TaxTMI 
TaxTMI 
2025 (2) TMI 1581
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....of search and seizure carried out us 132 of the Act. 1 (b) That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in not considering the cardinal principle of law that the scope of assessment u/s 153A in respect of completed/unabated assessment is limited only to undisclosed income unearthed during the course of search 1 (c) That on the facts and in the circumstances of the case, the Ld CIT(Appeals) was not justified and grossly erred in holding incriminating materials were unearthed during the course of search & seizure carried out u/s 132 of the Act in utter disregard of the facts of the case. 1 (d). That on the facts and in the circumstances of the case and without prejudice to Ground No. 1(a), 1(b) & 1(c) taken herein above, the Ld CIT (Appeals) was not justified and grossly erred in confirming additions made u/s 69A of alleged inflated capital expenditure without appreciating the fact that no incriminating material had been found referable to the assessment year under consideration, during the course of search & seizure carried out u/s 132 of the Act. 1(e) That on the facts and in the....
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....mitted a modified computation of income along with a revised return, wherein an enhanced claim of depreciation, including on goodwill, was made. The assessee asserted that such revision was necessitated due to a scheme of amalgamation involving the Technical Ammonium Nitrate and Fertilizers' unit, which had been duly sanctioned by the Hon'ble National Company Law Tribunal (NCLT) on 30.03.2017. Notably, this sanction was granted subsequent to the filing of the original return of income. However, the said revised return was filed beyond the statutory period prescribed under the Act for revising returns. Consequently, the Assessing Officer (AO) treated the revised return as non-est in law and did not take it into consideration while passing the assessment order under Section 143(3) of the Act on 27.12.2017. Aggrieved by the said order, the assessee preferred an appeal before the Ld. First Appellate Authority challenging the non-consideration of the revised depreciation claim. It is stated that the said appeal is presently pending adjudication. 2.1 Subsequently, a search and seizure action u/s 132 of the Act was carried out on 15.11.2018 on the assessee along with other enti....
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....hat no incriminating material had been found qua the additions/disallowance made during the year under consideration and being non abated assessment, no addition could have been made in the case of the assessee for the year under consideration. This claims of assessee, need to be examined qua each addition/ disallowance, which has been disputed before us. 4.1 The assessee also made an alternative prayer that no fresh claim for deduction or allowance could be made in the return filed in response to notice under section 153A of the Act and therefore the claim of depreciation on intangible assets and provision for doubtful debts are not tenable 4.2 In ground No. 2, the assessee has challenged disallowance of depreciation on goodwill on merit. In ground No. 3, the assessee has challenged addition of undisclosed income on account of inflated capital expenditure on merit. In ground No. 3, the assessee has challenged disallowance of provision for doubtful debts on merit. In view of above, we are adjudicating the grounds in respect of each addition/disallowance. 4.3 Firstly, we are taking issue of disallowance of depreciation on intangibles including goodwill. The facts in brief q....
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....tilizer'. 4.6 In second stage 'Fertichem' demerged/transferred TAN and fertilizer undertaking to Smartchem' i.e. assessee w.e.f. 01.01.2015 at fair market valuation of Rs. 2,517 Crores under demerger scheme. Against the said demerger/transfer 'Smartchem' (i.e. the assessee) allotted equity shares to the shareholders of Fertichem' (i.e. Deepak Fertilizers) as per share entitlement ratio of 1:1. Out of above fair market value of Rs. 2,517 crores determined, the 'intangible asset' in the form of goodwill was valued at Rs. 1777,73,12,360/-. 4.7 Pursuant to the NCLT order, the books of account of all the three entities were revised from appointed date i.e. 1/01/2015. Consequently, no transfer of intangibles under slump sale on unit from 'Deepak Fertilizers' to 'Fertichem' was recorded, but on transfer of same unit via demeger from 'Fertichem' to 'Smartchem', intangibles at Rs. 1777,73,12,360/- was recorded in the books of account of the assessee and depreciation on the intangible asset was claimed. 4.8 In this arrangement, the 'TAN' and 'fertilizer' unit were transferred by way of a slump sale/ ....
