Income Tax Appellate Tribunal - Indore
Motilal Dashrath Soni, P/O. M/S. Soni ... vs Assessee on 7 August, 2012
1
IN THE INCOME TAX APPELLATE TRIBUNAL,
INDORE BENCH, INDORE
BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARMA, A.M.
PAN NO. : AKQPS0071B
I.T(SS).A.Nos. 1 to 6/Ind/2010.
A.Ys. : 2000-01 to 2005-06
Shri Motilal Dashrath ACIT,
Soni, Khandwa
Sendhwa vs
Appellant Respondent
PAN NO. : AKQPS0069R
I.T(SS).A.Nos. 7 to 13/Ind/2010.
A.Ys. : 2000-01 to 2006-07
Shri Kishorechand ACIT,
Soni, Khandwa
Sendhwa vs
Appellant Respondent
PAN NO. : AOSPS55555A
I.T(SS).A.Nos. 14 to 20/Ind/2010.
A.Ys. : 2000-01 to 2006-07
Shri Rajesh Kumar ACIT,
Soni, Khandwa
Sendhwa vs
Appellant Respondent
1
2
PAN NO. : AKQPS0070A
I.T(SS).A.Nos. 21 to 27/Ind/2010.
A.Ys. : 2000-01 to 2006-07
Shri Kamalkumar ACIT,
Motilal Soni, Khandwa
Sendhwa vs
Appellant Respondent
Appellant by : S/Shri S.S.Deshpande,
R.P.Mandovra, H.P.Verma, Ashish
Goyal, Ms. Sakshi Verma, Anil
Garg, Yeshwant Sharma, S. N.
Agrawal, Pankaj Mogra, Girish
Agarwal, Sandeep Deshpande.
Respondent by : Shri Keshave Saxena, CIT DR
Date of Hearing : 07.08.2012
Date of : 27.08.2012
pronouncement
2
3
ORDER
PER BENCH This bunch of appeals by different assessees arise out of different orders of the ld. CIT(A) for the assessment years mentioned above. Since common issues are involved, these appeals are being disposed of by this consolidated order for the sake of convenience.
2. I.T(SS).A.Nos. 1 to 6/Ind/2010, 7 to 13/Ind/2010, 14 to 20/Ind/2010 and 21 to 27/Ind/2010, the following additional grounds have been raised by the assessee :-
1. On the facts and in the circumstances of the case, the assessment framed u/s 153A read with Section 143(3) is illegal and bad in law. During search, no document much less incriminating material was found for subjected addition.
2. The ld. CIT(A) should have annulled the order u/s 153A read with Section 143(3) appealed before him on the ground that no documents or incriminating material was found in search for subjected addition 3 4 and no assessment could be said to be "pending "
on the date of initiation of search.
Reasons & prayer for admission of the additional ground set-forth herein above :
These issues raised in these additional grounds are purely of legal nature and no inquiry in to the facts is required as all the evidences are on record. These additional grounds re in continuation and with reference to ground no.2 of the appeal memo in form 36 filed before the Hon'ble Tribunal. This Hon'ble Bench has recently decided the legal issue involved in my case in the reported case of M/s. S.K. Jain (14 ITJ 434). The Hon'ble Delhi Bench "B in the case of Shri Anilkumar Bhatia - I.T.A.No. 2660 to 2665 (Del) 2009 vide order dated 1st January, 2010, has also decided the issue similarly. In view of Hon'ble Apex Court's judgment in the case of National Thermal Power Co.Ltd. (229 ITR
383) and Hon'ble M.P. High Court's judgment in the case of National News Print & Paper Mills Ltd. (223 4 5 ITR 688), it is very humbly prayed to kindly admit the additional grounds raised herein above being purely of legal nature.
3. Äpart from the above, the assessee has also taken the following grounds of appeal :-
a) In I.T(SS).A.Nos. 1 to 12/Ind/2010 and 14 to 26/Ind/2010, the common issue relates to estimation of house hold expenses.
b) In I.T(SS).A.Nos. 1 to 5/Ind/2010 and I.T(SS).A.Nos. 23 to 27, the common issue relates to estimation of agricultural income.
c) In I.T(SS).A.Nos. 14, 17, 18 and 19/Ind/2010, the common issue relates to reduction of claim of deduction u/s 80IB and netting of interest.
4. Rival contentions have been heard and records perused. Facts of the case are that the search and seizure operation were carried out on 9.11.05 on the assessee group having business interest in the field of Cotton, Ginning and gold and 5 6 silver jewellery besides income from interest etc. and agricultural income. The assessee, Shri Motilal Dashrath Soni had all along over the years had filed return of income in excess of Rs. 10 lakhs and in the final search year, A.Y. 2006- 07, the returned income stood at Rs. 90.66 lakhs mainly on account of surrender of excess stock, excess cash and unaccounted investment in pawning business exceeding Rs. 709 lakhs. The assessee, Shri Motilal had opening capital balance of Rs. 161.28 lakhs for assessment year 2000-01 i.e. as on 1.4.99 and had Fixed Deposit with State Bank of Indore, Sendhwa Branch worth Rs. 61.14 lakhs on which interest was earned at Rs. 11.16 lakhs and after availing deduction under Chapter VIA, returned income was declared at Rs. 21.39 lakhs including other business income etc. and withdrawals for house hold expenses was shown at Rs. 26,930/- for a family of two persons consisting of self and wife. Returned income and withdrawals for house hold expenses for other assessment years were noted by the Assessing Officer as under :-
6 7
A.Y. Returned income Withdrawal for ( Rs. ) house hold expenses ( Rs.) 2001-02 13,34,058 36,559 2002-03 13,32,382 20,000 2003-04 11,93,551 20,000 2004-05 18,04,058 23,310 The Assessing Officer in the course of assessment proceeding noticed that level of house hold withdrawals made for house hold expenses by the assessee was too low excluding the payments made for LIP payments and further the input expenses claimed for earning agricultural income were again too low compared to the agricultural income disclosed.
5. Considering number of family members, the funds deemed to be parted for house hold expenses was estimated by the Assessing Officer at Rs. 3500/- per month. Accordingly, the addition of Rs. 15,070/- was made after taking care of withdrawals made by the assessee amounting to Rs. 26,930/-.
In case of other assessees also, the Assessing Officer estimated house hold expenses and after reducing the actual 7 8 withdrawals shown by assessee, additions were made in respective years.
6. In respect of agricultural income shown by the assessee, Shri Motilal, the Assessing Officer observed that assessee had shown very meager expenditure on fertilizers, seeds and wages etc. Considering that the agricultural expenditure claimed by the assessee was very low, the Assessing Officer estimated the same at 40% of the agricultural receipts. The difference between agricultural expenses actually shown vis-à-vis expenses estimated by the Assessing Officer at 40% was added by the Assessing Officer as income from the other sources.
7. With regard to addition on account of agricultural income, the submission of the assessee before CIT(A) was as under :-
" b) That on the expression, observation & finding of the A.O. in assessment order on this issue, it is respectfully submitted as under:-
(i) The assessee is doing the agricultural operation since 1955. He is well equipped with 8 9 necessary & modern tools required for agricultural purposes. The assessee himself attends & supervises agricultural operation. The main crops grown are cotton, soyabean, wheat etc. which regularly & generally are grown in this area. Complete & proper irrigation facility is available.
