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Facts
The appeals stemmed from an assessment order passed under Section 153C of the Income Tax Act, 1961. The primary issue was the initiation of proceedings under Section 153C without any incriminating material found during the search operation, which was conducted on a third party. The assessee's appeal focused on quashing the initiation of proceedings, while the revenue's appeal questioned the deletion of additions.
Held
The Tribunal held that the action of the Assessing Officer in passing an order under Section 153C without referring to any incriminating document found during the search, and the CIT(A)'s action in sustaining additions without such reference, could not be sustained. Consequently, the assessee's appeal on this legal/technical ground was allowed, and the departmental appeal was dismissed.
Key Issues
Whether proceedings initiated under Section 153C are valid without incriminating material and whether additions made can be sustained without reference to such material.
Sections Cited
153C, 143(3), 132, 55(2)(b)(i)
AI-generated summary — verify with the full judgment below
आदेश/Order Per Krinwant Sahay, A.M.: The appeal in this case has been filed by the Assessee against the order dated 12.4.2022 passed by the ld. Commissioner of Income Tax (Appeals)-5, Ludhiana (herein referred to as ‘the CIT(A)’] for assessment year 2018-19. In this case, Revenue is in Cross appeal against the order of the CIT(A) vide ITA No. 552/Chd/2024.
2. First. we will take up appeal of the Assessee in ITA No.180/Chd./2024 wherein, following Grounds have been taken:
1. That the Ld. CIT(A)-5, Ludhiana has erred in not quashing the initiation of proceedings u/s 153C, since no incriminating evidence was found during the course of search, from the premises of the person, who had been searched and, thus, the initiation of proceedings u/s 153C is void abinitio and consequently, the assessment as framed by the Assessing Officer deserves to be quashed.
2. a). Notwithstanding the above said ground of appeal, the Ld. CIT(A) has erred in sustaining addition of Rs. 2,73,48,404/- against the returned long term capital loss to the tune of Rs. 4,75,91,617/- in the return of income. b). That while doing so, the Ld. CIT(A) has erred in adopting the ‘circle rate' as on 01.04.2001 and adopting the indexing cost of acquisition to the 180 & 552-Chd-2024 – Rawalpindi Coop Cinema Society ltd., Ludhiana 3
tune of Rs.13,27,51,596/- and which should have been calculated on the basis of 'fair market value' of the land of the assessee as on 01.04.2001, as per the provisions of Income Tax Act as claimed in the computation of income and which finding has been given by the Hon'ble Chandigarh/Amritsar Benches of the ITAT in certain cases.
3. That the Ld. CIT(A) has erred in not following the judgment of Jurisdictional Bench of the ITAT, wherein, it has been held that for determining the cost of acquisition for the purposes of calculation of long term capital gain, only 'fair market value' should have been adopted, rather than actual cost.
4. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.
Brief facts, as per the written submissions filed by the Assessee, are as under:- 1. M/s. Rawalpindi Co-op Cinema Society Ltd. ('the appellant') is a Cooperative Society and belongs to Kewal Krishan Chhabra Group of cases, wherein search was conducted on 28.11.2018.
The cases of the Assessee were opened by issuing notice u/sec 153C of the Act as the department was of the view that there were documents found from the premises of the Chhabra Group which belongs to the Assessee.
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3. The Assessee during the year under consideration has sold Land to M/s Periwal Enterprises Pvt Ltd. for an amount of Rs. 16 crores. The Assessee has taken cost of acquisition of the said Property at Rs. 7,68,51,000/- for AY 2001-02 and thus the indexed cost of acquisition at Rs. 20,74,02,720/-. The Assessee had shown Long Term Capital Loss at Rs. 4,74,02,720/-. The cost of acquisition as on 01.04.2001 was duly supported by Valuation report of approved valuer and the same was duly filed with the AO during the assessment proceedings.
4. The Assessing Officer held that the valuation report is not based on Circle-rate and even not on any sales instance and thus the same was ignored by him.
The Assessing Officer further took the value of Rs. 88,864/- (value as per Balance Sheet for AY 2017-18) shown as "Cinema Site" as value as on 01.04.2001 and indexed the same and calculated the Long Term Capital Gain at Rs. 15,97,58,290/- as against the Long Term Capital Loss of Rs. 4,74,02,720/- as shown by the Assessee.
6. During the course of CIT(A) proceedings, evidences in the form of Circle rate were duly filed with the CIT(A) as additional evidence, which were even verified by the AO. Based on the same, Cost of acquisition as on 01.04.2001 was calculated at Rs. 4,88,05,574/- and the same was 180 & 552-Chd-2024 – Rawalpindi Coop Cinema Society ltd., Ludhiana 5
indexed and Long Term Capital Gain was calculated at Rs. 2,72,48,404/-.
