Narpat Mehta v. ACIT Central Circle-4(1)
[Citation -2016-LL-0930-211]

Citation 2016-LL-0930-211
Appellant Name Narpat Mehta
Respondent Name ACIT Central Circle-4(1)
Court ITAT-Mumbai
Relevant Act Income-tax
Date of Order 30/09/2016
Assessment Year 2005-06
Judgment View Judgment
Keyword Tags disallowance of interest • warehousing corporation • any other expenditure • interest expenditure • rule of consistency • payment of interest • genuineness of loan • search and seizure • undisclosed income • income from salary • additional ground • change of opinion • managing director • rate of interest • excess interest • exempted income • seized material • interest earned • interest income • issue of notice • interest paid • real estate
Bot Summary: In due consideration to the facts of the case, the AO disallowed assessee s claim of deduction for business expenses to the tune of Rs.1,82,715/- and interest paid on loan of Rs.1,94,749/- by holding that these expenses were of personal nature and could not be 3 ITA No. 21512153/Mum/2015 Shri Narpat Mehta Vs. ACIT allowed against income earned by the assessee. In view of the above decision, in the absence of any incriminating material in the case of the assessee, no further disallowance of interest is possible and accordingly no disallowance of such interest can be made in the case Of the assessee. The A. O. after considering the replies of the assessee held that the assessee is not able to establish the nexus between the funds used for giving interest bearing loans to other parties, on which interest has been earned; and the funds which have been taken on interest bearing loan from other parties. The AO held that the total income can be assessed de-novo of the assessee based upon sound reasoning and a well reasoned order, on any issue the alternative contention of the assessee is rejected and interest income is assessed at Rs. 99,01,472/- and claim of deduction of interest of Rs. 96,24, 943/ - against interest income was disallowed vide assessment order dated 28-03-2013 passed u/s 143(3) of the Act read with Section 153A of the Act. The assessee submitted that the A.O. erred in disallowing the assessee's claim of deduction of Rs. 47,22,282/- towards interest paid on loans while the A.O. taxed the entire interest income of Rs. 99,01,472/- on the ground that there was no direct correlation between the loan taken and loan advanced. The assessee submitted that the assessee voluntarily disallowed interest of Rs. 39,09,800/- which included an amount of Rs.90,OOO/- paid to Sh. M.J.Chotani on loan taken from him which was treated as unexplained in earlier years and an amount of Rs.38, 19,800/ - on the difference of average loan taken on which interest was paid vis-a-vis average loan given on which interest was received , at the rate of 12. 153A read with Section 143(3) of the Act in pursuance to the first search on 19.07.2007 has duly examined and allowed the claim of the assessee for deduction of interest of Rs.47,22,282/ - being interest paid on loan borrowed against the interest income earned on loans advanced by the assessee and no new incriminating material has been found or unearthed during the course of second search on 29-03-2011.


IN INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI R.C. SHARMA, AM AND SHRI SANDEEP GOSAIN, JM I.T.A. No. 2151 & 2153/Mum/2015 ( Assessment Year: 2005-06 & 2008-09) Shri. Narpat Mehta ACIT Central Circle-4(1) 901, Juhu, Harshal, Samrth Ramdas 19th Floor, Air India Building, Marg, Gulmohar Cross Road No.8, Nariman Point, J.V.P.D. Scheme, Vile Parle (W), Vs. Mumbai-400 020. Mumbai-400 049. PAN/GIR No. AAEPM 9981G (Appellant) : ( Respondent) Appellant by : Shri Vijay Mehta and Shri Anuj Kisnadwala Respondent by : Shri N.P. Singh : 20/07/2016 Date of Hearing : 30/09/2016 Date of Pronouncement O R D E R Per Sandeep Gosain, Judicial Member: There are two appeals under consideration. These appeals are filed by assessee against orders of CIT(A)- 52, dated 23.01.2015 for Asst Year: 2005-2006 and 2008-09 . Since, issues raised in these two appeals are identical, except for year of assessment therefore for sake of convenience; they are clubbed, heard and disposed of by this consolidated order. 2 ITA No. 2151&2153/Mum/2015 Shri Narpat Mehta Vs. ACIT 1. learned Commissioner of Income Tax, Appeal-52 erred in facts and in law in disallowing interest paid of Rs.1,94,715/- and business expenses of Rs.1,82,715/- against interest income of Rs.1,07,375/- received from partnership firm. Such disallowance is bad in law and same needs to be deleted. 2. brief facts of case are that assessee was employee of Kanakia Group (Kanakia Management Services) and was deriving income from salary, other sources, etc. During year, assessee was also partner in firm, viz. M/s. D.V. Corporation. He filed his return of income originally on 31/08/2006, declaring income of Rs.2,50,444/-. Later, search and seizure action u/s 132(1) of Act was carried out on Kanakia Group of companies on 29/3/2011, during course of which residential premises of assessee were also covered. Subsequently, notice u/s 153A of Act was issued to assessee on 4/1/2012. In response, assessee filed return of income on 31/1/2012, declaring total income of Rs.2,50,804/- (almost same income which was disclosed in original return of income). Thereafter, statutory notices u/s 143(2) and 142(1) of Act were issued on 9/7/2012 and 10/7/2012, followed by questionnaire dated 30/1/2013, calling for various details and clarifications. In due consideration to facts of case, AO disallowed assessee s claim of deduction for business expenses to tune of Rs.1,82,715/- and interest paid on loan of Rs.1,94,749/- by holding that these expenses were of personal nature and, therefore, could not be 3 ITA No. 2151&2153/Mum/2015 Shri Narpat Mehta Vs. ACIT allowed against income earned by assessee. Finally, assessment was completed on income of Rs.6,28,270/-, vide order dated 28/3/2013 passed u/s 143(3) read with section 153A of Act. 3. Aggrieved by order of AO, assessee preferred present appeal before CIT(A) and CIT(A) after hearing case dismissed appeal filed by assessee. 