(ii) Comparative statement of agricultural results of preceding five returns to the assessment year 2000-01 together with results of years under present appeals is enclosed herewith for your honour's ready reference. This statement reveals that input of expenses varies year to year. The expenses in agricultural operation depend on so many factors like potentiality of land, manner & method of growing & harvesting, climatically condition etc.
(iii) The assessee is maintaining regular books of accounts for agricultural income & returning the 9 10 said income as per books of accounts. Complete books & relevant vouchers have been produced in the course of assessment proceeding. No deficiency has been found / pointed out in assessment proceeding. All the sales of agricultural produce have been made in Krishi Upaj Mandi, Sendhwa. The major sales are to CCI & other traders and in most of cases, payment is received by cheque.
(iv) As the assessee is self sufficient in holding agricultural land & doing agricultural operation, he has not availed any farm credit, subsidies and support price. The assessee has not taken any financial assistance from agricultural institutions and banking/finance institutions.
(v) That under the above facts & in the circumstances of the case the learned A. 0. has unnecessarily expressed that farmers could not have committed suicide all over the nation every 10 11 year and there would have been no need of farm subsidies, credit & support price looking to the productivity & income 4 the assessee. All these worries expressed by the AO has no concern in the matter of assessee before him. These unwarranted expressions of the A.O. show his perversity in the matter.
(vi) That all the sale proceeds are vouched & verifiable with reference to agricultural produce.
The said stand verified by the A.O. in assessment proceedings and as such the finding & observation of the A.O. that assessee has credited excess unexplained cash in its books under the guise of agricultural sales is factually erroneous & perverse.
c) That the requisite information regarding agricultural income has been duly complied by submitting complete information in this regard and books of accounts & relevant records stands 11 12 produced in the course of assessment proceedings. All these have been looked in to and adjudicated accordingly by the A.O. & he has not found any flaw or defect or short coming in agriculture account in the course of assessment proceeding The act manner, method & approach of the learned A.O. in estimating agricultural expenses @ 40% in assessment order is totally uncalled for, arbitrary, vindictive & capricious an fact & in law. Further there is no basis & material evidence that the agricultural expo should be 40% of the agricultural recoveries. The agricultural input & output depends on natural climatical condition prevailing at that point of time. The estimation of 40% expo is purely based on surmises & conjuncture which too is without any basis.
The enclosed statement reveals that the input & output varies to year to year. The percentage of input over output also varies due to increased sale value in terms of money value.
12 13
d) That the learned A. 0. was well aware of the fact that for the A. Y 2001-02, the return filed u/s 139 of the I T.Act has been assessed u/s 143(3) vide order dt. 19. 03. 04. In this assessment the agricultural income as returned has been assessed accordingly as per agricultural account wherein expenses are 354391- and receipts stands at Rs. 6849421 and the percentage of expenses over receipts stands at 5.2% only. That on similar set of facts the learned A.O. acted otherwise without any material in framing the assessment u/s 153A/143(3) wherein he has estimated agricultural expenses at 40% and made addition which is under appeal. It is also pertinent here to mention that no incriminating material concerning agricultural input & output was found during search.
e) That similar type of addition was made by the A.O. in the case of Shri Kailashchand Girdharilal HUF in the A. Y05-06 which stands deleted by your 13 14 honour vide appellate order dt. 23.07.08 in appeal no. IT-13 010 7-08. Photocopy of the order is enclosed herewith for ready reference. F) A comparative chart of agricultural receipts & expenditures of M/s. Radheshyam Madanlal Joshi HUF, Balwadi (35 kms. from Sendhwa) & M/s. Sureshchand Suwalal Agrawal HUF Sendhwa (both assessed regularly to Income Tax since last 25 years) is also enclosed herewith for your Honour's reference to indicate that agricultural expenses in these cases ranges from 6.36% to 14.82% for the assessment years under appeal in the present case. Under the above facts & in the circumstances of the case, the learned A. 0 has erred in estimating agricultural expenses at 40% and making addition accordingly. It is therefore very humbly requested your honour to kindly delete the addition as made the A.O."
14 15
8. With regard to addition on account of low house hold expenses, contention of the assessee was as under :-
"b) In this case, assessments for all the years have been framed u/s 153A/143(3) of the Income Tax Act as the proceedings u/s 132 had been initiated in this case on
9 & 10.11. 2005. Nothing adverse against the assessee has been found by the search party. The assessee is regularly assessed to Income Tax since long. The returns for all these years were filed in time u/s 139 of the Income Tax Act and were found to be correct & complete in all respect & accordingly were acted upon by the taxing authorities. There is no difference in the state of affairs as appearing in return filed u/s 139 & return filed u/s 153A and as such in framing the present assessments which are under appeal, the learned A.O has arbitrarily 15 16 made the additions without any material evidence. The additions so made are purely on the surmises of the A. O. In a search case, the assessment is confined to undisclosed income found as a result of search on the basis of evidence or other documents, material or information which are available with the A. O. In the present case, there is no evidence, documents, material or information what so ever with the A.O. that the 'house hold withdrawals are insufficient and the assessee has incurred any expenditure or part thereof which is not out of the withdrawals.
c) In the course of assessment proceedings, it has been informed to the A.O that the assessee & his family are living jointly with family of his three sons. The entire joint family is headed by the assessee. The entire joint family is 16 17 residing at Sendhwa in a house owned by the assessee and all the members are sharing a common kitchen. Details of all the members of the joint family together with their withdrawals have been filed before the A.O alongwith submission on the issue (copy enclosed herewith for ready reference). That in framing the assessments of the assessee & his son Shri Kamalkumar Soni, the A.O was well informed that these persons are having agricultural land & milk giving animals and as such, most of the day to day necessities like vegetable, wheat, pulses, milk & milk product etc. are procured from agriculture & animals. It was also informed to the A.O that the assessee & Shri Kamalkumar Soni are showing agricultural income over & above the income as per books for house hold use of 17 18 agricultural produced which ranges from Rs. 30,000/- to 50000/- every year. A statement to this effect is enclosed showing total strength of members of Soni family, total withdrawals for house hold expenses and value of agricultural produce used for house hold expenses (other than vegetables & milk products) returned as agricultural income. It is also informed to A.O. that Sendhwa is a small town where the cost of living & education is very much cheaper than that of metropolitan cities. In adjudicating the matter of house hold withdrawals, the learned A. 0. has not considered the submission & documents placed before him and without any material evidence has estimated house hold expenses of assessee family at Rs.3500/- (A. Y. 2000-
01), Rs. 3500/- (A.Y. 2001-02), Rs.4000/- 18 19 (A.Y. 2002-03), Rs.4000/- (A.Y.2003-04), Rs.4500/-(A. Y. 2004-05). This estimation is purely based on surmises & conjuncture under the shadow of alleged mounting prices, social status, renowned business person etc. Further the assumption of the A.O. that the withdrawals can't meet the basic requirement of messing, clothing, medial & education of children appears to be thinking of a metropolitan status which cannot and should not be equated in assessee's case since the assessee is living at Sendhwa, a small town having present population of only 72000. It is also incorrect proposition of the A.O. that there is no need to save the money & spend huge portion of earning without any need & necessity. This is not the case of A.0. that assessee had incurred any 19 20 expenditure for which he has offered no explanation about the source of such expenditure or part thereof and as such no addition can be made on whims & surmises for alleged low house hold withdrawals within the meaning of unexplained expenditure. The learned A.
