Notification No.13/2014-Customs (N.T.), Dated the 20th February, 2014
S.O. (E). – In exercise of the powers conferred by section 14 of the Customs Act, 1962 (52 of 1962), and in super session of the notification of the Government of India in the Ministry of Finance (Department of Revenue) No.9/2014-CUSTOMS (N.T.), dated the 6th February, 2014 vide number S.O.360 (E), dated the 6th February, 2014, except as respects things done or omitted to be done before such super session, the Central Board of Excise and Customs hereby determines that the rate of exchange of conversion of each of the foreign currency specified in column (2) of each of Schedule I and Schedule II annexed hereto into Indian currency or vice versa shall, with effect from 21st February, 2014 be the rate mentioned against it in the corresponding entry in column (3) thereof, for the purpose of the said section, relating to imported and export goods.
SCHEDULE-I
| S.No. | Foreign Currency | Rate of exchange of one unit of foreign currency equivalent to Indian rupees |
| (1) | (2) | (3) |
|
|
| (a) | (b) |
| | | (For Imported Goods) | (For Export Goods) |
| 1. | Australian Dollar | 56.65 | 55.15 |
| 2. | Bahrain Dinar | 170.40 | 161.05 |
| 3. | Canadian Dollar | 57.10 | 55.70 |
| 4. | Danish Kroner | 11.70 | 11.35 |
| 5. | EURO | 86.85 | 84.85 |
| 6. | Hong Kong Dollar | 8.10 | 8.00 |
| 7. | Kuwait Dinar | 228.40 | 215.30 |
| 8. | New Zealand Dollar | 52.25 | 50.95 |
| 9. | Norwegian Kroner | 10.45 | 10.15 |
| 10. | Pound Sterling | 105.30 | 103.00 |
| 11. | Singapore Dollar | 49.95 | 48.75 |
| 12. | South African Rand | 5.85 | 5.45 |
| 13. | Saudi Arabian Riyal | 17.15 | 16.20 |
| 14. | Swedish Kroner | 9.75 | 9.45 |
| 15. | Swiss Franc | 71.35 | 69.40 |
| 16. | UAE Dirham | 17.50 | 16.55 |
| 17. | US Dollar | 62.95 | 61.95 |
|
|
|
|
|
SCHEDULE-II
| S.No. | Foreign Currency | Rate of exchange of 100 units of foreign currency equivalent to Indian rupees |
| (1) | (2) | (3) |
|
|
| (a) | (b) |
| | | (For Imported Goods) | (For Export Goods) |
| 1. | Japanese Yen | 62.00 | 60.50 |
| 2. | Kenya Shilling | 74.70 | 70.35 |
|
|
|
|
|
[F.No.468/01/2014-Cus.V]
(Akshay Joshi )
The Centralized Processing Cell (TDS) automated for the first time, the Default identification process in respect of TDS statements submitted. CPC (TDS) has highlighted the need for correct and complete reporting of data in the TDS statements and has therefore, implemented processes to enforce compliance.
With the above functionality made available by TRACES, intimations have been sent to the deductors, wherever applicable, through SMS and e-mail services and through Registered/ Speed Post. Further, TRACES has also provisioned for easy access to this information by way of display in Deductor's Dashboard and by availability of electronic copies of Justification Reports for the defaults generated with respect to relevant TDS statements.
In view of the close of the month approaching fast, you are advised to pay the outstanding demand at an early date to avoid Penal Interest u/s 220(2)of the Actread with Rule 119A, apart from intimation of other recovery proceedings as per Income Tax Act, 1961. If the demand has already been paid, you are requested to file a Correction Statement by tagging the challan and the Justification report can be verified for closure of demand, if the revision has already been submitted and processed.
How to pay the demand?
The following steps shall help you analyze and pay the demand:
· Download the Justification Report from our portal TRACES to view your latest outstanding demand.
· Use Challan ITNS 281 to pay the above with your relevant Banker or use any other Challan, which has adequate balance available
· Download the Conso File from TRACES portal.
· Prepare a Correction Statement using version 3.8 of the Return Preparation Utility (RPU) and version 4.1 & 2.137 of the File Validation Utility (FVU)
· Submit the Correction Statement at TIN Facilitation Centre.
· If the demand is due to mismatch of challan(s), the Online Correction facility on TRACES can be used for tagging the same.
2014-TIOL-92-ITAT-DEL
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'F' NEW DELHI
ITA Nos.2666 & 2667/Del/2013
Assessment Years:2008-09 & 2007-08
M/s MARIGOLD MERCHANDISE (P) LTD
SHOP NO.4/36 DDA MARKET
DAKSHINPURI EXTENSION, NEW DELHI-110062
Vs
DEPUTY COMMISSIONER OF INCOME TAX
CEN CIRCLE, FARIDABAD
R P Tolani, JM And B C Meena, AM
Date of Decision: December 12, 2013
Appellants Rep by: Dr Rakesh Gupta & Shri Ashwani Taneja, Advs.
Respondent Rep by: Shri Gunjan Prasad CIT (DR)
Income Tax - Section 2(14), 10(1), 144, 145, 153A - Whether the burden to prove that a particular transaction is not of agricultural land, squarely lies on Revenue and when no steps are taken by assessee to develop the land, it retained its character as agricultural land - Whether no additions could be made in the assessment u/s 153A if there is no incriminating material found as a result of search - Whether if the group to which the assessee belongs was in real estate business, consequently assessee's transaction of purchase and sale of agricultural land, also becomes trading asset - Whether the AO can reject the books of accounts just to change the head or interpret the law in their own way.
Search and seizure operations were conducted on 17- 9-2008 in assessee's premises which is referred to belonging to one Basant Bansal, which in turn has been named as sub-group of Kamdhenu Group. During the course of search no surrender of undisclosed income was made in the group. Notice u/s 153A was issued on 9-3-2010. In response thereto the assessee filed same returns as were filed earlier i.e. declaring loss of Rs. 2,73,866/- for A.Y. 2007-08 and loss of Rs. 6,14,908/- for A.Y. 2008-09.
During both the years the assessee had sold lands claimed to be agricultural lands, which are held as stock in trade. Huge gains on sale of such lands were declared which are claimed to be agriculture lands. Thus, the gains were claimed by the assessee as exempt as agriculture income.
AO during the course of assessment u/s 153A proposed as to why instead of exempt agricultural income as claimed, it be held as adventure in the nature of trade and commerce and the gains thereon be treated as business income. Assessee filed various replies in this behalf claiming that the land under consideration was agricultural land and not a capital asset within the meaning of sec. 2(14) of the Act.
The submissions of the assessee were rejected by the AO broadly on the following reasoning:
(i) The mere fact that this land was mentioned as agricultural land in revenue record does not by itself make the gains to be exempt as agriculture income. The assessee has failed to show that the land was actually used for agricultural purposes. It may be true that the land purchased by the assessee was agricultural, but assessee has admitted that it was for the purpose of purchase and sale of land and the land was purchased not for carrying out any agricultural activity but for business purposes.
(ii) The case law cited by the assessee that agricultural land was not a capital asset in terms of sec. 2(14) and the profits arising from the sale thereof was exempt income, has not been disputed. However, in assessee's case it is taxable as the assessee is into business of purchase and sale of agricultural land which formed the regular business activity of the assessee company. Therefore, the income was to be held as adventure in the nature of trade and profit and gains there from was liable for taxation as business income whether from sale of agricultural land or non-agricultural land.
(iii) Land under consideration situated at Village Behrampur, Distt.- Gurgaon, Haryana was purchased in the year 2005- 06, a part of which was sold in the year 2006-07 and in 2007-08 relating to assessment year under consideration. Another land situated at Village Maidawas, Distt.- Gurgaon, Haryana sold during the year was purchased in the preceding year. Therefore, it is apparent from the period of holding also that the intention of the assessee was not to perform any agricultural activity on the land. Also, it is nowhere mentioned in the MOA of the company that either main object or ancillary object of the company was agriculture. Moreover, it is not important what is preached but more important is what is professed. In the case of the assessee, it has been seen that the company since its inception in the year 2003-04 has been solely working with the intention to acquire land in and around Gurgaon, Haryana and then either sell it at profit or develop a land project on it.
The AO then referred to the facts of other 11 companies of the group whose major shareholders and directors are referred to be Shri Basant Bansal and Shri Roop Bansal. According to AO, a holistic view of the facts and circumstances was to be taken which in sum and substance are as follows:
(i) The various group companies and the above two persons along with Smt. Abha Bansal and Shri Pankaj Bansal had purchased these lands and the promoters were waiting to strike deal claiming the land to be agricultural land except one company M/s Misty Meadows Pvt. Ltd. which had business other than buying and selling of agricultural land.
(ii) Various companies have been floated by Basant Bansal family to avoid statutory restrictions about the holding of acquiring of land. It is claimed by AO that Basant Bansal family started their career in the field as land buying agent for M/s EMAAR MGF group. Besides, they also floated various own companies and purchased various lands as are evidenced from the sale-deeds mentioned in the order.
(iii) All the companies of the group were engaged in acquiring land for the purpose of developing real estate projects or selling the land itself on profit.
(iv) The conduct of the group companies is shown to be prominent activity of sale and purchase of agricultural land. It was not meant for agricultural activity but to sell or build to earn profits.
(v) M/s M3M India Ltd., flagship company of the group was to develop mega residential complex in the name of M3M Golf Estates and the MOU was signed on 4-4-2007.
(vi) Thus, facts and submission of the assessee company as discussed above very well establish that sole aim of transaction in agricultural land by the assessee company and other companies of the group is in the nature of business and not for agriculture. The intent and purpose for purchasing the land by the said company and than selling it or part thereof within a short period of time is certainly not agriculture. The fact that the said company and other companies as discussed earlier have huge land banks speak volume of the intent/purpose/usage of the said land being a trading asset. It is amply clear that it is not for agriculture but to further develop the same for commercial venture either by developing themselves or by selling the same to some other company who would carry out it's commercial exploitation in future. So the profit from sale of such a land can by no means qualify for exemption.
(vii) Moreover, land in and around at Gurgaon is so costly that to purchase land for agriculture would be very imprudent. Therefore, the only logical conclusion that can be derived from the facts and conduct of the assessee company is that the assessee company has purchased the agricultural land as a part of its business and with the intention to sell the same at profit. Hon'ble Supreme court in its judgment in the case of CIT vs M/s Sutjej Cotton Mills Supply Agency Lt. 100 ITR 706 has held that "if the dominant intention was to carry on an adventure in the nature of business, the profit can be taxed". Since it is proved that the intention of the assessee was to earn profit from transaction of purchase and sale of agricultural land, profit earned can be taxed from sale of such agricultural land as business income.
(viii) The assessee has treated the agricultural land as Fixed asset in its Books of account, the receipts on sale of it as capital receipt and the resultant profit has been claimed exempt. However, in view of the fact mentioned in paras above, receipt on sale of agricultural land is to be considered as revenue receipt. AO held that books are incorrectly written and liable to be rejected. It is a well settled principle that the Books of account should be written to give true and fair picture of the affairs of the business of the assessee. Section 145(3) of the LT. Act categorically states that when the AO is not satisfied about the correctness or completeness of the accounts of the assessee or where the method of accounting provided in sub-section (1) of section 145 or accounting standards as notified under sub section (2) of section 145 have not been regularly followed by the assessee, the AO may make an assessment in the manner provided in section 144 of the Act. AO thus held that the assessee has failed to present a true & fair picture of accounts by treating the revenue receipts as capital receipts. As such the assessee has failed to work out the profits in a correct manner. According to AO he was left with no alternative but to invoke the provisions of section 145(3) of the LT. Act & reject the books of accounts and make the assessment of income of the assessee in the manner provided in section 144 of the Act.
For rejecting books of account, AO further relied on the ratio of decisions of Supreme Court in the cases of M/s CIT Vs. M/s Sutlej Cotton Mills Ltd. (2002-TIOL-546-SC-IT);and Kedarnath Jute Manufacturing Co. Ltd. Vs. CIT (2002-TIOL-383-SC-IT) for the proposition that the assessee's entitlement to a particular deduction will depend on the relevant provisions of law and not on the view which the assessee may take about its right and the existence or absence of entries in the books of account cannot be decisive in the matter. Based on these observations, the AO made the additions. CIT(A) rejected the appeal of the assessee.
On further appeal, Tribunal held that,
++ coming to the first issue, the legality of addition, it is settled law that in block assessment consequent to search u/s 153A read with sec. 143(3) no addition can be made unless some incriminating material in this behalf is found as a result of search. It emerges from record that no incriminating material in behalf of the purchase of these lands and sale of these lands have been found as a result of search. In any case the whole issue revolves around the change of nature of income i.e. from exempt to taxable as business income. The purchases of agricultural land has been accepted by department as part of fixed asset/ investment of the assessee by assessment u/s 143(3). Both the lower authorities have rather relied only on the original return of income, returns on record and explanations filed by the assessee and not on any incriminating material found as a result of search. Besides, DR has not been able to point out any incriminating material found as a result of search or the reliance of the lower authorities thereon;
++ the issue is not of the legal challenge to the block assessment itself, the assessee's grounds and contentions agitate one legal issue i.e. whether in the absence of any incriminating material found during the course of search addition can be made by AO as undisclosed income u/s 153A. More so when all these transactions are disclosed by the assessee in the original returns of income and accepted by the department as such. Thus merely because a search is conducted and even though no incriminating material is found as a result thereof the original assessment of the assessee cannot be reviewed or substituted by a change of opinion about any claim of deduction, allowance or claim of exempt income;
++ various Benches of the ITAT including Delhi have upheld this view and deleted such additions which are not based on incriminating material found as a result of search. In view thereof, on this issue we hold that the AO could not have made these additions in the impugned assessee u/s 153A, there being no incriminating material indicating any undisclosed income found as a result of search. This ground of the assessee is accordingly allowed;
++ coming to the rejection of books of a/cs, the assessee maintained regular books of a/cs which are duly audited. No inconsistencies or defects have been pointed out therein. The assessee has purchased the land as agriculture land which is evidenced by the purchase deed. This has been accepted by department u/s 143(3) in A.Y. 2006-07. The assessee has claimed to have carried out agriculture operations and earned agriculture income which is offered in the return of income, which is accepted. Conveyance of sale of land also demonstrates that the land in question was agriculture land. It has not been disputed that the assessee on its own as an independent entity has not carried out any development activity or moved any application for commercial exploitation of the land to any local, state or Central agency. These glaring facts and circumstance do not raise any occasion for rejection of books. If at all, the AO could have changed the head of income by exercising his assessment power. In the absence of any worthwhile defect in the books of accounts, rejection of books was unjustified. This ground of the assessee is also allowed;
++ coming to the merits of the case, the main allegation of the lower authorities is to the effect that the assessee group taken as a whole was engaged in various activities of real estate development, therefore, an inference has been drawn that the assessee also should be deemed to be engaged in real estate business. In our considered view this assumption has no legs to stand. First of all lower authorities have not demonstrated that the assessee as a group was engaged in dubious and colourable devices. In a big group launching of several corporate entities is permissible by law and each company is an independent assessee in the eyes of law and separately assessed. Their activities are to be analyzed on the basis of actual activities and cannot be ignored merely because the associate concern is engaged in some other activities. Thus, this inference by lower authorities amounts to a pure guess work and conjecture which we are unable to subscribe. Therefore, group companies' business activities, which are distinct and separate entities, cannot be held as a factor to discard the assessee's actual activity, which is evidenced by record. Further, it has been demonstrated by the assessee that it was mainly solitary transaction of the assessee to hold the agriculture land in question as fixed asset, carry out agriculture operation thereon and sell it as agriculture land. We do not find any facts on record to hold any other view. Thus, we are unable to subscribe the view that assessee was engaged in adventure in the nature of trade;
++ coming to the nature of agriculture land and its geography, it has not been disputed that the land in question was situated outside the specified municipal limits and as per the prescription of sec. 2(14) it does not amount to an asset. In order to come under the cane of capital gains, the law has first to qualify as an asset as per I.T. Act. The income arising from the sale of agriculture land falls u/s 2(14)(iii) read with sec. 10(1) and is to be treated as agriculture income. The interpretation put by the lower authorities is out landish and based on surmises and conjectures, divorced from the actual facts;
++ apropos the lower authorities holding that the assessee was into adventure in the nature of trade, therefore, the nature, geography and activity of the land should be ignored, the statutory provisions should be given a go bye and assessee is to be some how held as engaged in the adventure in the nature of trade and taxed on exempt income. In our view, there is no enabling provision in the income tax prescribing that even if the assessee's income is exempt by a provision, then it can be forcibly brought into the tax net by assuming the assessee's activity to be adventure in the nature of trade. It is a settled position that real estate companies can also hold separate port folio of land as stock in trade and as investment port folio; the sale of investment portfolio is always taxed as capital gains. Thus, assuming worst against assessee, even if it is inferred that it has carried on business activity so long as it holds specified agriculture land in terms of sec. 2(14) i.e. not being an asset; its transfer will neither attract capital gain tax nor can be treated as business income. In view of the foregoing, the assessee's gains were profits from sale of specified agriculture land which does not come within the definition of asset as prescribed u/s 2(14) and by virtue of sec. 2(1A)(a) read with sec. 2(14)(iii) r.w.s. 10(1) the assessee's gains from sale of such agriculture land are exempt income. Thus, assessee succeeds on all the counts. Assessee's appeals allowed
ORDER
Per: R P Tolani:
These are two assessee's appeals against separate orders of CIT(A) relating to A.Y. 2007-08 and 2008-09. Common grounds raised are as under:
(i) Additions made u/s 153A are bad in law and on facts inasmuch a none of them is based on any incriminating material found during the course of search conducted on 17-9-2008 on Kamdhenu group and thus additions are beyond the scope of section 153A.
(ii) The lower authorities erred in holding that the gains on sale of agriculture land in question which are exempt by way of Explanation 1 to Section2(1A) of the Income-tax Act, 1961 read with clause (ii) or (iii) of sub-section (14) of section 2 as adventure in the nature of trade and thereby taxing the same income as business income.
(iii) The land in question are outside the Municipal limits as prescribed by section 2(14)(ii) or (iii).
(iv) That on the facts and circumstances of the case the CIT(A) erred in upholding the invoking of provisions of section 145(3) and framing of the assessment u/s 144.
1.1. Issues, facts and conclusions being same for both the years, they are disposed of by common order for the sake of convenience.
2. Brief facts are : Search and seizure operations were conducted on 17- 9-2008 in assessee's premises which is referred to belonging to one Basant Bansal, which in turn has been named as sub-group of Kamdhenu Group. During the course of search no surrender of undisclosed income was made in the group. Notice u/s 153A was issued on 9-3-2010. In response thereto the assessee filed same returns as were filed earlier i.e. declaring loss of Rs. 2,73,866/- for A.Y. 2007-08 and loss of Rs. 6,14,908/- for A.Y. 2008-09.
2.1. During both the years the assessee had sold lands claimed to be agricultural lands, which are held as stock in trade. Huge gains on sale of such lands were declared which are claimed to be agriculture lands. Thus, the following gains were claimed by the assessee as exempt as agriculture income:
Asstt. Yr. | Amount. |
| 2007-08 | Rs. 31,40,73,445/- |
| 2008-09 | Rs. 5,83,13,400/- |
2.2. Assessing officer during the course of assessment u/s 153A proposed as to why instead of exempt agricultural income as claimed, it be held as adventure in the nature of trade and commerce and the gains thereon be treated as business income. Assessee filed various replies in this behalf claiming that the land under consideration was agricultural land and not a capital asset within the meaning of sec. 2(14) of the Income-tax act.
"3.3 The assessee has replied vide its letter dated 06.12.2010 that the land under ) consideration is agricultural land which is not a capital asset within the meaning of the definition of section 2(14) of the Income-tax Act, 1961.
2(lA): Agriculture Income:
"Agricultural income" means-
[(a) any rent or revenue derived from land which is situated in India and is used for agricultural purposes;]
(b) any income derived from such land by -
(i) Agriculture,
(i )-----------------
Further Explanation 1 to sec. 2(lA) which was inserted by the Finance Act' 1989 w.e.f: 01.04.1970 provides as under:
For the removal of doubts, it is hereby declared that revenue derived from land shall not include and shall be deemed never to have included any income arising from the transfer of any land referred to in item (a) or item (b) of sub-douse (iii) of clause (14) of this section].
From the above, it is clear that Agricultural Income is exempt from land u/s 10(1) of the Income-tax Act' 1961 and any kind of income relating to Agriculture was exempt from tax till the year 1989 when the Government of Income has inserted the explanation 1 to Section 2(1A) of the Act w.r.e.f 01.04.1970 to tax certain types of receipts relating to agriculture. As per the Explanation, the income arising from the transfer of land referred to in item (a) or (b) of sub clause (iii) of clause (14) of Section 2 would not be included as Agricultural Income.
Therefore, the land which are not covered in item (a) or (b) of sub clause (iii) of clause (14) of Section 2 are still outside the scope of Explanation 1 to Section 2(1A) of the Income-tax Act and not subject to tax even today.
