TaxTMI 
TaxTMI 
2015 (8) TMI 1597
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.... appeal, vide ground no. 1, the assessee has challenged the additions/disallowances made by the Assessing Officer and confirmed by the CIT (A) on the ground that no incriminating material was found during the course of the search & seizure action pertaining to the assessment year 2002-03 for which assessment stood completed and was unabated and, therefore, the additions made therein are beyond the scope of section 153A. In other words the assessment for the assessment year 2002-03 stood finalized before the date of search and, therefore, it was a non-abated assessment and no addition or disallowance could have been made unless some incriminating material is found during the course of search for making the addition or disallowances. 3. The brief facts qua the aforesaid ground is that assessee has filed its return of income for the AY 2002-03 on 30.10.2002, u/s 139(1) declaring total loss of Rs. 1,51,95,901/-. The time limit for issuance of notice u/s 143(2) had expired on 31st October, 2003. Since the assessee's case was not selected for scrutiny, hence, the returned income stood accepted by the Department and as such, an assessment attained finality. Post this event, a sear....
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....s/disallowances can be made. Now as per the various judicial precedence, especially settled in the jurisdiction of Bombay High Court, the scope of addition in the non-abated assessment is limited to the materials found during the search having live-linknexus with such additions or disallowances. If we analyse the provisions of section 153A, it is apparent that, where search has been initiated u/s 132 or requisition has been made under section 132A, it is incumbent upon the assessing officer to issue notices requiring the person searched to file return of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year in which search is conducted. The assessing officer has to assess or reassess the total income in respect of each assessment year falling within six assessment years. Thus, it is statutory mandate upon the assessing officer to assess or reassess the total income on which a person can be said to be assessable under the provisions of the Act. The first proviso to section 153A covers the income which is to be assessed i.e. emanating not only, from the declared sources but also from any material found during the cours....
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.... on / initiation of proceedings under Section 153A, the proceedings pending in appeal, revision or rectification proceedings finalized assessment/ against reassessment shall not abate. It is only because, the finalized assessments/reassessment do not abate, the appeal, revision or rectification pending against finalized assessments/reassessments would not abate. Therefore, the argument of the revenue, that on initiation of proceedings under Section 153A, the assessments/reassessments finalized for the years covered under Section 153A of the Income-tax Act stand abated cannot be accepted. Similarly on annulment of assessment made under Section 153A (1) what stands revived is the pending assessment/reassessment proceedings which stood abated as per section 153A(1). 11) In the present case, as contended by Shri Mani, learned counsel for the assessee, the assessment for the assessment year 1998-99 was finalised on 29-12-2000 and search was conducted thereafter on 3-12-2003. Therefore, in the facts of the present case initiation of proceedings under Section 153A would not affect the assessment finalised on 29-12-2000. 12) Once it is held that the assessment finalised on 29.12.2000 has a....
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....dings and it is only the assessment made under s. 153A of the Act that would be the assessment for the said year. 23. The necessary corollary of the above second. proviso is that the assessment or reassessment proceedings, which have already been 'completed' and assessment orders have been passed determining the assessee's total income and such orders are subsisting at the time when the search or the requisition is made, there is no question of any abatement since no proceedings are pending. In such cases, where the assessment already stands completed, the AO can reopen the assessments or reassessments already made without following the provisions of ss. 147, 148 and 151 of the Act and determine the total income of the assessee. 24. The argument raised by the counsel for the appellant to the effect that once a notice under s. 153A of the Act is issued, the assessments for six years are at large both for the AO and assessee has no warrant in law. 25. In the firm opinion of this Court from a plain reading of the provision along with the purpose and purport of the said provision, which is intricately linked with search and requisition under ss. 132 and 13....
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....e is to be determined after deduction the municipal taxes paid by the owner." 2. 'On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in holding that Rs. 13,81,420/- being 62.60% of legal and professional expenses of Rs. 22,06,740/- are allowable expenses against business income, without appreciating the fact that the expenditure has been incurred on development of property to be let out on rent or the property that has already to the service charges income against which the claim was directed to be allowed." 3. "On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in allowing foreign travel expenses of Rs. 30,43,980/- without appreciating the fact that the assessee had not substantiated the claim with any documentary evidence in support of its business purpose and justification." 4. "On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in holding that Rs. 1,25,342/- being 62.60% of commission and brokerage payment of Rs. 2,00,226/- are allowable expenses against business income without appreciating that commission is always paid towar....