0. has estimated the house hold expenses of two members of assessee family as mentioned above and gave credit of Rs.26930/- (A. Y2000-0I), Rs.36559/- (A. Y200I-02), Rs.20000/- (A. Y. 2002-03), Rs.20,000/- (A. Y.2003·04), Rs.23,31O/-
(A. Y. 2004-05) of assessee's own withdrawals only but did not took into consideration the withdrawals of assessee's wife Smt. Indubai Rs.15,000/- (A.Y.2000-0I), Rs.14,500/- (A.Y. 200I-02), Rs.14,500/- (A.Y.2002-03), Rs.15000/- (A.Y.2003-04), Rs.15,000/- (A.Y.2004-05) 20 21 from her books of accounts for house hold' expenses. In this regard the assessee has filed application U/S 154 on 25.01.08 to the A.O. The said application has not been disposed off till date.
d) As explained herein above that the entire Soni family is headed by Shri Motilal Soni. In the case of Shri Motilal Soni for five assessment years (A. Y2000-0I to 2004-05), while working out the addition for house hold expenses (for A. Y 2005-06 & 2006-07 no addition is made), the A.O. has neither given the credit of value of agricultural produce utilized for house hold expenses nor has given the credit of withdrawals made by his wife. A detailed combined chart of estimation of house hold expenses in all the 28 group cases is enclosed to summarize the position at one glance. From this chart, it is quite evident that if the credit of value of . agricultural 21 22 produce utilized for house hold expenses and the credit of withdrawals made by wife of Shri Motilalji Soni is considered, the same will lead into surplus of withdrawals over house hold expenditure estimated by the A.O. Thus there is no scope of any addition on account of low house hold withdrawals in the assessee's case. That the Hon'ble ITAT Indore Bench in ITA No. 852/Ind/94 in the case of Suryakant Pitambardas Burhanpur vs. ACIT Khandwa vide order dt. 17.3.2006 head "In a joint family consisting of various adult members, who were earning income from different sources, addition can't be made on account of low withdrawals". The Hon'ble Tribunal also noted that without any material brought on record, the addition on account of low house hold withdrawals was made. Accordingly the addition made by the A0. on account of low house hold expenses stands deleted.
2223
In the appellant's case, joint family consisting of eight adult members, each one earning income & each one has contributed towards joint family house hold expenses. There is no material for alleged low house hold expenses. In view of the above facts & in the circumstances of the case and in the light of above referred I.T.A.T.,Indore Bench, decision, the addition made by the A.O. kindly be deleted "
9. Contention of the assessee before the CIT(A) with regard to low house hold expenditure was as under :-
i) The entire family of the assessee and his three sons, namely Kishore Chand, Kamal Kumar and Rajesh Kumar Soni headed by appellant are living in a joint family in house owned by appellant and are sharing common kitchen.
ii. Shri Motilal Soni and Shri Kamal 23 24 Kumar Soni are having agricultural land and milk giving animals and as such regular milk and milk products were procured from agricultural animals and both of them have also reflected consumption of such agricultural produce every year ranging from Rs.16,OOO to Rs.60,000. (as noted herein after).
iii. The residential place of the assessee, Sendhwa town was a small town where cost of living and education was much cheaper.
iv. The estimation made by the AO was based on surmises and conjectures on the basis of alleged mounting prices and social status and renowned business person etc., and his estimation that withdrawals cannot meet the basic requirement of clothing, medical, education of children etc. of metropolitan status and cannot be 24 25 applied to an assessee of a small town having population of nearly 72,000.
v. The appellant has also tried to justify his withdrawals for the need of saving and it has also been contended that there was need to save money and that the assessee would not spend huge portion of money without any need and necessity and no such addition can be done on whims and surmises as AO had no case to come to the conclusion that the appellant has incurred expenditure for which he had no satisfactory explanation to offer. 4.1.1 The next contention advanced is that the AO has not granted credit of withdrawals made by the spouse of the appellant and his three daughters-in-law which ranged from Rs.15,000 to 20,000 and application u/s. 154 filed before AO remained pending. It is also contended 25 26 that in estimating the household expenses and making resultant addition, the AO has not considered credit for agricultural produce utilized for household consumption in the case of Motilal & Kamal Kumar Soni as under:
Motilal Soni Kamal Kr.Soni 2000-01 16775 0 2001-02 15497 0 2002-03 26660 3849 2003-04 32199 7375 2004-05 25335 22576 2005-06 48440 9761 2006-07 44592 7785 4.1.2 Next argument advanced is legal,
relying on the decision of ITAT, Indore Bench in the case of Suryakant Pitambardas v. ACIT Khandwa referred in written submissions to the effect that in a joint family consisting of various adult members who are earning income from different concerns, additions cannot be made on lower household withdrawals in 26 27 any hand.
4.1.3 Finally, it is submitted that in view of such legal and factual position, there was no case for sustaining any addition made by the Assessing Officer or in the alternative, the Assessing Officer may be directed to grant credit of withdrawals made by the spouse and the amount of agricultural produce consumption for house hold purposes as reflected in the income tax returns of Shri Motilal Soni and Kamal Kumar Soni.
4.1.4 In the subsequent written submissions, the appellant has also Challenged such action on the part of the Assessing Officer being outside the purview of provisions of Section 153A and has placed reliance on decision of 27 28 Jagdish Duggal vs. ACIT, (2009) 24 DTR (Chd) 174."
10. By the impugned order, the CIT(A) not only confirmed the addition on account of low house hold expenditure but also initiated and levied penalty with ref to the same u/s 271(1)(c) of the Income-tax Act, 1961.
11. With regard to addition made on account of agricultural income by estimating the expenditure at 40%, the CIT(A) reduced the expenditure to 35 % and balance of addition was confirmed by him. The ld. CIT(A) also initiated and levied penalty u/s 271(1)(c) with respect to the amount of addition retained on account of low agricultural expenditure.
12. Against the above order of CIT(A), the assessee is in further appeal before us.
13. Shri S. S. Deshpande, C. A. appeared on behalf of the assessees. He highlighted the observation made by the I.T.A.T., Special Bench in the case of All Cargo Global Logistics Limited, and submitted that "when the assessee has filed the returns on the basis of books of accounts and the assessments are 28 29 completed u/s 143(1)(a) then there would be no scope for investigating a new source of income. The additions can only be made in respect of any incriminating material found. In that event, there would be no scope for rejecting the books of accounts and making the additions on estimated basis. In cases of the assessments u/s 143(1) there is no clause under which the assessee is required to produce the books of accounts would clearly indicate the income earned by the assessee. In such an event no new source can be discovered and no additions can be made on that account. The assessments can be made only in respect of those years for which the incriminating material is found. In this connection, reliance was placed on the decision of Hon'ble Pune Bench in the case of ACIT vs. SRJ Peety Steels reported in 137 TTJ p.
627. Further attention was invited to the decision of Hon'ble Punjab and Haryana High Court in the case of Vipan Khanna reported in 255 ITR pg. 220.
