ATS REAL ESTATE BUILDERS PRIVATE LIMITED,NEW DELHI vs. DCIT, CIRCLE-1(1), DELHI

This appeal is preferred by the Assessee against the order dated 31.03.2023 of the Commissioner of Income-tax (Appeals)-3, Gurgaon (hereinafter referred to as the Ld. First Appellate Authority or ‘the Ld. FAA’, for short) in Appeal No.10368/2017-18 arising out of the appeal before it against the order dated 26.12.2018 passed u/s 153C r.w.s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by the DCIT, Central Circle- II, Gurgaon (hereinafter referred to as the Ld. AO).

Heard and perused the ground. The brief facts giving rise to this appeal are that there was search on 29.04.2015 on M/s Orient Craft Ltd. group of cases wherein document Page 93-116 of Annexure A-8, Party OS-1 as mentioned in the assessment order were allegedly found which were said to be “belonging” to the assessee and based upon these documents, the jurisdiction was assumed by recording ‘Satisfaction Note’ dt. 7.6.2017 and by issuing notice u/s 153C of the Act, on 13.06.2017. 2.1. The facts of the case, material on record and arguments of the appellant have been gone through in detail. The case of revenue is that the appellant is a group company of M/s Orient Craft Ltd. having common directors and shareholders. M/s Orient Craft Ltd. (hereafter referred as M/s Orient) was having land measuring 40 kanal and 7 marlas at village Khandsa, Gurgaon, appearing as investment in the balance sheet. M/s Orient applied to the Town and Country Planning Department, Govt, of Haryana for grant of permission for change of land used in order to develop Cyber Project over the said land. M/s Orient and the appellant entered into a collaboration agreement on 30.09.2006 for the development of the said project upon the said land. As per the said agreement, entire cost of development for the project was to be borne by the appellant and the appellant was to receive 85% share out of the developed space after the (covered and uncovered area out of the project) the completion of the said project. 2.2 Subsequently, the appellant entered into another collaboration agreement on 13.10.2006 with M/s Bestech India Pvt. Ltd. wherein M/s Bestech was to develop the said project at its own cost and out of the project space (covered and uncovered areas) was to be apportioned in the ratio of 55%, 15% and 30% in favour of M/s Bestech, M/s Orient and the appellant, respectively. The said agreement dated 13.10.2006 contained reference of the first agreement entered by the appellant with M/s Orient (supra). Subsequently, M/s Bestech has carried the development of the said project after necessary sanctions were obtained. After completing the construction, the completion cum occupancy certificate was obtained on 08.05.2013 from the Director, Town and Country Planning, Haryana vide memo No. 39003 dated 08.05.2013. 2.3 As a result, 1,88,228 sq. ft. of office space and 6,392sq.ft. of commercial space out of the said project accrued to the appellant as its share after the occupancy certificate was issued by the Govt, of Haryana on 08.05.2013. During the period of development of the said project, the appellant has entered into various agreements with different customers for sale of the said space (1,21,010 sq. ft.) out of the said project. During the year under consideration, sale deeds were executed for 14,325 sq. ft. of space in favour of various costumers for Rs. 10,42,26,300/-. The appellant has disclosed the said amount in the ITR as gross business receipts from sale of commercial space under the 3 head revenue from operations. Further, in respect of remaining 1,06,685 sq. ft. of space, the appellant has received advance amount of Rs. 17,40,74,016/- and amount of Rs. 5,49,49,164/- was outstanding to be received from different customers against total consideration of Rs. 22,90,31,180/-. Thus as per the case of revenue canvassed by ld. DR, it became relevant to examine the taxability under the under the relevant provisions of the Act in the hands appellant in consequence to agreements entered on 03.09.2006/13.10.2006 (supra) and space measuring 1,94,620 sq. ft. out of the said project accrued during the year under consideration after the occupancy certificate (on 08.05.2013). 2.4 As per the said agreements/the appellant has agreed to construct and develop the said project as per the specifications laid in the license /permissions obtained from Govt, of Haryana at its own cost and the appellant was entitled to receive 85% of space as consideration out of the said project after its execution as its share. In order to undertake the development of the said project and to discharge its obligation, the appellant subsequently entered into another agreement with M/s Bestech wherein the entire development would be taken by M/s Bestech and as consideration M/s Bestech was to receive 55% as its share out of the said project after execution leaving 30% share in favour of the appellant and 15% in favour of M/s Orient. 2.5 Thus resultantly out of the above 2 agreements entered during FY 2006- 07, the appellant was to execute the said agreements entered with M/s Orient and M/s Bestech separately and as a result was entitled to receive 30% of share 4 out of the constructed and unconstructed areas out of the project with proportionate rights in the land underneath the entire project. However, the appellant was entitled to receive the said share subject to completion of the said project and after obtaining necessary sanctions and clearances from various Authorities. As per revenue, it is evident that the project has been successfully developed by M/s Bestech and completion cum occupancy certificate has been obtained from the Director, Town Country Planning, Haryana (competent authority) on 08.05.2013. Therefore, the collaboration agreements entered by the appellant (supra) have been executed in the entirety and benefit in the shape of l,88,228sq.ft.of office space and 6,392sq.ft.of commercial space (1,94,620 sq. ft . of total space out of the said project) has accrued to the appellant as its share / consideration resulting from the execution of the above agreements. Therefore, it is clear that consideration in (the shape of 1,94,620 sq. ft. of project space (in kind) has accrued to the appellant from the successful execution of above agreements during the year under consideration.

