RAJ GOLD & DIAMONDS ,MUMBAI vs. ACIT CIRCLE 19(3), MUMBAI

PER SANDEEP GOSAIN, JM: The present appeal has been filed by the assessee challenging the impugned order dated 27.05.2025 passed u/s 250 of the Income Tax Act, 1961 ('the Act'), by the National Faceless Appeal Center, Delhi (NFAC) for the assessment year 2011-12. The following grounds raised by the Assessee are reproduced below:

i. The learned AO erred in making addition of Rs. 6,00,00,000/- in respect of sale of land as long term capital gain and the learned CIT (A) erred in confirming the same. ii. The learned AO erred in treating the Assessee Firm as seller and not developer of the land while assessing income of Rs. 6,00,00,000/- as long term capital gain and the learned CIT (A) erred in confirming the same. iii. The AO erred in assessing income accruing in / belonging to other year as income of the current year since the AO erred in not considering the documentary evidence i.e., Development Agreement between assessee and M/s Shantee Constructions dated 1st June, 2008 submitted by the Assessee Firm to support the value of consideration decided between parties. iv. The learned AO erred in making the addition on notional basis since the AO erred in considering and assessing difference between stamp duty value and agreement value of land sold as long-term capital gain i.e. taxable income of assessee. v. The learned AO erred in treating and assessing the income from sale of land as 'Income from Capital Gain' instead of business income and the learned CIT (A) erred in confirming the same. vi. The learned AO erred in not considering and allowing deduction of cost of acquisition, improvement and expenses incurred by Assessee while assessing income and the Id. CIT (A) erred in confirming the same. vii. The learned AO has erred in not referring the matter of valuation of property to the DVO and the learned CIT (A) erred in confirming the same. viii. The learned AO has erred in reopening the case and made assessment without following provisions of law. The reassessment order is bad in law since no reasons of reopening were supplied to the assessee and no income was shown to have escaped for the year under consideration. ix. The learned CIT (A) has erred in dismissing assessee's appeal without affording adequate opportunity of being heard and without considering assessee's submissions. x. The Assessee prays to afford and allow the Assessee an opportunity of being heard on merits before the lower authorities or else to allow any other relief under income tax law.

i. The assessee has listed grounds of appeal in the Form No. 36 filed before your honour. The issue in appeal on merits is the addition of notional income - The AO erred in considering and assessing difference between stamp duty value and agreement value of land sold as long-term capital gain. The learned AO also erred in treating and assessing the income from sale of land as 'Income from Capital Gain' instead of business income since the assessee is a firm in the business of builder, construction and property development. ii. Case of assessee is reopened for the year under consideration and the same are mentioned in the body of the assessment order. iii. The assessee is now filing additional grounds of appeal before your honour which remained to be considered / listed in the form

Explanation - The reason of reopening was to tax the gain or income as per development agreement of assessee. However, the AO while passing the assessment order did not tax the said gain / income but he taxed difference between stamp duty value and agreement value of land sold which is not part of reasons recorded. Thus the addition is on the issue other than the reasons recorded. The case was reopened to tax the gain as per agreement and not the difference in SDV and sales consideration.

ii. The reasons recorded did not have live link to the material/ record with the AO and thus the reopening is invalid. Explanation The AO while recording reasons of reopening had referred the assessment order passed for AY 12-13 in assessee's case. In that order of AY 12-13, the AO proposed to tax the gain / income from development agreement in the AY 2009-10 and treat the AY 2009-10 as the right year to tax the gain of assessee since the relevant development agreement was entered into by assessee in FY 2008-09. There is no reference in that order to tax the gain in AY 11-12. Thus the reasons and satisfaction recorded are misplaced.

iii. The addition made by the AO in respect of difference in SDV and the sales consideration is incorrect and not sustainable as the same cannot be brought to tax for the/in the year under consideration since section 43CA was brought on statute w.e.f. AY 14-15. Explanation - The year under appeal is AY 2011-12. Thus there was no machinery provision in law to tax such notional income in form of difference between SDV and sale consideration. Thus the reassessment proceedings are bad in law since there is no escarpment of income for the year. Kindly note that the AO has not mentioned the section under which such addition is being made. Section 50C is not applicable since the assessee being a builder and developer is earning business income, and the land/development rights constitute its business asset and not capital asset.

iv. Ground Since there is no live link to the material and record with the AO while reopening the case and there is no machinery / tax provision to assess/tax the difference between SDV and sale consideration for the year under consideration, there is no escarpment of income within meaning of section 147. Thus the reopening proceedings are bad in law. Explanation - The AO failed to show there is escarpment of income for the year under consideration. Further assessee's case was reopened for the AY 2009-10 on the same issue and with same reasons which were recorded/mentioned for the year under consideration. The assessee has already offered income from development agreement in AY 12-13 as business income and the said year was subject matter of scrutiny assessment. Thus there is no escarpment of income at all. When the AO himself mentions and concludes that AY 2009-10 is the right year to tax income, then the reasons behind reopening the case for AY 11 12 are not known and thus the case was reopened for AY 11-12 to make roving inquiry. Thus the concept of reasons to believe that income has escaped tax is absent in our case rather there is merely reasons to suspect. The reasons recorded of AY 11 12 are contradictory and are not sufficient to prove escarpment of income for that year considering status of assessment for AY 2009-10 and AY 2012-13. 3. Ld. DR contested the said application and submitted that no such grounds were raised by the assessee before the first appellate authority and even no objection was raised during the assessment proceedings.

उि/सहायक िंजीकार ( Asst.