TaxTMI 
TaxTMI 
2026 (9) TMI 678
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....e which is against the provisions of law and principles of natural justice. 3. The Ld. CIT(A) has erred in upholding the addition made u/s 14A for a sum of Rs. 37,92,420/- by the Assessing Officer, without judiciously considering the factual matrix that there is no nexus with interest expenditure claimed on borrowings and the investment in the related concerns for the expediency of assessee's business. 3.1. The Ld. CIT(A) ought to have appreciated the fact that the assessee was not in receipt of any exempt income from the investments in subsidiaries and associate companies and no related expenditure has been incurred and debited to P&L a/c for making the above investments as the investments were made wholly out of internally generated funds. 3.2. The Ld. CIT(A) ought to have appreciated the fact that the investments were made long back out of reserves and surplus of the company but not out of borrowed funds of the company and hence the disallowance made u/s 14A of the Act is against the principles of natural justice and bad in law. 3.3. The Ld. CIT(A) grossly erred by not considering the detailed submission and clarifications made by the appe....
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....grounds : "8. The Ld. CIT (A) ought to have considered that the AO erred in issuing notice u/s 143(2) of the Act dated 09.08.2018 without complying to the CBDT Instruction F.No. 225/157/2017/ІТА-П dated 23.06.2017 and thus, the notice issued u/s 143(2) is invalid, and the assessment deserves to be quashed. 9. Appellant may, add or alter or amend or modify or substitute or delete and/or rescind all or any of the grounds of appeal at any time before or at the time of hearing of the appeal." 4. The brief facts of the case are that the assessee company, M/s. Nagarjuna Fertilizers and Chemicals Limited, is engaged in the business of manufacturing and trading of fertilizers/fertilizer products and micro-irrigation systems, filed its return of income for the A.Y. 2017-18 on 27.11.2017, admitting a loss of Rs. 84,96,50,247/- under the normal provisions of the Income Tax Act, 1961 and book loss of Rs. 461,21,07,593/- under section 115JB of the Income Tax Act, 1961. The case was selected for scrutiny and the assessment was completed under section 143(3) of the Act, on 19.12.2019 and determined the total loss at Rs. 68,44,79,266/- by making various....
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....O. under section 143(3) of the Act, dated 19.12.2019. 9. The learned counsel for the assessee company, Shri P. Murali Mohan Rao, C.A. referring to the assessment order passed by the A.O. and the consequent addition made towards short-term capital gains of Rs. 11,00,00,000/- submitted that the A.O. has passed the assessment order u/s 143(3) of the Act, and made addition towards short-term capital gains on the basis of information received from the DDIT (Investigation), Unit-3(2), Chennai and as per which, a search and seizure operation under section 132 of the Act, was initiated on 09.11.2017 in the residential premises of Mrs. D. Sasikala, wife of Rajarajan (a close relative of Mrs. V.K. Sasikala) and during the course of search, the laptop used by Mrs. V.K. Sasikala was seized. The A.O. further noted that, as per the information received from the DDIT (Investigation), the laptop contained certain details relating to the purchase of windmills from various parties, including the assessee company, by M/s. Array Land Developers Pvt. Ltd., and as per specific information, M/s. Array Land Developers Pvt. Ltd. had purchased a 2,100 KW windmill from the assessee company, M/s. Nagarjuna....
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....ailable on record and had gone through the orders of the authorities below. There is no dispute with regard to the fact that the A.O. had considered the information received from the DDIT (Investigation), Unit-3(2), Chennai, for the purpose of assessment of short-term capital gains of Rs. 11,00,00,000/- derived from the sale of windmills to M/s. Array Land Developers Pvt. Ltd. As per para 6.1 of the assessment order, the A.O. has specifically referred to the information received from the DDIT (Investigation), Unit-3(2), Chennai and the consequent material found during the course of search under section 132 of the Act, in the case of Mrs. D. Sasikala, wife of Rajarajan. According to the A.O., a search under section 132 of the Act, was initiated on 09.11.2017 in the premises of Mrs. D. Shakila, wife of Rajarajan, and during the course of search, a laptop used by Ms. V.K. Sasikala was seized, which contained the details relating to the sale of windmills by the assessee company to M/s. Array Land Developers Pvt. Ltd., wherein the actual sale consideration was recorded at Rs. 62,00,00,000/-, whereas the assessee company had considered the transaction at Rs. 51,08,94,000/-. Therefore, th....
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....zed or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made. From a plain reading of sections 153A and 153C of the Act, it is very clear that, in case of a search under section 132 or requisition under section 132A, if any information relevant to a third person is found, then the said information shall be handed over to the A.O. having jurisdiction over such other person, and the A.O. of such other person shall issue notice under section 153C and assess or reassess the total income for the relevant assessment years. Further, the second proviso to section 153A deals with abatement of assessment and, as per the said proviso, the assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years preceding the assessment year relevant to the previous year in which the search is initiated under section 132 of the Act or requisition is made under section 132A, as the case may be, shall abate. In other words, if any assessment proceedings relating to ....
