SKYLARK BUILD,MUMBAI vs. ASST CIT CEN CIR 4(2), MUMBAI

आदेश / O R D E R

Per Bench This bunch of 41 appeals including cross objections/cross

appeals is by different assessees as well as by the Revenue

challenging the respective impugned orders of the First Appellate

Authority, Mumbai. First, we shall take up the appeals of the

assessee in M/s Skylark Build for Assessment Years 2007-08 to

2011-12 (ITA No.4370, 3237, 4371, 3238, & 6199/ Mum/2015).

summarized as under:-

“That on the facts and circumstance of the case and the provisions of law, the assessment framed by the learned Assessing Officer and confirmed by the Commissioner of Income tax (Appeals) is against the statutory provisions of the Act and without complying the procedures prescribed u/s. 153C of the Income tax Act, 1961 and as such the assessment being bad in law and deserved to be quashed.”

“That in the absence of incriminating material, no additions can be made by the Assessing Officer and no additions can be

16 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . confirmed by the Commissioner of Income tax (Appeals) in respect of purchases in a case where assessment is completed u/s. 153C of the income tax act, 1961 and as such the additions are bad in law and deserve to be deleted.” 2.1. In the aforesaid additional grounds, the assessee has

challenged validity of issuance of notice u/s 153C of the Income

Tax Act, 1961 (hereinafter the Act). This additional legal ground

has been raised for the first time before this Tribunal. The ld.

counsel for the assessee contended that legal ground can be

raised before this Tribunal for which reliance was placed upon

the decision from Hon'ble Apex Court in the case of National

Thermal Power Co. Ltd vs. CIT (1998) 229 ITR 0383 (SC). On the

other hand, Ld. CIT-DR Shri Rahul Raman, opposed the

admission of additional ground by contending that at this stage,

the legal ground cannot be raised.

2.2. We have considered the rival submissions and

perused the material available on record. Before adverting

further, it is our bounded duty to analyze the decision from

Hon'ble Apex Court in National Thermal Power Company Ltd.

((Supra)), wherein, following question was raised:-

17 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . "Where on the facts found by the authorities below a question of law arises (though not raised before the authorities) which bears on the tax liability of the assessee, whether the Tribunal has jurisdiction to examine the same ?"

The Hon'ble Apex Court on the aforesaid question of law

observed/held as under:-

“5. Under s. 254 of the IT Act, the Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under s. 254 only to decide the grounds which arise from the order of the CIT(A). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier.

8.. The reframed question, therefore, is answered in the affirmative, i.e., the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee. We remand the proceedings to the Tribunal for consideration of the new grounds raised by the assessee on the merits.”

2.3. It is also noted that Hon'ble jurisdictional High Court in DIRECTOR OF INCOME TAX VS. INGRAM MICRO (INDIA)

18 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . EXPORTS PVT. LTD. (2015) 234 Taxman 464 (Bom) observed/held as under:-

“After hearing both sides and perusing the relevant material including the impugned orders, we are of the view that there is much substance in the contention of Mr. Mistri. The additional ground was permitted and with regard to the validity of the proceedings under s. 153C as the Tribunal concluded that this issue or question goes to the root of the case. If it is answered either way, the matter would come to an end. The Tribunal has noted that the additional ground is the legal ground going to the root of the case. The AO did not allow inspection of the record to the assessee or its counsel and that is why they have raised additional ground about validity of the proceedings under s. 153C. That is about absence of any satisfaction being recorded by the officer who was assessing the search party. There is no dispute about the fact that the assessee was not searched and the search has been conducted in the case of Ingram Micro (India) Exports Pte. Ltd./Tech Pacific (India) Ltd. at their business premises in Mumbai. Therefore, in terms of s. 153A and 153C of the IT Act, proceedings can only be initiated after the AO arrives at a satisfaction that the seized material pertains to other persons, namely, persons other than the searched party. It is only then the persons other than the searched parties can be proceeded against. There is nothing in the assessment order which would indicate that the assessment officer arrived at such satisfaction. The Tribunal noted that it has allowed this additional ground to be raised after hearing the departmental representatives' objection. To do complete justice and to both sides the Tribunal gave enough opportunity to the Revenue to produce the files and if the same contain the satisfaction of the AO, then, to rely upon it before the Tribunal. The Tribunal noted that more than 20 months passed after the first direction to produce the record was issued. Despite repeated adjournments and as noted by the Tribunal in para 9 of the impugned order, the satisfaction requisite for initiation of the proceedings under s. 153C was not available. The record in that behalf was not produced. In these circumstances, not only did the Tribunal find that it was necessary and in the interest of justice to permit raising of an additional ground, but to answer it. It is only to enable it to answer it that it relied on the settled principles and the judgment of the Hon'ble Supreme Court in the case of Manish Maheshwari vs. Asstt. CIT (2007) 208 CTR (SC) 97 : (2007) 289 ITR 341 (SC). It is only to enable the Tribunal to refer to the settled principles and for re-enforcing its conclusion that this judgment is referred.”

19 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . 2.4. Hon'ble Delhi High Court in ITO VS. JASJIT SINGH

CO-138 TO 142/DEL/2014 decided on 23rd September, 2014.

(Delhi) held as under:-

“6 Having gone through the above cited decision, we come to the conclusion that the whole purpose of preferring the appeal and cross objections and raising new ground for the first time before the appellate authority is to correctly assess the tax liability of an assessee. When we consider the present case under the above back ground, we find that there is no dispute that for deciding the issue raised before the ITAT in the cross objections regarding validity of the assessment order on the basis that (i) the Assessing Officer had not recorded satisfaction while proceedings for framing assessment under sec. 153-C of the Act; (ii) the Assessing Officer had not signed the manuscript of the assessment order as required under sec. 282A of the Act; (iii) no incriminating documents in respect of the assessee was found from the possession of persons covered under sec. 153A of the Act, no new facts outside the record of the authorities below is required to be considered. In other words, the question of law raised above is arising from the facts which are on record in the assessment proceedings. When there is no need to consider the new facts outside the record for the adjudication of the above issue and undisputedly when those issues are necessary to consider to correctly assess the tax liability of an assessee, as per the ratios held down by the Hon’ble Supreme Court in the case of NTPC, there is no reason why such a question should not be allowed to be raised.” 2.5. In the case of CIT vs Singhad Technical Education

Society (Civil Appeal No.11081 to 11083 of 2017) order dated

29/08/2017, the Hon'ble Apex Court held/observed as under:-

“18. The Tribunal permitted this additional ground by giving a reason that it was a jurisdictional issue taken up on the basis of facts already on the record and, therefore, could be raised. In this behalf, it was noted by the Tribunal that as per the provisions of s. 153C of the Act, incriminating material which was seized had to

20 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . pertain to the assessment years in question and it is an undisputed fact that the documents which were seized did not establish any co-relation, document-wise, with these four assessment years. Since this requirement under s. 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of s. 153C of the Act. Para 9 of the order of the Tribunal reveals that the Tribunal had scanned through the Satisfaction Note and the material which was disclosed therein was culled out and it showed that the same belongs to asst. yr. 2004-05 or thereafter. After taking note of the material in para 9 of the order, the position that emerges therefrom is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the respondent, argued that notice in respect of asst. yrs. 2000-01 and 2001-02 was even time-barred. 19. We, thus, find that the Tribunal rightly permitted this additional ground to be raised and correctly dealt with the same ground on merits as well. Order of the High Court affirming this view of the Tribunal is, therefore, without any blemish. Before us, it was argued by the respondent that notice in respect of the asst. yrs. 2000-01 and 2001-02 was time-barred. However, in view of our aforementioned findings, it is not necessary to enter into this controversy.”

If the aforesaid judicial pronouncements are kept in

juxtaposition with the facts of the present appeals, the assessee

has raised jurisdictional issue/legal issue with respect to

issuance of notice u/s 153C of the Act, with respect to

Assessment Years 2006-07 to 2011-12, without complying with

the statutory provisions and the procedures prescribed u/s

153C of the Act. Respectfully following the aforesaid decisions

21 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . from Hon'ble Apex Court including Hon'ble jurisdictional High

Court, the additional ground/legal ground raised by the

assessee is admitted.

2.6. Now, we shall deal with the legal issue, raised by the

assessee. The crux of the argument is that while issuing the

notice u/s 153C of the Act, the provisions of section 153A r.w.s.

153C and the conditions enshrined therein has not been

complied with by the Assessing Officer of the other person, other

than searched person. The Ld. Counsel invited our attention to

the conditions laid down in the aforesaid provision. On the

other hand, the Ld. CIT-DR contended that the conditions

mentioned in the sections has been duly complied with by the

Ld. Assessing Officer.

2.7. We have considered the rival submissions and

perused the material available on record. The facts in brief are

that a search and seizure action u/s 132(1) of the Act was

carried on 22/09/2011 at the residential premises of Shri

Sudhakar M. Shetty, partner of the firm. As per the Revenue,

various incriminating documents found and seized. As per the

22 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . assessee, one document, neither incriminating nor belonging to

the assessee was found. On the basis of said document, the Ld.

Assessing Officer issued notice u/s. 153C of the Income tax Act,

1961 in the case of the assessee right from the assessment year

2006-07 to 2011-12. The Assessing Officer has passed the order

for the assessment year 2007-08 to 2011-12 against which

assessee had preferred appeals before the Ld. Commissioner of

Income tax (Appeals). The Ld. Commissioner of Income tax

(Appeals) has partly allowed the appeals, which are under

challenge before this Tribunal.

2.8. Before adverting further, it is our bounded duty to

examine section 153C of the Act, which is reproduced hereunder

for ready reference:-

153C. (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 (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

23 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . 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 17[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 rules18 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 19[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 (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) ofsection 143 has expired, or

24 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . (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.” 2.9. We are also reproducing hereunder the provisions of

section 153A of the Act for analysis:-

153A. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall— (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years 9[and for the relevant assessment year or years] referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made 9[and for the relevant assessment year or years] : Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years 9[and for the relevant assessment year or years] : Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years 9[and for the relevant assessment year or years] referred to in this sub-section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate : Provided also that the Central Government may by rules10 made by it and published in the Official Gazette (except in cases where any assessment or reassessment has abated under the second proviso), specify the class or classes of cases 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

25 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . the previous year in which search is conducted or requisition is made 11[and for the relevant assessment year or years]: 11[Provided also that no notice for assessment or reassessment shall be issued by the Assessing Officer for the relevant assessment year or years unless— (a) the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more in the relevant assessment year or in aggregate in the relevant assessment years; (b) the income referred to in clause (a) or part thereof has escaped assessment for such year or years; and (c) the search under section 132 is initiated or requisition under section 132A is made on or after the 1st day of April, 2017. Explanation 1.—For the purposes of this sub-section, the expression "relevant assessment year" shall mean an assessment year preceding the assessment year relevant to the previous year in which search is conducted or requisition is made which falls beyond six assessment years but not later than ten assessment years from the end of the assessment year relevant to the previous year in which search is conducted or requisition is made. Explanation 2.—For the purposes of the fourth proviso, "asset" shall include immovable property being land or building or both, shares and securities, loans and advances, deposits in bank account.] (2) If any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Principal Commissioner or Commissioner: Provided that such revival shall cease to have effect, if such order of annulment is set aside. Explanation.—For the removal of doubts, it is hereby declared that,— (i) save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to the assessment made under this section; (ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year. 2.10. If the provision of section 153C of the Act is analyzed,

it clearly lays down a provision with respect to assessment of

26 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . income of any other person. Section 153C(1)(a) of the Act speaks

about any money, bullion, jewellery or other valuable article or

things seized or requisitioned, which belongs to or (b) any books

of account, documents, seized or requisitioned pertains

to/relates to a person other than the person referred to in

section 153A of the Act then such documents or books of

accounts or assets seized 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 other

person in accordance with the provisions of section 153A, if the

Assessing Officer is satisfied that such seized material is having

a bearing on determination of such other person. It is further

noted that the other conditions required is that firstly there

should be a search action and secondly during course of such

search incriminating documents, which belongs to other person

should be found and the Assessing Officer of such person should

have recorded a satisfaction that incriminating documents

27 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . belonging to third person has been found. The provision is

summarized as under:-

i. The Assessing Officer of searched person should have recorded a satisfaction note that incriminating documents belonging to third person are found;

ii. The Assessing Officer of searched person should handover the satisfaction note and documents belonging to other person to the Assessing Officer of the other person;

iii. The Assessing Officer of the other person can then issue notices u/s. 153C of the preceding six assessment years from the date on which such documents are received from the Assessing Officer of searched person.

2.11. We have perused the record and find that there is no

dispute that a search action had taken place at the residential

premises of Shri Sudhakar M. Shetty, who is partner of assessee

firm. Hence conditions no. (i) is complied with. The real problem

starts with condition no. (ii), where there is a condition that

incriminating documents belonging to other persons are found

and in whose case the notices u/s. 153C of the Income tax Act,

28 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . 1961 were issued. In the present appeal, such notices u/s. 153C

were issued on the basis of a single paper found during the

course of search which have taken place from the residential

premises of its partner Shri Sudhakar M. Shetty. The document

contained on page No. 55 of Annexure A (found during the

course of search at the residential premises of Shri Sudhakar M.

Shetty) is a letter SB-274/2003, dated 19th December 2003

written by one Shri Dilip Hate, proprietor of M/s. Skylark Build

(a proprietorship firm owned by Shri Dilip Hate having similar

name that of the present assessee) addressed to one M/s.

Hemant Parikh of M/s. Hemant Parikh & Associates, 703/704,

Krushal Commercial, Near Amar Mahal Junction, Chembur

(West), Mumbai. The relevant letter is appearing in the paper

books filed in connection with the following appeals are as

under:

Appeal No 4370/M/15 3237/M/15 4371/M/15 3238/M/15 6199/M/14 Assessment 2007-08 2008-09 2009-10 2010-11 2011-12 Year Paper Book 17 495 700 246 17 Page No.

A copy of the said letter is reproduced hereunder:-

29 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. .

2.12. The crux of the argument by the Ld. counsel for the

assessee is that the aforesaid letter does not belong to the

assessee because of the following reasons:-

i. The letter is dated 19th December, 2003 whereas the assessee firm came into existence on 19th March, 2004 by a

30 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . partnership deed executed on that date. Copy of the said partnership deed is enclosed herewith as annexure “A”. Hence, the said letter does not belong to the assessee.

ii. The address of said M/s. Skylark Build (Proprietorship firm of Shri Dilip Hate) is 6, Shree Sai Shraddha CHS, Near Sharadashram Society, 114, Bhawani Shankar Road, Dadar (W), Mumbai - 400 028 whereas address of the assessee is 402, Sagar Avenue, Plot No. 54B, Junction of S.V.Road and Lallubhai Park, Andheri (W), Mumbai - 400 058.

iii. The said letter is neither containing nor revealing any commercial transaction. The said letter contains the details of total number of hutments, total number of eligible hutment dwellers, total number of participants and % of the participants under the various co-operative housing societies mentioned in the said letter. Hence, the said letter is not incriminating in nature.

iv. The said M/s. Skylark Build (Proprietorship firm of Shri Dilip Hate) is still in existence and continuing under PAN No. AAAPH4943F.

v. The said letter is related to assessment year 2004-05, which becomes time barred on the date of search.

2.13. All the above facts shows that the alleged

document is neither belonging to the assessee nor

incriminating in nature. The assessee has filed an affidavit

duly executed by the partner of the assessee firm and which

is self speaking one. The relevant affidavit is appearing in

31 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . the paper books filed in connection with the following

appeals:

Appeal No 4370/M/15 3237/M/15 4371/M/15 3238/M/15 6199/M/14 Assessment 2007-08 2008-09 2009-10 2010-11 2011-12 Year Paper Book 14 to 16 492 to 494 697 to 699 243 to 245 18-20 Page No.

2.14. Thus, It can be concluded that the conditions of

provisions of section 153A read with section 153C have not

been complied with. So far as, determining that the

documents belongs to other person, reliance has been placed

upon certain decisions by the assessee. We have perused the

decisions and deal with the same as under:-

2.15. In the case of ARN INFRASTRUCTURE INDIA LTD

VS. ACIT (2017) 1 NYPCTR 415(DEL) (Refer Page No. 355 to

364 of Cases relied upon by the Assessee Part 2), it was

observed as under:-

“In this case, as regards the seized documents, what is mentioned in the satisfaction note are two documents : the ledger account maintained by the assessee running into 3 pages showing the commission payments made by the assessee to Real Gain Estate (P) Ltd. and the letter dt. 27th Jan., 2010 written by the assessee to

32 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . Real Gain Estate (P) Ltd. As far as the latter document is concerned, it is a letter written by the assessee to Real Gain Estate (P) Ltd. and, therefore, should be treated as a document belonging to Real Estate (P) Ltd. and not to the assessee. Whether it may or may not be related to the assessee is not relevant since the amendment to s. 153C in that regard was prospective w.e.f. 1st June, 2015 i.e., subsequent to the date of preparation of the 'satisfaction note' in the present case.

2.16. Similarly, it is noted in the case of the assessee, the

aforementioned letter was written by Shri Dilip Hate in his

capacity as a proprietor of M/s. Skylark Build to one Shri

Hemant Parikh is a document belonging to Shri Hemant Parikh

and not to the assessee. While deciding the matter, the Hon'ble

High Court of Delhi in the case of ARN Infrastructure India Ltd.

vs ACIT ((supra)) held as under:-

“13. As regards the seized documents, what is mentioned in the satisfaction note are two documents : the ledger account maintained by the petitioner running into 3 pages showing the commission payments made by the petitioner to RGEPL and the letter dt. 27th Jan., 2010 written by the petitioner to RGEPL. As far as the latter document is concerned, it is a letter written by the petitioner to RGEPL and, therefore, should be treated as a document belonging to RGEPL and not to the petitioner. Whether it may or may not be related to the petitioner is not relevant since the amendment to s. 153C of the Act in that regard was prospective w.e.f. 1st June, 2015 i.e. subsequent to the date of preparation of the 'satisfaction note' in the present case. 14. The decision in Pepsico India Holding (P) Ltd. vs. Asstt. CIT (supra) which interpreted s. 153C of the Act, as it stood prior to its amendment, explained that the expression ‘belongs to' should not be confused with the expression 'relates to'. One of the instances

33 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . cited in the said decision was a registered sale deed, copies of which could be available both with the vendor and the vendee. The copy available with the vendee could not be said to 'belong' to the vendor and vice versa. 15. In Principal CIT vs. Nikki Drugs & Chemicals Ltd. (supra), the searched person was SVP Builders India Ltd. The photocopy of documents, the original of which were with the assessee in that case, were recovered from SVP Builders during the search. In the circumstances, it was observed by the Court as under : "21. ..... In the present case, although the photocopies of the documents handed over to SVP Builders India Ltd. may be copies of the original documents that belong to the assessee, the said photocopies would belong to SVP Builders India Ltd. as the same were handed over to it in connection with the investment made by the assessee. Similarly, a certified copy of the assessee's resolution signed by its Directors, would also belong to the SVP Builders India Ltd. even though the minutes of the Board meeting form a part of the record of the assessee. We find no infirmity with the view taken by the Tribunal in this regard. Thus, notwithstanding the controversy whether the AO of the searched persons had recorded his satisfaction that the specified seized documents belonged to the assessee, the initiation of proceedings under s. 153Cof the Act, in respect of the assessee would be without jurisdiction."

2.17. In the light of the above, it cannot be said that the

letter dt. 27th January 2010 written by the petitioner to

RGEPL and recovered from the premises of RGEPL was a

document which belonged to the petitioner.

2.18. In another case in CIT VS. SINHGAD TECHNICAL

EDUCATION SOCIETY CIVIL APPPEAL NO. 11081 TO 11083

OF 2017 DECIDED ON 29TH AUGUST, 2017(SC) (Refer Page

34 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . No. 204 to 221 of Cases relied upon by the Assessee Part 1), it

was observed/held by Hon'ble Apex Court as under:-

“20. Insofar as the judgment of the Gujarat High Court relied upon by the learned Solicitor General is concerned, we find that the High Court in that case has categorically held that it is an essential condition precedent that any money, bullion or jewellery or other valuable articles or thing or books of accounts or documents seized or requisitioned should belong to a person other than the person referred to in s. 153A of the Act. This proposition of law laid down by the High Court is correct, which is stated by the Bombay High Court in the impugned judgment as well. The judgment of the Gujarat High Court in the said case went in favour of the Revenue when it was found on facts that the documents seized, in fact, pertain to third party, i.e. the assessee, and, therefore, the said condition precedent for taking action under s. 153C of the Act had been satisfied.”

In the aforesaid case, the Hon'ble Apex Court clearly held

that the documents should belong to the person other than

the searched person.

2.19. In the case of SMT. REKHABEN THAKKAR VS.

ACIT (2015) TTJ 662(AHD) DECIDED ON 12TH JUNE, 2015

(Refer Page No. 38 to 44 of Cases relied upon by the Assessee

Part 1)

“8. We have carefully considered the arguments of both the sides and perused the material placed before us. Sec. 153C of the IT Act, 1961 reads as under : "153C. (1) Notwithstanding anything contained in s. 139, s. 147, s. 148, s. 149, s. 151 and s. 153, where the AO is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account

35 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . or documents seized or requisitioned belongs or belong to a person other than the person referred to in s. 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the AO having jurisdiction over such other person and that AO shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of s. 153A."

2.20. In the case CIT VS. RENU COSTRUCTIONS (P) LTD

(2017) 1 NYPCTR 843 (DEL) (Refer Page No. 248 to 250 of

Cases relied upon by the Assessee Part 1), it was

observed/held as under:-

“7. Learned counsel for the respondent-assessees, on the other hand, pointed out that this Court has, in Principal CIT vs. Vinita Chaurasia (2017) 154 DTR (Del) 145 : (2017) 394 ITR 758 (Del) , after considering the aforementioned three decisions, reiterated the settled legal position as explained in Pepsico India Holdings (P) Ltd. vs. Asstt. CIT & Anr. (2014) 270 CTR (Del) 467 : (2014) 108 DTR (Del) 306 : (2015) 370 ITR 295 (Del) , that for the purpose of initiating proceedings under s. 153C of the Act, the

36 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . seized documents had to be shown to belong to the other person and not merely pertaining to such other person. The change brought about in this regard in s. 153C of the Act by way of amendment has been given prospective effect from 1st June, 2015. The amended provision therefore has no application to the cases on hand.

(P) LTD (2015) 167 TTJ (DEL) 553iv. (Refer Page No. 251 to

260 of Cases relied upon by the Assessee Part 2). The Hon'ble

Delhi High Court held as under:-

“13. Having gone through the decisions relied upon, we find that the Hon’ble Delhi High Court in the case of Pepsi Foods (P) Ltd. (cited supra) after discussing the issue in detail has been pleased to come to the conclusion that in the satisfaction note apart from saying that the documents belong to the petitioner and that the AO is satisfied that it is a

37 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . fit case for issuance of notice under s. 153C. Thus relevant extract of the decision is being reproduced below :

"11. It is evident from the above satisfaction note that apart from saying that the documents belonged to the petitioner and that the AO is satisfied that it is a fit case for issuance of a notice under s. 153C, there is nothing which would indicate as to how the presumption which are to be normally raised as indicated above have been rebutted by the AO. Mere use or mention of the word ‘satisfaction’ or the words ‘1 am satisfied’ in the order or the note would not meet the requirement of the concept of satisfaction as used in s. 153C of the said Act. The satisfaction note itself must display the reasons or basis for the conclusion that the AO of the searched person is satisfied that the seized documents belong to a person other than the searched person. We are afraid that going through the contents of the satisfaction note, we are unable to discern any ‘satisfaction’ of the kind required under s. 153C of the said Act.

38 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . make it clear that the AOs should not confuse the expression "belongs to" with the expression "relates to" or again "refers to". A registered sale deed for example "belongs to" the purchaser of the property although it obviously "relates to" or again "refers to" vendor. In this example, if the purchaser’s premises are searched and registered with sale deed is seized, it cannot be said that it "belongs to" the vendor just because his name is mentioned in the document. In the converse case, if the vendor’s premises are searched and a copy of the sale deed is seized, it cannot be said that the said copy "belongs to" the purchaser just because it refers to him and the purchaser holds the original sale deed. In this light, it is obvious that none of the three sets of documents/copies of preference shares, undersigned leaves of cheque books and the copy of the supply and loan agreement can be said to "belong to" the petitioner. With these observations the Hon’ble High Court was pleased to hold that the ingredients of s. 153C of the Act have not been satisfied. Consequently notices issued under s. 153C were quashed.

39 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . absence of incriminating material is thus held as void and the same is quashed as such. The issue raised in objection Nos. 1 and 1.1 of the cross-objection is thus decided in favour of the assessee. These objections are thus allowed. 16. In view of the above finding when the very assessment has been held as void, the remaining objections of the cross-objection questioning the additions sustained by the learned CIT(A) and the grounds of the appeal preferred by the Revenue questioning the action of the CIT(A) in deleting some additions have become infructuous. The same are being disposed of as such.”

2.22. Hon'ble Delhi High Court in PCIT VS. INDEX

SECURITIES (P) LTD (2017) 1NYPCTR 835 DEL (Refer Page

No. 261 to 277 of Cases relied upon by the Assessee Part 2)

held/observed as under:-

“28.3 From a reading of the above two paragraphs, it is plain that the Supreme Court (i) agreed with the Tribunal that the documents seized had to relate to the assessment years whose assessments were reopened and that this was an essential jurisdictional fact and (ii) upheld the decision of the Tribunal to permit the additional ground to be raised before it for the first time.

28.4 The Supreme Court also agreed with the decision of the Gujarat High Court in Kamleshbhai Dharamshibhai Patel (supra) to the extent it held that "it is an essential condition precedent that any money, bullion or jewellery or other valuable articles or thing or books of accounts or documents seized or requisitioned should belong to a person other than the person referred to in s. 153A of the Act." The Supreme Court observed : "This proposition of law laid down by the High Court is correct, which is stated by the Bombay High Court in the impugned judgment as well."

28.5 The above categorical pronouncement of the Supreme Court cannot, by any stretch of imagination, be termed as obiter as has been

40 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . suggested by Mr. Manchanda. Even the obiter dicta of the Supreme Court is binding on this Court.

41 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . this requirement need not be met for initiation of the proceedings but only during the subsequent assessment.

2.23. We observe that Hon'ble Delhi High Court in PEPSI

FOODS PVT. LTD VS. ACIT (2014) 270 CTR 459(DEL) (Refer

Page No. 601 to 608 of Cases relied upon by the Assessee Part

3) held as under:-

42 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . 2.24. If the aforesaid conclusion drawn by Hon'ble Courts

are kept in juxtaposition with the facts of the present appeals, it

is necessary that the documents must belong to other person

other than the searched person. This condition is missing in the

present case. This proposition is further supported by decision

from Hon'ble jurisdictional High Court in the case of CIT v. Arpit

Land Private Limited (2017) 393 ITR 276(Bom.), order dated 07th

February 2017. The aforesaid decision of Hon'ble Bombay High

court is reproduced hereunder:

“1. These two Appeals under Section 260-A of the Income Tax Act, 1961 (the Act) challenges the common impugned order dated 22nd March, 2013 passed by the Income Tax Appellate Tribunal (the Tribunal). The common impugned order disposed of 67 appeals pertaining to 52 different assessees, amongst them were the present two respondents before us. The Revenue has filed these two appeals being aggrieved by the impugned order of the Tribunal to the extent it relates to assessment year 2007-08 in Income Tax Appeal No.150 of 2014 in the case of Ambit Realty (P.) Ltd. and it relates for assessment year 2008-09 in Income Tax Appeal No.83 of 2014 in the case of Arpit Land (P.) Ltd. 2. Although multiple questions have been formulated in the appeal memo, Mr.Kotangale, learned counsel appearing on behalf of the Revenue urges only following question of law for our consideration :

"(i) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in ignoring crucial evidence and surrounding circumstances and proceeding to interpret Section 153C of the Act, narrowly and mechanically, and deleting the additions made under Section 69C of the Act both on merits and point of law ?"

