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Income Tax Appellate Tribunal, ‘B’ BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI CHANDRA POOJARI
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Per Bench :
ITA No.2838 by the assessee and ITA Nos.44- 47/Bang/2018 by the Revenue are directed against the different orders of the CIT(A) for the assessment years 2012-13 and 2013-14 and 2014-15.
First, we will take up assessee’s appeal. ITA No.2388/Bang/2017 2. The assessee raised the following grounds:- “1. The orders of the authorities below in so far as they are against the assessee, are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case. 2. The order of assessment passed u/s 153C rws 143[3] of the Act is bad in law and void-ab-initio in as much the provisions of sec. 153C of the Act have no application to the facts of the assessee's case since there was a search conducted in the residential premises of the assessee and consequently the impugned assessment order invoking the provisions of sec. 153C of the Act is opposed to law, and hence, the same deserves to be cancelled. 2.1 Without prejudice to the above, the learned CIT[A] is not justified in holding that the assessee was not entitled to the copy of the satisfaction note recorded for initiating proceedings u/s. 153C of the Act, since the same was not challenged before the ld.AO, under the facts and in the circumstances of the assessee's case. 3. Without prejudice to the above, the learned CIT[A] is not justified in upholding the short term capital gains of Rs. 8,74,38,017/- assessed by the ld.AO holding that there was a transfer of property on execution of the sale execution of the
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sale agreement dated 21/02/2012 during the year in terms of sec. 2[47][ii] of the Act, under the facts and in the circumstances of the assessee's case. 4. Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the assessee denies himself Liable to be charged to interest u/s. 234-A, 234-B and 234-C of the Act, which under the facts and in the circumstances of the assessee's case deserves to be cancelled. 5. For the above and other grounds that may be urged at the time of hearing of the appeal, your assessee humbly prays that the appeal may be allowed and Justice rendered and the assessee may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.”
First of we will take up ground No.3 of assessee’s appeal. Ground No.3. Without prejudice to the above, the learned CIT[A] is not justified in upholding the short term capital gains of Rs. 8,74,38,017/- assessed by the LD.AO holding that there was a transfer of property on execution of the sale execution of the sale agreement dated 21/02/2012 during the year in terms of sec. 2[47][ii] of the Act, under the facts and in the circumstances of the assessee's case.
Facts of the case are that the assessment passed u/s.153C r.w.s 143[3] of the Act dated 29/01/2016 for the above assessment year 2012-13 assessing the assessee on a total income of Rs.9,10,70,095/-.
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The assessee is an individual deriving salary income as a Managing Director from M/s. Rasasri Developers Pvt. Ltd., and income from other sources. For the year under consideration, the assessee had filed its return of income on 31/12/2012 reporting a total income of Rs. 36,44,435/- from the aforesaid sources along with agricultural income of Rs.1,10,000/-.
There was search u/s 132 of the Act conducted by the Department in the case of M/s. RASASRI DEVELOPERS PVT.LTD on 01/10/2013. As a part of the search action, the residence of the assessee was also searched u/s 132 of the Act. During the course of the search, there was no incriminating material or income or any assets representing any undisclosed income of the assessee was found or seized.
The ld.AO issued a notice u/s. 153C of the Act on 02/11/2015 asking the assessee file his return of income for the year under consideration. In response to the notice, the assessee filed a letter on 18/11/2015 furnishing the same return of income filed by the assessee earlier on 31/12/2012 declaring the total income of Rs. 36,32,078/-. The ld.AO stated that in
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course of the search operations conducted in the residence of the assessee, certain documents related to income of the assessee were seized and in light of the aforesaid materials, a notice u/s 153C of the Act was issued to the assessee.
While filing the return of income in response to the notice issued, the assessee did not challenge the jurisdiction assumed u/s. 153C of the Act before the ld. AO The ld.AR submitted that the question of jurisdiction assumed by the ld.AO in terms of sec. 153C of the Act is purely a legal issue and according to him, which can be raised at any stage. Hence, the assessee is raising the issue relating to the jurisdiction u/s. 153C of the Act.
The assessee submits that firstly the issue of jurisdiction is that the provisions of section 153C of the Act has no application to the assessee's case purportedly based on documents found in the residential premises of the assessee. It has also submitted that the ld.AO has not set-out the details of any assets seized and considered as belonging to the assessee or for that matter, details of any books of accounts or other documents seized that pertained to the assessee or any information contained
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therein relates to the assessee for invoking the provisions of section 153C of the Act. Thus, the mere assumption that there were documents found at the time of search, which pertains to the assessee is insufficient to enable the ld.AO to validate/assume jurisdiction u/s. 153C of the Act.