Section 2(1)(iii) has been reproduced herein below, which provides as under:
14) "Capital asset: means property of any kind held by an assessee, whether or not connected with his business or profession,
but does not include - ..........................
[(iii) agricultural land in India, not being land situated -
(a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee , or by any other name) or a cantonment board and which has a population of not less than tea thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or
(b) in any area within such distance, not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extend of, and scope for, urbanization of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette;]
In view of the above, it is clear that land, which is situated within the jurisdiction of Municipality or Cantonment Board, which has a population of not less than Ten Thousand or land situated in any area within eight kilometers from the local limits of any municipality or cantonment board would be treated as Capital Assets only and would be subject to tax only. Agriculture Land which is outside the jurisdiction of Municipality or Cantonment Board having a population of less than Ten Thousand or land situated outside eight kilometer from local limits of Municipality would be outside the scope of Capital Assets and would not be subject to tax at all.
In this regard, Assessee Company placed its reliance on the following rulings:
[1976] 103 ITR 785 (SC) Tea Estate India (P.) Ltd. v, CIT.
[1993} 204 ITR 631 (SC) Smt. Sarifabibi Mohmed Ibrahim v. CIT.
[1987} 167 ITR 136 (KERALA) CITv. Smt. T.K. Sarala Devi.
[1997} 225 ITR 510 (KER.) HIGH COURT OF KERALA ClT v. R. Krishnarjunan.
[2010} 124 ITO 1 (AHD.) Ramjibhai P. Chaudhry v. DC/T.
[2002} 257 ITR 756 (Del), CIT v. Deep Chand.
[1992} 194 ITR 125 (KER) C/T v. Murali Lodge."
2.3. The submissions of the assessee were rejected by the assessing officer broadly on the following reasoning:
(i) The mere fact that this land was mentioned as agricultural land in revenue record does not by itself make the gains to be exempt as agriculture income. The assessee has failed to show that the land was actually used for agricultural purposes. It may be true that the land purchased by the assessee was agricultural, but assessee has admitted that it was for the purpose of purchase and sale of land and the land was purchased not for carrying out any agricultural activity but for business purposes.
(ii) The case law cited by the assessee that agricultural land was not a capital asset in terms of sec. 2(14) and the profits arising from the sale thereof was exempt income, has not been disputed. However, in assessee's case it is taxable as the assessee is into business of purchase and sale of agricultural land which formed the regular business activity of the assessee company. Therefore, the income was to be held as adventure in the nature of trade and profit and gains there from was liable for taxation as business income whether from sale of agricultural land or non-agricultural land.
(iii) Land under consideration situated at Village Behrampur, Distt.- Gurgaon, Haryana was purchased in the year 2005- 06, a part of which was sold in the year 2006-07 and in 2007-08 relating to assessment year under consideration. Another land situated at Village Maidawas, Distt.- Gurgaon, Haryana sold during the year was purchased in the preceding year. Therefore, it is apparent from the period of holding also that the intention of the assessee was not to perform any agricultural activity on the land. Also, it is nowhere mentioned in the MOA of the company that either main object or ancillary object of the company was agriculture. Moreover, it is not important what is preached but more important is what is professed. In the case of the assessee, it has been seen that the company since its inception in the year 2003-04 has been solely working with the intention to acquire land in and around Gurgaon, Haryana and then either sell it at profit or develop a land project on it.
2.4. The assessing officer then referred to the facts of other 11 companies of the group whose major shareholders and directors are referred to be Shri Basant Bansal and Shri Roop Bansal. According to assessing officer, a holistic view of the facts and circumstances was to be taken which in sum and substance are as follows:
(i) The various group companies and the above two persons along with Smt. Abha Bansal and Shri Pankaj Bansal had purchased these lands and the promoters were waiting to strike deal claiming the land to be agricultural land except one company M/s Misty Meadows Pvt. Ltd. which had business other than buying and selling of agricultural land.
(ii) Various companies have been floated by Basant Bansal family to avoid statutory restrictions about the holding of acquiring of land. It is claimed by assessing officer that Basant Bansal family started their career in the field as land buying agent for M/s EMAAR MGF group. Besides, they also floated various own companies and purchased various lands as are evidenced from the sale-deeds mentioned in the order.
(iii) All the companies of the group were engaged in acquiring land for the purpose of developing real estate projects or selling the land itself on profit.
(iv) The conduct of the group companies is shown to be prominent activity of sale and purchase of agricultural land. It was not meant for agricultural activity but to sell or build to earn profits.
(v) M/s M3M India Ltd., flagship company of the group was to develop mega residential complex in the name of M3M Golf Estates and the MOU was signed on 4-4-2007.
(vi) Thus, facts and submission of the assessee company as discussed above very well establish that sole aim of transaction in agricultural land by the assessee company and other companies of the group is in the nature of business and not for agriculture. The intent and purpose for purchasing the land by the said company and than selling it or part thereof within a short period of time is certainly not agriculture. The fact that the said company and other companies as discussed earlier have huge land banks speak volume of the intent/purpose/usage of the said land being a trading asset. It is amply clear that it is not for agriculture but to further develop the same for commercial venture either by developing themselves or by selling the same to some other company who would carry out it's commercial exploitation in future. So the profit from sale of such a land can by no means qualify for exemption.
(vii) Moreover, land in and around at Gurgaon is so costly that to purchase land for agriculture would be very imprudent. Therefore, the only logical conclusion that can be derived from the facts and conduct of the assessee company is that the assessee company has purchased the agricultural land as a part of its business and with the intention to sell the same at profit. Hon'ble Supreme court in its judgment in the case of CIT vs M/s Sutjej Cotton Mills Supply Agency Lt. 100 ITR 706 has held that "if the dominant intention was to carry on an adventure in the nature of business, the profit can be taxed". Since it is proved that the intention of the assessee was to earn profit from transaction of purchase and sale of agricultural land, profit earned can be taxed from sale of such agricultural land as business income.
(viii) The assessee has treated the agricultural land as Fixed asset in its Books of account, the receipts on sale of it as capital receipt and the resultant profit has been claimed exempt. However, in view of the fact mentioned in paras above, receipt on sale of agricultural land is to be considered as revenue receipt. Assessing officer held that books are incorrectly written and liable to be rejected. It is a well settled principle that the Books of account should be written to give true and fair picture of the affairs of the business of the assessee. Section 145(3) of the LT. Act categorically states that when the AO is not satisfied about the correctness or completeness of the accounts of the assessee or where the method of accounting provided in sub-section (1) of section 145 or accounting standards as notified under sub section (2) of section 145 have not been regularly followed by the assessee, the AO may make an assessment in the manner provided in section 144 of the Act. Assessing officer thus held that the assessee has failed to present a true & fair picture of accounts by treating the revenue receipts as capital receipts. As such the assessee has failed to work out the profits in a correct manner. According to assessing officer he was left with no alternative but to invoke the provisions of section 145(3) of the LT. Act & reject the books of accounts and make the assessment of income of the assessee in the manner provided in section 144 of the Act.
2.5. For rejecting books of account, assessing officer further relied on the ratio of decisions of Hon'ble Supreme Court in the cases of M/s CIT Vs. M/s Sutlej Cotton Mills Ltd. 116 ITR 1 (SC) = (2002-TIOL-546-SC-IT); and Kedarnath Jute Manufacturing Co. Ltd. Vs. CIT 82 ITR 363 (SC) =(2002-TIOL-383-SC-IT) for the proposition that the assessee's entitlement to a particular deduction will depend on the relevant provisions of law and not on the view which the assessee may take about its right and the existence or absence of entries in the books of account cannot be decisive in the matter. Based on these observations, the assessing officer made the impugned additions. 2.6. Aggrieved, assessee preferred first appeal before the CIT(A) challenging the additions being outside the scope of section 153A of the Act, on following issues:
(i) no incriminating material except the registered sale deeds, which were already disclosed and discussed in the regular assessment, were found during the course of search;
(ii) the assessing officer erred in resorting to provisions of sec. 145(3) and making assessment u/s 144 of the Act.
(iii) Profit on sale of agricultural lands in question was not taxable in view of Explanation 1 to Section 2(1A) read with section 2(14)(ii) or (iii) of the I.T. Act.
(iv) Assessing officer erred in holding that the agricultural land situated outside the specified municipal limits were not capital assets.
(v) Assessing officer erred in treating the sale of agricultural land being exempt and taxing it to be 'business income' as adventure in the nature of the trade
2.7. Apropos the first issue i.e. scope of Sec. 153A and effect on block assessment of any incriminating material not being found during the course of search, 2 issues were raised before CIT(A):
(i) The assessments in the case of assessee had become final and were not abated, therefore, no addition can be made qua the settled issues.
(ii) In any case no addition can be made u/s 153A as no incriminating material was found or relied in this behalf as a result of impugned search.
2.8. CIT(A) apart from various case laws mentioned in the order relied on ITAT Delhi Bench judgment in the case of Shivnath Rai Harnarain (India) Vs. DCIT (2008) 117 TTJ 480, inter alia holding as under:
"From reading s.153A and second proviso to s.153A, it is further clear that on the date of initiation of search or requisition under s.132 or s.132A the pending assessment or reassessments relating to any assessment year falling within a period of six assessment years shall stand abated but assessment or reassessments can be done under s.153A of the Act in cases of completed assessments or in cases where assessments have not been framed due to non filing of returns etc. for the abovementioned assessment years even if such assessment made under .153A is not based on material found during course of search
The word "abate" or "abatement has not been defined in the Act or in the circular. According to Chambers Dictionary the word "abate means demolition on or to put an end to.
In view of our above analysis of the provisions of sections, the contentions of the learned counsel for the assessee have no force because there is no requirement for an assessment made under s.153A of the Act being based on any material seized in the course of Search. Further, under the second proviso to s.153A pending assessment or reassessment proceedings in relation to any assessment year falling within the period of six assessment years referred to in s.153A(b) of the Act shall come to an end (abate), which means that the Assessing Officer gets jurisdiction for six assessment years referred to in s.153A(b) of the Act for making an assessment or reassessment. Further, it is not the contention of the assessee before us that any income, which was already subjected to assessment under s.143(3) or under s.143(3)/ 147 of the Act completed prior to search in respect of six assessment years referred to in s.153A(b) of the Act and in the second proviso to s.153A, has also been included in the assessment framed under s.153A of the Act, Hence, in these circumstances, the contention of the assessee in support of ground Nos. 1 and 2 of its appeal are liable to be rejected and the same are rejected accordingly. Consequent upon our findings given hereinabove, we. hold that in the existing facts and circumstances of the case the Assessing Officer was Perfectly justified in framing assessment under s.153A of the Act for the assessment years under consideration and accordingly the ground Nos. 1 and 2 of the appeal of the assessee are rejected.
iii) The similar issue was recently decided by the Hon'ble De . High Court in the case of Anil Kumar Bhatia vs. CIT in IT No. 1626, 1632, 1998, 20 6, 2019. 2020/2010 dated 7.8.2012 = (2012-TIOL-641-HC-DEL-IT). In this case the Hon'ble High Court has held that once search is initiated and documents are found, assessment u/s 153A for six A.Ys. prior to search a mandatorily to be made. The operative part is contained in paras no. 18 to 22 of the order of Hon'ble Delhi High Court, which reads as under:
…………….. ."
2.9. After narrating the relevant paras of Hon'ble Delhi High Court judgment in the case of Anil Bhatia (supra), the CIT(A) held this issue against the assessee by following observations:
22. In the light of our discussion, we find it difficult to uphold the view of the Tribunal expressed in Para 9.6 of its order that since the returns of income led by the assessee for all the six years under consideration before the search took lace were processed under Section 143(l)(a) of the Act the provisions of Section 153A cannot be invoked. The Assessing Officer has the power under Section 153A to make assessment for all the six years and compute the total income of the assessee, including the undisclosed income, notwithstanding that the assessee filed returns before the date of search which stood processed under Section 143(1)(a). The other reason given by the Tribunal in the same paragraph of its order that no material was found during the search is factually unsustainable since the entire case and arguments before the departmental authorities as well as the Tribunal had proceeded on the basis that the document embodying the transaction with Mohini Sharma was recovered from the assessee. While summarizing the contentions of the assessee in Paragraph 5 of its order, the Tribunal itself has referred to the contention that no document much less incriminating material was found during the search of the assessee's premises-except one unsigned undertaking for loan. Again in Paragraph 10 of its order, while dealing with the assesse 's contention against the addition of Rs. 1.50.000/- being unexplained loan given to Mohini Sharma, the Tribunal has stated that it has analyzed "the subject document carefully, recovered from search" suggesting that the document was recovered during he search from the assessee. The Tribunal has even proceeded to delete the addition of Rs. 1,50, 000/- as well as the notional interest on merits. holding that the document was unsigned, that Mohini Sharma was not examined by the income tax authorities and there was no corroboration of the unsigned document. If it is not in dispute that the document was found in the course of the search of the assessee, then Section 15A is triggered, Once the Section is triggered} it appears mandatory for the Assessing Officer to issue notices under Section 153A calling upon the assessee to file returns for the six assessment years prior to the year in which the search took place. There are contradictions in the order of the Tribunal. We are unable to appreciate how the Tribunal can say in Para 9.6 that no material was found during the search and at the same time in Paragraph 10 deal with the merits of the additions based on the document recovered during the search which allegedly contain the loan transaction with Mohini Sharma. Therefore, both the reasons given by the Tribunal for holding that the assessments made under Section 153A were bad in law do not commend themselves to us. The result is that the first substantial question of law is answered in the negative, in favour of the Revenue and against the assessee.
IV. Similar finding was given by ITAT, Mumbai in case of ACIT vs. Pratibha Industries Ltd. in ITA NO. 2197 to 2199 /Mumbai/ 2008& others vide order dated 18.12.2012 = (2013-TIOL-50-ITAT-MUM) wherein it was held that assessment u/s 153A are mandatory to be made even if no incriminating documents are seized. Keeping in view the plain and unambiguous language of provisions of section 153A and case laws mentioned above, the action of the AO in initiating proceedings, u/s 153A and completing the assessment u/s 153A r.w.s. 143(3) is confirmed.
This ground of appeal is accordingly dismissed."
The CIT(A) rejected assessee's both pleas in this behalf.
2.10. Apropos second issue about rejection of books u/s 145(3) of the Act, the CIT(A) rejected the ground of the assessee by following observations:
6.8 As regards rejection of books of accounts u/s 145(3) the AO has observed that the assessee treated the agriculture land as fixed asset in its books of accounts and the receipt on sale of it was shown as capital receipt and the resultant profit has been claimed as exempt. However, as per detailed discussion in the assessment order, the AO came to the conclusion that the books of accounts should be written in manner that they reflect true and correct affairs of the business and that when the AO was not satisfied about the correctness or the completeness of the account of the assessee or where the matter of accounting provided in sub-sec. 1 of sec. 145 or accounting standard as notified under sub. Sec. 2 of sec. 145 have not bee regularly followed by the assessee, the AO may make an assessment in the manner provided in sec. 144 of IT Act. As per AO, the books of accounts of the assessee did not present true and fair picture of account in as much as revenue receipts were claimed as capital receipt and accordingly true income was not reflected. Therefore provisions f 145(3) of IT Act were applied and the income from sale of such land was taxed as business income.
6.8.2 As regards such objection and ground of appellant the appellant has not made any specific submission. Moreover as discussed in detail the transactions of purchase and sale of agricultural land are found to be of adventure in the nature of trade and therefore the same are to be taxable under the business head whereas the appellant in his books of accounts claimed such surplus as exempt income. Therefore the books of account of the appellant cannot said to be correct and true and provisions of sec. 145(3) are definitely applicable.
This ground of appeal is also accordingly stand dismissed"
2.11. Apropos third issue relating to taxability of amount on sale of agricultural land the CIT(A) held as under:
6.6 I have carefully considered the submissions of the appellant as also the finding of the AO. It may be noted that the appellant has purchased such agriculture land at village Baherampur Distt. Gurgaon, measuring 206 canal 1 marlas for total consideration of Rs. 13251000/-. Part of such land has been sold in A.Y, 2007-08 for total sale value of Rs. 32 Cr. The cost of land attributable to such land sold in AY. 2007-08 was arrived at Rs. 5926555/- and accordingly profit on sale of land was arrived at Rs. 314073445/- In A.Y. 2008-09 the land was sold for Rs.62700000/- and cost for land attributable to such sale was at Rs. 3771695/- therefore profit on such sale was determined at Rs. 58928305/-. There is no dispute that the land was an agricultural land and was not a capital asset. The AO has also not disputed the fact of sale of agricultural produce from such land. The land is definitely not within the municipal jurisdiction and this fact is also not disputed by the AO. The AO's case is that such agricultural land was definitely not purchased for agricultural purposes and that the dominant intention and object of the assessee was never to purchase such agricultural land for agricultural purposes or to keep the s e for investment purposes. The AO has accordingly held that the assessee is in the business of sale and purchase of land and that purchase of such agricultural land was with-the dominant object of earning of profit and not to utilize the same for long term investment purposes. This fact is stated to be evidenced from the fact that the land was purchased only during the A.Y. 2006-07 and it was sold in A.Y. 2007-08 & 2008-09 and accordingly substantial profit was booked and earned. The A has also noted that even in the MOU of the appellant company, there is no any major object or any other minor object for purchasing of agricultural land for agricultural operations. The AO keeping in view overall business transactions and nature of activities of the other sister companies of the appellant group has observed that the sole object of the appellant company is to acquire land in and around Gurgaon in Haryana and sell the same on profit. As per AO, such corroborative facts as also facts gathered from business transactions in respect of purchase of such agricultural land by the sister companies also proved that such transactions by appellant company were definitely of business nature. Relying on such facts including corroborative evidence the AO has held that the conduct of the appellant company as a group indicated that such purchase and sale of agricultural land was17 adventure in the nature of trade and therefore surplus amount Rs. 314073445/- arising on such sales in respect of A.Y. 2007-08 was taxed as income from business and profession. Similarly in respect of A.Y. 2008-09, such surplus amounting to Rs. 58928305/- was taxed.
On the other hand the appellant's case is that the agriculture land has been sold at village Baherampur which is not situated in jurisdiction in Gurgaon Municipality and that prior to sale the appellant was cultivating the land and was producing crops namely mustard and bazra etc. Copy of girdawari issued by patwari of the village was also enclosed in the written submission. The crop produced on the said agriculture land was sold to M/s Munshi Ram Banarsidas and Rameshwardas & Sons, commission agents. The appellant's case is that agricultural income is defined u/s 2(lA) of IT Act and that such income on account of sale of agricultural land will not be covered within the meaning of capital asset in view of the fact that only the gain arising from the agriculture land specified in sub clause (iii) of sec. 2(14) comes within the meaning of capital asset. In simple words the agricultural land not situated in municipal area will not be treated as capital asset and surplus arises therefrom will therefore not be liable for capital gain. Therefore such surplus was not taxable as capital gain u/s 45 of IT Act. It is stated that as the agricultural land was not capital asset therefore the other issues whether the appellant was holding the land for agricultural purposes and the period of holding of land was for very less period are of no relevance. It is contended that in respect of agriculture income nature or class of income is relevant and not the recipient of the income and exemption of agriculture income is available irrespective e of character of recipient. The appellant has also referred to sec. 4 of IT Act and it is stated that sec. 4 of is charging section which provides for taxation of total income of the previous year, subject to provisions of sec. 5 to include all income from whatever sources derived and total income u/s 5 is subject exempt item under sec. 10 which provides that is stated to be exempt u/s 10 of IT Act. The appellant has also placed reliance in the case of Hindustan Industrial Resources Ltd. Vs. ACIT (2011) 335 ITR 77 = (2009-TIOL-26-HC-DEL-IT) in which the Hon. Delhi High court has held that when on the date of purchase the land in question was agriculture land and on the date of acquisition the character of land continued to be agriculture land and between these two period i.e. purchase of land and acquisition of this land by 1he competent authority there is no. change in the nature and character of the land then surplus from such sale of land cannot be taxed as capital gain. he appellant in his detailed written submission has essentially contended that the nature of land at the time of purchase as well as at the- time sale was only agricultural and "that such agricultural land being no capital asset therefore such surplus arising on the sale of such land cannot be taxed. The various case laws referred an relied upon by the appellant also stated to be support such proposition of law. It may be noted that the whole defense of the appellant is mainly revolving over the facts that the said land is agricultural land not situated in municipal area and such land being not a capital asset therefore not liable to Income Tax particularly capital gain. However as discussed earlier all these facts are not disputed by the AO and in fact the AO has not taxed such surplus simply on the basis of these grounds and the AO's case is that such transactions are of business nature being adventure in the nature of trade and therefore such surplus was taxed under the business head. Therefore essentially it is to be examined whether in the given circumstances the action of the AO to treat such transaction as adventure in he nature of trade / business was justified or not. It may be noted that as per definition of business u/s 2(13) of IT Act business includes any-trade, commerce or manufacturing or any adventure or concern in the nature of trade, commerce or manufacture. The issue as to what should constitute as adventure in the nature of trade, has been considered and examined by various higher courts.
