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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI B. R. BASKARAN
Per N. V. Vasudevan, Vice President :
This is an appeal by the assessee against the order dated 12.03.2019of the Pr.CIT, Bengaluru, passed under section 263 of the Income Tax Act, 1961 (hereinafter called ‘the Act’).
The assessee is an individual. For Assessment Year 2011-12, assessee filed return of income on 28.09.2011 declaring a total income of Rs.2,04,99,463/-. In the computation of total income, assessee declared long term capital loss on sale of land measuring 7 acres 15 guntas situated at KengeriHobli, Bengaluru Rural (hereinafter referred to as ‘property’). The said return of income filed was accepted by the AO. An order under section 143(3) of the Act dated 28.6.2013 was passed by the AO. The AO made
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disallowance of expenses and made an addition of Rs.6,56,000/- thereby determining the total income of the assessee at a sum of Rs.2,11,49,643/-. In so far as the long term capital loss declared by the assessee is concerned, the same was accepted by the AO, in the sense that the AO did not disturb the claim made by the assessee in the return of income.
There was a search and seizure operation conducted on assessee on 03.08.2015 and in response to the notice under section 153A of the Act, the assessee filed return of income for Assessment Year 2011-12 declaring total income of Rs.2,11,49,643/- and this is nothing but the total income determined by the AO in the order under section 143(3) of the Act dated 28.06.2013. In this computation of total income also, the assessee declared the long-term capital loss on sale of the property at Rs.54,66,943/-. The return so filed by the assessee was accepted by the AO and an Order of Assessment under section 143(3) r.w.s. 153A of the Act dated 30.11.2016 was passed accepting the said return of income.
The Pr.CIT(Central), Bangalore, in exercise of his powers u/s.263 of the Act was of the view that the aforesaid order of the AO dated 30.11.2016 was erroneous and prejudicial to the interest of the revenue in as much as the value of the property for the purpose of stamp duty and valuation was Rs.3,69,24,500/- as against the sale consideration of Rs.45 lacs as recorded in the sale deed dated 14.10.2010 by which the property was sold. According to the CIT, the AO ought to have applied the provisions of Sec.50C and determined capital gain. The failure of the AO to do was erroneous and has resulted in prejudice to the interest of the revenue. In reply to the show cause notice dated 22.1.2019 u/s.263 of the Act, as above, the assessee submitted that that for making an order u/s. 263 of the Act starting point of limitation
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cannot be the order u/s. 153A of the Act as the computation of capital gains was not subject matter of reassessment u/s. 153A. The period for limitation in so far as the issue of capital gain on sale of the property is concerned, it is the original order passed u/s.143(3) of the Act dated 28.6.2013 that should be considered. The period of 2 years from the end of the relevant financial year in which the order sought to be revised was passed has already expired as on 31.3.2016. For the above proposition, the assessee relied on the decision of Hon’ble Supreme Court in CIT v. Alagendran Finance Ltd 293 ITR 1 (SC). The facts of the case before the Hon’ble Supreme Court are that the assessment was completed u/s. 143(3) of the Act accepting the returned income and allowing the deduction towards “Lease Equalisation Fund” after due verification. The case was reopened and assessment was completed u/s. 147 of the Act after making disallowances related to share issue expenses, bad and doubtful debts and excess depreciation. Therefore, the “Lease Equalisation Fund” was not an issue involved in reassessment proceedings. The learned Commissioner invoked section 263 of the Act and held that the order u/s. 147 of the Act is erroneous and prejudicial to the interests of the revenue since the issue regarding the “Lease Equalisation Fund” is not examined in the said order. The Hon’ble Supreme Court held that the reassessment has nothing to do with the said issue and therefore, doctrine of merger would not apply to the present case and the revision of order u/s. 147 of the Act is not valid and the original assessment order u/s. 143(3) of the Act barred by limitation.
