Income Tax Appellate Tribunal - Mumbai
Mudra Lifestyle Ltd, Mumbai vs Asst Cit Cen Cir 38, Mumbai on 10 October, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" Bench, Mumbai
Before Shri P K Bansal, Vice President
and Shri Pawan Singh, Judicial Member
ITA Nos.1313, 1314, 1601 & 1602/Mum/2014
(Assessment Years: 2004-05 to 2007-08)
M/s. Mudra Lifestyle Ltd. ACIT, Central Circle-38
Office No. 509, 5th Floor Ground Floor, Aayakar
EDG-1st, Western Express Vs. Bhavan
Highway, Magathane M.K. Road, Mumbai 400020
Borivali (E), Mumbai 400066
PAN - AACCM6461E
Appellant Respondent
ITA Nos.1672 & 1673 /Mum/2014
(Assessment Years: 2006-07 & 2007-08)
ACIT, Central Circle-38 M/s. Mudra Lifestyle Ltd.
Room No. 32(1), Gr. Floor Office No. 509, 5th Floor
Aayakar Bhavan, M.K. Road Vs. EDG-1st, Western Express
Mumbai 400020 Highway, Magathane
Borivali (E), Mumbai 400066
Appellant Respondent
Assessee by: Shri Dharmesh Shah
& Dhaval S. Shah
Revenue by: Shri Ravijit Singh Arneja
Date of Hearing: 14.09.2017
Date of Pronouncement: 10.10.2017
ORDER
Per P.K. Bansal, Vice President In the assessment years 2004-05 & 2005-06 the appeals have been filed by the while in assessment years 2006-08 & 2007-08 there are cross appeals against the order of the CIT(A)-41, Mumbai.
2. Appeals filed during the assessment years 2004-05 & 2005-06 are barred by limitation by 114days. When the Registry raised an objection the assessee, vide letter dated 12.03.2014 removed the defects and filed an application for condonation of delay along with affidavit. After hearing the 2 ITA No. 1313/Mum/2014+5 M/s. Mudra Lifestyle Ltd.
rival submissions and going through the application for condonation of delay, we noted that the assessee was prevented by sufficient cause to file the appeal within the permissible time. We, therefore, condone the delay.
3. In all the appeals filed by the assessee the assessee has taken a common legal ground that the CIT(A) has erred in confirming the action of the AO in making additions in the assessment made under section 143(3) r.w.s. 153A in the absence of any incriminating material being seized/ found during the course of search and, therefore, all these additions are bad in law. Since the ground taken by the assessee is a legal ground we, therefore, decided to dispose off this grounds of the assessee by this common order.
4. The brief facts of the case are that there has been a search and seizure action under section 132 of the Income Tax Act at the premises of the assessee on 12.08.2009. The assessee has filed the return of income for each of the assessment years as detailed below for which assessment has been completed either processing the return under section 143(1) or completed the assessment under section 143(3): -
A.Y. Date of Return Returned Income u/s. 115JB 2004-05 25.10.2004 ` 14,14,250/- -
2005-06 31.10.2005 ` 46,07,491/- ` 3,13,23,636/- 2006-07 30.11.2006 `1,33,25,450/- ` 1,43,58,760/- 2007-08 27.10.2007 `3,61,21,877/- `17,95,10,788/-
Income Tax Return for assessment years 2004-05 to 2006-07 were processed under section 143(1) while assessment for A.Y. 2007-08 has been completed under section 143(3) on 09.03.2009 at and income of `3,80,73,480/-. After the search notice under section 153A was issued to the assessee for assessment years 2004-05 to 2009-10 dated 12.04.2010. In response to this the assessee has filed return for each of the impugned assessment year before us by showing the income as detailed below against which the AO completed the assessment at an income shown hereunder: -3 ITA No. 1313/Mum/2014+5
M/s. Mudra Lifestyle Ltd.