Secondly, the ld.AR further submitted that the proceedings which have been initiated are stated to be as a result of the search conducted in the residence of the assessee and not in the premises of M/s. Rasasri Developers, the person searched. It is natural that there will be documents belonging to the assessee in his residence and in the absence of any seizure of the documents initially as belonging to the person searched, which, later transpired as relating to the assessee herein, the proceedings initiated u/s. 153C of the Act are bad in law. This is because the provisions of sec. 153C of the Act are enacted to enable the assessment of a third person, who has not been searched, but in respect of whom certain assets seized or books and documents seized are found to pertain or in respect of whose some information discovered in course of search of the person searched. In other words, such assets, books of accounts or
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documents must be seized from the person searched and not from the premises of the assessee himself to invoke the provisions of sec. 153C of the Act. Thereafter, a satisfaction has to be reached that the documents do not belong to the person searched and that they belong to some other person. It is submitted that the compliance with the aforesaid conditions is not manifest in the impugned order passed and therefore, it is submitted that the jurisdiction assumed u/s. 1 53C of the Act is opposed to law and therefore, the impugned order passed deserves to be cancelled.
The ld.AR submitted that there has to be satisfaction recorded in terms of section 153C of the Act for issuance of notice u/s. 153C of the Act. It is submitted that the assessee had not sought for the copy of the satisfaction recorded for assuming jurisdiction u/s. 153C of the Act. It is submitted that the copy of the satisfaction recorded may kindly be furnished to enable the assessee t to show that there cannot be any satisfaction for initiating the proceedings u/s. 153C of the Act.
It is submitted that after filing of the return of income in response to the notice issued u/s. 153C of the Act, the
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ld.AO took up the assessment proceedings. In course of the assessment proceedings various details and particulars were called for and the same were furnished by the assessee. The main issue that arose for consideration in the course of the assessment proceedings related to the sale of certain lands by the assessee to one M/s. Confident Projects (India) Pvt. Ltd.
It is submitted that the assessee had entered into a Memorandum of Understanding with M/s. Rasasri Developers Pvt. Ltd on 20/02/2012 for purchase of land measuring 12 acres 4 guntas in Sy.Nos. 1/2, 5/2, 5/3 and 6/2, Sadaramangala Village, K R Pura Hobli, Bangalore East Taluk, Bangalore District for a total consideration of Rs. 4,50,00,000/-. Thereafter, the assessee had entered into an agreement dated 21/02/2012 with M/s. Confident Projects (India) Pvt.Ltd., for the sale of a portion of the aforesaid land measuring about 10 Acres and 4 guntas for a consideration of Rs. 12,50,00,000/-. It is submitted that the sale agreement entered into by the assessee was an unregistered sale agreement and thereafter, assessee had completed the transaction by executing registered sale deeds in favour of the nominees of M/s. Confident Projects (India) Pvt.Ltd.,
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during the AY 2013-14 & 2014-15. Upon the sale of the aforesaid property during the aforesaid AY 201314 & 2014-15, the assessee had reported short term capital gains in the returns of income filed for the year under consideration.
In course of assessment proceedings, the ld.AO took the view that there was a transfer within the meaning of section 2[47] of the Act for the year under consideration and, therefore, same was brought to tax as short term capital gains. In this manner, the ld.AO concluded the assessment proceedings by passing the impugned order u/s. 143[3] rws 153C of the Act dated 29/01/2016 making a lone addition of Rs.8,74,38,017/- as Short Term Capital Gain.
It is submitted that the assessee has made detailed submissions before the learned ld.AO bringing out the fact that there was no transfer within the meaning of sec. 2[47] of the Act during the year under appeal. The ld.AO has not appreciated the submissions made by the assessee in correct perspective and has made the impugned addition.
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The assessee has challenged the addition of Rs. 8,74,38,017/- made as short term capital gains. The assessee submitted that -
[a] There was a Memorandum of Understanding [MOU] entered into by the assessee with M/s.Rasasri Developers Pvt. Ltd., on 20/02/2012 for purchase of land admeasuring 12 Acres and 4 guntas in various survey numbers of Sadarmangala Village, Bangalore District for a total consideration of Rs.4,50,00,000/-. Copy of the MOU is placed at page 09 to 15 of the paper book.