4. Aggrieved by order of CIT(A), assessee filed present appeal before us on grounds mentioned herein above. 4.1 application for filing of additional grounds of appeal has also been moved in both appeals. As per contents of letter dated 18.07.2007. It has been mentioned that no addition can be made, in respect of non-abated year, in absence of any incriminating material was raised before CIT(A). However, assessee intend to raise additional ground that disallowance made by AO is bad in law and in this respect contents of letter are reproduced below: Kindly refer to above matter which has been fixed for hearing on 18.07.2016. said appeal arises out of order of assessing officer passed u/s 143(3) of act on 28.03.2013. in appeal against said order, ground challenging that no addition can be made, in respect of non abated year, in absence of any incriminating material found during course of search was raised before ld. CIT(A) but same was dismissed. Aggrieved by order of learned CIT(A), assessee has filed present appeal before Your Honours. In grounds of appeal filed before Your Honours, ground no.1 challenges that disallowance made by assessing officer is 4 ITA No. 2151&2153/Mum/2015 Shri Narpat Mehta Vs. ACIT bad in law. It is submitted that assessee intends to raise ground stating that additions made by Assessing Officer are bad in law since they are not based on any incriminating material found during course of search. Accordingly, ground No.1 of present appeal covers assessee s argument that additions are bad in law. However, out of abundant precaution, assessee is filing additional rounds of appeal specifically challenging that additions made by assessing officer are bad in law since they are not based on any incriminating material found during course of search. It is submitted that additional grounds of appeal raise purely question of law and no new facts are required to be brought on record. It is, therefore, humbly prayed that additional rounds of appeal may kindly be admitted and adjudicated by Your Honours. In this regard, we rely upon following decisions rendered by various courts. i. National Thermal Power Corporation v. CIT [229 ITR 383 (SC)] ii. Jute Coroporation of India Ltd. v. CIT [187 ITR 688 (SC)] iii. Ahmedabad Electricity Co. Ltd. v. CIT [199 ITR 351 (Bom)(FB)] 4.2 We have heard counsel for both parties on application for raising additional grounds and considering fact that ground raised through present application is purely legal in nature and no new evidence is required to be brought on record in deciding pure question of law. Therefore considering settled ratio laid down in afore mentioned judgements we allow assessee to file/raise additional grounds of appeal. 1 learned CIT (A) erred in law and on facts in holding that Assessing Officer had jurisdiction to make additions in order passed u/s 153A r.w.s. 143(3) of Act even though said additions were not based on any incriminating material found during course of search. 5 ITA No. 2151&2153/Mum/2015 Shri Narpat Mehta Vs. ACIT 2. learned CIT(A) ought to have deleted additions made by Assessing Officer in order passed u/s 153A r.w.s. 143(3) of Act since said additions were not based on any incriminating material found during course of search. ITA No. 2151/Mum/2015 (A.Y. 2005-06) 5. Since all grounds raised by assessee are inter-connected and inter- related therefore we thought it fit to dispose off same through common order. additional ground now raised before us is purely legal in nature therefore we have decided to adjudicate additional ground before deciding merits of case. 6. Ld. AR appearing on behalf of assessee submitted before us that for non-abated year wherein assessment was completed u/s 143(1) of Act, addition to income can be made in assessment made u/s 153A/153C of Act only on basis of material found during course of search. In this respect ld. AR mentioned chronology of events which are reproduced below: Sr. Particulars A.Y. 2005-06 No. 1. Original return filed u/s 139 of Act 31.08.2006 2. Time limit for issuing notice u/s 143(2) of 31.08.2007 Act 3. Search and seizure action u/s 132 of Act 29.03.2011 6 ITA No. 2151&2153/Mum/2015 Shri Narpat Mehta Vs. ACIT 6.1 From afore mentioned chronology it is reflected that present assessment is non abated. Ld. AR relied upon following judgments in order to show that no addition in income can be made in any assessment u/s 153A/153C of Act without any incrementing material found during course of search: 1. All Cargo Global Logistics (374 ITR 645 (Bom)] 2. CIT v. Kabul Chawla [380 ITR 573(Del)] 3. Dy. CIT v. Rasesh Kanakia being ITA Nos: 3192-3916/Mum/2014 for AY s 2005-06 to 2009-10 dated 10.02.2016 (copy enclosed) 4. Suncity Alloys (P) Ltd. v. ACIT [124 TTJ 674(Jod)]. 