contention of the assessee is that in determining the taxable income i.e. deemed dividend, addition is to be restricted to such percentage of accumulated profits as corresponds to assessee's share holding and in this case it is 49.5%. The Pune Bench of ITAT considered this issue in the case of Kewal Kumar Jain (supra) wherein it was held that while determining amount taxable u/s. 2(22)(e) of the Act, addition has to be restricted to such percentage of accumulated profits as corresponding to assessee's share holding in the company as was rightly done by the Assessing Officer while completing the assessment. The Revenue did not bring to our notice any other decision contrary to the Pune Bench. Therefore, respectfully following the said decision, we direct the Assessing Officer to restrict the addition only to s....
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....nsider the plea of the assessee since admittedly the assessee has made substantial disclosure of income in respect of the assessee and their group concerns. The Assessing Officer passed orders u/s. 143(3) r.w. s. 254 of the Act, denying the benefit of telescoping observing that assessee group declared additional income of Rs. 9.10 crores only in the returns as against additional income of Rs. 12.50 crores admitted in the declaration made u/s. 132(4) in the course of search, therefore, telescoping cannot be allowed. The Assessing Officer further observed that the suppressed income belongs to Vijay Deep Hotels Pvt. Ltd., which is a closely held company and separate legal entity and therefore set off or telescoping of the unaccounted income of this company cannot be allowed with regard to the unexplained and unaccounted income of the assessee who is an individual. The Assessing Officer also observed that the unexplained amount is in round figures and therefore telescoping cannot be given against suppressed sale of Avalon Pub relating to Vijay Deep Hotels Pvt. Ltd. Thus, he denied possibility of giving telescoping of unexplained income for all the three years and brought to tax. 46.....
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.... admitted only Rs. 9.10 crores and not offered balance amount of Rs. 2.667crores and therefore telescoping is not possible. We are unable to agree with the views of the authorities below in not granting the benefit of telescoping for the reason that the assessee and their concerns made disclosure in the group as a whole and this has been accepted by the Revenue and therefore telescoping cannot be denied simply because the concerns and the assessee are separate entities. We also do not find any valid reason for denying telescoping simply because the figures are round figures. It is also pertinent to note that the Assessing Officer accepts that these unaccounted income is generated from out of the suppressed sales of Avalon Pub of Vijay Deep Hotels Pvt. Ltd and this suppressed sales have already been taxed in the hands of Vijay Deep Hotels Pvt. Ltd. There is one more reason for denying telescoping that assessee has not fully disclosed the amount as agreed in the declaration. If this is the contention of the Assessing Officer for not allowing telescoping, he could have made additions based on the seized materials ignoring the declaration. We failed to understand why the Assessing Offi....