[b] After entering into the MOU, the assessee entered into a unregistered Sale Agreement on 21/02/2012 with M/s. Confident Projects India Pvt. Ltd., for sale of a portion of the aforesaid property measuring about 10 Acres and 4 guntas for a total consideration of Rs.12,50,00,000/- [hereinafter referred to as the "said property"].
[c] In pursuance of the aforesaid unregistered sale agreement, the assessee had executed various sale deeds conveying portions of the property agreed to be sold to the nominees of M/s.Confident Projects India Pvt. Ltd. Upon
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execution of the sale deeds, the assessee has reported short term capital gains on sale of the portions of the said property during assessment years 2013-14 and 2014-15 of Rs. 4,21,52,264/- and Rs. 2,13,07,766 / - respectively. Thereafter, even for the assessment years 2015-16 & 2016-17 returns were filed offering capital gains to tax, which returns were after the completion of the assessment for the year under consideration.
In course of assessment proceedings, the ld.AO called upon the assessee vide notice u/s.142[1] and 143[2] of the Act, both dated 14/12/2015 to explain as to why capital gains arising from aforesaid transaction evidenced by the agreement to sell dated 21/02/2012 should not be taxed for the assessment year 2012-13 on account of certain clauses noticed by ld.AO in the said agreement. In response to the notice u/s.142[1] of the Act, the assessee has made submissions before the ld.AO vide letters dated 28/12/2015, 12/01/2016 and 28/01/2016 explaining his stand.
It was specifically contended by the assessee before the learned ld.AO that there was no justification to hold that short term capital gains arose on the transfer of the
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aforesaid property to M/s. Confident Projects India Pvt. Ltd., for the aforesaid assessment year on account of the unregistered agreement to sell. Before the ld.AO, the assessee submitted a copy of a specific power of attorney dated 12/09/2012 executed by the assessee, which was a registered document, under which the assessee permitted M/s. Confident Projects India Pvt. Ltd., to present the sale deeds for purposes of registration. These sale deeds were also required to be executed and signed by the assessee only and not the agreement holder as the assessee continued to remain as the owner of the said property. In other words, even under the agreement to sell dated 21/02/2016, there was no power given by the assessee to enable M/s. Confident Projects India Pvt. Ltd., to execute registered sale deeds on behalf of the assessee and alienate the aforesaid property. Based on the specific power of attorney executed after the end of the year under appeal, the assessee stated that he continued to remain as the owner of the said property and there was no transfer of the property merely on entering into of the agreement to sell dated 21/02/2012.
It was also pointed out that the said property originally belonged to M/s.Rasasri Developers Pvt. Ltd.,
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and the assessee had agreed to acquire the same from the said company in terms of the MOU dated 20/02/2012. No possession of the said property was given by M/s.Rasasri Developers Pvt. Ltd., to the assessee during the year under appeal and in the absence of the assessee securing possession from M/s.Rasasri Developers Pvt. Ltd., the assessee could not have given possession of the property to M/s. Confident Projects India Pvt. Ltd., and hence, there was no transfer of the property during the year under consideration. The assessee received possession over the property only on 10/11/2012 as is seen from the MOU dated 20/02/2012 in which an endorsement is made after receipt of the entire consideration.
The aforesaid submissions made by the assessee were noticed by the learned Ld.AO in the impugned order. It appears that the learned Ld.AO was satisfied that the assessee neither had the possession over the said property, nor had given possession over the same to M/s. Confident Projects India Pvt. Ltd., as the learned LD.AO has not invoked the specific provisions of section 2[47][v] of the Act in the impugned order to consider that there was a transfer of the said property was completed during the year under appeal. The learned ld.AO, has recorded
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that the provisions of section 2[47][v] of the Act, relating to grant of possession is only one of the incidences of transfer in the impugned order. Ultimately, the learned ld.AO, held that there was a transfer of the said property during the year in accordance with clause [i] a [ii] of section 2[47] of the Act. It is submitted that the material part of section 2[47] of the Act, relied upon by the learned ld.AO is reproduced hereunder :
"Section 2[47] - "Transfer in relation to a capital asset, includes - (i) The sale, exchange or relinquishment of asset; or (ii)The extinguishment of any rights therein; 21. It is submitted that the conclusions of the ld.AO are found recorded in para [7] and [7.1] at pages [6] and [7] of the impugned order. It is clear from the said findings recorded by the ld.A.0. that she has sought to levy short term capital gains for the year under appeal by observing that the assessee has adhered to the terms of the contract for a fixed consideration of Rs.12,50,00,000/- and therefore, the assessee has relinquished his rights in the property vide agreement for sale dated 21/02/2012. Further, the ld.AO has also held that the assessee's right to transfer further in the
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property and earn out of it have been extinguished upon entering into of the agreement dated 21/02/2012.