5. Atithi N. Patel [ITA No:43/Mum/2010 Order dated 22.08.2012] 6. Saf yeast Co. Pvt. Ltd. v ACIT [ITA No.1074/PN/2007 Order dated 03.10.2012] 7. B.R. Machine Tools P. Ltd. v ACIT [ITA No.4174/Mum/2013 Order dated 06.12.2013] 8. Gurinder Singh Bawa [ ITA No.2075/Mum/2010 Order dated 16.11.2012] Raksha Chhadwa v ACIT [ITA No.8576 & 8577/Mum/2010 for A.Y. 2003- 04 & 2005-06 order dated 17.10.2014]. Ld. AR also submitted that identical question of law was involved in case of Kanakia Group of Companies. Search on whose premises was conducted by investigating unit Mumbai on 09.03.2011 and at that time assessee was employee of Kanakia Group Companies (Kanakia Management Services ) and regarding that search and subsequent additions were challenged before ITAT and 7 ITA No. 2151&2153/Mum/2015 Shri Narpat Mehta Vs. ACIT Hon ble ITAT in ITA No. 3192 to 3196/Mum/2014 had already decided this issue in favour of respective assessee s vide order dated 10.02.2016 6.2 Before we decide merits of case it is necessary to evaluate orders passed by Hon ble ITAT, operative para of Hon ble ITAT dated 10.09.2009 in ITA No. 3192 to 3196/Mum/2014 are reproduced below We have considered rival contention and also perused material available on record. We find that issue in this appeal is squarely covered by decision vide orders dated 18-01-2016 of Mumbai Tribunal in ITA No's. 3187- 3189/Mum/2014, in which one of us (Accountant Member) was member of Division Bench who adjudicated afore-stated appeal's whereby Revenue appeal's were dismissed, which is reproduced below : "These three appeals by Revenue are directed against three separate orders of learned Commissioner of Income Tax (Appeals)- 40 , Mumbai (Hereinafter called "the CIT(A)") all dated 18-2-2014 pertaining to assessment years 2007- 08 to 2009-10. Since similar grounds of appeal are raised in all these three appeals, we have disposed of all these three appeals by this common order for sake of convenience and brevity. 2. common grounds of appeal raised by Revenue in all these appeals filed with Tribunal reads as under:- "1. Whether on facts and circumstances of case and in law, CIT(A) was correct in holding that there existed nexus between interest expense and interest income solely on basis of Bank Statements. 2. Appellant craves to leave, to add, to amend and / or to alter any of grounds of appeal, if need be. 3. Appellant, therefore, prays that on grounds stated above, order of CIT(A)-40, Mumbai may be set aside and that of Assessing Officer restored. " . 3. We shall take Revenue's appeal in ITA No. 3187/Mum/2014 for assessment year 2007-08 as lead appeal. 8 ITA No. 2151&2153/Mum/2015 Shri Narpat Mehta Vs. ACIT 4. Brief facts of case are that assessee is Managing Director of Kanakia Spaces Pvt. Ltd. and in-charge of project planning and construction activity. Kanakia Group is primarily engaged in real estate, hospitality, entertainment and education sectors of economy. assessee group has numerous commercial and residential projects in Mumbai with quality construction and layouts. . 5. There was search and seizure action u/ s 132 of Income Tax Act, 1961 (Hereinafter called "the Act") conducted by Investigation Unit- V(2) , Mumbai, on 29-03-2011 at business and residential premises of Directors of assessee's group companies which was concluded on 24-05-2011. During course of search proceedings u/s 132(1) of Act, cash of Rs. 28,550/- along with jewellery of Rs. 1,68,36,786/- was found from residential premises of assessee. However, there was no seizure of cash and jewellery from assessee during course of search proceedings u/s 132(1) of Act. However, during course of search operations against different assessee's of group, books of accounts, documents, valuables, diaries and other loose papers were seized. Based upon search and post search enquiries, assessee made disclosure of Rs. 49,750/- as sale of scrap. 6. Notice u/ s 153A of Act was issued to assessee on 04. 01.2012 and in response thereof assessee filed his return of income on 31.01.2012 declaring total income of Rs. 14,74,33,828/-. Notices dated 11-7-2012 u/s 143(2) and 142(1) of Act were issued to assessee and served upon assessee. During course of assessment proceedings u/ s 153A of Act, assessee replied relevance of seized material. learned assessing officer(Hereinafter called "the AO") observed that assessee has earned interest income of Rs. 99,01,472/- and claimed interest expenses of Rs. 96,24.943/- against same. break up is as under- Name of party Interest (Rs) Amount(Rs.) INTEREST EARNED Kanakia Constructions Pvt. Ltd 5805208 Kanakia Hospitality Pvt. Ltd. 1833985 Supreme Real Estate Developers P. Ltd. 2262279 99,01,472 INTEREST PAID Babubhai M. Kanakia 1395443 Evergreen Financial Services 8139500 M J Chotani 90000 (96,24,943) TOTAL 2,76,529 assessee offered balance net interest of Rs. 2,76,529/- to tax along with certain other disallowances , as assessed in order dated 31-12-2009 passed u/s 143(3) read with section 153A of Act pursuant to first search conducted by Revenue on 19-07-2007. A. O. observed that assessee claimed deduction 9 ITA No. 2151&2153/Mum/2015 Shri Narpat Mehta Vs. ACIT against income from other sources u/ s 57(iii) of Act, which stipulates as under:- "(iii] any other expenditure (not being in nature of capital expenditure) laid out or expended