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....CLT, Mumbai and the Assessing Officer has not raised any objections before the NCLT. It was submitted that documents of amalgamation or demerger are available in public domain and nothing contrary has been unearthed during the course of the search. However, the Assessing Officer was of the view that entire facts regarding the tax implications and the real intent of the scheme was not before the Hon'ble NCLT. 4.10 During the appellate proceedings before the Ld. CIT(A), the assessee contented that no incriminating material was found qua the depreciation on the goodwill as all the documents in respect of scheme of slump sale and demerger were already available in the public domain and only statement or questions and answer were made during the course of the search proceedings without any incriminating material found during the course of the search. The Ld. CIT(A) however is of the opinion that the assessment was made on the basis of the documents which were not produced in the course of the original assessment proceedings and found in the course of the search. According to him it was revealed during the course of the search that entire scheme of business arrangement was a sham ....
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.... cannot be entertained following the finding of the Hon'ble Special Bench (supra). The ld DR did not object to the prayer of the assessee for not pressing the ground of depreciation on goodwill being a fresh claim. 4.12 We have carefully considered the rival submissions of the parties and have perused the relevant material on record concerning the validity of the additions made under the Section 153A proceedings. Since the assessee has made an alternative prayer, contending that its claim for depreciation on goodwill/intangibles is legally untenable under Section 153A, we deem it appropriate to refrain from adjudicating on the issue of the existence of incriminating material in relation to the matter in dispute and accordingly, leave this issue open. Furthermore, the assessee's contention that a fresh claim cannot be entertained under Section 153A finds support in the decision of the Special Bench of the Tribunal (supra). The relevant part of said decision is reproduced as under: "33. In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that the assessee cannot make a fresh claim of deduction under Cha....
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....ssessee is permitted to withdraw said claim and the relevant grounds are rendered infructuous. 5. The ground No. 4 of the appeal relates to disallowance of provision of the doubtful debt amounting to Rs. 30 lakhs. The Ld. counsel for the assessee submitted that while filing the original return of income for computing the total income u/s 115JB of the Act, provision for doubtful debt amounting to Rs. 30 lakhs was added to the book profit but same was not added while computing income under the normal provisions of the Act. It was submitted that assessee had not disallowed the same while computing income under the normal provisions as same was highly probable to become bad debt and thus assessee company had not disallowed the same. The assessee claimed in 153A assessment proceedings for allowing the said claim as bed debt written off. The Ld. counsel submitted that this claim was also not made in the regular return of income filed and therefore, assessee is not eligible for making fresh claim in the return filed in response to notice u/s 153A of the Act. The ld DR did not object to the arguments of the learned counsel for the assessee for not pressing this ground for the reason tha....
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....o entities namely M/s Onshore Construction Company and M/s Ray Construction Pvt. Ltd. The relevant finding of the Assessing Officer is reproduced as under: "5.12 It is clear from the above facts and evidences found during the course of search proceedings that the company has booked inflated capital expenditure with Onshore Construction Co. Put. Ltd. and Ray Construction Ltd. 5.13 Evidences in form of documents, mobile data, computer data etc. were seized/ impounded during the course of search and survey operation on Deepak Group. They are analyzed in detail as under: - 5.14 It is seen that during the course of Search Proceedings u/s 132 at Deepak Group. In the statement recorded u/s 132(4) of the Act, Shri Pandurang Landge has admitted that he was involved in the transactions of booking of inflated capital expenditure for Deepak Group. The same is explained in the messages communication which were found and Seized from the Mobile backup of Shri Pandurang Landge. On perusal to the communication, it is seen that Shri Pandurang Landge has arrange cash from above said 4 parties on behalf of CMD Sailesh Mehta and the assessee company. 5.15 The convers....
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....45,067 48,53,865 5.20 The seized documents and data backup of mobile messages as mentioned above in detailed speaks of booking of inflated capital expenditure by the assessee company and the same has been received back in cash. Also, the money received by the assessee in cash is outside the books of accounts. Thus, cash received by the assessee company outside the books of accounts at the time of booking of capital expenditure becomes the income of the assessee. The cash received by the assessee partakes of the character of commercial receipts of the assessee and is therefore, liable to be assessed as income according to the accepted principle of commercial accounting. The statement recorded u/s 132(4) is validly recorded statement by authorized officer and has evidentiary value. The statement recorded u/s 132(4) of Income Tax Act, 1961 of Shri Sailesh Mehta (CMD) and all the Key Personnel's of Deepak group are fully supported by the document sized and data back of mobile phones i.e. digital evidence." 6.2. Before the ld CIT(A), the assessee challenged that there was no incriminating material qua the issue of capital expenditure, but ld CIT(A) rejected the conten....