A.Y. Returned u/s. 115JB Assessed u/s. 115JB
Income (`) (`) Income (``) (`)
2004-05 14,14,250 - 22,73,730 -
2005-06 46,07,490 3,13,23,636 69,05,342 3,13,23,636
2006-07 1,33,26,542 9,82,41,542 6,05,03,680 9,82,41,542
2007-08 3,72,62,465 17,95,10,788 7,84,98900 7,84,98900
5. The learned A.R. before us vehemently contended that in each of the assessment year the AO while completing the assessment made the following additions: -
Assessment Year - 2004-05 ESIC `1,428/-
Disallowance @5% of Expenses `8,58,947/-
`8,60,375/-
`8,60,375/-
Assessment Year - 2005-06
PF & ESIC `54,902/-
Disallowance @5% of Expenses `22,42,949/-
`22,97,851/-
Assessment Year - 2006-07
PF & ESIC `10,77,878/-
Disallowance u/s. 35D `10,44,188/-
Disallowance u/s. 35DD `39,512/-
Disallowance @5% of Expenses `40,73,198/-
Depreciation on Goodwill & Brand Value `1,37,50,000/-
`1,99,84,776/-
Assessment Year - 2007-08
PF & ESIC `23,23,217/-
Disallowance u/s. 35D `1,62,43,558/-
Disallowance u/s. 35DD `39,512/-
Disallowance @5% of Expenses `59,60,470/-
Depreciation on Goodwill & Brand Value `1,58,95,519/-
Commission on Purchases `9,57,372/-
Commission on Sales `9,57,372/-
`4,23,77,020/-
The learned A.R. before us relied on the order of the Hon'ble Jurisdictional High Court in the case of CIT vs. Continental Warehousing Corporation Ltd. 68 taxmann.com 78 which confirms the order of the Special Bench of this Tribunal in the case of All Cargo Global Logistics Ltd. vs. DCIT 137 ITD 287 (SB) (Mum). On the basis of this decision it was contended that since the assessments for assessment years 2004-05 to 2007-08 were 4 ITA No. 1313/Mum/2014+5 M/s. Mudra Lifestyle Ltd.
completed and were not pending when the search was taken place, therefore, the assessments remain unabated. When an assessment has not been abated in view of the decision of the Hon'ble Jurisdictional High Court addition for disallowance can be made by the AO only on the basis of the material found/seized during the course of the search not otherwise. In the case of the assessee in each of the assessment year none of the addition has been made on the basis of the material found/seized during the course of search. Thus, it was contended that the addition so made are invalid and the assessment completed without any incriminating material being brought on record is bad in law.
6. The learned D.R., on the other hand, supported the order of the tax authorities below and drawn our attention towards the assessment order of A.Y. 2007-08 and on that basis it was contended that so far the addition made for the commission on bogus purchases and sales are concerned the said addition has been made on the basis of the statement of Shri Murarilal Agarwal, Director of the company recorded on 13.08.2009 during the course of search. In the statement itself the assessee has duly accepted the fact that the statement recorded during the course of search on the basis of which the assessee has himself accepted the bogus expenses is itself an incriminating material and addition on that basis cannot be deleted. In this regard attention was drawn towards the decision of the Hon'ble Kerala High Court in the case of CIT vs. St. Francis Clay Decor Tiles 385 ITR 624.
7. We have heard the rival submissions and carefully considered the same along with the orders of the tax authorities below. We noted that in this case the assessment orders have been passed by the AO in consequence of the search carried out at the premises of the assessee under section 132 of the Income Tax Act on 12.08.2009. We noted that all these impugned assessments have been completed after processing the returns under section 143(1) or completed the assessment under section 143(3) before the date of search. Therefore, these assessments were not pending at that time of search. Due to the specific provisions of proviso 2 to section 153A these assessments will remain unabated. We noted that 5 ITA No. 1313/Mum/2014+5 M/s. Mudra Lifestyle Ltd.
this Tribunal on the issue whether any addition can be made in the assessment made under section 153A, when no incriminating documents is found during the course of search, a Special Bench was constituted in the case of All Cargo Global Logistics Ltd vs. DCIT (2012) 137 ITD 287 (SB)(Mum) on the following question: -
"Whether, on the facts and in law, the scope of assessment u/s 153A encompasses additions, not based on any incriminating material found during the course of search?