wholly and exclusively for purpose of making or earning such income". A. O. observed that expenditure claimed by assessee as deduction against income from other sources has to be expended wholly and exclusively for earning such income. assessee was show caused vide notice dated 12.03.2013 to explain claim of deduction of interest expenses against interest income , assessee replied vide letter dated 25-3-2013, which is reproduced below:- "This is in reference to your Show Cause Notice u/ s. 142 (1) of Income tax Act, 1961 dated 12.03.2013. In response to said notice, under instructions from our above client, we submit as under: Regarding interest expenses claimed against interest income, we reply is as under- We have to drew your honour's attention towards fact that similar issue was already considered in order that was passed in connection with earlier search. Since, order was passed under section 153A, it was also passed with approval of then Learned Additional Commissioner Income Tax, Central Range - 7, Mumbai. We draw your honour's attention to order for Y, 2007-08 that was passed u/ s. 153 on 31/ 12/2009. Relevant part from said order is reproduced as under: I have considered submission of assesse and facts and circumstances of case. assesse has paid interest of Rs.90,000/- to Shri M J Chotani on loan of Rs. 5,00,000/- @ 18%. interest paid to Shri M.J. Chotani was disallowed for reasons discussed in earlier assessment years. There is no difference in facts of case. Accordingly, interest of Rs. 90,000/- paid to Shri M.J. Chotani is disallowed and added to total income. Further, assesse has received interest of Rs. 99,01,472/- on average value of loans given during year Rs. 8,25,12,267/- as against, assesse has paid interest of Rs. 95,34,933/- (excluding interest of Rs. 90,000/- paid to Shri M.J. Chotani as discussed above) on average value of loan received during year of Rs. 11,43,43,933/- (excluding loan. of Rs. 5,00,000/- received from Shri M.J. Chotani). assesse has paid excess interest Rs, 38,19,800/- (@ 12% on excess average value of loans given ofRs.3,18,31,666/-). Keeping in view of facts of case, interest of Rs. 38,19,800/- is disallowed out of interest paid." Copy of order is enclosed for reference. 10 ITA No. 2151&2153/Mum/2015 Shri Narpat Mehta Vs. ACIT As it is evident from above, claim of interest paid of Rs.57, 15, 143/- was allowed to assesse after disallowing sum of Rs. 39,09,800/ - considering facts of case. On basis of same, in return filed u/ s. 153 A, assessee had already disallowed sum of Rs. 39,09,800/- out of total interest paid of Rs. 96,24,943/-. Thus, claim of interest expense needs to be allowed to assesse. Moreover, without prejudice to above, We have to submit that issue of netting of interest has not emerged in present search. Your honour will appreciate that special bench of Mumbai ITAT in case of All Cargo Global Logistics Ltd. v. Deputy Commissioner of Income-tax, Central Circle-44 [2012J 23 taxmann.com 103 (Mum) (SB) held that in case of assessments which do not abate pursuant to issue of notice under section 153A. in addition to income that has already been assessed. assessment will be made on basis of incriminating material found in course of search but not produced in course of original assessment and undisclosed income or property discovered in course of search. In view of above decision, in absence of any incriminating material in case of assessee, no further disallowance of interest is possible and accordingly no disallowance of such interest can be made in case Of assessee. We hope that above explanations will meet your requirements. " A. O. after considering replies of assessee held that assessee is not able to establish nexus between funds used for giving interest bearing loans to other parties, on which interest has been earned; and funds which have been taken on interest bearing loan from other parties. AO held that only if funds taken on interest bearing loan, were advanced by assessee to other parties from whom he is charging interest; can he claim deduction of interest paid on interest earned, as per law. AO held that assessee's submission is completely silent on aspect of nexus between funds as above and hence assessee had failed to establish this nexus at all. necessary and sufficient condition laid down in statute is not satisfied and AO held that he has reasonable belief that capital of assessee has been utilized for other purposes and therefore assessee is not entitled to claim deduction. u/ s 57(iii) of Act and thus deduction of Rs. 96,24,943/- claimed by assessee was disallowed by A.O. vide assessment orders dated 28-03-2013 passed u/ s 153A of Act read with Section 143(3) of Act. A. 0. also considered alternative submission of assessee that there is change of opinion with respect to claim of interest in comparison to last assessment completed u/ s 153A of Act vide orders dated 31.12.2009. 