43 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . acquiring land. Mr.Dilip Dherai was managing and handling land acquisition on behalf of Jay Corporation group. During the course of search, certain documents were found in possession of Mr.Dilip Dherai on the basis of which the Assessing Officer after recording satisfaction under Section 153C of the Act proceeded to initiate proceedings in respect of both respondents - assessees before us. 4. The Tribunal by the impugned order found that the documents seized from possession of Mr. Dilip Dherai did not belong to the assessee. Consequently, it held that the Assessing Officer did not have jurisdiction to initiate proceedings under Section 153C of the Act, as at the relevant time jurisdiction of Assessing Officer to proceed consequent to the search is only when money, bullion, jewellery or other valuable article or thing or books of accounts or documents seized or requisitioned belongs or belonged to a person other than the person who has been searched, then the Assessing Officer having jurisdiction over such person on being handed over seized document etc can proceed against such other person by recording satisfaction and issuing a notice in accordance with the provisions of Section 153A of the Act. The impugned order of the Tribunal records the fact that the documents seized from the possession of Mr.Dilip Dherai do not belong to any of two respondents-assessees before us, consequently, the Assessing Officer did not have jurisdiction under Section 153C of the Act to issue notice to the respondents-assessees. Consequently, the Tribunal also held that satisfaction recorded by the Assessing Officer before initiating assessment proceedings in respect of two respondents-assessees before us were also not sustainable. In the above view, the impugned order of the Tribunal held that the Assessing Officer did not have jurisdiction to initiate proceedings under Section 153C of the Act on the two respondents - assessee's before us. 5. The grievance of the Revenue before us is that the respondent-assessees and Mr.Dilip Dherai are all hand in glove working in tandem to acquire land. Therefore, in the above facts the impugned notice under Section 153C of the Act and also satisfaction note recorded by the Assessing Officer cannot be found fault with. Thus the impugned order of the Tribunal calls for interference and these appeals be admitted. 6. We note that in terms of Section 153C of the Act at the relevant time i.e. prior to 1st June, 2015 the proceedings under Section 153C of the Act could only be initiated/proceeded against a party - assessee if the document seized during the search and seizure proceedings of another person belonged to the party - assessee concerned. The impugned order records a finding of fact that the seized documents which formed the basis of initiation of proceedings against the respondent assessees do not belong to it. This finding of fact has not been shown to us to be incorrect. Further, the impugned order placed reliance upon a decision of Gujarat High Court in Vijaybhai N. Chandrani v. Asstt. CIT [2011] 333 ITR 436 which records that the condition precedent for issuing notice under Section 153C of the Act is that the document found during search proceedings should belong to assessee to whom notice is issued under Section 153C of the Act. It was

44 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . fairly pointed out to us by Mr.Mistry, the learned Senior Counsel for the respondent-assessee that the above decision was reversed by the Supreme Court in CIT v. Vijaybhai N. Chandrani [2013] 357 ITR 713/217 Taxman 138/35 taxmann.com 580. However, we find that the Apex Court reversed the view of Gujarat High Court on the ground that efficacious alternative remedy was available to the petitioner to raise its objections before the authorities under the Act. Therefore, the Gujarat High Court should not have exercised its extra ordinary writ jurisdiction to entertain the petition. However, the Apex Court also clarified that it was not expressing any opinion of the correctness or otherwise of construction placed by the High Court on Section 153C of the Act. The Revenue has not pointed out any reason why the construction put on Section 153C of the Act by Gujarat High Court is not correct/appropriate. We find that in any case our Court has also taken a similar view in CIT v. Sinhgad Technical Education Society [2015] 378 ITR 84/235 Taxman 163/63 taxmann.com 14 (Bom.) and refused to entertain Revenue's appeal. 7. The grievance of the Revenue as submitted by Mr.Kotangale is a submission made on the basis of suspicion and not on the basis of any evidence on record which would indicate that the respondent - assessee and persons searched were all part of the same group. Be that as it may, the requirement of Section 153C of the Act cannot be ignored at the alter of suspicion. The Revenue has to strictly comply with Section 153C of the Act. We are of the view that non satisfaction of the condition precedent viz. the seized document must belong to the respondent - assessee is a jurisdictional issue and non satisfaction thereof would make the entire proceedings taken thereunder null and void. The issue of Section 69C of the Act can only arise for consideration if the proceedings under Section 153C of the Act are upheld. Therefore, in the present facts, the issue of Section 69C of the Act is academic. 8. In view of the above reasons and particularly the finding of fact that seized document which forms the basis of the present proceedings, do not belong to the petitioner and the same not being shown to be perverse, the question as raised does not give rise to any substantial question of law and thus not entertained. 9. Appeal dismissed. No order as to costs.” 2.25. It is noted that while coming to the aforesaid

conclusion, the Hon'ble Bombay High Court followed/considered

the following decisions also:-

i. Vijaybhai N. Chandrani v. Asstt. CIT [2011] 333 ITR 436

(Guj.) (para 6),

45 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . ii. CIT v. Vijaybhai N. Chandrani [2013] 357 ITR 713/217

Taxman 138/35 taxmann.com 580 (SC) (para 6)

iii. CIT v. Sinhgad Technical Education Society [2015] 378

ITR 84/235 Taxman 163/63 taxmann.com 14 (Bom.)

iv. CIT v. Sinhgad Technical Education Society [2015] 378

ITR 84/235 Taxman 163/63 taxmann.com 14 (Bom.)

In the aforesaid order, the question before the Hon'ble High

Court for consideration was as under:-

“(i) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in ignoring crucial evidence and surrounding circumstances and proceeding to interpret Section 153C of the Act, narrowly and mechanically, and deleting the additions made under Section 69C of the Act both on merits and point of law ?" In the aforesaid case, a search and seizure action was

carried out under section 132 of the Act in the case of Jay

Corporation group and one Mr. Dilip Dherai, employee of the

assessee company was involved in process of acquiring land.

Proceedings under section 153C of the Act were initiated against

such employee. The Hon'ble High Court considered the factual

aspects and then arrived at a particular conclusion. The Hon'ble

High Court concluded that in terms of section 153C of the Act,

the proceedings could only be initiated against the party, if the

46 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . documents seized during search, first should be found to be

belonging to that party and that should be incriminating.

Identical is the situation in the case before us, because, the

document so found firstly should be from the possession of the

assessee and more important is, it should relate to the assessee

and it should be incriminating. The Revenue has not produced

any evidence in its support, therefore, we find force in the

argument of the Ld. counsel for the assessee.

2.26. The second condition is that the document should be

incriminating in nature. If this document is analyzed, this

document neither reveals any commercial transaction nor even

referred to by the Assessing Officer in the impugned assessment

orders, consequently, it can be concluded that this document is

not incriminating in nature. In the absence of incriminating

nature, the assessment order passed u/s 153C of the Act cannot

be validated. Our view finds support from the decision in CIT vs

REFAM MANAGMENT SERVICES (P) LTD (2016) 386 ITR 693

(DEL) , wherein in the catch note, it was held as under:-

“Search and seizure—Assessment under s. 153C—Validity—No incriminating material for the assessment year in question having been recovered during search, assessment under s. 153C was

47 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . invalid—The only document seized during the search in question was a cheque book pertaining to the assessee which reflected issue of cheques during the period Aug., 2008 to October, 2008, relevant to the asst. yr. 2009-10—CIT vs. RRJ Securities Ltd. (2016) 282 CTR (Del) 321 : (2015) 128 DTR (Del) 57 followed” Conclusion “No incriminating material for the assessment year in question having been recovered during search, assessment under s. 153C was invalid.” 2.27. Likewise, in the case of DCIT VS. SATKAR

ROADLINES PVT LTD (2016) 175 TTJ 198 (DEL), the Hon'ble

Delhi High Court observed/held as under:-

“19. In the light of the case law cited above and on a reading of ss. 153A and 153C the exercise that is required to be done by the AO has been spelt out by the Co-ordinate Bench of this Tribunal in the case of DSL Properties (P) Ltd. vs. Dy. CIT 33 Taxman.com 420 vide para 15 has held that if the AO is assessing the person searched as well as other person whose assets, books of account or documents were found at the time of search, then also, first while making the assessment in the case of the person searched, he has to record the satisfaction that the money bullion, jewellery or other valuable article or thing or books of account or documents belonged to the person other than the person searched. Then the copy of this satisfaction note is to be placed in the file of such other person and the relevant document should also be transferred from the file of the person searched to the file of such other person. Thereafter, in the capacity of the AO of such other person, he has to issue the notice under s. 153A r/w s. 153C. The AO of the searched person and such other person may be the same but these are two different assessees and therefore the AO has to carry out the dual exercise first as the AO of the person searched in which he has to record the satisfaction, during the course of assessment proceedings of the person searched. We concur with the said view of the Co-ordinate Bench and would like to add that this satisfaction must be an objective satisfaction based on an enquiry by the AO to establish that the documents referred to in s. 153C which is found during the search

48 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . under s. 132, which are seized or requisitioned belong to a person other than the person searched; and there should be a clear finding to that effect based on which only satisfaction as envisaged under s. 153C can be inferred. Such a finding by the AO is required for attaining the said satisfaction and then it should be recorded in the file of the assessee which is a ‘sine qua non’ to trigger the jurisdiction for the AO to proceed against such other person. In this case this exercise of recording the satisfaction during the assessment proceedings of the person searched has not been carried out and the satisfaction does not satisfy the requirement of s. 153C. We could not find any mention of any seized materials like valuable articles or things or any books of account or documents have been referred even in the impugned assessment orders. The AO lacks jurisdiction to initiate proceedings under s. 153C against the assessee and therefore, the issuance of notice itself is null and void and therefore quashed. Consequently, the impugned assessment order passed under s. 153C is also a nullity.

49 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . apex Court and the Hon’ble Delhi High Court in N.K. Textile Mills vs. CIT (1966) 62 ITR 58 (Del), has frowned upon the practice of indiscriminate seizure paving way for reopening of assessments which finally will fall in case it is not incriminating and will be an exercise of futility.

PVT. LTD VS. DCIT, it was held as under:-

“7. We have heard both the parties and perused the orders of the Revenue Authorities as well as the cited decision of the Tribunal in the case of Shri Govind Agarwal v. ACIT being ITA No: 3389/Mum/2011 dated 10.01.2014 (supra); All Cargo Global Logistics v. Addl.CIT (supra); SKS Ispat and Power Limited vs. DCIT CC 45 (ITA 8746/M/12 and ITA 8747/M/12) (supra) as well as the judgment of the Hon’ble Bombay High Court in the cases of CIT v. All Cargo Global Logistic (374 ITR 645) (supra), copies of which are placed on record. On perusal of the said decisions, we find they are relevant for the proposition that “when no assessment has abated, the question of making any addition or making disallowance which are not based on only material found during the search is bad in law”. In this regard, we find it relevant to extract the relevant paras from the decision of the Tribunal in the case of Shri Govind Agarwal (supra) and the same is as follows :

“12. We have heard the parties and their divergent stands on the legal issue and the validity of the instant assessment/reassessment with the routine additions u/s 68 and section 14A of the Act based on the accounted transactions. The instant case for the AY 2002-03 deals with the case of disturbing the “completed assessment”. Earlier the assessment was completed u/s 143(1) of the Act. Completeness of the summary assessment is considered and held in favour of the assessee vide many judgments cited above. In the assessment u/s 153A, the AO made (i) Addition

50 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . u/s 68 on account of artificially inflated investment in house duly disclosed in the balance sheet of the assessee Rs.31,33,070/-; and (ii) disallowance u/s 14A: Rs. 23,31,469/-. Admittedly, there is no incriminating material before the AO to support the above additions. The valuation report, which is garnered by the authorities constitutes mere estimates and the provision of section 132 is not required to obtain such report from the DVO. As such, for making aforesaid additions of Rs 31,33,070/-, AO has not used even the said valuation report and the AO disallowed what is reported in the books. Similar is the case with the additions u/s 14A of the Act. Therefore, undisputedly, the impugned quantum additions are made merely based on the entries in the accounted books and certainly not based on either the unaccounted books of accounts of the assessee or books not produced to the AO earlier or the incriminating material gathered by the investigation wing of the revenue. Considering the legal propositions place before us by the assessee’s counsel, we are of the opinion, such assessments or additions are unsustainable in law.”

“9. From the above settled legal position of the issue that in the absence of any incriminating material found during search, additions made on the assessed income are unsustainable in law, we are of the considered opinion that the additions made in the instant case are not sustainable and accordingly, we delete the same. Considering our decision on the legal issue in favour of the assessee, the other grounds demand no specific adjudication. Thus, on the legal ground, the assessee succeeds and rest of the grounds are dismissed as academic.”

2.29. Likewise, in the case of PCIT VS. INDEX

SECURITIES (P) LTD (2017) 1NYPCTR 835 DEL, the Hon'ble

Court held/observed as under:-

51 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . “32. In the present case, the two seized documents referred to in the Satisfaction Note in the case of each assessee are the trial balance and balance sheet for a period of five months in 2010. In the first place, they do not relate to the assessment years for which the assessments were reopened in the case of both assessees. Secondly, they cannot be said to be incriminating. Even for the assessment year to which they related, i.e. asst. yr. 2011-12, the AO finalised the assessment at the returned income qua each assessee without making any additions on the basis of those documents. Consequently, even the second essential requirement for assumption of jurisdiction under s. 153C of the Act was not met in the case of the two assessees.”

2.30. In the case of CIT VS. RRJ SECURITIES LTD (2016)

282 CTR (DEL) 321 , the Hon'ble Court held as under:-

“34. In SSP Aviation (supra), this Court had noted the difference between the provisions of s. 158BD of the Act and the provisions of s. 153C. Whereas s. 158BD referred to the satisfaction of an AO with regard to any "undisclosed income" belonging to a person other than the searched person, s. 153C(1) of the Act in contrast referred merely to the AO being satisfied that assets/documents seized during a search belonged to a person other than one searched. It is, thus, clear that it was not necessary for the AO, at the stage of recording the satisfaction under s. 153C to come to a conclusion that seized assets which belong to another person represent any undisclosed income. If the AO of a searched person is satisfied that an asset/documents seized belong to another person, he has a duty to forward the documents or the valuable assets seized to the AO of the person concerned; apart from doing so, the AO can do nothing more.

52 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . searched person represent or indicate any undisclosed income of the assessee under his jurisdiction. As explained in SSP Aviation (supra), s. 153C only enables the AO of a person other than the one searched, to investigate into the documents seized and/or the assets seized and ascertain that the same do not reflect any undisclosed income of the assessee (i.e a person other than the one searched) for the relevant assessment years. If the seized money, bullion, jewellery or other valuable article or thing seized as handed over to the AO of the assessee, are duly disclosed and reflected in the returns filed by the assessee, no further interference would be called for. Similarly, if the books of accounts/documents seized do not reflect any undisclosed income, the assessments already made cannot be interfered with. Merely because valuable articles and/or documents belonging to the assessee have been seized and handed over to the AO of the assessee would not necessarily require the AO to reopen the concluded assessments and reassess the income of the assessee. 36. The decision in SSP Aviation (supra) cannot be understood to mean that the AO has the jurisdiction to make a reassessment in every case, where seized assets or documents are handed over to the AO. The question whether the documents/assets seized could possibly reflect any undisclosed income has to be considered by the AO after examining the seized assets/documents handed over to him. It is only in cases where the seized documents/assets could possibly reflect any undisclosed income of the assessee for the relevant assessment years, that further enquiry would be warranted in respect of those years. Whilst, it is not necessary for the AO to be satisfied that the assets/documents seized during search of another person reflect undisclosed income of an assessee before commencing an enquiry under s. 153C of the Act, it would be impermissible for him to commence such enquiry if it is apparent that the documents/assets in question have no bearing on the income of the assessee for the relevant assessment years.

53 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . 37. As expressly indicated under s. 153C of the Act, the assessment or reassessment of income of a person other than a searched person would proceed in accordance with the provisions of s. 153A of the Act. The concluded assessments cannot be interfered with under s. 153A of the Act unless the incriminating material belonging to the assessee has been seized.

2.31. In view of above cited decision, it is clear that

incriminating documents relating to other person should be

found during the course of search. If no incriminating

documents are found and/or on the basis of seized

documents, no additions can be made in the assessment

order or if such seized documents are not referred to in the

assessment order, such documents will not be incriminating

documents. Any notice issued u/s. 153C on the basis of

such notice is bad in law. Thus, the mandatory requirement

mentioned in the section has not been fulfilled and hence,

54 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . the notices issued u/s 153C and consequent assessment

order passed on the basis of such notice, no addition can be

sustained.

2.32. So far as, condition no. (iii), is concerned, that

the Assessing Officer of searched person should have

recorded a satisfaction note that incriminating documents

belonging to third person are found; the Assessing Officer, in

his capacity as the Assessing Officer of Shri Sudhakar M.

Shetty (searched person) has neither issued any satisfaction

note nor handed over the documents to himself (in the

capacity of Assessing Officer of the other person) by passing

a handover note, thus, from this angle also, the assessee is

having a good case in its favour, therefore, respectfully,

following the aforesaid decisions from Hon'ble various High

Courts, including Hon'ble jurisdictional High Court, we

decide this issue, from this angle, in favour of the assessee.

2.33. Now, we shall analyze the reasons recorded by

the Assessing Officer (in his capacity as an Assessing Officer

of other person i.e. the assessee) for issuing notice u/s.

55 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . 153C of the Act to the assessee. The relevant note is

appearing in the paper books filed in connection with the

following appeals are as under:-

Appeal No 4370/M/15 3237/M/15 4371/M/15 3238/M/15 6199/M/14 AY 2007-08 2008-09 2009-10 2010-11 2011-12 Paper Book 1 to 2 2 2 2 2 TO 3 Page No.

A copy of the said satisfaction note is appearing hereinafter :

2.34. If the aforesaid recording of reasons is

analyzed, it emerges that the reasons so recorded by the

Assessing Officer in his capacity of other person and not by

56 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . the Assessing Officer in a capacity of searched person. This

can be proved on account of following reasons:-

a) Name and PAN of the assessee are mentioned on the top of the reasons and not the name of Shri Sudhakar M. Shetty, in whose case the search had taken place.

b) Nothing is mentioned either about handover of the documents by the Assessing Officer or receiving of documents by the Assessing Officer of the assessee.

c) Again and again, the word assessee is used which is the assessee only.

d) In para 3, it was mentioned that “I am satisfied that documents seized as above belong to the assessee” also shows that this reasons are recorded by the Assessing Officer in his capacity as a Assessing Officer of the assessee and not by him in his capacity as Assessing Officer of searched person.

e) The Assessing Officer of the searched person cannot say and write that “Issue notice u/s. 153C”. On the other hand, only the Assessing Officer of other person, other than Assessing Officer of searched person can say and write “Issue notice u/s. 153C”

2.35. The above facts reflects that neither satisfaction note

was issued by the Assessing Officer in his capacity as a

57 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . Assessing Officer of the searched person nor the documents

were handed over (by way of note for transfer of documents) to

the Assessing Officer of the other person. It was argued by the

learned DR that the Assessing Officer of the searched person

and other person is one and same, then, why the satisfaction

note prepared by the Assessing Officer of other person should

not be treated as a satisfaction note prepared by the Assessing

Officer of searched person.

2.36. While going through various judgments cited before

us, we would further draw attention that in some of those cited

cases, although the Assessing Officer of the searched person and

other person was the same Officer, even in those cases, it was

held that satisfaction note by the Assessing Officer in his

capacity of searched person is precondition required to confer

jurisdiction on the Assessing Officer of other person. Even the

CBDT has issued a circular in this regard making it clear that

even if the Assessing Officer of searched person and other

person is same, a satisfaction note is required to be passed by

58 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . the Assessing Officer in his capacity of search person. Our view

find support from the following decision:-

i. ZIADUN LEENG SDN BHD ARTEFACT PROJECTS LTD. (JV) VS. DCIT ITA NO. 382 & 383/NAG/2014 decided on 22nd March, 2017 by ITAT Nagpur Bench. In this case, there was search operation at the premises of M/s Artefact Projects Ltd. During the course of search, certain documents were found. These were observed by the Assessing Officer to be related to the assessee. Hence proceedings u/s 153C were initiated against the assessee. During the course of assessment, the assessee objected as to the validity of notice u/s 153C. However, the AO rejected this contention holding that the notices were issued to the assessee on the basis of incriminating evidence found and seized during the course of search and seizure operation and only after recording proper satisfaction that proceeding u/s 153C was initiated.

The matter was carried before the Commissioner of Income tax (Appeals), who has also confirmed the order of the Assessing Officer, confirming the validity of notice issued u/s. 153C of the Income tax Act, 1961. But the Commissioner of Income tax (Appeals) had deleted the additions on merits.

Hence, both the assessee and the Revenue approached the Hon’ble Income tax Appellate Tribunal. The relevant satisfactory note is reproduced herewith which is similar to in the assessee’s case.

SATISFACTION NOTE

Proceedings u/s 153C of the Income tax Act, 1961 for assessment years 2005-06 to 2010-11 in the case of Zaidun Leeng SON BHD Artefact Projects (JV) 54/3, Chhatrapati Nagar Square, Wardha Road, Nagpur (AAAAZ0129L)

During the course of search and seizure/survey operations in the case of M/s. Artefact Project Ltd. Group of cases of Nagpur on 10.03.2011, the following material was seized/impounded.

Annexure – B-1/6, seized/impounded during the course of action on the residential/office premises of M/s Artefact Projects Ltd. Group of cases of assessee.

59 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. .

I am satisfied that the above seized/impounded material belongs to Zaidum Leeng SDN BHD Artefact Projects (JV), 54/3, Chhatrapati Nagar square, Wardha Road, Nagpur (AAAAZO129L). Therefore, notice u/s 153C of the I.T. Act, 1961 are being issued for Assessment years 2005-06 to 2010-11 in the case of assessee.

Nagpur, Sd/ (ANOOP SINGH) Date : 16/02/2012 ASSTT. COMMISSIONER OF INCOME TAX Central Circle-2(1), Nagpur.

During the course of appellate proceedings, the learned counsel of the assessee has made the following submissions, as mentioned in para number 7 of the said case, the relevant para which resembles facts of our case in respect of satisfaction note is reproduced as under :

A) Satisfaction note as recorded by AO of assessee refers to seized document inventorised as B-1/6 from the premises of M/s. Artefact Project Ltd. for assumption of jurisdiction u/s 153C of I.T. Act 1961.

B) Seized documents inventorised as B-1/6 from the premises of M/s. Artefact Project Ltd. are placed in Paper Book. (P- 50 - 74) [Vol.- I]. Compilation of B-1/6 comprises of Page Nos. 1 to 22 being the bank statements of assessee for the period commencing from 1/4/2010 till March 2011. Aforesaid bank statements are relating to account of assessee with Canara Bank, Nagpur. Aforesaid bank transactions are duly recorded in regular books of account of assessee for ending 31/03/2011. Seized documents in no manner of consideration can be construed as incriminating evidence found at the premises of M/s. Artefact Project Ltd. so as to assume jurisdiction to issue notice u/s 153C of I.T. Act 1961.

C) No addition has been made on the basis of such documents in assessment framed for the period ending 31/03/2011 for which the seized documents relate. Order passed u/s 143(3) of I.T. Act, 1961 for Asstt. Year 2011-12 is placed in Paper Book. This substantiates that documents seized are not of any incriminating nature.

60 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . D) Impugned years under appeal are assessment years 2007-08 to 2009-10. Seized documents on the basis of which notice uls 153C of IT act, 1961 is issued are in relation to assessment year 2011-12. Thus notice issued for assessment years 2007 -08 to 2009-10 is not in accordance with law as there being no incriminating material or evidence found relating to such assessment years in the course of search at the premises of M/s. Artefact Project Ltd.

E) Transactions in seized documents are already recorded in regular books of accounts. There is no incriminating value in the same and have no bearing on assessable income. It is settled proposition of law that proceedings under section 153C of LT. Act, 1961 can be initiated in respect to person other than searched only if incriminating material belonging to such person has been found and seized from the premises of person searched. No incriminating documents found at the person searched being M/s. Artefact Projects Ltd. no valid proceedings under section 153C of IT Act, 1961 could have been initiated in the case of assessee.

F) The satisfaction notice as observed in the file of assessee refers to documents seized from the residence/office premises of M/s. Artefact Project Ltd. group of cases for issue of notice u/s 153C of IT Act, 1961. It is observed that it is no satisfaction in terms of provision of section 153C of IT Act, 1961 mandatorily required to be recorded by AO. of person searched i.e. M/s. Artefact Project Ltd. It is specifically asserted that no satisfaction of seized documents belonging to assessee is recorded by AO. of person searched. Thus no valid notice u/s 153C of LT. Act 1961 is issued in case of assessee and assessment framed is bad in law and liable to be cancelled.

G) A bare discussion made in the assessment order in respect to documents seized from M/s. Ashoka Buildcon Ltd., Nashik would reveal that the aforesaid document is not belonging to assessee but name of the assessee was appearing in the document belonging M/s. Ashoka Buildcon Ltd., Nashik. Document on the basis of which addition is made being not belonging to assessee, there could be no valid assumption of jurisdiction to initiate proceedings u/s 153C of I.T. Act, 1961 and making addition for the same at the hands of assessee.

H) Notices u/s 153C of I.T. Act 1961 have been issued in case of assessee on 21/02/2012 for Asst. Year 2007-08 to 2009-10. Perusal of notice u/s 153C does not indicate the satisfaction of AO

61 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . as to documents found at premises of the person searched belonging to assessee. It does not mention as to incriminating nature of documents or its bearing on assessable income of assessee for which jurisdiction in the case of assessee u/s 153C of I.T. Act, 1961 is assumed. The notice does not satisfy the requirement of valid notice u/s 153C of I.T. Act, 1961. In view of above, consequent assessment framed thereupon is liable to be cancelled.”

2.37. After having an elaborate discussion, the

Tribunal held as under:-

“9. We have heard both the counsel and perused the records. Learned counsel of the assessee submitted that the satisfaction of the AO of the searched persons as envisaged u/s 153C of the I.T. Act has not been recorded before initiating the proceedings against the assessee u/s 153C of the Act which vitiates the entire impugned assessments. For this proposition, learned counsel referred to the CBDT Circular No. 24/2015 dated 31st December, 2015 which has been issued on this very subject. Learned counsel submitted that from the above said CBDT Notification, it is clear that in absence of appropriate satisfaction recorded by the AO of the raided party even if he is the same AO as that of assessee, the assessment will be devoid of jurisdiction. Learned counsel submitted that no satisfaction note is there as emanating from the assessment records of the searched party. That this makes it very clear that the appropriate satisfaction has not been recorded therein. He asserted that no satisfaction of seized documents being incriminating and/or belonging to the assessee is recorded by the AO of the searched person. Thus no valid notice u/s 153C is issued in the case of the assessee and assessment framed is bad in law and liable to be quashed. Learned counsel submitted that this proposition is duly supported by case laws cited above.

62 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . No document pertaining to the assessment years concerned in this case has been found. The documents relating to assessment year 2011-12 found are also not incriminating documents. They relate to transactions which were duly recorded in the regular books of accounts. Hence, learned counsel submitted that the jurisdiction assumed in this case is invalid. For the proposition that dehorse any incriminating seized material, no addition is sustainable where assessments have already been completed earlier. Learned counsel relied upon several case laws as mentioned above in his written submission.

63 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . the person searched is a condition precedent for the AO of the 'other person' to acquire jurisdiction. Unless such jurisdictional fact is satisfied, there can be no question of making assessment or reassessment of the 'other person.'

In the case of Anil Kumar & Ors. vs. UOI & Ors. Reported in 155 Taxman 659 (5C),the Hon'ble Apex Court observed that "A jurisdictional fact is a fact which must exist before a court, a tribunal or an authority assumes jurisdiction over a particular matter. A jurisdictional fact is one on existence or non-existence of which depends jurisdiction of a court, a tribunal or an authority. It is the fact upon which an administrative agency's power to act depends. If the jurisdictional fact does not exist, the court, authority or officer cannot act. If a Court or authority wrongly assumes the existence of such fact, the order can be questioned by a writ of certiorari. The underlying principle is that by erroneously assuming existence of such jurisdictional fact, no authority can confer upon itself jurisdiction which it otherwise does not possess. The existence of 'jurisdictional fact' is sine qua non for the exercise of power by a court of limited jurisdiction. As noted earlier, section 153C provides for taking recourse to assessment in respect of any other person, the conditions precedent wherefore are : (i) satisfaction must be recorded by the AO that any undisclosed income belongs to any person, other than the person with respect to whom search was made under s. 132; (ii) the books of account or other documents or assets seized or requisitioned had been handed over to the AO having jurisdiction over such other person; and (iii) the AO has proceeded under s. 153C against such other person. The conditions precedent for invoking the provisions of s. 153C, thus, are required to be satisfied before the provisions of said section are applied in relation to any person other than the person whose premises had been searched or whose documents and other assets had been requisitioned under s. 132A. That the recording of satisfaction by the AO having jurisdiction over the person searched is an essential and prerequisite condition for bestowing jurisdiction to the AO of the other persons.

“CIRCULAR NO. 24/20 5 F.No.279/Misc.l140 /2015/IT J Government of India Ministry of Finance Department of Revenue

64 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . Central Board of Direct Taxes New Delhi,

31st December, 2015

Subject: Recording of satisfaction note under section 158BD/153C of the Act - reg.-

The issue of recording of satisfaction for the purposes of section 158BD/153C has been subject matter of litigation.

(a) at the time of or along with the initiation of proceedings against the searched person under section 158BC of the Act; or

(b) in the course of the assessment proceedings under section 158BC of the Act; or

(c) immediately after the assessment proceedings are completed under section 158BC of the Act of the searched person." 3. Several High Courts have held that the provisions of section 153C of the Act are substantially similar/pari-materia to the provisions of section 158BO of the Act and therefore, the above guidelines of the Hon'ble SC, apply to proceedings u/s 153C of the IT Act, for the purposes of assessment of income of other than the searched person. This view has been accepted by CBDT.

65 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . litigation with regard to recording of satisfaction note under section 158BO /153C should be withdrawn/not pressed if it does not meet the guidelines laid down by the Apex Court. ”

(i) CIT vs. Shetty Pharmaceuticals & Biological Ltd. 232 Taxman 0268. (Andhra Pradesh H.C.)

In this case, it was held that section 153C and 153A mandates recording of satisfaction of the Assessing Officer(s) as a precondition for invoking jurisdiction and it is not a mere formality because recording of satisfaction postulates application of mind consciously as the documents seized must be belonging to the any other person other than the person referred to in Section 153-A of the Act. It is contended that the same Assessing Officer is involved in the matter. This fact does not dispense with above requirement. It is settled position of law that when a thing is to be done in one particular manner under law this has to be done in that manner alone and not other way (See Nazir Ahmed v. King Emperor). We think the learned Tribunal has correctly followed the principle. We do not find any element of law to be decided.