" At Page 231 the Hon'ble Court observed, Therefore, in a case where a return is filed and is 29 30 processed u/s. 143(1)(a) of the Act and no notice under sub-section (2) of section 143 of the Act thereafter is served on the assessee within the stipulated period of twelve months, the assessment proceedings under section 143 come to an end and the matter becomes final. Thus, although technically no assessment is framed in such a case, yet the proceedings for assessment stand terminated. Attention was also drawn to the decision of the Hon. Indore Bench in the case of S.K. Jain Vs. ACIT reported in 14 ITJ P.434 wherein at P.456 in Para 22 & 23 the Hon. Tribunal observed, "Having stated so, when we independently look at the provisions of section 153C, it becomes apparently clear these provisions are attracted only in a situation where some assets or material or books of accounts or other things are found which belong to other person and only in that situation, the proceedings under section 153A can be initiated against such person. Thus, in section 153C existence of some material or 30 31 documents or things or assets is a pre-requisite, hence, if the interpretation of provisions of section 153A as made by us herein before, is ignored, even then, in our opinion, proceedings under section 153CJ can be initiated only in respect of such year(s) in respect of which there is some material and total income of such year(s) would be computed by applying the provision of section 153A in the manner as outlined by us in Paragraph 22 hereinbefore. The other requirement of section 153C is regarding the satisfaction to be recorded by the Assessing Officer of the searched person which, as stated earlier, exits in the present case, hence, no fault can be attributed on the part of Assessing Officer in this regard . Para 23 reads, In view of above discussion, we are of the view that since the material pertains only to the Assessment Years 2004-05 and 2005-06J only these years assessments could be reopened under section 153C of the Act. Hence, we quash the assessment proceedings for the assessment years 1999-2000 total 31 32 income 2003-04. Consequently, assessment of such years are declared null and void. Thus, additional grounds no. 1 & 3 are allowed.
Reliance was also placed on the decision of the Hon. Supreme Court in the case of ACIT Vis. Rajesh Jhaveri Stock Brokers P.Ltd. reported in 291 ITR p. 500, in which it has been held that intimation u/s 143(1)(a) cannot be treated to be an order of assessment. It was submitted that this decision has been given in the context of the interpretation of sec. 147 and in that context it has been held that the intimation does not become the assessment order. As per ld. Authorized Representative, the Hon. Apex Court had no occasion to deal with the wordings of pending assessments, which occurs under the second proviso to sec. 153A.
32 -: 33 :- It was further contended by ld. Authorized - Representative that in the case of the assessment u/s.153C, the section clearly provides that - "Where the assessing officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of accounts or documents seized belongs to other person than the person referred to in sec. 153A, then the books of accounts or documents or assets seized shall be handed over to the assessing officer of such other person and that assessing officer shall proceed against such person and issue notice and assess or reassess income of such person in accordance of the provisions of sec. 153A. "
It was further submitted that the satisfaction is required of the AO that the money, bullion and other valuable articles, books of accounts or documents belongs to other person. Since the word used is satisfaction, the case of Manish Maheshwari; 289 ITR p.341, would still be a good
-: 34: -
law. The books of accounts and the documents would again mean as has been interpreted by the Hon. Special Bench in para 56 as the incriminating material. If the books of accounts and the papers on the basis of which the returns are filed are found, then there is no cause of action for assessment or reassessment u/s.153C. In such an event, no proceedings can be initiated and no assessment can be framed. Even otherwise, the assessment of the third person shall have to be made on the basis of the books of accounts and documents not produced in the assessment and undisclosed income or property discovered during the course of the search. In the cases of 153C, if no incriminating documents are found, then the provisions of sec.153C cannot be invoked and the assessment of such person cannot be made u/s.153A. However, if certain facts have been noticed during the course of the assessment proceedings, or during the course of the 34
-: 35: -
investigation after the search, then on the basis of such factual position or incriminating documents found, the assessments can be completed in the regular course u/s.143(3) either by issuing the notice u/s.142(1) or 143(2) or sec.147. In this connection, following instances were also quoted:-
1. In all cases, the sales and purchases are effected to the other persons, which are duly recorded in the regular books of accounts of both the parties i.e. the purchaser and the seller.
If the bunch of papers either the sale or purchase bills which pertains to a particular party and which belongs to him , are found in the searched premises of the search party, then can a notice u/s. 153C be issued in the case of the third party.
2. Many documents are found at the place of brokers, which are entered in the books of accounts of both the parties, then can the proceedings u/s. 153C be initiated on the basis of the interpretation of the provisions of sec. 153C.
3. Similar is the situation in the case when the books of accounts of the group concerns, family members, etc. are found during 35
-: 36: -
the course of the search, and which are the basis of the return filed, can the proceedings u/s. 153C be started without finding any incriminating material against these persons. If the answer is yes, then it will create a great harassment to these persons, which is not the intention of the Law. That is why while deciding the issue, the Hon, Tribunal in para 58 used the word "incriminating material". This was done while answering the questions after discussing the various case laws cited before it in para 55. While coming to the conclusion in para 53" the word "incriminating material" has not been used, but while giving the conclusions, the words "incriminating material" have been used. Under these circumstances, it is humbly submitted that, u/s. 153C, the notices can be issued and the additions can be made only in respect of the incriminating material found during the course of the search. In other years, the AO will not have a jurisdiction to disturb the book results even by invoking the provisions of sec.145. He will have no right to investigate into a fresh source of income, if no document is found.
36
-: 37: -
In this connection, attention was also invited to the following judgments :-
CIT vs. Shaila Agrawal; 246 CTR p.266 (All. ) S.R. Batliboi & Co. Ltd. V/s. DDIT(lnv); 224 CTR p.369 (Delhi) Fort Projects P.Ltd. V/s. DClT; 63 DTR p.145 (Kolkata Trib. ) LMJ International V/s. DClT; 119 TTJ 214 (Kolkata Trib.) Meghmani Organics Ltd. V/s. DCIT; 129 TTJ p.255 (Ahd. Trib.) CIT Vs. Sandeep Mehta (M.P. ) 19 ITJ P.383 Point for 158BC.