11 ITA No. 2151&2153/Mum/2015 Shri Narpat Mehta Vs. ACIT assessee vide letter dated 25-3-2013 has submitted that similar issue was considered while passing order dated 31.12.2009 u/ 153A of Act which was passed with approval of Addl. CIT, Central Range -7, Mumbai. assessee has also relied upon decision of Special Bench decision of ITAT in case of All Cargo Global Logistics Ltd. v. DCIT (2012) 23 taxmann.com 103 (Mum)[SB] and relevant extracts of decision are as under:- In case of assessments which do not abate pursuant to issue of notice under section 153A in addition to income that has already been assessed, assessment will be made on basis of incriminating material found it1 course of search but not produced in course of original assessment and undisclosed income or property discovered in course of search. " Thus, assessee contended in nutshell that once assessment has already been finalized earlier after due deliberation on same issue and that no incriminating material has been found during course of search on same issue, additions cannot be made by A 0. A 0. however, rejected contentions of assessee by holding that in case notice u/ s 153A of Act was issued and assessment is deemed to be de novo and A O. is at liberty to take different view than view taken in earlier assessments even if assessments have been earlier completed u/ s 143(3) r. w.s .. 153A of Act and assessment cannot be restricted to seized material only. As per AO, mandate of section 153A of Act gives assessee opportunity to file his correct return of income once again after search has been conducted and it does not absolve assessee of responsibility to furnish correct return of income as per provisions of law. A O. held that it is mandate of law that A O. shall assess or reassess total income of assessee in six immediately preceding assessment years, in respect of year of search. Ao shall assess or reassess total income of six assessment years immediately preceding search year. Thus A O. in assessment proceedings u/ s 153A of Act shall examine all issues that could be taken up in pursuance of filing of regular return of income and concept of undisclosed income does not prevail any longer while framing assessments/ reassessments under provisions of section 153A of Act. legislature has purposely omitted undisclosed income from new provisions therefore assessment or reassessment shall be made as normal scrutiny assessment u/ s 143(3) of Act, taking into effect material/ documents found in course of search action, if any. AO held that assessment includes reassessment and therefore even if income of earlier year may be undergoing process of reassessment, it can still be assessed afresh on basis of material which was already on record at time of completion of original assessment. AO held that issue of 'incriminating document found during course of search' is not binding principle on Ao. AO. relied upon ratio of decision of Hon'ble Delhi High Court in case of CIT v. Anil Kumar Bhatia delivered on 7th August, 2012 and held that decision of Special Bench of ITAT in case of All Cargo Global Logistics (supra) is contrary to decision of 12 ITA No. 2151&2153/Mum/2015 Shri Narpat Mehta Vs. ACIT Hon'ble Delhi High Court's decision (supra) and since decision of Hon'ble Delhi High Court is later decision, it shall supersedes Special Bench decision dated 06-07-2012 in case of All Cargo Global Logistics (supra). AO held that total income can be assessed de-novo of assessee based upon sound reasoning and well reasoned order, on any issue, hence, alternative contention of assessee is rejected and interest income is assessed at Rs. 99,01,472/- and claim of deduction of interest of Rs. 96,24, 943/ - against interest income was disallowed vide assessment order dated 28-03-2013 passed u/s 143(3) of Act read with Section 153A of Act. 7. Aggrieved by assessment orders dated 28-03-2013 passed by A. O. u/ s 143(3) of Act read with Section 153A of Act , assessee preferred first appeal before CIT(A). 8. Before CIT(A), assessee submitted that A.O. erred in disallowing assessee's claim of deduction of Rs. 47,22,282/- towards interest paid on loans while A.O. taxed entire interest income of Rs. 99,01,472/- on ground that there was no direct correlation between loan taken and loan advanced. assessee submitted that assessee voluntarily disallowed interest of Rs. 39,09,800/- which included amount of Rs.90,OOO/- paid to Sh. M.J.Chotani on loan taken from him which was treated as unexplained in earlier years and amount of Rs.38, 19,800/ - on difference of average loan taken on which interest was paid vis-a-vis average loan given on which interest was received , at rate of 12%. Besides, assessee disallowed voluntarily amount of 9,92,861/- as interest u/s 14A of Act and this was accepted by A. O. during course of search assessment proceedings u/s 153A of Act pursuant to first search u/s 132(1) of Act initiated in year 2007, vide order dated 31-12- 2009. assessee submitted that A. O. failed to consider that search u/ s 132(1) of Act was for first time carried out on 19.07.2007 and vide assessment order framed u/s 153A of Act dated 31-12- 2009, such claim of assessee has been examined in detail by A.O. who allowed same. assessee further submitted that no incriminating material was found or unearthed during course of second search conducted on 29-3-2011 and as entire issue had already been examined in detail during course of earlier search assessment proceedings pursuant to first search carried out u/ s 132(1) of Act on 19.07.2007, disallowance made is uncalled for as it amounts to change of opinion at end of A.O. to same material facts and hence addition made is unjustified. assessee submitted before CIT(A) that order passed u/ s 143(3) read with Section 153A of Act dated 31-12-2009 and present assessment orders dated 28.03.2013 passed u/s 153A of Act read with Section 143(3) of Act, there