Now, the department is in appeal before the Hon'ble Bench on account of relief of Rs. 13,25,09,886/- as allowed by the CIT(A) to the Assessee and the Assessee is in appeal for balance addition.
Proceedings as initiated u/sec 153C of the Act are invalid since no incriminating material was found from the premises of the Assessee:
8. At the outset it is submitted that no incriminating evidence / document was ever found at the time of search relating to the transaction of sale of land by the Assessee.
9. As no incriminating material was unearthed during the search in case of any of the assessee either from the assessee or from the third party and the assessments were under Section 153C of the Act, then the reopening of the case u/s 153C stands null and void and the same cannot be challenged. The only document which was found during the course of search was notings of the estimations of expenses incurred by the assessee in the normal course of business and the same has been accounted for in its books of accounts. The AO has not specified any specific seized document and has only mentioned in a general way.
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During the course of assessment proceedings, the details of the expenses found in the list seized during the search operation were filed by the assessee before the Assessing Officer alongwith the documentary evidence showing the expenses accounted for in the books of accounts. Hence, no incriminating material was found during search which pertains to the assessee. The. Assessing Officer has not made any addition relating to any alleged incriminating material found during the course of search in the case of the Assessee. Had there been any incriminating document the same must have been mentioned in the order by Assessing Officer.
11. The issue of sale of Land by the Assessee was raised purely on the basis of disclosure in the Income Tax return already filed by the Assessee and not on account of any incriminating material as found during the course of search. Thus, the entire initiation of proceedings u/sec 153C of the Act are bad in law.
In support of his submissions, the ld. Counsel for the Assessee has placed reliance on the following case laws: a) Judgment in the case of PCIT Vs Abhisar Buildwell P. Ltd. as reported in 149 taxmann.com 399 (SC). b) Judgment in the case of DCIT vs U K Paints Overseas Ltd. as reported in 150 taxmann.com 108 (Supreme Court).
180 & 552-Chd-2024 – Rawalpindi Coop Cinema Society ltd., Ludhiana 7 c) Judgment in the case of Saksham Commodities Ltd. vs ITO as reported in 161 Taxmann.com 485 (Del HC). d) Judgment in the case of Agni Vishnu Ventures (P.) Ltd. Vs. Deputy Commissioner of Income-tax as reported in [2023] 157 taxmann.com 242 (Madras)(HC). e) Judgment in the case of PCIT Vs. Specialty Paper Ltd as reported in' [2024] 167 taxmann.com 409 (Bombay). f) Judgment in the case of PCIT Vs. Star PVG Exports as reported in [2019] 112 taxmann.com 163 (Karnataka). g) Judgment in the case of CIT Vs. Sinhgad Technical Education Society as reported in [2017] 84 taxmann.com 290 (SC). h) Judgment in the case of Pr. CIT vs Shardaber Arvindbhai Patel as reported in 152 Taxmann.com 535 (Guj HC) order dated 04.05.2023. i) Judgment in the case of Pr.CIT vs Ms Kavita Agarwal as reported in 143 taxmann.com 404 (Del HC). j) Judgment in the case of Sanjay Singal & Ors vs DCIT as reported in 92 ITR-Trib 214 (Chd). k) Judgment in the case of Khanna Infrabuild (P.) Ltd Vs. DCIT as reported in [2024] 166 taxmann.com 518 (CHD- Trib.) for the (AY 2017-18 to 2019-20).
I) Judgment in the case of Khanna Infrabuild (P.) Ltd Vs. DCIT as reported in (2024) 233 DTR_Trib (Chd)(Trib) 17 for the (AY 2013-14 to 2016-17).