Sinhgarh Tech. Edu. Society V/s. ACIT; 140 TTJ 233 (Pune Trib.) S.K. Jain vs. ACIT 14 ITJ P. 434 (Indore) Against :-
Harvey Heart Hospitals Ltd. V/s. ACIT; 130 TTJ 700 (Chennai Trib.) 37
-: 38: -
14. On the other hand, Shri Keshave Saxena, ld. CIT DR appearing on behalf of the Revenue, contended that a controversy with regard to framing of assessment u/s 153A has been clearly held valid by the I.T.A.T., Special Bench in the case of All Cargo Global Logistics Limited. Our attention was invited to para 48 at page 55 of the order, which reads as under :-
"The provision u/s 153A is applicable where a search or requisition is initiated after 31.5.2003. In such a case the Assessing Officer is obliged to issue notice u/s 153A in respect of 6 preceding years, preceding the year in which search etc. has been initiated. Thereafter, he has to assess or reassess the total income of these six years. It is obligatory on the part of the Assessing Officer to assess or re-assess total income of the six years as provided in Section 153A(1)(b) and reiterated in the 1st proviso to this Section. The second proviso states that the assessment or reassessment pending on the date of 38
-: 39: -
initiation of the search or requisition shall abate. We find that there is no divergence of view in so far as the provision contained in Section 153A till the 1st proviso. The divergence starts from the second proviso which states that pending assessment or reassessment on the date of initiation of search shall abate. This means that an assessment or reassessment pending on the date of initiation of search shall cease to exist and no further action shall be taken thereon. The assessment shall now be made u/s 153A. The case of Ld.Counsel for the assessee is that necessary corollary to this provision is that completed assessment shall not abate. These assessments become final except in so far and to the extent as undisclosed income is found in the course of search. On the other hand, it has been argued by the Standing counsel that abatement of pending assessment is only for the purpose of avoiding two assessments for the same year, one being regular assessment and the other being assessment u/s 39
-: 40: -
153A. In other words, these two assessments coalesce into one assessment. The second proviso does not contain any word or words to the effect that no reassessment shall be made in respect of a completed assessment. The language is clear in this behalf and therefore literal interpretation should be followed. Such interpretation does not produce manifestly absurd or unjust results as Section 153A(1)(b) and the first proviso clearly provide for assessment or reassessment of all six years. It may cause hardship to some assessees where one or more of such assessments has or have been completed before the date of initiation of search. This is hardly of any relevance in view of clear and unambiguous words used by the legislature. This interpretation does not cause any absurd etc. results. There is no casus omissus and supplying any would be against the legislative intent and against the very rule in this behalf that it should be supplied for the purpose of achieving legislative intent. The sub 40
-: 41: -
missions of the Ld.Counsels are manifold, the foremost being that the provision u/s 153A should be read in conjunction with the provision contained in Section 132(1), the reason being that the latter deals with search and seizure and the former deals with assessment in case of search etc. thus, the two are inextricably linked with each other immediately preceding the year of search. The word used "shall"
and, thus, there is no option but to issue such a notice. Thereafter, he has to assess or reassess total income of these six years. In this respect also, the word used is "shall" and, therefore, the Assessing Officer has no option but to assess or reassess the total income of these six years. The pending proceedings shall abate. This means that out of six years, if any assessment or reassessment is pending on the date of initiation of the search, it shall abate. In other words, pending proceedings will not be proceeded with thereafter. The assessment has now to be made u/s 153A(1)(b) and the first proviso. It 41
-: 42: -
also means that only one assessment will be made under the aforesaid provisions as the two proceedings i.e. assessment or reassessment proceedings and proceedings under this provision merge into one. If assessment made under sub- Section (1) is annulled in appeal or other legal proceedings, then the abated assessment or reassessment shall revive. This means that the assessment or reassessment, which had abated, shall be made, for which extension of time has been provided u/s 153B.
53. The question now is - what is the scope of assessment or reassessment of total income u/s 153A(1)(b) and the first proviso ? We are of the view that for answering this question, guidance will have to be sought from Section 132(1). If any books of account or other documents relevant to assessment had not been produced in the course of original assessment and found in the course of search in our humble opinion such books of account or other 42
-: 43: -
documents have to be taken into account while making assessment or reassessment of total income under the aforesaid provision. Similar position will obtain in a case where undisclosed income or undisclosed property has been found as a consequence of search. In other words, harmonious interpretation will produce the following results :-
(a) In so far as pending assessments are concerned, the jurisdiction to make original assessment and assessment u/s 153A merge into one and only one assessment for each assessment year shall be made separately on the basis of the findings of the search and any other material existing or brought on the record of the Assessing Officer, (b) in respect of non-
abated assessments, the assessment will be made on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search, 43
-: 44: -
and undisclosed income or undisclosed property discovered in the course of search."
15. To highlight the scope of assessment to be made u/s 153A, attention was invited to following portion of sub para (a) of para 55 of the order of Special Bench, which reads as under
:
"An assessment or reassessment u/s 153A is made in a case where search is initiated and conducted. Our finding inter-alia is that when books of account, other documents relevant to assessment, which were not produced before the Assessing Officer in regular assessment proceedings, or undisclosed income or asset is found in search, the same can be used for making assessment or reassessment in pending and completed assessments. Obviously a search is undertaken for discovering undisclosed income or asset. It is also undertaken to find books of account or other documents which had not been produced or which would not have been produced in the course of assessment. Therefore, taking into 44
-: 45: -
consideration all such books, documents, income or asset or making assessment u/s 153A does not produce in any manner absurd or irrational result. It also does not cause any mischief."
16. Attention was also invited by ld. CIT DR to following observation in sub para (g) of para 55 to highlight the sanctity of completed assessment which reads as under :-
"The real issue is whether there is any sanctity of completed assessment in respect of which nothing has been found in search. When we look to any other provisions regarding reopening of assessment, we find that there are certain pre-conditions to be satisfied for doing so. The pre-condition in this case is the initiation and conducting of the search. The avowed purposes of search have already been stated by us. In cases decided u/s 147 or 263, the scope of assessment is narrower than the scope of original assessment. This is because matter which has been discussed and de bated in assessment, which has become final, and for which there is no 45
-: 46: -
reason to agitate again in the re-assessment, there is no reason to reopen them. This consideration would be applicable in the re-assessment u/s 153A and guidelines can be clearly discerned in the provision contained in 132(1)."
17. Attention was also invited by ld. CIT DR to following observations as given in sub para (h) of para 55, which explains the abatement :-
"There is no word in the provision to the effect that even completed assessments abate. Therefore, sanctity of such assessment should be maintained except when something is found in search which go against such sanctity. We are of the view that the sanctity is violated not only on detection of undisclosed income or asset but also when books of account or other documents which should have been produced in original assessment as they were relevant to the assessment and have not been produced, but found in the course of search." 46
-: 47: -
18. Further attention was invited to the following observation as given in sub para (i) of Para 55, which reads as under :-
"We may add that we have not held that the assessment can be made only for those years in respect of which books or assets etc. are found. We have come to the clear finding that assessment/reassessment for all six years will have to be made The real question is the scope of re- assessment which is not pending for which we have read provisions of Section 132(1) and Section 153A together. Thus, the total income under reassessment may be the same as in the original assessment or may be higher than that depending upon the materials which are uncovered in the course of search. We are also of the view that issue of notice for six years and computing reassessment for these years even if no material is found in the course of search for some years does not amount to harassment etc. and even if it does so, the same has 47
-: 48: -
to be ignored in view of the clear statutory provision."
19. To sum up regarding scope of jurisdiction u/s 153A, the answer given by the Special Bench was narrated which reads as under :-
"58. Thus, question No.1 before us is answered as under :-
a) In assessments that are abated, the Assessing Officer retains the original jurisdiction as well as jurisdiction conferred on him u/s 153A for which assessments shall be made for each of the six assessment years separately ;
b) In other cases, in addition to the income
that has already been assessed, the
assessment u/s 153A will be made on the basis of incriminating material, which in the context of relevant provisions means - (i) books of account, other documents, found in the course of search but not produced in the course of original 48
-: 49: -
assessment, and (ii) undisclosed income or property discovered in the course of search."
20. Rival contentions have been considered and records perused and various decisions cited by the ld. Authorized Representative and ld. CIT DR have also been deliberated upon. The relevant observation of the I.T.A.T. Special Bench in the case of All Cargo,as highlighted by the ld. CIT DR and ld. Authorized Representative have also been carefully perused. It is very much clear from the discussion made in the order of Special Bench in the case of All Cargo that in assessments that are abated, the Assessing Officer have all the powers to frame assessment u/s 143(3) as well as the jurisdiction conferred on him u/s 153A. Once the notice is issued u/s 153A, assessment shall be made in each of the six assessment years. Where a search is initiated after 31.5.2003, the Assessing Officer is obliged to issue the notice u/s 153A in respect of six preceding years, preceding the year in which search has been initiated and the Assessing Officer is required to assess or re-assess the total income of these six years. In terms of first proviso to Section 153A(1)(b), it is obligatory on 49
-: 50: -
the part of the Assessing Officer to assess and/or re-assess the total income of these six years, the second proviso to Section 153A(1)(b) provides that pending assessment or re- assessment on the date of initiation of search shall abate meaning thereby these assessments shall cease to exist and assessment shall now be made u/s 153A. However, the completed assessments shall not abate except in so far as and to the extent as un-disclosed income is found in the course of search. The Special Bench have further laid down that the first proviso to Section 153A clearly provides for assessment or re- assessment for all six years, merely because it may cause hardship to some assessees where one or more such assessment has been completed before the date of initiation of search, would hardly of any relevance. While answering question no. 1, the Special Bench has observed that in other cases, in addition to the income that has already assessed, the assessment u/s 153A will be made on the basis of incriminating material such incriminating material has been defined as books of account, other documents found in the course of search but not produced in the course of original 50
-: 51: -
assessment and undisclosed income or property discovered in the course of search.