is no change in material facts. Earlier A. O. was convinced that there is nexus between interest income and interest expenses and since order passed with approval of learned Addl. CIT, same finding needs to be accepted by successor officer unless there is any new finding or material 13 ITA No. 2151&2153/Mum/2015 Shri Narpat Mehta Vs. ACIT change, hence, consistency needs to be followed in income tax proceedings. assessee relied on following case laws to support its contentions:- (((i) Radha Swami Satsang v. CIT (1962) 193 ITR 321 (SC) (ii) CIT v. Darius Pandole (20.11) 330 fTR 485 (Bom) (iii) DCIT v. Gujarat Narmada Valley Fertilizers Co. Ltd. (2013) 215 Taxman 616 (Gujarat) (iv) Consolidated Fibres & Chemicals Ltd. v. CIT - 273 ITR 353 (Cal.) (v) CIT, West Bengal-3 v. Rajan Prasad Moody - 115 ITR 516 (vi) CIT v. Sujani Textile Pvt. Ltd. - 151 fTR 653 (vii) CIT v. Amritaben Shah - 238 ITR 777 (Del.) (viii) CIT v. Neo Poly Pack Pvt. Ltd. - 245 ITR 492 (ix) Parshuram Pottery Works Co. Ltd. v. fTO - 106 ITR 1 (SC)" Thus, assessee contended that addition of Rs. 47,22,282/- made by AO to income of assessee needs to be deleted on account of consistency as no new material fact has come on record. CIT(A) after considering facts of case and submission of assessee and orders of A.O. observed that earlier search and seizure action u/s 132(1) of Act was carried out in year 2007 on 19.07.2007 and subsequently assessment order u/ s 153A read with section 143(3) of Act was passed on 31-12-2009 for assessment years 2005-06 to 2008-09 , wherein no disallowance of interest paid on loan taken was made under identical circumstances and assessee's claim towards payment of interest on funds borrowed was allowed as expenditure u/ s 57(ifi) of Act and contention of assessee that when there is no incriminating material found during course of search u/s 132(1) of Act carried out for second time on 29-3-2011 and no new material facts have been brought on record in assessment proceedings, addition cannot be sustained and A. 0. 's action in disallowing claim of assessee toward interest is totally unjustified and unwarranted. CIT(A) also observed that since assessee is offering income from interest, equity demands that any expenditure incurred in nature of interest on loan taken should also be allowed. facts revealed that funds have come to bank account of assessee and loans have been given from same bank account of assessee, therefore, flow of funds i.e. incoming and outgoing is not in dispute. Since issue has already been examined in hands of assessee at time of earlier search assessment's u/ s 153A read with Section 143(3) of Act vide order dated 31-12-2009 and there is no reason to disallow such claim two years later through another assessment orders on same set of material facts and further no incriminating material having been found or unearthed against assessee during course of second search proceedings u/s. 132(1) of Act on 29.03.2011, rule of consistency has to be followed as laid down by several decisions referred to by assessee , CIT(A) held that interest expenditure on loan taken is valid and allowable claim in eye of law and should be allowed. CIT(A) also held that assessee has voluntarily disallowed total interest ofRs. 49,02,661/- (Rs.90,000 + 14 ITA No. 2151&2153/Mum/2015 Shri Narpat Mehta Vs. ACIT Rs.38,19,800/- + Rs. 9,92,861/- ) in return of income filed by assessee appears to be fair and reasonable. assessee has offered for taxation interest income of Rs. 51,79,190/ - . CIT(A) observed that in current year average loan taken works out to Rs. 11,48,43,933/- and average loan given works out to Rs. 8,25,12,267/-, thus difference of Rs. 3,23,31,666/-, effective rate of interest works out to 12% i.e. 38,19,800/- which interest has been disallowed voluntarily by assessee in return of income field with Revenue, which is fair and reasonable. assessee also disallowed interest of Rs. 90,000/- paid to Sh. M J Chotani and further disallowance of Rs. 9,92,861/- u/ s 14A of Act on average investment in shares amounting to Rs.5, 13,43,681/ - , dividend income from which has been claimed as exempted income . total disallowance of interest of Rs. 49,02,661/- which has been voluntarily disallowed by assessee appears to be fair and reasonable. CIT(A) on perusal of Bank statement of assessee gave categorical finding that there is strong direct co- relation between loan given and taken. CIT(A) observed that AO has not doubted genuineness of loan taken and loan given. Thus, as per CIT(A) addition of Rs. 47,22,282/ - is unsustainable and unjustified and directed A.O. to delete same vide orders dated 18.02.2014. 9. Aggrieved by orders of CIT(A) dated 18.02.2014, Revenue is in appeal before Tribunal. 