Before the Special Bench, Ld Sr. Counsel relied on the decision of LMG International Ltd as is apparent from para 16 of that order. We noted that in the said judgment in para 52 of its order, the Tribunal has held that section 153A comes into operation if a search or requisition is initiated after 31.O5.2003. On the satisfaction of this condition, the A.O. is under obligation to issue notice to the persons requiring him to furnish the return of income of six years immediately preceding the year of search. This finding implied that the proceedings under section 153A are not to be restricted to the years for which incriminating material is found during the search. Ultimately, in respect of question referred to the Special Bench, the Special Bench in para 58 of its order held as under:
"8. Thus, question No. 1 before us is answered as under:
a) In assessments that are abated, the AO 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 assessment, and; (ii) undisclosed income or property discovered in the course of search".
33. In view of the decision of Special Bench in the case of All Cargo Global Logistics Ltd. (supra), no doubt the addition in the case of the assessee can be made by the A.O. only on the basis of incriminating material found during the course of search. The decision of the Special Bench has duly been approved by the Hon'ble Jurisdictional High Court in the case of CIT 6 ITA No. 1313/Mum/2014+5 M/s. Mudra Lifestyle Ltd.
vs. Continental Warehousing Corporation Ltd. 68 taxmann.com 78 in which the Hon'ble High Court has held as under: -
"Under section 153A of the Income-tax Act, 1961, which enables carrying out of search or exercise of power of requisition, assessment in furtherance thereof is contemplated. There is a mandate to issue notices under section 153(l)(a) and assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made. Thus, the crucial words "search"
and "requisition" appear in the substantive provision and the provisos. That would throw light on the issue of applicability of the provision. True it is that the assessment which has to be made in pursuance of the notice is in relation to the six years. An order will have to be made in that regard. While making the order, the income or the return of income filed for all these assessment years is to be taken into account. A reference will have to be made to the income disclosed therein. However, the scope of enquiry though not confined essentially revolves around the search or the requisition under section 132A, as the case may be. The provision deals with those cases where assessment or reassessment, if any, relating to the assessment years falling within the period of six assessment years referred to in sub- section (1) of section 153A were pending. If they were pending on the date of the initiation of the search under section 132 or making of requisition under section 132A, as the case may be, they abate. It is only pending proceedings that would abate and not where there are orders made of assessment or reassessment and which are in force on the date of initiation of the search or making of the requisition. The assessee was engaged in the operation of a container freight station. It claimed deduction under section 80-IA(4) producing a certificate dated July 13,2006, from the Jawaharlal Nehru Port Trust Nhava Sheva declaring that the assessee was considered an extended arm of port-related services. The deduction was disallowed on the ground that the certificate was withdrawn on October 5, 2007. The Commissioner (Appeals) confirmed the view of the Assessing Officer. The Tribunal held in favour of the assessee. A search was carried out on its premises and a notice under section 153A was issued to the assessee. The assessee declared a total income of Rs. 5,54,63,220 while claiming the deduction under section 80-IA(4) of Rs. 1,25,77,637. The Assessing Officer held that the assessee was not entitled to the deduction under section 80-IA. The Commissioner (Appeals) upheld the order of the Assessing Officer. The Special Bench of the Tribunal held that by the clear language of section 153A together with its provisos, pending assessments abated and that the Assessing Officer was required to make one assessment for each of the six years on the basis of the search and any other material existing or brought on record by the Assessing Officer, that in 7 ITA No. 1313/Mum/2014+5 M/s. Mudra Lifestyle Ltd.
other cases assessments would be made on the basis of the books of account and other documents found during the search and not produced during assessment and also on any other undisclosed income or property found during the search. On the issue of deduction under section 80-IA(4) the Tribunal held that the container freight station was an inland port and its income was entitled to deduction under section 80-IA(4). On appeals:
Held, dismissing the appeals, (i) that the notice under section 153A was founded on search. If there was no incriminating material found during the search then the Tribunal was right in holding that the power under section 153A being not expected to be exercised routinely, should be exercised if the search revealed any incriminating material. If that was not found then in relation to the second phase of three years, there was no warrant for making an order within the meaning of this provision.
