Assessing Officer not entitled to make additions again, when the same had been deleted by the CIT(A): Bombay High Court
Case title – CCIT (OSD)/Pr. Commissioner of Income Tax VS Bhupendra Champaklal Dalal
Case no. – Income Tax Appeal No.1491 OF 2019 (A.Y. 1989-1990)
Decision on – March 06, 2024
Quoram – Justice K. R. Shriram & Justice DR. Neela Gokhale
Facts of the case
The Respondent/Assessee, an individual, was carrying on business as sole proprietor in the name and style of M/s B.C. Devidas. Assessee, who was a registered broker of Bombay Stock Exchange, was also engaged in trading in securities and shares. In addition to the profit, assessee also received salary and commission from CIFCO Limited and Food and Inns Limited in which he was a director.
The Assessee having been involved in the multicrore securities transactions scam of 90’s infamously known as Harshad Mehta Scam, got labelled as notified party on 2nd July 1992 under the Special Court’s (TORTS) Act, 1992. The investigation of Assessee by CBI was followed by a search and seizure action by the IT Department.
The assessment was originally completed after the search operations. Both assessee as well as Revenue filed appeals before the ITAT. The ITAT restored the matters to the file of the Assessing Officer for denovo assessments. Consequently, the assessment order was passed under Section 143(3) read with Section 254 of the IT Act 1961, wherein, certain additions to the income were made.
The Assessee aggrieved by the said order, filed an appeal before Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) partly allowed the appeal. The parties being discontented by the order preferred appeals before ITAT. The ITAT by a common order partly allowed the contentions of assessee for the AY-1989-1990.
The Revenue challenging this decision filed an appeal under Section 260A of the Act before the Bombay High Court.
Court’s Analysis and Judgement
The first issue relates to the disallowance of interest expenses incurred for non-business purposes. The AO disallowed interest of Rs. 12,19,181/- paid to banks and others on the ground that the assessee diverted interest-bearing funds for giving interest-free advances.
The ITAT came to a factual finding that the assessee had huge interest-free debts with him and the assessing officer has failed to recognize the same. The Court agreeing with the findings of ITAT opined that when interest-free funds and interest-bearing funds are mixed together, they lose their respective identities, and hence, the presumption should be that the assessee has used interest-free funds to give interest-free advances.
The ITAT order concluded that even for AY 1989–1990, interest-free funds available with the assessee were sufficient to take care of interest-free advances made. The Court held that ITAT right in concluding that the interest expenditure claimed by the assessee was allowable.
The final issue is related to the deletion of various additions aggregating to Rs. 10,89,30,545/. It is noted by the ITAT that various types of additions aggregating to this amount were made by the Assessing Officer in the original assessment proceedings, and in the appeal filed by the assessee, the CIT(A) deleted these additions.
The department did not prefer an appeal challenging the order of the CIT (A), and hence, the same has attained finality. Only the assessee challenged the additions confirmed by the CIT(A). The ITAT has also restored those additions, which were confirmed by the CIT(A), to the file of the Assessing Officer for fresh examination.
The Bombay High Court upholding the ITAT’s ruling held that the Assessing Officer could not have assessed additions again since the CIT (A) had deleted the same in the first round of proceedings and the concerned matters have attained finality. The Court re-affirmimg the ruling of ITAT held that Assessing Officer was not legally entitled to make these additions again in the second round of proceedings.
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Judgement Reviewed by – Keerthi K