It is no doubt true that transfer in relation to a capital asset includes "relinquishment of the asset" or "the extinguishment of any rights therein". However, these expressions employed in section 2[47] of the Act have a definite meaning. The term "relinquishment" implies that the person ceases to own the asset concerned by virtue of some act on his part, the property continues to exist but the interest therein of the owner is either given up or abandoned. Similarly, the word "extinguishment of any rights therein" postulates the termination of any of the rights of the owner of the property by any act intended to bring to an end the rights of the owner qua the property. By virtue of these two terms "relinquishment" and "extinguishment of any rights therein", the ld.AO has sought to hold that the assessee has relinquished his right in the asset or that there is an extinguishment of his rights therein by virtue of entering into the agreement of Sale dated 21/02/2012. However, this finding of the ld.AO is erroneous because, the ld.AO ought to have appreciated that the assessee had retained the rights in the said property and there was no relinquishment of any
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asset or extinguishment of any rights in the aforesaid property in terms of the said agreement by virtue of the following clause [page [6] of the Agreement.
As can be seen from the above clause, if the purchaser fails to make the payment of the consideration as agreed, the assessee has the right to terminate this agreement and forfeit the advance paid of Rs. 1,00,00,000/- as penalty or damages and refund the balance sale consideration, if any, to the purchaser. In otherwords, by virtue of the aforesaid rights retained by the assessee to terminate the agreement in the event of non-payment of sale consideration, as agreed by the vendor, it cannot be said that the assessee has relinquished his rights over the said property or any of his rights therein stood extinguished. In fact, if the purchaser had defaulted in the payment of consideration, the assessee could have brought to an end to the impugned agreement and sold the said property to a third party for a fresh consideration to be determined between the parties. In otherwords, the assessee continued to retain his rights qua the property subject, however, to the terms of the sale agreement entered into by M/s. Confident Projects India Pvt. Ltd.
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He drew our attention to the provisions of section 54 of the Transfer of Property Act, which deals with sale of immovable property and reads as under :- "54. "Sale" defined - "Sale" is a transfer of ownership in exchange for a price paid or promised or part-paid and part- promised. In the case of tangible immovable property of a value less than one hundred rupees, such transfer may be made either by a registered instrument or by delivery of the property. Delivery of tangible immovable property takes place when the seller places the buyer, or such person as he directs, in possession of the property. Contract of sale - A contract for the sale of immovable property is a contract that a sale of such property shall take place on terms settled between the parties. It does not, of itself, create any interest in or charge on such property".
It is submitted that as can be seen from section 54 of the Transfer of Property Act, a contract for sale of an immovable property is a contract that a sale of such property shall take place on the terms settled between the parties. It does not, of itself, create any interest in or charge on such property. Thus, an agreement to sell
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which is a contract for the sale of immovable property does not create any interest in the immovable property. When the agreement of sale by itself does not create any interest in the immovable property it is very difficult to consider that there was any relinquishment of the asset or extinguishment of any rights therein in the hands of the assessee, who is the intending transferor. The Hon'ble Supreme Court in the case of SURAJ LAMP AND INDUSTRIES V. STATE OF HARAYANA reported in 340 ITR 1 [SC] [copy of the judgement placed at pages 80 to 86 of the paper book] has elaborately considered the scope of an agreement of sale in the context of the provisions of section 54 of the Transfer of Property Act in the context of the transfer being effected through the Power of attorney routes. The relevant observation of the Hon'ble Supreme Court are as follows.