21. In view of the above, if any books of account or other documents relevant to the assessment year had not been produced in the course of search, such books of account or other documents have to be taken into account while making assessment or re-assessment of total income under provisions of Section 153A(1)(b) of the Income-tax Act, 1961, read with Section 132(1). The Special Bench have further laid down that jurisdiction to make original assessment and assessment u/s 153A, merged into one and only that assessment for each assessment year shall be made separately on the basis of findings of the search and other material existing or brought on the record of the Assessing Officer. It has further been held by the Special Bench that in respect of non-abated assessment, the assessment will be made on the basis of books of account or other documents not produced in the course of original assessment but found in the course of the search and undisclosed income or undisclosed property discovered in the course of search.
51
-: 52: -
22. To highlight the sanctity of completed assessment in respect of which nothing has been found in the search, the Special Bench has held that matters which have been discussed and detected in assessment and which has become final and for which there is no reason to agitate again in the reassessment, there is no reason to reopen them. It was further observed that sanctity of such completed assessment should be maintained except when something is found in search which go against such sanctity. It was also observed that even when the books of account or other documents which have been produced in the original assessment as they were relevant to the assessment and have not been produced but found in the course of search, sanctity of such completed assessment is violated.
23. The Special Bench have categorically observed while defining scope of assessment u/s 153A that the words "Incriminating material" does not find mention either in Section 132(1) or 153A.
24. I.T.A.T., Indore Coordinate Bench in the case of Sudhir Maheshwari and Others in I.T.A.No. 8/Ind/2012 have 52
-: 53: -
categorically dealt with the similar issue and recorded finding as under :-
"18. We have considered the rival submissions and have gone through the orders of the authorities below. With regard to the addition made u/s 153A, we found that issue is covered against assessee as per the observations given at para 58 of page 73 of the order of the Special Bench, wherein it was clearly observed that any assessment that are abated, the Assessing Officer retains the original jurisdiction as well as jurisdiction conferred to him u/s 153A for which assessments have been made for each of the six assessment years separately. Since in the instant case, original assessment orders were not framed u/s 143(3), the Assessing Officer was empowered to frame an assessment as per the powers given u/s 143(3) and also the powers conferred to him u/s 153A of the Income-tax Act, 1961."
53
-: 54: -
Hon'ble Delhi High Court in the case of Anil Kumar Bhatia vide order dated 7th August, 2012, at para 20 & 21 observed as under :-
"20. A question may arise as to how this is sought to be achieved where an assessment order had already been passed in respect of all or any of those six assessment years, either under Section 143(1)(a) or Section 143(3) of the Act. If such an order is already in 'existence, having obviously been passed prior to the initiation of the search/requisition, the Assessing Officer is empowered to reopen those proceedings and reassess the total income, taking note of the undisclosed income, if any, unearthed during the search . For this purpose the fetters imposed upon the Assessing Officer by the strict procedure to assume jurisdiction to reopen the assessment 54
-: 55: -
under Sections 147 and 148, have been removed by the non obstante clause with which sub section (1) of Section 153A opens. The time-limit within which the notice under Section 148 can be issued, as provided in Section 149 has also been made inapplicable by the non obstante clause. Section 151 which requires sanction to be obtained by the Assessing Officer by issue of notice to reopen the assessment under Section 148 has also been excluded in a case covered by Section 153A. The time-limit prescribed for completion of" an assessment or reassessment by Section 153 has also been done away with in a case covered by Section 153A. With all the stops having been pulled out, the Assessing Officer under Section 153A has been entrusted with the duty of bringing to tax the total income of an assessee whose case is covered by Section 153A, by even making 55
-: 56: -
reassessments without any fetters, if need be.
21. Now there can be cases where at the time when the search is initiated or requisition is made, the assessment or reassessment proceedings relating to any assessment year falling within the period" of the six assessment years mentioned above, may be pending. In such a case, the second proviso to sub section (1) of Section 153A says that such proceedings "shall abate". The reason is not far to seek.
Under Section 153A, there is no room for multiple assessment orders in respect of any of the six assessment years under consideration. That is because the Assessing Officer has to determine" not merely the undisclosed income of the assessee, but also the 'total income' of the assessee in whose case a search or requisition has been initiated. Obviously there cannot be several orders for the same assessment year determining the total income 56
-: 57: -
of the assessee. In order to ensure this state of affairs namely," that in respect of the six assessment years preceding the assessment year relevant to the year in which the search took place there is only one" determination of the total income, it has been provided in the second proviso of sub Section (1) of Section 153A that any proceedings for assessment or reassessment 'of the assessee which are pending on the date of initiation of the search or making requisition "shall abate". Once those proceedings abate, the decks are cleared, for the Assessing Officer to pass assessment orders for each of those six years determining the total income of the assessee which would include both the income declared in the returns, if any, furnished by the assessee as well as the undisclosed income, if any, unearthed during the "search or requisition". The position thus emerging is that where 57
-: 58: -
assessment or reassessment proceedings are pending completion " when the search is initiated or requisition" is made, they will abate making way for the Assessing Officer to determine the total income of the assessee in which the undisclosed income would also be included, but in cases where the assessment or reassessment proceedings 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 this latter situation, the Assessing Officer will reopen the assessments or reassessments already made (without having the need to follow the strict provisions or complying with the strict conditions of Sections 147, 148 and
151) and determine the total income of the 58
-: 59: -
assessee. Such determination in the .orders passed under Section 153A would be similar to the orders passed in any reassessment, where the total income determined in the original assessment order and the income that escaped assessment are clubbed together and assessed as the total Income. In such a case, to reiterate, there is no question of any abatement of the earlier proceedings for the simple reason that no proceedings for assessment or reassessment were pending since they had already culminated in assessment or reassessment orders when the search was initiated or the requisition was made."
25. In view of the above precise observation of Special Bench and the decision of Hon'ble Delhi High Court and applying the same to the facts of the present case, wherein no assessment has been framed u/s 143(3) and the returns have 59
-: 60: -
only been processed u/s 143(1), these are covered by clause
(a), wherein Assessing Officer retains the original jurisdiction u/s 143(3) as well as jurisdiction conferred on him u/s 153A, for which assessment shall be made for each of the six assessment years separately. Thus, we can say that in case of issue of intimation u/s 143(1), the assessments are abated and Assessing Officer has all the jurisdiction to frame assessment as per powers conferred on him u/s 143(3) as well as u/s 153A of the Income-tax Act, 1961, in respect of each of the six assessment years falling prior to the year of the search.