(ii) That when the proposal to set up a central freight station had been accepted by the Government, there was no requirement of a specific agreement. Nor could it be said that by virtue of any certification of the Jawaharlal Nehru Port Trust Nhava Sheva and its subsequent withdrawal the position underwent any change. Once the facility was nothing but an infrastructural facility set up and within the precincts of the port, considering its proximity to the sea port and its activities that there was no doubt that the deduction admissible under sub-
section (4) of section 80-IA could be claimed by both the inland container depots and container freight stations. Order of the Special Bench of the Appellate Tribunal in ALL CARGO GLOBAL LOGISTICS LTD. v. DEPUTY CIT [2012] 18 ITR (Trib) 106 (Mumbai) [SB] affirmed."
Therefore, in view of the Hon'ble Jurisdictional High Court, which is binding on us, it is the settled law that in a case of non-abated assessment addition can be made in the assessment completed under section 143(3) r.w.s. 153A on the basis of the material found/seized during the course of the search. We noted that the AO in the impugned case has made the following additions in each of the assessment year: -
Assessment Year - 2004-05 ESIC `1,428/-
Disallowance @5% of Expenses `8,58,947/-
`8,60,375/-
`8,60,375/-
Assessment Year - 2005-06
PF & ESIC `54,902/-
Disallowance @5% of Expenses `22,42,949/-
`22,97,851/-
8 ITA No. 1313/Mum/2014+5
M/s. Mudra Lifestyle Ltd.
Assessment Year - 2006-07
PF & ESIC `10,77,878/-
Disallowance u/s. 35D `10,44,188/-
Disallowance u/s. 35DD `39,512/-
Disallowance @5% of Expenses `40,73,198/-
Depreciation on Goodwill & Brand Value `1,37,50,000/-
`1,99,84,776/-
Assessment Year - 2007-08
PF & ESIC `23,23,217/-
Disallowance u/s. 35D `1,62,43,558/-
Disallowance u/s. 35DD `39,512/-
Disallowance @5% of Expenses `59,60,470/-
Depreciation on Goodwill & Brand Value `1,58,95,519/-
Commission on Purchases `9,57,372/-
Commission on Sales `9,57,372/-
`4,23,77,020/-
8. So far the additions in respect disallowance of PF, ESIC, 5% of the expenses disallowed under section 35D and disallowance for depreciation on actual brand value we noted that the disallowances have been made by the AO in the respective assessment years without bringing out any seized material during the course of assessment proceedings. In view of the dictum of the Hon'ble Jurisdictional High Court which we are bound to follow we hold that these additions in each of the assessment years are made by the AO beyond his jurisdiction. We, therefore, delete all these additions in each of the assessment years.
9. Now there remains the additions in respect of disallowances on account of commission on purchases and sales amounting to `9,57,372/-
each in A.Y. 2007-08. In this regard we noted that these disallowances were made by the AO on the basis of the statement of Shri Murarilal Agarwal who is one of the Directors of the company recorded under section 132(4) on 13.08.2009during the course of the search. In this statement the assessee has accepted the payment of commission on bogus purchases and sales. The learned A.R. even though vehemently contended that no addition on the basis of the statement recorded under section 132(4) can be made and it cannot be regarded to be an incriminating document discovered during the assessment, we noted that the issue involved is duly 9 ITA No. 1313/Mum/2014+5 M/s. Mudra Lifestyle Ltd.
covered by the decision of the Hon'ble Kerala High Court in the case of CIT vs. St. Francis Clay Decor Tiles 385 ITR 624. In this case the Hon'ble High Court has dealt with the decision in the case of All Cargo Global Logistics Ltd (supra) as well as the decision of the Hon'ble Bombay High Court in the case of Continental Warehousing Corporation Ltd. (supra). In this decision the question before the Hon'ble High Court was as under: -
"1.(a) Whether on the facts and in the circumstances of the case, is not the Tribunal erroneous in holding that addition in pursuance to notice issued under Section 153A can be made only if incriminating material is found and seized in case where there is also abatement of regular assessment proceedings, and are not, such an approach and the resultant conclusion perverse and uncalled for ?