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....vered by the decision of Hon'ble Calcutta High Court decision in the case of Gillarders Airbhtrot and Co. Ltd., reported in 142 ITR 598, it is also covered by series of Tribunal decisions in the case of the assessee, right from the assessment year 1997-98 to assessment year 2005-06. The Ld. CIT(A), following the earlier orders of the CIT (A) as well as of the Tribunal directed the Assessing Officer not to reduce the amount of municipal taxes from the ALV for the purpose of computing the income under the head "house property". 15. We find that the Tribunal in its consolidated order dated 27.04.2012 for the assessment year 1997-98 to 2005-06, has decided the aforesaid issue in the following manner :- "We have heard the arguments of both the sides on this issue and also perused the relevant material on record. As found by the learned CIT(Appeals) on perusal of relevant lease agreement, the burden of municipal taxes in respect of properties let out by the assessee was borne by the tenants and there is nothing brought on record before us to controvert or rebut this finding off act recorded by the learned CIT(Appeals). Proviso to section 23 lays down in very clear terms that ....
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....ntal Income Service Charges % of rental income to the total receipts % of service charges to the total receipts 2002-03 8,31,18,071 8,06,42,717 50.76% 49.24% 2006-07 20,09,99,756 33,67,02,897 37.40% 62.60% 2007-08 24,44,69,390 32,69,41,304 46.53% 53.47% 2008-09 46,62,41,058 25,04,66,319 65% 35% Accordingly, he reworked out the disallowances in accordance with the above directions, as under: AY Rental Income Service Charges % of rental income to the total receipts % of service charges to the total receipts 2002-03 2,18,268 50.75% 1,10,792 1,07,476 2006-07 22,06,740 37.40% 8,25,320 13,81,420 2007-08 2,25,030 46.53% 1,04,706 1,20,324 2008-09 1,02,82,794 65% 66,83,816 35,98,978 18. The aforesaid view of the CIT (A) has been affirmed by the Tribunal in the following manner: 19. We have heard the arguments of both the sides on this issue and also perused the relevant material on record. It is observed that the details of legal and professional charges paid by the assessee in the year under consideration were....
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....aised vide ground no. 3. 21. The assessee has debited director's foreign travel expenses incurred by the assessee in various assessment years. The Assessing Officer required the assessee to furnish the details of foreign travelling expenses and justification of the claim. In response, the assessee submitted that the clientele from whom the rental income are being received are foreign based companies and hence in order to fetch more business and also to retain existing foreign clientele, the directors of the company need to undertake foreign travel to lease and negotiate within foreign companies. However, the Assessing Officer did not accept the assessee's contention and disallowed the foreign travelling expenses claimed by the assessee. 22. Before the CIT(A), the assessee has filed detailed submissions and also pointed out that the similar disallowance have been deleted by the CIT (A) in the earlier years and also affirmed by the Tribunal. The Ld. CIT (A) after noting down the entire facts, held that this issue is covered in favour of the assessee by the order of the CIT (A) and the Tribunal for the earlier years. 23. We find that the assessee is in the business of develop....
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....the earlier years by the CIT (A) and such a methodology of allocation has also been approved by the Tribunal. The Ld. CIT (A) has directed the Assessing Officer to disallow in the ratio of rental and service charges, which has been dealt at page 16 of the appellate order. Since this methodology is conformity with the earlier years, approved by the Tribunal, accordingly, we also affirm the same that the brokerage and commission which is allocable to earning of service charges is allowable and which is allowed to rental income is to be disallowed. Ground no. 4 as raised by the revenue is thus, dismissed. 27. In ground no. 5, the revenue has challenged deletion of addition of Rs. 1,12,87,068/- made by the Assessing Officer under the head "income from other sources" on account of undisclosed income in respect of transaction in relation to accommodation bills, which CIT (A) though has confirmed the action of the Assessing Officer that it is to be added however has directed the Assessing Officer to reduce it from the work-in-progress as these are related to cost of the project. Briefly stated the relevant facts are that, the Assessing Officer observed that during the course of se....