Conclusion : Recording of satisfaction of AO(s) is pre-condition for invoking jurisdiction and it is not a mere formality because recording of satisfaction postulates application of mind consciously as documents seized must be belonging to any other person other than person referred to in S. 153-A.

66 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . i) Hon’ble High Court of Madhya Pradesh High Court decision in the case of CIT vs. Mechmen in ITA No. 44/2011, ITA No. 45/2011 & others vide order dated 10-07-15.

In this case, the relevant exposition from the Hon’ble High Court is as under :

Even for the purpose of Section 153C, the Assessing Officer before handing over the items to the Assessing Officer having jurisdiction must be “satisfied” that the items belongs or belong to the person other than the person referred to in Section 153A. That satisfaction of the concerned Assessing Officer is a sine qua non. The consequences flowing from the action to be taken on the basis of such information handed over to the Assessing Officer having jurisdiction, for the assessee, who is a person other than the person referred to in Section 153A, is drastic – of assessment or reassessment of his income falling within six assessment years.

The fact that incidentally the Assessing Officer is common at both the stages would not extricate him from recording satisfaction at the respective stages. In that, the Assessing Officer is satisfied that the items referred to in Section 153C belongs or belong to a person (other than the person referred to in Section 153A), being sine qua non. He cannot assume jurisdiction to transmit those items to another file which incidentally is pending before him concerning other person (person other than the person referred to in Section 153A).

Similarly, as there is no provision either express or implied (in the Act) to dispense with the requirement of satisfaction, if the Assessing Officer happens to be the same, as in this case, the arguments of the Department must be negative. We conclude that the condition precedent for resorting to action under Section 158BD delineated by the Supreme Court in the case of Manish Maheshwari (supra) and in the recent case of Commissioner of Income-tax-III vs. Calcutta Knitwears (suspra), would apply on all fours mandating satisfaction of the Assessing Officer(s) dealing with the case at the respective stages referred to in Section 153C.

(iii)Hon’ble Bombay High Court decision in the case of Director of Income Tax vs. M/s Ingram Micro (India) Exports Pte Ltd. in ITA No. 1337 of 2013 & Others vide order dated 29-04-2015.

In this case, it was expounded that as per provisions of section 153A and section 153C of the I.T. Act, proceedings can only be initiated after the AO arise at the satisfaction that the seized material pertains

67 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . to other persons, namely, persons other than searched persons. It is only then the persons other than the searched party can be proceeded against. If there is a satisfaction required and to be recorded as a precondition and which is mandatory, then, in the absence thereof all further steps stand vitiated.

iv) In a batch of appeals in ITA No. 60/2016 & Others in the Principal CIT vs. Satkar Roadlines Pvt. Ltd. vide order dated January 12, 2016, the Hon’ble Delhi High Court noted as under :

It is stated by Ms. Suruchi Aggarwal, Senior Counsel for the Revenue, that in light of the Circular No. 24/2015 dated 31st December, 2015 issued by the Central Board of Direct Taxes on the subject “Recording of satisfaction note under Section 158BD/153C of the Act”, these appeals are not pressed. These appeals are, accordingly, dismissed as not pressed.

2.38. If the aforesaid decision is analyzed, wherein CBDT

Circular and the decision from Hon'ble Bombay High Court in

the case of DIT vs M/s Ingram Micro (India) Exports Pvt. Ltd.

68 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . (ITA No.1337 of 2013 & Ors) order dated 29/04/2015 has been

considered, it was held that recording of requisite satisfaction in

the case of a searched party is a sine qua non for assuming

jurisdiction for the issue of notice u/s 153C of the Act even if the

Assessing Officer of the searched person and the assessee are

same. It is abundantly clear from the records in the case of the

searched person that there is no requisite satisfaction granting

the Assessing Officer jurisdiction for issuing notice to the

assessee u/s 153C of the I.T. Act.

2.39. Likewise, in the case of SMT. REKHABEN THAKKAR

VS. ACIT (2015) 174 TTJ 662, similar issue was considered,

wherein, the Assessing Officer of the searched person and the

other person was same. Assessing Officer of the searched

person has not recorded the satisfaction note that undisclosed

income and documents found during the course of search are

belonging to other person, the proceedings in the case of other

person were held as invalid. The Tribunal held as under:-

69 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. .

"Name of the assessee Smt. Rekhaben K. Thakkar Prop. M/s Durga Finance

Asst. yr. 1999-2000 to 2004-05

Satisfaction note for issuing notice under s. 153C of the Act

Search and seizure proceedings under section were carried out on 4th March, 2005 at the residential / business premises in the Kabhai Chauhan Group of cases. During the course of search, certain incriminating documents were found and seized. On scrutiny of the documents so seized, it is noticed that certain documents were found to be pertaining to the above assessee, including the following documents :

Undated cheque issued by M/s Durga Finance in favour of Shri Vijay K. Chauhan seized from the premises of Shri Brijesh K. Chauhan.

Since, the above documents, pertaining to the above named assessee have been found, I am satisfied that the provisions of s. 153C of the Act apply in this case and, therefore, notice under s. 153C is being issued.

Baroda (Amal Garg) Date : 8th Nov., 2005 Dy. CIT Central Circle -1, Baroda"

The above satisfaction note is similar to note recorded by

the Assessing Officer of the present assessee.

The Tribunal further observed/held as under:-

70 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . Thus, the satisfaction is recorded in the case of the person other than the person searched. As we have already mentioned that as per s. 153C, the AO of the person searched should be satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents belong to a person other than the person searched. Admittedly, in this case, the satisfaction is recorded not by the AO of the person searched but by the AO of the person to whom such document claimed to be belonging. It was contended by the learned counsel that since the AO of the person searched as well as the AO of such other person is the same; therefore, the satisfaction recorded by the AO should be considered as the proper compliance of s. 153C. We are unable to agree with this view of the learned Departmental Representative. Even if the AO assessing the person searched as well as other person whose assets, books of account or documents were found at the time of search is same, then also, first while making the assessment in the case of the person searched, he has to record the satisfaction that the money, bullion, jewellery or other valuable article or thing or books of account or documents belong to the person other than the person searched. Then, the copy of this satisfaction note is to be placed in the file of such other person and the relevant document should also be transferred from the file of person searched to the file of such other person. Thereafter, in the capacity of the AO of such other person, the AO has to issue the notice under s. 153C. The AO of the person searched and such other person may be the same but these are two different assessees and, therefore, the AO has to carry out the dual exercise, first as the AO of the person searched in which he has to record the satisfaction, during the course of assessment proceedings of the person searched. After recording such satisfaction note in the file of the person searched, the same is to be placed in the file of such other person. Then, in his capacity as the AO of such other person, he should take cognizance of such satisfaction note and thereafter issue notice under s. 153C. In this case, this exercise of recording the satisfaction during the assessment proceedings of the person searched has not been carried out. On the other hand, the AO recorded the satisfaction in the case of such other person which does not satisfy the condition of assuming jurisdiction under s. 153C.

71 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . earlier years. Admittedly, there is no seized material in the years for which notices under s. 153C have been issued.

(a) No satisfaction is recorded by the AO of the person searched. On the other hand, satisfaction is recorded by the AO of such other person in whose case notice under s. 153C was issued.

(b) The only document on the basis of which notice under s. 153C was issued for six years was the undated cheque found during the course of search on 4th March, 2005. Thus, the cheque was not pertaining to any of the years for which notice was issued under s. 153C.

72 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . (c) The cheque, on the basis of which the notice under s. 153C was issued, cannot be said to be belonging to the assessee.

In view of above, we are of the opinion that the conditions for issue of notice under s. 153C were not satisfied. Accordingly, we quash the notices issued for asst. yrs. 1999-2000 to 2004-05. Consequently, the assessment orders passed in pursuance to such notices are also quashed.” 2.40. In the case of TANVEER COLLECTIONS PVT LTD

VS. ACIT ITA NO. 2421/DEL/2014 DECIDED ON 16TH

JANUARY, 2015, it was held as under:-

73 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . 17. As regards the other argument of the ld. DR that since the AO of both the persons searched and the assessee is the same person, hence the requirement of recording satisfaction by the AO of the persons searched should be deemed to have been fulfilled with the recording of satisfaction by the AO of the assessee. We are again unable to appreciate this contention that the commonness of the AO would make no difference in so far as the recording of satisfaction in the case of the persons searched is concerned. What is relevant for this purpose is not the identity of the person assessing but his position and the capacity. When the law requires the AO of the person searched to record the necessary satisfaction, it is the AO having jurisdiction over the person searched who is obliged to record such satisfaction in the capacity of that AO and that too in the case of the person searched. The mere fact that the AO of the person searched and the assessee is the same person, does not, in any manner, obliterate the requirement of law necessitating the recording of satisfaction in the case of the person searched that money, bullion, jewellery, etc., found from the person searched belongs to the ‘other person.’ What is crucial to note is capacity of the AO and not his identity. In view of the fact that when the statutory stipulation is for recording the satisfaction by the AO of the person searched, then, it cannot be substituted with the satisfaction of the AO of the ‘other person.’ This contention also fails.”

2.41. Likewise, in DCIT VS. SATKAR ROADLINE PVT. LTD

(2016) 175 TTJ 198(DEL), It was observed/held as under:-

“26. Coming back to facts of the instant case, it is palpable that the AO of Shri B.K. Dhingra, Smt. Poonam Dhingra and M/s Madhusudan Buildcon (P) Ltd., did not record any satisfaction that some money, bullion, jewellery or books of accounts or other documents found from these persons belonged to the assessee. The absence of such satisfaction, in our considered opinion, failed to confer any valid and lawful jurisdiction on the AO of the assessee to proceed with the matter of the assessment under s. 153C of the Act. We, ergo, set aside the initiation and the ensuing assessment on the assessee as void ab initio. 27. The reliance of the learned Departmental Representative on some decisions on other legal issues or merits is of no consequence in view of the lack of jurisdiction of the AO to proceed with the assessments under s. 153C of the Act. In view of our decision on the first legal issue, there is no need to espouse the

74 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . other grounds taken by the assessee dealing with other legal issues or merits. 28. In the result, the appeal is allowed."

2.42. The Delhi Bench of the Tribunal in the case of

SUPER MALLS PVT LTD VS. DCIT (2015) ITA NO.1693 TO

1696/DEL/2015 DECIED ON 11TH DECEMBER, held as

under:-

“14. From the plain reading of the above notings, it is crystal clear that no satisfaction was recorded by the AO in the case of the searched person, the only satisfaction was recorded in the case of the person "other than the searched person" i.e., the assessee. The contents of the reasons recorded by the AO in the case of the assessee which has been incorporated by the learned CIT(A) at pp. Nos. 7 and 8 of the impugned order are as under :

"Reasons/satisfaction note for taking up the case of M/s Super Malls (P) Ltd., Sector-12, HUDA, Karnal, Regd., Office at 51-Transport Centre, Punjabi Bagh, New Delhi under s. 153C of the IT Act, 1961.

The jurisdiction of this case has been assigned to this office under s. 127 of IT Act, 1961 by the worthy CIT-III, New Delhi vide order F.No. CITIII/ Del/Centralization/2012-13/2455, dt. 15th Jan., 2013.

By virtue of the authorization of the Director of IT (Inv.), Chandigarh, a search and seizure operation under s. 132(1) of the Act was carried out on 8th/9th April, 2010 at the residential/business premises of Sh. Tejwant Singh and Sh. Ved Prakash Bharti Group of cases, Karnal, Panipat and Delhi and a survey under s. 133A of the IT Act, 1961 was also carried out at the business premises of M/s Super Malls (P) Ltd., Karnal and New Delhi.

During the course of search on 8th/9th April, 2010 at residence of Sh. Ved Prakash Bharti who is a director in the assessee company M/s Super Malls (P) Ltd., pen drives were found and seized as per Annex.-3 from vehicle No. HR06N-0063 parked in front of the residence of Sh. Ved Prakash Bharti. Some documents as per Annex. A-1 were seized after taking printout of the above said pen drives. These documents contain the details of cash receipt

75 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . on sale of shop/offices at M/s Super Mall, Karnal also beside other concerns. These documents are required for assessment proceedings. During the statement of Sh. Ved Prakash Bharti at the time of search, he has also stated that these documents pertain to him and M/s Super Mall (P) Ltd., Karnal in which he is director. In view of the above and as per the provisions of sub-s. (1) of s. 153C of the Act, I am satisfied that the document seized from the residence of Sh. Ved Prakash Bharti belongs to a person i.e. Super Mall (P) Ltd., other than the person referred in s. 153A. Accordingly, it is directed to issue such person (M/s Super Mall (P) Ltd.) notice and assess and reassess income in accordance with the provision of s. 153A of the Act. Dated : 22nd Feb., 2013" -Sd- (Ved Prakash Kalia) Asstt. CIT, Central Circle, Karnal

"8. The Revenue has not placed any material to dispute the factual finding of the Tribunal that the requirement of the law explained by this Court in Pepsi Foods regarding the recording of satisfaction by the AO even in respect of the searched person was not fulfilled. Consequently, the fact that it was the same AO both for the searched person and the assessee makes no difference to the consequence of non-compliance with the legal requirement regarding the recording of satisfaction. The Court also agrees with the Tribunal that even if the AO were the same, satisfaction would have to be recorded separately qua the searched person and the assessee."

76 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. .

'The AO of the person in respect of whom the search was conducted must be ‘satisfied’ that, inter alia, any document seized or requisitioned ‘belongs to’ a person other than the person in respect of whom the search was conducted. It is only then that the AO can hand over such document to the AO having jurisdiction over such other person (other than the person in respect of whom the search was conducted). Furthermore, it is only after such handing over that the AO of such other person can issue a notice to that person and assess or reassess his income in accordance with the provisions of s. 153A of the IT Act, 1961. Therefore, before a notice under s. 153C can be issued, two steps have to be taken. The first step is that the AO of the person in respect of whom the search was conducted must arrive at a clear satisfaction that a document seized from him does not belong to him but to some other person. The second step is after such satisfaction is arrived at that document is handed over to the AO of the person to whom the document ‘belongs’.

Sec. 132(4A)(i) clearly stipulates that when, inter alia, any document is found in the possession or control of any person in the course of a search, it may be presumed that such document belongs to such person. It is similarly provided in s. 292C(1)(i). In other words, whenever a document is found from a person who is being searched the normal presumption is that the document belongs to that person. It is for the AO to rebut that presumption and come to a conclusion or ‘satisfaction’ that the document in fact belongs to somebody else. There must be some cogent material available with the AO before he arrives at the satisfaction that the seized document does not belong to the person in respect of whom the search was conducted but to somebody else. Surmise and conjecture cannot take the place of ‘satisfaction’.

It has further been held that :

"It was evident from the satisfaction note that apart from saying that the documents belonged to the assessee and that the AO was satisfied that it was a fit case for issuance of a notice under s. 153C, there was nothing which would indicate how the presumptions which were to be normally raised had been rebutted by the AO. Mere use or mention of the word ‘satisfaction’ or the words ‘I am satisfied’ in the order or the note would not meet the

77 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . requirement of the concept of satisfaction as used in s. 153C. The satisfaction note itself must display the reasons or basis for the conclusion that the AO of the person in respect of whom the search was conducted is satisfied that the seized documents belonged to another person. On going through the contents of the satisfaction note, no ‘satisfaction’ of the kind required under s. 153C could be discerned. Thus, the very first step prior to the issuance of a notice under s. 153C had not been fulfilled. Inasmuch as this condition precedent had not been met, the notices under s. 153C were liable to be quashed." 17. In the present case, as we have already noted in the former part of this order that no satisfaction has been recorded in the case of searched person and the satisfaction, if any, recorded in the case of other person will not cure the defect because it is necessary that the satisfaction must be recorded by the AO of the searched person and thereafter the documents are to be handed over to the AO of other person and this position will not alter even if the AO for the searched person and the other person i.e., the assessee is the same. In view of the aforesaid discussion and the ratio laid down by the Hon'ble jurisdictional High Court in the aforesaid referred to cases, we allow ground Nos. 1 and 2 of the assessee's appeal and quash the assessment framed by the AO. As the assessment itself is quashed, no findings have been given on other issues raised by the assessee on merit.” 2.43. Now, we shall analyze Circular No.24/2015

dated 31/12/2015 issued by CBDT, which is reproduced

hereunder:-

““CIRCULAR NO. 24/20 5 F.No.279/Misc.l140 /2015/IT J Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes New Delhi, 31st December, 2015

Subject: Recording of satisfaction note under section 158BD/153C of the Act - reg.-

The issue of recording of satisfaction for the purposes of section 158BD/153C has been subject matter of litigation.

78 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . 2. The Hon'ble Supreme Court in the case of Mls Calcutta Knitwears in its detailed judgment in Civil Appeal NO.3958 of 2014 dated 12.3.2014(available in NJRS at 2014-LL-0312-51) has laid down that for the purpose of Section 158BD of the Act, recording of a satisfaction note is a prerequisite and the satisfaction note must be prepared by the AO before he transmits the record to the other AO who has jurisdiction over such other person uls 158BD. The Hon'ble Court held that "the satisfaction note could be prepared at any of the following stages :

(a) at the time of or along with the initiation of proceedings against the searched person under section 158BC of the Act; or

(b) in the course of the assessment proceedings under section 158BC of the Act; or

(c) immediately after the assessment proceedings are completed under section 158BC of the Act of the searched person."

2.44. In view of above circular, it is clear that Several

Hon'ble High Courts have held that the provisions of section

153C of the Act are substantially similar/pari-materia to the

79 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . provisions of section 158BD of the Act and therefore, the above

guidelines of the Hon'ble Supreme Court in the case of M/s

Calcutta Knitwears in its detailed judgment has laid down that

for the purpose of Section 158BD of the Act, recording of a

satisfaction note is a prerequisite and the satisfaction note must

be prepared by the Assessing Officer before he transmits the

record to the other Assessing Officer who has jurisdiction over

such other person u/s. 158BD also apply to proceedings u/s

153C of the Income Tax Act, for the purposes of assessment of

income of other than the searched person. This view has been

accepted by CBDT in principle. It is further clarified that even if

the Assessing Officer of the searched person and the "other

person" is one and the same, then also the Assessing Officer of

the searched person is required to record his satisfaction note as

has been held by the Courts. Thus, it is clear that the paper

seized during the course of search at the residential premises of

Shri Sudhakar M. Shetty do not belong to the assessee. Further,

the said paper is not incriminating in nature. Lastly, the

satisfaction was not recorded by the Assessing Officer of Shri

80 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . Sudhakar M. Shetty in his capacity as a Assessing Officer of

searched person. Hence, the notice issued u/s. 153C is bad in

law and thereby passing of assessment orders u/s. 143(3) r.w.s.

153C of the Income tax Act, 1961 are bad ab-initio.

2.45. So far as the merits of the case are concerned, the Ld.

counsel for the assessee contended that no incriminating

document was found during the course of search, which has

taken place at the residential premises of Shri Sudhakar M.

Shetty, partner of the assessee partnership firm. But while

passing the assessment order, the Assessing Officer has held

certain purchases to be bogus. These purchases are subdivided

into two parts and shown in the table format in respect of

assessment year 2008-09, 2009-10 and 2010-11. The first part

of the table contains the name of those parties where the figures

could not be reconciled as confirmation of the same could not be

submitted till the date of assessment. The second part of the

table contains the purchases from those parties which were held

to be hawala Operators by Maharashtra VAT Department on

account of non-payment of VAT, etc. and held as

81 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . accommodation entry providers by the Directorate of

Investigation, Income tax, Mumbai. On the other hand, the Ld.

CIT-DR defended the addition made by the Ld. Assessing Officer.

2.46. We have considered the rival submissions and

perused the material available on record. The following table

shows the quantum of purchase made from both type of

suppliers in respective assessment year for which the Assessing

Officer has made the additions:

S.N. ASSESSMENT Purchases where Alleged Hawala Total YEAR confirmation could Purchases not be filed. 1,84,80,257 1 2008-2009 1,35,29,342 3,20,09,599 2 2009-2010 1,23,00,071 66,06,020 1,89,06,091 3 2010-2011 18,58,439 51,55,132 70,13,571

In respect of additions made on account of those

purchases, where confirmation could not be filed during the

course of assessment proceedings, the Commissioner of Income

tax (Appeals) have deleted the additions as the confirmation have

been received either by the Assessing Officer after passing of the

assessment order or furnished by the assessee along with copy

of their ledger account, their bank account and related bills. The

82 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . Revenue is in appeal against deletion of those additions and the

same is argued while dealing with the Revenue's appeal.

2.47. Before this Tribunal, the assessee has challenged the

additions made by the Assessing Officer on account of alleged

Hawala Purchases and confirmed by the Commissioner of

Income tax (Appeals) while passing their respective orders. First,

we will deal with the reasons for such disallowance made by the

Assessing Officer in the assessment orders passed by him.

During the course of assessment proceedings, the Assessing

Officer has asked the assessee to explain why the purchases

from bogus hawala parties should not added to the income. In

response to the said letter, assessee filed a detailed explanation

vide its letter date 11/03/2014. The same is discussed by the

Assessing Officer on page 14 and para 10.7 of his order for the

assessment year 2008-09 and all other assessment orders. In

para (g) on page 17 of assessment order for the assessment year,

the assessee has submitted as under :

"i.Sir, on the basis of the list displayed on the MAHAVAT website, it cannot be said that the purchases made from such parties are bogus. It is submitted that:

83 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. .

i. Mere appearance of the name of the dealer on the website of the sales tax authorities is not sufficient to treat purchases from him as bogus for income-tax purposes;

ii. Without providing us with the copy of the statement/affidavit made by such dealer before the sales tax authorities or providing us with an opportunity of cross examining such persons, it would be insufficient to hold purchases from such dealer as bogus; iii. The purchases made by us cannot be doubted having regard to the fact that on the date of sales by the dealers, the dealers were holding valid TIN No. / sales tax registration no. "

2.48. It is noted that through above submissions, the

assessee has requested the Assessing Officer to provide the copy

of the statement/affidavit made by such dealer before the Sales

tax Authorities and provide the assessee an opportunity of cross

examining such person. None of these requests were considered

by the Assessing Officer. Even, the Assessing Officer has not

made any enquiry in respect of these parties. This is evident

from reading para 10.2 on page no. 12 of his order for the

assessment year 2008-09 and similar observations were made in

other assessment years also. We are reproducing the same para

which read as under :-

"10.2 To ascertain the genuineness of the purchases made by the assessee, the assessee was directed to provide the list of all purchase parties, with names, addresses and VAT TIN, from whom it had made purchases of construction material during the year.

84 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . This data was reconciled with the data in possession of this office and the established bogus parties were identified from the books of the assessee. Such parties were admitted bogus billers and no further investigation was required in a considered opinion. They had also provided bogus bills of the assessee during the year. To the extent of these bills, the assessee had inflated its cost of construction." From the reading of above para, it is clear that the

Assessing Officer has not deemed it fit to make further

investigation and accepted the opinion of the Sales Tax

Department as final. The Assessing Officer has not provided the

copy of the statement/affidavit made by such dealer before the

Sales tax Department. Not only this, the Assessing Officer has

not thought it fit to send a remand report specially asked for by

the Commissioner of Income tax (Appeals). In this connection, it

is noted that during the course of proceeding before the

Commissioner of Income tax (Appeals), the assessee has filed,

the copies of ledger accounts, invoices, vouchers containing

xerox copy of cheques issued and purchase order issued to these

alleged hawala parties. Copy of this letter is available on page

No. 70 to 72 of paper book. A chart is also enclosed herewith

showing the page numbers of paper book on which the related

details/documents are available. These details were forwarded

85 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . by the Commissioner of Income tax (Appeals) to the Assessing

Officer vide his office letter dated 23rd September, 2014 for

examination and remand report. The Assessing Officer has

submitted an interim report but nothing was mentioned about

these alleged hawala dealers. He has sought further time to

submit the report. The Commissioner of Income tax (Appeals)

has further granted time till 23rd January, 2015. Later, the time

was extended to 23rd February, 2015. However, no report was

submitted by the Assessing Officer. In between, the

Commissioner of Income tax (Appeals) has discussed the matter

with the Assessing Officer and the Additional Commissioner of

Income tax, Central Range 4, Mumbai on two different

occasions, wherein the Assessing Officer has mentioned that he

will submit the remand report shortly. However, no remand

report was submitted. (Refer para 18 on page 17 & 18 of the

order of the Commissioner of Income tax (Appeals)). Not only

this, the Commissioner of Income tax (Appeals) has confirmed

the additions made by the Assessing Officer on account of

alleged Hawala purchases. The Commissioner of income tax

86 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . (Appeals) has discussed the same in para 21 on page No. 19 of

his order as under :

"As regards bogus purchases of Rs. 13529342/- from 14 parties. as per para 10.6 of the assessment order is concerned ,I am not in a position to accept the contention of the assessee that these purchases were genuine .It is gathered that after detailed enquiries the Maharashtra Vat Department identified 2049 parties which were engaged only in providing accommodation bills of purchases / sales and names of such parties were put up on the website of Maharashtra Vat Department. Apparently names of all these 14 parties are appearing therein. further these parties have been investigation by the directorate of income tax (Investigation ), Mumbai and in several cases search / survey action had been carried out and statements etc . were recorded , wherein apparently, these parties confirmed about providing accommodation entries. without any real transaction of sales and purchase. During the course of assessment proceedings or during the course of appellate proceedings the assessee had any credible evidence in support of its claim that purchases from these parties were genuine. The assessee has only made a general explanation that materials from these parties were actually purchased and were used in construction . However on reliance evidence in this regard has been furnished .In fact even confirmation from such parties have not been submitted . There is no evidence to suggest that material from these parties was actually received on the project site of the assessee and was used for construction of the building . In he circumstances the claim of the assessee that purchases from parties were genuine, cannot be accepted by any stretch of imagination. The same is, therefore, held to be bogus and to that extent (RS.1,35,29,342) reduction of closing work- in-progress as by the AO is upheld." 2.49. If the aforesaid observation is analyzed, the facts

reveals the approach of the Assessing Officer in neither making

any enquiry in respect of these parties nor providing any copy of

statement/affidavit filed by these parties before the Sales Tax

Department, the additions made by the Assessing Officer and

87 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . confirmed by the Commissioner of Income tax (Appeals) on

account alleged Hawala purchases be treated as bad in law and

against the principal of natural justice. It is further noted that

during appellate proceeding before the Ld. Commissioner of

Income tax (Appeals), the assessee cited various judgments in

respect of alleged Hawala purchases and in respect of principal

of natural justice, but none of the cases were discussed by him

in his order. Refer Page No. 21 to 23 of Paper book for the

assessment year 2008-09). It is also interesting to note that copy

of the assessment order passed by the Sales tax Authorities were

also filed before the Commissioner of Income tax (Appeals). Refer

Page No. 496 to 498 of paper book for the assessment year

2008-09). This assessment order does not reveal any Hawala

Parties. We also observed that the assessee has discharged its

burden of proof; the additions have been made which is contrary

to the principle of natural justice. Apart from above, it was also

pointed out while arguing the matter on legal issue that during

the course of search, no incriminating documents were found

and hence, no additions can be made as decided by the Hon'ble

88 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . Supreme Court in the case of CIT vs. SINHGAD TECHNICAL

EDUCATION SOCIETY, CIVIL APPEAL NO. 11081 TO 11083 OF

2017 decided on 29th August, 2017 (SC) (Refer page No. 204 to

221 of cases relied upon by the assessee part 1)Thus, in view of

the foregoing discussion, the addition made on account of

alleged Hawala purchases deserves to be deleted.

Finally, on the issue of jurisdictional/legal issue as well as

on merits, the appeals of the assessee are allowed.

Revenue (ITA No.3586, 4201, 3587/Mum/2015 and ITA

No.6481/Mum/2014) for Assessment Years 2008-09 to 2011-12.

3.1. Wherein, the Revenue has raised following grounds:-

(i) Whether on the facts and in the circumstances of the

case and in law, the Ld. Commissioner of Income Tax (Appeals)

A) was justified in directing the Assessing Officer not to reduce

Rs.1,82,73,257/- (AY-2008-09), Rs.1,21,43,430/- (Assessment

Year 2009-10), Rs.18,58,439/- and further the addition of Rs.

3,28,95,595/- made as short term capital gain on transfer of

89 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . WIP on the building under construction (Assessment Year

2010-11), Rs.14,10,00,000/- within the provisions of section

45(4) of the Act holding that the reconstitution of the firm by

relinquishing the right of old partners to new partners does not

fall within the purview of section 45(4) of the Act (Assessment

Year 2011-12) from closing work in progress (WIP) of the

project under construction whereas the Assessing Officer

reduced the WIP as the assessee had bogus purchases to

inflate the closing WIP (Assessment Year 2008-09).

3.2. The Ld. CIT-DR advanced arguments, which are

identical to the ground raised in the respective appeal.

Whereas, the ld. Counsel for the assessee, defended the

conclusion arrived at in the impugned order.

