AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2024 (1) TMI 213
X X X X Extracts X X X X
X X X X Extracts X X X X
....022 for the AY 2012-13 & ITA No.1113/Bang/2022 for the AY 2014-15 in the case of Shri Reddy Veeranna is with regard to framing assessment order u/s 143(3) r.w.s. 153A of the Act is bad in law and void-ab-initio, since there was no valid search conducted in the premises of assessee. 3. Facts narrated in the case of Shri Reddy Veeranna in assessment year 2010-11 are as follows: 3.1 There was a search action u/ 132 of the Act conducted in the case of Shri Reddy Veeranna at No.109, 10th Main, 7th Cross, RME Extension, 2nd Stage, Bangalore on 7.1.2015 in connection with search proceedings in the group cases of M/s. Reddy Veeranna Constructions Pvt. Ltd. Consequent to this search action, notice u/s 153A of the Act was issued to the assessee on 17.11.2015 to file a return of income within 30 days from the date of receipt of notice. The assessee has filed a letter dated 28.12.2015 stating that the return was filed originally on 31.11.2011 to be treated as income declared u/s 153A of the Act. However, the assessee has not paid self-assessment tax on the income declared in it at Rs. 8,72,94,285/-. Therefore, notice has been issued to the assessee on 15.11.2016 to pay the tax within 5 d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Appellate Authorities like (CIT(Appeal) below by way of a writ of mandamus to go into the question of validity of search under Section 132 of the Act and it would be incongruous and not in deference to the pendency of aforesaid Civil Appeal No.2734/2013before the Hon'ble Supreme Court. (ii) That even the law has been amended by insertion of the aforesaid Explanation by Parliament in Section 132 of the Act by the Finance Act, 2017 with retrospective effect from 1.4.1962. That Explanation also prohibits the Appellate Authorities to go into the reasons recorded by the concerned Income Tax Authority for directing Search against the assessee or tax- payer. (iii) That this Amendment came after both, ITAT passed the order in the present case on 21.11.2014 as also the learned CIT(A) passed the impugned order aji 11.2.2015. Nonetheless, retrospective effect of the said amendment, will have its effect on the present case as well so long that the said Amendment holds the field Therefore, the Appellate Authorities of the Department cannot be expected to go into the said question. It is only for the Constitutional Courts to examine the vires and validity of such Amendm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....calling for the return of income within 30 days from the date of receipt of the notice. The said notices were received on 02/02/2016 and the assessee has filed the letter requesting to treat the original return filed as a return in response to notice u/s. 153A of the Act, on 28/12/2015. Thus, the assessee has filed the return of income within the time allowed by the A.O. in the notice issued. 4.4 Further, he submitted that the aforesaid assessment years i.e., 2010-11 & 2012-13 are unabated assessments, as on the date of initiation of search, there were no assessment proceedings pending and time limit for issuance of notice u/s 143[2] of the Act had also expired. Thus, the scope of these unabated assessments is restricted to making any additions solely based upon incriminating material found at the time of search. 4.5 He submitted that as can be seen from the assessment orders passed, there are no additions made to the income declared by the assessee as per the original return of income filed u/s. 139 of the Act, which income has been retained in the return filed in response to notice u/s. 153A of the Act. 4.6 Consequently, there is no dispute that the assessment order pass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ame to be omitted w.e.f. 01.04.2019 by Finance Act, 2014. As to whether omission would save the acts is an issue which is no more res-intigra in the light of authoritative pronouncement of Hon'ble Apex Court in the matter of KOHLAPUR CANESUGAR WORKS LTD. v. UNION OF INDIA reported in [TS-5120-SC- 2000-0] whereunder Apex Court has examined the effect of repeal of a statute visa-vis deletion/addition of a provision in an enactment and its effect thereof. The import of Section 6 of General Clauses Act has also been examined and it came to be held: "37. The position is well known that at common law, the normal effect of repealing a statute or deleting a provision is to obliterate it from the statute-book as completely as if it had never been passed, and the statute must be considered as a law that never