The next contention of the assessee was that the question whether the property was agricultural land by virtue of its location being beyond the distance from the municipal limits of Bangalore and was therefore not a capital asset and hence capital gain on transfer of the property was not exigible to tax. Without prejudice it was submitted that the AO before completing the
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assessment u/s.143(3) read with Sec.153A of the Act did make enquires with regard to the capital loss in question and was satisfied with regard to the capital loss declared and hence made no addition.
The CIT however did not accept the plea of the assessee and he held that the order of the AO was erroneous and prejudicial to the interest of the revenue. He held that if property was a capital asset then capital gain on sale of the property had to be computed by applying the provisions of Sec.50C of the Act. If it is held to be agricultural land there would be no capital loss/gain and therefore the claim for carry forward of the capital loss which was wrongly allowed should be withdrawn. He accordingly set aside the order of the AO dated 30.11.2016 and directed the AO to make inquiries and verification with regard to the issue and redo the assessment de-novo after due consideration of the facts and law and after affording assessee opportunity of being herd.
Aggrieved by the order of the CIT, the assessee has preferred the present appeal before the Tribunal. We shall first take up the additional ground of appeal filed by the assessee in which the assessee has contended that the issue of capital loss on sale of the property and its carry forward or the question of determining capital gain on sale of the property by applying the provisions of Sec.50C of the Act cannot be subject matter of an assessment u/s.153A of the Act and therefore the CIT ought not to have and cannot exercise powers u/s.263 of the Act, which cannot be subject matter of an assessment order u/s.153A of the Act at all. The aforesaid ground being a legal ground which can be decided on the basis of facts already on record is admitted for adjudication keeping in view the decision of Hon’ble Supreme Court in the case of CIT Vs. NTPC 229 ITR 383 (SC).
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As far as additional ground of appeal is concerned, we have heard the rival submissions. It is seen that the order u/s. 153A of the Act is made accepting the returned income. There was no addition made in the order u/s. 153A of the Act based on any seized materials. There was no seized material found leading to undisclosed income. It is a settled proposition that in respect of non-pending / unabated assessments, any addition can be made only on the basis of incriminating material in an assessment u/s 153A of the Act. It has been so held in the following decisions: a) CIT v. Sinhgad Technical Education Society 397 ITR 344 (SC) b) CIT Vs IBC Knowledge Park P. Ltd 385 ITR 346 (Kar) c) ACIT Vs Cornerstone Properties Pvt Ltd (ITA No. 1714 to 1717/Bang/2013) d) CIT Vs Kabul Chawla 380 ITR 573 (Del) e) Sree Lakshmi Venkateshwara Minerals v. DCIT 186 ITD 695 (Bang) (Para 31)
The Hon’ble Karnataka High Court in the case of Canara Housing Development Co., (2014) 49 taxmann.com 98 in a case relating to proceedings under section 153A of the Act held that once there is a search all past assessment orders will not subsist and it is only the order passed u/s.153A of the Act that will survive. The Hon’ble Karnataka High Court in the case of IBC Knowledge Park (2016) 385 ITR 346 (Karn.), after considering the decision in the case of Canara Housing Development Co., (supra) took the view that any proceedings under section 153C of the Act additions cannot be made without there being incriminating material found during the course of search based on which the addition is made. Recently, the Hon’ble Karnataka
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High Court in the case of M/s. Delhi International Airport Pvt. Ltd., ITA No.322/Bang/2018, judgment dated 29.09.2021 considered all the decisions on the point viz., the decision in the case of Canara Housing Development Co., (supra), IBC Knowledge Park (supra) and other decision of various High Courts, the Court held even in the context of section 153A of the Act, there cannot be an addition in a concluded assessment prior to the search unless such additions are justified by any material found in the course of search. The following were the relevant observations of the Hon’ble High Court: “30. Thus, it is clear that the Assessing Office: while passing the order under Section 153A read with Section 143[3] of the Act, ordinarily cannot disturb the assessment/reassessment order which has attained finality, unless the materials gathered in the course of the proceedings establishes that the finalized assessments are contrary to the material unearthed during the course of 153A proceedings, as held by the Co- ordinate Bench of this Court in the case of IBC Knowledge Park (P) Ltd., supra. A concluded assessment could net be disturbed without there being any basis for doing so which is impermissible in law. Even in cast of a searched person, the same reason would hold good. As observed in Canara Housing Development Company supra, the Assessing Officer is empowered to assess or reassess the total income of six assessment years i.e., the income which was returned in the earlier return, the income which was unearthed during search and also any income which was not disclosed in the earlier return or which was not unearthed during the search by separate assessment orders but in our considered view the completed assessments should be subject to the safeguards provided in IBC Knowledge Park (P) Ltd. supra. "54. On u consideration of the relevant sections as well as judicial precedent referred to above, what emerges is that, Section 158BD of 'the API deals with undisclosed income of a third party. However, insofar as the incriminating material of the searched person or other person detected during the course of search is concerned, the same can be considered during the course of assessment. Further, such incriminating material must relate to undisclosed income which would empower the Assessing Officer to upset or disturb a concluded assessment of the other person. Otherwise, a concluded assessment would be disturbed without there being any basis for doing so which is impermissible in law.
