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Facts
A search action was conducted on the assessee and related entities, leading to proceedings under Section 153C of the Income Tax Act. The primary dispute involves the classification of Rehabilitation and Reclamation (R&R) expenses as either revenue or capital expenditure.
Held
The Tribunal held that the initiation of proceedings under Section 153C was incorrect as the R&R expenses were disclosed and not incriminating. The Tribunal also noted that the Assessing Officer had previously accepted these expenses as revenue expenditure, and a change of opinion is not permitted. Therefore, the addition made by the AO was deleted.
Key Issues
Whether the R&R expenses are revenue or capital in nature, and whether the proceedings under Section 153C were validly initiated and conducted.
Sections Cited
153C, 132, 153A, 250, 143(3), 37, 234B, 244A, 234D, 143(2), 154, 263, 144
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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI. LAXMI PRASAD SAHU & SHRI. SOUNDARARAJAN K
ORDER Per Laxmi Prasad Sahu, Accountant Member :
All these appealsare filed by the assessee against the common Order passed by the CIT(A) vide Order dated 31.01.2025 on the following grounds of appeal:
Grounds of appeal in ITA No.619/Bang/2025:
The appellate order passed by the learned Commissioner of Income- 1. tax [Appeals] - 15, Bengaluru, passed under Section 250 of the Act dated 31/01/2025 for the impugned assessment year 2013-14, in so to 622/Bang/2025 Page 2 of 26 far as it is against the Appellant is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant’s case.
The appellant denies himself liable to be assessed on a total income 2. determined by the learned assessing officer and confirmed by the learned Commissioner of Income-tax [Appeals] of Rs. 39,02,60,495/- as against the total income declared and returned by the appellant of Rs. 36,79,96,145/-, on the facts and circumstances of the case.
The appellant denies himself liable to be assessed under section 143 3. [3] r.w.s. 153C of the Act under the impugned order on the ground that:-
[i]. The learned assessing officer has not discharged the burden of proving that there is a valid initiation of proceedings under section 153 C to assume valid jurisdiction to make an assessment under section 153 C of the Act.
[ii]. The proceedings initiated under section 153 C are not based on proper reasoning but done with non-application of mind.
[iii]. The appellant contends that the learned assessing officer has not properly followed the mandatory requirements and various parameters for assuming jurisdiction under section 153 C of the Act and that the provisions of 153 C have not been properly complied with and consequently the impugned order passed on an invalid assumption of jurisdiction under section 153C of the Act is void-ab- into and requires to be cancelled, on the facts and circumstances of the case.
The learned Commissioner of Income-tax failed to appreciate that the 4. order of assessment passed by the learned assessing officer is bad in law since the learned assessing officer has failed to record the satisfaction regarding an inference of liability before the issuance of to 622/Bang/2025 Page 3 of 26 notice under section 153C of the Act and consequently the assessment is bad in law and liable to be cancelled, on the facts and circumstances of the case.
The learned Commissioner of Income-tax [Appeals] failed to properly 5. appreciate that the addition made in the impugned order of assessment passed by the learned assessing officer is not based on any incriminating material and further failed to appreciate that for making additions under the proceedings initiated under section 153C of the Act moreso when the proceedings are unabated, the additions should be necessarily based on a seized material which are necessarily to be incriminating in nature, in the instant case the same is absent and consequently the addition made by the learned assessing officer and confirmed by the learned Commissioner of Income-tax [Appeals] requires to be deleted, on the facts and circumstances of the case.
The learned Commissioner of Income-tax [Appeals] failed to properly 6. appreciate that the entire proceeding initiated under section 153C of the Act is bad in law since the appellant as per the statement of the learned assessing officer is searched under section 132 of the Act, then the provisions of section 153A of the Act ought to have been initiated and not proceedings under section 153C of the Act and consequently the learned Commissioner of Income-tax [Appeals] ought to have cancelled the entire assessment proceedings as bad in law and without assumption of proper jurisdiction, on the facts and circumstances of the case.
The learned Commissioner of Income-tax [Appeals] is not justified in 7. confirming the addition made by the learned assessing officer as Capital expenditure by disallowing a sum of Rs. 2,22,64,350/- being Rehabilitation and Reclamation Expenses claimed by the appellant as to 622/Bang/2025 Page 4 of 26 Revenue expenditure in the profit and loss account based on the facts and circumstances of the case.
The learned Commissioner of Income-tax [Appeals] and the learned 8. assessing officer both failed to appreciate that what is incurred by the appellant towards Rehabilitation and Reclamation Expenses, are revenue in nature and further the expenditure incurred by the appellant cannot be capitalized since the land on which appellant is carrying on the mining activity is a leased land and cannot be added to the cost of the land and the appellant has not received any enduring benefit to be treated as capital expenditure on the facts and circumstances of the case.