3.3. We have considered the rival submissions and

perused the material available on record. The facts, in brief,

are that a search action had taken place at the residential

premises of Shri Sudhakar M. Shetty, partner of the firm on

22nd September, 2011. One document, neither incriminating

nor belonging to the assessee was found. On the basis of said

90 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . document, the Assessing Officer has issued notice u/s. 153C

of the Income tax Act, 1961 in the case of the assessee right

from the assessment years 2006-07 to 2011-12. The Assessing

Officer has passed the order for the assessment year 2007-08

to 2011-12 against which the assessee has preferred appeals

before the Commissioner of Income tax (Appeals). The

Commissioner of Income tax (Appeals) has partly allowed the

appeals. The assessee, thereafter, has preferred further

appeals before this Tribunal on those points which were not

allowed by the Commissioner of Income tax (Appeals) as well

as on legal issues involved in those appeals. It is further noted

that additions have been made on account of certain

purchases where either confirmation have not been received or

account was not tallied before passing the assessment order by

the Assessing Officer, in spite of the fact that no incriminating

documents were found during the course of search. Only on

the basis of single paper (which also does not belong to the

assessee) proceedings were initiated u/s. 153C of the Income

tax Act, 1961. These additions have been made for the

91 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . assessment years 2008-09, 2009-10 & 2010-2011. The

Commissioner of Income tax (Appeals) has deleted these

additions as the necessary confirmation was either received by

the Assessing Officer after passing the assessment order or

produced by the assessee during the course of hearing before

Commissioner of Income tax (Appeals). The Revenue is in

appeal against such deletions. The disallowances made by the

Assessing Officer were reduced from the closing work-in-

progress. The Commissioner of Income tax (Appeals) has

deleted these additions and hence closing work-in-progress of

each year was increased by the amount of relief granted by the

Commissioner of Income tax (Appeals). Similarly, in the

assessment year 2010-11, the project was transferred to AOP

and hence the work-in-progress as increased by the amount of

relief granted by the Commissioner of Income tax (Appeals)

was considered for determining the income from sale of

project. For the assessment year, 2011-12, the additions were

made u/s. 45(4) on account of reconstitution of partnership

firm, where partners were admitted. The Assessing Officer has

92 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . treated the reconstitution of partnership firm liable to tax u/s.

45(4). The Commissioner of Income tax (Appeals) has deleted

the said additions on the basis of judicial pronouncement. The

Revenue has preferred appeal against such deletion.

3.4. During the course of arguments before this

Tribunal, the learned CIT-DR has relied upon the decision of

the Assessing Officer whereas the Ld. AR has relied upon the

decision of the Commissioner of Income tax (Appeals). Apart

from this, the AR has also argued that the assessee has

challenged the assessment orders and notices issued u/s.

153C in its own appeal filed for the above assessment years.

The assessee has also contended that as no incriminating

documents were found during the course of search, no

addition can be made in the assessment order passed u/s.

153C of the Act. A detailed submission along with related

judgments was also filed while submitting the detailed

explanation in respect of appeals filed by the assessee. For the

sake of convenience, we are showing the assessment year wise

respective paras where the Assessing Officer and the

93 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . Commissioner of Income tax (Appeals) has dealt with the

respective additions/deletion in their respective orders.

Appeal No. 3586/M/15 4201/M/2015 3587/M/15 6480/M/15 Assessment year 2008-09 2009-10 2010-11 2011-12 Designation of Officer Assessing Officer Para No. 10.6 Para No. 10.6 on Para No. 10.6 Additions on on page 13. page 13. on page 13. account of confirmation not Para No.10.10 Para No.10.10 Para No.10.10 received. on page 20 on page 20 on page 20

Additions on Para No. account of 10.51 to reconstitution of 10.56 on firm liable to tax u/s. page No. 45(4) of the Act. 34 to 36 Commissioner of Income tax (Appeals) Deletion on account Para 18 on Para 18 on page Para 18 & 19 of confirmation page 16 & 17 17 on page 16 to received/produced Para 21 to 23 Para 22 to 25 on 18 on page 20 to page 19 to 22 Para 22 to 23 22 Refer Annexure on page 19 to Refer ‘B’ showing 21 Annexure ‘A’ relevant Refer showing documents in Annexure ‘C’ relevant paper book showing documents in relevant paper book documents in paper book Deletion on Para 10.1 account of to 10.12 on reconstitution of page No. 8 firm is not liable to 21. to tax u/s. 45(4) of the Act.

3.5. We have perused the impugned orders and the

factual uncontroverted finding recorded therein. During

assessment proceedings, the Ld. Assessing Officer treated

purchases from fourteen parties to be bogus as mentioned in

94 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . the respective appeal in view of the information from the

Maharashtra Sales Tax/VAT Department. The name of the

parties has been mentioned at page-16 (ITA

No.3586/Mum/2015) and consequent addition was made. The

detailed submissions of the assessee vide letter dated

22/09/2014 were considered, wherein, the copies of the

accounts of the concerned parties, bills for purchase of the

materials, proof of payment through cheque were furnished by

claiming that the purchases were genuine. In para-19 of the

impugned order, it has been mentioned that the assessee was

provided only 14-15 days time to respond to the various

queries raised by the Assessing Officer. The assessee

submitted its reply vide letter dated 11/03/2014. The Ld.

Commissioner of Income Tax (Appeal) granted part relief to the

assessee, which is under challenge by the Revenue. On perusal

of records, confirmation by the parties vide letter dated

04/02/2015 along with other details, we are satisfied that the

Ld. Commissioner of Income Tax (Appeal) justifiably granted

relief to the assessee. The genuineness of the transactions was

95 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . found to be in the light of the bona-fide reasons and there is

uncontroverted finding that these parties were not part of the

Hawala Dealers. Thus, we find no merit in the appeals of the

Revenue, consequently, dismissed.

the case of M/s Skylark Buildcon Pvt. Ltd. for Assessment

Year 2011-12 (ITA No.6479/Mum/2014) and C.O.

No.58/Mum/2016 (Assessment Year 2011-12) of the assessee

and identically ITA No.6481/Mum/2014 for Assessment Year

2012-13, wherein, no cross objection has been filed by the

assessee for the Assessment Year 2012-13.

4.1. In the appeal of the Revenue for Assessment Year

2011-12, deleting the addition within the provisions of section

47A(iii) of the Act has been challenged. The assessee has also

filed cross objection and challenge the order on legal issue. The

ground raised by the Revenue are summarized as under:-

96 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. .

against the statutory provision of the Act without complying

with the procedures prescribed u/s 153C of the Act and as

such the assessment being bad in law and deserves to be

quashed. The ld. Counsel for the assessee advanced arguments

on legal issue/jurisdictional issue as well as on merits. On the

other hand, the Ld. CIT-DR defended the addition made by the

Assessing Officer by contending that the Ld. Commissioner of

Income Tax (Appeal) was not justified in deleting the addition

made by the Assessing Officer.

4.3. We have considered the rival submissions and perused

the material available on record. The facts, in brief, are that

97 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . the case was mentioned in the cross objection filed by the

assessee. A search action had taken place at the residential

premises of Shri Sudhakar M. Shetty, Director of the assessee

company, on 22nd September, 2011. One document, neither

incriminating nor belonging to the assessee was found. On the

basis of said document, the Assessing Officer has issued notice

u/s. 153C of the Income tax Act, 1961 in the case of the

assessee for the assessment year 2011-12. The Assessing

Officer has passed the order for the assessment year 2011-12.

Considering the totality of facts, so far as, the jurisdictional

issue u/s 153C is concerned, in the light of the foregoing

discussion, the case of the assessee is covered in favour of the

assessee as we have made an elaborate discussion in earlier

paras of this order. We have already admitted the legal issue in

view of various decisions including the decision from Hon'ble

Apex Court in the case of National Thermal Power Company

Ltd. vs CIT ((supra)) along with other decisions. For the sake of

brevity, the same is not being repeated and may be read as

part and partial of this order. So far as the reasons for

98 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . issuance of notice is concerned, the same has already been

deliberated by us along with the satisfaction note in earlier

paras of this order. Following the conclusion drawn in the

earlier paras of this order, we find no merit in the appeals of

the Revenue on jurisdictional issue.

4.4. So far as, merits of the issue is concerned, the facts,

in brief, are that the assessee company was incorporated as on

12/08/2010, therefore, this is the first year of business of

construction and real estate development. It is relevant to

mention that upto 11/08/2010, the business was being run in

the name of partnership firm i.e. M/s Skylark Build, having

seven partners, whereas, w.e.f. 12/08/2010, the firm was

converted into a company under chapter-IX of the Companies

Act, 1956. The chronology of events has been summerized by the

First Appellate Authority at page-2 of the impugned order. The

grounds raised by the assessee before the Ld. Commissioner of

Income Tax (Appeal) has been summerized at page-3 (para-3 &

4) of the impugned order. Before the Ld. Assessing Officer as well

as before the Ld. Commissioner of Income Tax (Appeal), the

99 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . assessee disputed validity of notice issued u/s 153C of the Act.

The relevant discussion is appearing in para 9.1 to 9.13 (pages 6

to 11) of the assessment order, wherein, the Ld. Assessing

Officer referred page-55 of the seized annexure “A” which is a

letter written by M/s Skylark Build to one Shri Hemant Parikh.

Before the Ld. Commissioner of Income Tax (Appeal), plea was

raised by the assessee that all the conditions prescribed u/s

47(xiii) have been fulfilled as is evident from page-13 onwards of

the impugned order. So far as, vesting of properties of a

partnership firm in a company under part –ix of the companies

Act make it liable for capital gains tax under 45 of the Act is

concerned, the Ld. Commissioner of Income Tax (Appeal) at

page-13 has made an elaborate discussion with respect to

definition of capital asset u/s 2(14) and transfer of capital asset

defined u/s 2(47) of the Act. The decision from Hon'ble Bombay

High Court in CIT vs Texspin Engineering and Mfg. Ltd. (2003)

263 ITR 345 (Bom.) has been discussed. The Hon'ble High Court

held as under:-

100 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . of distribution of capital assets on the dissolution of a firm is chargeable to tax as income of the firm in a previous year in which the transfer takes place and for the purposes of Section 48, the fair market value of the asset on the date of such transfer is deemed to be the full value of the consideration received or accruing as a result of the transfer. Section 48 deals with mode of computation. It, inter alia, lays down that the income chargeable under the head "Capital gains" shall be computed by deducting from the full value of the consideration, the expenditure incurred in connection with the transfer and the cost of acquisition of the asset. Therefore, under Section 45(4), two conditions are required to be satisfied viz. transfer by way of distribution of capital assets and secondly, such transfer should be on dissolution of the firm or otherwise. Once these two conditions are satisfied then, in that event, for the purposes of computation of capital gains under Section 48, the market value on the date of the transfer shall be deemed to be the full value of consideration received or accruing as a result of the transfer. 6. Now, according to the Assessing Officer, in this case, on vesting of the properties of the firm in the Limited Company, there was a transfer by way of distribution of capital assets. Further, according to the Assessing Officer, on vesting of the properties of the firm in the company, there was a resultant dissolution of the firm. Therefore, according to the Assessing Officer, both the conditions under Section 45(4) stood satisfied and, therefore, he was entitled to take the fair market value of the asset on the date of the transfer to be the full value of the consideration received as a result of the transfer. It is for this reason that the Assessing Officer has computed the capital gains under Section 48 by referring to the comparative figures of the book value and the market value. As stated above, in this connection, the Assessing Officer has computed capital gains arising to the assessee-firm at Rs. 9 lakhs on the basis of the difference between the market value and the written down value. The Assessing Officer has taken the written down value as on 1st April, 1995 and he has taken the market value as on 8th November, 1995 (alleged date of transfer) and on that basis, he has computed the capital gains. However, as stated, computation under Section 45(4) read with Section 48 would arise only if the aforestated two conditions are satisfied to attract Section 45(4). 7. In this case, the erstwhile firm has been treated as a Limited Company by virtue of Section 575 of the Companies Act. It is not in dispute that in this case, the erstwhile firm became a Limited Company under Part IX of the Companies Act. Now, Section 45(4) clearly stipulates that there should be transfer by way of distribution of capital assets. Under Part IX of the Companies Act, when a Partnership Firm is treated as a Limited

101 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . Company, the properties of the erstwhile firm vests in the Limited Company. The question is whether such vesting stands covered by the expression "transfer by way of distribution" in Section 45(4) of the Act. There is a difference between vesting of the property, in this case, in the Limited Company and distribution of the property. On vesting in the Limited Company under Part IX of the Companies Act, the properties vest in the company as they exist. On the other hand, distribution on dissolution presupposes division, realisation, encashment of assets and appropriation of the realised amount as per the priority like payment of taxes to the Government, BMC etc., payment to unsecured creditors etc. This difference is very important. This difference is amply brought out conceptually in the judgment of the Supreme Court in the case of Malabar Fisheries Co. v. CIT[1979] 120 ITR 49 2 Taxman 409. In the present case, therefore, we are of the view that Section 45(4) is not attracted as the very first condition of transfer by way of distribution of capital assets is not satisfied. In the circumstances, the latter part of Section 45(4), which refers to computation of capital gains under Section 48 by treating fair market value of the asset on the date of transfer, does not arise. 4.5. The Hon'ble jurisdictional High Court further

analyzed section 45(1) of the Act and held as under:-

“ 6. As stated above, in this case we are concerned with the assessment year 1996-97. Therefore, in this case, we are not concerned with clause (xiii) inserted by Finance (No. 2) Act, 1998 in Section 47 under which it is provided that where a Firm is succeeded by a company in the business carried on by it as a result of sale or otherwise, of any capital assets, then such transaction shall not be regarded as transfer. This clause was inserted with effect from 1st April, 1999. Therefore, we are not concerned with that amendment. However, it provides a clue to the legislative intent. In our opinion, this clause has been introduced with effect from 1st April, 1999 in order to encourage more and more Firms becoming Limited Companies. It also indicates the difference between transfer and transmission. Basically, when a Firm is treated as a company under Part IX, it is a case similar to transmission. This is amply made clear by clause (xiii) to Section 47, which states that where a Firm is succeeded by a company in the business, the transaction shall not be treated as a transfer. Now, this amendment has been made in Section 47 in view of the controversy arising on Section 45(1) read with Section 2(47)(ii).

102 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . As stated above, Section 45(1) is a charging section. Section 45, read with the computation Section viz. 48 etc., form one composite scheme. This point is very important. Section 45(1) provides that where any profit, arising from transfer of a capital asset is effected in the previous year then such profit shall be chargeable to income-tax under the head "Capital gains". The expression "transfer of a capital asset" in Section 45(1) is required to be read with Section 2(47)(ii) which states that transfer in relation to a capital asset shall include extinguishment of any rights therein. The moot point which arose on interpretation of Section 45(1) in numerous matters was that on extinguishment of the rights in the capital assets, there was a transfer and in certain cases of reconstitution of firms and introduction of new partners, there was a resultant extinguishment of the rights in the capital assets proportionately. In order to get over this controversy, and keeping in mind the object of encouraging Firms being treated as Companies, the controversy is resolved by the Legislature by introducing clause (xiii) in Section 47with effect from 1st April, 1999.

Now, in the present case, it is argued on behalf of the department before the Tribunal, for the first time, that in this case, on vesting of the properties of the erstwhile Firm in the Limited Company, there was a transfer of capital assets and, therefore, it was chargeable to income-tax under the head "Capital gains" as, on such vesting, there was extinguishment of all right, title and interest in the capital assets qua the Firm. We do not find any merit in this argument. In the present case, we are concerned with a Partnership Firm being treated as a company under the statutory provisions of Part IX of the Companies Act. In such cases, the Company succeeds the Firm. Generally, in the case of a transfer of a capital asset, two important ingredients are : existence of a party and a counterparty and, secondly, incoming consideration qua the transferor. In our view, when a Firm is treated as a Company, the said two conditions are not attracted. There is no conveyance of the property executable in favour of the Limited Company. It is no doubt true that all properties of the Firm vests in the Limited Company on the Firm being treated as a Company under Part IX of the Companies Act, but that vesting is not consequent or incidental to a transfer. It is a statutory vesting of properties in the Company as the Firm is treated as a Limited Company. On vesting of all the properties statutorily in the Company, the cloak given to the Firm is replaced by a different cloak and the same Firm is now treated as a Company, after a given date. In the circumstances, in our view, there is no transfer of a capital asset as contemplated by Section 45(1) of the Act. Even assuming for the sake of argument that there is a transfer of a capital asset under Section 45(1) because of the definition of the word "transfer" in Section 2(47)(iii), even then we are of

103 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . the view that liability to pay capital gains would not arise because Section 45(1) is required to be read with Section 48, which provides for mode of computation. These two sections are required to be read together as the charging section and the computation section constitute one package. Now, under Section 48 it is laid down, inter alia, that the income chargeable under the head "Capital gains" shall be computed by deducting from the full value of the consideration received or accrued as a result of the transfer, the cost of acquisition of the asset and the expenditure incurred in connection with the transfer. Section 45(4) is mutually exclusive to Section 45(1). Section 45(4)categorically states that where there is a transfer by way of distribution of capital assets and where such transfer is due to dissolution or otherwise of the firm, the Assessing Officer was entitled to treat the market value of the asset on the date of the transfer as full value of the consideration received. This latter part of Section 45(4) is not there in Section 45(1). Therefore, one has to read the expression "full value of the consideration received/accruing" under Section 48 de hors Section 45(4) and if one reads Section 48 with Section 45(1) de hors Section 45(4) then the expression "full value of consideration" in Section 48 cannot be the market value of the capital asset on the date of transfer. In such a case, we have to read the said expression in the light of the two judgments of the Supreme Court in the cases of George Henderson & Co. Ltd. (supra) and Gillanders Arbuthnot & Co. (supra) in which it has been held that the expression "full value of the consideration" does not mean the market value of the asset transferred, but it shall mean the price bargained for by the parties to the transaction. It has been further held that consideration for the transfer of a capital asset is what the transferor receives in lieu of the assets he parts with viz. money or money's worth and, therefore, the very asset transferred or parted with cannot be the consideration for the transfer and, therefore, the expression "full value of the consideration" cannot be construed as having a reference to the market value of the asset transferred and that the said expression only means the full value of the things received by the transferor in exchange of the capital asset transferred by him. In the circumstances, even if we were to proceed on the basis that vesting in the company under Part IX constituted transfer under Section 45(1), still the assessee ought to succeed because the Firm can be assessed only if the full value of the consideration is received by the Firm or if it accrues to the Firm. In the present case, the Company had allotted shares to the Partners of the erstwhile Firm, but that was in proportion to the capital of the Partners in the erstwhile Firm. That allotment of shares had no correlation with the vesting of the properties in the Limited Company under Part lX of the Act. Lastly, Section 45(1) and Section 45(4) are mutually exclusive. Under Section 45(4) in cases of transfer by way of distribution and where such transfer is as a

104 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . result of dissolution, the department is certainly entitled to take the full market value of the asset as full value of consideration provided there is transfer by distribution of assets. In this case, we have held that there is no such transfer by way of distribution and, therefore, Section 45(4) is not applicable. This deeming provision, regarding full value of consideration, is not there in Section 45(1) read with Section 48. If one reads Section 45(1) with Section 48, it is clear that the former is a charging section and if that section is applicable, the computation has to be done under Section 48, which only refers to deductions from full value of consideration received or accruing. Section 48 does not empower the Assessing Officer to take market value as full value of consideration as in the case of Section 45. In the circumstances, even if we were to hold that vesting amounts to transfer, the computation is not possible because it has been laid down in the above judgment of the Supreme Court that full consideration cannot be construed to mean market value of the asset transferred. The Legislature, in its wisdom, has amended only Section 45(4) by which the market value of the asset on the date of the transfer is deemed to be the full value of consideration. However, such amendment is not there in Section 45(1). In the circumstances, neither Section 45(1) nor Section 45(4) stand attracted.”

4.6. In the present appeal, undisputedly, the partnership

firm got converted into a registered company under part (ix) of

the Companies Act and thus the properties of the firm statutorily

vested in the company, meaning thereby, the property of the firm

became the property of the company. There was no distribution

of capital asset to the partners or any other persons on

registration of a firm a company, consequently, it does not make

either party liable to tax u/s 45 of the Act, thus, in view of the

decision from Hon'ble jurisdictional High Court in the case of

105 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . Texspin Engineering & Mfg Ltd. ((supra)) dealt with by the First

Appellate Authority also along with the decision in the case of

Malabar Fisheries Company Ltd. vs CIT 120 ITR 49 and the

decision of Bangalore Bench of the Tribunal in Unity Care &

Health Services (2007) 106 TTJ (Bang.) 1086, wherein, the

decision from Hon'ble Apex Court in the case of Malabar

Fisheries Company Ltd. was relied upon holding that when a

conversion of a firm into a company takes place under the

provisions of company Act, such conversion can be construed

only as occasioned by operation of law and hence no controversy

can arise on the application of this principle even for the

purposes of capital gains under sections 45(4) of the Act. Thus,

we find no infirmity in the conclusion drawn by the Ld.

Commissioner of Income Tax (Appeal) with respect to non-

taxability u/s 45(1) or 45(4) of the Act.

of the Act is concerned, it is our bounded duty to examine the

aforesaid sections, therefore, the same are reproduced

hereunder:-

106 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . 47. Nothing contained in section 45 shall apply to the following transfers :— (i) any distribution of capital assets on the total or partial partition of a Hindu undivided family; (ii) [***] (iii) any transfer of a capital asset under a gift or will or an irrevocable trust : Provided that this clause shall not apply to transfer under a gift or an irrevocable trust of a capital asset being shares, debentures or warrants allotted by a company directly or indirectly to its employees under any Employees' Stock Option Plan or Scheme of the company offered to such employees in accordance with the guidelines issued by the Central Government in this behalf; (iv) any transfer of a capital asset by a company to its subsidiary company, if— (a) the parent company or its nominees hold the whole of the share capital of the subsidiary company, and (b) the subsidiary company is an Indian company; (v) any transfer of a capital asset by a subsidiary company to the holding company, if— (a) the whole of the share capital of the subsidiary company is held by the holding company, and (b) the holding company is an Indian company : Provided that nothing contained in clause (iv) or clause (v) shall apply to the transfer of a capital asset made after the 29th day of February, 1988, as stock- in-trade; (vi) any transfer, in a scheme of amalgamation, of a capital asset by the amalgamating company to the amalgamated company if the amalgamated company is an Indian company; (via) any transfer, in a scheme of amalgamation, of a capital asset being a share or shares held in an Indian company, by the amalgamating foreign company to the amalgamated foreign company, if— (a) at least twenty-five per cent of the shareholders of the amalgamating foreign company continue to remain shareholders of the amalgamated foreign company, and (b) such transfer does not attract tax on capital gains in the country, in which the amalgamating company is incorporated; (viaa) any transfer, in a scheme of amalgamation of a banking company with a banking institution sanctioned and brought into force by the Central Government under sub-section (7) of section 45 of the Banking Regulation Act, 1949 (10 of 1949), of a capital asset by the banking company to the banking institution. Explanation.—For the purposes of this clause,—

107 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . (i) "banking company" shall have the same meaning assigned to it in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949); (ii) "banking institution" shall have the same meaning assigned to it in sub- section (15) of section 45 of the Banking Regulation Act, 1949 (10 of 1949); (viab) any transfer, in a scheme of amalgamation, of a capital asset, being a share of a foreign company, referred to in the Explanation 5 to clause (i) of sub-section (1) of section 9, which derives, directly or indirectly, its value substantially from the share or shares of an Indian company, held by the amalgamating foreign company to the amalgamated foreign company, if— (A) at least twenty-five per cent of the shareholders of the amalgamating foreign company continue to remain shareholders of the amalgamated foreign company; and (B) such transfer does not attract tax on capital gains in the country in which the amalgamating company is incorporated; (vib) any transfer, in a demerger, of a capital asset by the demerged company to the resulting company, if the resulting company is an Indian company; (vic) any transfer in a demerger, of a capital asset, being a share or shares held in an Indian company, by the demerged foreign company to the resulting foreign company, if— (a) the shareholders holding not less than three-fourths in value of the shares of the demerged foreign company continue to remain shareholders of the resulting foreign company; and (b) such transfer does not attract tax on capital gains in the country, in which the demerged foreign company is incorporated : Provided that the provisions of sections 391 to 39463 of the Companies Act, 1956 (1 of 1956) shall not apply in case of demergers referred to in this clause; (vica) any transfer in a business reorganisation, of a capital asset by the predecessor co-operative bank to the successor co-operative bank; (vicb) any transfer by a shareholder, in a business reorganisation, of a capital asset being a share or shares held by him in the predecessor co-operative bank if the transfer is made in consideration of the allotment to him of any share or shares in the successor co-operative bank. Explanation.—For the purposes of clauses (vica) and (vicb), the expressions "business reorganisation", "predecessor co-operative bank" and "successor co-operative bank" shall have the meanings respectively assigned to them in section 44DB; (vicc) any transfer in a demerger, of a capital asset, being a share of a foreign company, referred to in the Explanation 5 to clause (i) of sub-section (1) of section 9, which derives, directly or indirectly, its value substantially from the share or shares of an Indian company, held by the demerged foreign company to the resulting foreign company, if—

108 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . (a) the shareholders, holding not less than three-fourths in value of the shares of the demerged foreign company, continue to remain shareholders of the resulting foreign company; and (b) such transfer does not attract tax on capital gains in the country in which the demerged foreign company is incorporated: Provided that the provisions of sections 391 to 39464 of the Companies Act, 1956 (1 of 1956) shall not apply in case of demergers referred to in this clause; (vid) any transfer or issue of shares by the resulting company, in a scheme of demerger to the shareholders of the demerged company if the transfer or issue is made in consideration of demerger of the undertaking; (vii) any transfer by a shareholder, in a scheme of amalgamation, of a capital asset being a share or shares held by him in the amalgamating company, if— (a) the transfer is made in consideration of the allotment to him of any share or shares in the amalgamated company except where the shareholder itself is the amalgamated company, and (b) the amalgamated company is an Indian company; (viia) any transfer of a capital asset, being bonds or Global Depository Receipts referred to in sub-section (1) of section 115AC, made outside India by a non-resident to another non-resident; 65[(viiaa) any transfer, made outside India, of a capital asset being rupee denominated bond of an Indian company issued outside India, by a non- resident to another non-resident;] Following clause (viiab) shall be inserted after clause (viiaa) of section 47 by the Finance Act, 2018, w.e.f. 1-4-2019 : (viiab) any transfer of a capital asset, being— (a) bond or Global Depository Receipt referred to in sub-section (1) of section 115AC; or (b) rupee denominated bond of an Indian company; or (c) derivative, made by a non-resident on a recognised stock exchange located in any International Financial Services Centre and where the consideration for such transaction is paid or payable in foreign currency. Explanation.—For the purposes of this clause,— (a) "International Financial Services Centre" shall have the meaning assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005); (b) "recognised stock exchange" shall have the meaning assigned to it in clause (ii) of Explanation 1 to clause (5) of section 43; (c) "derivative" shall have the meaning assigned to it in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);

109 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . (viib) any transfer of a capital asset, being a Government Security carrying a periodic payment of interest, made outside India through an intermediary dealing in settlement of securities, by a non-resident to another non-resident. Explanation.—For the purposes of this clause, "Government Security" shall have the meaning assigned to it in clause (b) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956); 66[(viic) any transfer of Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015, by way of redemption, by an assessee being an individual;] (viii) any transfer of agricultural land in India effected before the 1st day of March, 1970; (ix) any transfer of a capital asset, being any work of art, archaeological, scientific or art collection, book, manuscript, drawing, painting, photograph or print, to the Government or a University or the National Museum, National Art Gallery, National Archives or any such other public museum or institution as may be notified by the Central Government in the Official Gazette to be of national importance or to be of renown throughout any State or States. Explanation.—For the purposes of this clause, "University" means a University established or incorporated by or under a Central, State or Provincial Act and includes an institution declared under section 3 of the University Grants Commission Act, 1956 (3 of 1956), to be a University for the purposes of that Act; (x) any transfer by way of conversion of bonds or debentures, debenture- stock or deposit certificates in any form, of a company into shares or debentures of that company; (xa) any transfer by way of conversion of bonds referred to in clause (a) of sub-section (1) of section 115AC into shares or debentures of any company; 67[(xb) any transfer by way of conversion of preference shares of a company into equity shares of that company;] (xi) any transfer made on or before the 31st day of December, 1998 by a person (not being a company) of a capital asset being membership of a recognised stock exchange to a company in exchange of shares allotted by that company to the transferor. Explanation.—For the purposes of this clause, the expression "membership of a recognised stock exchange" means the membership of a stock exchange in India which is recognised under the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956); (xii) any transfer of a capital asset, being land of a sick industrial company, made under a scheme prepared and sanctioned under section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) where such sick industrial company is being managed by its workers' co-operative :

110 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . Provided that such transfer is made during the period commencing from the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of that Act and ending with the previous year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses. Explanation.—For the purposes of this clause, "net worth" shall have the meaning assigned to it in clause (ga) of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986); (xiii) any transfer of a capital asset or intangible asset by a firm to a company as a result of succession of the firm by a company in the business carried on by the firm, or any transfer of a capital asset to a company in the course of demutualisation or corporatisation of a recognised stock exchange in India as a result of which an association of persons or body of individuals is succeeded by such company : Provided that— (a) all the assets and liabilities of the firm or of the association of persons or body of individuals relating to the business immediately before the succession become the assets and liabilities of the company; (b) all the partners of the firm immediately before the succession become the shareholders of the company in the same proportion in which their capital accounts stood in the books of the firm on the date of the succession; (c) the partners of the firm do not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company; and (d) the aggregate of the shareholding in the company of the partners of the firm is not less than fifty per cent of the total voting power in the company and their shareholding continues to be as such for a period of five years from the date of the succession; (e) the demutualisation or corporatisation of a recognised stock exchange in India is carried out in accordance with a scheme for demutualisation or corporatisation which is approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992); (xiiia) any transfer of a capital asset being a membership right held by a member of a recognised stock exchange in India for acquisition of shares and trading or clearing rights acquired by such member in that recognised stock exchange in accordance with a scheme for demutualisation or corporatisation which is approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992); (xiiib) any transfer of a capital asset or intangible asset by a private company or unlisted public company (hereafter in this clause referred to as the company) to a limited liability partnership or any transfer of a share or shares