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....e has also confirmed cash received of Rs. 5.60 cr from M/s Ray Construction. In the answer to question no 22 he confirms the statement given by Shri Landge that 6.7 contributions means total 6.7 cr cash handed over either to Deepak Desai and Shri Naresh Mehta as per the standing instructions. He has also accepted that the cash of Rs 10 crores was required for some work in Delhi. 8.5 From the above it is evident that the appellant is indulged in generating cash regularly from the contractors namely M/s Ray Construction, M/s Onshore Construction, Jobby Engineering Put. Ltd, and National Builders Infrastructure Pvt. Ltd. The cash is mainly handled by Shri Pandurang Landge on the instruction of Shri Shailash Mehta and the same is handed over either to Shri Naresh Mehta or Shri Deepak Desai. Thus, conclusive evidences regarding the cash receipts from the contractors namely M/s Ray Construction, M/s Onshore Construction and other parties are unearthed. It is fact that the cash received back is not recorded in the regular books of accounts. Thus, the incriminating material in the form of whatsapp messages and specific admission of cash generation by Shri pandurang Landag....
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....om the findings of the search and admission in the statement recorded is that the cash pertains to the appellant. Hence, the appellant is found to be the owner of such cash. Therefore, the same needs to be assessed in the hands of the appellant. Accordingly the contention of the appellant is rejected. 12.14 The further contention of the appellant is that the AO is not correct in adding the uncounted cash @ of 10% of the expenditure debited in the books of account. The dates of transactions as per WhatsApp messages are 8th and 9th June 2018 and hence it is outside the period covered u/s 153A of the IT act. 12.14.2 Shri Pandurang Landge in the answer to question number 31 of statement recorded u/s 132(4) of the IT act has specifically mentioned that the practice of generation of cash is followed since last 2 to 3 years. This shows the appellant is generating the cash regularly from the expenses debited to the contractors. This fact is also corroborated by the WhatsApp messages and specific admission of the same by Shri Sailesh Mehta and Shri Pandurang Landge. Hence, the AO has correctly disallowed 10% on the expenditure debited against M/s Ray construction Ltd and O....
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....assessee has correctly claimed the said interest while computing its income for the year under consideration." 6.3 The submission of the assessee has duly been considered. However, the same is not found to be acceptable. The interest is paid for default in respect to statutory liabilities and this interest cannot be treated as business expenditure. Further, interest on TDS has not incurred wholly and exclusively for the purpose of the business and therefore, the same is not allowable as deduction u/s 37(1) of the Act. Thus, interest paid on delay payment of TDS of Rs. 2,42,966/- is hereby disallowed u/s.37(1) of the Act. Penalty proceedings u/s 271(1)(C) of the Income Tax Income Tax Act, 1961 are initiated separately for furnishing inaccurate particular of income." 7.1 We have heard rival submission of the parties and perused the relevant material on record. Before us the ld Counsel for the assessee submitted no incriminating material qua the qua the disallowance of interest on delayed payment of TDS was found during the course of search action and the Assessing Officer has referred to Schedule of the Tax Auditor Report (TAR). There is no reference of any incri....
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....on'ble Supreme Court in case of Apollo Tyres Limited vs CIT has contended that the AD cannot disturb the book profit and has no jurisdiction to go behind the net profit shown in the profit and loss account, except to the extent provided in the explanation to section 115JB. 16.3.4 I have considered the contention of the appellant. As already discussed above, the appellant has debited the depreciation on artificially created intangible assets on account of slump sale and demerger. It is already held that the scheme of arrangement of transfer of asset is a colorable device with the only intent to evade the tax and accordingly the depreciation claimed on goodwill and intangible asset is disallowed. As per the clause (lia) of explanation 1 to section 115JB, the book profit needs to be reduced by the amount of depreciation debited to the statement of profit and loss account excluding the depreciation on account of revaluation of assets. Hence, as per the clause (iia) only allowable depreciation needs to be adjusted for computing book profit. The depreciation on intangible assets is due to revaluation of the same. As the depreciation claimed on the intangible assets ....