According to ld.AR the section 54 of TP Act makes it clear that a contract of sale, that is, an agreement of sale does not, of itself, create any interest in or charge on such property. This Court in (1977) 3 5CC 247, observed that - "A contract of sale does not of itself create any interest in, or charge on, the property. This is expressly declared in Section 54 of the Transfer of Property Act. See Rambaran Prosad v. Ram Mohit Hazra [1967 ]i SCR 293; AIR 1967 SC 744. The
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fiduciary character of the personal obligation created by a contract for sale is recognised in Section 3 of the Specific Relief Act, 1963, and in Section 91 of the Trusts Act. The personal obligation created by a contract of sale is described in Section 40 of the Transfer of Property Act as an obligation arising out of contract and annexed to the ownership of property, but not amounting to an interest or easement therein." In India, the word 'transfer is defined with reference to the word 'convey The word 'conveys' in section 5 of Transfer of Property Act is used in the wider sense of conveying ownership ... ... that only on execution of conveyance ownership passes from one party to another......
In Rambhau Namdeo Gajre v. Narayan Bapuji Dhotra [2004] 8 5CC 614 this Court held [page 619]: "Protection provided under Section 53A of the Act to the proposed transferee is a shield only against the transferor. It risen titles the transferor from disturbing the possession of the proposed transferee who is put in possession in pursuance to such an agreement. It has nothing to do with the ownership of the proposed transferor who remains full owner of the property till it is legally conveyed by executing a registered sale deed in favour of the transferee. Such a right to protect possession against the proposed vendor cannot be pressed in service against a third party."
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It is thus clear that a transfer of immoveable property by way of sale can only be by a deed of conveyance (sale deed). In the absence of a deed of conveyance (duly stamped and registered as required by law), no right, title or interest in an immoveable property can be transferred.
He submitted that the contract of sale (agreement to sell) which is not a registered deed of conveyance (deed of sale) would fall short of the requirements of sections 54 and 55 of TP Act and will not confer any title nor transfer any interest in an immovable property (except to the limited right granted under section 53A of TP Act). According to TP Act, an agreement of sale, whether with possession or without possession, is not a conveyance. Section 54 of TP Act enacts that sate of immoveable property can be made only by a registered instrument and an agreement of sale does not create any interest or charge on its subject matter".
In view of the above, it is submitted that there is absolutely no justification for the ld.AO to bring to tax the short term capital gains on the agreement to sell dated 21/02/2012 entered into by the assessee holding that there was either a case of relinquishment of the asset or
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extinguishment of any rights therein. Accordingly, it is prayed that the short term capital gains assessed by the ld.A.0. for the year under appeal may kindly be deleted.
On the other hand, the ld.DR submitted that the ld.AO has taken the date of the Agreement entered into by the assessee on 21.02.2011 as the date of transfer of the property by relying on the decision of the Hon'ble Supreme Court in the case of Sanjiv Lal in 365 ITR 389 [SC]. On the other hand, the assessee has also relied upon the judgment of the Hon'ble Supreme Court in Suraj Lamp and Industries in 340 ITR 1 [SC] to contend that there is no transfer on the mere execution of an agreement to sell as it does not create any interest-in the property. The assessee has argued that he has not given possession of the property to M/s. Confident Projects (India) Private Ltd., during the year as the appellant himself secured the possession over the property only in the next financial year. The assessee may be right since it is borne on record that the assessee was put in possession of the property on 10.11.20 12 as per the endorsement in the MOU dated 20.02.2012, but the ld.AO has not invoked the provisions of sec. 2(47)(v) of the Act r.w.s 53A of the Transfer of Property Act, to consider that
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there was a transfer of the property by virtue of the possession delivered by the appellant. The ld.AO has held that by executing the agreement to sell dated 21.02.2011, there was an extinguishment of the rights in the property and hence, it amounted to transfer within the meaning of sec. 2(47)(ii) of the Act. It has to be seen if there was extinguishment of any rights in the immovable property in the facts of the present case since the assessee was not the owner of the property on the date of the agreement dated 21.02.2011. It is seen that the assessee has agreed to purchase the property in terms of the MOU dated 20.02.2011 and on the very next day, the appellant has agreed to sell the same to M/s. Confident Projects (India) Pvt. Ltd. Hence, the ld.CIT(A) found that the assessee's right to purchase the property was extinguished and he cannot be regarded as the owner of the property anymore The ld.AO has rightly relied upon the judgment of the Hon'ble Supreme Court in Sanjiv Lal [supra] wherein, the HonbIe Supreme Court has held that there will be a transfer on the execution of the sale agreement itself since the right to sell the property to any other persons stands extinguished. The decision of the Hon'ble Supreme Court in Suraj Lamps and Industries in 340 ITR 1 (SC) relied upon by the assessee is distinguishable since in
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that case the provisions of sec. 2(47) of the Act was not being considered. Other the other hand, the decision of the Hon'ble Supreme Court in Sanjiv Lal (supra) is directly on the provisions of sec. 2(47) of the Act and has to be applied in this case. Hence, CIT(A) held that there was a transfer of the property on 21.02.2011 and therefore, the ld.AO was correct in computing capital gains tax for the year as per sec. 2(47(u) of the Act. The CIT(A) upheld the action of the ld.AO and dismissed the ground raised by the assessee.