111 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . held in the company by a shareholder as a result of conversion of the company into a limited liability partnership in accordance with the provisions of section 56 or section 57 of the Limited Liability Partnership Act, 2008 (6 of 2009): Provided that— (a) all the assets and liabilities of the company immediately before the conversion become the assets and liabilities of the limited liability partnership; (b) all the shareholders of the company immediately before the conversion become the partners of the limited liability partnership and their capital contribution and profit sharing ratio in the limited liability partnership are in the same proportion as their shareholding in the company on the date of conversion; (c) the shareholders of the company do not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of share in profit and capital contribution in the limited liability partnership; (d) the aggregate of the profit sharing ratio of the shareholders of the company in the limited liability partnership shall not be less than fifty per cent at any time during the period of five years from the date of conversion; (e) the total sales, turnover or gross receipts in the business of the company in any of the three previous years preceding the previous year in which the conversion takes place does not exceed sixty lakh rupees; 68[***] 68a[(ea) the total value of the assets as appearing in the books of account of the company in any of the three previous years preceding the previous year in which the conversion takes place does not exceed five crore rupees; and] (f) no amount is paid, either directly or indirectly, to any partner out of balance of accumulated profit standing in the accounts of the company on the date of conversion for a period of three years from the date of conversion. Explanation.—For the purposes of this clause, the expressions "private company" and "unlisted public company" shall have the meanings respectively assigned to them in the Limited Liability Partnership Act, 2008 (6 of 2009); (xiv) where a sole proprietary concern is succeeded by a company in the business carried on by it as a result of which the sole proprietary concern sells or otherwise transfers any capital asset or intangible asset to the company : Provided that— (a) all the assets and liabilities of the sole proprietary concern relating to the business immediately before the succession become the assets and liabilities of the company; (b) the shareholding of the sole proprietor in the company is not less than fifty per cent of the total voting power in the company and his shareholding

112 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . continues to remain as such for a period of five years from the date of the succession; and (c) the sole proprietor does not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company; (xv) any transfer in a scheme for lending of any securities under an agreement or arrangement, which the assessee has entered into with the borrower of such securities and which is subject to the guidelines issued by the Securities and Exchange Board of India, established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) or the Reserve Bank of India constituted under sub-section (1) of section 3 of the Reserve Bank of India Act, 1934 (2 of 1934), in this regard; (xvi) any transfer of a capital asset in a transaction of reverse mortgage under a scheme made and notified by the Central Government; (xvii) any transfer of a capital asset, being share of a special purpose vehicle to a business trust in exchange of units allotted by that trust to the transferor. Explanation.—For the purposes of this clause, the expression "special purpose vehicle" shall have the meaning assigned to it in the Explanation to clause (23FC) of section 10; (xviii) any transfer by a unit holder of a capital asset, being a unit or units, held by him in the consolidating scheme of a mutual fund, made in consideration of the allotment to him of a capital asset, being a unit or units, in the consolidated scheme of the mutual fund: Provided that the consolidation is of two or more schemes of equity oriented fund or of two or more schemes of a fund other than equity oriented fund. Explanation.—For the purposes of this clause,— (a) "consolidated scheme" means the scheme with which the consolidating scheme merges or which is formed as a result of such merger; (b) "consolidating scheme" means the scheme of a mutual fund which merges under the process of consolidation of the schemes of mutual fund in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992); (c) "equity oriented fund" shall have the meaning assigned to it in clause (38) of section 10; (d) "mutual fund" means a mutual fund specified under clause (23D) of section 10; 69[(xix) any transfer by a unit holder of a capital asset, being a unit or units, held by him in the consolidating plan of a mutual fund scheme, made in consideration of the allotment to him of a capital asset, being a unit or units, in the consolidated plan of that scheme of the mutual fund. Explanation.—For the purposes of this clause,—

113 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . (a) "consolidating plan" means the plan within a scheme of a mutual fund which merges under the process of consolidation of the plans within a scheme of mutual fund in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992); (b) "consolidated plan" means the plan with which the consolidating plan merges or which is formed as a result of such merger; (c) "mutual fund" means a mutual fund specified under clause (23D) of section 10.] We are also reproducing hereunder the provisions of

section 47A of the Act for ready reference and analysis:-

47A. (1) Where at any time before the expiry of a period of eight years from the date of the transfer of a capital asset referred to in clause (iv) or, as the case may be, clause (v) of section 47,— (i) such capital asset is converted by the transferee company into, or is treated by it as, stock-in-trade of its business; or (ii) the parent company or its nominees or, as the case may be, the holding company ceases or cease to hold the whole of the share capital of the subsidiary company, the amount of profits or gains arising from the transfer of such capital asset not charged under section 45 by virtue of the provisions contained in clause (iv) or, as the case may be, clause (v) of section 47 shall, notwithstanding anything contained in the said clauses, be deemed to be income chargeable under the head "Capital gains" of the previous year in which such transfer took place. (2) Where at any time, before the expiry of a period of three years from the date of the transfer of a capital asset referred to in clause (xi) of section 47, any of the shares allotted to the transferor in exchange of a membership in a recognised stock exchange are transferred, the amount of profits and gains not charged under section 45 by virtue of the provisions contained in clause (xi) of section 47shall, notwithstanding anything contained in the said clause, be deemed to be the income chargeable under the head "Capital gains" of the previous year in which such shares are transferred. (3) Where any of the conditions laid down in the proviso to clause (xiii) or the proviso to clause (xiv) of section 47 are not complied with, the amount of profits or gains arising from the transfer of such capital asset or intangible asset not charged under section 45 by virtue of conditions laid down in the proviso to clause (xiii) or the proviso to clause (xiv) of section 47 shall be deemed to be the profits and gains chargeable to tax of the successor company for the

114 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . previous year in which the requirements of the proviso to clause (xiii) or the proviso to clause (xiv), as the case may be, are not complied with. (4) Where any of the conditions laid down in the proviso to clause (xiiib) of section 47 are not complied with, the amount of profits or gains arising from the transfer of such capital asset or intangible assets or share or shares not charged under section 45 by virtue of conditions laid down in the said proviso shall be deemed to be the profits and gains chargeable to tax of the successor limited liability partnership or the shareholder of the predecessor company, as the case may be, for the previous year in which the requirements of the said proviso are not complied with. 5.1. If the aforesaid provisions of the Act are analyzed,

section 47 speaks about transactions not regarded as transfer

and section 47A deals with withdrawal of exemption in certain

cases. As per section 47(xiii) substituted for the portion

beginning with the words ‘where as firm is succeeded’ and

ending with the word ‘intangible asset to the company’ by the

Finance Act, 2001 w.e.f. 01/04/2002, prior to its substitution,

the quoted portion reads as ‘where a firm is succeeded by a

company in the business carried by it as a result of which, the

firm sales or otherwise transfers of any capital asset or

intangible assets to the company provided that:-

(a) all the assets and liabilities of the firm 84[ or of the association of persons or body of individuals] relating to the business immediately before the succession become the assets and liabilities of the company;

(b) all the partners of the firm immediately before the succession become the shareholders of the company in the

115 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . same proportion in which their capital accounts stood in the books of the firm on the date of the succession;

(c) the partners of the firm do not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company; and

(d) the aggregate of the shareholding in the company of the partners of the firm is not less than fifty per cent of the total voting Power in the company and their shareholding continues to be as such for a period of five years from the date of the succession;

(e) the 83[demutualisation or] corporatisation of a recognised stock exchange in India is carried out in accordance with a scheme for 83[demutualisation or] corporatisation which is approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992. 5.2. If the aforesaid provision of the Act is analyzed even

if such an arrangement amounts to succession of a firm, the

arrangement does not attract capital gain tax, if the assessee is

fulfilled the conditions laid down in section 47(xiii) of the Act.

It is noted that the Ld. Commissioner of Income Tax (Appeal)

while coming to a particular conclusion, has dealt with the

objections (para-22 of the impugned order) raised by the Ld.

Assessing Officer, submissions of the assessee and

incorporation of the firm vide incorporation certificate dated

12/08/2010 issued by ROC from which it is abundantly clear

116 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . that the assessee company i..e. M/s Skylark Buildcon Pvt. Ltd.

was incorporated under chapter IX of the Companies Act,

1956, which is further fortified by the MOA of the assessee

company and fixed share capital of all the partners of the earst

while firm, which has been dealt with in para-24 onwards of

the impugned order. The share holding on the date of

conversion etc has been dealt with in para 28 onwards of the

impugned order. This stand of the Ld. Commissioner of Income

Tax (Appeal) is fortified by the decision from Hon'ble Apex

Court in the case of Malabar Fisheries Company Ltd. vs CIT

(1979) 120 ITR 49, wherein, it was held/observed as under:-

“These appeals by special leave raise an interesting question of law whether the distribution of assets of a firm consequent on its dissolution amounts to a transfer of assets within the meaning of the expression " otherwise transferred" occurring in s. 34(3)(b) of the I.T. Act, 1961, having regard to the definition of " transfer " in s. 2(47) of the Act. The facts giving rise to the question lie in a narrow compass. The appellant (M/s. Malabar Fisheries Co.) is a dissolved firm represented by one of its erstwhile partners. The firm as originally constituted on April 1, 1959, consisted of four partners and carried on six different businesses in six different names and styles, namely, (a) Malabar Fisheries Co., (b) Coastal Engineering Co., (c) Cochin Tin Factory, (d) Goodwill Industries, all at Palluruthy, (e) Combine Steel Industries at the Industrial Estate at Olavakkot and (f) Lite Metal Industries at Visakhapatnam in Andhra Pradesh. The firm was dissolved on March 31, 1963, and under the deed of dissolution

117 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . executed by and between the partners, the first business concern was taken over by one of the partners, the remaining five concerns by two of the other partners and the fourth partner received a sum of Rs. 3,81,082 in lieu of his respective shares in the assets of all the busineses of the firm. It appears that during the four assessment years 1960-61 to 1963-64, the firm had installed various items of machinery in respect of which it received development rebate in its respective tax assessments under s. 33 of the Act. On dissolution of the firm on March 31, 1963, the ITO took the view that s. 34(3)(b) of the Act applied on the ground that there was a sale or transfer of the machinery by the firm within the period mentioned in that section and accordingly acting under s. 155(5) of the Act he withdrew the development rebate allowed to the firm for the said assessment years, the amending orders being passed against the dissolved firm. The assessee, i.e., the dissolved firm through one of its erstwhile partners preferred appeals against the order of the ITO withdrawing the development rebate but the AAC by his order dated July 24, 1964, dismissed the appeals holding that s. 155(5) was rightly resorted to since s. 34(3)(b) of the Act applied to the case. The matter was carried in further appeals by the dissolved firm to the Income-tax Appellate Tribunal, Cochin Bench, Ernakulam, and it was contended that the distribution of the assets of the firm consequent on its dissolution did not amount to a sale or transfer and, therefore, the transaction would not come within the purview of s. 34(3)(b). The Tribunal by its common order dated January 6, 1970, allowed the appeals holding that the case fell within the principle laid down by this court in the case of CIT v. Dewas Cine Corporation [1968] 68 ITR 240 (SC) and that there was no question of any sale or transfer within the meaning of s. 34(3)(b) in a transaction involving the adjustment of the rights of the partners of a dissolved firm. At the instance of the revenue, the Tribunal referred two questions of law to the High Court for its opinion, namely : " (1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was legally correct in holding that there was no question of sale and that it was only an adjustment of the mutual rights of the partners and that the provisions of section 34(3) were not applicable ?

118 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . (2) Whether, on the facts and in the circumstances of the case, there was a transfer of assets within the meaning of the words 'otherwise transferred ', occurring in section 34(3)(b) of the Income-tax Act ? " The High Court answered the second question in the affirmative and against the assessee and, in view of that answer, declined to answer the first question as being unnecessary. The High Court took the view that this court's decisions in Dewas Cine Corporation's case [1968] 68 ITR 240 (SC) and Bankey Lal Vaidya's case [1971] 79 ITR 594 (SC), to the effect that the distribution, division or allotment of assets between partners of a firm consequent on its dissolution amounts to a mutual adjustment of rights of the partners and does not amount to a sale or transfer had been rendered under the Indian I.T. Act, 1922, wherein the expression " sale" or " transfer " had not been defined whereas in the 1961 Act by which the case was governed, the expression " transfer had been defined by s.2(47) in a very wide manner so as to include not merely a sale or exchange but also " extinguishment of any rights " in capital assets. The High Court held that a dissolution of a firm amounted to extinguishment of the rights of the firm in the assets of the partnership and accordingly was a transfer within the meaning of s. 2(47) of the Act and that, therefore, the provisions of s. 34(3)(b) applied to the case. It is this view of the High Court that is being challenged before us in these appeals by the assessee. Counsel for the assessee contended that the High Court has clearly erred in taking the view that the dissolution of a firm amounts to extinguishment of the rights of the firm in the assets of the partnership. He pointed out that in the two decisions referred to above this court has clearly enunciated what happens in law upon the dissolution of a firm, namely, that the distribution, division or allotment of assets between the partners on dissolution of the firm is merely an adjustment of rights inter se between them and that no sale or transfer is involved in such distribution, division or allotment. According to him, there is no change in this legal position even after the enactment of the definition of " transfer" in s. 2(47) in the 1961 Act. Reference was made to this court's decision in CIT v. R. M. Amin [1977] 106 ITR 368 (SC), where this court has held that no transfer of capital assets within the meaning of s.

119 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . 2(47) of the 1961 Act was involved when a shareholder received money representing his shares on the distribution of the net assets of the company in liquidation, that he must be regarded as having received that money in satisfaction of the rights which belonged to him by virtue of his holding the shares and that the transaction did not amount to any sale, exchange or relinquishment of capital assets or extinguishment of any rights therein. In any case, he contended that in every case dissolution must be anterior in point of time to the distribution that takes place after making accounts and discharging all debts and liabilities and as such there is no transfer of any assets by the assessee (i.e., the dissolved firm) to any person as contemplated by s. 34(3)(b), but all that happens is that upon dissolution and upon making up of accounts and discharge of liabilities it is the erstwhile partners who mutually adjust their rights and it is by way of adjustment of such rights that distribution, division or allotment of assets takes place. He, therefore, urged that s. 34(3)(b) was inapplicable to the case. On the other hand, counsel for the revenue pressed the High Court's view for our acceptance. He urged that the question has to be considered under the 1961 Act in the light of the definition of " transfer " contained in s. 2(47) which includes within its scope even " extinguishment of rights in capital assets ". According to him, during the continuance of the partnership, the machinery undoubtedly belonged to the firm, the firm as a separate taxable entity got the benefit of development rebate which was sought to be withdrawn inasmuch as the firm's rights in the machinery got extinguished upon dissolution and the same got transferred or vested in individual partner or partners as a result of distribution or allotment made between them. He stated, qua the erstwhile partners, there may not be any transfer of assets and there may be a mutual adjustment of rights but, qua the firm, there is certainly extinguishment of its rights in the assets of the partnership and in that sense there is a transfer of assets within the definition under s. 2(47) of the Act. Since in these appeals the question raised relates to the withdrawal of development rebate under s. 34(3)(b) read with s. 155(5) of the 1961 Act in the light of the definition of the expression " transfer " given under s. 2(47) of the Act, it will

120 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . be desirable to note what these provisions are. Section 34(3)(b), in so far as is material, reads : " 34. Conditions for depreciation allowance and development rebate.--........ 3(b) If any ship, machinery or plant is sold or otherwise transferred by the assessee to any person at any time before the expiry of eight years from the end of the previous year in which it was acquired or installed, any allowance made under section 33 or under the corresponding provisions of the Indian Income-tax Act, 1922 (XI of 1922), in respect of that ship, machinery or plant shall be deemed to have been wrongly made for the purposes of this Act, and the provisions of sub- section (5) of section 155 shall apply accordingly. " Section 155(5) is a procedural provision enabling the ITO in a case falling under s.34(3)(b) to recompute the total income of the assessee for the relevant previous year and make the necessary amendments; in other words, acting under this provision, the ITO withdraws the development rebate already granted by passing an amending order. It further provides that such amending order has to be passed within a period of 4 years to be reckoned from the end of the previous year in which the sale or transfer took place. Section 2(47) defines the expression " transfer " thus : " 2. (47) 'Transfer ', in relation to a capital asset, includes the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law. " On a plain reading of s. 34(3)(b) it will appear clear that before that provision can be invoked or applied three conditions are required to be satisfied: (a) that the ship, machinery or plant must have been sold or otherwise transferred, (b) that such a sale or transfer must be by the assessee, and (c) that the same must be before the expiry of 8 years from the end of the previous year in which it was acquired or installed. It is only when these three conditions are satisfied that any allowance made under s. 33 shall be deemed to have been wrongly made and the ITO acting under s. 155(5) will be entitled to withdraw such allowance. Further, s.

121 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . 2(47) gives an artificial extended meaning to the expression " transfer", for, it not merely includes transactions of " sale " and " exchange " which, in ordinary parlance, would mean transfers but also " relinquishment " or " extinguishment of rights " which are ordinarily not included in that concept. The question is whether the distribution, division or allotment of assets of a firm consequent on its dissolution amounts to a transfer of assets within the meaning of the words " otherwise transferred " occurring in s. 34(3)(b) of the Act, regard being had to the definition of " transfer " contained in s. 2(47)? To put it pithily, the question is whether the dissolution of a firm extinguishes the firm's rights in the assets of the partnership so as to constitute a transfer of assets under s. 2(47) ? In the Dewas Cine Corporation's case [1968] 68 ITR 240 (SC), the concept of distribution of assets consequent upon the dissolution of the firm was considered in the context of the balancing charge arising under the second proviso to s. 10(2)(vii) of the 1922 Act. In that case two individuals, each of whom owned a cinema theatre, formed a partnership to carry on business of exhibition of cinematograph films, bringing the theatres into the books of the firm as its assets. For the assessment years 1950-51 to 1952-53, the ITO allowed depreciation aggregating to Rs. 44,380 in the assessment of the firm in respect of the two theatres. On the dissolution of the firm on September 30, 1951, the theatres were returned to their original owners. In the books of the firm the assets were shown as taken over at the original price less the depreciation allowed, the depreciation being equally divided between the two erstwhile partners. The Tribunal took the view that by restoring the theatres to the original owners there was a transfer by the partnership and the entries adjusting depreciation and writing off the assets at the original value amounted to total recoupment of the entire depreciation by the partnership and on that account the balancing charge arise under the second proviso to s. 10(2)(vii) of the Act. This court held that on the dissolution of the partnership, each theatre had to be deemed to be returned to the original owner in satisfaction partially or wholly of his claim to a share in the residue of the assets after discharging the debts and other obligations. But thereby the theatres were not in law sold by the partnership to the individual partners in consideration of their respective shares in the residue, and, therefore, the amount of Rs. 44,380 could not be included in the total income

122 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . of the partnership as a balancing charge arising under the second proviso to s. 10(2)(vii). It is true that this court was concerned with interpreting the expression " sold " used in s.10(2)(vii) and the second proviso thereto, when the expressions " sale or sold " had nowhere been defined in the Act, and, therefore, this court held that those expressions when used in s. 10(2)(vii) and the second proviso thereto must be understood in their ordinary meaning and that " sale " according to its ordinary meaning meant a transfer of property for a price. This court further enunciated the proposition that the distribution of surplus upon dissolution of a partnership after discharging its debts and obligations was always by way of adjustment of rights of partners in the assets of the partnership and did not amount to a transfer much less for a price. It is significant to note that the question of raising a balancing charge against the dissolved firm, a separate taxable entity which had been allowed depreciation in the earlier years, was considered by this court and this court took the view that no balancing charge arose against the firm inasmuch as no sale or transfer was involved in the transaction of distribution of the assets to erstwhile partners of the firm consequent upon its dissolution. In Bankey Lal Vaidya's case [1971] 79 ITR 594 (SC), the concept of distribution of assets to the partners of a firm consequent upon its dissolution was considered in the context of the charge on capital gains arising under s. 12B(1) of the 1922 Act. In that case, the respondent-assessee, the karta of a HUF, entered into a partnership with D to carry on business of manufacturing and selling pharmaceutical products and literature relating thereto. On the dissolution of the partnership, its assets, which included goodwill, machinery, furniture, medicines, library and copyright in respect of certain publications, were valued at Rs. 2,50,000. Since a large majority of assets was incapable of physical division, it was agreed that the assets be taken over by D and the respondent-assessee be paid his share of the value of the assets in money and accordingly he was paid Rs. 1,25,000. The question was whether the sum of Rs. 65,000, being part of the amount received by the respondent-assessee could be brought to tax as capital gains under s. 12B(1) of the Act ? This court held that the arrangement between the partners of the firm amounted to a distribution of the assets of the firm on

123 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . dissolution, that there was no sale or exchange of the respondent's share in the capital assets to D, nor did he transfer his share in the capital assets and, therefore, the sum of Rs. 65,000 could not be taxed as capital gains. The court observed that the rights of the parties were adjusted by handing over to one of the partners the entire assets and to the other partner the money value of his share and such a transaction was neither a sale nor exchange nor transfer of assets of the firm. It cannot, however, be disputed that both these decisions were rendered under the 1922 Act which did not define expressions like " sale " or transfer " and the question is whether any difference is made in the legal position under the 1961 Act by reason of the enactment of the definition of the expression " transfer " in s. 2(47), which includes within its scope a transaction by way of " extinguishment of any rights in a capital asset " ? The precise argument which has been advanced by the counsel for the revenue before us, and which found favour with the High Court is that during the continuance of the partnership the machinery belonged to the firm, that the firm as a taxable entity received the benefit of development rebate in respect thereof under s. 33 of the Act and that upon dissolution the firm's rights in the machinery got extinguished and became vested in the partner or partners to whom it was allotted in the distribution of assets, and, therefore, the transaction so far as the firm is concerned amounts to a transfer of assets under s. 2(47). The question is how far is it correct to say that in law the firm as such has rights in the partnership assets liable to extinguishment upon dissolution? It is well known that commercial men and accountants on the one hand and lawyers on the other have different notions respecting the nature of the firm and this difference between the mercantile view and the legal view has been explained in Lindley on Partnership, 12th edn., at pages 27 and 28,thus : " Partners are called collectively a firm. Merchants and lawyers have different notions respecting the nature of a firm. Commercial men and accountants are apt to look upon a firm in the light in which lawyers look upon a corporation, i. e., as a body distinct from the members composing it, and having rights and obligations distinct from those of its members.

124 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . Hence, in keeping partnership accounts, the firm is made debtor to each partner for what he brings into the common stock, and each partner is made debtor to the firm for all that he takes out of that stock. In the mercantile view, partners are never indebted to each other in respect of partnership transactions; but are always either debtors to or creditors of the firm. Owing to this impersonification of the firm, there is a tendency to regard its rights and obligations as unaffected by the introduction of a new partner, or by the death or retirement of an old one. Notwithstanding such changes among its members, the firm is considered as continuing the same; and the rights and obligations of the old firm are regarded as continuing in favour of or against the new firm as if no changes had occurred. The partners are the agents and sureties of the firm; its agent for the transaction of its business; its sureties for the liquidation of its liabilities so far as the assets of the firm are insufficient to meet them. The liabilities of the firm are regarded as the liabilities of the partners only in case they cannot be met by the firm and discharged out of its assets. But this is not the legal notion of a firm. The firm is not recognised by English lawyers as distinct from the members composing it. In taking partnership accounts and in administering partnership assets, courts have to some extent adopted the mercantile view, and actions may now, speaking generally, be brought by or against partners in the name of their firm; but, speaking generally, the firm as such has no legal recognition. The law, ignoring the firm, looks to the partners composing it; any change amongst them destroys the identity of the firm; what is called the property of the firm is their property, and what are called the debts and liabilities of the firm are their debts and their liabilities. In point of law, a partner may be the debtor or the creditor of his co-partners, but he cannot be either debtor or creditor of the firm of which he is himself a member, nor can he be employed by his firm, for a man cannot be his own employer. " (Emphasis* supplied). Unlike the Scottish system of law where the firm is a legal person distinct from the partners composing it, the English Partnership Act, 1890, avoids making a firm a distinct legal

125 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . entity. In English jurisprudence a firm is only a compendious name for certain persons who carry on business, or have authorised one or more of their number to carry it on, in such a way that they are jointly entitled to the profits and jointly liable for the debts and losses of the business. Further, it is true that partnership property is regarded as belonging to the firm, but that is only for the purpose of distinguishing the same from the separate property of the partners. But, in law the partnership property is jointly owned by all the partners composing the firm. In Lindley on Partnership, at page 359, the following statement of law occurs : " The expressions partnership property, partnership stock, partnership assets, joint stock, and joint estate, are used indiscriminately to denote everything to which the firm, or in other words all the partners composing it, can be considered to be entitled as such." Again at page 375, the following statement of law occurs : " In the absence of a special agreement to that effect, all the members of an ordinary partnership are interested in the whole of the partnership property, but it is not quite clear whether they are interested therein as tenants in common, or as joint tenants without benefit of survivorship, if indeed there is any difference between the two. It follows from this community of interest that no partner has a right to take any portion of the partnership property and to say that it is his exclusively. No partner has any such right, either during the existence of the partnership or after it has been dissolved. " As regards the nature of a share of a partner in a firm the following passage in Lindley on Partnership, at page 375, brings out the legal position very clearly : " What is meant by the share of a partner is his proportion of the partnership assets after they have been all realised and converted into money,and all the partnership debts and liabilities have been paid and discharged. This it is, and this only, which on the death of a partner passes to his representatives, or to a legatee of his share; ............... and which on his bankruptcy passes to his trustee. "

126 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . The position as regards the nature of a firm and its property in Indian law under the Indian Partnership Act, 1932, is almost the same as in English law. Here also a partnership firm is not a distinct legal entity and the partnership property in law belongs to all the partners constituting the firm. In Bhagwanji Morarji Goculdas v. Alembic Chemical Works Co. Ltd., AIR 1948 PC 100; 18 Comp Cas 205, the Privy Council in para. 10 of the judgment observed thus (see also [1948] 18 Comp Cas 209) : " Before the Board it was argued that under the Indian Partnership Act, 1932, a firm is recognised as an entity apart from the persons constituting it, and that the entity continues so long as the firm exists and continues to carry on its business. It is true that the Indian Partnership Act goes further than the English Partnership Act, 1890, in recognising that a firm may possess a personality distinct from the persons constituting it, the law in India in that respect being more in accordance with the law of Scotland, than with that of England. But the fact that a firm possesses a distinct personality does not involve that the personality continues unchanged so long as the business of the firm continues. The Indian Act, like the English Act, avoids making a firm a corporate body enjoying the rights of Perpetual successions. " (Emphasis* supplied) It is true that under the Civil Procedure Code, O. XXX, as under the English Rules of Court, actions may be brought by or against partners in the name of the firm and even between firms and their members but that is only a matter of procedure. It is also true that the firm's property is recognised in more than one way (ss. 14 and 15 of the Partnership Act) but only as that which is " joint estate " of all the partners as distinguished from the " separate estate " of any of them, and not as belonging to a body distinct in law from its members. In Addanki Narayanappa v. Bhaskara Krishnappa [1966] 3 SCR 400; AIR 1966 SC 1300, this court, after quoting with approval the aforementioned passages occurring in Lindley on Partnership, 12th edn., made the following observations in the context of partners' rights during the subsistence as well as upon the dissolution of a firm (p. 1303) : " No doubt since a firm has no legal existence, the partnership property will vest in all the partners and in that sense every

127 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . partner has an interest in the property of the partnership. During the subsistence of the partnership, however, no partner can deal with any portion of the property as his own. Nor can he assign his interest in a specific item of the partnership property to any one. His right is to obtain such profits, if any, as fall to his share from time to time and upon the dissolution of the firm to a share in the assets of the firm which remain after satisfying the liabilities set out in cl. (a) and sub-cls. (i), (ii) and (iii) of cl. (b) of s. 48. " Having regard to the above discussion, it seems to us clear that a partnership firm under the Indian Partnership Act, 1932, is not a distinct legal entity apart from the partners constituting it and equally in law the firm as such has no separate rights of its own in the partnership assets and when one talks of the firm's property or firm's assets all that is meant is property or assets in which all partners have a joint or common interest. If that be the position, it is difficult to accept the contention that upon dissolution the firm's rights in the partnership assets are extinguished. The firm as such has no separate rights of its own in the partnership assets but it is the partners who own jointly or in common the assets of the partnership and, therefore, the consequence of the distribution, division or allotment of assets to the partners which flows upon dissolution after discharge of liabilities is nothing but a mutual adjustment of rights between the partners and there is no question of any extinguishment of the firm's rights in the partnership assets amounting to a transfer of assets within the meaning of s. 2(47) of the Act. In our view, therefore, there is no transfer of assets involved even in the sense of any extinguishment of the firm's rights in the partnership assets when distribution takes place upon dissolution. Counsel for the revenue referred us to a decision of the Karnataka High Court in Addl. CIT v. M. A. J. Vasanaik [1979] 116 ITR 110 (Kar), where that court has taken the view that when individual assets are brought into a partnership firm so as to constitute the partnership property, there is a transfer of interest of the individual to the partnership and ss. 34(3)(b) and 155(5) of 1961 Act are attracted. In the first instance, that decision dealt with the converse case and it does not necessarily follow on a parity of reasoning that the distribution, division or allotment of partnership assets to the

128 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . partners of a firm upon its dissolution would amount to a transfer of assets as was sought to be contended by the counsel for the revenue. Secondly, it is unnecessary for us to express any opinion on the correctness or otherwise of the view taken by the Karnataka High Court in that case. There is yet another reason for rejecting the contention of the counsel for the revenue and that is that the second condition required to be satisfied for attracting s. 34(3)(b) cannot be said to have been satisfied in the case. It is necessary that the sale or transfer of assets must be by the assessee to a person. Now every dissolution must in point of time be anterior to the actual distribution, division or allotment of the assets that takes place after making up accounts and discharging the debts and liabilities due by the firm. Upon dissolution the firm ceases to exist, then follows the making up of accounts, then the discharge of debts and liabilities and thereupon distribution, division or allotment of assets takes place inter se between the erstwhile partners by way of mutual adjustment of rights between them. The distribution, division or allotment of assets to the erstwhile partners, is not done by the dissolved firm. In this sense there is no transfer of assets by the assessee (dissolved firm) to any person. It is not possible to accept the view of the High Court that the distribution of assets effected by a deed takes place eo instanti with the dissolution or that it is effected by the dissolved firm. In the result, we are clearly of the view that s. 34(3)(b) of the Act was not applicable to the case and we uphold the view of the Tribunal. The appeals are, therefore, allowed and the revenue will pay the costs of the appeals to the appellant.” 5.3. Similar views were expressed by Hon'ble Apex Court

in CIT vs George Henderson & Company Ltd. (1967) 67 ITR

622 and CIT vs Gillanders Arbuthnot & Company (1973) 87

ITR 407. The relevant portion from the above (87 ITR 407) is

reproduced hereunder:-

129 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . “These are cross-appeals by certificate. They arise from the decision of the Calcutta High Court in a reference under section 66(1) of the Indian Income-tax Act, 1922 (to be hereinafter referred to as " the Act "). At the instance of the assessee as well as the Commissioner, the Income-tax Tribunal, " B " Bench, Calcutta, stated a case and submitted as many as five questions to the High Court for obtaining its opinion. Some of the questions referred to the High Court have not been pressed before this court. Therefore, we shall not refer to them. The questions that were pressed before us are :

" (1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the proceedings under section 34(1)(a) have been validly initiated ?