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....he capital work-in-progress, therefore, the assessee has neither inflated any expenses nor has under-stated the taxable income and no benefit would have arrived to the assessee for taking such accommodation bills. The Assessing Officer however rejected the contention of the assessee after detail discussion and reasons given in the order, added the amount on account of alleged accommodation entry to be taxable as "income from other sources". After making the addition in the aforesaid manner the Assessing Officer further observed that the assessee is constructing Mall at Lower Parel, which is let out on rentals and such material purchased increases the capital work-in-progress by way of introduction of bogus bills for purchases and further the capital WIP is part of the net block of the assessee and therefore, net WIP to the extent of bogus bills is reduced from the relevant previous year and the assessee was required to carried forward the modified net WIP in the following manner: AY 2006-07(Rs.) 2007-08 (Rs.) 2008-09 (Rs.) The Net Capital WIP as per Balance 26,06,36,296 96,96,39,053 178,16,91,793 The reduction in Capital WIP due to bogus bills as Discusse....
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....acter of 'undisclosed' money, which should be taxed under the provisions of the Income-tax Act. If the assessee has received the cash back, the then source of it was already part of the books of account. Further, once the Assessing Officer has adjusted the bogus purchases by reducing the WIP then effect of bogus purchase has already been given by the Assessing Officer. There is no question of further adding the said amount as undisclosed income, because it amounts to "double taxation". Reliance was placed on various decisions in this regard, in support of his contention. The Ld. CIT (A) agreed with the contention of the assessee that, if the Assessing Officer has reduced the work-in-progress (WIP) to the extent of bogus purchases, which action too has been confirmed by him, then further addition of the same cannot be made as "income from other sources". No evidence of receipt of the cash or availability of the cash was found during the course of search and seizure proceedings. Thus, he held that no further addition of this kind should be made in the form of "income from other sources". The relevant finding of CIT (A) in this regard reads as under: 19.0 The reasons stated b....
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....A) has already confirmed the action of the Assessing Officer that the alleged purchase transaction of the materials has been found to be not genuine as these parties have admitted that they were providing accommodation entries. Therefore, whether the purchases are genuine or not the same is not the subject matter of dispute or issue before us. The assessee has constructed a Mall at Lower Parel in relation to which huge purchase of building materials were made. Some of the bills for the purchase of materials have been held to be bogus on the ground that these were taken from the parties who are providing accommodation entries. The Assessing Officer has reduced the capital work-in-progress by quantum of such alleged bogus purchase in the following manner: AY 2006-07(Rs.) 2007-08 (Rs.) 2008-09 (Rs.) The Net Capital WIP as per Balance 26,06,36,296 96,96,39,053 178,16,91,793 The reduction in Capital WIP due to bogus bills as Discussed 1,12,87,068 2,35,29,537 4,05,88,531 The revised Capital WIP the A.Y. 24,93,49,228 94,61,09,516 174,11,03,262 Such reduction of WIP has been confirmed by the CIT(A), against which, the assessee has not pref....
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....duction the municipal taxes paid by the owner.' 2. "On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in holding that Rs. 1,20,324/- being 53.47% of legal and professional expenses of Rs. 2,25,030!- are allowable expenses against business income, without appreciating the fact that the expenditure has been incurred on development of property to be let out on rent or the property that has already to the service charges income against which the claim was directed to be allowed." 3. "On the facts and in the circumstances of the case and in Law, the Ld CIT (A) erred in allowing foreign travel expenses of Rs. 44,65,498/- without appreciating the fact that the assessee had not substantiated the claim with any documentary evidence in support of its business purpose and justification." 4. "On the facts and in the circumstances of the case and in law, the Ld. CIT (A) while confirming the reduction in the WIP, erred in deleting addition of Rs. 2,35,29,537/- made by the Assessing Officer under the head Income from Other Sources' on account of undisclosed income by way of cash received back in respect of th....
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....lized for an amount of Rs. 8 crores. However, the assessee has recorded the payment of Rs. 4 crores paid to these two concerns in the books of account. Accordingly, the Assessing Officer inferred that Rs. 4 crores must have been paid in cash to Mr. Nathmal Sharma. The assessee completely denied the transaction of cash of Rs. 4 crores with Mr. Nathu Maharaj and submitted that the assessee had authorized Mr. Siva to negotiate with Mr. Nathu Maharaj for vacating his premises. The final deal was struck on Rs. 4 crores only. In the e-mail paper Mr. Siva is merely informing to Mr. Bharat Bajoria, the terms proposed by Mr. Nathu Maharaj initially. On such proposal Mr. Bharat Bajoria, Director of the assessee company has put his remark that if the deal is to be finalised then "pay Rs. 8 crores in cheque only". However, later on, this amount was found to be too high and excessive particularly looking to the market rate, therefore, Mr. Siva re-negotiated the proposal at the a lower price of Rs. 4 crores in cheque, which was full and final settlement for the surrender of the tenancy rights. There cannot be any inference of payment of cash, which is neither b....