The learned Commissioner of Income-tax [Appeals] failed to 9. appreciate that the Rehabilitation and Reclamation Expenses claimed by the appellant is allowable as per the provisions of section 37 of the Act, since the said expenditure incurred by the appellant is related to the carrying on or the conduct of the business which is expended wholly and exclusively for the purposes of business of the appellant and the same has to be regarded as an integral part of the profit- earning process and not for acquisition of an asset or a right of a permanent character and hence is a revenue expenditure, on the facts and circumstances of the case.
Without prejudice, to the right to seek waiver as per the parity of reasoning of the decision of the Hon’ble Apex Court in the case of Karanvir Singh 349 ITR 692, the Appellant denies himself liable to be charged to interest under section 234 B, 244 A & 234 D of the Income Tax Act on the facts and circumstances of the case. The appellant contends that the levy of interest under section 234 B of the Act is also bad in law as the period, rate, quantum and method of calculation to 622/Bang/2025 Page 5 of 26 adopted by the learned assessing officer on which interest is levied are not discernible and are wrong on the facts of the case.
The appellant craves leave to add, alter, amend, substitute or delete 11. any or all of the grounds of appeal urged above.
For the above and other grounds to be urged during the course of 12. hearing of the appeal the Appellant prays that the appeal be allowed in the interest of equity and justice.
The appellate order passed by the learned Commissioner of Income- 13. tax [Appeals] - 15, Bengaluru, passed under Section 250 of the Act dated 31/01/2025 for the impugned assessment year 2014-15, in so far as it is against the Appellant is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant’s case.
The appellant denies himself liable to be assessed on a total income determined by the learned assessing officer and confirmed by the learned Commissioner of Income-tax [Appeals] of Rs. 129,62,17,558/- as against the total income declared and returned by the appellant of Rs. 128,65,88,270/-, on the facts and circumstances of the case.
The appellant denies himself liable to be assessed under section 143 15. [3] r.w.s. 153C of the Act under the impugned order on the ground that:-
[iv]. The learned assessing officer has not discharged the burden of proving that there is a valid initiation of proceedings under section 153 C to assume valid jurisdiction to make an assessment under section 153 C of the Act. to 622/Bang/2025 Page 6 of 26 [v]. The proceedings initiated under section 153 C are not based on proper reasoning but done with non-application of mind.
[vi]. The appellant contends that the learned assessing officer has not properly followed the mandatory requirements and various parameters for assuming jurisdiction under section 153 C of the Act and that the provisions of 153 C have not been properly complied with and consequently the impugned order passed on an invalid assumption of jurisdiction under section 153C of the Act is void-ab- into and requires to be cancelled, on the facts and circumstances of the case.
16. The learned Commissioner of Income-tax failed to appreciate that the order of assessment passed by the learned assessing officer is bad in law since the learned assessing officer has failed to record the satisfaction regarding an inference of liability before the issuance of notice under section 153C of the Act and consequently the assessment is bad in law and liable to be cancelled, on the facts and circumstances of the case.
The learned Commissioner of Income-tax [Appeals] failed to properly 17. appreciate that the addition made in the impugned order of assessment passed by the learned assessing officer is not based on any incriminating material and further failed to appreciate that for making additions under the proceedings initiated under section 153C of the Actmoreso when the proceedings are unabated, the additions should be necessarily based on a seized material which are necessarily to be incriminating in nature, in the instant case the same is absent and consequently the addition made by the learned assessing officer and confirmed by the learned Commissioner of Income-tax [Appeals] requires to be deleted, on the facts and circumstances of the case. to 622/Bang/2025 Page 7 of 26 The learned Commissioner of Income-tax [Appeals] failed to properly 18. appreciate that the entire proceeding initiated under section 153C of the Act is bad in law since the appellant as per the statement of the learned assessing officer is searched under section 132 of the Act, then the provisions of section 153A of the Act ought to have been initiated and not proceedings under section 153C of the Act and consequently the learned Commissioner of Income-tax [Appeals] ought to have cancelled the entire assessment proceedings as bad in law and without assumption of proper jurisdiction, on the facts and circumstances of the case.
The learned Commissioner of Income-tax [Appeals] is not justified in 19. confirming the addition made by the learned assessing officer as Capital expenditure by disallowing a sum of Rs. 96,29,288/-being Rehabilitation and Reclamation Expenses claimed by the appellant as Revenue expenditure in the profit and loss account based on the facts and circumstances of the case.