(2) Whether, on the facts and in the circumstances of the case, any capital gains within the meaning of section 12B could be said to arise by the transaction involving transfer of the investments held by the assessee to the company, admission of the company as a partner in the assessee-firm and issue of shares of the company to the public ? and

(3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in computing the capital gains at Rs. 46,76,784 ? "

The High Court answered the first question in the affirmative and in favour of the revenue. So far as the second question is concerned, it split the same into two questions, viz., whether, on the facts and in the circumstances of the case, any capital gains within the meaning of section 12B could be said to arise by the transaction involving transfer of investments held by the assessee to the company and whether, on the facts and in the circumstances of the case, any capital gains within the meaning of section 12B could be said to arise by the admission of the company as a partner in the assessee-firm and issue of shares of the company to the public ? It answered the first part of the question in the affirmative and in favour of the revenue and the second part in the negative and against the revenue. As regards the third question, the High Court opined that on the facts and in the circumstances of the case, the capital gains should have been computed at Rs. 27,04,772. Aggrieved by this decision the Commissioner of the Income-tax has brought Civil Appeal No. 1452 of 1969 and the assessee has brought Civil Appeal No. 1502 of 1969.

The only contentions urged in the assessee's appeal were that, on the facts and in the circumstances of the case, proceedings under section 34(1)(a) have not been validly initiated and to the facts of

130 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . this case section 12B is not attracted. In the appeal by the Commissioner, the question for decision is what is the correct amount that has to be brought to tax under section 12B as capital gains. The counsel for the revenue did not contest the conclusion of the High Court that, on the facts and in the circumstances of the case, no capital gains within the meaning of section 12B could be said to have arisen by the admission of the company as a partner of the assessee-company and issue of shares of the company to the public. Hence, all that we have to decide in these cases is : (1) whether the proceedings initiated under section 34(1)(a) are valid, (2) whether section 12B is attracted to the facts of the case, and (3) if section 12B is attracted, what is the amount of the capital gains made ?

For pronouncing on the questions above formulated, it is necessary to set out the material facts. The assessee is a registered firm which was carrying on business mostly as managing agents of a number of companies. Till the end of February, 1947, the firm consisted of four partners, namely, (1) A. C. Gladstone ; (2) S. D. Gladstone ; (3) T. S. Gladstone and (4) Glendye Limited, each of them having 30%, 39%, 30% and 1% shares respectively in the profits of the firm. We are concerned with the assessment of the assessee firm for the assessment year 1947-48 for which the previous year was the financial year ended on March 31, 1947.

On February 28, 1947, the assessee-firm, through its partners, entered into an " agreement for sale " of some of the shares and securities held by it in favour of Gillanders Arbuthnot & Co. (to be hereinafter referred to as " the company ") for a sum of Rs. 75 lakhs. The shares and securities sold under the document are enumerated at the foot of the document. Clause (2) of that agreement provides :

" In consideration of the sum of Rupees fourteen lakhs and ninety thousand the existing partners shall admit the company as a partner in the firm upon and subject to the partnership deed (a draft whereof has been already approved by the existing partners and the company), the share of the company in the goodwill and in the profits of the firm being ninety-nine per cent. thereof.

The only other clause which is relevant for our present purpose is clause (3), which reads :

" The said two sums of Rupees seventy-five lakhs and Rupees fourteen lakhs and ninety thousand payable in accordance with clauses 1 and 2 hereof shall be paid and satisfied as follows :

131 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . (a) As to the sum of Rupees sixty-four lakhs and ninety thousand by an allotment to the existing partners or their nominees of sixty- four thousand and nine hundred ordinary shares of rupees one hundred each credited for all purposes as fully paid up.

(b) As to the sum of rupees twenty-five lakhs by an allotment to the existing partners or their nominees of twenty-five thousand redeemable cumulative preference shares of Rupees one hundred each credited for all purposes as fully paid up. "

One other document that came into existence on the same day, viz., February 28, 1947, is the deed of partnership. That day the assessee-firm was reconstituted and a new partnership came into existence. The new partnership consisted of five partners, viz., (1) The " company " ; (2) A. C. Gladstone ; (3) S. D. Gladstone ; (4) T. S. Gladstone and (5) Glendye Limited. In this new partnership the " Company " had 99 per cent. Share in its profits. The remaining four partners had only 1/4th per cent. share each in the profits of the new partnership.

Before proceeding further, it is necessary to mention that the company " was previously a private limited company. In 1946, the " company " applied to the Examiner of Capital Issues for permission to convert itself into a public limited company and sell its shares at a premium. Originally, the proposal of the " company " was to sell its shares of the face value of Rs. 100 to the public at a premium of Rs. 145 to Rs. 175 and its preferential shares of the face value of Rs. 100 at a premium of Rs. 1 to 5. The Examiner of Capital Issues did not agree to that proposal. Later on, after further correspondence, the Examiner of Capital Issues permitted the " company " to convert itself into a public company and offer its ordinary shares of the face value of Rs. 100 to the public at a premium not exceeding Rs. 125 per share and 25,000 redeemable cumulative preference shares of the face value of Rs. 100 each at a premium not exceeding Rs. 5 per share.

We have earlier noticed that a substantial number of ordinary as well as the preference shares were transferred to the assessee-firm at its face value.

The original assessment of the assessee-firm for the assessment year 1947-48 was made on August 28, 1948, on a total income of Rs. 12,90,829. Thereafter, the Income-tax Officer initiated proceedings under section 34(1)(a) on May 2, 1949, and completed the fresh assessment on January 16, 1956, bringing to charge capital gains determined at Rs. 1,03,16,786. The assessee appealed to the Appellate Assistant Commissioner. It raised various contentions before the Appellate Assistant Commissioner.

132 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . It is not necessary to refer to those contentions. Suffice it to say for our present purpose that it challenged the validity of the initiation of the proceedings under section 34(1)(a) and further it contended that there was no capital gain at all. On the other hand, it claimed that it incurred certain capital loss. The Appellate Assistant Commissioner rejected the contention of the assessee that the proceedings under section 34(1)(a) were not validly initiated. He came to the conclusion that there were capital gains but he computed the same at Rs. 70,09,124. On further appeal by the assessee the Tribunal came to the conclusion that the capital gains made by the assessee were only Rs. 46,76,784. In the reference, as mentioned earlier, the High Court came to the conclusion that the capital gains made by the assessee were Rs. 27,04,772.

The first question that arises for decision is whether section 34(1)(a) proceedings were validly initiated by the Income-tax Officer. That provision says :

" If the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed . . . . . . "

In the present case all that we have to see is whether the Income- tax Officer had reason to believe that the assessee had not disclosed fully and truly all the material facts necessary for its assessment for the assessment year in question. The scope of the expression " failure on the part of the assessee . . . . . . to disclose fully and truly all material facts necessary for his assessment . . . . . . " has been examined by this court in several decisions.

The leading case on the subject is Calcutta Discount Co. Ltd. v. Income- tax Officer, Companies District-I, Calcutta *. Therein this court by majority held that to confer jurisdiction under section 34 to issue notice in respect of an assessment beyond a period of four years, but within a period of eight years, from the end of the relevant year, two conditions have to be satisfied. The first is that the Income-tax Officer must have reason to believe that the income, profits or gains chargeable to income-tax had been under- assessed ; the second is that he must have reason to believe that such " under-assessment " had occurred by reason of either (1) omission or failure on the part of the assessee to make a return of

133 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . his income under section 22 or (2) omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the Income-tax Officer gets jurisdiction to issue a notice for the assessment or reassessment beyond a period of four years but within a period of eight years from the end of the year in question. This court further ruled therein that the words " omission or failure to disclose fully and truly all material facts necessary for his assessment for that year " used in section 34 postulate a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. What facts are material and necessary for assessment differ from case to case. In every assessment proceeding, the assessing authority would for the purpose of computing and determining proper tax due from an assessee, require to know all the facts which help him in coming to the correct conclusion. From the primary facts in his possession, whether on disclosure by the assessee or discovered by him on the basis of the facts disclosed or otherwise, the assessing authority has to draw inferences as regards certain other facts ; and ultimately from the primary facts and further facts inferred from them, the authority has to draw the proper legal inferences and ascertain, on a correct interpretation of the taxing enactment, the proper tax leviable. So far as the primary facts are concerned, it is the assessee's duty to disclose all of them including particular entries in the account-books, particular portions of documents and documents and other evidence which could have been discovered by the assessing authority from the documents and other evidence disclosed. The duty, however, does not extend beyond the full and truthful disclosure of all primary facts. Once all the primary facts are before the assessing authority, it is for him to decide what inferences of facts could be reasonably drawn and what legal inferences have ultimately to be drawn. It was not for anybody else-far less the assessee-to tell the assessing authority what inferences whether of facts or of law should be drawn. If there are in fact some reasonable grounds for the Income- tax Officer to believe that there had been any non- disclosure as regards the primary facts which could have a material bearing on the question of under-assessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under section 34. Whether those grounds were adequate or not for arriving at the conclusion that there was a non-disclosure of material facts is not open to the court's investigation. In other words, all that is necessary to give jurisdiction is that the Income- tax Officer had when he assumed jurisdiction some prima facie grounds for thinking that there had been some non-disclosure of material facts.

134 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . The rule laid down in Calcutta Discount Co.'s case * was reiterated by this court in Commissioner of Income-tax v. Hemchand Kar **. The same view was again expressed by this court in Commissioner of Income-tax v. Bhanji Lavji *** as well as in Commissioner of Income-tax v. Burlop Dealers Ltd. #

Bearing in mind the rule laid down in these decisions, now let us proceed to examine the facts of this case to find out whether the assessee had failed to disclose fully and truly all material facts for his assessment for the assessment year in question. In this case we are dealing with capital gains. Hence the material facts that had to be disclosed were those bearing on capital gains. Though at the time of the original assessment of the assessee, the partnership deed entered into by the five partners was before the Income-tax Officer, the sale deed executed by the partners of the assessee- firm in favour of the " company " on February 28, 1947, had not been placed before him. There was no material before the Income- tax Officer on the basis of which he could have concluded that the assessee firm had sold any shares and securities to the " company " ; nor was there any material before the Income-tax Officer as to the value of those shares and securities on January 1, 1939. Further, no material was placed before him to show that those shares and securities had been sold to the " company " for a sum of rupees 75 lakhs. In fact the assessee submitted its return for the assessment year in question in an old form which did not contain Part VII which dealt with particulars of income from capital gains. The statement enclosed also did not contain specific particulars about consideration for the sale of goodwill or for the sale of shares of the " company ". It is not without significance that the assessee did not challenge the validity of the proceedings under section 34(1)(a) before the income-tax Officer. Even before the Appellate Assistant Commissioner, the only point that appears to have been urged was that since the firm was reconstituted and the reconstituted firm was granted registration under section 26A in the assessment year 1947-48, it should be presumed that the Income-tax Officer while making the original assessment was aware of all the material facts. We agree with the Tribunal and the High Court that there is hardly any doubt that the assessee had failed to disclose fully and truly all material facts for the purpose of ascertaining whether it had made any capital gains or not.

This takes us to the question whether the assessee had made any capital gains in the relevant accounting year, if so, what is the extent of its capital gains. The provision relating to capital gains is found in section 12B. We shall now read the relevant portion of that provision :

135 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . " 12B. (1) The tax shall be payable by an assessee under the head ' Capital gains ' in respect of any profits or gains arising from the sale, exchange, relinquishment or transfer of a capital asset effected after the 31st day of March, 1956, and such profits and gains shall be deemed to be income of the previous year in which the sale, exchange, relinquishment or transfer took place. "

[The provisos to sub-section (1) are not relevant for our present purpose].

Sub-section (2) of section 12B says :

" The amount of a capital gains shall be computed after making the following deductions from the full value of the consideration for which the sale, exchange, relinquishment or transfer of the capital asset is made, namely :

(i) expenditure incurred solely in connection with such sale, exchange, relinquishment or transfer ;

(ii) the actual cost to the assessee of the capital asset, including any expenditure of a capital nature incurred and borne by him in making any addition or alterations thereto, but excluding any expenditure in respect of which any allowance is admissible under any provision of sections 8, 9, 10 and 12 :

Provided that where a person who acquires a capital asset from the assessee, whether by sale, exchange, relinquishment or transfer, is a person with whom the assessee is directly or indirectly connected, and the Income- tax Officer has reason to believe that the sale, exchange, relinquishment or transfer was effected with the object of avoidance or reduction of the liability of the assessee under this section, the full value of the consideration for which the sale, exchange, relinquishment or transfer is made shall, with the prior approval of the Inspecting Assistant Commissioner of Income- tax, be taken to be the fair market value of the capital asset on the date on which the sale, exchange, relinquishment or transfer took place. "

[The remaining portion of section 12B is not relevant for our present purpose].

The Income-tax Officer opined that the market value of the shares and securities sold was much more than Rs. 75 lakhs. Admittedly, their original cost on January 1, 1939, was Rs. 47,95,728. Hence, according to him, the " company " secured those shares and securities at below market value. The Income-tax Officer further observed that the partners of the assessee- firm were the sole

136 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . partners of the " company " and further held that the sale had been effected at a lower price with the object of reducing the liability to capital gains tax. On the basis of the Income-tax Officer's computation, the capital gains on the sale of the investments were Rs. 75,86,960. As regards the goodwill, the Income-tax Officer valued the same as on January 1, 1939, at Rs. 87,56,200 and 99 per cent. thereof would work out to be Rs. 86,67,648. The assessee received for goodwill the sum of Rs. 14,90,000. The company took over 99 per cent. of the capital deficiency of the partners amounting to Rs. 19,98,849 and 99 per cent. thereof came to Rs. 19,78,861. The Income-tax Officer estimated the value of 99 per cent. of the goodwill at Rs. 1,13,97,474 involving capital gain of Rs. 27,29,826. Thus, according to the Income-tax Officer, the total capital gains on account of transfer of shares and securities and goodwill amounted to Rs. 13,16,786. As seen earlier this amount was substantially reduced by the Appellate Assistant Commissioner and again by the Tribunal as well as by the High Court.

The first question for decision is whether the first proviso to section 12B is attracted to the facts of the present case. The sale with which we are concerned in this case took place on February 28, 1947. Section 12B was incorporated into the Act with effect from April 1, 1947. That being so at the time the sale transaction took place section 12B was not a part of the Act. Hence, there is no basis for saying that the " transfer was effected with the object of avoidance or reduction of the liability of the assessee ", see Commissioner of Income-tax v. George Henderson and Co. Ltd. * Hence, the question for decision is whether the facts of this case fall within the scope of section 12B(1) read with sub-section (2) of that section.

We have earlier seen that the Income-tax Officer in computing the total capital gains had taken into consideration the capital gains said to have been earned as a result of the sale of the shares and securities as well as the goodwill. The Appellate Assistant Commissioner in his order did not say anything specific about any capital gains earned as a result of the sale of the goodwill. The Tribunal rejected the case of the department that there were any capital gains made as a result of the sale of goodwill. It also rejected the claim of the assessee that there was some capital loss as a result of the sale of goodwill. On this point the High Court agreed with the conclusions reached by the Tribunal. The conclusion of the High Court on this point was not challenged before us either by the revenue or by the assessee. Therefore, there is no need to go into the same. Hence, the only question remaining to be considered is whether there were any capital gains

137 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . made as a result of the transfer of the shares and securities by the assessee to the company. If so what is that amount ?

The first question that we have to decide in this connection is whether the transaction entered into under the agreement for sale dated February 28, 1947, is a sale or exchange or merely a readjustment. It was contended on behalf of the revenue that it was in effect an exchange though in form it was a sale. According to the assessee, it was a mere readjustment. The revenue did not contend before the Appellate Assistant Commissioner or the Tribunal or even the High Court that the said transaction was not a sale. It was for the first time before this court the contention was taken that it was not a sale. The contention of the assessee that it was merely a readjustment had been rejected by the authorities under the Act as well as by the High Court.

Properly understood, the effect of the contention of the revenue as well as of the assessee is that in finding out the true nature of a transaction, the court must take into consideration the substance of the transaction and not the legal effect of the agreement entered into-a proposition which receives some support from some of the decided cases. In Sir Kikabhai Premchand v. Commissioner of Income-tax ** this court observed that " it is well recognised that in revenue cases regard must be had to the substance of the transaction rather than to its mere form. "

The observations of this court in Sir Kikabhai Premchand's case ** were made the basis of the decision of the Bombay High Court in Commissioner of Income-tax v. Sir Homi Mehta's Executors ***.

In Rogers & Co. v. Commissioner of Income-tax * the High Court of Bombay ruled that the transfer of the assets of the firm to the company was substantially and really merely a readjustment made by the members to enable them to carry on their business as a company rather than as a firm and no profits in the commercial sense were made thereby ; the transfer of the assets of the firm to the company was, therefore, not a sale.

The same view was taken by the Calcutta High Court in Commissioner of Income-tax v. Mugneeram Bangur and Co. **

This court in Commissioner of Income-tax v. B. M. Kharwar *** held that the observations in Sir Kikabhai Premchand's case # to the effect that in revenue cases regard must be had to the substance of the transaction rather than its mere form cannot be read as throwing any doubt on the principle that the true legal relation arising from a transaction alone determines the taxability of a receipt arising from the transaction. The observation in

138 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . question was considered as casual and that the same was not necessary for the purpose of the case. In Kharwar's case ***, this court also disapproved the decisions in Sir Homi Mehta's Executors' case ##, Rogers & Co's case * and Mugneeram Bangur & Co's case **. Therein, this court ruled that it is now well settled that the taxing authorities are not entitled, in determining whether a receipt is liable to be taxed, to ignore the legal character of the transaction which is the source of the receipt and to proceed on what they regard as " the substance of the matter ". The taxing authority is entitled and is indeed bound to determine the true legal relation resulting from a transaction. If the parties have chosen to conceal by a device the legal relation, it is open to the taxing authority to unravel the device and to determine the true character of the relationship. But, the legal effect of a transaction cannot be displaced by probing into the " substance of the transaction ". This principle applies alike to cases in which the legal relation is recorded in a formal document and to cases where it has to be gathered from evidence-oral and documentary-and conduct of the parties to the transaction.

In the instant case, the Tribunal has held that the " agreement for sale " entered into between the assessee-firm and the " company " is a genuine transaction and the same evidences a sale. This is essentially a finding of fact. The High Court has affirmed that finding. In that view, we are unable to accept the contention of the revenue that the transaction in question was an exchange and not a sale. We are equally unable to accept the contention of the assessee that it was merely a readjustment.

Clause (1) of the agreement in specific terms says that " the existing partner shall sell and the company shall purchase the shares and securities for a sum of rupees seventy-five lakhs ". Clause (3) of that agreement merely provides a mode of satisfaction of the sale price. The sale price fixed by the parties for the shares and the securities sold is Rs. 75 lakhs and nothing more. It may be that because of the allotment of the shares of the company in satisfaction of the sale price, the assessee-firm got certain benefits but that does not convert the sale into an exchange.

In Commissioner of Income-tax v. R. R. Ramakrishna Pillai * this court, distinguishing an exchange from a sale observed that where the person carrying on the business transfers the assets to a company in consideration of allotment of shares, it would be a case of exchange and not of sale and the true nature of the transaction will not be altered because for the purpose of stamp duty or other reasons the value of the assets transferred is shown as equivalent to the face value of the shares allotted. On the other hand, a

139 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . person carrying on business may agree with a company floated by him that the assets belonging to him shall be transferred to the company for a certain money consideration and that in satisfaction of the liability to pay the money consideration shares of certain face value shall be allotted to the transferor. In such a case, there are in truth two transactions, one transaction of sale and the other a contract under which the shares are accepted in satisfaction of the liability to pay the price. The fact that as a result of the transfer of the shares of the " company " to the assessee firm, the latter obtained considerable profits, will not alter the true nature of the transaction-See the decision of this court in Chittoor Motor Transport Co. (P.) Ltd. v. Income-tax Officer, Chittoor **.

For the reasons above stated, we have no hesitation in coming to the conclusion that the transaction evidenced by the " agreement for sale " between the company and the assessee was a sale.

Now let us see what is the impact of section 12B(2) on that transaction ? Under that provision, the amount of capital gains has to be computed after making certain deductions from the full value of the consideration for which the sale is made. What exactly is the meaning of the expression " full value of the consideration for which sale is made " ? Is it the consideration agreed to be paid or is it the market value of the consideration ? In the case of sale for a price, there is no question of any market value unlike in the case of an exchange. Therefore, in cases of sales to which the first proviso to sub-section (2) of section 12B is not attracted, all that we have to see is what is the consideration bargained for. As mentioned earlier, to the facts of the present case, the first proviso is not attracted. As seen earlier, the price bargained for the sale of the shares and securities was only rupees seventy-five lakhs. The facts of this case squarely fall within the rule laid down by this court in Commissioner of Income-tax v. George Henderson & Co. Ltd. * Therein this court observed :

" In case of a sale, the full value of the consideration is the full sale price actually paid. The legislature had to use the words ' full value of the consideration ' because it was dealing not merely with sale but with other types of transfer, such as exchange, where the consideration would be other than money. If it is therefore held in the present case that the actual price received by the respondent was at the rate of Rs. 136 per share, the full value of the consideration must be taken at the rate of Rs. 136 per share. The view that we have expressed as to the interpretation of the main part of section 12B(2) is borne out by the fact that in the first proviso to section 12B(2), the expression ' full value of the consideration ' is used in contradistinction with ' fair market value of the capital asset ' and there is an express power granted to the

140 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . Income-tax Officer to ' take the fair market value of the capital asset transferred ' as ' the full value of the consideration ' in specified circumstances. It is evident that the legislature itself has made a distinction between the two expressions ' full value of the consideration ' and ' fair market value of the capital asset transferred ' and it is provided that if certain conditions are satisfied as mentioned in the first proviso to section 12B(2), the market value of the asset transferred, though not equivalent to the full value of the consideration for the transfer, may be deemed to be the full value of the consideration. To give rise to this fiction the two conditions of the first proviso are : (1) that the transferor was directly or indirectly connected with the transferee, and (2) that the transfer was effected with the object of avoidance or reduction of the liability of the assessee under section 12B. If the conditions of this proviso are not satisfied the main part of section 12B(2) applies and the Income-tax Officer must take into account the full value of the consideration for the transfer. " It may be noted that in that case the market value of the shares which were allotted at Rs. 136 per share was Rs. 620 per share. Applying the priciples enunciated in that decision we think that the full value of the sale price received by the assessee was only rupees seventyfive lakhs. That being so, the capital gains made by the company were Rs. 27,04,772 as held by the High Court. In the result both these appeals fail and they are dismissed with costs.”

5.4. In another case, in Sunil Siddarthbhai vs CIT (1985)

156 ITR 509, the Hon'ble Apex Court observed held as under:-

“This and the connected appeal, filed by certificate granted by the High Court, raise the interesting question whether the capital contribution by a partner to the assets of a partnership firm at an appreciated value can be said to give rise to a capital gain in his hands liable to income-tax. In Civil Appeal No. 1841 of 1981, the facts are as follows. The appellant, who is the assessee, was a partner in Messrs. Suvas Trading Company, a partnership firm constituted under a deed of partnership dated September 27, 1973. As his contribution to the capital of the partnership firm, the assessee made over certain shares of limited companies which were held by him as his capital assets. The book value of those shares in his account books was

141 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . shown as Rs. 1,49,819, but on the date when he contributed those shares to the partnership firm, he revalued the shares at the market value of Rs. 1,60,279 and credited the resulting difference of Rs. 10,460 to his capital account.

The Income-tax Officer, when drawing up the assessment order for the assessment year 1974-75 in respect of the assessee did not include the difference in the assessable income. The Commissioner of Income-tax, however, being of opinion that the difference between the market value of the shares and the cost of acquisition of the shares to the assessee should have been brought to tax as capital gains in view of section 45 of the Income-tax Act, 1961, exercised his revisional jurisdiction and reopening the assessment, he remanded the case to the Income-tax Officer directing him to revise the assessment after computing the capital gains arising out of the transfer. The assessee appealed to the Income-tax Appellate Tribunal and the Appellate Tribunal held that while the transaction did amount to a transfer within the meaning of clause (47) of section 2 of the Income-tax Act, it did not result in capital gains liable to tax. The Appellate Tribunal allowed the appeal and set aside the order of the Income-tax Officer. Subsequently, the Appellate Tribunal referred the case to the High Court of Gujarat for its opinion on the following questions of law:

" (1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that no capital gains resulted from the transfer of the shares held by the assessee to the partnership firm as his capital contribution, the cost of acquisition of the shares to the assessee being Rs. 1,49,819 and the market value of the shares being Rs. 1,60,279 ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that there was a transfer within the meaning of clause (47) of section 2 of the Income-tax Act, 1961, of the shares contributed by the assessee as capital to the partnership firm in which he was a partner ?"

In Civil Appeal No. 1777 of 1981, the appellant was a partner in a registered partnership firm, Messrs. Rajka, of which the other partner was his wife. The partnership was constituted under an agreement dated February 25, 1973. The partnership deed recited that the partnership business had commenced on January 1, 1973, that it was a partnership at will and further provided that the assessee would initially contribute Rs. 9,000 in cash to the share capital of the firm and his wife would contribute Rs. 1,000 in cash. It was provided that when any addition to the capital was required for the purposes of the partnership, the partners would contribute such additional capital from time to time. It was further provided that if

142 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . any asset was brought in by a partner as capital contribution, the account of such partner would be credited with the fair market value on the date the asset was brought in. The assessee had in his possession 580 ordinary shares of the Ahmedabad Manufacturing and Calico Printing Co. Ltd. which had been purchased at Rs. 1,55,440. He had also 82 ordinary shares of Karamchand Premchand P. Ltd. purchased at Rs. 25,666. The total cost was Rs. 1,81,106.

On March 22, 1973, the market value of a share of the Ahmedabad Manufacturing and Calico Printing Co. Ltd. was Rs. 442 and that of a share of Karamchand Premchand P. Ltd. was Rs. 2,668. On that day, the assessee introduced the two shareholdings in the partnership firm as his capital contribution and the firm credited his account with the market value of the shares, namely, Rs. 4,75,136.

In the assessment proceedings for the assessment year 1973-74, the Income-tax Officer took the view that the contribution by the assessee of the shares to the asset of the partnership firm constituted a transfer within the meaning of clause (47) of section 2 of the Income-tax Act, 1961, and that the assessee was liable to income-tax on a capital gain of Rs. 2,94,030, being the difference between the market price at which the shares were entered in the books of the partnership firm and the cost of the shares to the assessee. The assessee appealed to the Appellate Assistant Commissioner of Income-tax, but the appeal was dismissed. In second appeal, however, the Income-tax Appellate Tribunal took the view that there was no transfer of a capital asset within the meaning of section 45 read with clause (47) of section 2 of the Income-tax Act, 1961, and, consequently, lie deleted the item from the assessment. In the circumstances, the Appellate Tribunal did not go into the question whether the transfer was without consideration. The Commissioner of Income-tax obtained a reference to the High Court of Gujarat oil the following questions of law:

" (1) Whether, oil the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the contribution in the form of shares of the value of Rs. 4,75,136 by the assessee to the partnership firm of Messrs. Rajka did not amount to a transfer within the meaning of clause (47) of section 2 of the Act, resulting in Capital gains chargeable to tax ?