26. In view of the above discussion additional grounds raised by the assessee to the effect that assessment framed u/s 153A read with Section 143(3) is illegal and should have been annulled as no documents or incriminating material was found in search, are hereby dismissed.
27. Now coming to the merit of the additions on account of house hold expenses, we found that estimations were made by the Assessing Officer on account of house hold expenses of assessee. From the record, we found that entire family of the assessee and his three sons were living in joint family in the 60
-: 61: -
house owned by the assessee and they were sharing the common cogent. There is also no dispute to the fact that Motilal Soni and Kamal Kumar Soni having agricultural land and animals. Such requirement of regular milk and agricultural produce for house hold purposes were directly made. Both these assessees have also reflected consumption of agricultural produce e very year ranging from Rs. 16000/- to Rs. 60000/- for house hold purposes. The assessee was residing at a small town, namely, Sendhwa, where cost of living and education was comparatively much cheaper. The spouse of the assessee was also showing regular withdrawals, which have also not been considered by the Assessing Officer, while arriving at the figure of proposed addition on account of low withdrawals. So far as the estimation of house hold expenditure by the Assessing Officer is concerned, we found the same reasonable, but at the same time, we have to consider the withdrawals shown by the spouse of the assessee as well as agricultural produce and the milk available to the assessee, which substantially reduced the house hold expenses, while arriving at short fall or addition on account of 61
-: 62: -
house hold expenses. The withdrawals by the assessee and her wife vis-à-vis agricultural produce consumed for house hold purposes and the value of the said return as agricultural income and the addition made by the Assessing Officer reads as under :-
Motilal Soni :
A.Y. Estimated Withdrawals Agricultural Withdrawals Total Deficit/surplus Addition
house by self produce for by wife withdrawals of withdrawals made by
hold house hold over estimation the
expenses expenses Assessing
per year and the Officer
as per value of
Assessing said
Officer returned as
agricultural
income
A B C D E(B+C+D) F(E-A) G(A-B)
2000-01 42000 26930 16775 15000 58705 16705 15070
2001-02 42000 36559 15497 14500 66556 24556 5441
2002-03 48000 20000 26660 14500 61160 13160 28000
2003-04 48000 20000 32199 15000 67199 19199 28000
2004-05 54000 23310 25335 15000 63645 9645 30690
2005-06 60000 60000 48440 15000 123440 63440 0
2006-07 60000 60000 44592 15000 119592 59592 0
Kamal Kumar Soni
A.Y. Estimated Withdrawals Agricultural Withdrawals Total Deficit/surplus Addition
house by self produce for by wife withdrawals of withdrawals made by
hold house hold over estimation the
expenses expenses Assessing
per year and the Officer
as per value of
Assessing said
Officer returned as
agricultural
income
A B C D E(B+C+D) F(E-A) G(A-B)
2000-01 84000 20999 0 17500 38499 (-)45501 63001
2001-02 66000 20000 0 15500 35500 (-)30500 46000
2002-03 66000 20000 3849 17000 40849 (-)25151 46000
2003-04 72000 20000 7375 15000 42375 (-)29625 52000
2004-05 78000 20000 22576 15000 57576 (-)20424 58000
2005-06 84000 60000 9761 15000 84761 761 24000
2006-07 96000 60000 7785 15000 82785 (-)13215 36000
62
-: 63: -
Kishorechand Soni
A.Y. Estimated Withdrawals Withdrawals Total Deficit/surplus Addition
house by self by wife withdrawals of withdrawals made by
hold over estimation the
expenses Assessing
per year Officer
as per
Assessing
Officer
A B C D(B+C) E(D-A) F(A-B)
2000-01 102000 21000 17000 38000 (-)64000 81000
2001-02 108000 19999 15000 34999 (-)73001 88001
2002-03 114000 19999 16000 35999 (-)78001 94001
2003-04 120000 20000 15000 35000 (-)85000 100000
2004-05 126000 20000 15000 35000 (-)91000 106000
2005-06 132000 19999 15000 34999 (-)97001 112001
2006-07 144000 60000 15000 75000 (-)69000 84000
Rajesh Soni
A.Y. Estimated Withdrawals Withdrawals Total Deficit/surplus Addition
house by self by wife withdrawals of withdrawals made by
hold over estimation the
expenses Assessing
per year Officer
as per
Assessing
Officer
A B C D(B+C) E(D-A) F(A-B)
2000-01 84000 23258 19000 42258 (-)41742 60742
2001-02 84000 20000 15000 35000 (-)49000 64000
2002-03 90000 20000 14000 34000 (-)56000 70000
2003-04 96000 20699 15000 35699 (-)60301 75301
2004-05 96000 20000 15000 35000 (-)61000 76000
2005-06 102000 80000 15000 95000 (-)7000 22000
2006-07 120000 60000 15000 75000 (-)45000 60000
28. In case of Motilal Soni, from the record, we found that the Assessing Officer has not considered the withdrawals shown by wife of the assessee. Assessing Officer has also not decided agricultural produce of assessee, therefore, we do not see any valid reason to ignore the agricultural produce consumed by assessee for purpose of his own family members.
It is clear from the chart given above that total withdrawals of 63
-: 64: -
the assessee, after considering the agricultural produce consumed by him and the withdrawals shown by his wife, is more than house hold expenditure estimated by the Assessing Officer as shown in column (A) as the total withdrawals are sufficient and even more than the house hold expenses estimated by the Assessing Officer, we do not find any justification in making any addition on the plea of low withdrawals. Accordingly, ground taken by the assessee for the assessment years 2000-01 to 2004-05 are allowed and the Assessing Officer is directed to delete the addition made on account of low house hold withdrawals.
29. In the case of Kamal Kumar Soni, we found that as per the details given hereinabove, the total withdrawals as given in column (E) is less than the house hold expenditure estimated by the Assessing Officer as given in column (A). Thus, we confirm the addition on account of low house hold expenditure as under :-
A. Y. Amount
2000-01 45,501/-
2001-02 30,500/-
2002-03 25,151/-
2003-04 29,625/-
64
-: 65: -
2004-05 20,424/-
2006-07 13,215/-
30. In the assessment year 2005-06, since the withdrawal is more than the house hold expenditure estimated by the Assessing Officer at Rs. 84,000/-, there is no justification for making any addition. We direct accordingly.
31. In case of Kishore Chand Soni, The total withdrawals by the assessee, his wife, falls short of expenditure estimated by the Assessing Officer on account of house hold. Accordingly, following additions have been confirmed on account of low house hold withdrawals :-
A. Y. Amount
2000-01 64,000/-
2001-02 73,001/-
2002-03 78,001/-
2003-04 85,000/-
2004-05 91,000/-
2005-06 97,001/-
2006-07 69,000/-
32. In case of Rajesh Soni, we found that withdrawals shown by the assessee and his wife falls short of house hold 65
-: 66: -
expenditure estimated by the Assessing Officer. Accordingly, we confirm the following additions :-
A. Y. Amount
2000-01 41742/-
2001-02 49000/-
2002-03 56,000/-
2003-04 60301/-
2004-05 61,000/-
2005-06 7,000/-
2006-07 45000/-
33. In the result, the order of lower authorities on account of addition of house hold expenditure is modified to the extent indicated above.