The learned Commissioner of Income-tax [Appeals] and the learned 20. assessing officer both failed to appreciate that what is incurred by the appellant towards Rehabilitation and Reclamation Expenses, are revenue in nature and further the expenditure incurred by the appellant cannot be capitalized since the land on which appellant is carrying on the mining activity is a leased land and cannot be added to the cost of the land and the appellant has not received any enduring benefit to be treated as capital expenditure on the facts and circumstances of the case.
The learned Commissioner of Income-tax [Appeals] failed to 21. appreciate that the Rehabilitation and Reclamation Expenses claimed by the appellant is allowable as per the provisions of section 37 of the Act, since the said expenditure incurred by the appellant is related to to 622/Bang/2025 Page 8 of 26 the carrying on or the conduct of the business which is expended wholly and exclusively for the purposes of business of the appellant and the same has to be regarded as an integral part of the profit- earning process and not for acquisition of an asset or a right of a permanent character and hence is a revenue expenditure, on the facts and circumstances of the case.
Without prejudice, to the right to seek waiver as per the parity of reasoning of the decision of the Hon’ble Apex Court in the case of Karanvir Singh 349 ITR 692, the Appellant denies himself liable to be charged to interest under section 234 B, 234C& 234 D of the Income Tax Act on the facts and circumstances of the case. The appellant contends that the levy of interest under section 234 B of the Act is also bad in law as the period, rate, quantum and method of calculation adopted by the learned assessing officer on which interest is levied are not discernible and are wrong on the facts of the case.
The appellant craves leave to add, alter, amend, substitute or delete any or all of the grounds of appeal urged above.
For the above and other grounds to be urged during the course of 24. hearing of the appeal the Appellant prays that the appeal be allowed in the interest of equity and justice.
Grounds of appeal in ITA No.621/Bang/2025:
25. The appellate order passed by the learned Commissioner of Income- tax [Appeals] - 15, Bengaluru, passed under Section 250 of the Act dated 31/01/2025 for the impugned assessment year 2015-16, in so far as it is against the Appellant is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant’s case. to 622/Bang/2025 Page 9 of 26 The appellant denies himself liable to be assessed on a total income 26. determined by the learned assessing officer and confirmed by the learned Commissioner of Income-tax [Appeals] of Rs. 67,06,34,882/- as against the total income declared and returned by the appellant of Rs. 66,95,02,497/-, on the facts and circumstances of the case.
27. The appellant denies himself liable to be assessed under section 143 [3] r.w.s. 153C of the Act under the impugned order on the ground that:-
[vii]. The learned assessing officer has not discharged the burden of proving that there is a valid initiation of proceedings under section 153 C to assume valid jurisdiction to make an assessment under section 153 C of the Act.
[viii]. The proceedings initiated under section 153 C are not based on proper reasoning but done with non-application of mind.
[ix]. The appellant contends that the learned assessing officer has not properly followed the mandatory requirements and various parameters for assuming jurisdiction under section 153 C of the Act and that the provisions of 153 C have not been properly complied with and consequently the impugned order passed on an invalid assumption of jurisdiction under section 153C of the Act is void-ab- into and requires to be cancelled, on the facts and circumstances of the case.
The learned Commissioner of Income-tax failed to appreciate that the 28. order of assessment passed by the learned assessing officer is bad in law since the learned assessing officer has failed to record the satisfaction regarding an inference of liability before the issuance of notice under section 153C of the Act and consequently the assessment is bad in law and liable to be cancelled, on the facts and circumstances of the case.
The learned Commissioner of Income-tax [Appeals] failed to properly 29. appreciate that the addition made in the impugned order of assessment passed by the learned assessing officer is not based on any incriminating material and further failed to appreciate that for making additions under the proceedings initiated under section 153C of the Actmoreso when the proceedings are unabated, the additions should be necessarily based on a seized material which are necessarily to be incriminating in nature, in the instant case the same is absent and consequently the addition made by the learned assessing officer and confirmed by the learned Commissioner of Income-tax [Appeals] requires to be deleted, on the facts and circumstances of the case.
The learned Commissioner of Income-tax [Appeals] failed to properly 30. appreciate that the entire proceeding initiated under section 153C of the Act is bad in law since the appellant as per the statement of the learned assessing officer is searched under section 132 of the Act, then the provisions of section 153A of the Act ought to have been initiated and not proceedings under section 153C of the Act and consequently the learned Commissioner of Income-tax [Appeals] ought to have cancelled the entire assessment proceedings as bad in law and without assumption of proper jurisdiction, on the facts and circumstances of the case.