We have heard both the parties and perused the materials on record. In this case, the assessee has purchased a property vide MOU dated 20/12/2012 from M/s Confident Projects India Ltd., property measuring about 12 acres 4 guntas for a consideration of Rs.4.5 crores and paid advance of Rs.1 crore on 29/2/2012. Balance amount shall be paid on delivery of possession of the property. Later, the assessee entered into sale agreement on 21/2/2012 with M/s Confident Project India Pvt. Ltd., for the sale of same property measuring about 10 acres 4 guntas for consideration of Rs.12.5 crores and received advance of Rs.1 crore vide cheque No.17901 dated 24/2/2012 drawn on City Union Bank,
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Koramangala Branch, Bengaluru and also received post dated cheques for Rs.11 crores payable from 3/9/2012 to 7/12/2012. According to the AO, on entering into sale agreement by the assessee with M/s Confident Project India Pvt. Ltd., the assessee was extinguished all the rights in the property and hence it amounts to transfer within the meaning of sec.2(47)(ii) of the Income- tax Act. Since extinguishment of right in the immovable property in the impugned property, the AO brought on the difference between purchase and sale price as short terms capital gain in the assessment year under consideration. The contention of the ld.DR is that the assessee having acquired the right in a property under an agreement with the owners and later relinquishment of his right in favour of new purchaser for the year under consideration by the assessee for relinquishing the right for the property would attract provisions of sec.45(1) of the Act, which arises to short term capital gain and as such the ld.CIT(A) order to be confirmed. But in the present case, vide an agreement dated 20/12/2012, the assessee has not received the possession of the property and the delivery of the possession of property will be given to the assessee only on payment of balance consideration
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of 3.5 crores out of 4.5 croers. As per the sec.2(47)(i), transfer in relation to capital asset includes -
(i) The sale and exchange are realized on the asset so as to relinquish the asset. The assessee shall be in a possession of impugned property but in the present case, the property which was said to be existed or relinquished was not in the possession of the assessee and both purchase and sale agreement were unregistered agreement and it cannot be said that the assessee was in a physical possession of the property so as to relinquish the same in favour of the assessee. Being so, we are of the opinion that sec.2(47)(i) cannot be complied. Accordingly, we allow the appeal of the assessee. Since we have allowed the appeal of the assessee in the assessment year under consideration on this assessment year on merit, we refrain from going into other ground nos.2 and 2.1 on this appeal, which are kept open. The appeal in ITA No.2838/Bang/2017 is partly allowed.
ITA No.46 & 47/Bang/2018
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The grounds raised by the Revenue in both the appeals are common, hence, the grounds raised in ITA No.46/Bang/2028 extracted below :- “1. Whether on facts and in circumstances of the case, the ld.CIT(A) erred in deleting the penalties levied by the AO for the AYs 2013-14 of Rs.1,37,58,150/- & 2014-15 of Rs. 63,92,330/-, particularly when the Assessing Officer has proven that the Capital Gains arising on the sale of land would not have come to light, but for the search action u/s 132 ? 2. Whether on facts and in circumstances of the case, the Ld.CIT(A) erred in ignoring the eventuality that the assessee may prefer further appeal on the substantive additions for AY 2012-13 confirmed by the CIT(A), and hence in order to protect the interest of revenue and to keep the issue alive till the assessment of substantive addition reaches a finality, the protective assessments made & the penalties levied by the Assessing Officer ought to have been upheld?
These are protective assessment in all two asst. years. In earlier part of their order, we held that there is no chargeability of short term capital gain on the transaction discussed earlier in assessment year 2012- 13, being so, the same is to be taxed in the subsequent assessment years 2013-14 and 2014-15 on substantive basis and the grounds by the revenue are allowed.
