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By Sameer Dalal & Ravindra Poojari, Advocates

1. S.153C : Notice issued - in absence of any satisfaction recorded by the AO of the searched person u/s. 132 of the Act – was illegal and void ab-initio.

A search action u/s. 132 of the Act was carried out at the premises of an Individual and his group concerns. During the search proceedings it was found that a flat was sold by one of the group concerns to the assessee and his wife for the consideration which was paid partly by account payee cheque and partly in cash.

Thereafter, the officer of the Investigation Wing, vide his letter informed the assessing officer (‘A.O.’) of the assessee about the transaction. Based on this information, the AO of the assessee issued notice u/s. 153C r.w.s.153A of the Act and the assessment was made under section 153C r.w.s.143(3) making an addition of alleged cash payment made by the assessee for purchase of flat.

Before the Tribunal assessee contended that the AO of the searched person has to record his satisfaction u/s. 132 of the Act on the basis of material seized during the search action that the material belongs to the assessee and he should forward the same to the AO of the assessee. However, in the present no satisfaction was recorded before issuance notice u/s. 153C of the Act but, merely on the basis of intimation of the AO of the searched person notice under section 153C was issued to the assessee which was invalid and without jurisdiction and liable to be quashed.

Tribunal held that no satisfaction was recorded before issuance notice u/s. 153C of the Act, notice was issued merely on the basis of intimation of the AO of the searched person. Thus, in absence of any satisfaction recorded by the AO of the searched person u/s. 132 of the Act, notice issued by the A.O. of the assessee under section 153C of the Act merely on the intimation of searched person was illegal and void ab-initio and liable to be quashed.

Shri Nilesh R. Mehta vs. ACIT – [ITA No.: 1169 / M / 2016; Order dated 14/06/2017 (ITAT Mumbai)]

Shri Nilesh R. Mehta

2. S. 36(1)(vii) – Business loss – FD which could not be recovered from bank – which was used for business purpose

The assessee was engaged in the business of trading of paper. The assessee obtained overdraft facility from a Bank against Fixed Deposit [FD]. The bank became insolvent and at that time the assessee had already drawn a part of the overdraft facility from the said overdraft facility leaving balance under the FD which could not be recovered. The assessee claimed the same u/s. 36(1)(vii) which was disallowed by the AO on the ground that FD constituted capital asset in assessee’s hand and therefore, capital loss was not allowable to the assessee.

Before the Tribunal the assessee contended that although the claim was not allowable u/s. 36(1)(vii) of the Act but, the same was allowable as business loss as the FD was created out of the overdraft facility which were used for business purpose. Further, the FD was taken in the name of proprietorship concern and shown under the head ‘current asset’ and constituted business asset, the income from FD was reflected as business income and the same has been accepted by the Revenue. Therefore, loss in respect thereof was allowable as business loss.

Tribunal held that the FD was part and parcel of business operations of assessee’s business and constituted assessee’s business asset. Thus, any loss arising therefrom was allowable to the assessee as business loss being revenue in nature.

Pawankumar D. Saraf vs. ACIT – [ITA No.: 5516 / M / 2016 Order dated 14/06/2017, (ITAT Mumbai)]

Pawankumar D. Saraf

Note: The Whole Decisions can be downloaded from the CTC Website www.ctconline.org under Knowledge Centre.

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