10. ld. D.R. relied upon order of A.D. and contended that A.O. has rightly disallowed expenses of Rs. 47,22,282/- as per well reasoned order passed by A. O. 11. ld. Counsel for assessee submitted that there are two search and seizure action u/ 132(1) of Act conducted in case of assessee, one in year 2007 on 19.07.2007 and another on 29-3- 2011. ld. Counsel submitted that for assessment year 2007-08, return of income was filed u/ s 153A of Act in respect of first search on 11th September, 2008 and assessment order was passed u/s 143(3) r.w.s. 153(A) of Act on 31-12-2009. ld. Counsel submitted that assessments have been concluded in case of assessment year 2007-08 on 31.12.2009 which is prior to date of second search on 29-03-2011 and hence assessment for assessment year 2007-08 are concluded assessments which cannot be disturbed on same set offacts while framing assessment u/s 153A r.w.s. 143(3) of Act in pursuant to second search unless there is any incriminating material found or unearthed during course of second search on 29-03-2011. ld. Counsel stated before us that there is no incriminating material found or unearthed during course of second search conducted on 29-3-2011 with respect to issue in dispute i.e. allowability of claim of deduction of interest paid on loans borrowed against interest income on loan advances by assessee, hence, in view of ratio of decision of Special Bench of ITAT in case of All Cargo Global Logistics Ltd. v. DCfT [2012J 23 taxmann.com 103 (Mum) [SBJ, this addition of Rs.47,22,282/- being disallowance 15 ITA No. 2151&2153/Mum/2015 Shri Narpat Mehta Vs. ACIT of interest cannot be sustained. ld. Counsel further relied upon order of CIT(A). 12. We have considered rival contention and also perused material available on record. We find that this issue of allowability of deduction of interest paid on loan borrowed by assessee amounting to Rs.47,22,282/ - against interest income of Rs.99,01,472/- earned by assessee from loan advanced has already been examined and accepted by A.O. in course of proceedings for assessments u/ s 153A of Act pursuant to first search and seizure operations u/s 132(1) of Act conducted in year 2007 on 19.07.2007 by Revenue whereby interest expenditure of Rs.47,22,282/ - incurred on loans borrowed has been accepted and allowed as deduction from interest income of Rs.99,01,472/- earned on loans advanced by assessee. We have observed that it has not been brought to our notice by both rival parties that any incriminating material has been found or unearthed during second search u/ s 132(1) of Act conducted by Revenue on 29-3-2011 related to claim of deduction of interest expenditure of Rs.47, 22, 282/ - on loans borrowed against interest income of Rs.99,01,472/ - earned by assessee on loans advanced. We have also observed that assessments u/ s 153A of Act pursuant to first search on 19.07.2007 have been concluded for assessment year 2007-08 on 31.12.2009 which is prior to date of second search conducted by Revenue on 29-03- 2011 and hence in our considered view, no addition can be made with respect to claim of deduction of interest expenditure of Rs.47,22,282/- payable on loans borrowed by assessee against interest income from loans advanced by assessee company on same set of material facts as existing while framing assessments u/ s 153A read with Section 143(3) of Act on 31.12.2009, in absence of any incriminating material found during course of second search on 29-03-2009. decision in case of All Cargo Global Logistics Ltd. (supra) relied upon by assessee is squarely applicable to this case that In case of assessments which do not abate pursuant to issue of notice under section 153A, in addition to income that has already been assessed, assessment will be made on basis of incriminating material found in course of search but not produced in course of original assessment and undisclosed income or property discovered in course of search. decision of Hon'ble Bombay High Court in case of crr v. Continental Warehousing Corporation (Nhava She va) Limited (2015) 58 taxmann.com 78 (Bombay) is also squarely applicable to instant appeal whereby Hon'ble Bombay High Court has held that no addition can be made in respect of assessments which have become final if no incriminating material is found during search. Hon'ble Delhi High Court in case of crr v. Kabul Chawla (2015) 61 taxmann.com 412(Delhi) has taken similar view by holding that completed assessments can be interfered with by Assessing Officer while making assessment under section 153A of Act only on basis of some incriminating material unearthed during course of search which was not produced or not already disclosed or made known in course of original assessment. 16 ITA No. 2151&2153/Mum/2015 Shri Narpat Mehta Vs. ACIT However, We also note that in case of crr v. Continental Warehousing Corporation (Nhava Sheva) Ltd. ,Hon'ble Supreme Court has granted special leave and admitted appeal of Revenue in SLP No. (C) No. 18506 of2015, dated October, 12,2015 against Hon'ble Bombay High Court ruling that no addition can be made in respect of assessment which has become final if no incriminating material is found during course of search. Respectfully following binding decision of Hon'ble Jurisdictional High Court i.e. Hon'ble Bombay High Court in case of Central Warehousing Corporation (Nhava She va) Limited(supra) as well decision of Hon'ble Delhi High Court in case of Kabul Chawla(supra) and Special Bench decisions in All Cargo Global Logistics Ltd. (supra) , we uphold orders of CIT(A) and delete additions made by AO of Rs.47,22,282/ - on account of disallowance of claim of interest expenditure incurred by assessee on loans borrowed against interest income of Rs. 99,01,472/-, on short ground itself by holding that completed assessments can be interfered with by AO while making assessment under section 153A of Act only on basis of some incriminating material unearthed during course of search which was not produced or not already disclosed or made known in course of original assessment and undisclosed income or