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Even in case of a searched person, the same reason would hold good as in case of any other person. As observed by us, detection or the existence of incriminating material is a must for disturbing the assessment already made and concluded. But, at the same time, such am be at three stages: one, at the stage when the reassessment is initiated, the second, at the stage during the course of re- assessment and third, at u sage where the reassessment is altered by a different assessment in respect of searched person or in. respect of third party. In this regard, reference may be made to the decision of Apex Court in case of M/s. Calcutta Knitwear (supra) and based on the said decision, the CB DT has also issued circular dated 31.12.2015 vide No.24/ 2015.The relevant extract of the circular for ready reference can be extracted as under: ‘……………………..” As regards the pending assessments are concerned only one assessment shall be made separately for each assessment year on the basis of the income unearthed during search and any other material existing or brought on the record of the Assessing Officer. Even in the absence of any incriminating material abated assessment or reassessment could be done. The returns filed under Section 139 of the Act gets replaced by the returns filed under Section 153A[1] of the Act. Pending proceedings in appeal, revision/application shall not abate subsequent to initiation of Section 153A proceedings. Further, recording of satisfaction under Section 153A may not be necessary unlike Section 153C of the Act which mandates recording of satisfaction.”
In view of the above proposition and considering the facts of the present case, the learned assessing officer himself could not have added any amount invoking section 50C of the Act and the assessing officer could not have disturbed the carry forward of capital loss while framing assessment u/s. 153A of the Act, as no material whatsoever was found in the course of search warranting an enquiry into these aspects in an assessment u/s.143(3) read with sEc.153A of the Act. Hence, the order u/s. 153A in not doing so cannot be said to be erroneous and prejudicial to the interests of the revenue. In the assessment order made u/s. 153A of the Act dated 30.11.2016 for AY 2011- 12, no reference is made to any seized materials and the income assessed in
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original assessment order dated 28.06.2013 was reiterated. Hence, the learned assessing officer could not have made any addition in 153A order for the assessment year 2011-12 in respect of capital gains as there were no incriminating seized materials suggesting that the capital gains has been wrongly computed. Hence, provisions of section 263 of the Act cannot be invoked to revise of order u/s 153A of the Act. On this short point we allow the appeal of the assessee and quash the impugned order u/s.263 of the Act. In view of the aforesaid conclusion, the other issues raised by the assessee in the grounds of appeal, do not require any adjudication and hence not adjudicated.
In the result, the appeal is allowed.
Pronounced in the open court on the date mentioned on the caption page. Sd/- Sd/- (B. R. BASKARAN) (N. V. VASUDEVAN) Accountant Member Vice President Bangalore. Dated: 22.02.2022. /NS/*
Copy to: 1. Appellants 2. Respondent 3. CIT 4. CIT(A) 5. DR 6. Guard file By order Assistant Registrar, ITAT, Bangalore.