In the case of R. Dalmia vs. CIT (1982) 137 ITR 665, the Hon. Delhi High Court has held that to determine the nature of transaction, the dominant intention of the assessee has to be seen and if the intention was to embark on adventure in the nature of trade as distinguished from a capital investment it could not make a difference if the transactions is a single and isolated one.
The Hon. MP High Court in the case of Bhagirath Prasad Bilgaiya vs. CIT (1983) 139 ITR 916, has held that reference to an adventure in the nature of trade appearing in the definition of business postulates the existence of the certain elements in the nature of adventure which in law would invest it with the character of trade or business. In other words the Hon. Court has. held that to constitute a transaction as adventure it is not necessary that all parameters of definition of business should be met out and if certain elements of business are manifested in such transaction it can be held to be in the nature of trade or business.
The Hon. Supreme Court in the case of M/s Dalmiya cement Ltd. Vs CIT (1976) 105 ITR 633 = (2002-TIOL-772-SC-IT-LB) has held that to qualify a transaction being adventure in the. nature of trade, the transaction need not relate to assessee's business or to his legal business. The Hon. Supreme Court in the case of Rajputana Textile Agencies Ltd. VS. CIT (19611 421TR 743 has held that in considering the question where the transaction is or is not an adventure in the nature of trade one has to be take to consideration the intention of the assessee. keeping in view the legal requirements which are associated with concept of trade or business.
The Hon. Allahabad High court in the case of ITO Vs. Rani Ratnesh Kumari (1980) 123 ITR 343 has held that apart from dominant and even sole intention in respect of specific transaction which may qualify for an adventure in the nature of trade, subsequent conduct of the assessee must also be considered
Further the Hon, Supreme Court in the case of G. Venkat swami Naidu & Co. Vs. CIT 35 ITR 594 has held that in cases where purchases have en made solely and exclusively with intention to "resell at a profit and purchaser has no intention of holding property for himself or otherwise enjoying or using it, presence of such an intention is a relevant factor and unless it is obstructed by presence of other factors it could raise a strong presumption that the transaction is an adventure in the nature of trade.
The Hon. Gujarat High Court in the case of CIT vs. Premji Gopalbhai (1978) 113 1TR 785 has held that the sole intention to resell at a profit is a strong factor to determine the transaction as adventure in nature of trade. It is held that even if the land which is not a commercial commodity is purchased and it can be shown that the purchase of the land was made solely and exclusively with an intention to resell it at a profit it would be a strong factor to indicate that the transaction would be an adventure in nature of trade.
The Hon. MP High court in the case of CIT Vs. Jawahar Development Association (1981) 121 ITR 431 has held that the fact that the land is agricultural land is not relevant and the mere fact that the land is an agricultural land cannot make the profit arising from sales exempt from Income Tax.
The appellant's case is to be examined keeping in view the above mentioned broad parameters which justify taxing of such transactions as adventure in the nature of trade. It may be noted that as per Memorandum of Article of Association of the appellant company one of the object incidental to the attainment of the main objects is stated as under:
-To acquire by purchase lease, exchange or otherwise any property and any movable or immovable property and any rights or privileges which the company may deem necessary convenient for the main business of the company."
g) Such incidental object prima facie indicate that one of the main objection, the appellant company is also to acquire by purchase, lease, exchange or otherwise any movable or immovable property
i) It may also be noted that in the said MOU it is nowhere stated or provided that the company will be purchasing agricultural land for carrying out agricultural operation or for keeping such land for long term investment basis. From these facts it is clearly emerged that one of the main object of the appellant company as per MOU is definitely to deal with in immovable property by way of purchase, sale, lease etc. as a business activity and agricultural activity is definitely not a major or incidental object of the appellant company. The appellant in its earlier reply also regularly shown its business as sale, purchase and dealing in real estate.
ii) It may be noted that such agricultural land measuring 206 canal 16 marla was purchased for Rs. 13251000 lacs during A.Y. 2006-07 and in the very next A.Y. i.e. 2007 -08 part of such land (91 kanal 28.5 marla] was sold for Rs.32 cr. Another land measuring 25 kanal 9 marla from the same land purchased in A. Y. 2008-09 was sold in 2008-09 on 6.7.2007 for Rs. 6.26 Cr. The dominant intention of the appellant is clearly manifested by such sale transaction in as much as the appellant has sold such land in a very less period and that, the intention of the appellant was not to hold such land for a substantial period. The above fact indicates that the dominant objective and intention was to purchase such land and to utilize and earn business profit at the earliest possible occasion. Therefore even if the said land was agricultural land the, intention of the appellant; was not to keep it for agricultural purposes or as an investment but to derive profit-at the earliest possible time.
iii) The appellant consist of a group in which there are other corporate entities also and as discussed by the AO the other sister concerns/ companies as also its directors are broadly found to be involved in the business of real estate property. The broad details of such company I individual as discussed by the AO in the assessment order are as under:
a) Marigold Merchandise Pvt. Ltd.
b) Misty Midows Pvt. Ltd.
c) Manglam Multiplex Pvt. Ltd.
d) Dignity Buildcom Pvt. Ltd.
e) M/s Marhsal Buildcon
f) MIs M3M India Ltd.
g) Bonus Builders Pvt. Ltd.
h) Benchmark Infotech Pvt. Ltd.
iv] It may also be stated that the main persons of this group including Sh. Basant Bansal, Sh. Roop Bansal and' other family members also started their career in the business of real estate as land buying agent for M/s EMMAR MGF Group and subsequently by floating many Pvt. Ltd. companies they have expanded their business of real estate to large scale. The companies associated with the appellant company and its directors are definitely found to be engaged in the business of real estate. There is no evidence on record that any agriculture land has been purchased for carrying of agricultural operation for keeping the same for long term basis as an investment. Therefore even from such corroborative / circumstantial evidence it is proved the dominant and main intention of the appellant company w s to purchase such agriculture land to embark on the business transactions of adventure in the nature of trade and to earn the profit at the earliest possible.
v} It may also be stated that the whole of such areas adjoining Gurgaon including Sohna, Dharuheda, Rewari etc. is covered under National Capital Region. In these areas and particularly in the area where the appellant has purchased land though as per revenue record such land may be of agricultural land but for all practical purposes such land is of commercial nature. The appellant definitely purchased such land for the main ~motive of earning of profit in as much as being in the business of property business m and around such area, the appellant was having good business prudence to expect substantial gain in the shortest period.
vi) As regards the claim of the appellant that the land was agricultural and agriculture produce was sold which indicated that agricultural operations were carried out it may be noted that when the land is question is purchased with a motive of using or utilizing as an business asset. to earn profit then such incidental receipts on account of agriculture produce cannot change the nature of such transaction which are prima facie of adventure in the nature of trade".
Aggrieved, assessee is before us in both the years.
3. Ld counsel for the assessee Shri Rakesh Gupta, contends that the only issue effective issue in these appeals pertains to:
(i) Whether in the absence of any incriminating material found as a result of search assessing officer is enabled to make such addition;
(ii) Whether the books of accounts can be rejected u/s 145(3) in the facts and circumstances of the case;
(iii) additions made by Ld. A.O. & confirmed by Ld. CIT(A) on the ground that to profit / gain arising from purchase and sale of specified agricultural land held by assessee as fixed assets, cannot be held as exempt income and is liable to be treated as business income.
3.1. Ld. Counsel reiterated the facts and contends that it has been assumed that because assessee belongs to a group of companies engaged in real estate business, the gains in question, derived from sales of agricultural land by asssesee amounts to adventure in the nature of trade. Consequently such gains which are otherwise exempt as agricultural income are assessable as business income in assessee's hands.
3.2. Adverting further to facts, ld counsel contends that appellant purchased impugned agricultural land at village Behrampur District Gurgaon Haryana, admeasuring 206 kanal 16 Marlas for Rs. 1,32,51,000/-, which is duly reported with return of income for A.Y. 2006-07. The impugned land has been shown as fixed asset in the books of a/cs which are assessed u/s 143(3). The agricultural land is situated beyond 8 km. from the limit of nearest municipal committee. Out of this agricultural land, the appellant sold 92 kanal 8.50 marla for Rs. 32 Crores in AY 2007-08 and balance in AY 2008-09. The said land was purchased and sold as agricultural land by conveyance which is not disputed by Ld. A.O. & by Ld. CIT(A).
3.3. Assessee was searched on 17.09.2008, which lead to impugned assessments which are framed u/s 153A i.e. by way of block assessment for assessing undisclosed income on the basis of any incriminating material found as a result of search. Original assessment for A.Y. 2006-07 was were framed u/s 143(3) in which assessee's claim of income, purchase of this agricultural land is duly disclosed therein. The assessment has been accordingly framed and purchase of agricultural land has been accepted. Except very same original documents no incriminating material was available before AO during the course of 153A assessments. Reference is made to para 3 of the 153A assessment Order which clearly shows that the impugned addition has been made "after examination of return of income, accompanying documents and the details / documents / evidences filed during the course of assessment proceedings……….." which clearly implies that the addition has not been made on the basis of any incriminating evidence found as a result of search, but on the basis of return filed by the assessee and available record. Reading of the entire assessment order reveals that no reference is made to any incriminating material found as a result of search, while making the impugned additions under 153A assessments. This is so because, as a matter of fact, no material, much less the incriminating material qua the impugned additions was discovered as a result of the search.
3.4. One of the ground, before Ld. CIT (A) was to the effect that there being no incriminating evidence found as a result of search qua these additions, hence no such addition can be made u/s 153A i.e. block assessment for assessing undisclosed income, that too by only changing the nature or head of income which is already assessed.
3.5. Detailed arguments, plethora of evidence and catena of judgments were cited before lower authorities. Rejecting them ld. CIT(A) held that there is no such requirement under the law that addition should be based on incriminating material as noted in Para 5.4.3 at page 12, 16 of the appeal order. Ld. Counsel thus submits that at the outset itself, such additions can not at all be made in assessment made u/s 153A on income which is already assessed u/s 143(3) and when no incriminating material in this regard is found as a result of search.
3.6. It is pleaded that, by now it is a settled proposition of law based on Hon'ble Delhi and Rajasthan high court judgments and a catena of ITAT judgments that no additions could be made in the assessment u/s 153A if there is no incriminating material found as a result of search. Following case laws are relied upon:-
(i) All Cargo Global Logistics Ltd. v. DCIT (2012) 18 ITR (Trib) 106 (Mumbai)(SB) = (2012-TIOL-391-ITAT-MUM-SB) for the proposition that 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. 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. (ii) Gurinder Singh Bawa v. DCIT (2012) 28 Taxmann.com 328 (Mum trib)- for the proposition that where in search assessment under section 153A all assessments pertaining to six immediately preceding assessment years were complete, Assessing Officer cannot make any addition there under unless there is any incriminating material discovered during the search.
(iii) Jai Steel India v. ACIT 259 CTR 281(HC) (Rajasthan)
29. The argument of the learned counsel that the AO is also free to disturb income, expenditure or deduction de hors the incriminating material, while making assessment under s. 153A of the Act is also not borne out from the scheme of the said provision which as noticed above is essentially in context of search and/or requisition……...if taken to its logical end would mean that even in cases where the appeal arising out of the completed assessment has been decided by the CIT(A),ITAT and the high court, on a notice issued under section 153A of the Act, the AO would have power to undo what has been concluded upto the High Court. Any interpretation which leads to such conclusion has to be repelled and/or avoided as held by the Hon'ble Supreme Court in the case of K.P. Varghese
(iv) Kusum Gupta v. DCIT, ITA Nos. 4873/Del/2009, (2005-06) 2510 (A.Y. 2003-04), 3312(A.Y. 2004-05) 2833/Del/2011 (A.Y. 2006-07)
15. Since there is no change on this material fact that during all these assessment years no incriminating material was recovered or statement was recorded during the course of search suggesting non-genuineness of the claimed gifts or expenses etc. and no such addition/disallowance was made in the original assessment which remained unabated, we following the decision on the issue hereinabove in the appeal preferred by the revenue for A. A 2002-03, hold that such addition/disallowance cannot be made in the assessment framed u/s 153A of the Act in this A. Y in appeals. In result the issue is decided in favour of the assessee and against the revenue. In view of this finding the remaining grounds questioning the merits of additions/disallowances do not need adjudication as they have become infructuous and academic only . Consequently appeals preferred by the assessee for the A.Ys. 2003-04, 2004-05, 2005-06 and 2006-07 are allowed and appeals preferred by the revenue in the A.Ys. 2002-03, 2005-06, 2006-07 are dismissed.
(v) MGF Automobiles Ltd. V. ACIT, ITA No's 4212 & 4213/Del/2011 = (2013-TIOL-747-ITAT-DEL) - In the present case it is apparent that on the date of search be on 12/09/2007, the assessments for assessment year 2004-05 & 2005-06 were already completed. There was no incriminating material found during search for these years as is apparent from arguments of Ld. AR and from records and Ld. Departmental Representative did not bring to our notice regarding any incriminating material having been found during search. Therefore following the Judicial Precedents, we are of the opinion that though assessments for the above year were bound to be reopened but additions could be made only if some incriminating document was found during search. (vi) Tarannum Zafar Khan Vs. ACIT, ITA Nos. 5888 to 5890/Mum/2009
18.3 One more reason is there that most of the additions have been made in the routine manner as the issue has not been discussed in right perspective in taking into consideration the submission and other evidences filed. It is also a matter of fact that no incriminating material was found during the course of search as only during the assessment proceeding, these expenses were found made through credit cards. In view of the above facts and circumstances of the case, we delete the addition of Rs.9,057/-.
15. In view of the above, we agree with the contentions of assessee and allow ground no.1 of the appeal. In respect of second ground of appeal regarding disallowance of telephone, car expenses etc we observe that no incriminating material was found in respect of such expenses which could enable the Assessing Officer to disallow a part of it during proceedings u/s 153A. This has been held in various pronouncements of various courts and the latest being by Hon'ble Rajasthan High Court in the case of Jai Steels India vs. CIT in 259 CTR (Raj) 281, where the Hon'ble Court has held that in case of assessment u/s 153A, the completed assessment can be tinkered only on the basis of incriminating material found during search. Therefore, in the present case without any incriminating material Assessing Officer was not justified in making disallowance.
(viii) ITA Nos. 1153 to 1159/Hyd/2012 Mir Mazharuddin, 24.1.2013 addition cannot be made in assessment completed u/s 153A without any reference to the seized material. He further held that it is also not the case of the AO that the seized material if any suggested inflation of agricultural income. He, therefore, concluded that such type of addition cannot be made in the assessment u/s 153A dehorse the material found at the time of search
52. we find that in this case the assessment was made u/s. 153A of the I.T. Act. Hence, reliance upon the decision of the Special Bench in the case of All Cargo Global Logistics Ltd. (Supra) is also germane and support the case of the assessee. As expounded in this case assessment u/s. 153A can be made only on the basis of incriminating material found during the course of search.
3.7. Ld. Counsel pleads that AO has not referred to any incriminating material found as a result of search while making impugned additions. Ld. CIT (A) has also not rebutted the fact that there is no evidence much less the incriminating evidence found as a result of search. Ignoring the assesses pleadings the ground has been disposed of by Ld. CIT(A) summarily by holding that there is no such requirement under the law that addition should be based on incriminating material. It is vehemently argued that in view of these pleadings and binding judicial precedents, the decision of CIT (A) deserves to be reversed.
3.8. Ld counsel further pleads that even on merit, the impugned addition is not sustainable. The said land was purchased as agricultural land and held as fixed asset in its books of accounts. This has been accepted by 143(3) assessment in A.Y. 2006-07 which has become final. The purchase of agriculture land has also been accepted by Ld. A.O at para 3.4(a) at page 4 of the block assessment order. Ld. CIT(A) has also held that it was agricultural land and was not capital asset in para 6.6, page 39, 40, 43 of the appeal order. Ld counsel then referred to following documents placed on paper book to emphasize these facts:
(i) PB 29-44 is the copy of purchase deed showing the nature of land as agricultural land. This is part of assessment record u/s 143(3) for A.Y. 2006-07.
(ii) PB 45-48 is the sale deed of impugned agricultural land wherein at PB 47 the nature of impugned sold land has been mentioned as agricultural land.
(iii) PB 27-28 is the evidence in the form of certificates from Tehsildar certifying the land as agricultural land and further that it is located beyond 8 Km. from municipal area.
(iv) PB 59-62 is the copy of girdawari showing the growing of agricultural crop on this land.
(v) PB 63-64 is the copy of evidence of sale of agricultural produce.
3.9. It is pleaded that agricultural land situate beyond specified limits of municipal committee, which is not regarded as "capital asset", by legal prescription u/s 2(14) its sale or transfer would not give rise to taxable capital gain. The impugned land being not an asset in the eyes of law, its transfer or sale will not be chargeable as taxable gains by express mandate of the law. The Act further provides that such income, profit or gains would be treated as agricultural income exempt u/s 2(1A)(a) r.w.s 2(14)(iii) r.w.s. 10(1). This was explained in great detail before Ld. CIT(A) by way of submissions and by relying upon catena of judgments in the cases of:
- Manubhai A. Sheth Vs. Second ITO 128 ITR 87 (Bom);
- Nadirshah Rustamji Mulla Vs. ITO 154 ITR 629 (Bom.);
- Sulekha Sandip Parikh Vs. Sixth ITO 159 ITR 775 (Bom);
- Raghottama Reddy Vs. ITO 169 ITR 174 (A);
- Harrisons Malayalam Ltd. Vs. ACIT 32 SOT 497 (Cochin).
3.10. Reference is made to PB 187 which is a chart showing agricultural income returned for various years, which is ironically accepted and assessed as such by the department.
3.11. Before Ld. CIT(A) it was inter alia demonstrated that profit on sale of agricultural land is not taxable relying upon Delhi High Court decision in the case of Hindustan Industries Resources Ltd. Vs. ACIT 335 ITR 77 = (2009-TIOL-26-HC-DEL-IT) for the proposition that possible future intent of different use of the agricultural land held is not material nor is the quantum of surplus on sale and status of the recipient, these factors do not alter the nature of agricultural land. Besides it has been held by various judicial precedents that even the real estate companies can hold the portfolio of land as agricultural land. Case laws relied on are: - Gordhanbhai Kahandas Dalwadi Vs. CIT 127 ITR 664(Guj);
- Dr. Motibai D. Patel Vs. CIT 127 ITR 671 (Guj);
- Manibhai Motibhai Patel Vs. CIT 131 ITR 120(Guj);
- CWT Vs. Shashiben 205 CTR 298(Guj).
3.12. It is further contended that the impugned agricultural land right from the year of purchase in A.Y. 2006-07 was held as fixed asset i.e. as an investment in books of accounts and was never held as business asset. This is evident from the fact that it was shown as fixed asset and not as stock in trade in balance sheet. Further, no development work whatsoever was undertaken by the appellant nor any license for commercial exploitation was applied so as to suggest even any future intention for non agricultural use. The land was purchased and sold in kanals and marlas and not in yardage or feet. Neither any plotting was done, nor change of land use (CLU) was applied. Thus looking from any angle there is no iota of evidence or any incriminating material to indicate that there was even any endeavour much less any future intent to use land for non agricultural purposes. The facts and record clearly demonstrate that no real estate development activity was done by the assessee qua impugned agricultural land.
3.13. Before Ld. CIT (A) appellant duly met with and distinguished as well as the A.O's reliance on the decision of Madhya Pradesh High court in the case of CIT Vs. Jawahar Developers 127 ITR 431.
3.14. Reliance is placed on the ratio of decision of Hon'ble Bombay High Court in the case ofManibhai A. Seth Vs. ITO 128 ITR 387, holding in identical facts that the land was agricultural land.
3.15. Hon'ble Delhi High Court in the case of DLF Housing and Construction P. Ltd. Vs. CIT 9 Taxmann 207 (Delhi) observed that burden to prove that a particular transaction is not of agricultural land, squarely lies on revenue and when no steps are taken by assessee to develop the land, it retained its character as agricultural land.
3.16. Following other case laws cited before Ld. CIT (A) apropos his query about drawing adverse inference on the phenomenal growth in the land prices are also cited before us:.
(i) Commissioner of Wealth-tax v. H.V. Mungale [1983] 12 Taxman 201 (Bom.)"while determining the character or the nature of the land, it must necessarily be taken into account that the land which is recorded as agricultural land in the revenue papers cannot be used for non-agricultural purposes by the owner, unless the land is allowed to be converted to non-agricultural purposes by appropriate authorities."
(ii) In Sercon (P.) Ltd. v. CIT [1982] 136 ITR 881 (Guj.), the land in question was not used for agricultural purposes, but it was shown in the revenue records as an agricultural land and as no permission had been taken for non-agricultural user under the Bombay Land Revenue Code and there was no evidence of preparation, etc., it was held that the land retained its character as an agricultural land and, hence, the surplus realised on its sale was not capital gains liable to tax.