In the result, the appeal raised by the Revenue in ITA Nos.46/Bang/2016 and 47/bang/2018 are allowed.
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Now Coming to the ITA No.45/Bang/2018, this appeal is with regard to chargeability of penalty u/s 271AAB .
The brief facts of the case are that assessee being the Managing Director of M/s. Rasasri Developers Private Ltd., on 01.10.2013, search was conducted in the office premises as well as at his residence. But the case of the assessee was not covered u/s. 132. In course of search u/s. 132 at the residential premises of the assessee, certain incriminating documents having a bearing upon the income of the assessee was seized. Accordingly, a notice u/s. 153C was issued to the assessee for the assessment year 2013-14 on 02.11.2015 requiring the assessee to file a return of income by 03.12.2015. In response, the assessee filed a letter on 18.11.2015 requesting that the return of income filed by him in regular course u/s. 139 on 29.03.2014 declaring an income of Rs. 4,58,68,500/- may be treated as a return filed in response to the notice issued u/s. 153C. Along with the assessment proceedings for the assessment year 2013-14, the assessment proceedings for the assessment year 2014-15 was also taken up by the A.O. For the
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assessment year 2014-15, the assessee had filed a return u/s. 139 on 3 1.3.2015 reporting an income of Rs. 10,25,69,240/-.
In the assessment proceedings for the assessment year 2012-13, the A.O. found that the assessee had entered into a Memorandum of Understanding [MOU] with M/s. Rasasri Developers Private Ltd., on 20.02.20 12 for purchasing land admeasuring 12 acres 4 guntas at S.Nos. 1/2. 5/2, 5/3 & 6/2, Sadaramangala Village, K R Pura Hobli, Bangalore East Taluka, Bangalore District for a total consideration of Rs. 4,50,00,000/-. On the next day i.e., 21.02.2012, the assessee entered into an Agreement to sell with M/s. Confident Projects (India) Private Ltd., offering to sell out of the above land, 10 acres 4 guntas for a consideration of Rs. 12,50,00,000/-. In the return of income for the current AY 2012-13, the assessee had not disclosed income from the sale of land. The ld.AO called for an explanation and the assessee explained that the capital gains arising on the sale of land has been declared by him in the returns of income for AY 2013-14 & 2014- 15 since the terms of the Agreement of A Sale dated 21.02.20 12 were given effect to by giving possession of
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the property and registering the sale deeds only in the previous year relevant to AY 2013-14 & 2014-15.
The ld.AO did not accept the contention of the assessee for the assessment year 2012-13 and has held that transfer of the capital asset took place as per the Agreement of Sale dated 21.02.2012 in the FY 2011-12 i.e., AY 2012-13 and short term capital gains therein accrued to the assessee. The ld.AO has worked out the short term capital gains for AY 2012-13 at Rs. 8,74,38,017/- in the order passed u/s. 153C rws 143(3) of the Act, dated 29.01.2016. Along with the assessment order for assessment year 2012-13, the A.O. has also passed the assessment order u/s. 153C rws 143(3) of the Act, dated 29.1.2016 for the assessment year 2013-14 accepting the capital gains returned protectively. Similar assessment order u/s. 143(3) rws 153D dated 29.1.20 16 was passed for assessment year 2014-15 accepting capital gains reported by the assessee.
The CIT(A), deleting the penalty observed that since he has confirmed the levy of charging of tax us 2(47)(i) for asst. year 2012-13, as such there is no question of levy of penalty in asst. years 2013-14 and 2014-15. Against this
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Revenue is in appeal before us in ITA Nos.45 & 46/Bang/2018.