existed. To this rule, an exception is engrafted by the provisions of Section 6(1). If a provision of a statute is unconditionally omitted without a saving clause in favour of pending proceedings, all actions must stop where the omission finds them, and if final relief has not been granted before the omission goes into effect, it" cannot be granted afterwards. Savings of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion 139 of the Act has been omitted. From the Explanatory Notes to the provisions of the Finance Act, 2016, it is clear that the said provisions have been omitted with an object of rationalizing the time allowed to file the return of income and realization of revenue without undue compliance burden on the tax payer. Consequently, the omission of the said clause that cast an undue burden on the tax payer was a measure taken to alleviate hardship caused to the taxpayer. It is in the nature of a beneficial legislation to provide relief to the taxpayer. Such provisions enacted with an object of rationalizing a provision or to remove hardships and give relief to the tax-payer has to be given effect retrospectively. 4.11 He placed reliance on the decision of the Hon'ble Supreme court in the case of CIT Vs. Calcutta Export Company, [2018] 404 ITR 654 [SC], for the proposition that any provision which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section, is required to be read into the section to give the section a reasonable interpretation and requires to be treated as retrospective in operatio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... phrase "so far as may be" in section 153A of the Act in the later part of the section. This means to the extent applicable or required, the provisions of section 139 of the Act have been made applicable to the return of income to be filed in response to notice u/s. 153A of the Act and not the entire provisions of section 139, which has been specifically over-ridden in the first part of the section. At this juncture, the scope of the assessment to be made u/s. 153A of the Act is relevant. These are special provisions for making an assessment or reassessment as a result of search. As already pointed out, the assessment for the AY 2010-11 and 2012-13 are unabated assessments. 4.14 He submitted that the scope of the assessment is only to make additions if any on the basis of the incriminating material found in course of search. Thus, the necessary implication that arises is that the reference to the provisions of section 139 "so far as may be" in the provisions of section 153A of the Act is only to make applicable, the nature of the form to be filed, the manner of verification and other particulars to be furnished in the return of income to be filed u/s. 153A. Merely because of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e also not exceptions provided for not treating the return as defective. So these arguments also do not help the appellant. 5.4 The ld. D.R. further argued that as regards non-applicability of Section 139 of the Act for the returns filed in response to notice under Section 153A of the Act, this argument of the appellant is also totally misplaced. The applicability of Section 139 of the Act is there as soon as a notice is issued under Section 153A of the Act and the same is clearly provided in this Section. He submitted that considering above the action of the AO was upheld by the ld. CIT(A). 6. We have heard the rival submissions and perused the materials available on record. The contention of the ld. A.R. is that the returns of the assessee for these assessment years i.e. 2010-11 & 2012-13 in case of Shri Reddy Veeranna and Assessment year 2015-16 in case of Smt. Reddy Sangeetha as a defective return by placing reliance as per clause (aa) to Explanation to sub-section (9) of section 139 of the Act, which has been inserted in the Finance Act, 2013 w.e.f. 1.6.2013. However, this clause (aa) to explanation to section 139(9) of the Act was omitted by the Finance Act, 2016 w.e.f.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ad never been passed, and the statute must be considered as a law that never existed. To this rule, an exception is engrafted by the provisions of Section 6(1), If a provision of a statute is unconditionally omitted without a saving clause in favour of pending proceedings, all actions must stop where the omission finds them, and if final relief has not been granted before the omission goes into effect, it cannot be granted afterwards. Savings of the. nature contained in Section 6 or in special Acts may modify the position. Thus the operation of repeal or deletion as to the future and the past largely depends on the savings applicable. In a case where a particular provision in a statute is omitted and in its place another provision dealing with the same contingency is introduced without a saving clause in favour of pending proceedings then it can be reasonably inferred that the intention of the legislature is that the pending proceedings shall not continue but fresh proceedings for the same purpose may be initiated under the new provision." 