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....ssment order passed by the A.O. under section 143(3) of the Act, becomes invalid and is liable to be quashed. 14. The assessee company has relied upon the decision of the ITAT, Delhi Bench in the case of Seema Jain Vs. DCIT (supra). The Coordinate Bench of the Tribunal, ITAT, Delhi Bench had considered an identical issue relating to an assessment order passed by the A.O. under section 143(3) of the Act, and the consequent information considered by the A.O. in pursuant to the search action conducted under section 132 of the Act and after considering the relevant provisions of the Act, and also following its earlier decision in the case of Vaibhav Jain Vs. DCIT in ITA No.1334/Del/2024 dated 15.10.2024 held as under : "6. The Ld AR has submitted that the order passed by AO is without jurisdiction and liable to be quashed. The assessment for A.Y.2021-22 has been wrongly framed u/s 143(3) of the Act by ignoring the mandatory provision of the section 153C of the Act. The case is squarely covered by Hon'ble ITAT judgement in the case of Akanksha Gupta vs ACIT Central circle 04 Delhi ITA no 3074/Del/2023. The relevant portion of Hon'ble Tribunal finding are as under :- ....
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.... TMI 350 7. Shalimar Town Panners Pvt. Ltd. Vs. ACIT Central Circle - 23 New Delhi 2020 (7) TMI 47 8. The Ld AR has submitted that for the assessment proceedings u/s 153C of the Act, the period of six years immediately preceding the assessment year relevant for the previous year, in which search was conducted has to be reckoned from the date of receipt of the documents by the AO of the assessee which is 10-05-2022 and accordingly assessment years relevant for the previous year in which search was conducted is AY.2023-2024 and the six assessment years immediately preceding the assessment year, relevant for the previous year in which search was conducted will be AY 2018-20 to 2022-23. He has also submitted that in the present case assessment proceedings for AY 2021-22 should have been framed u/s 153 C of the Act after issuance of notice u/s 153C of the Act. The Ld AR has further submitted that in the present case assessment year i.e.2021-22, it was wrongly framed u/s 143(3) of the Act by issuing the notice u/s 143(3) of the Act on 30-06- 2022 along with notice u/s 153C of the Act for Assessment years 2015-16 to 2021-2022." 15. In this view of the matter and consi....
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.... has to be disallowed, but the section does not speak about actual exempt income earned during the year under consideration. The investments made by the assessee company are capable of earning exempt income and the assessee company has not made any suo motu disallowance of expenditure relatable to exempt income. Further, the CBDT, vide Circular No. 5/2014 dated 11.02.2014, has also clarified that disallowance can be made of the expenditure even if the taxpayer, in a particular year, has not earned any exempt income. Therefore, the A.O. and the learned ADDL/JCIT, after considering the relevant facts, have rightly disallowed the expenditure relatable to exempt income under section 14A r.w.r. 8D of the I.T. Rules, 1962 and, therefore, the order of the learned ADDL/JCIT should be upheld. 19. We have heard both the parties, perused the material available on record and had gone through the orders of the authorities below. There is no dispute with regard to the fact that the assessee company has not earned any exempt income for the year under consideration. In fact, the A.O. has not disputed the fact that the assessee company has not earned any exempt income during the relevant previou....
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....wards disallowance u/s 14A r.w.r. 8D of I.T. Rules, 1962 while computing the book profit under section 115JB of the Act. 22. The next issue that came up for our consideration from Ground Nos.4 to 4.2 of the assessee company's appeal is the addition of Rs. 4,89,66,989/- towards disallowance of forex loss. The A.O. disallowed forex loss of Rs. 4,89,66,989/- on the ground that the loss incurred by the assessee company mostly consists of restatement loss, loss on forward contracts, derivative liabilities and is in the nature of capital and speculative loss. 23. The learned counsel for the assessee company, referring to the details of loss incurred by the assessee company, submitted that the assessee company had incurred revenue loss on account of exchange fluctuation arising on supply of raw materials, restatement of liabilities on account of loans and interest payments and also exchange fluctuation loss on amortization of premium on forward contracts. The loss incurred by the assessee company is revenue loss on account of hedging foreign currency for possible fluctuations and the forward contracts entered into by the assessee company with bankers are supported by underlying ....
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....es and also loss on account of advances and interest receivables, which are purely revenue in nature. Further, as per Accounting Standards-11 issued by the ICAI, any loss on account of fluctuation in foreign currency should be accounted for in the books of account as on the balance sheet date, either on settlement or restatement of liabilities, by taking into account the value of currency in which such liability is denominated and any loss or gain arising therefrom should be accounted for as income or expenditure, as the case may be. This principle is further supported by the decision of the Hon'ble Supreme Court in the case of Woodward Governor India Pvt. Ltd., (supra) wherein the Hon'ble Supreme Court has dealt with the issue in detail and, by considering the relevant Accounting Standards issued by the ICAI, has held that if the forex loss is on revenue account, the same should be treated as expenditure and, if the forex loss is on capital account, the same should be treated as capital in nature and adjusted against the relevant assets or liabilities. Since the loss incurred by the assessee company is on revenue account, the A.O. ought not to have disallowed the forex los....
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....essee company had also computed the resultant capital gains separately for land and sale of the windmills. Therefore, the addition made by the A.O. solely on the basis of third-party information is incorrect and cannot be upheld. 29. The learned CIT-DR for the Revenue, on the other hand, supporting the order of the learned ADDL/JCIT, submitted that, the information received from the DDIT (Investigation) clearly shows a difference between the actual consideration for the sale of windmills and the consideration accounted for by the assessee company in its books of account. The assessee company has not explained the said difference. Therefore, the A.O. has rightly made the addition of Rs. 11,00,00,000/- under the head "Short Term Capital Gains". The learned ADDL/JCIT, after considering the relevant facts, has rightly sustained the addition made by the A.O. Therefore, she submitted that the order of the learned ADDL/JCIT should be upheld. 30. We have heard both the parties, perused the material available on record and had gone through the orders of the authorities below. We have also carefully considered the reasons given by the A.O. and the learned ADDL/JCIT for making the addit....