We heard both the parties and perused the materials on record. We find that identical issue was considered by the Coordinate Bench of this Tribunal in the case of Shri Suresh H. Kerudi in ITA Nos.2950 to 2955/Bang/2018 vide order dated 25/10/20-19 for the assessment year 2007-08 to 2012-13, wherein it was held as under:-
“10. We have considered the rival submissions. We find that an identical plea was put forth by the assessee in the case of Shreeji Corporation (supra) and the Ahmedabad Bench of the Tribunal in its order accepted the stand and held as follows:- “5. A perusal of the assessment order undisputedly points out that no search had taken place in the case of the assessee per se under s.132 of the Act. A bare reading of law codified in Section 271AAB(1) clearly provides that the AO may direct the assessee to pay a sum by way of penalty at specified percentage where undisclosed income of the specified previous year has been detected as a result of search under s.132 of the Act. Section 271AAB(1)(a) however simultaneously provides concessional treatment in the matter of penalty under s.271AAB where the assessee admits the undisclosed income in a statement under sub-section 4 of Section 132 of the Act subject to fulfillment of other conditions with which we are presently not concerned with. Therefore, it is manifest that applicability of Section 271AAB is integrally connected to search under s.132 of the Act. In the absence of search under s. 132 of the Act, the assessee has no occasion to avail the concessional treatment by way of admission under s.132(4) of the Act. Thus, we find obvious merits in the observations made by the first appellate authority that provisions of Section 271AAB of the Act are not applicable to the case of the assessee. In the absence of search under s.132 of the Act, the consequential or incidental
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assessment proceedings under s.153C of the Act will not, in our view, entitle the AO to usurp jurisdiction under s.271AAB of the Act for the purposes of imposition of penalty. Hence, we do not see any infirmity in the conclusion drawn by the CIT(A).” 11. The Pune Bench of the Tribunal in the case of Volga Dresses (supra) has also taken a similar view:- "6. We have considered the rival submissions. A perusal of the provisions of section 271AAB shows that the opening words are "penalty where search has been initiated" a perusal of the provisions under Section 271AAB also talks of the assessee declaring any undisclosed income in the course of the search in the statement under section 132(4). Admittedly in the present case, that is in the case of the assessee firm in appeal there has been no search. Search admittedly is on the residence of one of the partner of the assessee firm. Further a perusal of the order of the learned CIT(A) also clearly shows that the learned CIT(A) has cancelled the penalty on the ground that there was no search in the case of the assessee firm. The revenue has not been able to point out as to how this finding of the learned CIT(A) is erroneous. This being so the finding of the learned CIT(A) on this issue stands confirmed." 12. In view of the aforesaid decision of coordinate Benches, we are of the view that the penalty in the case of assessee cannot be sustained as the assessee was not a person who was subjected to search u/s. 132 of the Act and consequently the provisions of section 271 AAB could not be invoked in his case. 13. In view of the above conclusion, we are not dealing with the other aspects of imposing penalty raised by the assessee in the grounds of appeal. 14. In the result, all the appeals of the assessee are allowed. 40. In view of the aforesaid decision of coordinate Benches, we are of the view that the penalty in the
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case of assessee cannot be sustained as the assessee was not a person who was subjected to search u/s. 132 of the Act and consequently the provisions of section 271AAB could not be invoked in his case.
Since the issue in dispute before us is similar to that considered by the Tribunal in an earlier occasion, taking a consistent view, we are of the opinion that levy of penalty u/s. 271AAB of the Act in these two assessment years in the case of assessee is not at all justified. Accordingly we delete the penalty u/s. 271AAB of the Act in both the assessment years.
In the result, assessee’s quantum appeal in ITA No.2838/Bang/2017 is allowed and the Revenue’s quantum appeal in ITA No.44 & 47/Bang/2018 are allowed and penalty appeal of Revenue in ITA No.45 & 46 are dismissed. Order pronounced in court on 27th December, 2021. Sd/- Sd/- (N.V VASUDEVAN) ( CHANDRA POOJARI) Vice President Accountant Member Bangalore, Dated, 27th December, 2021 / vms /
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Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order
Asst. Registrar, ITAT, Bangalore.
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Date of Dictation …………………………………… 2. Date on which the typed draft is placed before the dictating Member ……………………. 3. Date on which the approved draft comes to Sr.P.S .……………………………. 4. Date on which the fair order is placed before the dictating Member ……………….. 5. Date on which the fair order comes back to the Sr. P.S. ………………….. 6. Date of uploading the order on website…………………………….. 7. If not uploaded, furnish the reason for doing so ………………………….. 8. Date on which the file goes to the Bench Clerk ………………….. 9. Date on which order goes for Xerox & endorsement…………………………………… 10. Date on which the file goes to the Head Clerk ……………………. 11. The date on which the file goes to the Assistant Registrar for signature on the order ………………………………. 12. The date on which the file goes to dispatch section for dispatch of the Tribunal Order …………………………. 13. Date of Despatch of Order. ……………………………………………..