Now before us, ld. Counsel has primarily contested the appeal on first two grounds which relate to assumption of jurisdiction u/s 153C of the Act and which according to the ld. Counsel was not assumed in accordance with law. His emphasis was on the ‘Satisfaction Note’, which is reproduced at page 46 of order of ld.CIT(A) and on various grounds it was alleged to be lacking essentials of a valid assumption of jurisdiction.

Now the first thing to be kept in mind is that the deemed date of search, in case of assessee being the person other than the searched person, as per the decision of Hon’ble Supreme Court in the case of CIT vs. Jasjit Singh, (2023) 458 ITR 0437 is 07.06.2017 when satisfaction note was recorded, hence AY 2014-15 becomes unabated assessment as originally the return was filed on 30.09.2014 and hence addition could be made in respect of incriminating material for this very year found as a result of search, which in this case, as per ld. Counsel is not there. 4.1 Now what is interesting to note is that ld. CIT(A) at page 43 of the impugned order holds that there was no need for any incriminating material. Ld. CIT(A) records at page 43 in para 6.11 of the appeal order that the present year cannot be said to be unabated assessment as the date of search was 29.4.2015. Ld. DR could not dispute the settled state of law now after decision in Jasjit Singh Case (Supra) and & of Hon’ble Delhi High Court in the case of Ojuss Medicare 465 ITR 101 (Del) where it is now held that the date of satisfaction note/handing over the books would be the date of search. On that basis, date of satisfaction note is 7.6.2017 and hence, impugned AY 2014-15 becomes unabated. Thus it was quite essential that ‘satisfaction note’ should be a self contained document about the incriminating material belonging to assessee for the relevant years found in the search leading to assumption of jurisdiction.

In aforesaid context it will be appropriate to reproduce the body of ‘satisfaction note’ as reproduced in the impugned order of ld. CIT(A) here below:- “Reasons/satisfaction note for taking up the case the case of M/s Olympus Realtors (P) Ltd. u/s 153C of the Income Tax Act, 1961. By virtue of the authorization of the Principal Director of Income Tax (Investigation), Chandigarh, a search & seizure operation u/s 132(1) of the Act was carried out on 29.04.2015 at the residential/business premises of the persons associated with M/s Orient Craft group. During the course of search proceedings, documents/records related to M/s Olympus Realtors (P) Ltd. were found at the premises F-8, Okhla Industrial Area, Phase-1, New Delhi. As per seized documents from the premises of M/s Orient Craft Ltd, it transpired that the company is a subsidiary of the Orient Craft Group and has the promoters of M/s OCL as its directors and share holders. The Company M/s OCL had entered into an agreement with company M/s Olympus Realtors (P) Ltd for development of cyber park project in Gurgaon. The company M/s Olympus Realtors (P) Ltd. had in turn entered into a back to back agreement with M/s Bestech India Pvt. Ltd. During the search operation undisclosed income to the tune of Rs. 33 crores has been detected in the case of M/s Olympus Realtors (P) Ltd. resulting into concealment of income. In view of the above and as per the provisions of sub-section (1) of section 153C of the Act, I am satisfied that the documents seized from the business premises of M/s Orient Craft group belongs to a company other than the company referred to in section 153A., concealed income and evaded tax thereon. Accordingly, it is necessary to issue notice to such company, and reassess its income in accordance and the provisions of section 153C r.w.s. 153A of the Act.” 5.1 As we appreciate this satisfaction note recorded u/s 153C of the Act by the ld.AO, we find that this ‘Satisfaction Note’ has been recorded for all the years from AY 2010-11 to 2016-17 in consolidated manner and there is no specific reference to the fact that the Satisfaction Note is incriminating material found for impugned AY 2014-15. Ld. Counsel has relied the decision in DCIT vs. Sunil Kumar Sharma 469 ITR 197 (Kar) (para 53) as approved by Hon’ble Supreme Court in DCIT vs. Sunil Kumar Sharma 469 ITR 271 (SC) and Blue Ocean Travels P Ltd. Vs. DCIT ITA 3281/Del/2024 dt. 4.12.24 (Del)(Trib); Agni Vishnu Ventures P Ltd. Vs. DCIT 460 ITR 478 (Mad), to contend that it is necessary that the satisfaction note should be illustrative of the fact as to which AY, the alleged incriminating material belongs. Here we can observe that as settled proposition of law in CIT vs. Sinhgad Technical Education Society, (2017) 397 ITR 0344 (SC) Hon’ble Supreme Court has held that there should be document wise and year wise satisfaction note.