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5. During proceedings before the Bench, the Assessee and the Revenue are in cross appeals against the order of ld. CIT(A) dated 12.02.2024 passed for assessment year 2018-19. The Assessee in its appeal took a preliminary jurisdictional ground wherein it has been pleaded that assessment order dated 31.03.2022 has been passed u/s 153C of the Income Tax Act. This assessment ought to have been passed on the basis of incriminating material found during the course of search on a third person other than the Assessee and said incriminating material should have been transmitted to the Assessing Officer of the Assessee along with his satisfaction note demonstrating that income of the Assessee has escaped assessment. Ld. Counsel for the Assessee emphasized that Assessing Officer has not referred any material which was found during the course of search and transmitted by the Assessing Officer of the searched person. He has been vaguely referring that “during the course of search various incriminating material was found and seized”. The above reference does not exhibit, what is the nature of this various incriminating material on the basis of whom addition could be made in the hands of the Assessee. Ld. Counsel for the Assessee further submitted that Assessee took a specific ground to this effect before the ld. CIT(A) but ld. CIT(A) has rejected this ground without recording any categorical finding. A 180 & 552-Chd-2024 – Rawalpindi Coop Cinema Society ltd., Ludhiana 9 reference to paragraph 5.2 of the impugned order was made, which read as under:-
“Grounds of appeal Nos. 2, 3, & 4: In these Grounds no. 2 and 3, the AR challenged the initiating of proceedings u/s 153C stating that there was no reason to believe for arriving at the conclusion that the reopening of the case u/s 153C was valid. In the assessment order, the AO has clearly mentioned the fact that during search operation, various incriminating documents were found and seized from the various business and residential premises of the group. Thus, the AO was right in initiating the proceedings u/s 153C and therefore, the contention of the appellant in these grounds are dismissed. The decisions cited by the appellant are distinguishable on the facts of the case. In ground no. 4 the AR has submitted that reasonable opportunity of being heard was not granted. As per assessment order, the reasonable opportunity was granted. Further, during the appellate proceeding also, the proper opportunity was granted. This ground is also dismissed.”
With the assistance of ld. Representatives of the parties, the Bench have heard the arguments on all the issues including this preliminary issue and reserve the order. However, the Bench deemed
180 & 552-Chd-2024 – Rawalpindi Coop Cinema Society ltd., Ludhiana 10 it appropriate that if satisfaction note would have been placed on the record, then it will be helpful to the Bench for deciding the issue justifiably. Therefore, exercising powers under Rule 29 of ITAT Rules, the Bench directed the ld. CIT DR to file the copy of the satisfaction note recorded by the Assessing Officer of the searched person and transmitted to the jurisdictional Assessing Officer of the Assessee with 15 days by passing this order, through Order Sheet dated 3.12.2024..
In response, the ld. DR has filed a letter dated 3.12.2024 7. alongwith a letter from the Assessing Officer which is reproduced as under:-
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180 & 552-Chd-2024 – Rawalpindi Coop Cinema Society ltd., Ludhiana 12
It is clear from the aforesaid letter of the Assessing Officer filed through the ld. DR that the copy of Satisfaction Note is not available in the case records, it is not clear what information the A.O. had received for issuing the notice u/s 153C and on what basis the assessment was 180 & 552-Chd-2024 – Rawalpindi Coop Cinema Society ltd., Ludhiana 13 done u/s 153C of the Income Tax Act,1961 without pointing out the incriminating documents against the Assessee found during the search and seizere from the business premises of the Kewal Krishan Chhabra Group.
During proceedings before us, the ld. AR further argued that even, for the sake of argument, it is accepted that there were incriminating material found in the case of the Assessee which lead to initiation of proceedings u/s 153C of the Act, but again it is a matter of fact that no adverse inference has ever been drawn by the Assessing Officer on account of any such alleged incriminating material. The only issue on account of addition is made by the Assessing Officer is issue of Long Term Capital gain / loss which was duly disclosed by the Assessee in the original return of income. It has been held by the different Hon'ble Courts that in case of Assessment Years, in which assessments have been completed, the addition, if any, can only be made based on incriminating material only.
10. The ld. DR relied on the order of the CIT(A).
We have considered the findings given by the Assessing Officer in the assessment order and the findings of the ld. CIT(A) in the appellate
180 & 552-Chd-2024 – Rawalpindi Coop Cinema Society ltd., Ludhiana 14 order. We have also considered the arguments made and written submissions filed by the Counsel of the Assessee before us. We have also heard the ld. DR, who relied on the order of the CIT(A). We find that the assessment has been framed u/s 153C, Pre-requisite of passing any order u/s 153C is to make reference to the incriminating documents found ( relating t; the Assessee) during the course of a search on some other party. In this case, a search u/s 132 of the Income Tax Act, 1961 (in short 'the Act’) was conducted on Kewal Krishan Chhabra Group. Since the satisfaction note is not available on record of the A.O., therefore, it is not clear what incriminating documents were found about the Assessee on which notice was issued u/s 143(3) of the Act and the assessment was completed. In fact, both the Assessing Officer and the ld. CIT(A) have mentioned that incriminating documents were found about the Assessee during the search conducted but none have mentioned or referred to any incriminating document either in the assessment order passed by the A.O. or in the Appellate order by the CIT(A). Even the addition which was made by the A.O. and confirmed by the ld. CIT(A) is relating to valuation of a property that the Assessee had sold (land) of M/s Periwal Enterprises Pvt Ltd. for a sum of Rs. 16 Crores. This has been made basis of information that was already available in the income
180 & 552-Chd-2024 – Rawalpindi Coop Cinema Society ltd., Ludhiana 15 Tax return filed by the Assessee in the normal course. So, there is no reference of any incriminating document found relating to the Assessee on this issue either in the assessment order or in the appellate order. Keeping in view various case laws cited by the Counsel of the Assessee above, particularly the case law of ‘PCIT vs. Abishar Buildwell P Ltd.’, 149 taxmann.com 399 (SC) and ‘DCIT vs. U. K. Paints Overseas Ltd., 150 taxmann.com 108 (SC), the assessment made by the A.O. u/s 153C and the appellate order passed by the ld. CIT(A) thereon cannot be sustained. Accordingly, Assessee’s appeal on this technical / legal ground is allowed. Since the issue has been decided on technical / legal issue in favour of the Assessee as above, we are not inclined to decide the case on other issues.