The learned Commissioner of Income-tax [Appeals] is not justified in confirming the addition made by the learned assessing officer as Capital expenditure by disallowing a sum of Rs. 11,32,385/- being Rehabilitation and Reclamation Expenses claimed by the appellant as Revenue expenditure in the profit and loss account based on the facts and circumstances of the case. to 622/Bang/2025 Page 11 of 26 The learned Commissioner of Income-tax [Appeals] and the learned 32. assessing officer both failed to appreciate that what is incurred by the appellant towards Rehabilitation and Reclamation Expenses, are revenue in nature and further the expenditure incurred by the appellant cannot be capitalized since the land on which appellant is carrying on the mining activity is a leased land and cannot be added to the cost of the land and the appellant has not received any enduring benefit to be treated as capital expenditure on the facts and circumstances of the case.
The learned Commissioner of Income-tax [Appeals] failed to 33. appreciate that the Rehabilitation and Reclamation Expenses claimed by the appellant is allowable as per the provisions of section 37 of the Act, since the said expenditure incurred by the appellant is related to the carrying on or the conduct of the business which is expended wholly and exclusively for the purposes of business of the appellant and the same has to be regarded as an integral part of the profit- earning process and not for acquisition of an asset or a right of a permanent character and hence is a revenue expenditure, on the facts and circumstances of the case.
Without prejudice, to the right to seek waiver as per the parity of 34. reasoning of the decision of the Hon’ble Apex Court in the case of Karanvir Singh 349 ITR 692, the Appellant denies himself liable to be charged to interest under section 234 B, 244A& 234 D of the Income Tax Act on the facts and circumstances of the case. The appellant contends that the levy of interest under section 234 B of the Act is also bad in law as the period, rate, quantum and method of calculation adopted by the learned assessing officer on which interest is levied are not discernible and are wrong on the facts of the case. to 622/Bang/2025 Page 12 of 26 The appellant craves leave to add, alter, amend, substitute or delete 35. any or all of the grounds of appeal urged above.
For the above and other grounds to be urged during the course of hearing of the appeal the Appellant prays that the appeal be allowed in the interest of equity and justice.
Grounds of appeal in ITA No.622/Bang/2025:
The appellate order passed by the learned Commissioner of Income- 36. tax [Appeals] - 15, Bengaluru, passed under Section 250 of the Act dated 31/01/2025 for the impugned assessment year 2016-17, in so far as it is against the Appellant is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant’s case.
The appellant denies himself liable to be assessed on a total income 37. determined by the learned assessing officer and confirmed by the learned Commissioner of Income-tax [Appeals] of Rs. 38,74,23,530/- as against the total income declared and returned by the appellant of Rs. 38,72,79,155/-, on the facts and circumstances of the case.
The appellant denies himself liable to be assessed under section 143 [3] r.w.s. 153C of the Act under the impugned order on the ground that:-
[x]. The learned assessing officer has not discharged the burden of proving that there is a valid initiation of proceedings under section 153 C to assume valid jurisdiction to make an assessment under section 153 C of the Act.
[xi]. The proceedings initiated under section 153 C are not based on proper reasoning but done with non-application of mind. to 622/Bang/2025 Page 13 of 26 [xii]. The appellant contends that the learned assessing officer has not properly followed the mandatory requirements and various parameters for assuming jurisdiction under section 153 C of the Act and that the provisions of 153 C have not been properly complied with and consequently the impugned order passed on an invalid assumption of jurisdiction under section 153C of the Act is void-ab- into and requires to be cancelled, on the facts and circumstances of the case.
The learned Commissioner of Income-tax failed to appreciate that the 39. order of assessment passed by the learned assessing officer is bad in law since the learned assessing officer has failed to record the satisfaction regarding an inference of liability before the issuance of notice under section 153C of the Act and consequently the assessment is bad in law and liable to be cancelled, on the facts and circumstances of the case.
The learned Commissioner of Income-tax [Appeals] failed to properly 40. appreciate that the addition made in the impugned order of assessment passed by the learned assessing officer is not based on any incriminating material and further failed to appreciate that for making additions under the proceedings initiated under section 153C of the Actmoreso when the proceedings are unabated, the additions should be necessarily based on a seized material which are necessarily to be incriminating in nature, in the instant case the same is absent and consequently the addition made by the learned assessing officer and confirmed by the learned Commissioner of Income-tax [Appeals] requires to be deleted, on the facts and circumstances of the case.