34. In respect of agricultural income shown by the assessee, the Assessing Officer observe that expenditure shown by the assessee for producing agricultural produce, is not sufficient, accordingly, he estimated the expenditure at 40% of the gross agricultural receipts. The estimation in agricultural expenditure was added by the Assessing Officer as income from other sources. By the impugned order, the ld. CIT(A) reduced the agricultural expenditure at 35 % as against expenditure of 40% as estimated by the Assessing Officer. Now assessee is in appeal before us for the addition sustained on 66
-: 67: -
account of estimation of higher expenditure alleged to be incurred for purposes of producing agricultural produce.
35. We have considered the rival submissions and have gone through the orders of the authorities below. Main contention of the ld. CIT DR was that the assessee had shown very low expenditure for producing the agricultural produce and it has reasonably been estimated by the Assessing Officer at 40% and which was further reduced by the ld.CIT(A) to 35%, the same should be upheld.
36. We have considered the rival submissions and have gone through the orders of the authorities below and we have also deliberated on the case laws cited at Bar with reference to the factual matrix of the case. It is clear from the order of the Assessing Officer that he has accepted the nature of income shown under the head agricultural receipts, which is not liable to tax. The Assessing Officer has merely doubted the quantum of expenditure shown by the assessee as having been incurred for producing the agricultural produce. As per the observations given by the Assessing Officer, we are inclined to agree with the ld. CIT DR that it is not possible to produce the 67
-: 68: -
agriculture produce by incurring expenditure ranging between 5% to 10%. We found that the ld. CIT(A) has estimated the expenditure at 35 % of the gross agricultural receipts in place of 40 % as estimated by Assessing Officer. It is pertinent to mention here that the Assessing Officer has not doubted the nature of agricultural receipts and he has fairly accepted the agricultural receipts shown by the assessee which is not liable to tax and included only for the rate purposes. The only allegation of the Assessing Officer is with regard to incurring of expenditure for having the agricultural produce. Once the expenditure on account of agriculture is estimated at higher figure, the net agricultural income shown by the assessee will reduce correspondingly. However, there is no reason to treat the difference between expenditure actually recorded and as estimated by the Assessing Officer as income from other sources. When the nature of income itself is not doubted, there is no reason to doubt the nature of expenditure incurred for generating such income. Estimation of expenditure at higher level will go to reduce the net agricultural income. Keeping in view the totality of facts and circumstances of the case and the 68
-: 69: -
nature of agricultural produce in India and the fact that the assessee was doing agricultural operation since 1955, well equipped with necessary tools required for agricultural purposes and attends himself and supervises agricultural operation, we estimate the expenditure at 25 % of agricultural receipt in place of expenditure estimated at 35 % by the CIT(A). Accordingly, we modify the order of lower authorities to the effect that to the extent of higher estimation of expenditure, the net agricultural income should be reduced rather treating the difference as income from other sources. We direct accordingly.
37. Next common issue taken by the assessees relate to reducing the claim u/s 80IB by denying the netting of interest income.
38. From the record, we found that the assessee was in receipt of interest income from Bank and other parties.
Assessee has also paid interest on the borrowings. Deduction u/s 80IB was claimed by netting interest income against interest expenses. The Assessing Officer observed that interest income is not derived from industrial undertaking, therefore, it 69
-: 70: -
is not eligible for claim of deduction u/s 80IB. He further held that interest receipt falls under the head "Income from other sources" and does not qualify for deduction u/s 80IB, since it is not derived from industrial activities. By the impugned order, the ld. CIT(A) confirmed the action of the Assessing Officer by stating that issue is covered against the assessee by appellate order in the case of Amar Kumar Agarwal dated 12.02.2009.
39. It was argued by the ld. Authorized Representative that an appeal was filed by the assessee in the case of Amar Kumar Agarwal (supra) and the matter with regard to claim of deduction u/s 80IB in respect of interest income by allowing netting off was restored back by the Tribunal vide its order dated 11th May, 2010. Copy of order was also placed on record.
40. On the other hand the ld. CIT DR vehemently argued that interest income was earned by the assessee out of surplus fund, which was parked with the Bank and advanced to other parties. Such interest income is nothing to do with the industrial undertaking of the assessee, therefore, not eligible for claim of deduction u/s 80IB. Reliance was placed on the 70
-: 71: -
decision of Hon'ble Supreme Court in the case of Tuticorin Alkali, 227 ITR 173 and Pondiyan Chemicals, 262 ITR 278.
41. We have considered the rival contentions and have gone through the orders of the authorities below. In the case of Amar Kumar Agarwal, Tribunal vide its order dated 11th May, 2010, have restored the matter back to the file of the Assessing Officer after having the following observations :-
"14. As regard the issue of netting of interest raised in ground no.1(f), we find that identical issue arose before the Tribunal in following cases :-
(i) I.T.A.No. 756/Ind/2006
(ii) I.T.A.No. 757/Ind/2006.
(iii) I.T.A.No. 759/Ind/2006 and -
(iv) I.T.A.No. 761/Ind/2006
and the Tribunal restored the issue to the file of Assessing Officer by observing as under :-
"14. As regard to netting of interest is concerned, it is now a settled judicial proposition that only net interest income has to be excluded from the profits of an eligible industrial undertaking. The ld.
Departmental Representative, though, has tried to 71
-: 72: -
state that there was no direct nexus as observed by the ld.CIT(A). However, from the perusal of the appellate order, in our view, no such finding emerges. Even the Assessing Officer has not dealt with this aspect. Further, the decision relied on by the ld. Departmental Representative in the case is also on a different aspect and not on the aspect of netting, hence, not relevant. Since the aspect of nexus has not been examined at any stage, hence, we restore this issue to the file of Assessing Officer to examine the same and if the nexus between the interest paid and interest earned is established by the assessee, then, to exclude only net interest from the eligible profits of the industrial undertaking. Thus, this part of this ground is accepted."
15. Since the facts are identical, hence, the issue raised in this appeal, is also restored to the file of Assessing Officer to be disposed of in a similar manner. Thus, this ground of the assessee stands partly allowed for statistical purposes."
72
-: 73: -
42. We have considered rival contentions. It is clear from the order of the Tribunal that the matter was restored back to the file of Assessing Officer since aspect of nexus of interest earned and interest expenditure incurred has not been examined at any stage. It was further held that if the nexus between the interest paid and interest earned is established by the assessee, then to exclude only net interest from the eligible profit from the industrial undertaking. Thus, the issue in this case was with regard to establishing the nexus of interest paid and the interest earned. The question of netting of interest and establishing the nexus between the interest earned and interest expenditure incurred have not been examined by lower authorities while computing income of industrial undertaking. There is no dispute to the well settled legal proposition that if the assessee has earned any interest out of the funds borrowed on interest, only net interest expenditure will be considered for computing the net profit of industrial undertaking and the balance amount of interest income will be excluded out of net profit of industrial undertaking for working out claim of deduction u/s 80IB on 73
-: 74: -
such profit. However, where surplus fund had been utilized for earning interest income, there is no question of including such interest income in the profit of industrial undertaking for the purpose of computing eligible deduction u/s 80IB.
43. In view of the above discussion, respectfully following the decision of coordinate bench, wherein facts and circumstances were same, matter is restored back to the file of Assessing Officer for deciding the issue afresh in the light of above discussion. We direct accordingly.
44. In the result, the appeals of the assessees are allowed in part in terms indicated hereinabove.
This order has been pronounced in the open court on 27th August, 2012.
sd/- sd/-
(JOGINDER SINGH) (R. C. SHARMA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 27th August, 2012.
CPU*
92124278
74