(2) If the, reply to question No. (1) is in favour of the Revenue, whether the Tribunal erred in not considering whether the transfer is with or without consideration ? "

143 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . By a common judgment dated April 30, 1981/May 1, and 4, 1981, the High Court answered the questions in favour of the Revenue and against the assessee.

Section 45 of the Income-tax Act, 1961, provides:

" 45. (1) Any profits or gains arising from the transfer of I capital asset effected in the previous year shall, save as otherwise provided in sections 53, 54, 54B, 54C and 54D, be chargeable to income-tax under the head 'Capital gains', and shall be deemed to be the income of the previous year in which the transfer took place."

Section 48 Of the Act provides :

(i) expenditure incurred wholly and exclusively in connection with such transfer ;

(ii) the cost of acquisition of the capital asset and the cost of any improvement thereto."

Learned counsel for the assessee contends that in order to attract tax under the head " Capital gains ", section 45 must be read with section 48 and, therefore, three cumulative conditions must be fulfilled

It is urged that if any of the three conditions remains unfulfilled, no charge can be levied under the head " Capital gains ".

In support of the submission that there is no " transfer " in the general sense of that term when a partner brings his personal assets into the firm as his contribution towards its capital, learned counsel points out that a partnership firm is not a separate legal entity and

144 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . that the assets owned by the partnership are collectively owned by the partners. We have no hesitation in accepting that proposition, for, in Malabar Fisheries Co. v. CIT [1979] 120 ITR 49 (SC), this court observed (p. 59):

"....... it seems to us clear that a partnership firm under the Indian Partnership Act, 1932, is not a distinct legal entity apart from the partners constituting it and equally in law the firm as such has no separate rights of its own in the partnership assets and when one talks of the firm's property or firm's assets all that is meant is property or assets in which all partners have a joint or common interest."

Our attention has been invited to CIT v. Hind Construction Ltd. [1972] 83 ITR 211 (SC). In that case, the assessee entered into a partnership and as its share of the capital, it transferred its stock of machinery to the partnership firm. This court held that when the assessee made over its machinery to the partnership firm, there was no sale and the assessee did not derive any income. In CIT v. Janab N. Hyath Batcha Sahib [1969] 72 ITR 528 (Mad), the Madras High Court held that when a partner introduces his property into a partnership firm as his contribution to its capital, the transaction does not involve a sale of the property. The High Court referred to section 14 of the Indian Partnership Act, 1932, and observed (p. 533):

" When a partnership is formed for the first time and one of the members of the partnership brings into the firm assets, they become the property of the firm, not by any transfer, but by the very intention of the parties evinced in the agreement between them to treat such property belonging to one or more of the members of the partnership is that of the firm."

The view that when a partner hands over a business asset to a partnership firm as his contribution to its capital, he cannot be said to have effected a sale was also taken by the Allahabad High Court in Dr. Kackkar v. CIT [1973] 92 ITR 87, the Kerala High Court in (CIT v. Kunhammed [1974] 94 ITR 179 and by the Madras High Court in CIT v. Abdul Khader Motor and Lorry Service [1978] 112 ITR 360 . We find no difficulty in accepting that proposition. But while the transaction may not amount to a sale, can it be described as a transfer of some other kind ? Illustrations of other kinds of transfer are, provided by clause (47) of section 2 of the Income-tax Act, which defines the expression " transfer " in relation to a capital asset as including " the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law". The definition is inclusive merely and does not exhaust other kinds of transfer. Its inclusive character

145 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . was overlooked by the Madras High Court in CIT v. Abdul Khader Motor and Lorry Service [1978] 112 ITR 360 and in CIT v. Rajan and Kanan, [1984] 149 ITR 545 (Mad). In both cases, the High Court confined itself to considering whether the transaction before it was covered by any of the express terms used in the definition, that is to say, sale, exchange, relinquishment or extinguishment and taking the view that it did not fall under any of them, it held that there was no transfer.

In its general sense, the expression " transfer of property " connotes, the passing of rights in property from one person to another. In one case, there may be a passing of the entire bundle of rights from the transferor to the transferee. In another case, the transfer may consist of one of the estates only out of all the estates comprising the totality of rights in the property. In a third case, there may be a reduction of the exclusive interest in the totality of rights of the original owner into a joint or shared interest with other persons. An exclusive interest in property is a larger interest than a share in that property. To the extent to which the exclusive interest is reduced to a shared interest, it would seem that there is a transfer of interest. Therefore, when a partner brings in his personal asset into the capital of the partnership firm as his contribution to its capital, he reduces his exclusive rights in the asset to shared rights in it with the other partners of the firm. While he does not lose his rights in the asset altogether, what he enjoys now is an abridged right which cannot be identified with the fullness of the right which he enjoyed in the asset before it entered the partnership capital. In Addanki Narayanappa v. Bhaskara Krishnappa [1966] 3 SCR 400; AIR 1966 SC 1300, this court explained (p. 1303 of AIR):

"................. whatever may be the character of the property which is brought in by the partners when the partnership is formed or which may be acquired in the course of the business of the partnership it becomes the property of the firm and what a partner is entitled to is his share of profits, if any, accruing to the partnership from the realisation of this property, and upon dissolution of the partnership to a share in the money representing the value of the property. No doubt, since a firm has no legal existence., the partnership property will vest in all the partner, and in that sense every partner has an interest in the property of the partnership. During the subsistence of the partnership, however, no partner can deal with any portion of the property as his own, Nor can he assign his interest in a specific item of the partnership property to anyone. His right is to obtain such profits, if any, as fall to his share from time to time and upon the dissolution of the firm to L share in the assets of the firm which remain after satisfying the liabilities set out in clause (a) and sub- clause (i), (ii) and (iii) of clause (b) of section 48."

146 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . The position was later in the same judgement as follows 1304):

" The whole concept Of partnership is to entry upon a joint venture and for that purpose to bring in as capital money or even property including immovable property. Once that is done whatever is brought in would cease to be the exclusive property of the person who brought it in. It would be the trading asset of the partnership in which all the partners would have interest in proportion to their share in the joint venture of the business of partnership. The person who brought it in would, therefore, not be able to claim or exercise any exclusive right over any property which he has brought in, much less over any other partnership property. He would not be able to exercise his right even to the extent of his share in the business of the partnership. As already stated, his right during the subsistence of the partnership is to get his share of profits from time to time as may be agreed upon among the partners and after the dissolution of the partnership or with his retirement from partnership of the, of his share in the net partnership assets as on the date of dissolution or retirement after a deduction of liabilities and prior charges."

It is apparent, therefore, that when a partner brings in his personal asset into a partnership firm as his contribution to its capital, an asset which originally was subject to the entire ownership of the partner becomes now subject to the rights of other partners in it. It is not an interest which can be evaluated immediately, it is an interest which is subject to the operation of future transactions of the partnership, and it may diminish in value depending on accumulating liabilities and losses with a fall in the prosperity of the partnership firm. The evaluation of a partner's interest take, place only when there is a dissolution of the firm or upon his retirement from it. It has sometimes been and we think erroneously, that the right of a partner to a share in the assets of the, partnership firm arises upon dissolution of the, firm or upon the partner retiring from the firm. We think it necessary to state that what is envisaged here is merely the right to realise the interest and receive its value. What is realised is the interest which the partner enjoys in the assets during the subsistence of the partnership firm by virtue of his status as a partner and in accordance with the terms of the partnership agreement. It is because that interest exists already before dissolution, as was held by this court in Malabar Fisheries Co. v. CIT [1979] 120 ITR 49 (SC), that the distribution of the assets on dissolution does not amount to a transfer to the erstwhile partners. What the partner gets upon dissolution or upon retirement is the realisation of a pre-existing right or interest. It is nothing strange in the law that a right or interest should exist in praesenti but its realisation or exercise should be postponed. Therefore, what was the exclusive interest of a partner in his personal asset is, upon its

147 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . introduction into the partnership firm as his share to the partnership capital, transformed into an interest shared with the, other partners in that asset. Qua that asset, there is a shared interest. During the subsistence of the partnership, the of the interest of each partner qua that asset cannot be isolated or carved out from the value of the partner's interest in the totality of the partnership assets. And in regard to the latter, the value will be represented by his share in the not assets on the dissolution of the firm or upon the partner's retirement. Learned counsel for the assessee has attempted to draw an analogy between the position arising when a personal asset is brought by a partner into a partnership as his contribution to the partnership capital and that which arises when, on dissolution of the firm or on retirement, a share in the partnership assets passes to the erstwhile partner. It has been held by this court in CIT v. Dewas Cine Corporation [1968] 68 ITR 240 (SC), CIT v. Bankey Lal Vaidya [1971] 79 ITR 594 (SC) and recently in Malabar Fisheries Co. v. CIT [1979] 120 ITR 49 (SC) as well as by the Punjab and Haryana High Court in Kay Engineering Co. v. CIT [1971] 82 ITR 950, the Kerala High Court in CIT v. Nataraj Motor Service [1972] 86 ITR 109 and the Gujarat High Court in CIT v. Mohanbhai Pamabhai [1973] 91 ITR 393, that when a partner retires or the partnership is dissolved, what the partner receives is his share in the partnership. What is contemplated here is a share of the partner qua the net assets of the partnership firm. On evaluation, that share in a particular case may be realised by the receipt of only one of all the assets. What happens here is that a shared interest in all the assets of the firm is replaced by an exclusive interest in an asset of equal value. That is why it has been held that there is no transfer. It is the realisation of a pre-existing right. The position is different, it seems to us, when a partner brings his personal asset into the partnership firm as his contribution to its capital. An individual asset is the sole subject of consideration. An exclusive interest in it before it enters the partnership is reduced on such entry into a shared interest.

Our attention has also been invited to clause (b) of sub-section (1) of section 17 of the Registration Act, which requires the registration of nontestamentary instruments which purport or operate " to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of one hundred rupees and upwards, to or in immovable property ", and to the view taken by the courts in this country that when a person brings in even his immovable property as his contribution to the capital of the firm, no written document or registration is required under that clause. That view was expressed in firm Ram Sahay Mall Rameshwar Dayal v. Bishwanath Prasad, AIR 1963 Pat 221. The learned judges relied on the English law that

148 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . the personal assets introduced by a partner into the firm as his contribution to its capital become the property of the firm by reason of the intention and agreement of the parties. The view does not spring from the consideration that there is Do transfer, the view is that no document of transfer is required and that, therefore, registration is unnecessary. The Patna High Court reiterated that view in Sudhansu Kanta v. Manindra Nath, AIR 1965 Pat 144.

Accordingly, we hold that when the assessee brought the shares of the limited companies into the partnership firm as his contribution to its capital, there was a transfer of a capital asset within the meaning of the terms of section 45 of the Income-tax Act. In this view of the matter, we agree with the conclusion reached by the Kerala High Court in A. Abdul Rahim, Travancore Confectionery Works v. CIT [1977] 110 ITR 595 [FB], the Karnataka High Court in Addl. CIT v. M. A. J. Vasanaik [1979] 116 ITR 110 and by the Gujarat High Court in the judgment under appeal.

The second question is, whether the assessee can be said to have received any consideration as that expression is understood in the scheme of capital gains under the Income-tax Act. In CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294, this court observed that the charging section and the computation provisions under each head of income constitute an integrated code, and when there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. On the basis of that proposition, learned counsel for the assessee has urged that section 45 is not attracted in the present case because to compute the profits or gains under section 48, the value of the consideration received by the assessee or accruing to him as a result of the transfer of the capital asset must be capable of ascertainment in monetary terms. The consideration for the transfer of the personal assets is the right which arises or accrues to the partner during the subsistence of the partnership to get his share of the profits from time to time and, after the dissolution of the partnership or with his retirement from the partnership, to get the value of a share in the net partnership assets as on the date of the dissolution or retirement after deduction of liabilities and prior charges. The credit entry made in the partner's capital account in the books of the partnership firm does not represent the true value of the consideration. It is a notional value only, intended to be taken into account at the time of determining the value of the partner's share in the net partnership assets on the date of dissolution or on his retirement, a share which will depend upon deduction of the liabilities and prior charges existing on the date of dissolution or retirement. It is not possible to predicate beforehand what will be the position in terms of monetary value of a partners' share on that date. At the time when a partner transfers his personal asset to the

149 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . partnership firm, there can be no reckoning of the liabilities and losses which the firm may suffer in the years to come. All that lies within the womb of the future. It is impossible to conceive of evaluating the consideration acquired by the partner when he brings his personal asset into the partnership firm when neither the date of dissolution or retirement can be envisaged nor can there be any ascertainment of liabilities and prior charges which may not have even arisen yet. In the circumstances, we are unable to hold that the consideration which a partner acquires on making over his personal asset to the partnership firm as his contribution to its capital can fall within the terms of section 48. And as that provision is fundamental to the computation machinery incorporated in the scheme relating to the determination of the charge provided in section 45, such a case must be regarded as falling outside the scope of capital gains taxation altogether.

The third contention of the learned counsel for the assessee is that no profit or gain can be said to arise to a partner when he brings his personal asset into a partnership firm is his contribution to its capital. It is urged that the capital gains chargeable under section 45 are real capital gains computed on the ordinary principles of commercial accounting and that the capital gains must be embedded in the capital asset. In Miss Dhun Dadabhoy Kapadia v. CIT [1967] 63 ITR 651 (SC), the appellant held by way of investment some ordinary shares in a limited company. An offer was made by the company to her by which she was entitled to apply for an equal number of new ordinary shares at a premium with an option of either taking the shares or renouncing them in favour of others. The appellant renounced her rights to all the shares and realised Rs. 45,262.50. When this amount was sought to be wholly taxed as a capital gain, the appellant claimed that on the issue of the new shares, the value of her old shares depreciated and that as a result of the depreciation, she suffered a capital loss in the old shares which she was entitled to set off against the capital gain of Rs. 45,262.50. In the alternative, she claimed that the right to receive the new shares was a right which was embedded in her old shares and, consequently, when she realised the sum of Rs. 45,262.50 by selling her right, the capital gain should be computed after deducting from that amount, the value of the embedded right which became liquidated. This court upheld the claim of the appellant that she was entitled to deduct from the sum of Rs. 45,262.50, the loss suffered by way of depreciation in the old shares. The court proceeded on the basis that in working out capital gain or loss, the principles which had to be applied are those which are a part of commercial practice or which an ordinary man of business would resort to when making computation for his business purposes. It will be noticed that this principle was applied by the court in a case where a capital gain was sought to be taxed under the Income-tax

150 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . Act. That profits or gains under the Income-tax Act must be understood in the sense of real profits or gains, that is to say, on the of ordinary commercial principles on which actual profits are computed, a sense in which no commercial man would misunderstand, had been regarded as a principle of general application, and there is a catena of cases of this court which affirms that principle. Reference may be made to Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 (SC), CIT v. Bai Shirinbai K. Kooka [1962] 46 ITR 86 (SC), Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521 (SC), CIT v. Birla Gwalior (P.) Ltd. [1973] 89 ITR 266 (SC) and Bafna Textiles v. ITO [1975] 98 ITR 1 (Kar).

What is the profit or gains which can be said to accrue or arise to the assessee when lie makes over his personal asset to the partnership firm as his contribution to its capital ? The consideration, as we have observed, is the right of a partner during the subsistence of the partnership to get his share of profits from time to time and after the dissolution of the partnership or with his retirement from the partnership, to receive the value of the share in the net partnership assets as on the date of dissolution or retirement after deduction of liabilities and prior charges. When his personal asset merges into the capital of the partnership firm, a corresponding credit entry is made in the partner's capital account in the books of the partnership firm, but that entry is made merely for the purpose of adjusting the rights of the partners inter se when the partnership is dissolved or the partner retires. It evidences no debt due by the firm to the partner. Indeed, the capital represented by the notional entry to the credit of the partner's account may be completely wiped out by losses which may be subsequently incurred by the firm, even in the very accounting year in which the capital account is credited. Having regard to the nature and quality of the consideration which the partner may be said to acquire on introducing his personal asset into the partnership firm as his contribution to its capital, it cannot be said that any income or gain arises or accrues to the assessee in the true commercial sense which a businessman would understand as real income or gain. An objection has been taken by the learned counsel for the respondent to this submission being, raised before us because, it is said, the question has neither been referred to this court nor was it ever argued It any earlier stage. We are not impressed by the objection because we think that it constitutes one, aspect of the questions which have been referred in these cases. The point rests on considerations purely of law and is fundamental to the question whether capital gain arises to an upon the transfer of his shares to the partnership firm as his capital contribution. The objection is, therefore, overruled.

151 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . Inasmuch as we are of opinion that the consideration received by the assessee on the transfer of his shares to the partnership firm does not fall within the contemplation of section 48 of the Income- tax Act and further that no profit or gain can be aid to arise for the purpose of the Income- tax Act, we hold that these cases fall outside the scope of section 45 of the Act altogether.

We have decided these appeals on the assumption that the partnership firm in question is a genuine firm and not the result of a sham or unreal transaction and that the transfer by the partner of his personal asset to partnership firm represents a genuine intention to contribute to the share capital of the firm for the purpose of carrying on the partnership business. If the transfer of the personal asset by the, assessee to a partnership in which he is or becomes a partner is merely a device or ruse for converting the asset into money which would substantially remain available for his benefit without liability to income-tax on a capital gain, it will be open to the income-tax authorities to go behind the transaction and examine whether the transaction of creating the partnership is a genuine or a sham transaction and, even where the partnership is genuine, the transaction of transferring the personal asset to the partnership firm represents a real attempt to contribute to the share capital of the partnership firm for the purpose of carrying on the partnership business or is nothing but a device or ruse to convert the personal asset into money substantially for the benefit of the assessee while evading tax on a capital gain. The, Income- tax Officer will be entitled to consider all the relevant indicia in this regard, whether the partnership is formed between the assessee and his wife and children or substantially limited to them, whether the personal asset is sold by the partnership firm soon after it is transferred by the assessee to it, whether the partnership firm has no substantial or real business or the record shows that there was no real need for the partnership firm for such capital contribution from the assessee. All these and other pertinent considerations may be taken into regard when the Income-tax Officer enters upon a scrutiny of the transaction, for, in the task of determining whether a transaction is a sham or illusory transaction or a device or ruse, he is entitled to penetrate the veil covering it and ascertain the truth.

In the result, the questions which arise in these appeals are answered as follows :

152 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . Income-tax Act, 1961, nor did any profit or gain accrue to him for the purpose of section 45 of the Income-tax Act, 1961. These answers are given by us subject to the reservations made by us in the preceding paragraph. The appeals are partly allowed and there is no order as to costs.” 5.5. It is noteworthy that while coming to the aforesaid

conclusion, the Hon'ble Apex Court also considered following

judicial pronouncements:-

i. Abdul Rahim (A.), Travancore Confectionery Works v. CIT [1977] 110 ITR 595 (Ker) [FB] ii. Addanki Narayanappa v. Bhaskara Krishnappa [1966] AIR 1966 SC 1300 (SC) iii. Addanki Xarayanappa Bhaskara Krishnappa [1966] 3 SCR 400 iv. Bafna Textiles v. ITO [1975] 98 ITR 1 (Kar) v. Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 (SC) vi. CTT v-. Bai Shirinbai K. Ivooka [1962] 46 ITR 86 (SC) vii. CIT v. Bankey Lai Vaidya [1971] 79 ITR 594 (SC) viii. CIT vs. Birla Gwalior P. Ltd. [1973] 89 ITR 266 (SC) ix. CIT vs Dewas Cine Corporation [1968] 68 ITR 240 (SC) x. CIT Hind Construction Ltd. [1972] 83 ITR 211 (SC) xi. CIT Janab X. Hvath Batcha Sahib [1969]72 1TR 528 (Mad) xii. CIT c. Kunhammed (C.M.) [1974] 94 ITR 179 (Ker) xiii. CIT Mohanbhai Pamabhai [1973] 91 ITR 393 (Guj) xiv. CIT v. Nataraj Motor Service [1972] 86 ITR 109 (Ker) xv. CIT (Addl.) v. Vasanaik (M.A.J.) [1979] 116 ITR 110 (Kar) xvi. Dhun Dadabhoy Kapadia (Miss) v. CIT [1967] 63 ITR 651 (SC)

153 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . xvii. Firm Ram Sahay Mall Rameshwar Dayal v. Bishwanath Prasad [1963] AIR 1963 Pat 221 (Pat) xviii. Kackkar (M.C.) (Dr.) v. CIT [1973] 92 ITR 87 (All) xix. Kay Engineering Co. v. CIT [1971] 82 ITR 950 (P&H) xx. Malabar Fisheries Co. v. CIT [1979] 120 ITR 49 (SC) xxi. Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521 (SC) xxii. Sudhansu Kanta v. Manindra Nath [1965] AIR Pat 144 (Pat)

5.6. The stand of the assessee is further fortified by the

decision in the case of Vali Pattabhiram Rao vs Shri Ramanuja

Ginning & Rice Factory (purchase) Ltd. (1986) 60 Comp Cas

transfer under general law, if the constitution of the firm is

changed to that of a company by registering it under the part-IX

of the Companies Act as there shall be statutory vesting of the

title of all the properties of the firm in the newly incorporated

company without any need for separate conveyance. Identical

ratio was laid down in the case of Income Tax Officer vs

Gulabdas Printers and Vishal Containers Pvt. Ltd. vs ACIT by

the Ahmedabad Bench of the Tribunal, which has been dealt

with by the ld. FAA in para 31 and 32 (page-46 and 47 ) of the

154 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . impugned order. Identically, the Delhi Bench of the Tribunal in

Krishna Electrical Industries vs DCIT (2004)82 TTJ 575 observed

as under:-

“3.1 The brief facts of the case are that the assessee filed its return on 31st Oct., 1993, declaring an income of Rs. 11.52 lakhs. The assessee was carrying on the business of manufacturing and trading of power cable. The firm was originally constituted in 1968-69. The constitution of the firm was changed from time to time, as some of the partners were retired and joined. During the year under consideration, the firm got itself converted into a company under the name and style of KEI. Industries Ltd. This conversion was made as limited company under Chapter IX of the Companies Act. As a result of the formula of the aforesaid company, the business of the firm with all its assets and liabilities got automatically vested in the company. Before conversion into company, the firm revalued its land and factory building, which was adopted at Rs. 80 lakhs and Rs. 10 lakhs, respectively, based upon the valuation report of the registered valuer. However, the assessee-firm did not charge depreciation on the enhanced value of land and factory building, resulting on account of revaluation. The AO, in view of the fact that assessee-firm got converted into a limited company, was of the view that there was a transfer within the meaning of s. 2(47) of the IT Act and accordingly directed the assessee to explain as to why short-term capital gain be not assessed to tax, as provided under s. 50 of the Act. In reply, it was stated that as conversion of partnership firm into a limited company, does not involve any transfer and as such no capital gain is liable to be assessed. It was further submitted that there was no transfer, but only a conversion of the firm into a limited company, as all the assets and liabilities were merged with the company. In support of this contention, a detailed note was filed. The provisions of s. 575 of the Companies Act were also relied upon. The reliance was also placed on various case law. It was also submitted that all the partners in the erstwhile firm were owning the entire equity share capital of the company. Therefore, the company was formulated from the firm as a going concern. Accordingly, it was submitted that when an undertaking as a whole is transferred as a going concern together with its goodwill and all other assets and liabilities, therefore, it cannot be said that there was any transfer. Accordingly, no capital gain arises. However, the AO was not satisfied. In his view, the firm has transferred its assets and liabilities to the company, therefore, provisions of s. 45(4) of the Act were applicable. While holding so, the AO placed reliance on various decisions, reported in (1989) 177

155 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . ITR 98(sic); CIT vs. R.R. Ramakrishna Pillai (1967) 66 ITR 725(SC) and Orissa Cement Ltd. vs. CIT (1971) 80 ITR 901(Del), and thereafter the AO brought the amount of Rs. 80 lakhs to taxation under s. 112 of the IT Act. 3.2 Same arguments were reiterated before the CIT(A) as were made before the AO. The reliance was also placed on various case law. After considering the reply of the assessee and perusing other material on record, the CIT(A) was of the view that provisions of s. 45(4) are not applicable on the facts of the present case, as this is not a case of transfer because the firm as a whole was converted into a company. The issue was discussed by the CIT(A) at great length. Each and every objection raised by the AO was considered and then the conclusion was arrived at that this is not a case of transfer. The CIT(A) has considered that whether the firm can be registered as a limited company under Chapter IX of the Companies Act, and what is the scope of meaning of s. 575 of the Companies Act and what is the meaning of the word "transfer" under the provisions of ss. 2(47) and 54(5) (sic) of the Act, and what is the legal position before insertion of s. 45(4) of the IT Act and whether automatic vesting of the assets and liabilities in the new company will amount to transfer of asset, and what is the scope of s. 45(4) of the Act that whether distribution of assets is a must. After discussing all these provisions of law in detail and placing reliance on various case law, reported in E.I.D. Parry Ltd. vs. CIT (1988) 98 CTR (Mad) 49: (1988) 174 ITR 11(Mad) and in the case of Maharajadhiraj Sir Kameshwar Singh vs. CIT (1963) 48 ITR 483(Pat), the CIT(A) held that there is no transfer of capital asset from the firm to the company and, therefore, the provisions of R s. 112 of the IT Act r/w s. 45(4) cannot be applied, and accordingly it was held that the AO wrongly brought the amount to capital gain. Thus, the addition made by the AO was deleted. Now the Department is in appeal here before the Tribunal. 3.3 The learned Departmental Representative strongly supported the order of the AO. On the other hand, the learned counsel of the assessee firstly strongly supported the order of the CIT(A) and then it was submitted that the identical issue has been decided by the Hon'ble Bombay High Court in the case of CIT vs. Texspin Engineering & Manufacturing Works (2003) 180 CTR (Bom) 497. It was further stated that the provisions of s. 45(4), along with s. 47, cl. (xiii), which was amended w.e.f. 1st April, 1999, were considered and then the decision of the Bombay Bench of the Tribunal reported in Texspin Engineering & Manufacturing Works vs. Jt. CIT (2001) 70 TTJ (Mumbai) 789 was confirmed by the Hon'ble Bombay High Court. The attention of the Bench was drawn on the copy of the orders placed on record.

156 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . 3.4 We have heard the rival submissions and considered them carefully. After perusing the relevant material, along with various case law relied upon by both the parties, we find that the CIT(A) was justified in holding that there was no transfer, hence no capital gain arises. We noted that the company was registered under Chapter IX of the Companies Act, 1956, which was converted from a partnership firm. We further noted that the company was registered under Chapter IX of the Companies Act, in view of the provisions of s. 575, means thereby that there was no physical transfer of assets, but there was an automatic vesting of all the assets and liabilities of the erstwhile firm to the company. There is no transfer from one hand to another hand, as all the partners in the firm became shareholders in equal proportion of their capital with the firm. Neither any consideration was received by the firm or their partners, nor there was a receivable by the firm or the partners from the company, therefore, atleast firm cannot be brought to tax under s. 112 of the IT Act. It is stated in the order of the AO and CIT(A) himself that there was no transfer of asset but it was a conversion into company by the firm as a whole. Therefore, it cannot be said that it was a case of exchange of property or transfer of property from one person to another person. 3.5 In the case of Sunil Siddarthbhai vs. CIT (1985) 49 CTR (SC) 172: (1985) 156 ITR 509(SC), the Hon'ble Supreme Court has discussed the issue in regard to transfer of property and one of the findings of the Hon'ble apex Court is that if there was a transfer of shares but the person has got no consideration within the meaning of s. 48, then in that case no profit or gain accrued to him for the purpose of s. 45 of the Act. It was further observed by the Hon'ble Court that where the entire bundle of rights from the transferor has been made and rights of the transferor have not reduced, then in that case also provisions of s. 45 are not applicable. However, it has been observed by the apex Court that if the rights of the person are reduced in transferring the assets to another person, then of course it tantamounts to transfer of interest.

3.6 In the present case, undisputedly the assets and liabilities of the erstwhile firm were converted into company as a whole and all the partners of the firm were allotted shares of the company in equal proportion which was in the firm. Therefore, the interest of the partners was not reduced in any way, neither R any amount was paid separately to the firm or the partners on account of goodwill or on account of revaluation of assets. Therefore, the provisions of s. 45(4) of the IT Act r/w s. 112 of the Act are not applicable on the facts of the present case.