In the result, the appeal of the Assessee is allowed.
– Revenue’s appeal: 13. The Revenue in its appeal in has taken following grounds of appeal:-
1. Whether on facts and circumstance of the case the case the ld. CIT(A) was justified in deleting addition of Rs. 13,25,09,886/- on account of undisclosed LTCG ?
2 Whether on facts and circumstances of the case the Ld. C'IT(A) was justified in applying the stamp duty rates of year 2003 instead of year 2001 for 180 & 552-Chd-2024 – Rawalpindi Coop Cinema Society ltd., Ludhiana 16 calculating cost of acquisition for calculating of capital gain and thereby, ignoring the provisions of section 55(2)(b)(i) of the Income Tax Act, 1961. 3 The appellant craves leave so add. amend, modify, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal.
Brief facts of the case, as submitted by the ld. Counsel for the Assessee has already been discussed above. During the proceedings before us, the ld. DR defended the assessment order passed by the Assessing Officer as well as the appellate order passed by the ld. CIT(A). the ld. DR argued that the CIT(A) has rightly held as under:- “In the assessment order, the Assessing Officer has clearly mentioned the fact that during search operation, various incriminating documents were found and seized from various business and residential premises of the group. Thus, the A.O. was right in initiating the proceedings u/s 153C and, therefore, the contention of the appellant in these grounds are dismissed.”
In order to confirm the kind of incriminating document available with the A.O. on which the assessment was completed u/s 153C of the Act, the Bench directed the ld. DR to file a copy of Satisfaction Note as available on the assessment record with the A.O. The ld. DR has filed a letter dated 3.12.2024 alongwith a letter from the Assessing Officer in which the Assessing Officer has categorically
180 & 552-Chd-2024 – Rawalpindi Coop Cinema Society ltd., Ludhiana 17 submitted that the copy of Satisfaction Note is not found in case records of the Assessee. In the absence of any satisfaction note and any reference to any incriminating document found during the search relaxing to the Assessee for framing the order u/s 153C of the Act, the Assessing Officer has brought nothing on record except a vague observation that many incriminating documents were found about the Assessee. The ld. CIT(A) in his appellate order has also not referred to any incriminating material / document found relating to the issue during the search as referred by the A.O. in the assessment order or appellate order nor any addition has been made on the basis of any incriminating document found. The only addition that has been made by the Assessing Officer and confirmed by the ld. CIT(A) is on the basis of difference of valuation of land that the Assessee had already shown in its original return of income filed for A.Y. 2018-19 and that addition is also because of the difference in valuation of land but no incriminating documents as such has either been found during the search or brought on record/ referred by the Assessing Officer in the assessment order on this issue. Similarly, ld. CIT(A) has also not referred to any incriminating document found during the search referred to by the Assessing Officer on this issue in his appellate order.
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Therefore, in our considered opinion, keeping in view various case laws referred to above, we find that the action of the A.O. of passing order u/s 153C without referring any incriminating document relating to Assessee found during the search and the action of the ld. CIT(A) of sustaining any addition made by the A.O. without any reference to incriminating doucemnt cannot be sustained. Accordingly, the Departmental appeal on this issue is dismissed, as already decided by us, while deciding the issue in appeal of the Assessee on legal / technical ground in ITA no.180/Chd/2024. Therefore, we do not find it proper to decide the Departmental Appeal (Cross appeal) on other issues.
In the result, the Appeal filed by the department stands dismissed.
In the result, appeal of the Assessee stands allowed whereas, the appeal of the Revenue is dismissed. Order pronounced on 15. 01.2025.