Very apparently the impugned ‘Satisfaction Note’ does not corelate any seized document year-wise to the assessee. The ‘Satisfaction Note’ does not mention as to how the vaguely referred seized documents give rise assumption of jurisdiction under section 153C of the Act, by showing that material seized during the search belongs or pertains to a assessee and is likely to have a bearing on assessee’s income. To be more precise as to how, in satisfaction note AO concluded “During the search operation undisclosed income to the tune of Rs. 33 crores has been detected in the case of M/s Olympus Realtors (P) Ltd. resulting into concealment of income.”

It can be further observed that the said ‘Satisfaction Note’ is quite vague and lacks precision as it does not mention any specific seized document belonging/relating/pertaining to assessee and for the year under appeal. Then 8 ‘Satisfaction Note’ mentions that the vaguely referred seized documents were found from F 8, Okhla Industrial Area, Phase I New Delhi whereas the Assessment Order mentions that seized documents were found from 7D, Maruti Industrial Area, Sector 18, Gurgaon which means that the documents on the basis of which ‘Satisfaction Note’ was prepared were different than the documents based on which impugned addition was made.

In this context ld. AR has successfully demonstrated before us that even seized documents (page 93 to 116 of Annexure A-8, Party OS-1) (PB 30-53) as referred by ld.AO in the assessment order in any case were not incriminating and that too for the year under appeal in as much as at PB 33-42, 43-53 there is copy of Collaboration Agreements entered in the year 2006. There is nothing incriminating in content for AY 2014-15. Further, PB 30 clearly mentions that it is in the name of ‘Orient Crafts Ltd’ and not to the assessee. Thus, it does not belong or pertain to or relate to the assessee and it does not relate to AY 2014- 15. Further, PB 31-32, details of Orient Bestech Business Tower -1 summary is also “as on 29.4.2015” i.e. falls in AY 2016-17 and mention amounts which were already accounted for as is evident from PB 13, note of other long term liability and PB16, revenue from operations. Ld. Counsel has demonstrated by referring to PB 31-32, details of Orient Bestech Business Tower -1 summary that entries relating to AY 2014-15 have been accounted for as income in profit and loss account and rest of the entries relate to different years and shown in the Balance sheet as Advance received. Thus, there is actually nothing 9 incriminating in content. Ld. Counsel has then established that alleged seized document copy i.e. PB 33-42 and 43-53 are impounded Page 93-116 of Annexure A-8, Party OS-1, but same are collaboration agreements entered in the year 2006 and PB 30 capital asset converted into stock in trade statement relates to ‘Orient Craft Ltd’ and not to the assesse. Ld. Counsel has also rightly submitted that ld. CIT(A) at page 47 in para 7.3 of the appeal order wrongly mentions on his own that satisfaction note was recorded on the basis of page no. 93-115 of Annexure 8 whereas the satisfaction note reproduced at page 46 of the appeal order shows that there is no such reference of such documents.

Thus the manner in which satisfaction note is recorded on gross basis, without referring to incriminating material corresponding to years involved, makes the same not in accordance with settled judicial principles. In any case, the whole case ld. CIT(A) has created is on basis of ‘occupation certificate’ which has no reference in the ‘Satisfaction Note’ nor the same was found in search but extensively used by CIT(A) for making enhancement of income.

Ld. CIT(A) mentions at page 47 in para 7.3 of the appeal order that assessee has not accounted for the income accrued from the collaboration agreements in its income tax returns for any of the AY. However, ld. Counsel has argued that these collaboration agreements are unregistered and in view of the decision of Supreme Court in Balbir Singh Maini 398 ITR 531 (SC) (CLC 176-187), Suraj Lamps vs State of Haryana (SC) (CLC 188-196), Sanjay Sharma (SC) (CLC 197-213), no right accrues to the assessee. In any case the 10 subject matter is immovable property which do not become property of the assessee only on the basis of occupation certificate issued in the name of Bestech and Orient Craft. We appreciate the contention in this regard that immovable property can come to assessee either under section 53A or 54 of the Transfer of Property Act. Thus, as and when registrations were being done in the name of the nominees (Customers) of the assessee, income is being recognized in the respective years viz AY 2014-15, 2016-17, 2018-19. Accrual of income from ownership of property without title being in hands of assesse, only on basis of inventorisation of assets, was not justified to record in satisfaction note that there was concealment of income in the relevant assessment year.