(iii) CIT vs. Debbile Alemao (Smt.) (2010) 46 DTR 341 (Bom.) = (2010-TIOL-752-HC-MUM-IT) Land which was shown as agricultural land in the revenue records and never sought to be used for non agricultural purposes by the assessee till it was sold has to be treated as agricultural land, even though no agricultural income was shown by the assessee from this land, and therefore, no capital gain was taxable on the sale of the said land. (iv) D.L.F. United Ltd. 158 ITR 342 HC DELHI
"15. It would be apparent that if the assessee-company had sold this land without development or conversion into plots to somebody else, it would not be liable to tax. The liability to tax would arise if it had made a scheme for converting the agricultural land into urban plots. So, we would answer the second question on the basis that the receipt in this case is in the nature of a capital gain resulting from the acquisition of agricultural land and the fact that the land was lying fallow and not being used for agriculture makes no difference."
That in the sale deeds of the lands in question specifically mentioned the fact that the said land is agricultural land this is also mentioned in the land description that its entry in the land revenue records of the state government is its self, a prima facie evidence that demonstrate that the said land is not meant for any other purpose what to say any non-agricultural purpose. Further, the sale deeds also mentioned "That the said land has not notified under section 4 or 6 of the Land Acquisition Act, 1984 either for the planned development or for any other purpose" that means the future intend use cannot be other than agricultural purposes viz to undertake any commercial activity that demonstrates, whatsoever, 'Adventure in the nature of trade'.
(v) Shri K. Gnaneshwar Dt. 19.12.2012 ITA No.526A/Hyd/2005 : AY 2000-01, ITA No.508/Hyd/2007, ITA No.543/Hyd/2006, ITA No.226/Hyd/2007, ITA No.1407/Hyd/2010, & IT(SS)A No.44/Hyd/2009
"para 47 There is no material on record to show that the assessee carried on activities of buying and selling of land in a systematic manner so as to justify the action of the Revenue authorities in treating the activity of the assessee as an adventure in the nature of trade. The land was sold in acreage and not by making plots. In the circumstances, we are of the opinion that the sale of land cannot be considered as an adventure in the nature of trade and income derived from such sale should be treated as agricultural income……Para 57 the nature of land sold is of agricultural nature, and hence the income derived on the sale of such land have to be treated as agricultural income exempt under S.10 of the Act"
3.17. There is no legislative intention which deprives any business group to hold any such products or commodity which are in its capital investment to tax it as business income.
A. Business entity is allowed to have any commodity as its capital investment account, even it is dealing in real estate. Similar observation was also given by Hon'ble Delhi High Court in the case of Hindustan Industrial Resources Ltd. (supra).
B. Secondly, maintenance of investment and trading share port folio by assessee has been allowed and clarified in the case of share trading entities by the CBDT vide Circular no. 4/2007, dated 15-6- 2007, which emphasizes that it is possible for a tax payer to have two portfolios, i.e., an investment portfolio comprising of securities which are to be treated as capital assets and a trading portfolio comprising of stock-in-trade which are to be treated as trading assets. Where an assesse has two portfolios, the assessee may have income under both heads i.e., capital gains as well as business income."
Reliance is further placed on the recent judgment of Delhi High Court in the case of Delhi Apartments Pvt. Ltd. (ITA 569/2012 judgment delivered on: 07.03.2013) para 7 = (2013-TIOL-195-HC-DEL-IT) thereof; holds that an assessee could hold lands both as business asset or as an investment. There is no bar on an assessee who is in business of sale-purchase of land, also to hold land as an investment which will be capital asset. In these circumstances, the Tribunal held that the assessee could very well be a trader in land as well as an investor in land simultaneously, depending on what his intention was and how he treated the asset in question. Hon'ble High Court upheld the Tribunal's finding that in the present case, the land was purchased and was shown as an asset in the balance sheet and that the land had also been used for agricultural purposes which led the Tribunal to the inference that the land was held as an asset and, therefore, the assessee had appropriately offered it for taxation under the head 'capital gains." 3.18. Without prejudice to above, ld counsel contends that assesses books were rejected without any justification whatsoever. No inconsistencies or complexity have been pointed out about inability to determine the assessee's true income. Books of accounts are audited and in order to willy- nilly reject the books it was done by a presumptuous plea that land ought to have been treated as stock in trade. In umpteen no of assessments, heads of income, nature of expenses from capital to revenue or vice versa are changed. It doesn't imply that AO will reject duly maintained books of accounts in every such case. There was no justification for lower authorities to reject the books just to change the head or interpret the law in their own way. For the sake of arguments even if such agricultural land is treated as business asset yet the gain from it would nonetheless be exempt as agricultural income.
3.19. Further reliance is placed on the ratio of decisions for this proposition in the cases of:
- CIT Vs. Sir Kameshwar Singh 3 ITR 305 (PC);
- Raja Mustafa Ali Khan Vs. CIT 16 ITR 330 (PC);
- CIT Vs. Diwan Bahadur S.L. Mathias 7 ITR 48 (PC);
- K. Simrathmull vs. CIT 64 ITR 166 (Mad.);
- CIT Vs. Manilal Somnath 106 ITR 917 (Guj.);
- Maganlal Morarbhai Vs. CIT 118 ITR 224 (Guj.); and
- CIT Vs. Madhabhai H. Paatel 208 ITR 638 (Guj.).
3.20. Ld counsel for the assessee endeavored to dislodge various observations and inferences drawn by lower authorities.
(i) AO has mentioned that appellant was in the business of real estate as explained in the reply filed during assessment proceeding and also in earlier years and only activity performed is purchase and sale of land and also in the computation of income, nature of business has been mentioned as real estate business. In reply it is submitted that this observation of Ld. AO is incorrect as the company was incorporated on 161.2004 and the subject transaction of purchase in A.Y. 2006-07 which is accepted u/s 143(3) and sale in A.Y. 2007-08 is only transaction of purchase and sale.
(ii) AO has mentioned that crop inspection book filed by the assessee shows that the name of the owner is Mukandi and not the appellant. In reply it is submitted that the said land was given on batai to Mukandi and that is how his name appears (PB 10). Even otherwise, if it is not the case of the AO that appellant was not the owner of subject land, then there is no question of taxing the gain on sale resulting from such land. In fact, CIT(A) has mentioned in his order that only dispute is about the head of income and thus the controversy raised by AO is not of any significance.
(iii) AO has mentioned that though the land was agricultural but it was so in revenue record only and that there was no evidence to show that the land was held for agricultural purpose. In reply, it is submitted that this observation of AO is to the utter disregard of evidence before him and placed in the paper book, reference to which has been made above (PB 59-62, 63-64, 187). Moreover, Ld. CIT(A)'s finding at page 39, 40, 43 of the appeal order is relied upon.
(iv) AO has held that short duration which the subject land was held by the assessee and group companies dealing in real estate business means that appellant was in the business of real estate. It is submitted that this proposition was raised by CIT(A) consequently it is proposed to be dealt below.
3.21. Adverse observations of Ld. CIT(A) are met as under by the counsel:-
(i) Ld. CIT(A) has mentioned that though the land was agricultural land but since it was purchased and sold at short interval, it shows that it was purchased with an intention to do business. Also, MOA also indicates shows the objective of real estate business of the appellant.
In reply, it is submitted that MOA may contain various objectives but what has to be seen on facts as to what has actually been done by the company. Appellant company was undisputably entitled to purchase agricultural land as fixed asset and derive agricultural income there from which has been offered and taxed as agricultural income. Thus, actual activity has to be seen instead what is mentioned in the MOA. MOA's object clause is so comprehensively worded so as to include right from fishing trade to aeroplane manufacturing. Thus, object clause should not be the sole criteria to the utter disregard of the evidence and actual activity undertaken. Reliance is placed on:
- ITO Vs. Neon Property P Ltd. ITA no. 1171/Del/2011 dated 13.5.2011;
- CIT. vs. PKN Co. Ltd. 60 ITR 65 (SC)
Merely because agriculture land was purchased in one year and sold as such in other year, alone is not enough, to term it as activity of business. Objective of best possible earnings from an investment is always there and is not prohibited by any law. There is no proposition of law that investment in agricultural land unless held for a particular number of years would cease to be investment or the asset as non agricultural land. If market price of investment i.e. agricultural land has substantially appreciated, no prudence demands that it should still be retained and not liquidated.
Land was purchased in Kanals and Marlas, sold in Kanals and marlas, not purchased/sold in yardage, no CLU applied, no developmental work undertaken, no approvals taken, no plotting done- all these factors amply demonstrate that intention was not to do business with this land.
Without prejudice to above, even if it is assumed that impugned agricultural land was purchased and sold with the dominant intention to do business, though contested yet it is submitted that even then, the gain retains the character of agriculture income and do not become business income.
(ii) Ld. CIT(A) has extensively quoted case laws to show that the impugned nature of purchase and sale of land may constitute an adventure in the nature of trade.
In the synopsis filed before ITAT, ld counsel has filed a chart and detailed case laws wise submissions to demonstrate that facts of the case laws cited by Ld. CIT(A) to hold various proposition against assessee are entirely different than those of the appellant. In as much as they deal with issues of sale of shares under different portfolios, no. of transactions of land, sold land measured in square feet or meters etc.. They are not being repeated for the sake of brevity.
(iii) Ld. CIT(A) has held that since the group to which the appellant belongs was in real estate business, consequently appellant's impugned transaction of purchase and sale of agricultural land, also becomes trading asset and also from the fact that land in and around Gurgaon was quite lucrative business proposition.
In reply, it is submitted that it is a misconceived finding. Assessee company is an independent and incorporated entity, in the eyes of law and it maintains/ carries out its independent affairs. Merely because other group companies have business transaction it cannot result into a colored assumption that assessee is also having business activities, therefore its fixed asset should be deemed to be trading assets. Further, only because land in and around Gurgaon can fetch better price, it can not be the reason to term the investment in agriculture as trading asset by such outlandish presumptions. It has been held by several judicial authorities that even real estate companies can hold agricultural land is fortified by following judicial decisions:-
- DLF United Ltd. 161 ITR 714(Del),- ITO. Vs. Neon Property P Ltd. ITA no. 1171/Del/2011 dated 13.5.2011
4. Ld. CIT(DR), on the other hand, apropos jurisdictional issue contends that the case laws relied on by the ld. Counsel for the assessee in the case of Jai Steel India (supra), the facts were different in the sense that in original assessment the assessee had not claimed sales-tax incentives to be capital in nature. After the search in 153A assessment assessee claimed that the assessing officer should now grant deduction thereon, reducing it from the income by treating it to be capital receipt. Ld. DR referred to the question of law in this behalf. In these peculiar facts the decision was rendered rejecting the assessee's claim for reduction of such income. Ld. CIT(A) has in detail considered the plain and unambiguous language of provision of sec. 153A and upheld the assessment. His order is relied on.
4.1. Apropos rejection of books of accounts,, it is contended that it has not been disputed that assessee is group of host of companies together are combinedly engaged in real estate operations at a large scale. The assessee itself in reply dated 26-10-2010 on the queries raised by assessing officer regarding business activities of the company submitted the following reply:
"The assessee is carrying on the business of developing various land projects as well as deals in sale and purchase of land and has occupied the following business premises used as Registered office of the company and paid rent amounted to Rs. 12000/- during the year under consideration."
4.2. Thus assessee itself has admitted that it was carrying on business of developing various land projects, sales deals and purchase of land. The assessee has maintained books of accounts in a manner to camouflage its real activities in the name of holding the land as fixed asset and avoid tax by colourable and dubious claims. All these facts put together make out a justifiable case of rejection of books u/s 145(3). Order of lower authorities is relied on.
4.3. Apropos the merits of the case, ld. DR contends that a host of companies were launched by Basant Bansal family under various names. They started the career as buying agent for another real estate giant MGF group. Subsequently the assessee group started acquiring land through various companies of the group and transferred it to M/s Manglam Multiplex Pvt. Ltd.; M/s Dignity Buildcom Pvt. Ltd.; M/s Marshall Buildcon Pvt. Ltd.; M/s M3M India Ltd. Assessing officer has taken a holistic picture to uncover the assessee's effort, endeavored to indulge in hide and seek behind the mist of corporate entities and shielding its activities behind a corporate veil. Assessing officer has demonstrated that the land purchased by the assessee was not meant for carrying out agricultural activities but with the main object to make profits by selling it to builders and developers. Reliance is placed on following case laws for the proposition that in such circumstances the addition can be made.
- CIT Vs. Sutlej Cotton Mills supply Agency 100 ITR 706;
- R. Dalmia vs. cIT (1992) 137 ITR 665 (Del.);
- CIT Vs. Jawahar Development Association 127 ITR 431 (MP)'
4.4. Coming to the legal arguments, Sec. 2(1A)/ 2(14)(iii) r.w.s. 10(1), ld. CIT(DR) contends that the main argument of the assessee is to be effect that the land in question is outside the specified municipal limits and such land being not a capital asset is not liable to income-tax tax. Assessing officer has not taxed the gains on the basis that purchase and sale of land by the assessee is an adventure in the nature of trade and the surplus is liable to be taxed as business income. As per Sec. 2(13) of the I.T. Act, business includes any trade, commerce or manufacturing or any adventure or concern in the nature of trade. In the case of R. Dalmia 137 ITR 665 the Hon'ble Delhi High Court has held that for determining the nature of the transaction the dominant intention of the assessee is to be seen.
4.5. To determine that assessees venture was in the nature of trade or from a capital investment. Entries in the books of a/cs are not material and the real nature of transaction is to be seen. Reliance is placed on Hon'ble Supreme Court judgment in the case of Kedarnath Jute Manufacturing Co. Ltd. (supra). Similar view has been held in various other case laws relied on by the CIT(A) in his order. It is further pleaded that the MOA of the assessee no where provides that it will be purchasing agricultural land for carrying out agriculture operation or for keeping such land for long term basis. Thus, the agriculture activity claimed to be carried on by the assessee is neither a major nor an incidental object of the assessee company. The short period of holding and the amount of huge earning itself indicates that the object of the assessee was not to hold the land as agriculture land but to engage in the business of selling it to earn huge profits. It is pleaded that, therefore, the addition has been rightly confirmed by the lower authorities. Their orders are relied on.
5. We have heard rival contentions and gone through the relevant material placed on record. Coming to the first issue, the legality of addition, it is settled law that in block assessment consequent to search u/s 153A read with sec. 143(3) no addition can be made unless some incriminating material in this behalf is found as a result of search. It emerges from record that no incriminating material in behalf of the purchase of these lands and sale of these lands have been found as a result of search. In any case the whole issue revolves around the change of nature of income i.e. from exempt to taxable as business income. The purchases of agricultural land has been accepted by department as part of fixed asset/ investment of the assessee by assessment u/s 143(3). Both the lower authorities have rather relied only on the original return of income, returns on record and explanations filed by the assessee and not on any incriminating material found as a result of search. Besides, ld. DR has not been able to point out any incriminating material found as a result of search or the reliance of the lower authorities thereon. Ld. DR has endeavored to distinguish the Hon'ble Rajasthan High Court judgment in the case of Jai Steel India (supra) from assessee's case which the ld. Counsel for the assessee has effectively countered by citing paras 25-26 of this judgment, as under:
"25. The argument of the learned counsel that the AO is also free to disturb income, expenditure or deduction de hors the incriminating material, while making assessment under section 153A of the act is also not borne out from the scheme of the said provision which as noticed above is essentially in context of search and/or requisition. The provisions of Sections 153A to 153C cannot be interpreted to be a further innings for the AO and/or assessee beyond provisions of Sections 139(return of income), 139(5) (revised return of income), 147 (income escaping assessment) and 263 (revision of orders) of the Act.
26. The plea raised on behalf of the assessee that as the first provision provides for assessment or reassessment of the total income in respect of each assessment year falling within the six assessment years, is merely reading the aid provision in isolation and not I the context of the entire section. The words 'assess' or 'reassess' have been used at more than one place in the Section and a harmonious construction of the entire provision would lead to an irresistible conclusion that the word 'assess' has been used in the context of an abated proceedings and reassess has been used for completed assessment proceedings, which would not abate as they are not pending on the date of intimation of the search or making of requisition and which would also necessarily support the interpretation that for the completed assessments, the same can be tinkered only based on the incriminating material found during the course of search or requisition of documents."
5.1. The issue is not of the legal challenge to the block assessment itself, the assessee's grounds and contentions agitate one legal issue i.e. whether in the absence of any incriminating material found during the course of search addition can be made by assessing officer as undisclosed income u/s 153A. More so when all these transactions are disclosed by the assessee in the original returns of income and accepted by the department a such. Thus merely because a search is conducted and even though no incriminating material is found as a result thereof the original assessment of the assessee can not be reviewed or substituted by a change of opinion about any claim of deduction, allowance or claim of exempt income.
5.2. In our considered view, Hon'ble Delhi High Court in the case of Anil Bhatia (supra) though has held that consequent to search assessing officer has to frame the block assessment for 6 years. Nevertheless the other issue which has been held is to the effect that addition under block assessment cannot be made u/s 153A as undisclosed income if no incriminating material is found as a result of search. This has been followed by Hon'ble Rajasthan High Court in the case of Jai Steel India (supra). By now various Benches of the ITAT including Delhi have upheld this view and deleted such additions which are not based on incriminating material found as a result of search which are cited by the ld. Counsel and are mentioned above. In view thereof, on this issue we hold that the assessing officer could not have made these additions in the impugned assessee u/s 153A, there being no incriminating material indicating any undisclosed income found as a result of search. This ground of the assessee is accordingly allowed.
5.3. Coming to the rejection of books of a/cs, the assessee maintained regular books of a/cs which are duly audited. No inconsistencies or defects have been pointed out therein. The assessee has purchased the land as agriculture land which is evidenced by the purchase deed. This has been accepted by department u/s 143(3) in A.Y. 2006-07. The assessee has claimed to have carried out agriculture operations and earned agriculture income which is offered in the return of income, which is accepted. Conveyance of sale of land also demonstrates that the land in question was agriculture land. It has not been disputed that the assessee on its own as an independent entity has not carried out any development activity or moved any application for commercial exploitation of the land to any local, state or Central agency. These glaring facts and circumstance do not raise any occasion for rejection of books. If at all, the assessing officer could have changed the head of income by exercising his assessment power. In the absence of any worthwhile defect in the books of accounts, rejection of books was unjustified. This ground of the assessee is also allowed.
5.4. Coming to the merits of the case, the main allegation of the lower authorities is to the effect that the assessee group taken as a whole was engaged in various activities of real estate development, therefore, an inference has been drawn that the assessee also should be deemed to be engaged in real estate business. In our considered view this assumption has no legs to stand. First of all lower authorities have not demonstrated that the assessee as a group was engaged in dubious and colourable devices. In a big group launching of several corporate entities is permissible by law and each company is an independent assessee in the eyes of law and separately assessed. Their activities are to be analyzed on the basis of actual activities and cannot be ignored merely because the associate concern is engaged in some other activities. Thus, this inference by lower authorities amounts to a pure guess work and conjecture which we are unable to subscribe. Therefore, group companies' business activities, which are distinct and separate entities, cannot be held as a factor to discard the assessee's actual activity, which is evidenced by record. Further, it has been demonstrated by the assessee that it was mainly solitary transaction of the assessee to hold the agriculture land in question as fixed asset, carry out agriculture operation thereon and sell it as agriculture land. We do not find any facts on record to hold any other view. Thus, we are unable to subscribe the view that assessee was engaged in adventure in the nature of trade.
5.5. Coming to the nature of agriculture land and its geography, it has not been disputed that the land in question was situated outside the specified municipal limits and as per the prescription of sec. 2(14) it does not amount to an asset. In order to come under the cane of capital gains, the law has first to qualify as an asset as per I.T. Act. The income arising from the sale of agriculture land falls u/s 2(14)(iii) read with sec. 10(1) and is to be treated as agriculture income. The interpretation put by the lower authorities is out landish and based on surmises and conjectures, divorced from the actual facts.
5.6. Apropos the lower authorities holding that the assessee was into adventure in the nature of trade, therefore, the nature, geography and activity of the land should be ignored, the statutory provisions should be given a go bye and assessee is to be some how held as engaged in the adventure in the nature of trade and taxed on exempt income. In our view, there is no enabling provision in the income tax prescribing that even if the assessee's income is exempt by a provision, then it can be forcibly brought into the tax net by assuming the assessee's activity to be adventure in the nature of trade. It is a settled position by Hon'ble Delhi High court in Delhi Apartments Pvt. Ltd. and DLF United Ltd. (supra) that real estate companies can also hold separate port folio of land as stock in trade and as investment port folio; the sale of investment portfolio is always taxed as capital gains. Thus, assuming worst against assessee, even if it is inferred that it has carried on business activity so long as it holds specified agriculture land in terms of sec. 2(14) i.e. not being an asset; its transfer will neither attract capital gain tax nor can be treated as business income. In view of the foregoing and respectfully following the case law cited by the assessee we have no hesitation but to hold that the assessee's gains were profits from sale of specified agriculture land which does not come within the definition of asset as prescribed u/s 2(14) and by virtue of sec. 2(1A)(a) read with sec. 2(14)(iii) r.w.s. 10(1) the assessee's gains from sale of such agriculture land are exempt income. Thus, assessee succeeds on all the counts.