(b) Whether on the facts and in the circumstances of the case and when the Assessing Officer is empowered to assess and reassess income for six prior period assessment years notwithstanding the provisions in sections 139, 147, 148, 149, 151 and 153 is not the above approach of the Tribunal one putting an artificial cap on section 153A ?"
The Hon'ble High Court in para 18 of this judgement held that the statement recorded during the course of search is a valuable piece of evidence while interpreting the phraseology 'incriminating' is used by the Parliament. They have also clarified that neither under section 132 or under section 153A the phraseology 'incriminating' is used by the Parliament. Since the Hon'ble Kerala High Court has taken the recorded statement as a valuable piece of evidence and no contrary evidence was brought to our notice by the learned A.R. we, therefore, during the A.Y. 2007-08 upheld the addition of `9,57,372/- incurred by way of commission on purchases and `9,57,372/- incurred by way of commission on sales. In view of the aforesaid finding we allow the appeal of the assessee for assessment years 2004-05, 2005-06 and 2006-07 while the appeal for A.Y. 2007-08 is partly allowed.
10. Now coming to the appeals filed by the Revenue we noted that in each of the assessment year except the change in the figures Revenue has taken the following two effective grounds of appeal: -
10 ITA No. 1313/Mum/2014+5M/s. Mudra Lifestyle Ltd.
"(1) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of depreciation of Rs. 1,37,50,0007- (A.Y. 2006-07) Rs.
1,58,95,519/- (for A.Y. 2007-08) on brand value & goodwill while goodwill and brand value has arisen as a result of amalgamation, the difference between consideration for amalgamation and net value of assets of amalgamating company has been regarded as goodwill and brand value and depreciation claimed thereon. It is a fact that in such instances no amount is actually paid for acquisition of the goodwill and brand value.
(2) Whether on the facts and circumstances of the case, the Ld.CIT(A) erred in restricted disallowance to 2% of such expenditure as against 5% disallowed by the AO. While the assessee has not produced the documentary evidence in support of his claim."
11. After hearing the rival submissions and going through the orders of the tax authorities below we are of the view that no interference is called for on the order of the CIT(A) in each of the assessment year. Both these additions, which have been deleted by the CIT(A), have been challenged by the Revenue before us. In both the assessment years, as observed by us in the preceding paragraphs, the additions were made by the AO not on the basis of any material found or seized during the course of search. Since these assessments have been not been abetted in view of the decision of the Hon'ble Bombay High Court in the case of Continental Warehousing Corporation Ltd (supra), these additions could not have been made in the absence of any seized material being unearthed. Thus these grounds taken by the Revenue stands dismissed.
12. In the result, the appeal filed by the assessee for assessment years 2004-05, 2005-06 and 2006-07 are allowed while the appeal for A.Y. 2007- 08 is partly allowed and both the appeals of the Revenue are dismissed.
Order pronounced in the open court on 10th October, 2017.
Sd/- Sd/-
(Pawan Singh) (P.K. Bansal)
Judicial Member Vice President
Mumbai, Dated: 10th October, 2017
11 ITA No. 1313/Mum/2014+5
M/s. Mudra Lifestyle Ltd.
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A) -41, Mumbai
4. The CIT - Central III, Mumbai
5. The DR, "B" Bench, ITAT, Mumbai
By Order
//True Copy//
Assistant Registrar
ITAT, Mumbai Benches, Mumbai
n.p.