The learned Commissioner of Income-tax [Appeals] failed to properly 41. appreciate that the entire proceeding initiated under section 153C of the Act is bad in law since the appellant as per the statement of the learned assessing officer is searched under section 132 of the Act, then to 622/Bang/2025 Page 14 of 26 the provisions of section 153A of the Act ought to have been initiated and not proceedings under section 153C of the Act and consequently the learned Commissioner of Income-tax [Appeals] ought to have cancelled the entire assessment proceedings as bad in law and without assumption of proper jurisdiction, on the facts and circumstances of the case.
The learned Commissioner of Income-tax [Appeals] is not justified in confirming the addition made by the learned assessing officer as Capital expenditure by disallowing a sum of Rs. 1,44,375/-being Rehabilitation and Reclamation Expenses claimed by the appellant as Revenue expenditure in the profit and loss account based on the facts and circumstances of the case.
The learned Commissioner of Income-tax [Appeals] and the learned 43. assessing officer both failed to appreciate that what is incurred by the appellant towards Rehabilitation and Reclamation Expenses, are revenue in nature and further the expenditure incurred by the appellant cannot be capitalized since the land on which appellant is carrying on the mining activity is a leased land and cannot be added to the cost of the land and the appellant has not received any enduring benefit to be treated as capital expenditure on the facts and circumstances of the case.
The learned Commissioner of Income-tax [Appeals] failed to appreciate that the Rehabilitation and Reclamation Expenses claimed by the appellant is allowable as per the provisions of section 37 of the Act, since the said expenditure incurred by the appellant is related to the carrying on or the conduct of the business which is expended wholly and exclusively for the purposes of business of the appellant and the same has to be regarded as an integral part of the profit- earning process and not for acquisition of an asset or a right of a to 622/Bang/2025 Page 15 of 26 permanent character and hence is a revenue expenditure, on the facts and circumstances of the case.
Without prejudice, to the right to seek waiver as per the parity of 45. reasoning of the decision of the Hon’ble Apex Court in the case of Karanvir Singh 349 ITR 692, the Appellant denies himself liable to be charged to interest under section 234 B, 244A& 234 D of the Income Tax Act on the facts and circumstances of the case. The appellant contends that the levy of interest under section 234 B of the Act is also bad in law as the period, rate, quantum and method of calculation adopted by the learned assessing officer on which interest is levied are not discernible and are wrong on the facts of the case.
The appellant craves leave to add, alter, amend, substitute or delete 46. any or all of the grounds of appeal urged above.
47. For the above and other grounds to be urged during the course of hearing of the appeal the Appellant prays that the appeal be allowed in the interest of equity and justice.
From the above grounds of appeal for all four years it is clear that the issues raised by the assessee are identical except figures taken in the grounds of appeal and heard together. Therefore, for the sake of convenience, we are disposing all these appeals together.
Briefly stated the facts of the case are that a search action under section 132 of the Act was conducted in the case of M/s. Assetz Infrastructure (P) Ltd., on 21.08.2018 at No.2/1, Embassy Icon, Annexe, Infantry Road, Bengaluru – 560 001, wherein the residence premises of assessee Shri Ramamurthy Praveen Chandra, No.8/1, Bull Temple Road, Basavanagudi, Bengaluru – 560 004 and office premises of the assessee at No.32(Old No.421), 7th B Main Road, 4th to 622/Bang/2025 Page 16 of 26 Block, Jayanagar, Bengaluru – 560 011 was covered on 21.08.2018 in connection with search proceedings in the group case of M/s. Assetz Properties and Others Group. Assessee is an individual and has filed his original return of income under section 139(1) of the Act for all the years and income disclosed by him as well as the total income by the assessee in response to notice under section 153A of the Act are as under:
2013-14 2014-15 2015-26 2016-17 SALEY 4573564 HOUSE PROPERTY 7986790 8716072 9586870 9676227 PGBP 269570718 1237670552 493696985 325550587 STCG 136372 222312 655065 10021 CAPITAL GAIN 12563022 IOS 101974790 51714335 152804718 57852150 TOTAL INCOME 367996150 1286588270 669502500 387279160 RETURN FILED ON139(1) 29.09.2013 28.0902014 30.09.2015 17.10.2016 143 (1) 31.10.2014 1,20,62,015 17.01.2017 80602017 143(3) ( RETURNED INCOME ACCEPTED 29.03.2016 29.12.2016 153C NOTICE 26.10.2020 26.10.2020 26.10.2020 26.10.2020 A53A RETURN FILED 25.11.2020 25,11.2020 25.11.2020 25.11.2020 ADDITION MADE DISALLOWED U/S 37 22264350 9628288 1132385 144375
The case was centralized and notice under section 153A of the Act was issued to the assessee.