6. In the result, assessee's appeals for both the assessment years in question are allowed.
(Order pronounced in open court on 27.12.2013)
2014-TIOL-75-ITAT-MUM
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'G' MUMBAI
CO No.204/M/2013
Assessment Year: 2003-2004
ITA No.879/M/2011
NIKKI AGARWAL
601, A-WING, AURUS CHAMBERS
BEHIND MAHINDRA TOWERS
S S AMRUTWAR MARG
WORLI, MUMBAI-400013
PAN NO:AEIPA3109A
Vs
ASSTT COMMISSIONER OF INCOME TAX
CENTRAL CIRCLE-32, MUMBAI
ITA No.879/M/2011
Assessment Year: 2003-2004
ASSTT COMMISSIONER OF INCOME TAX
CENTRAL CIRCLE-32, MUMBAI
Vs
NIKKI AGARWAL
720/A-5, LOK BHARTI CHS LTD
MAROL MAROSHI ROAD, MAROL
ANDHERI (E), MUMBAI-400059
ITA No.8915/M/2010
Assessment Year: 2004-2005
NIKKI AGARWAL
C/O M/s RAVI & DEV
CHARTERED ACCOUNTANTS
377-B, FIRST FLOOR, JAGANNATH
SHANKER SETH MARG, CHIRA BAZAR
MUMBAI-400002
Vs
ASSTT COMMISSIONER OF INCOME TAX
CENTRAL CIRCLE-32, MUMBAI
ITA No.8916/M/2010
Assessment Year: 2005-2006
NIKKI AGARWAL
C/O M/s RAVI & DEV
CHARTERED ACCOUNTANTS
377-B, FIRST FLOOR, JAGANNATH
SHANKER SETH MARG, CHIRA BAZAR
MUMBAI-400002
Vs
ASSTT COMMISSIONER OF INCOME TAX
CENTRAL CIRCLE-32, MUMBAI
ITA No.880/M/2011
Assessment Year: 2005-2006
ASSTT COMMISSIONER OF INCOME TAX
CENTRAL CIRCLE-32, MUMBAI
Vs
NIKKI AGARWAL
C/O M/s RAVI & DEV
CHARTERED ACCOUNTANTS
377-B, FIRST FLOOR, JAGANNATH
SHANKER SETH MARG, CHIRA BAZAR
MUMBAI-400002
D Karunakara Rao, AM And S T M Pavalan, JM
Date of Hearing: December 6, 2013
Date of Decision: January 22, 2014
Appellant Rep by: Shri Devendra Mehta
Respondent Rep by: Shri Pritam Singh, DR
Income Tax Sections - 14A, 68, 132/132A, 143(1), 143(2), 143(3), 153A - Whether when there are no incriminating materials found during the search, no addition can be made in the case of completed assessment - Whether the disallowance made u/s 68 is to be treated as uncalled for as the same is beyond the scope of section 153A / 153C of the Act.
A) Assessee is an individual. A search and seizure action was carried out at the office and residential premises of the assessee. AO made addition on account of 'sale proceeds on shares of Database Finance Ltd', which are otherwise accounted in the books of accounts, towards unexplained expenditure relating to the long term capital gains on sale of the same shares.
CIT (A) confirmed the additions made by AO. Assessee questioned the addition and the validity of the assessment u/s 153A. Assessee contended that no seized material was used for making the additions either on account of inflated investment or on account of disallowance u/s 14A of the Act. Considering the fact that no incriminating material was found from the assessee's premises during the search action, the notice u/s 153A was not required to be issued. Even it is issued validly, no addition can be made in the cases of completed assessments without the support of the incriminating material issued or acquired in search action u/s 132 / 132A of the Act.
Revenue contended that the first proviso to section 153A empowers the AO to issue notice u/s 153A of the Act in respect of the 6 AYs prior to the assessment year in which the search took place. The relevance of the existence of incriminating material is not provided in the said provisions. There should not be any difference qua the completed assessments and the abated assessments for all six AYs in so far as the powers of the AO is concerned and make additions either based in the incriminating material or otherwise.
Assessee contended that in case of completed assessments, AO is empowered to made additions only based on the incriminating materials and not otherwise. For making the routine additions, which are normally done in the regular assessments, the completed assessment need not be disturbed by invoking the provisions of section 153A of the Act if not for reiterating the returned or assessed income as the case may be.
B) AO made addition u/s 68 on account of 'unexplained gifts received by the assessee'.
C) AO made disallowance u/s 14A r.w.r. 8D. Assessee contended that the issue being applicability of section 14A, the AO erroneously applied the Rule 8D for the assessment year in question which actually applicable form the assessment year 2008-09. The issue may be sent back to AO for fresh adjudication.
After hearing both the parties, the ITAT held that,
A) ++ there is no incriminating material before the AO to support the above additions. The valuation report, which is garnered by the authorities constitutes mere estimates and the provisions of section 132 is not required to obtain such report from the DVO. AO has not used even the said valuation report and the AO disallowed what is reported in the books. It is certainly not based on either the unaccounted books of accounts of the assessee or books not produced to the AO earlier or the incriminating material gathered by the investigation wing of the revenue. Thus, such assessments or additions are unsustainable in law. In views of the judgement of the Rajasthan High Court in the case of Jain Steels (India) Ltd. the additions made by the AO in the absence of any incriminating material are not sustainable;
B) ++ the disallowance made u/s 68 is uncalled for as the same is beyond the scope of section 153A / 153C of the Act. No incriminating material in support of the additions made u/s 68 of the Act was brought to our notice by the Revenue. Therefore, the addition made u/s 68 of the Act is deleted;
C) ++ considering the factual matrix of the case as well as the prayer of the assessee for remanding, we proceed to set aside the ground raised by the assessee for fresh adjudication considering the judgment of Godrej & Boyce Mfg. Co. Ltd. and adopting the "reasonable basis" and after rejecting the basis adopted by the assessee.
Assessee's appeal partly allowed
Case laws followed:
Shri Govind Agarwal vs. ACIT vide ITA Nos.3389/M/2011 (AY: 2002-2003) and ITA No. 3390/M/2011 (AY: 2004-2005)
Godrej & Boyce Mfg. Co. Ltd. vs. DCIT (2010-TIOL-564-HC-MUM-IT) ORDER
Per: Bench:
There are five appeals under consideration. Out of these five appeals, there is a couple of cross appeals for the AYs 2003-04 and 2005-2006 and appeal ITA No. 8915/M/2010 is filed by the assessee for the AY 2004-2005. All these five appeals are filed against the common order of the CIT (A)-41, Mumbai dated 25.11.2010. Since, the issues raised in all these 5 appeals are identical, therefore, for the sake of convenience, they are clubbed, heard combinedly and disposed of in this consolidated order.
2. At the outset, Shri Devendra A. Mehta, Ld Counsel for the assessee brought our attention that there is a delay of 51 days in filing the Cross Objections before the Tribunal. In this regard, Ld Counsel brought our attention the affidavit dated 3.10.2013 filed by him and read out the relevant contents of the same which read as under:
"i)……
ii) Shri Nand Kishor Katwankar is office assistant working in my office since 1985. He is usually assigned the work of submitting and collecting documents from the Income Tax Department of various clients. He collected the grounds of appeal of Ms. Nikki Agarwal for the AY 2003-2004.
iii) Usually, the documents collected from Income Tax Department are placed before me for reviews. However, as I was out of town, he kept the grounds of appeal in relevant file but inadvertently, did not bring it to my notice for further action.
iv) As soon as the file was put up for before me for preparation of written submission, I noticed that the Cross Objection against the Revenue's appeal were not prepared and filed before the Hon'ble Tribunal.
v) I reiterate that the above mistake was a bona fide mistake and an inadvertent lapse on our part and assessee should not be allowed to suffer because of it."
2.1. In this regard, Ld Counsel for the assessee relied on the judgment of the Hon'ble Supreme Court in the case of Collector, Land Acquisition vs. Mst. Katiji & Ors [1987] 167 ITR 471 = (2002-TIOL-444-SC-LMT); another judgment of the Apex Court in the case of Concold of India Insurance Co. Ltd vs. Smt. Nirmala Devi, 118 ITR 507 and some other decisions of the Hon'ble High Courts of which are relevant for the proposition that "the delay in filing of appeal due to lapse on part of assessee's Counsel who was looking after tax matters, is a sufficient cause for condonation of delay." 2.2 On hearing the above submissions of the Ld Counsel and after hearing the Ld DR on this issue, we find that there is a reasonable and sufficient cause for delay of 51 days in filing the Cross Objections before the Tribunal, considering the same, we condone the delay and proceed to adjudicate the appeal on merits.
3. Firstly, we shall take up the cross appeals for the AY 2003-2004. In these two cross appeals, CO No. 204/M/2013, is filed by the assessee and the grounds raised in this appeal read as under:
"1. The Ld CIT (A) erred in law and facts in holding that the AO was empowered to make additions in the order passed u/s 153A of the Act in respect of completed assessment even in the absence of incriminating material found as a result of search.
2. The ACIT erred in law and as well as in the facts in making addition of Rs. 34,87,500/- on account of sale proceeds of shares of Database Finance Ltd and Rs. 1,74,375/- on account of unexplained expenses relating to long term capital gain on sale of shares and Database Finance Ltd in the order passed u/s 153A even in the absence of incriminating material found as a result of search."
4. Briefly stated relevant facts of the case are that the assessee is an individual. The assessee's income consists of interest, capital gains and other miscellaneous income. A search and seizure action was carried out at the office and residential premises of the assessee on 3.1.2008. In connection with the search action u/s 132 and in response to the notice u/s 153A, assessee filed the return of income declaring the total income of Rs. 90,390/- against the original return of income filed on 26.11.2003. Assessment was completed u/s 153A r.w.s. 143(3) of the Act after determining the assessed income of Rs. 37,52,20/-. Assessment has reached finality and the AO made addition on account of 'sale proceeds on shares of Database Finance Ltd', which are otherwise accounted in the books of accounts, towards unexplained expenditure relating to the long term capital gains on sale of the same shares. Matter travelled to the first appellate authority.
5. During the proceedings before the, after considering the submissions made by the assessee, CIT (A) confirmed the above additions made by the AO. Aggrieved with the above decision of the CIT (A), the assessee is in appeal before the Tribunal by raising the above mentioned grounds.
6. During the proceedings before us, Shri Devendra Mehta, ld Counsel for the assessee raised the above mentioned grounds and questioning the additions and the validity of the assessment u/s 153A of the Act. In this regard, Ld Counsel for the assessee submitted various arguments before us, which are common to the ones already mentioned in detail and adjudicated by us in connection with the appeals filed in the case of Shri Govind Agarwal vs. ACIT vide ITA Nos.3389/M/2011 (AY: 2002-2003) and ITA No. 3390/M/2011 (AY: 2004-2005) vide order dated 10.01.2014. For the sake of completeness of this order, relevant port ions of the said order of the Tribunal (supra) are reproduced here under:
"6. Before the Tribunal: During the proceedings before us, Ld Counsel for the assessee brought our attention to the contents of the relevant assessment order passed u/s 153A r w s 143(3) of the Act and demonstrated that no seized material was used for making the additions either on account of inflated investment or on account of disallowance u/s 14A of the Act. Fairly referring to the proceedings during the search action, Ld Counsel mentioned that it is the valuation report of the DVO which was garnered by the office of the DIT (inv) during the search action. This was the only material collected by the Revenue in the search, which was available for the AO both for issuing the notice as well as for making additions. He reasoned that the Valuation report can as well be obtained during the normal assessment or reassessment proceedings and there is no need for invoking the provisions of section 153A of the Act in this regard.
7. Further, Ld Counsel has two fold arguments to make before us i.e., (i) considering the fact that no incriminating material was found from the assessee's premises during the search action, the notice u/s 153A was not required to be issued. Even it is issued validly, no addition can be made in the cases of completed assessments without the support of the incriminating material issued or acquired in search action u/s 132 / 132A of the Act. In this regard, Ld Counsel relied on the Rajasthan High Court judgment in the case of Jai Steel (India) Ltd (supra); Coordinate Bench decisions in the case of Pratibha Industries Ltd (supra) and Gurinder Singh Bawa (supra) and Special Bench decision in the case of All Cargo Global Logistics Ltd vs. DCIT - 2012-TIOL-391-ITAT-MUM-SB. Ld Counsel argued in respect of the completed assessment, such as the present one, assessment will be made only on the basis of books of accounts or other documents not produced in the original assessment but in the course of the search and undisclosed income or property discovered in the course of the search. None of these conditions are met by the Revenue before issuing of the notice u/s 153A of the Act or before making additions. Therefore, as per the Ld counsel, the impugned notice is invalid one and additions should be deleted. Fairly referring to the Delhi High Court judgment in the case of CIT vs. Anil Kumar Bhatia vide ITA No.1626/2010, dated 7.8.2012 (Del.) = (2012-TIOL-641-HC-DEL-IT), Ld Counsel mentioned that this issue regarding the addition to be made in a completed assessment where no incriminating material was found, was left open. Para 23 of the said judgment is relevant in this regard. Further, relying on the order of the ITAT, Jodhpur in the case of Dinesh Tabacco Industries vs. DCIT vide ITA No.184 & 185/JU/2011 dated 22.2.2013, Ld Counsel reiterated that the notice becomes invalid when there is no incriminating material. Similar view was repeated by the Ld Counsel by relying on the decision of the ITAT, Kolkata in the case of LMJ International Ltd vs. DCIT, 119 TTJ 214 (Kol). The said decision of the of ITAT Kolkata (supra) is relevant for the proposition that where noting incriminating was found in course of search relating to assessments, assessment for such years cannot be disturbed. He culled out many other decisions which are as under. b) Meghmani Organics Ltd vs. DCIT [2010] 36 DTR 187 (Ahd)
c) Suncity Allys Pvt. Ltd. vs. ACIT [2009] 124 TTJ 674 (Jodh)
e) Shri Deepen A Parekh vs. ACIT [ ITA No.467/Mum/2011]
Further, Ld Counsel filed a copy of the order of the Tribunal in the case of Govind Agarwal HUF vs ACIT vide ITA No.217/Mum/2011 (AY 2008-2009) which is a part of the assessee's group and where notice u/s 153C was issued. Ld Counsel mentioned that the Tribunal has upheld the invalidity of such notice and deleted the additions made on account of gift emanated from the books of accounts.
(ii) The second aspect of his arguments relates to the treatment to be given to the DVO's report, if the said report constitutes any incriminating material. Mentioning that the Revenue did not consider the same as a incriminating material for the purpose of issuance of notice u/s 153A of the Act, Ld Counsel mentioned that the office of DIT (Inv) referred the impugned house property (Mangaldeep at Udaipur) to the valuation cell for identifying the market value of the property, not the cost of acquisition. (Aarch Consulatants & Valuers, Mumbai) The valuers submitted a report on 16.2.2008 determining the value of the property at Rs. 3,67,09,000/- as the fair market value as against the disclosed amount of Rs. 1.56 Crs by the assessee in the books of accounts as on 31.3.2007. It is the submission of the assessee that such reports of the DVO ignored by the DIT office during the search proceedings cannot constitute incriminating material and the AO should not rely on such reports for issuance of notice u/s 153A of the Act and for making additions u/s 143(3) r.w.s 153A of the Act. As per the Ld Counsel such reports are mere estimates and the additions are not sustainable in the search assessment. In this regard, Ld Counsel relied on the judgment of the Hon'ble Supreme Court in the case of Assistant Commissioner of Income-tax v. Dhariya Construction Co, 328 ITR 515 which is relevant for the proposition that "having examined the records, we find in that case Department sought reopening of the assessment based on the opinion given by the DVO. The opinion given by the District Valuation Officer is not per se information for the purpose of reopening an assessment under section 147 of the Income-tax Act, 1961". AO has to apply his mind and form a belief there from. The Department was not entitled to reopen the concluded assessment based on such DVO's report. Such reports are mere an opinion of the valuer, the third party and never can be equated to the opinion of the AO and relied on the Guwahati High Court judgment in the case of Bhola Nath Majumdar v. Income-tax Officer 221 ITR 608 and the judgment of Hon'ble Rajasthan High Court in the case of Brig. B. Lall v. Wealth-tax Officer 127 ITR 308. In these cases, the concealment proceedings were quashed on this basis. Referring to the another judgment of Hon'ble Delhi High Court in the case of CIT vs. Suraj Devi, 328 ITR 604 and in the case of CIT vs. Naveen Gera [2011] 328 ITR 516 = (2010-TIOL-596-HC-DEL-IT), Ld Counsel mentioned that the additions cannot be made on the basis of the valuation report of the DVO in the absence of any incriminating material. The burden vests on the Revenue in such cases. Referring to the facts of the present case, Ld Counsel mentioned that the assessee disclosed investment of Rs. 46,13,007/- on the house as on 31.3.2002 whereas the AO came to the conclusion that the land value of Rs. 14.8 lakhs is the only investment on the house, no construction was undertaken by this date. AO came to such conclusion for assessee's failure to furnish the supporting bills to demonstrate the fact of part construction of the impugned residential property. It is a case of mere presumption and the additions are unsustainable on such presumption. AO has no evidence to infer that the assessee's figure of Rs. 46,13,007/- is bogus and Rs. 14.8 lakhs is the only investment on the said property. In fact, Rs. 14.8 lakhs is the cost of the land plots on which the house was constructed and assessee spent the balance of Rs. 31,33,007/- in construction of the house. Therefore, the proceedings initiated u/s 153A is required to be quashed and the addition based on the surmises of the AO should not be sustained. 8. On the other hand, Ld DR relied heavily on the order of the AO and the CIT (A). In connection with the legal issue regarding the validity of the notice u/s 153A of the Act, Ld DR filed a copy of the order of the Tribunal in the case of Scope (P) Ltd vs. DCIT [2013] 33 Taxmann.com 167 (Mumbai Trib.) dated 20.3.2013 and stated that under the provisions of section 153A of the Act, AO is bound to proceed for all the 6 AYs immediately preceding AY relevant to the previous year in which search was conducted even if there is no incriminating material to indicate any undisclosed income during the original assessment completed u/s 143(3) for any year. This is the case where regular assessment u/s 143(3) was completed on 7.11.2007 prior to the date of search on 15.11.2007 and the addition was made u/s 14A of the Act and not based on any seized material found during the search. Though such disallowance was deleted for other reasons but the validity of the notice was upheld in this case. CIT-DR also brought our attention to the judgment of Andhra Pradesh High Court in the case of Gopal Lal Bhadruka vs. DCIT [2012] 27 Taxmann.com 167 (AP) = (2012-TIOL-357-HC-AP-IT) in his favour. Of course, this is the case where assessments completed u/s 158BD of the Act and not u/s 153A as in the present case. Further, Ld DR also filed the judgment of Delhi High Court in the case of Madugula Venu vs. DIT [2013] 29 Taxmann.com 200 (Delhi), which is relevant for the proposition that the notice issued u/s 153A calling upon assessee to file the returns for earlier 6 AYs cannot be challenged on the ground that it would cause certain degree of hardship to assessee. Ld DR has brought our attention to para 7 of the said judgment of the Delhi High Court and mentioned that "the section couched in mandatory language which implies that once there is a search, the AO has no option but to call upon the assessee to file the returns of the income for the earlier six assessment years. It is not merely the undisclosed income that will be brought to tax in such assessments, but the total income of the assessee, including both the income earlier disclosed and income found consequent to the search, would be brought to tax. The normal provisions relating to inquiry, affording opportunity etc., which are provided for in sections 142, 143 etc are to be followed by the assessing officer". Of course, the above explanation of the provisions does not refer to the present debate relating to the "incriminating material" based additions in the cases of completed assessments.
Decision of the Tribunal:
9. We have heard both the parties on the legal issue relating to the sustainability or validity of the additions made in the assessments made u/s 153A read with section 143(3) of the Act in respect of completed assessments.
10. The stand of the Revenue is that the first proviso to section 153A empowers the AO to issue notice u/s 153A of the Act in respect of the 6 AYs prior to the assessment year in which the search took place. The relevance of the existence of incriminating material is not provided in the said provisions. As per the revenue there should not be any difference qua the completed assessments and the abated assessments for all six AYs in so far as the powers of the AO is concerned and he is empowered to issue notice u/s 153A and make additions either based in the incriminating material or otherwise.
11. Per contra, the case of the assessee is that the AO may be empowered to issue notices for all the six AYs in view of the cited decisions i.e.? Jai Steel (India) Ltd (supra), Scope (P) Ltd (supra) etc. However, in case of completed assessments, AO is empowered to made additions only based on the incriminating materials and not otherwise Jai Steel (India) Ltd (supra), LMJ International Ltd (supra), Gurinder Singh Bawa (supra) etc. For making the routine additions, which are normally done in the regular assessments, the completed assessment need not be disturbed by invoking the provisions of section 153A of the Act if not for reiterating the returned or assessed income as the case may be. Judgment in the case of Jai Steel (India) Ltd (supra) supports the above legal proposition. As per the assessee, regarding the cases of abated assessments, considering the scheme of assessments u/s 153A, per contra, even the routine additions are done in these assessments.