6. In fact coordinate bench under similar circumstances had examined the effect of omission of sub-section (9) to Section 10B of the Ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....peal filed by the assessee is treated as allowed for statistical purposes. 6.1 Later this decision has been followed by the coordinate bench of Bangalore in case of M/s. Shobha City in ITA No.2936/Bang/2018 dated 22.4.2021, wherein the Bench observed that the transfer pricing adjustment has been made in pursuance of provisions of clause (i) of section 92BA of the Act, which reads as under: "(i) Any expenditure in respect of which payment has been made or is to be made to a person referred in clause (b) of said section 2 of section 40A". 6.2 Section 92BA of the Act was inserted by Finance Act, 2012 w.e.f. 1.4.2013. However, clause (i) referred above was omitted by Finance Act, 2017 w.e.f. 1.4.2017. As such reference to the TPO in respect of specified domestic transactions mentioned in clause (i) of section 92BA of the Act is not valid as the said provision has been omitted and deleted the addition relating to the specified domestic transaction made u/s 92CA of the Act. While coming to this conclusion, the coordinate bench also taken note of the order of the Tribunal Mumbai Bench in case of Fire Menich Aromatics India Pvt. Ltd. Vs. ACIT in ITA No.348/Mum/2014 dated 15.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... shall not affect the continuance of any such amendment made by the enactment so repealed and in operation at the time of such repeal. 24. Continuation of orders, etc., issued under enactments repealed and reenacted,. Where any (Central Act) or Regulation, is, after the commencement of this Act, repealed and re-enacted with or without modification, then, unless it is otherwise expressly provided any (appointment notification,) order, scheme, rule, form or bye-law, (made or) issued under the repealed Act or Regulation, shall, so far as it is not inconsistent with the provisions reenacted, continue in force and be deemed to have been (made or) issued under the provisions so re-enacted, unless and until it is superseded by any (appointment, notification,) order, scheme, rule, form or bye-law, (made or) issued under the provisions so re-enacted (and when any (Central Act) or Regulation, which, by a notification under Section 5 or 5A of the Scheduled Districts Act, 1874, (14 of 1874) or any like law, has been extended to any local area, has, by a subsequent notification, been withdrawn form the re-extended to such area or any part thereof the provisions of such Act or ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Fibre Boards P. Ltd dated 11.08.2015 reported vide [(2015) 52 taxmann.com 135] /(2015) 10 SCC 333, as well as in the matter of M/s. Shree Bhagwati Steel Rolling Mills [CA No.4280 of 2007, dt.24.11.2015], reported vide (2016) 3 SCC 643, wherein the Hon'ble Supreme Court in these two cases elaborately discussed the issue of repeal /omission/ amendment etc, and held that 'omission' would amount to 'repeal'. It is also held that there is no real distinction between an amendment and that "amendment" is in fact a wider term which includes deletion of the provision in an existing statue. 18. The Hon'ble Court in M/s. Shree Bhagwati Steel Rolling Mills (supra) in a later decision, while referring its order in Fibre Board Private Ltd (supra) held that omission would amount to repeal. "On the argument of the contesting parties that the omitted provision being treated as it never existed as per section 6 of General clauses Act would not apply to allow the previous operation of the provisions is omitted or anything done or suffered thereunder. Nor may a legal proceeding in respect of any rights and liability acquired or incurred under the enactment so omitted." The Hon'ble Apex Court ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the General clauses Act. Repeals may take any form and so long as a statute or part of it is obliterated, such obliteration would be covered by the expression "repeal" in section 6 of General clauses Act. Considering the latest decision of Hon'ble Supreme Court in Fibre Board