During the course of search proceedings, certain documents were seized from residence premises and inventorized as A/RPC/01 to A/RPC/03 and from office premises documents seized and inventorized as A/PC/01 and A/PC/02, were considered as incriminating documents for purpose of making assessment which pertains to the assessee, has a bearing on the total income of the assessee which is undisclosed income and not offered to tax as per Income Tax Act in the original return of income filed.
The documents seized from the premises mentioned above belonging to the assessee and were found during search proceedings in the case of M/s. Assetz Infrastructure (P) Ltd., (searched person) and having bearing on the determination of the total income of the assessee for the year under consideration. The AO of the search person and other person (Shri Ramamurthy Praveen Chandra). After examining the seized material, the AO who is also the AO of Shri Ramamurthy Praveen Chandra.
After recording the satisfaction note in the case of the assessee, notice under section 153Cof the Act was issued on 26.10.2020. In pursuance to notice under section 153C of the Act, assessee filed return of income on 25.11.2020 admitting the same income as reported in return filed under section 139(1) of the Act. Later on scrutiny notice under section 143(2) of the Act and other statutory notices were issued to the assessee. On examination of the documents submitted, it was observed that during the course of search and seizure, statement of the assessee was recorded under section 132(4) of the Act in which the assessee has mentioned that contribution towards special purpose vehicle are claimed as revenue expenditure. The relevant portion of the statement is reproduced as under:
to 622/Bang/2025 Page 18 of 26 8. Accordingly, a show cause notice was issued to the assessee on 26.01.2021 asking how the amount contributed towards special purpose vehicle was accounted books of accounts during the previous year and contribution towards special purpose vehicle expenses shall not be treated as capital expenditure and shall not be disallowed under section 37 of the Act. In response to the show cause notice dated 20.01.2021 assessee submitted response on 26.01.2021. Assessee stated that during the previous year assessee has spent a sum of Rs.2,22,64,350/- and treated as revenue expenditure. Assessee also placed reliance on various judgments. The AO after examining the case law did not accept the case laws relied on by the assessee. Further, on perusal of the schedule to P & L Account submitted by the assessee it was found that assessee has claimed Rs.2,22,64,350/- as R & R (Rehabilitation and Reclamation) expenditure on government leased land during the year. The AO further noted that in respect of R & R expenditure which arises on the acquisition of land as the lump sum or annuity payment to be made by a developer to the land seller provision should be created at the time of the acquisition of the land itself. This is because the developer has present obligation in this regard at the time of acquisition of the land itself and the other two criteria for recognition are normally met at that point of time. The amount in respect of the provision should be crated at the time of acquisition of land in respect of the other R & R expenditure with regard to which the developer has a present obligation which cannot be avoided. Such expenditure should also be capitalized as part of the cost of land. Any cost capitalized as part of land is a capital cost. There is no depreciation benefit available to the assessee though the cost of land increases and he may sell the land. Therefore R & R expenditure debited in the P & L Account was treated as capital expenditure instead of revenue expenditure as claimed by the assessee and addition was made in the Assessment Order under section 143(3) r.w.s. 153C of the Act completed on 31.03.2023. The AO passed common Order for all the years except making change in figures. to 622/Bang/2025 Page 19 of 26 9. Aggrieved from the above Order assessee filed appeal before the CIT(A) raised various legal grounds and by relying on various judgments CIT(A) did not accept the plea of the assessee and dismissed appeal of the assessee and he passed common Order.
10. Aggrieved from the above Order assessee filed appeal before the Tribunal. The learned Counsel reiterated the submissions made before the lower authorities and submitted that it is clear from the Assessment Order that the assessee was searched and notice under section 153A of the Act was issued by the AO instead of notice under section under section 153C of the Act. Therefore the entire assessment framed by the AO is bad in law and void abnitio. He further submitted that satisfaction note was not provided to the assessee by the AO even till the date of arguments before the Tribunal. The AO has made addition only on the basis of statements recorded of the assessee which cannot be considered as incriminating documents. During the course of search and seizure proceedings, no incriminating documents were found by the investigation team. Only the financial statements were found and on the basis of that AO has treated it as capital expenditure whereas it was claimed by the assessee as revenue expenditure. Therefore, it cannot be said that it is incriminating documents or undisclosed income by the assessee. The disputed expenditure was duly disclosed in the return. It was submitted that mandatory requirements for assuming jurisdiction under section 153C of the Act have not been properly complied with and further assessee is of the apprehension that the reasons have not been properly recorded by the AO for invoking provisions of section 153C of the Act. Consequently, the entire assessment under section 144 r.w.s. 153 of the Act is liable to be quashed. The reasons given by the AO for invoking section 153C of the Act does not contain the date of recording satisfaction and consequently the proceedings initiated is not in accordance with law. In support of his arguments he relied on the judgments of jurisdictional High Court in the case of CIT Vs. IBC Knowledge Park Pvt. Ltd., reported in to 622/Bang/2025 Page 20 of 26 348 ITR 346. He further relied on the judgment of Arihant Aluminium Corporation Vs. ACIT in (Karnataka High Court), CIT Vs. Mechmen,380 ITR 573 [MP]; CIT Vs. RRJ Securities, 380 ITR 612 [Del].