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.... 2141 20000000 20000000 40000000 13683 4 Maruti Mistan Bhandar 3.7.2006 1532 20000000 20000000 40000000 26110 Further, he observed that, if the cash compensation paid to M/s Paridhi Udyog and M/s Runit Creation has been admitted by the assessee, then the similar nature of payment of cash of Rs. 4 crores to these two parties cannot be ruled out and accordingly, he confirmed the said addition. 38. Before us, the Ld. Counsel, Shri Vijay Mehta, submitted that the only evidence relied upon by the Assessing Officer is the email print-out which firstly, suggests "negotiation" between the parties and not final settlement and the amount of Rs 8 crores have been mentioned as a gross amount. The landlord share was approximately 33.33% which was to be deducted to arrive at net payable amount. Therefore, the net proposal if at all was for 5.34 crores and since same was on a much higher side the deal was closed finally at Rs. 4 crores which was paid in cheque. Secondly, he submitted that, if the print-out of the email is to be strictly construed, then it is categorically mentioned in said paper itself that sum of Rs. 8 crores is to be p....
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....dural part to get possession of the premises. They have agreed to vacate the premises before 30th June, 2006. Payment will be 30-35% upfront and balance on vacating the premises". There are further hand written jottings, that how the payment is to be made and how much would be the share of landlord and finally it mentions that Rs. 8 crores should be made by "cheque only". The assessee's contention is that, finally only Rs. 4 crores was only paid and that to be by cheque only, which is recorded in the books and other sum of Rs. 4 crores was not paid at all as after negotiation the amount finally agreed was Rs. 4 crores. There is no evidence found for payment of cash. On the other hand, the revenue's case is that, in case of other two similar parties, the assessee has surrendered cash payment of Rs. 3.85 crores and, therefore, the inference can be drawn that assessee must have paid Rs. 4 crores in cash. 41. We find that other than this e-mail print-out, there is no evidence with the Department that the assessee has paid any amount of Rs. 4 crores in cash to the parties. However strong inference may be drawn by the department on this e-mail pri....
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....0000000 20000000 40000000 18683 4 Maruti Mistan Bhandar 03.7.2006 1532 20000000 20000000 40000000 26110 From the above table it is quite a glaring fact emerges that, in the first two cases, in the year 2007 the rate per sq. ft. is 17,000/- and more per sq. ft., whereas, one year prior i.e. in 2006, the per square feet rate if the cash component is to be included then it comes to more than Rs. 18,000/- and even gone upto more than Rs. 26,000/-, which seems to be improbable to believe that the rate for the same area and same location would be higher in the earlier year and lower in the subsequent year. This fact noted by the CIT (A) itself, goes in favour of the assessee and corroborates the stand of the assessee. Thus, in absence of any evidence or material on record to prove that assessee has paid any amount in cash over and above the amount shown in the books or without there being any enquiry, such an addition made by the Assessing Officer and confirmed by the CIT(A), cannot be sustained and accordingly, the amount of Rs. 4 crores added u/s 69C is deleted. In view of the finding given above, ground no. 2 is purely academic and sa....
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....arges paid by the assessee in the year under consideration were furnished before the AO as well as before the learned CIT(Appeals) and after analyzing the nature and purpose of the said expenditure, it was held by the AO as well as by the learned CIT(Appeals) that the same to the extent of Rs. 9,21,120/- was not incurred for the purpose of assessee's business. The same was incurred mainly in relation to immovable properties of the assessee which was given on rent or which was to be given on rent after completion of development. The said expenditure thus was incurred by the assessee in relation to earning of rental income which was chargeable to tax under the head "Income from house property" and since there was no deduction allowable on account of the said expenditure under the head "Income from house property" as per the relevant provisions of section 24, we are of the view that the expenditure claimed by the assessee on account of legal and professional charges to the extent of Rs. 9,21,120/- was rightly disallowed by the authorities below. As regards the reliance placed by the learned counsel for the assessee on the decision of the Tribunal on the similar issue in asse....