and Bhagwati Steel, the earlier decisions rendered by the Constitution Bench in Rayala Corporation (P) Ltd and Kolhapur Cansugar Works cannot be said to have laid down any ratio decidendi on an interpretation of the word "repeal" an "omission" would not be included. Their observations are in the nature of obiter dicta as held by the Supreme Court in Fibre Boards. It is also held that the earlier decisions have not referred to Section 6A of the General clauses Act and they lose their binding effect on an application of the "per incuriam" principle, as held by the Supreme Court in the case of Fibre Boards Private Limited. Thus, in our view the decision rendered in Royala Corporation Pvt. Ltd lacks binding value for the reasons discussed by the Apex Court in Fibre Boards Pvt. Ltd, the decision rendered in the case of Kolhapur Cane Sugar Works Ltd as also in the case of General Finance Company following the deci....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s per Article 141 of the Constitution of India. The law declared by Hon'ble Apex Court in Fibre Boards (P) Ltd (supra) dated 11.08.2015, was available when the decisions was rendered by Bangalore Tribunal Textport Overseas Pvt Limited Vs DCIT (supra), however, the same was not brought to the notice of the bench. The coordinate bench while rendering the decision relied on the decision of Hon'ble Apex Court in General Finance Co. Vs ACIT (supra), which was already declared as per-in curium. Similarly, the decision in General Finance Co (supra) is based on Rayala Corporation P. Ltd Vs Director of Enforcement (supra) and Kolhapur Canesugar Works Ltd Vs Union of India (supra). Considering the aforesaid legal position and the dates of various judgments of the Hon'ble Apex Court, we are of the view that the ld. AR for the assessee has referred and relied on the decisions of General Finance Company Vs ACIT (supra) which have been declared as per-in curium by Hon'ble Apex Court. 21. We are conscious of the facts that the latest law declared by Hon'ble Apex Court in various cases (supra) was not confronted with the ld. AR for the assessee; however, it is always presumed that the law....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e return, the return filed in response to section 153A of the Act cannot be treated as defective return. 6.6 In view of this, we are of the opinion that the return for the assessment years 2010-11 & 2012-13 in case of Shri Reddy Veeranna and for the AY 2015-16 in case of Smt. Reddy Sangeetha cannot be treated as a defective return by invoking the deleted clause (aa) to explanation to sub-section (9) of section 139 of the Act. This ground of the assessees is allowed. 7. Next common ground No.6 in the three appeals i.e. ITA No.1145/Bang/2022 for the AY 2010-11 & ITA No.1112/Bang/2022 for the AY 2012-13 in the case of Shri Reddy Veeranna and in ITA No.1111/Bang/2022 for the AY 2015-16 in the case of Smt. Reddy Sangeetha is with regard to levy of interest u/s 234A of the Act from the date of filing return of income till the date of passing assessment order i.e. from 31.1.2011 to 27.12.2016 in assessment year 2010-11 and from 16.5.2013 to 27.12.2016 for the assessment year 2012-13 and in the assessment year 2015-16, the ld. AO is not justified in levying the interest u/s 234A of the Act till the date of passing assessment order i.e. 26.12.2016 without appreciating that assessee ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pore. However, there was another term loan availed from Vysya Co-operative Bank on which assessee paid the interest in this assessment year under consideration. The assessee is not able to explain the purpose of borrowing that term loan. 9.2 On the other hand, assessee made interest free advance to various parties, namely M/s. Embassy Services Pvt. Ltd., Manyata Developer Pvt. Ltd., Reddy Veeranna, Reddy Snehalata and Sundry advances. The assessee is not able to explain the sources to make interest free advance to these parties. Hence, it should be considered that assessee has used the borrowed funds from Vysya Co-operative Bank to advance these parties on which assessee claimed interest in its profit & loss account in the assessment yar under consideration at Rs. 34,80,353/-, which cannot be allowed u/s 36(1)(iii) of the Act, since the loan has been borrowed for the purpose of business and not satisfy the conditions laid down in section 36(1)(iii) of the Act. Accordingly, the disallowance made by the lower authorities is justified. This ground of appeal of the assessee is dismissed." 11.2 Accordingly, this ground is dismissed. 12. In ITA No.1111/Bang/2022 for the AY....