He further submitted that even though the AO of the searched person and the other searched person is one and the same the provision has to be followed strictly as held in the Order of the Tribunal (supra). In the instant case, assessee is the apprehension that no such proper procedure is followed as per section 153C of the Act. He further submitted that the AO has made addition by disallowing R & R expenditure claimed by the assessee in its P & L Account as incriminating in nature for the purpose of making addition as per the provision of section 153C of the Act. It is now settled position of law that for making any addition under section 153C of the Act addition should necessarily based on seized material which is incriminating in nature and not disclosed in the financial statements filed with the Income Tax Department.. The P & L Account seized during the course of search conducted by the AO and relied upon by the AO for the purpose of disallowing R & R expenditure for the Assessment Years computed by the AO are not incriminating in nature. The P & L Account does not constitute any incriminating in nature nor does it relate to undisclosed income.He further submitted that for the Assessment Years 2013-14 and 2014-15, assessment was completed under section 143(3) of the Act on 29.03.2016 and 29.12.2016 respectively where in the regular scrutiny proceedings with specific questionnaire was raised by the then AO as regards to R & R Expenditure claimed in the Profit & Loss Account claimed as Revenue expenditure in the financial statements with regard to the R & R expenditure and the assessee has given a detail explanation on 3012.2014,05.01.2015 which are placed at paper Book page No. 29 to 33 and 29.12.2016 respectively. The AO after thoroughly verifying and examining the documents and details submitted has accepted the submissions of the assessee and has allowed expenditure claimed by the assessee on R & R expenditure and consequently to 622/Bang/2025 Page 21 of 26 passed Assessment Order except the return filed by the assessee. Now further in 153C proceeding the AO has disallowed the same expenditure. This is complete change of opinion by the Income Tax Department which is not permitted once the AO has taken a view and accepted in the assessment proceedings subsequently in other proceedings under the Income Tax Act under different section opinion cannot be changed. The entire information was available with Income Tax Department in as much as return of income as well as the financial statements were already filed and disclosed in the books of accounts and are part of financial statements filed along with return of income. The issue of treating R & R expenditure claimed in the P & L Account is disclosed toIncome Tax Department and cannot by any stretch of imagination be treated as incriminating in nature. The details are already presented and verified by Income Tax Department during the regular assessment proceedings under section 143(3) of the Act which is already been passed as indicated above. Thus the addition made with regard to disallowance of R & R expenditure is not undisclosed income and no addition can be made in the proceeding under section 153C of the Act since it was disclosed to the Income Tax department. He also argued the case on merits and submitted that the expenditure incurred by the assessee are revenue in nature. Findings recorded by the AO that it is a capital expenditure is also wrong. Since the expenditure was incurred in the government land and the expenditure was incurred as per the guidelines of the Hon’ble Apex Court and the assessee owns A category mines. In support of this, he relied on the following judgments: CIT Vs. Sinhgad Technical Education Society reported in 397 ITR 344 ACIT Central Circle 2 [3] Bangalore Vs. Smt. Pallavi Ravi, in to 274/Bang/2018, order dated 16/05/2019 Sree Lakshmi Venkateshwara Minerals Vs. DCIT, reported in [2021] 123 taxmann.com 255 [Bangalore - Trib] [30/09/2020] CIT Vs. Motor Industries Co Ltd., 223 ITR 112 to 622/Bang/2025 Page 22 of 26 Sassoon J David it Co., [P] Ltd., Vs. CIT, 118 ITR 261 M/s. Bombay Steam Navigation Company, reported in 56 ITR 52 CIT Vs. Abhoyjan Tea Estate [P] Ltd. 110 ITR 251 Eastern Investments Ltd Vs. CIT [1951] 20 ITR 1 [SC]; CIT Vs. Chaandulal Keshavlal & Co., [1960] 38 ITR 601 [SC]; CIT Vs. Nainital Bank limited [1966] 62 ITR 638 [SC]; Sri Venkata Sathyanarayana Rice Mill Contractors Co. Vs. CIT [1997] 223 ITR 101 [SC]; 12. On the other hand, learned DR relied on the Orders of the lower authorities and submitted that the documents were found during the search of M/s. Assetz Infrastructure Pvt. Ltd., and pertains and relates to assessee. AO has recorded satisfaction and he is the same AO for the searched person and other person. Therefore, there is no separate satisfaction note recorded for both the assessee, only one satisfaction is sufficient. During the course of statement recorded of the assessee as per question answer No.10, assessee has himself accepted that it has to be capitalized which was treated in the books of accounts as revenue expenditure. These expenditures incurred by the assessee are related to the mining activity as undertook by the assessee. Assessee is required to compulsorily has to expand the money as per special purpose vehicle which is part and parcel of the mining activity. Therefore, expenditure incurred is capital in nature. The AO has rightly disallowed after recording the statement and declaring in the statement the assessee has not retracted with the separate statement before the investigation wing. These expenditures are lump sum taken in the nature of annuity. Therefore, assessment has been rightly framed by the AO. The learned CIT(A) has also rightly dismissed.