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...., no disallowance of interest is called for. The assessee also submitted the availability of own funds and investments made in various assessment years in the following manner :- Particulars AY 2008-09 AY 2007-08 AY 2006-07 Share Capital 27,13,57,560 12,25,00,000 12,25,00,000 Reserves & Surplus 14,09,65,39,500 1,97,33,92,857 37,53,69,773 Total Own Funds available 14,36,78,97,060 2,09,58,92,857 49,78,69,772 Investments 5,73,19,57,028 18,73,46,687 6,48,98,444 Thus, the investments have been made on account of own internal accruals and not from borrowings. Apart from that, the assessee also gave the details of usage of funds in the following manner :- Usage of Funds Rs. In Crores Investment in Mutual Funds 373.55 Other Investments 180.44 Investment in projects 358.29 Intercorporate Deposits 26.5 Repayment of Bank Loans 121 Repayment of unsecured Loans 45.35 Expenses 45.35 Loans to Subsidiaries 62.06 Capital Work in Progress 80.63 Total 1297.72 Reliance was placed on the decision of Hon'ble Bombay High Court in the case of CIT vs Reliance Utilities and Pow....
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....fore us, the Ld. Counsel, Shri Vijay Mehta, submitted that before resorting to disallowance under Rule 8D, Assessing Officer is required to record his satisfaction regarding the correctness of the claim of the assessee made before him which he has not done so. Once the conditions of section 14(2) has not been fulfilled then entire disallowance made by the Assessing Officers deserves to be quashed and in support of his contention, he relied upon following decisions :- - M/s Graviss hospitality Ltd v DCIT in ITA 3542/M/2013(AY 09-10) - 3DPLM Software Solutions Ltd. v ITO in ITA 5736/M/2012(AY 08-09) 49.1 Secondly, he submitted that the major investments have been made in the subsidiary/group company for controlling interest and therefore same was for business purpose and hence no disallowance u/s 14A can be made to that extent. In support, he relied upon the following decisions: (a) M/s Garware Wall Ropes Ltd vs Addl. CIT in ITA 5408/M/2012(AY 09-10); (b) CIT v Oriental Structural Engineers Pvt Ltd in ITA 605/2012 (Delhi High Court); (c) M/s JM Financial Ltd vs Addl. CIT in ITA 4521/Mum/2012(09-10) 49.2 As an alternative he submitted....
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....er and above attributed by the assessee can be made. Ld. Assessing Officer though accepted that no expenditure is to be disallowable under clause (i) and (ii) of Rule 8D(2), however, has proceeded to make disallowance on account of indirect expenditure by applying the formula given in clause (iii) of Rule 8D(2), which is 0.5% of the average value of investment. Before resorting to compute the disallowance under section 14A read with Rule 8D(2), nowhere the Assessing Officer has recorded his 'satisfaction' or expressed in any terms that he is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred in relation to the exempt income, having regard to the accounts of the assessee. The disallowance u/s 14A(1) can be made only when the assessee while computing the total income, claims any expenditure which is or can be said to be attributable for earning of the exempt income i.e. income which do not form part of the total income. Such a disallowance can be made/quantified in accordance with the provisions of sub-section (2) of section 14A. In other words, disallowance u/s 14A(1) can only be triggered, once the conditions laid down sub-section (2)....
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....thout appreciating the fact that the expenditure has been incurred on development of property to be let out on rent or the property that has already to the service charges income against which the claim was directed to be allowed." 3. "On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in allowing foreign travel expenses of Rs. 29,29,756/- without appreciating the fact that the assessee had not substantiated the claim with any documentary evidence in support of its business purpose and justification." 4. "On the facts and in the circumstances of the case and in law, the Ld. CIT (A) while confirming the reduction in the WIP, erred in deleting addition of Rs. 4,05,88,531/- made by the Assessing Officer under the head 'Income from Other Sources' on account of undisclosed income by way of cash received back in respect of the transactions relating to accommodation bills." 5. "On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in restricting disallowance u/s 14A read with Rule 8D to Rs. 66,29,506/- as against Rs. 1,47,98.260/- by considering additional evidence without ....