12. We have heard the parties and their divergent stands on the legal issue and the validity of the instant assessment/reassessment with the routine additions u/s 68 and section 14A of the Act based on the accounted transactions. The instant case for the AY 2002-03 deals with the case of disturbing the 'completed assessment'. Earlier the assessment was completed u/s 143(1) of the Act. Completeness of the summary assessment is considered and held in favour of the assessee vide many judgments cited above. In the assessment u/s 153A, the AO made (i) Addition u/s 68 on account of artificially inflated investment in house duly disclosed in the balance sheet of the assessee Rs.31,33,070/-; and (ii) disallowance u/s 14A: Rs. 23,31,469/-. Admittedly, there is no incriminating material before the AO to support the above additions. The valuation report, which is garnered by the authorities constitutes mere estimates and the provisions of section 132 is not required to obtain such report from the DVO. As such, for making aforesaid additions of Rs 31,33,070/-, AO has not used even the said valuation report and the AO disallowed what is reported in the books. Similar is the case with the additions u/s 14A of the Act. Therefore, undisputedly, the impugned quantum additions are made merely based on the entries in the accounted books and certainly not based on either the unaccounted books of accounts of the assessee or books not produced to the AO earlier or the incriminating material gathered by the investigation wing of the revenue. Considering the legal propositions place before us by the assessee's counsel, we are of the opinion, such assessments or additions are unsustainable in law.
13. For the sake completeness of the assessee, we insert here some of the extracts from relevant judgments and they are:
A. [2013 36 taxmann.com 523 (Rajasthan) in the case of Jai Steel (India) vs. ACIT - From Held portion: ….The requirement of assessment or reassessment under the said section has to be read in the context of sections 132 or 132A, inasmuch as, in case nothing incriminating is found on account of such search or requisition, then the question of reassessment of the concluded assessments does not arise, which would require more reiteration and it is only in the context of the abated assessment under second proviso which is required to be assessed.
……From a plain reading of the provision along with the purpose and purport of the said provision, which is intricately linked with search and requisition under sections 132 and 132A, it is apparent that:
(a) the assessments or reassessments, which stands abated in terms of second proviso to section 153A, the Assessing Officer acts under his original jurisdiction, for which, assessments have to be made;
(b) regarding other cases, the addition to the income that has already been assessed, the assessment will be made on the basis of incriminating material and
(c) in absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made.
…..The argument of the assessee that the Assessing Officer is also free to disturb income, expenditure or deduction de hors the incriminating material, while making assessment under section 153A is also not borne out from the scheme of the said provision which as noticed above is essentially in context of search and/or requisition.
Para 26 of the Judgment: The plea raised on behalf of the assessee that as the first proviso provides for assessment or reassessment of the total income in respect of each assessment year falling within the six assessment years, is merely reading the said provision in isolation and not in the context of the entire section. The words 'assess' or 'reassess' have been used at more than one place in the Section and a harmonious construction of the entire provision would lead to an irresistible conclusion that the word 'assess' has been used in the context of an abated proceedings and reassess has been used for completed assessment proceedings, which would not abate as they are not pending on the date of initiation of the search or making of requisition and which would also necessarily support the interpretation that for the completed assessments, the same can be tinkered only based on the incriminating material found during the course of search or requisition of documents.
B. [2012] 28 Taxmann.com 328 (Mumbai -Trib.) in the case of Gurinder Singh Bava vs. DCIT
…. Whether since assessment under section 153A was passed by Assessing Officer on basis of material available in return of income and there was no reference to any incriminating material found during search and since no assessment was abated, assessment under section 153A was to be quashed being made without jurisdiction available under section 153A - Held, yes [Para 6.2] [In favour of assessee]
Para 6.1 of the Order: The Special bench in the case of Alcargo Global Logistics Ltd. (supra), has held that provisions of section 153A come into operation if a search or requisition is initiated after 31.5.2003 and on satisfaction of this condition, the AO is under obligation to issue notice to the person requiring him to furnish the return of income for six years immediately preceding the year of search. The Special Bench further held that in case assessment has abated, the AO retains the original jurisdiction as well as jurisdiction under section 153A for which assessment shall be made for each assessment year separately. Thus in case where assessment has abated the AO can make additions in the assessment, even if no incriminating material has been found. But in other cases the Special Bench held that the assessment under section 153A can be made on the basis of incriminating material which in the context of relevant provisions means books of account and other documents found in the course of search but not produced in the course of original assessment and undisclosed income or property disclosed during the course of search. In the present case, the assessment had been completed under summary scheme under section 143(1) and time limit for issue of notice under section 143(2) had expired on the date of search. Therefore, there was no assessment pending in this case and in such a case there was no question of abatement. Therefore, addition could be made only on the basis of incriminating material found during search.
Para 58 of SB decisions: 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.
14. Thus, in case of the completed assessments either u/s 143(1) or 143(3), the above extracts are uniform in advocating against making additions in routine manner in the assessments made u/s 153A of the Act when there is no incriminating material gathered in the search action. Statutory notice u/s 153A of the Act can also be issued to reiterate the returned income or for making additions based on the incriminating material or unproduced books of account. Otherwise, additions made in routine matter as in the present appeal are not sustainable. Further, for the sake completeness of the order, we have perused the orders/judgments relied upon by Ld DR for the revenue and found they are distinguishable on facts for one reason or other. To start with, we have perused the judgment of Honble Hon'ble Delhi High Court in the case of Madugula Venu (supra) and find that, though explained the provisions in plain language, it does not dealt with the relevance or factum of incriminating material. Further, the judgment of Andhra Pradesh High Court in the case of Gopal Lal Bhadruka (supra) is not on the notices issued u/s 153A of the Act and the same is pronounced in the context of the notice u/s 153C of the Act. Further, also, the Coordinate Bench decision in the case of Scope (P) Ltd (supra) has granted relief to the assessee though the notice issued u/s 153A of the Act was upheld. However, this order has not considered the then existing decision of the Coordinate Bench decision in the case of Pratibha Industries Ltd (supra) which is relevant for the proposition that the completed assessment may not be disturbed in the absence of any incriminating material specific to the assessee. In fact, all these judgments take spirit from the Special Bench decision in the case of All Cargo Global Logistics Ltd (supra), which is relevant for the proposition that the assessment u/s 153A will be made on the basis of incriminating material such as books of accounts, other documents found in the search but not produced in the course of original assessment and undisclosed income or property discovered in the course of the search.
15. We also find that the CIT(A) made a reference to the incriminating material, which yielded disclosure of some undisclosed income. But, on perusal of the documents, we find that the CIT(A) entered into an error zone and the disclosure is only Rs 5 crores in this case and the same relates to the lands deals. In principle this disclosure has nothing do with the impugned additions u/s 68 or 14A of the Act. In the instant case, specific to the assessee, no incriminating material with the details was referred either in the assessment order or in the order of the CIT (A) for making the impugned additions. As per the cited judgment in the case of Jai Steels Ltd, supra, the assessment u/s 153A is only for reiteration rather than making any additions in a routine manner without the strength of the incriminating materials. Similar view was taken up by the ITAT, Delhi 'H' Bench, in the case of V.K. Fiscal Services P Ltd vs. DCIT vide ITA Nos.5460 to 5465/Del/2012 (www.itatonline.org). In this regard, para 13 from the said order of the ITAT Delhi Bench (supra) is relevant and the same reads as under: "13. Applying the above case laws to the facts of the case, we have to necessarily quash the assessment proceedings for AY 2004-2005, 2005-06, 2007-08, 2008-09 on the following grounds.
(a) No books of accounts belonging to the assesse were found and seized in the premises of the other person. What was found was in the hard disk was only a confirmation of account that an attached annexures. Such documents cannot be said to be books of accounts or documents belonging to the assessee.
(b) The Revenue has not produced the record of the searched person to demonstrate that satisfaction was recorded during the course of assessment proceedings in the case of M/s. Global Reality Ventures P. Ltd. On the date of recording of satisfaction, first notice u/s 153(c) was issued. There is no indication whatsoever, that the assessment proceedings in the case of Global Reality Ventures P. Ltd were in progress or not, at the point of time and that the AO during the course of that proceedings recorded this satisfaction. The procedure contemplated under the Act was not followed.
(c) The satisfaction is recorded on 23rd July, 2010. The relevant AY would be 2011- 12. The six preceding AYs relevant to this AY would be 2005-06 / 2006-07 / 2007-08 / 2008-09 / 2010-11. Thus, the notice issued u/s 153'C' for the AY 2004- 05 is clearly barred by limitation.
(d) Even otherwise, as there is no incriminating material found during the course of search, the AO should have dropped the proceedings initiated u/s 153'C' of the Act.
(e) As there is no dispute that no assessment or reassessment has abated in this case for the reason, that the date of search, the date of search which in the case on hand would be 25.3.2010, by virtue of First Proviso to section 153'C', i.e., the date of passing an order u/s 127 transferring the cases of the assessee to the present Assessing Officer no assessment or reassessment was pending. When no assessment has abated, the question of making any addition or making disallowance which are not based on only material found during the search is bad in law."
16. In these circumstances, we have no doubt about the absence of any seized material which are incriminating in nature to back the additions u/s 68 or 14A o the Act made in the assessment made u/s 153A of the Act for the AY under consideration. Regarding the DVO's report gathered during the search action, we find that the report suffers from certain deficiencies qua cost of construction of residential property and the land obtained thereto. The said report constitutes an opinion of the third party which cannot be used by the AO for making additions and such additions, if any, cannot be sustained legally. As such, we find that the AO has not used the said report of the DVO also for making additions of Rs. 31,33,007/-, the difference between accounted amount of Rs. 46,13,007/-, claimed as the amount spent on construction of house and acquisition of land as on 31.3.2002 minus Rs. Rs. 14.8 lakhs, the investment made on the land plots. AO made addition for assessee's failure to provide evidences / bills in support of the claim of expenditure on the construction. It the presumption of the AO that the plots since acquired only by July 2001, the assessee would not have spend Rs. 31,33,007/- by 31.3.2002. This is merely a presumption rather conclusion based on any evidences. Such additions are unsustainable in law in the assessments made u/s 153A r.w.s 143(3) of the Act.
17. Rajasthan High Court judgment in the case of Jai Steel (India) (supra), vide para 18, it is categorically mentioned that "the requirement of assessment or reassessment under the said section (153A) has to be read in the context of sections 132 or 132A of the Act, inasmuch as, in case nothing incriminating is found on account of search or requisition, then the question of reassessment of the concluded assessments does not arise, which would more reiteration………….". Thus, the judgment of Hon'ble High court in the case of Jai Steel Ltd, supra and above decisions of the Tribunal are categorical in concluding that, in case of the concluded assessments like the present one, the additions are made only based on the incriminating material discovered during the search action. The facts of the Jai Steel Ltd (supra) are identical to the present one i.e. AO made additions by reassessing u/s 153A on the completed assessment u/s 143(1) of the Act. Thus, considering the judgment in the case of the Jai Steel Ltd (supra), the arguments on the legal issue raised before us stands covered. Therefore, considering the Rajasthan High Court's judgment in the case of Jai Steels Ltd, supra, we have no difficulty in (i) upholding the issue of notice u/s 153A of the Act and (2) in disapproving the making of the impugned additions u/s 68 and 14A of the Act, which are not backed by the incriminating materials. In the absence of incriminating material, the role of the AO is only to reiterate the returned income filed in response to the notice u/s 153A of the Act. Accordingly, in substance, the common legal issue raised in the grounds for both the appeals of the assessee (ITA NO 3389 & 3390/M/2011) is allowed.
18. Regarding other two grounds on the merits of the additions raised in both the appeals, considering the relief granted to the assessee on the legal ground, we find the adjudication is only of academic importance. Therefore, we dismiss the same academic.
19. In the result, both the appeals of the assessee are partly allowed."
7. From the above, it is evident that the arguments relating to the validity of the notice u/s 153 are disapproved. Consequently, we confirm the validity of the notice issued u/s 153A of the Act. However, considering the judgment of the Rajasthan High Court judgment in the case of Jai Steel (India) Ltd and other orders of the Tribunal (supra), we are of the opinion that the additions made by the AO in the absence of any incriminating material are not sustainable. Accordingly, additions are deleted and the ground nos.1 & 2 raised by the assessee are allowed.
8. In the result, Cross Objection of the assessee is allowed.
I.T.A. No.879/M/2011 (AY: 2003-2004)
9. This appeal filed by the Revenue on 31.01.2011 is against the order of the CIT (A)-41, Mumbai dated 25.11.2010 for the AY 2003-2004.
10. In this appeal, Revenue raised the following grounds which read as under:
"i) Whether, on the facts and in the circumstances of the case, the Ld CIT (A) has erred in admitting and accepting new argument of assessee during the appellate proceedings that the transaction of purchase of shares were off market transactions without providing any opportunity to the AO.
ii) Whether on the facts and in the circumstances of the case, the Ld CIT (A) has erred in treating the purchase as well as the sale transactions of the shares of the M/s. Database Financial ltd as genuine without taking into account the following facts.
a. The purchase as well as sale of the said shares were admitted on oath u/s 131 dated 3.1.2008 and u/s 132(4) dated 4.2.2008 on the behalf of the assessee, as to be non genuine and tax there upon was also paid by the assessee.
b. The authenticity of the documents related to purchase and sale of the said shares is not confirmed by the broker or any other party and these very documents were admitted to be created for the purpose of the "managed capital gain" by the assessee / asessee's representative u/s 131 and 132(4) of the Act.
c. The assessee had purchased the said shares on price before split even after the split of the shares had taken place.
d. The sale price of shares were manipulated and the activity of the company and its balance sheet does not show that the share of face value of Rs. 1 should be sold at an average price of Rs. 85.06".
iii) Whether the Ld CIT (A) has erred in relying on the decision of Hon'ble Jodhpur Tribunal in the case of ACIT vs. Chandresh Kumar Maheswari 120 TTJ 132 Jdh as the facts are distinguishable?
iv) Whether on the facts and in the circumstances of the case the Ld CIT (A) was justified in deleting the addition of Rs. 1,74,375/- made on account of unexplained expenses incurred by the assesse for arranging the bogus long term capital gain.
v) whether on the facts and in the circumstances of the case and in law, the Ld CIT (A) was justified to accept the genuineness of the questionable share transactions without taking into account the ratio decidendi laid down in the case of Somnath Maini vs. CIT [2008] 306 ITR 414 (P &H) which has under similar facts and circumstances held that the burden to prove the genuineness of such transactions was primarily on the assessee and mere leading of evidence by the assessee that the transactions were genuine cannot be treated as conclusive."
11. The issues raised by the Revenue in this appeal relates to the additions made by the AO on account of 'sale proceeds on shares of Database Finance Ltd', which are otherwise accounted in the books of accounts, towards unexplained expenditure relating to the long term capital gains on sale of the same shares. No incriminating material suggesting the bogus nature of the transactions is brought to our notice by the Revenue. Considering the fact that we have already deleted the additions made by the AO in this regard, while adjudicating the appeal CO No.204/M/2013 in the above paragraphs of this order. We rely on the judgment in the case of Jai Steel (India) (supra) too. Therefore, the adjudication of these grounds becomes academic. Accordingly, grounds raised by the Revenue are dismissed as academic.
12. In the result, appeal of the Revenue is dismissed.
I.T.A. No.8915/M/2010 (AY: 2004-2005) (By assessee)
13. This appeal filed by the assessee on 21.12.2010 is against the order of the CIT-41, Mumbai dated 25.11.2010 for the AY 2004-2005.
14. In this appeal, assessee raised the following grounds which read as under:
"1.0. the order passed by the Ld CIT (A) confirming the assessment order u/s 143(3) r.w.s. 153A of the Act is both bad-in-law and bad-in-facts.
1.1. In doing so, he did not appreciate that no addition could have been made while completing assessment u/s 153A of the Act in the case of completed assessments if no undisclosed income was determinable from the material found as a result of search.
2.0 The ld CIT (A) erred in law as well as the facts, in confirming the addition u/s 68 of the Act on account of unexplained gifts received by the asessee during the year from the following family members of Shri B.R. Agarwal.
| Name of the Donor | Amount Rs |
| Shri Ashish Agarwal | Rs.8,00,000 |
| Shri Preeti Agarwal | Rs.10,00,000 |
15. Ground No.1 raised in this appeal is identical to that of the ground raised by the assessee vide CO No. 204/M/2013 for the assessment year 2003-2004, which is adjudicated by us in the above paragraphs of this order. While adjudicating the said appeal, we have already decided the issue in favour of the assessee. Considering the same and following the principles of consistency, ground no.1 of the instant appeal should also be decided in favour of the assessee. Accordingly, the legal issue involved in ground no.1 is allowed in favour of the assessee.
16. Ground no.2 relates to the addition u/s 68 on account of 'unexplained gifts received by the asessee'. In this regard, Ld Counsel for the assessee relied on the order of the Tribunal in the case of M/s. Govind Agarwal (HUF) vs. DCIT vide ITA No.8917/M/2010, dated 16.5.2013,for the AY 2005-06 and read out the relevant paras 6 & 7 of the said order of the Tribunal dated 16.5.2013 (supra) which read as under:
"6. We have heard the rival contentions on the preliminary issue as to whether the addition can be made in the present case once the assessment for the assessment year 2005-06 has attained finality and no incriminating material was found during the course of search. On a perusal of the records and the findings of the Assessing Officer and the learned Commissioner (Appeals), we find that there is no reference to any seized material or any incriminating documents so as to suggest that addition made in the assessment order are based on any incriminating material found at the time of search. Once that is so and also that the assessment for the assessment year 2005- 06 has attained finality before the date of search, then no addition can be made under section 153A. The Mumbai Special Bench decision of the Tribunal in All Cargo Global Logistic Ltd. (supra), after analyzing the relevant provisions of the Act, came to the following conclusion and ratio:-
"(a) In assessment that are abated, the Assessing Officer retains the original jurisdiction as well as jurisdiction conferred on him under section 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 under section 153A will be made on the basis of incriminating material which in the context of relevant provisions means books of account, other documents, found in the course of search but not produced in the course of original assessment and undisclosed income or property discovered in the course of search."
7. In this case, the question answered in clause (b) would be applicable as the addition in the assessment order passed under section 153A, can be made only on the basis of incriminating material found in the course of search in case where the assessment has already been finalized. Thus, in this case, no addition can be made over and above the returned income which has become final prior to the date of search and there is no material found at the time of search. The aforesaid Mumbai Special Bench decision of the Tribunal in All Cargo Global Logistic Ltd. (supra) has also been reaffirmed and applied by the co-ordinate bench in Gurinder Singh Bawa (supra). The relevant observation of the Tribunal is reproduced herein below:-
"6. We have perused the records and considered the rival contentions carefully. The dispute raised is regarding legal validity of addition made by AO under section 153A of the Act. Under the provisions of section 153A, in all cases, where search is conducted under section 132 of the Act, AO is empowered to assess or reassess total income of six assessment years preceding the assessment year in which search was conducted. The section also provides that assessment or reassessment relating to any assessment year falling within period of six assessment year if pending on the date of initiation of search shall abate. There have been divergent views regarding scope of application of section 153A in cases where no incriminating material was found indicating any undisclosed income. Some of the Tribunal Benches had taken the view that in case no incriminating material was found AO had no jurisdiction to make assessment or reassessment under section 153A while some other Benches held that jurisdiction under section 153A was automatic to reassess six immediate preceding assessment years irrespective of the fact whether any incriminating material was found or not. Another aspect on which there had been divergent views was whether even if AO had jurisdiction under section 153A, addition can be made in assessment / reassessment only when some incriminating material has been found. All these aspects had been referred to the Special Bench of the Tribunal in case of Alcargo Global Logistics Ltd. and order of Special Bench dated 6.7.2012 has been referred.
6.1 The Special bench in the case of Alcargo Global Logistics Ltd. (supra), has held that provisions of section 153A come into operation if a search or requisition is initiated after 31.5.2003 and on satisfaction of this condition, the AO is under obligation to issue notice to the person requiring him to furnish the return of income for six years immediately preceding the year of search. The Special Bench further held that in case assessment has abated, the AO retains the original jurisdiction as well as jurisdiction under section 153A for which assessment shall be made for each assessment year separately. Thus in case where assessment has abated the AO can make additions in the assessment, even if no incriminating material has been found. But in other cases the Special Bench held that the assessment under section 153A can be made on the basis of incriminating material which in the context of relevant provisions means books of account and other documents found in the course of search but not produced in the course of original assessment and undisclosed income or property disclosed during the course of search. In the present case, the assessment had been completed under summary scheme under section 143(1) and time limit for issue of notice under section 143(2) had expired on the date of search. Therefore, there was no assessment pending in this case and in such a case there was no question of abatement. Therefore, addition could be made only on the basis of incriminating material found during search."