Considering the rival submissions and perusing the entire material available on record and Orders of authorities below, we noted that assessee has taken identical grounds for all the years except difference in figures. Here the dispute is regarding treating of R & R expenditure as capital expenditure by the to 622/Bang/2025 Page 23 of 26 Revenue authorities. However, assessee himself has claimed it as revenue in nature. We noted from the Assessment Order that for Assessment Years 2013- 14 and 2014-15, assessment has been completed under section 143(3) of the Act on 29.03.2016 and 29.12.2016 respectively. We noted from the statement recorded and Assessment Order no separate incriminating documents were found except financial statements. The figures are reported in the financial statements and treated as revenue expenditure. As per submission of the assessee during the course of assessment proceedings u/s 143(3), The AO has already been enquired and assessee hs furnished reply which are palced at paper book page No. 29 to 32 on this point and he has accepted that the R & R expenditure is revenue in nature. There is trait law that in assessment proceedings once the income tax officer has taken a view the same cannot be changed in other assessment proceedings on the same points . There is other mechanism to correct the earlier view taken by the AO u/s 154 of the Act or by exercising jurisdiction u/s, 263 by the CIT after passing the assessment order. In the instant case, the entire expenditures were debited into P & L Account and investigation wing has not found any documents which are not recorded in the books of accounts or not shown in the financial statements and earlier not disclosed with the Income Tax Department.. The addition made by the AO are not transactions outside books of accounts it is incorporated in the financial statements and recorded in the books of accounts. Therefore, it cannot be considered as incriminating documents or undisclosed income to invoke section 153C of the Act. For the sake of convenience, we are reproducing section 153C of the Act as under: 153C. Assessment of income of any other person. (1)Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that,— (a)any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or to 622/Bang/2025 Page 24 of 26 (b)any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years referred to in sub-section (1) of section 153A : Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to sub-section (1) of section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person : Provided further that the Central Government may by rules30 made by it and published in the Official Gazette, specify the class or classes of cases in respect of such other person, in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years as referred to in sub-section (1) of section 153A except in cases where any assessment or reassessment has abated. (2)Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other person after the due date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year— (a)no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or to 622/Bang/2025 Page 25 of 26 (b)a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub-section (2) of section 143 has expired, or (c)assessment or reassessment, if any, has been made, before the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person, such Assessing Officer shall issue the notice and assess or reassess total income of such other person of such assessment year in the manner provided in section 153A. [(3) Nothing contained in this section shall apply in relation to a search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A on or after the 1st day of April, 2021.]
14. We noted that all these informations were already in the domain of the income tax department in as much as return of income as well the audited financial statements is already filed and disclosed in the Books of Account and are part of financial statement filed along with the Return of Income. The issue of treating the Reclamation and Rehabilitation expenses claimed in the profit and loss account is very much disclosed to the income tax department and cannot by any stretch of imagination be treated as incriminating in nature. The details are already presented and verified by the income tax department during the regular assessment proceedings under section 143[2] and an order of assessment passed under section 143[3] of the Act has been passed for the Assessment Years 2013-14 vide order dated 29/03/2016. These aspects are also enquired during the search in the appellant premises and all the accounts are verified during the course of the search proceedings. Thus, the addition made as regard to the disallowance ofReclamation and Rehabilitation expenses are not undisclosed income and consequently no addition can be made in the proceedings under section153C of the Act. to 622/Bang/2025 Page 26 of 26 15. Therefore, initiation made by the AO under section 153C of the Act is not correct since it is not undisclosed income only it is change of opinion which is not permitted. The other grounds taken by the assessee are left open.
In the result, we have allowed grounds raised by the assessee as per above terms for all the years.
In the result, appeals filed by the assessee are allowed. A common order passed shall be kept in respective case files.