property discovered in course of search , while in instant appeal AO has in assessments framed vide orders dated 31.12.2009 u/s. 153A read with Section 143(3) of Act in pursuance to first search on 19.07.2007 has duly examined and allowed claim of assessee for deduction of interest of Rs.47,22,282/ - being interest paid on loan borrowed against interest income earned on loans advanced by assessee and no new incriminating material has been found or unearthed during course of second search on 29-03-2011 . relevant extract of assessment orders u/s 153A of Act dated 31.12.2009 in pursuance of first search u/ s 132(1) of Act on 19.07.2007, are as under: I have considered submission of assesse and facts and circumstances of case. assesse has paid interest of Rs. 90, 000/- to Shri M J Chotani on loan of Rs. 5,00,000/- @ 18%. interest paid to Shri M.J. Chotani was disallowed for reasons discussed in earlier assessment years. There is no difference in facts of case. Accordingly, interest of Rs. 90,000/- paid to Shri M.J. Chotani is disallowed and added to total income. Further, assesse has received interest of Rs. 99,01,472/- on average value of loans given during year Rs. 8,25,12,267/- as against, assesse has paid interest of Rs. 95,34,933/- (excluding interest of Rs. 90,000/- paid to Shri M.J. Chotani as discussed above) on average value of loan received during year oj Rs. 11, 43, 43, 933/ - {excluding loan of Rs. 5, 00,000/- received from Shri M.J. Chotani). assessee has paid excess interest Rs.38,19,800/- (@ 12% on excess average value of loans given of Rs.3,18,31,666/-). 17 ITA No. 2151&2153/Mum/2015 Shri Narpat Mehta Vs. ACIT Keeping in view of facts of case, interest of Rs. 38,19,800/- is disallowed out of interest paid. Thus, as could be seen from above that AO has duly examined claim of assessee with respect to deduction of interest expenses on loan borrowed from interest income earned from loans advanced and has disallowed Rs.38,19,800/- and Rs.90,000 out of interest expenditure claim of Rs. 96,24,943/- . Apart from above, assessee has also voluntarily offered disallowance of interest of Rs.9,92,861/- u/s 14A of Act. Thus, assessee claimed deduction of balance amount of interest expenditure of Rs.47,22,282/- towards loan borrowed against interest income of Rs. 99, 01,472/ - from loan advances, which claim was duly examined and allowed by AO while framing assessment orders dated 31.12.2009 u/ s 153A read with Section 143(3) of Act pursuant to first search on 19.07.2007 and no new incriminating material was found or unearthed during search u/ s 132(1) of Act, having being brought on record before Tribunal and assessment framed vide orders dated 31.12.2009 being concluded assessment as framed prior to date of second search on 29/03/2011, we are of considered view that concluded assessments in instant appeal cannot be disturbed on same set of material facts as prevailing when assessment was framed u/ s 153A read with Section 143(3) of Act on 31.12.2009 in pursuant to first search on 19.07.2007 and hence, we dismiss appeal filed by Revenue. We order accordingly. 13. With respect to Revenue's appeals in ITA No. 3188/ M/ 20 14 for assessment year 2008-09 and ITA No. 3189/Mum/2014 for assessment year 2009-10, our above decision in ITA No 3187/ Mum/ 20 14 for assessment year 2007-08 shall apply mutatis mutandis to appeals for assessment years 2008-09 & 2009-10 also. We order accordingly. 14. In result, all three appeals filed by Revenue are dismissed. " We have observed that issue in this appeal is identical to issue in ITA No's. 3187-3189/Mum/2014 which was adjudicated by Mumbai Tribunal vide orders dated 18-01-20116 whereby Revenue appeals were dismissed, in case of brother of assessee Mr Himanshu B. Kanakia and Respectfully following decision of Mumbai Tribunal in afore-stated appeal's, we dismiss appeal of Revenue. We order accordingly 7. That legal issue involved in present case raised by assessee is identical with legal issue involved in afore mentioned ITA No. 3192 to 3196/Mum/2014 therefore while maintaining judicial consistency which is applicable mutatis mutandis in case of assessee and while concurring with 18 ITA No. 2151&2153/Mum/2015 Shri Narpat Mehta Vs. ACIT decision of coordinate bench in ITA No. 3192 to 3196/Mum/2014, we allow this additional grounds of appeal filed by assessee and set aside additions made by AO and upheld by CIT(A). 8. Since we have already passed detailed order while deciding additional grounds, therefore other grounds raised by assessee has become infructous. In result, appeal filed by assessee is allowed. Now coming to appeal No.2153/Mum/2015 ITA No. 2153/Mum/2015 (A.Y. 2008-09): Since facts and circumstances of this appeal under consideration are similar. Therefore, following our own decision given in afore said appeal, we also allow present appeal of assessee, and set aside order of CIT(A). 6. In net result, both appeals filed by assessee are allowed. Order pronounced in open court on 30th September, 2016 Sd/- Sd/- (R.C. SHARMA) (SANDEEP GOSAIN) Accountant Member Judicial Member Mumbai; Dated : 30.09.2016 Ps. Ashwini 19 ITA No. 2151&2153/Mum/2015 Shri Narpat Mehta Vs. ACIT Copy of Order forwarded to : 1. Appellant 2. Respondent 3. CIT(A) 4. CIT - concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai Narpat Mehta v. ACIT Central Circle-4(1)
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