X X X X Extracts X X X X
X X X X Extracts X X X X
....acres and transferred the same to the assessee. Since SIDPL failed to do so, the amount was renegotiated to Rs 213,00,00,000/- vide another settlement agreement dt. 16.01.2015. This was further negotiated vide a supplementary settlement agreement dt. 15.09.2015 and the payment was spread to FY 2016-17. As per the assessee SIDPL could not complete the process of executing sale deeds for 200 acres and as on 31.03.2014 it had completed formalities in respect of 44.58 acres of land. The assessee had nominated M/s Manyata Developers (P) Ltd [MDPL] for the purchase of this land from SIDPL. The assessee is a Director in MDPL also. The transactions took place in Dec 2013/ January, 2014. The assessee never filed any income tax return for AY 2014-15. The reason for the same was stated at the time of search to be financial crunch leading to his inability to pay self-assessment tax of Rs 1,72,42,542/-. However, after the search the assessee claimed a loss of Rs 8,62,27,931/-, as business loss to him arising out of sale of land to MDPL by SIDPL. For this he worked out the cost of this land as Rs 55,18,27,931/- being based on total cost of land of 200 acres estimated at Rs 247,51,89,062/- (so av....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... loss on account of contractual obligation. As Mr. Reddy Veeranna was the agreement holder for 200 acres in the tripartite agreement entered between Mr. Reddy Veeranna, the Embassy group and SIDPL. Mr. Reddy Veeranna needs to pay a sum of Rs. 247 Crores to Embassy Group towards 200 acres. M/s. SIDPL has not completed the process of executing sale deed for 200 acres. They could complete the formalities in respect of only 44.58 acres of land by 31.3.2014. Mr. Reddy Veeranna nominated M/s. Manyata Developers Pvt. Ltd. (For short "MDPL") as the purchaser for the said land. The land transferred under this transaction is located at the end of the site of the project. M/s. MDPL was not willing to pay more than the market value as they are not sure of SIDPL fulfilling their promise to registering remaining 200 acres of contiguous land. In fact as on 31.3.2015, the position of registration is the same as on 31.3.2014. In view of this reason, the cost of land to Mr. Reddy Veeranna on a average is higher than the market value of the land acquired by MDPL. Mr. Reddy Veeranna has incurred loss on this count. Further, he submitted that the AO agreed that there was a contractual obligation, which....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... for a consideration of Rs. 46.56 crores and that was the sub-registrar value of sale of the same and there is no dispute regarding the registration value of this property. Once the ld. AO observed that this was the genuine contractual obligation imposed on assessee and there was no doubt with regard to registration value of the property with the sub-registrar, the ld. AO thereafter cannot hold that the loss of Rs. 8.62 crores is only the paper transaction or bogus. The ld. AO must not look at the matter from his point of view but that of a prudent business man. This is the contractual obligation imposed on the assessee and he has to discharge the same in the interest of his business. No business man can be compelled to maximize his profit. The revenue authorities must put themselves in the shoes of the assessee and see how a prudent business man would act. The assessee, being a prudent business man to keep up his promise, he incurred this liability. As he is able to find out a new party i.e. MDPL the sale was at the value fixed by State Government for the purpose of payment of stamp duty in respect of that impugned property and in that course of action, the loss suffered by the as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rgued that the addition could not have been made in his hands by invoking provisions of Section 28(iv) of the Act. In this regard, he observed that it is important to observe that any money paid by a company in any form or by any name to a director for services rendered by him will amount to 'remuneration' and any benefit provided by company to a director will amount to 'remuneration' and monetary equivalent will have to be included in remuneration of the directors. The remuneration received by a Director can either be treated as 'Salaries' in the company's account or as 'fees for professional or technical Services' in the company's account. So, in either case the assessee has benefitted by an amount of Rs. 2,76,31,482/- as the preponderance of probability is that the amount could not have been given by RVCPL to its employees without keeping a proper record of the same and that all such employees could not have left the job without rendering proper accounts. So, he observed that in actual the assessee, who was in full control of the affairs of the company, had drawn money for his own benefit and the same would amount to income in his hand eit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion 28(iv), the benefit which is received has to be in some other form rather than in the shape of money. Relevant extracts of the judgment is reproduced below: "11 The short but cogent issue in the instant case arises whether waiver of loan by the creditor is taxable as a perquisite under Section 28 (iv) of the IT Act or taxable as a remission of liability under Section 41(1) of the IT Act ......... 13. On a plain reading of Section 28 (iv) of the IT Act, prima facie, it appears that for the applicability of the said provision, the income which can be taxed shall arise from the business or profession. Also, in order to invoke the provision of Section 28 (iv) of the IT Act, the- benefit which is received has to be in some other form rather than in the shape of money. In the present case, it is a matter of record that the amount of Rs. 57,74,064/- is having received as cash receipt due to the waiver of loan. Therefore, the very first condition of Section 28 (iv) of the IT Act which says any benefit or perquisite arising from the business shall be in the form of benefit or perquisite other than in the shape of money, is not satisfied in the present case. Hence, in o....