Thus, on the facts of the case, we hold that the additions made by the Assessing Officer with regard to unexplained gift of Rs. 10,00,000, made under section 68 and disallowance of Rs. 1,01,300 under section 14A, are beyond the scope of section 153A / 153C. Consequently, we set aside the impugned order passed by the learned Commissioner (Appeals) and on the preliminary ground itself, both the additions are deleted. Thus, the issues arising out of the ground are treated as allowed."
17. Considering the above settled position of the issue, we are of the opinion that the disallowance made u/s 68 is uncalled for as the same is beyond the scope of section 153A / 153C of the Act. No incriminating material in support of the additions made u/s 68 of the Act was brought to our notice by the Revenue. Therefore, the addition made u/s 68 of the Act is deleted and the ground no.2 raised by the assessee is allowed.
18. In the result, appeal of the assessee is allowed.
I.T.A. No.8916/M/2010 (AY: 2005-2006) (By assessee)
19. This appeal filed by the assessee on 21.12.2010 is against the order of the CIT (A)-41, Mumbai dated 25.11.2010 for the assessment year 2005-2006.
20. In this appeal, assessee raised the following grounds which read as under:
"1.0. The order passed by the Ld CIT (A) confirming the assessment order u/s 143(3) r.w.s. 153A of the Income Tax Act, 1961, is both bad-in-law and bad-in-facts.
1.1 In doing so, he did not appreciate that no addition could have been made while completing assessment u/s 153A of the Act in case of completed assessments if no undisclosed income was determinable from the material found as a result of search.
2.0 The Ld CIT (A) erred in law as well as in facts, in confirming the addition u/s 68 of the Income Tax Act, 1961 on account of unexplained gifts received by the assessee during the year from the following family members of Shri B.R. Agarwal.
Smt. Leeladevi Agarwal (Donor) : Rs.10,00,000/-
3.0 The Ld CIT (A) erred in directing the AO to re-compute disallowance u/s 14A on the basis of judgment of the Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Company Ltd vs. DCIT (328 ITR 81) = (2010-TIOL-564-HC-MUM-IT) without realizing that no expenditure whatsoever was incurred by the assessee and claimed as a deduction while computing her total income."
21. Ground No.1 raised in this appeal is identical to that of the ground raised by the assessee vide CO No. 204/M/2013 for the assessment year 2003-2004, which is adjudicated by us in the above paragraphs of this order. While adjudicating the said appeal, we have already decided the issue in favour of the assessee. Considering the same and following the principles of consistency, ground no.1 of the instant appeal should also be decided in favour of the assessee. Accordingly, the legal issue involved in ground no.1 is allowed in favour of the assessee.
22. Ground no.2 relates to the disallowance u/s 68 of the Act on account of 'unexplained gifts received by the asessee'. This ground is exactly identical to that of the ground no.2 raised by the assessee for the AY 2004-05. Keeping in view the findings given by us in assessee's appeal ITA No. 8915/M/2010 (AY: 2004-2005), vide para ….of this order and following the same, we hold that the disallowance made u/s 68 is beyond the scope of section 153A, therefore, the ground no.2 raised by the assessee is allowed.
23. Ground no.3 relates to the disallowance u/s 14A of the Act. In this regard, Ld Counsel In this regard, Ld Counsel for the assessee relied on the order of the Tribunal in the case of M/s. Govind Agarwal (HUF) vs. DCIT vide ITA No.8917/M/2010, dated 16.5.2013, for the AY 2005-06 and read out the relevant paras 6 & 7 of the said order of the Tribunal dated 16.5.2013 (supra) which read as under:
"6. We have heard the rival contentions on the preliminary issue as to whether the addition can be made in the present case once the assessment for the assessment year 2005-06 has attained finality and no incriminating material was found during the course of search. On a perusal of the records and the findings of the Assessing Officer and the learned Commissioner (Appeals), we find that there is no reference to any seized material or any incriminating documents so as to suggest that addition made in the assessment order are based on any incriminating material found at the time of search. Once that is so and also that the assessment for the assessment year 2005- 06 has attained finality before the date of search, then no addition can be made under section 153A. The Mumbai Special Bench decision of the Tribunal in All Cargo Global Logistic Ltd. (supra), after analyzing the relevant provisions of the Act, came to the following conclusion and ratio:-
"(a) In assessment that are abated, the Assessing Officer retains the original jurisdiction as well as jurisdiction conferred on him under section 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 under section 153A will be made on the basis of incriminating material which in the context of relevant provisions means books of account, other documents, found in the course of search but not produced in the course of original assessment and undisclosed income or property discovered in the course of search."
7. In this case, the question answered in clause (b) would be applicable as the addition in the assessment order passed under section 153A, can be made only on the basis of incriminating material found in the course of search in case where the assessment has already been finalized. Thus, in this case, no addition can be made over and above the returned income which has become final prior to the date of search and there is no material found at the time of search. The aforesaid Mumbai Special Bench decision of the Tribunal in All Cargo Global Logistic Ltd. (supra) has also been reaffirmed and applied by the co-ordinate bench in Gurinder Singh Bawa (supra). The relevant observation of the Tribunal is reproduced herein below:-
"6. We have perused the records and considered the rival contentions carefully. The dispute raised is regarding legal validity of addition made by AO under section 153A of the Act. Under the provisions of section 153A, in all cases, where search is conducted under section 132 of the Act, AO is empowered to assess or reassess total income of six assessment years preceding the assessment year in which search was conducted. The section also provides that assessment or reassessment relating to any assessment year falling within period of six assessment year if pending on the date of initiation of search shall abate. There have been divergent views regarding scope of application of section 153A in cases where no incriminating material was found indicating any undisclosed income. Some of the Tribunal Benches had taken the view that in case no incriminating material was found AO had no jurisdiction to make assessment or reassessment under section 153A while some other Benches held that jurisdiction under section 153A was automatic to reassess six immediate preceding assessment years irrespective of the fact whether any incriminating material was found or not. Another aspect on which there had been divergent views was whether even if AO had jurisdiction under section 153A, addition can be made in assessment / reassessment only when some incriminating material has been found. All these aspects had been referred to the Special Bench of the Tribunal in case of Alcargo Global Logistics Ltd. and order of Special Bench dated 6.7.2012 has been referred.
6.1 The Special bench in the case of Alcargo Global Logistics Ltd. (supra), has held that provisions of section 153A come into operation if a search or requisition is initiated after 31.5.2003 and on satisfaction of this condition, the AO is under obligation to issue notice to the person requiring him to furnish the return of income for six years immediately preceding the year of search. The Special Bench further held that in case assessment has abated, the AO retains the original jurisdiction as well as jurisdiction under section 153A for which assessment shall be made for each assessment year separately. Thus in case where assessment has abated the AO can make additions in the assessment, even if no incriminating material has been found. But in other cases the Special Bench held that the assessment under section 153A can be made on the basis of incriminating material which in the context of relevant provisions means books of account and other documents found in the course of search but not produced in the course of original assessment and undisclosed income or property disclosed during the course of search. In the present case, the assessment had been completed under summary scheme under section 143(1) and time limit for issue of notice under section 143(2) had expired on the date of search. Therefore, there was no assessment pending in this case and in such a case there was no question of abatement. Therefore, addition could be made only on the basis of incriminating material found during search."
Thus, on the facts of the case, we hold that the additions made by the Assessing Officer with regard to unexplained gift of Rs. 10,00,000, made under section 68 and disallowance of Rs. 1,01,300 under section 14A, are beyond the scope of section 153A / 153C. Consequently, we set aside the impugned order passed by the learned Commissioner (Appeals) and on the preliminary ground itself, both the additions are deleted. Thus, the issues arising out of the ground are treated as allowed."
24. Considering the above settled position of the issue, we are of the opinion that the disallowance made u/s 14A is uncalled for as the same is beyond the scope of section 153A / 153C of the Act. No incriminating material was brought to our notice by the Revenue in support of the additions made u/s 14A of the Act. Therefore, the addition made u/s 14A of the Act is deleted and the ground no.3 raised by the assessee is allowed.
25. In the result, appeal of the assessee is allowed.
I.T.A. No.880/M/2011 (AY: 2005-2006) (By Revenue)
26. This appeal filed by the Revenue on 31.01.2011 is against the order of the CIT (A)-41, Mumbai dated 25.11.2010 for the assessment year 2005-2006.
27. In this appeal, Revenue raised the following grounds which read as under:
"1. Whether on the facts and in the circumstances of the case and in law, the Ld CIT (A) has erred in directing the AO to recomputed the disallowance u/s 14A by adopting reasonable basis for effecting apportionment of the expenditure.
2. Whether on the facts and in the circumstances of the case and in law, the CIT (A) erred in holding that provisions of Rule-8D does not have retrospective effective following the decision of Mumbai High Court in the case of M/s. Godrej and Boyce Manufacturing Company Ltd."
28. The only issue involved in this appeal relates to the applicability of the provisions of section 14A of the Act. In this regard, Ld Counsel mentioned that the issue being applicability of section 14A, the AO erroneously applied the Rule-8D for the assessment year in question which actually applicable from the assessment year 2008-2009 as held by the Hon'ble jurisdictional High Court in the case of Godrej & Boyce Mfg. Co. Ltd. vs. DCIT reported in 328 ITR 81 (Bom) = (2010-TIOL-564-HC-MUM-IT). In this regard Ld Counsel mentioned that the issue may have to be sent back to the files of AO for fresh adjudication and deciding the issue afresh on the 'reasonable basis' after rejecting the basis adopted by the assessee for determining the disallowable sum u/s 14A of the Act. 29. On the other hand, Ld DR has no objection to remand the matter to the files of AO for fresh adjudication on this issue.
30. We have heard both the parties and perused the record. Considering the factual matrix of the case as well as the prayer of the Ld Counsel for remanding, we proceed to set aside the ground raised by the assessee for fresh adjudication considering the said judgment and adopting the "reasonable basis" and after rejecting the basis adopted by the assessee. AO shall grant reasonable opportunity of being heard to the assessee. Accordingly, ground no.1 & 2 raised by the revenue are allowed for statistical purposes.
31. In the result, appeal of the Revenue is allowed for statistical purposes.
(Order pronounced in the open court on 22.1.2014.)
2014-TIOL-207-HC-AHM-IT
IN THE HIGH COURT OF GUJARAT
AT AHMEDABAD
Special Civil Application No.7543 of 2005
ME AND MUMMY HOSPITAL
Vs
ASSISTANT COMMISSIONER OF INCOME-TAX
Akil Kueshi And Sonia Gokani, JJ
Dated: February 12, 2014
Appellants Rep by: Mr JP Shah with Mr Manish J Shah, Adv.
Respondent Rep by: Mr Sudhir M Mehta, Adv.
Income tax - Sections 69, 69A, 69B, 142A - Whether when neither from the order of reference nor from any other material, the Revenue could point out that AO had invoked the provisions of sections 69, 69A or 69B of the Act and in the process desired to obtain the estimate of unexplained investment or expenditure and for which purpose DVO's report was called, reference to the valuer is not permissible.
The petitioner, a partnership firm, purchased property for hospital jointly with one 'P' HUF. AO made reference order to Valuation officer calling for valuation of investment made by petitioner in construction / renovation of hospital building. AO framed assessment but left the question of investment in the acquisition of the hospital building unchanged. When the petitioner received the notice from the District Valuation Officer calling for details about the said investment, petition was filed challenging the order of reference.
Petitioner contended that since neither the assessment nor reassessment was pending on such date, AO had no authority to call for DVO's report u/s 142A. The report cannot be in anticipation of reopening the assessment. The Valuer's report is called for only by way of fishing inquiry, which is not permissible. Before making a reference calling for the report of the Valuer, AO must be satisfied that valuation for the purpose of sections 69, 69A and 69B is required to be made which was not present in the said case. In absence of his own satisfaction, such reference could not have been made.
Revenue contended that the petition is not maintainable. The petitioner has challenged only the order of reference. The Valuer's report is yet to be made. At this stage, therefore, the petition is premature. Assessment was not yet finalized when the reference order was passed. AO was within his right to call for the report of DVO.
After hearing both the parties, the High Court held that,
++ the assessment was not yet over on the day on which the said reference order was passed. In the present case, such proceedings were not yet terminated and were thus pending. AO, if other parameters of section 142A were satisfied, did have jurisdiction to call for the report from the Valuer. Suffice to conclude that assessment proceedings were pending before AO when the reference order was passed;
++ as per section 142A, for the purposes of making assessment or reassessment under the Act, where an estimate of the value of any investment referred to in section 69 or section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B or fair market value of any property referred to in sub-section (2) of section 56 is required to be made, such reference to make an estimate of such value can be made to the Valuation Officer. There must be a case where an estimate of the value of such investment or value of billion or jewellery or valuable article is required to be made;
++ for applicability of section 69, 69A and 69B, the common thread is that the assessee has made certain investments or expenditure or is found to be the owner of any billion, jewellery etc. and the same are not recorded in the books of account. Unless, there is prima facie application of sections 69, 69A and 69B of the Act, reference to the valuer is simply not permissible. It is only when there is some material before AO to hold that in case of an assessee falls under sections 69, 69A and 69B as the case may be, that he can, to estimate the value of such unexplained investment or expenditure in bullion, jewellery etc., call for the report of the Valuer. AO would have no authority to call for the report of the Valuer under section 142A to judge whether there has been any unexplained investment or expenditure as referred to in sections 69, 69A and 69B of the Act. It would only amount to fishing inquiry and not investigation u/s 142A of the Act. In the present case, no such material emerges from the record. To the contrary, neither from the order of reference nor from any other material, the respondent could point out that AO had invoked the provisions of sections 69,69A or 69B of the Act and in the process desired to obtain the estimate of unexplained investment or expenditure and for which purpose DVO's report was called. No independent reasons, either flowing from the file or even in the form of an affidavit assuming the same would be permissible, are brought to our notice. Thus quite apart from the petitioner's grievance that the AO merely acted under the directives of the superior and did not, on his own application of mind, desire to call for the report, in absence of any valid reasons for making a reference, in our opinion, the order must fail.
Assessee's petition allowed
JUDGEMENT
Per: Akil Kureshi:
1. Petitioner has challenged reference order dated 30.3.2005 made by respondent no.1 Assessing Officer to Valuation Officer, Baroda calling for the valuation of investment made by the petitioner in the construction/renovation of the property mentioned in the order, namely, hospital building situated on the third floor of Jalnidhi complex, Surat.
2. Petition arises in the following factual background:-
2.1 The petitioner is a partnership firm. For the Assessment Year 2002-03 the petitioner filed its return of income on 29.10.2002. During the previous year relevant to the said assessment year, the petitioner had purchased a property for a hospital jointly with one Praful Doshi-HUF. The petitioner declared cost of property in the return at Rs.83.87 lakhs (rounded off).
2.2 On 30.3.2005, the Assessing Officer passed the impugned order requesting the Valuation Officer, Baroda to calculate the correctness of the cost of investment and authorized the said officer under section 142A of the Income Tax Act, 1961 ("the Act" for short) to inspect the property and make such investigation as considered necessary. The order of reference reads as under:-
Date:30/3/2005
"To:
The Valuation Officer
Valuation Cell,
Income tax Department,
Baroda.
Sir,
Sub:-Valuing the cost of investment in the property belonging to M/s. Me & Mummy Hospital, 3rd floor, Jalnidhi, Opp.Bhumali Besides Navdi Ovara, Nanpura, Surat 395 ------------------------------------
M/s. Me & Mummy Hospital has invested in the construction/renovation of the property as per the details indicated below:-
DETAILS:
1 | Description of the Assets/ property giving exact location with complete address | building/ Clinic at 3rd floor, Jalnidhi, Opp. Bahumali Besides Navdi Ovara, Nanpura, Surat 395 001 |
2 | Name & complete address of the Assessee with Telephone No., if any | M/s. Me & Mummy Hospital 3rd floor, Jalnidhi, Opp. Bahumali Besides Navdi Ovara, Nanpura, Surat 395001 |
3 | Name & complete address & Telephone No. of the C.A/Lawyer or Assessee's Authorised Representative dealing with the case, if any | M/s. Hiren M. Diwan & Co. Surat 0261 2470102 |
4 | Amount declared by the assessee as filed in the return of income for the Assessment Year or as admitted during Survey/Search | Rs.83.87 lakhs as on 31/3/2002 (cost price) |
5 | Estimated cost of investment | |
6 | Registered Valuer if any (copy of the Valuer's Report to be submitted if available) | Not available |
7 | Whether Valuation of Plant & Machinery is also required or whether a separate reference has been made directly to the Valuation Officer (M&P) or the same is attached with the reference | Yes, and also furniture and fittings. |
8 | Period for which Valuation is required | F.Y.2001-02 |
9 | Grounds on which the opinion of the assessing officer is based | N.A. |
2(a) It is certified that the assessment for the period relevant to the above mention valuation period have been finalized. But, the Addl.CIT Range-6 has directed to refer the building to Valuation Cell.
(b) The Assessment is getting time barred on 31/3/2005 for A.Y.2002-03. You are requested to submit the report on or before 30/4/2005 so that case can be reopened, if any variation is found preferably by 30/04/2005.
In order to elucidate the correctness of the cost of investment, I require and authorize you u/s.142(A) of the Income Tax Act, 1961 to inspect the property and to make such investigation and seek clarification and material from the assessee and other concerned persons as are considered necessary and take such measures as are deemed fit for determining the true and correct cost of investment of the said property. You are requested to send your Valuation report to me in duplicate urgently and preferably by 30/4/2005.
Yours faithfully,
(SANJAY PUNGLIA)
Asst. Commissioner of Income-tax Circle-6, Surat."
3. On 31.3.2005, the Assessing Officer framed assessment of the return filed by the petitioner but left the question of investment in the acquisition of the hospital building unchanged. The petitioner carried the assessment order in appeal. We are not concerned with the details of the appellate proceedings.
4. When the petitioner received the notice from the District Valuation Officer ("DVO" for short) dated 15.4.2005 calling for details about the said investment, the petitioner filed this petition and challenged the very order of reference.
5. Learned counsel Mr.J.P.Shah for the petitioner inviting our attention to the reference order raised following contentions:
(1) That as per the Assessing Officer the assessment was already finalized when the order of reference was passed. Therefore, since neither the assessment nor reassessment was pending on such date, the Assessing Officer had no authority to call for DVO's report under section 142A of the Act.
(2) That such report cannot be in anticipation of reopening the assessment as was done in the present case.
(3) The Assessing Officer had no reason to call for the valuation. The Valuer's report is called for only by way of fishing inquiry, which is not permissible.
(4) Before making a reference calling for the report of the Valuer, the Assessing Officer must be satisfied that valuation for the purpose of sections 69,69A and 69B is required to be made. In the present case, no such eventuality existed when the reference was made.
(5) He lastly contended that the Assessing Officer called for the report under the directives of his superior. In absence of his own satisfaction, such reference could not have been made.
6. Counsel relied on the decision of this Court in the case of Commissioner of Income-Tax vs. Umiya Coop. Housing Society Ltd. reported in [2009] 314 ITR 272 (Guj) to contend that if no proceedings for assessment or reassessment are pending, the Assessing Officer would have no jurisdiction to call for the report of DVO.
7. On the other hand, learned counsel Mr. Sudhir Mehta for the Department opposed the petition raising following contentions:-
(1) The petition is not maintainable. The petitioner has challenged only the order of reference. The Valuer's report is yet to be made. At this stage, therefore, the petition is premature.
(2) That the assessment was not yet finalized when the reference order was passed. In any case the petitioner had filed appeal against such order of assessment. The appeal would be continuation of the assessment proceedings and that therefore, the Assessing Officer was within his right to call for the report of DVO. In this context, counsel relied on the decision of Uttarakhand High Court in the case of Commissioner of Income-tax vs. Rajendra Aggarwal reported in [2012] 22 taxmann.com 40 (Uttarakhand) = (2012-TIOL-373-HC-UKHAND-IT) in which the petitioner's challenge to the order of reference under section 142A of the Act made by the Assessing Officer was rejected. The Court observed that the Assessing Officer was well within his power under section 142A to take up the issue of valuation of investment in the petitioner's plant for reassessment, if necessary.
8. From the record, it emerges that the order of reference was passed on 30.3.2005. Though loosely mentioned in the said order but explained in the affidavit-in-reply filed before the Court, the assessment was not yet over on the day on which the said reference order was passed. Admittedly, the order of assessment was passed only on 31.3.2005. As held by this Court in the case of Commissioner of Income-Tax vs. Umiya Co-op. Housing Society Ltd.(supra) the matter can be referred to Valuation Officer only when the proceedings of assessment or reassessment are pending before the Assessing Officer. In the present case, however, such proceedings were not yet terminated and were thus pending. Even without, therefore, resorting to the logic adopted by Uttarakhand High Court in the case of Commissioner of Income-tax vs. Rajendra Aggarwal (supra), it can be safely taken that Assessing Officer, if other parameters of section 142A were satisfied, did have jurisdiction to call for the report from the Valuer. Uttarakhand High Court in the said decision, considered pendency of appeal against order of assessment as continuation of the assessment, and therefore, held that during the pendency of such appellate proceedings also power under section 142A can be exercised by the Assessing Officer. The decisions of Delhi, Allahabad and Karnataka High Courts taking contrary view were not followed. In the present petition, we are not concerned with this controversy and would, therefore, refrain from giving any expression of our opinion on the same. Suffice to conclude that assessment proceedings were pending before the Assessing Officer when the reference order was passed.
