DEPUTY COMMISSIONER OF INCOME TAX , CENTRAL CIRLCE-2, LUDHIANA vs. RAWALPINDI CO-OP CINEMA SOCIETY LTD, LUDHIANA

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 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.

That the Ld. CIT(A) has erred in not following the judgment of Juri ictional 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.

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. 2. 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.

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.

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.

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 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.

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.

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.

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.

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: 180 & 552-Chd-2024 – Vs. Deputy Commissioner of Income-tax as reported in [2023] 157 taxmann.com 242 (Madras)(HC).

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 juri ictional 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 reference to paragraph 5.2 of the impugned order was made, which read as under:-

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

In response, the ld. DR has filed a letter dated 3.12.2024 alongwith a letter from the Assessing Officer which is reproduced as under:-

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 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.

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

In the result, the appeal of the Assessee is allowed. ITA No. 552/Chd/2024 – Revenue’s appeal: 13. The Revenue in its appeal in ITA No. 552/Chd/2024 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 ?

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

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. ( RAJPAL YADAV ) Accountant Member “आर.के.”