9. Despite such conclusion the crucial question is whether the requirements of exercising such powers under section 142A calling for DVO's report are satisfied. In this context, we may peruse the provisions of section 142A more minutely. Section 142A pertains to estimate by Valuation Officer in certain cases and reads as under:-
"Estimate by Valuation Officer in certain cases.
142A(1) For the purposes of making an assessment or reassessment under this Act, where an estimate of the value of any investment referred to in section 69 or section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B or fair market value of any property referred to in sub-section (2) of section 56 is required to be made, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him.
(2) The Valuation Officer to whom a reference is made under sub-section (1) shall, for the purposes of dealing with such reference, have all the powers that he has under section 38A of the Wealth-tax Act, 1957(27 of 1957).
(3) On receipt of the report from the Valuation Officer, the Assessing Officer may, after giving the assessee an opportunity of being heard, take into account such report in making such assessment or reassessment: Provided that nothing contained in this section shall apply in respect of an assessment made on or before the 30th day of September, 2004, and where such assessment has become final and conclusive on or before that date, except in cases where a reassessment is required to be made in accordance with the provisions of section 153A."
Explanation: In this section, "Valuation Officer" has the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957(27 of 1957)"
10. Power of the Assessing Officer for making a reference to the Valuation Officer seeking the estimate flows from sub-section (1) of section 142A. It provides that for the purposes of making assessment or reassessment under the Act, where an estimate of the value of any investment referred to in section 69 or section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B or fair market value of any property referred to in sub-section (2) of section 56 is required to be made, such reference to make an estimate of such value can be made to the Valuation Officer.
11. We are not concerned with the fair market value of the property referred to in sub-section (2) of section 56. We would, therefore, confine our inquiry with respect to the provisions contained in sections 69, 69A and 69B of the Act. Since sub-section(1) permits the Assessing Officer to call for the Valuer's report where an estimate of the value of such investment or value of billion or jewellery of valuable article is required to be made, for the purposes of invoking powers under sub-section (1) of section 142A, therefore, there must be a case where an estimate of the value of such investment or value of billion or jewellery or valuable article is required to be made.
12. Section 69 of the Act pertains to unexplained investment and starts with the expression " Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income and the assessee offers no explanation about the nature and source of investments...."
13. Section 69A pertains to unexplained money etc. and starts with the expression "Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income and the assessee offers no explanation about the nature of source of acquisition of the money, bullion, jewellery or other valuable article...."
14. Likewise section 69B of the Act pertains to amount of investments etc., not fully disclosed in books of account. The said section starts with expression "Where in any financial year the assessee has made investments or is found to be the owner of any bullion, jewellery or other valuable article, and the Assessing Officer finds that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of income, and the assessee offers no explanation about such excess amount..."
15. All these three provisions give rise to deeming fiction and consider such unexplained investment, unexplained money or investment not fully disclosed to be deemed income of the assessee. These provisions start with an essential requirement that the assessee has made such investments or that the assessee is found to be the owner of such money, bullion, jewellery etc. or where assessee has made investment or is found to be the owner of bullion, jewellery etc. which are not recored in the books of account and the assessee offers no explanation about the nature and source of such investment or expenditure or the explanation offered by the assessee, in the opinion of the Assessing Officer, is not satisfactory. Common thread which runs through all these three provisions is that the assessee has made certain investments or expenditure or is found to be the owner of any billion, jewellery etc. and the same are not recorded in the books of account.
16. The Valuer's report under section 142A of the Act is for the purpose of estimating value of such investment referred to in section 69 or section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B of the Act. Unless, therefore, there is prima facie application of sections 69, 69A and 69B of the Act, reference to the valuer is simply not permissible. It is only when there is some material before the Assessing Officer to hold that in case of an assessee falls under sections 69, 69A and 69B as the case may be, that he can, to estimate the value of such unexplained investment or expenditure in bullion, jewellery etc., call for the report of the Valuer. Initial starting point for triggering a reference to the Valuer, therefore, has to be invocation of sections 69,69A or 69B of the Act. It is only when any of these provisions come into play that the Assessing Officer can resort to section 142A for estimating the value of such investment or expenditure. Sequence cannot be put in the reverse. In other words, the Assessing Officer would have no authority to call for the report of the Valuer under section 142A to judge whether there has been any unexplained investment or expenditure as referred to in sections 69, 69A and 69B of the Act. It would only amount to fishing inquiry and not investigation under section 142A of the Act. In our opinion, the scheme of the provisions when read harmoniously would lead to a situation where in case the Assessing Officer, during the pendency of assessment or reassessment, is of the opinion that sections 69, 69A and 69B of the Act can be invoked; in order to estimate such unexplained investment or expenditure in acquisition of bullion, jewellery or valuable article, he can resort to valuation by the Valuation Officer in terms of sub-section (1) of section 142A of the Act. In the present case, no such material emerges from the record. To the contrary, neither from the order of reference nor from any other material, the respondent could point out that the Assessing Officer had invoked the provisions of sections 69,69A or 69B of the Act and in the process desired to obtain the estimate of unexplained investment or expenditure and for which purpose DVO's report was called. He simply gave no reasons in the order. No independent reasons, either flowing from the file or even in the form of an affidavit assuming the same would be permissible, are brought to our notice. Thus quite apart from the petitioner's grievance that the Assessing Officer merely acted under the directives of the superior and did not, on his own application of mind, desire to call for the report, in absence of any valid reasons for making a reference, in our opinion, the order must fail.
17. The objection of the Revenue that the petition is premature must be rejected out of hand. If the reference to DVO is simply not competent, we fail to see why the petitioner should be made to go through the gamut of supplying details permitting the Valuer to make his estimate. If eventually such report itself can be of no legal value, the inquiry must be terminated at the threshold. We do not see any other stage where the assessee can oppose the reference to the Valuer itself.
18. Under the circumstances, impugned order dated 30.3.2005 is quashed. The petition is allowed. Rule is made absolute. No order as costs.
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S.28(i):Business loss–Capital loss–Loss on revaluation of Government securities-Loss was held
The assessee was a public limited banking company carrying on the activities of banking. The
assessee had invested certain amount in securities for the purpose of complying with the RBI
Instructions to the effect that a minimum percentage of its total deposits to be invested in such
securities, in the wake of deposits that it had received from its customers as part of its business
activity. The assessee had indicated such investment as a permanent asset and had claimed that it was
held as stock-in-trade, being a part of the trading asset. The assessee claimed that though none of
these securities had been actually transferred resulting in a loss, the loss was being computed on the
premise that on valuing securities at market value on the last date of the Financial year, the market
value of the assets having gone down, the assessee had incurred a loss of Rs.1,09,10,252 as the market
value of the securities was less than the cost of acquisition. The said loss was claimed as business
loss. The Assessing Officer opined that the assets in the nature of investments in securities could not
be termed as stock-in-trade as it was an investment to fulfil the RBI Instructions and Guidelines. He,
therefore, held it as investments and not as part of the business asset of the assessee, valued for
trading. Nevertheless, the claim of the assessee had been allowed to an extent of 30 per cent based on
the RBI circular relating to the investments in securities, allowing a bank to treat 30 per cent of the
investments as current investment whereas 70 per cent of the investment should be in the nature of
permanent investments. The view of the assessing authority was affirmed by the Commissioner
(Appeals). The Tribunal, however, allowed the assessee's claim in full. The Court held that the
Assessee, as per its own admission, holding the investment in securities in terms of RBI instructions
as permanent investment, cannot treat the same as part of stock-in-trade, hence cannot claim loss by
way of revaluation on the last day of accounting year as allowable revenue loss. No assessee can
claim an investment of lasting nature, to be part of its trading asset or as an asset held by way of stock
in trade. Question as to whether an asset is an trading asset or is an asset in the nature of a lasting asset
investment held as part of investment made by the banking company is a question which has to be
answered in each case and not either based on the RBI circular or guidelines or even a circular issued
by the Board in general. Tribunal was, therefore, not justified in allowing the loss as claimed by the
assessee. (AY. 1993 – 1994]
S.37(1): Business expenditure-Premium paid on the insurance Policies in the names of the
Partners is allowable deduction. [S.10(10D)]
Assessee a partnership firm purchased insurance policies in the names of the partners .Assessee firm
was proposer therein and the partners were shown to be assured person. In the column relating to the
payment of sum assured in the policies , it has been stated that the sum assured is payable to the
proposer or assigns or nominee meaning thereby that the sum assured would be payable only to the
assessee& not to the assured person. The AO disallowed the claim which was upheld by CIT (A). On
further appeal in Tribunal, the Tribunal allowed the appeal & held that as per s/10(10D), the sum
assured , received either by the employer or employee , forms part of the total Income & is assessable
to tax in the hands of the recipient. Since the assured sum was chargeable to tax at the time of its
receipt, the payment was revenue expenditure deductible u/s 37(1). The premium paid on the
insurance policies in the names of the partners is allowable deduction u/s 37(1), subject to an
undertaking to be furnished by the assessee to the LIC to the effect that the sum assured would form
part of the total income of the assesse at the time of receipt thereof & no benefit of exemption u/s
10(10D) would be available to it. (AY.2008-09)
Reliance International .v. ITO(2013) 157 TTJ 766 / 94 DTR 14/157 TTJ 766 (Luck.)(Trib.
Coram : Shri Abraham P. George (Accountant Member)
I.T .A. No. : 1400/Kol./ 2011
Shri P.B. Pramanick, JCIT, Sr. D.R, for the Department
Per Abraham P. Geroge :
1. In this appeal, assessee assails an addition of Rs.3,62,100/- which was scaled down by ld. Commissioner of Income Tax (Appeals)-XIX, Kolkata to Rs.2,68,150/-.
2. Facts apropos are that assessee is an individual , had filed his return for the impugned assessment year declaring income of Rs.1,69,635/-. It seems that return was originally subject only to a processing under section 143(1) of the Act. The assessment was reopened under section 147 of the Act. Reason for reopening is not available in the assessment order. During the course of reassessment proceedings, Assessing Officer based on certain documents came to a finding that jewellery worth Rs.5.5 lakhs was handed over by the assessee to the in-laws of his daughter. As per Assessing Officer, said jewellery was not shown in assessee's balance- sheet. No return of wealth was filed by the assessee. According to the Assessing Officer, the maximum gold jewellery that can be possessed by a married man, who has not filed any wealth-tax return, can be only 200 grams. Taking per gram rate of Rs.939.5, Assessing Officer reached a figure of Rs.1,87,900/-, as the maximum value of gold jewellery that can be possessed by the assessee. The difference of Rs.3,62,100/- was added as unaccounted income.
3. In its appeal before ld. CIT(A ppeals), argument of the assessee was that only 400 grams of jewellery was handed over to the in-laws of his daughter at the time of marriage and on various occasions. As per the assessee, such jewellery was purchased over a large number of years out of savings. Assessee further submitted that there were regular withdrawals made by him from his accounts and, therefore, surplus money was available with him for purchasing small quantities of gold ornaments over a long period of time. As per the assessee, the total amount spent by him for the marriage of his daughter was Rs.12.32 lakhs and the jewellery given to the in-laws of his daughter was only 400 grams.
4. Ld. CIT(Appeals) partly accepted the claim of assessee. According to him, withdrawals were made by the assessee over a number of years from his accounts and, therefore, the cl aim that some of jewellery was purchased in the earlier years out of savings, could not be brushed aside.
He was of the opinion that credit to the extent of 300 grams of jewellery coul d be allowed to the assessee. He, therefore, held that at the rate of Rs.939.5 per gram the maximum value of jewellery that could be held by the assessee was only Rs.2,81,850/-. He, therefore, directed the Assessing Officer to restrict the addition to Rs.2,68,150/-.
5. Now before us, l d. A.R. strongly assailing the order of ld. CIT(A ppeals) submitted that 400 grams of jewellery was not a huge holding and not something which was not achievable for a common man.
According to him, reopening of assessment was based on complaint given by the son-in-law of the assessee who was trying for a divorce from assessee's daughter. As per l d. A.R. when withdrawals were found sufficient for more than 400 grams, ld. CIT(A ppeals) erred in coming to a conclusion that assessee could at the best hold onl y 300 grams of jewellery.
6. Per contra, ld. D.R. supported the order of ld. CIT(Appeals).
7. We have heard the rival contentions and perused the material available on record. Ld. CIT(Appeals) has not disputed the claim of assessee that he was having drawings from his accounts in the earlier years. Admittedl y assessee was having only 400 grams of jewellery, which was given by him to the in-laws of his daughter at the time of marriage.
Assessee who was regularl y filing return of income claimed that he had acquired such jewellery over a number of years. Since he was having a daughter to marry off, this is not an unbelievable version. Endeavour of every Indian is to accumulate some jewellery which can be used at the time of marriage of his/her daughter. At the best, assessee can only be considered as a doting father. It is not required for an assessee to file personal balance-sheet along with the return of income. Hence, the question of jewellery not appearing in the balance-sheet, in our opinion, is irrelevant. The reopening, as well as assessment, in our opinion, was an aftermath of famil y disputes between the daughter of the assesese and her husband. This is not a case where undisclosed income or unaccounted income could have been assessed. The addition made is deleted in full.
8. In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 19th day of February, 2014.
I.T.A.Nos. 6216 to 6221/Mum/2009
M/s B.J.Hotels Pvt Ltd. Vs. Asstt. Commissioner of Income Tax
The assessee has filed these six appeals for assessment years 2002-03 to 2007-08 against common order of ld. CIT(A) dated 6.10.2009.
2. These appeals are arising out of assessment orders passed u/s 143(3) read with section 153A of the Income Tax Act, 1961.
3. At the time of hearing, ld. AR submitted that assessee has taken an additional ground disputing the validity of assessment orders passed by the AO by initiating proceedings u/s 153A of the Act on the ground that there was no search in the case of this assessee. Ld. AR submitted that the said ground is taken for the first time before He relied on the decision of Hon'ble apex Court in the case of National the Tribunal.
Thermal Power Co. Ltd vs CIT, 229 ITR 383(SC) and submitted that the ground taken by assessee is relating to jurisdictional issue and it goes to the validity of the assessment proceedings and therefore the said additional ground be admitted by Tribunal though it is raised for the first time. Ld. AR submitted that there is no "punchnama" in the case of assessee. It is relevant to state that the Tribunal on the earlier occasion adjourned the appeals directing the ld. DR to furnish a copy of "punchnama" evidencing that the search had taken place in the case of the assessee before us. However, Ld. DR could not produce the copy of "Punchanama" but submitted a Note and stated that the search had taken place in the case of Bawa Group and its family members including the assessee. Ld. DR has filed the details of persons in whose cases search had taken place and submitted that the name of the assessee is appearing in the said list. He further submitted that warrant No. in the case of assessee is No.4455 as per list filed. Ld. DR submitted that the assessee had never raised this issue and even declared income during the search.
4. Be that as it may, ld. DR could not produce copy of "Punchanama" to decide the issue as to whether any search in the case of assessee had taken place.
5. Since the said issue had been taken by assessee for the first time before the Tribunal and it requires investigation of facts , it was conceded by ld. Representatives of both the parties that the matter may be restored to the file of ld. CIT(A) to decide the issue as to whether the search had taken place in the case of assessee after considering requisite details as may be placed before him. Since this issue goes to the validity of the assessment order, we set aside the order of the ld. CIT(A) with a direction that he will decide the jurisdictional issue of the validity of the assessment and thereafter dispose off the appeals on the basis of material as may be placed before him by a reasoned order. In view of above, all these appeals filed by the assessee are allowed for statistical purposes by restoring the same to the file of the ld. CIT(A)
6. In the result, all the six appeals of the assessee for assessment years 2002-03 to 2007-08 are allowed for statistical purposes.
The above order was pronounced in the open court on 19th February, 2014.
We find merit and substance in the contention of the assessee that no expenditure had been incurred by the assessee for earning the exempt income on this point because the investment has been made by the assessee in the group concern and not in the shares of any un-related party. Therefore, the primary object of investment is holding controlling stake in the group concern and not earning any income out of investment. Further the investment were made long back and not in the year under consideration. Therefore, in view of the fact that the investment are in the group concern we do not find any reason to believe that the assessee would have incurred any administrative expenses in holding these investments. The AO has not brought on record any material to show that the assessee has incurred any expenditure in relation to the income which does not form part of the total income
In our opinion, "Surplus" cannot be more than 10% – 15% so as to meet contingencies or unforeseen expenditure. If an University or an educational institution under the guise of "surplus" start making huge profit, in our opinion, it would cease to exist for net making profit and in that event would not be entitled for exemption under this provision. On facts, the University collects huge sums which are 3-4 times more than the requirement. Such "surplus" which is invested in fixed deposits and fetches huge interest cannot be stated to be "incidental"
It is true, as held by the Supreme Court in a long line of cases that the Tribunal is duty-bound to consider all the grounds, the evidence produced and consider the contentions of the parties before it and all other material brought to its notice in a judicial spirit and should not feel incommoded by technicalities: The duty is limited to the points raised before it. It would be placing an impossible burden on the Tribunal if it is ordained to rule upon aspects and contentions which were not raised by the parties before it or to deal with pleadings, evidence or material to which its pointed attention was not drawn in the course of the proceedings and which lies buried in the forest of papers filed by the parties
Just as the revenue cannot improve upon its case for reopening before the Court and but must stand or fall by the reasons recorded for reopening the assessment, the same test would be applicable in case of an assessee i.e. it must stand or fall by its objection to the grounds for reopening of assessment. It is not open to the assessee to urge fresh objections before the Court which the AO had no occasion to deal with, unless of course the notice to reopen is ex-facie without jurisdiction not requiring consideration of any argument such as beyond limitation
Under Rule 10B (1)(e)(ii), an adjustment to the net profit margin has to be made for "capacity underutilization". Capacity underutilization by enterprises is an important factor affecting net profit margin in the open market because lower capacity utilization results in higher per unit costs, which, in turn, results in lower profits. Of course, the fundamental issue, so far as acceptability of such adjustments is concerned, is reasonable accuracy embedded in the mechanism for such adjustments, and as long as such an adjustment mechanism can be found, no objection can be taken to the adjustment. On facts, the CIT(A)'s approach is reasonable and the adjustments are on a conceptually sound basis
(i) Rule 10 D(3) is only illustrative in nature and merely describes the information required to be maintained by the assessee under section 92D "shall be supported by authentic documents, which may include the following …". The logic employed by the Transfer Pricing Officer that since databases compiled by private entities is not included in rule 10D (3), such databases cannot be relied upon by the assessee is clearly fallacious inasmuch as an item not being included in illustrative list of required documents does not take outside the ambit of 'acceptable document' for the required purposes. In any event, all that Tips Software does is to collect the data, compile the same in easy to refer format and make it available to the end-user of such data online. The data is public data maintained by the customs department at various ports. It was also open to the TPO to, if he had any doubts, call for further information from this database supplier and examine authenticity of the data so furnished. His summary rejection of the data as unreliable on a technical ground is not tenable in law
(i) In applying the Transactional Net Margin Method (TNMM) under Rule 10B(1)(e) it is not necessary that the net profit computations, in the case of internal comparables (i.e. assessee's transactions with independent enterprise), have to be based on the audited books of accounts or the books of accounts regularly maintained by the assessee. All that is necessary for the purpose of computing arm's length price, under TNMM on the basis of internal comparables, is computation of net profit margin, subject to comparability adjustments affecting net profit margin of uncontrolled transactions, on the same parameters for the transactions with AEs as well as Non AEs, i.e. independent enterprises, and as long as the net profits earned from the controlled transactions are the same or higher than the net profits earned on uncontrolled transactions, no ALP adjustments are warranted. It is not at all necessary that such a computation should be based on segmental accounts in the books of accounts regularly maintained by the assessee and subjected to audit
The assessee filed a revised return in which it withdrew a claim for deduction of Rs.5.86 crore paid to its AE. The assessee claimed s. 10A deduction on the enhanced income. The AO held that the revised return was filed to get over s. 92-C(4) and the proviso thereto which provides that no deduction u/s 10-A would be allowed in respect of income enhanced having regard to the Arms Length Price (ALP). The AO's stand was upheld by the Tribunal. The AO levied penalty of Rs. 2.05 crore and refused to grant stay. The assessee filed a Writ Petition. The High Court held that that the assessee held a prima facie case on merits and granted partial stay of the demand till the decision of the CIT(A). Subsequently, the CIT(A) dismissed the penalty appeal and the assessee filed a stay application before the Tribunal. The Tribunal (order attached) rejected the stay application on the ground that "the financial position of the assessee is very sound" and "government also needs liquid funds to manage its day to day affairs". The assessee filed a Writ Petition to challenge the said order of the Tribunal. HELD by the High Court:
(No. 1) 345 ITR 71 (Bom). In
(No. 2) 31 TM 222 (Bom) it was held that financial hardship was not necessary for grant of stay.