3.7 On similar facts, the Hon'ble Bombay High Court in the case of CIT vs. Texspin Engineering & Manufacturing Works (supra) held that

157 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . the provisions of s. 45(4) are not applicable where the firm as a whole was converted into a company. While holding so, the Hon'ble Bombay High Court has discussed the issue in detail. Some of the observations and findings of the Hon'ble High Court are as under :

"Held : Under s. 45(4) two conditions are required to be satisfied viz., transfer by way of distribution of capital assets, and secondly, such transfer should be on dissolution of the firm or otherwise. Once these two conditions are satisfied then, in that event, for the purposes of computation of capital gains under s. 48, the market value on the date of the transfer shall be deemed to be the full value of consideration received or accruing as a result of the transfer. In this case, the erstwhile firm has been treated as a limited company by virtue of s. 575 of the Companies Act. Under Part IX of the Companies Act, when a partnership firm is treated as a limited company, the properties of the erstwhile firm vest in the limited company. There is a difference between vesting of the property, in this case, in the limited company and distribution of the property. On vesting in the limited company under Part IX of the Companies Act, the properties vest in the company as they exist. On the other hand, distribution on dissolution pre-supposes division, realization, encashment of assets and appropriation of the realized amount as per the priority like payment of taxes to the Government, BMC, etc., payment to unsecured creditors, etc. This difference is very important. In the present case, therefore, s. 45(4) is not attracted as the very first condition of transfer by way of distribution of capital assets is not satisfied. In the circumstances, the later part of s. 45(4), which refers to computation of capital gains under s. 48 by treating fair market value of the asset on the date of transfer, does not arise'Malabar Fisheries Co. vs. CIT (1979) 12 CTR (SC) 415: (1979) 120 ITR 49(SC) applied.

Clause (xiii) of s. 47 though not applicable here, it provides a clue to the legislative intent. It has been introduced w.e.f. 1st April, 1999, in order to encourage more and more firms becoming limited companies. It also indicates the difference between transfer and transmission. Basically, when a firm is treated as a company under Part IX, it is a case similar to transmission. This is amply made clear by cl. (xiii) to s. 47, which states that where a firm is succeeded by a company in the business, the transaction shall not be treated as a transfer. The expression "transfer of a capital asset" in s. 45(1) is required to be r/w s. 2(47)(ii) which states that transfer in relation to a capital asset shall include extinguishment of any rights therein. In certain cases of reconstitution of firms and introduction of new partners, there is a resultant extinguishment of the rights in the capital assets proportionately. In order to get over this controversy and keeping in mind the object of encouraging firms being treated as

158 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . companies, the controversy is resolved by the legislature by introducing cl. (xiii) in s. 47 w.e.f. 1st April, 1999.

When a partnership firm is treated as a company under the statutory provisions of Part IX of the Companies Act, the company succeeds the firm. Generally, in the case of a transfer of a capital asset, two important ingredients are : existence of a party and a counter-party and, secondly, incoming considering qua the transferor. When a firm is treated as a company, the said two considerations are not attracted. There is no conveyance of the property executable in favour of the limited company. It is no doubt true that all properties of the firm vest in the limited company on the firm being treated as a company under Part IX of the Companies Act, but that vesting is not consequent or incidental to a transfer. It is a statutory vesting of properties in the company as the firm is treated as a limited company. On vesting of all the properties statutorily in the company, the cloak given to the firm is replaced by a different cloak and the same firm is now treated as a company, after a given date. In the circumstances, there is no transfer of a capital asset as contemplated by s. 45(1). Even assuming for the sake of argument that there is a transfer of a capital asset under s. 45(1) because of the definition of the word "transfer" in s. 2(47)(iii), even then liability to pay capital gains would not arise because s. 45(1) is required to be read with s. 48, which provides for mode of computation. These two sections are required to be read together as the charging section and the computation section constitute one package. Now, under s. 48 it is laid down, inter alia, that the income chargeable under the head "capital gains" shall be computed by deducting from the full value of the consideration received or accrued as a result of the transfer, the cost of acquisition of the asset and the expenditure incurred in connection with the transfer. Sec. 45(4) is mutually exclusive to s. 45(1). On has to read the expression "full value of the consideration received/accruing" under s. 48 de hors s. 45(4) and if one reads s. 48 with s. 45(1) de hors s. 45(4) then the expression "full value of consideration" in s. 48 cannot be the market value of the capital asset on the date of transfer. In the circumstances, even if one were to proceed on the basis that vesting in the company under Part IX constituted transfer under s. 45(1), still the assessee ought to succeed because the firm can be assessed only if the full value of the consideration is received by the firm or if it accrues to the firm. In the present case, the company had allotted shares to the partners of the erstwhile firm, but that was in proportion to the capital of the partners in the erstwhile firm. That allotment of shares had no correlation with the vesting of the properties in the limited company under Part IX of the Act. If one reads s. 45(1) with s. 48, it is clear that the former is a charging section and if that section is applicable, the computation has to be done under s. 48, which only refers to deductions from full value of consideration received or accruing. Sec.

159 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . 48 does not empower the AO to take market value as full value of consideration as in the case of s. 45(4). In the circumstances, even if one were to hold that vesting amounts to transfer, the computation is not possible because full consideration cannot be construed to mean market value of the asset transferred. The legislature, in its wisdom, has amended only s. 45(4) by which the market value of the asset on the date of the transfer is deemed to be the full value of consideration. However, such amendment is not there in s. 45(1). In the circumstances, neither s. 45(1) nor s. 45(4) stands attracted. CIT & Anr. vs. George Henderson & Co. Ltd. (1967) 66 ITR 622(SC) and CIT vs. Gillanders Arbuthnot & Co. 1973 CTR (SC) 136: (1973) 87 ITR 407(SC) relied on. Conclusion : Conversion of partnership firm into company under Part IX of the Companies Act did not attract the provisions of s. 45(4) as there was no distribution of capital assets on dissolution; provisions of s. 45(1) also could not be applied as the vesting of the properties of the firm in the company was not consequent or incidental to a transfer as contemplated by s. 45(1)." 3.8 The fact of the case before the Bombay High Court and the facts involved in the present case, as stated above, are similar. Therefore, in view of the reasoning given by the CIT(A) and the reasoning of ours and in view of the decision of the Bombay High Court (supra), we confirm the order of the CIT(A) on this issue. 4. In the result, the appeal of the Department is dismissed.” 5.7. In the light of the foregoing discussion, on

consideration of facts narrated before us and following the

decision from Hon'ble Apex Court, Hon'ble High Court and the

decision from the co-ordinate Benches of the Tribunal,

conversion of partnership firm into a company under chapter

IX of the Companies Act, 1956, we are of the considered

opinion that provisions of sections 45 r.w.s 112 of the Act is

not attracted as the asset and liability of the erstwhile firm

160 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . vested in the company as a whole and the interest of the

partners was not reduced in any way nor any amount was paid

separately to the firm or to the partners on account of goodwill

or on account of revaluation of assets. Our view find clear

support from the decision from Hon'ble jurisdictional High

Court in the case of CIT vs Texspin Engineering Works

((supra)) and also various decisions relied upon from Hon'ble

Apex Court and also from the Coordinate Benches of the

Tribunal. We affirm the stand of the Ld. Commissioner of

Income Tax (Appeal), resulting into dismissal of appeals of the

Revenue.

58/Mum/2016) arising out of ITA No.6479/Mum/2014,

wherein, confirmation of action with respect of issuance of

validity of notice u/s 153C of the Act has been challenged. We

have already dealt with this issue while dealing with the

jurisdictional issue raised by the assessee, therefore, this

Cross objection has remained for academic interest only as we

have decided the issue in favour of the assessee.

161 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . 7. Now, we shall take up the appeal of the Revenue in

the case of Smt. Hemlata S. Shetty (ITA Nos.2908, 2909, 215,

2910 and 2911/Mum/2015) and Cross objections filed by the

assessee (C.O. Nos. 210 to 213/Mum/2016 and C.O.

269/Mum2016).

7.1. During hearing, the Ld. CIT-DR contended that the

appeal of the Revenue in ITA No.2908 to 2911/Mum/2015 are

barred by limitation by 38 days, therefore, the delay may be

condoned. The Ld. Counsel for the assessee, opposed

condonation of delay by contending that the Revenue is

expected to explain the delay of each day.

7.2. So far as, condonation of delay is concerned, we

have considered the rival submissions and perused the

material available on record. In view of the assertions made by

the ld. respective counsel, so far as, condonation of delay is

concerned no doubt filing of an appeal is a right granted under

the statute to the assessee and is not an automatic privilege,

therefore, the assessee is expected to be vigilant in adhering to

the manner and mode in which the appeals are to be filed in

162 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . terms of the relevant provisions of the Act. Nevertheless, a

liberal approach has to be adopted by the appellate

authorities, where delay has occurred for bona-fide reasons on

the part of the assessee or the Revenue in filing the appeals.

In matters concerning the filing of appeals, in exercise of the

statutory right, a refusal to condoned the delay can result in a

meritorious matter being thrown out at the threshold, which

may lead to miscarriage of justice. The judiciary is respected

not on account of its power to legalize in justice on technical

grounds but because it is capable of removing injustice and is

expected to do so.

7.3. The Hon’ble Apex Court in a celebrated decision in

Collector, Land Acquisition vs Mst. Katiji & Ors. 167 ITR 471

opined that when technical consideration and substantial justice

are pitted against each other, the courts are expected to further

the cause of substantial justice. This is for the reason that an

opposing party, in a dispute, cannot have a vested right in

injustice being done because of a non- deliberate delay.

Therefore, it follows that while considering matters relating to

163 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . the condonation of delay, judicious and liberal approach is to be

adopted. If sufficient cause is found to exist, which is bona-fide

one, and not due to negligence of the assessee, the delay needs

to condoned in such cases. The expression ‘sufficient cause’ is

adequately elastic to enable the courts to apply law in a

meaningful manner, which sub-serves the end of justice- that

being the life purpose of the existence of the institution of the

courts. When substantial justice and technical consideration

are pitted against each other, the cause of substantial justice

deserves to be preferred. The Hon’ble Apex Court in Vedabhai vs

Santaram 253 ITR 798 observed that inordinate delay calls of

cautious approach. This means that there should be no

malafide or dilatory tactics. Sufficient cause should receive

liberal construction to advance substantial justice. The Hon’ble

Apex Court in 167 ITR 471 observed as under:-

“3. The legislature has conferred the power to condone delay by enacting section 51 of the Limitation Act of 1963 in order to enable the courts to do substantial justice to parties by disposing of matters on de merits. The expression “sufficient cause” employed by the legislature is adequately elastic to enable the courts to apply the law in a meaningful manner which subserves the ends of justice that being the life-purpose of the existence of the institution of courts. It is common knowledge that this court has been making a justifiably liberal approach in matters instituted in this court. But the message

164 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . does not appear to have percolated down to all the others courts in the hierarchy.”

7.4. Furthermore, the Hon'ble Supreme Court in the case

of Vedabai Alia Vaijayanatabai Baburao Patil vs. Shantaram

Baburao Patil 253 ITR 798 held that the court has to exercise

the discretion on the facts of each case keeping in mind that in

construing the expression ‘sufficient cause’, the principle of

advancing substantial justice is of prime importance. The court

held that the expression “sufficient cause” should receive liberal

construction.

7.5. The decision of the Tribunal in People Infocom Private

Ltd. v/s CIT (ITA No.210/Mum/2013) order dated 19/05/2016,

Ltd vs ITO (ITA M/s Neutron Services Centre Pvt.

No.1180/Mum/2012) order dated 18/02/2016, Shri Saidatta

Coop-. Credit Society Ltd. v/s ITO (ITA No.2379/Mum/2015) order

dated 15/01/2016 and Mr. Nikunj Barot (Prop. Enigma) vs ITO

(ITA No.4887/Mum/2015) order dated 06/01/2016, wherein,

substantial delay was condoned, supports the case of the

present assessee. Having made the aforesaid observation and

various decisions discussed hereinabove, including from Hon’ble

165 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . Apex Court, the circumstances narrated by the assessee,

wherein, he has stated the reasons which caused the delay,

therefore, the delay is condoned.

issue, ground raised pertains to assuming jurisdiction u/s 153C

is concerned, we have perused the impugned orders and find

that the issue raised before this Tribunal by the Revenue has

been dealt with by the First Appellate Authority. The decisions

from Hon'ble Courts and also the Special Bench decision from

the Mumbai Bench of the Tribunal has been dealt with. In the

earlier paras of this order, we have dealt with this issue while

deliberating upon identical issue. In para 24 of the impugned

order, a factual finding has been recorded that the addition on

account of alleged bogus purchases has already been made in

the hands of M/s Skylark Build, therefore, no addition could be

made in the hands of the present assessee as the same would

amount to double taxation, therefore, on legal issue as well as on

merit, the assessee is having a good case. Resultantly, the

appeal of the Revenue needs to be dismissed.

166 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . 9. So far as, the cross objections raised by the assessee,

which are arising out of above appeals is concerned, the

assessee has challenged confirmation of the action of the

Assessing Officer for issuing of notice u/s 153C of the Act.

Considering the totality of facts and the discussion made in the

earlier paras, the cross objections of the assessee deserves to be

allowed as there were no pending assessment or reassessment

proceedings for the impugned year, accordingly, the assessment

being unabated and further there was no incriminating material

during the course of such proceedings, therefore, the addition

could not have been made on the basis of material available.

Thus, the cross objections of the assessee are allowed.

the case of M/s Oasis Reality in ITA No.4615/Mum/2015 and

cross objection of the assessee (C.O. 244/Mum/2017). It is

noted that the C.O. of the assessee is barred by time for 210

days. The Ld. CIT-DR contended that the delay may not be

condoned. The assessee has filed a petition for condonation of

delay and stating the reasons therein. Considering the totality of

167 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . facts and the assertions made by the Ld. counsel, on the basis of

reasoning contained in the earlier paras of this order, wherein,

the delay in the appeals of the Revenue was condoned, the delay

in the present cross objection is also condoned.

10.1. So far as, the merits of the appeal (ITA

NO.4615/Mum/2015) is concerned, the direction to the

Assessing Officer to delete the addition on account of bogus

purchases has been challenged. During the course of

arguments, the learned CIT-DR has relied upon the order of the

Assessing Officer whereas the AR has relied upon the order of

the Commissioner of Income tax (Appeals). Apart from this, the

learned CIT-DR argued that as the matter in earlier years was

remitted back to the file of CIT(A) as decided by the Hon’ble

Income tax Appellate Tribunal and hence this matter may also

be remitted back to CIT(A). The AR on the other hand objected

for remitting the matter back to CIT(A) on the plea that on

merits, the CIT(A) has already decided the matter on the basis of

facts and evidence on records. In the present appeal, no

additions have been made on account of Hawala purchases

168 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . whereas in those appeals additions had been made on account

of Hawala purchases. Secondly, the issues involved in this

appeal are totally different as compared to issues involved in

appeals for earlier years and hence, he pleaded that the issue

may be decided on merit.

10.2. We have considered the rival submissions and

perused the material available on record. We find that the

assessment order is a cyclostyled copy of orders passed in earlier

years. Some of the paras of the order even deal with Hawala

purchases whereas in the present year there is no hawala

purchases. We are summarizing the relevant paras for the

addition made in the assessment order as under:-

Grounds of appeal As dealt by As dealt by AO CIT(A) 1. Whether, on the facts and circumstances of Para 10.2 to Para 8 to 14 the case and in law, Lt the CIT(A), was 10.6 on page on page 6 to justified in directing the AO to delete the 8 to 9 12 additions of Rs. 4,45,98,554 on account of Para 10.10 & bogus purchase which remained unexplained 10.11 on by the assessee during the assessment page No. 16 proceedings as well as during the remand & 17 proceedings. 2.Whether, on the facts and circumstances of Para 11 to 11.8 Para No. 15 to the case and in law, Lt the CIT(A), was justified on page no. 18 to 22 on page 12 in directing the AO to delete the additions of 23 to 23 Rs. 24,39,83,334 whereas the additions was made on the basis of statement recorded during the survey proceedings and the letter submitted by the assessee during post search

169 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . proceedings. 10.3. It is interesting to note that the ld. counsel for the

assessee has argued in his cross objection, that the statement of

Shri Sudhakar M. Shetty was tendered in his individual capacity

and thereafter, same was retracted by letter dated 30th January,

2012. The ground raised before the Ld. Commissioner of Income

Tax (Appeal) was that the Ld. DCIT erred in framing the

assessment u/s 143(3) r.w.s. 148 of the Act without serving

notice u/s 143(2) upon the assessee and thus the consequent

assessment so framed is not valid. It is further noted that the

assessee furnished additional evidence before the Ld.

Commissioner of Income Tax (Appeal) in the form of bills for

purchases, ledger accounts, bank statements, etc claiming that

the purchases so made from the concerned parties were

genuine. The additional evidence filed by the assessee along with

details was forwarded to the Assessing Officer vide letter dated

22/09/2014 (para-5 of the impugned order) for examination of

facts. The Ld. Assessing Officer vide report dated 16/12/2014

filed his comments. The submission of the assessee with respect

to non-issuance of notice u/s 143(2) and the submission dated

170 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . 10/06/2014 of the assessee has been considered by the Ld.

Commissioner of Income Tax (Appeal).

10.4. We have considered the rival submissions and

perused the material available on record. Before adverting

further, we deem it appropriate to consider various decisions

from Hon'ble High Courts / Hon'ble Apex Court, so that we can

reach to a fair conclusion. The Hon'ble Gujarat High Court in

Sanjay Oilcakes Industries vs. CIT (2009) 316 ITR 274 (Guj.)

held as under:-

“11. Having heard the learned advocates appearing for the respective parties, it is apparent that no interference is called for in the impugned order of the Tribunal dated April 29, 1994, read with the order dated September 29, 1994, made in miscellaneous application. In the principal order the Tribunal has recorded the following findings:- "8.3. We have considered the rival submissions and perused the facts on record. In our opinion, the action of the Commissioner of Income-tax (Appeals) confirming 25 per cent. of the amounts claimed is fair and reasonable and no interference is called for. The Commis sioner of Income-tax (Appeals) has gone through the purchase prices of the raw material prevalent at the time and rightly came to the con clusion that the disallowance to the extent of 25 per cent. was called for. It is established that the parties were not traceable ; they opened the bank accounts in which the

171 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . cheques were credited but soon thereafter the amounts were withdrawn by bearer cheques. That fairly leads to the conclusion that these parties were perhaps creation of the assessee itself for the purpose of banking purchases into books of account because the purchases with bills were not feasible. Thus, the abovenoted parties become conduit pipes between the assessee-firm and the sellers of the raw materials. Under the circumstances, it was not impossible for the assessee to inflate the prices of raw materials. Accordingly, an addition at the rate of 25 per cent. for extra price paid by the assessee than over and above the prevalent price is fair and reasonable and we accordingly confirm the finding of the Commissioner of Income-tax (Appeals)." 12. Thus, it is apparent that both the Commissioner (Appeals) and the Tribunal have concurrently accepted the finding of the Assessing Officer that the apparent sellers who had issued sale bills were not traceable. That goods were received from the parties other than the persons who had issued bills for such goods. Though the purchases are shown to have been made by making payment thereof by account payee cheques, the cheques have been deposited in bank accounts ostensibly in the name of the apparent sellers, thereafter the entire amounts have been withdrawn by bearer cheques and there is no trace or identity of the person withdrawing the amount from the bank accounts. In the light of the aforesaid nature of evidence it is not possible to record a different conclusion, different from the one recorded by the Commissioner (Appeals) and the Tribunal concurrently holding that the apparent sellers were not genuine, or were acting as conduit between the assessee- firm and the actual sellers of the raw materials. Both the Commissioner (Appeals) and the Tribunal have, therefore,

172 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . come to the conclusion that in such circumstances, the likelihood of the purchase price being inflated cannot be ruled out and there is no material to dislodge such finding. The issue is not whether the purchase price reflected in the books of account matches the purchase price stated to have been paid to other persons. The issue is whether the purchase price paid by the assessee is reflected as receipts by the recipients. The assessee has, by set of evidence available on record, made it possible for the recipients not being traceable for the purpose of inquiry as to whether the payments made by the assessee have been actually received by the apparent sellers. Hence, the estimate made by the two appellate authorities does not warrant interference. Even otherwise, whether the estimate should be at a particular sum or at a different sum, can never be an issue of law.” In the aforesaid case, the Hon'ble High Court accepted that

the apparent sellers, who issued the said bills were not traceable

and the goods received from parties other than the persons, who

had issued the bills for such goods. The purchases were shown

to have been made by making payments, through banking

channel and thus the apparent sellers were not genuine or were

acting as conduit between the assessee and the actual seller. In

such a situation, the conclusion drawn by the Ld. Commissioner

of Income Tax (Appeal) as well as by the Tribunal was affirmed.

Hon'ble Apex Court in Kachwala Gems vs JCIT (2007) 158

173 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . taxman 71 observed that an element of guesswork is inevitable

in cases, where estimation of income is warranted.

10.5 The Hon'ble Gujarat High Court in CIT vs Bholanath Poly

Fab. Pvt. Ltd. (2013) 355 ITR 290 (Guj.) held/observed as

under:-

“5. Having come to such a conclusion, however, the Tribunal was of the opinion that the purchases may have been made from bogus parties, nevertheless, the purchases themselves were not bogus. The Tribunal adverted to the facts and data on record and came to the conclusion that the entire quantity of opening stock, purchases and the quantity manufactured during the year under consideration were sold by the assessee. Therefore, the purchases of the entire 1,02,514 metres of cloth were sold during the year under consideration. The Tribunal, therefore, accepted the assessee's contention that the finished goods were purchased by the assessee, may be not from the parties shown in the accounts, but from other sources. In that view of the matter, the Tribunal was of the opinion that not the entire amount, but the profit margin embedded in such amount would be subjected to tax. The Tribunal relied on its earlier decision in the case of Sanket Steel Traders and also made reference to the Tribunal's decision in the case of Vijay Proteins Ltd. v. Asst. CIT [1996] 58 ITD 428 (Ahd). 6. We are of the opinion that the Tribunal committed no error. Whether the purchases themselves were bogus or whether the parties from whom such purchases were

174 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . allegedly made were bogus is essentially a question of fact. The Tribunal having examined the evidence on record came to the conclusion that the assessee did purchase the cloth and sell the finished goods. In that view of the matter, as natural corollary, not the entire amount covered under such purchase, but the profit element embedded therein would be subject to tax. This was the view of this court in the case of Sanjay Oilcake Industries v. CIT [2009] 316 ITR 274 (Guj). Such decision is also followed by this court in a judgment dated August 16, 2011, in Tax Appeal No. 679 of 2010 in the case of CIT v. Kishor Amrutlal Patel. In the result, tax appeal is dismissed.” 10.6. Likewise, the Hon'ble Gujarat High Court in CIT vs

Vijay M. Mistry Construction Ltd. (2013) 355 ITR 498 (Guj.)

held/observed as under:-

“6. As is apparent from the facts noted hereinabove, the Commissioner (Appeals) after appreciating the evidence on record has found that the assessee had in fact made the purchases and, hence, the Assessing Officer was not justified in disallowing the entire amount. He, however, was of the view that the assessee had inflated the purchases and, accordingly, by placing reliance on the decision of the Tribunal in the case of Vijay Proteins (supra) restricted the disallowance to 20 per cent. The Tribunal in the impugned order has followed its earlier order in the case of Vijay Proteins to the letter and enhanced the disallowance to 25 per cent. Thus, in both cases, the decision of the Commissioner (Appeals) as well as that of the Tribunal is based on estimate. This High Court in the case of Sanjay Oil Cake [2009] 316 ITR 274 (Guj) has held that whether an estimate should be

175 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . at a particular sum or at a different sum can never be a question of law. 7. The apex court in the case of Kachwala Gems [2007] 288 ITR 10 (SC) has held that in a best judgment assessment there is always a certain degree of guess work. No doubt, the authorities should try to make an honest and fair estimate of the income even in a best judgment assessment and should not act totally arbitrarily but there is necessarily some amount of guess work involved in a best judgment assessment. 8. Examining the facts of the present case in the light of the aforesaid decisions, the decision of the Tribunal, being based on an estimate, does not give rise to any question of law so as to warrant interference. 9. In so far as the proposed questions (C), (D) and (E) are concerned, the same are similar to the proposed question (A) wherein the Tribunal has restricted the addition to 25 per cent. on similar facts. In the circumstances, for the reasons stated hereinabove, the said grounds of appeal do not give rise to any question of law. 10. As regards the proposed question (B) which pertains to the deletion of addition of Rs. 7,88,590 made on account of inflation of expenses paid to Metal and Machine Trading Co. (MMTC), the Assessing Officer has found that MMTC was a partnership firm of Shri Nitin Gajjar along with his father and brother operating from Bhavnagar. A perusal of their transactions with the assessee indicated that there is some inflation of expenses as detailed in paragraph 6.1 of the assessment order. After considering the evidence on record, the Assessing Officer disallowed the amount Rs. 7,88,590 on account of payment made to MMTC. 11. The assessee preferred an appeal before the Commissioner (Appeals), who upon appreciation of the evidence on record found that the Assessing Officer had

176 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . not rejected the genuineness of the purchases made from MMTC while making the disallowance. His observations were based on inflation of rates which were being charged from the assessee. According to the Commissioner (Appeals), though MMTC in some respect could be attributed to be associated with the assessee- company, still it could not be expected that MMTC was carrying out its business without any motive or profit. According to the Commissioner (Appeals), it was proved by the assessee that the rates charged by MMTC were comparable with the prevailing market rates, no such addition can stand. The Commissioner (Appeals) took note of the fact that it was not the case of the Assessing Officer that the purchases had been directly effected from third parties and not directly from MMTC ; the difference could not be the net profit in the hands of MMTC ; and that while conducting the entire exercise MMTC would have to incur certain expenditure in transportation, in engaging personnel in the office and other operations and was accordingly of the view that there was no case of actual inflation of rates and deleted the addition. 12. The Tribunal, in the impugned order, has concurred with the findings recorded by the Commissioner (Appeals) and has found that the assessee had made purchases from MMTC at the prevailing market rates and that MMTC had incurred certain expenditure in engaging personnel in the office and other operations and would make some income from the entire exercise. In the circumstances, the purchases made by the assessee from MMTC would not be hit by the provisions of section 40A(2) of the Act. 13. Thus, the conclusion arrived at by the Tribunal is based on concurrent findings of fact recorded by the Commissioner (Appeals) as well as the Tribunal. It is not the case of the Revenue that the Tribunal has taken into account any irrelevant material or that any relevant

177 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . material has not been taken into consideration. In the absence of any material to the contrary being pointed out on behalf of the Revenue, the impugned order being based on concurrent findings of fact recorded by the Tribunal upon appreciation of the evidence on record, does not give rise to any question of law in so far as the present ground of appeal is concerned. 14. In relation to the proposed question (F) which relates to the deletion of addition of Rs. 44,54,426 made on account of purchase of crane and allowing depreciation on the same, the Assessing Officer observed that the assessee had purchased a crawler crane for an amount of Rs. 24,61,000 excluding the cost of spare parts of Rs. 14,98,490. The Assessing Officer after examining the evidence on record and considering the explanation given by the assessee, made addition of Rs. 44,54,426, Rs. 39,59,490 being the purchase price of the crane along with its spare parts and Rs. 4,94,936 being depreciation claimed by the assessee. The Commissioner (Appeals), upon appreciation of evidence on record, was of the view that the Assessing Officer has not appreciated the facts of the case properly and had made disallowance which was not permitted by the Income-tax Act. It was held that disallowance could only have been made in respect of expenses debited to the profit and loss account whereas in the present case the purchase of crane and spare parts of the crane and other machineries were in the nature of acquisition of capital asset. According to the Commissioner (Appeals), the disallowance could have been made on depreciation only if at all the Assessing Officer conclusively proved that the purchases of crane and other parts are bogus. Upon appreciation of the material on record the Commissioner (Appeals) found that the Assessing Officer has simply brushed aside all the evidence on account of technical infirmities and that the evidence such as octroi receipt ; hypothecation of the crane to the bank; existence of the crane even till date with the assessee

178 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . conclusively proved that the crane was purchased and it was in use even as on date with the assessee. The Commissioner (Appeals) accordingly found that there was no scope for any disallowance and accordingly deleted the disallowance made on account of purchase of crane and allowed the depreciation as claimed by the assessee. 15. The Tribunal, in the impugned order, has noted that the cost of crane was never claimed by the assessee in the return of income. Before the Tribunal, the assessee produced the evidence that the crane in question was registered with the RTO and the same was wholly and exclusively used for the purposes of its business. The Tribunal, therefore, held that the Commissioner (Appeals) was legally and factually correct in deleting the disallowance of cost of crane as well as depreciation thereon. 16. From the facts emerging from the record, it is apparent that the assessee had never claimed the cost of the crane in the return nor had it debited the expenses to the profit and loss account, and as such the question of disallowing the same and adding the same to the income would not arise. Moreover, in the absence of any evidence to indicate that the purchase was bogus or that the crane in fact did not exist, the question of disallowing the deprecation in respect of the same also would not arise. When the assessee had conclusively proved the purchase and existence of the crane, and had not debited the expenses to the profit and loss account, no addition could have been made in respect of the purchase price nor could have depreciation been disallowed in respect thereof. The Tribunal was, therefore, justified in deleting the addition as well as disallowance of depreciation. 17. In the light of the aforesaid discussion, it is not possible to state that there is any legal infirmity in the

179 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . impugned order made by the Tribunal so as to warrant interference. In the absence of any question of law, much less, a substantial question of law, the appeal is dismissed.” 10.7. The Hon'ble jurisdictional High Court in the case of

CIT vs Ashish International Ltd. (ITA No.4299/2009) order dated

22/02/2011, observed/held as under:-

“The question raised in this appeal is, whether the Tribunal was justified in deleting the addition on account of bogus purchases allegedly made by the assessee from M/s. Thakkar Agro Industrial Chem Supplies P. Ltd. According to the revenue, the Director of M/s. Thakkar Agro Industrial Chem Supplies P. Ltd. in his statement had stated that there were no sales / purchases but the transactions were only accommodation bills not involving any transactions. The Tribunal has recorded a finding of fact that the assessee had disputed the correctness of the above statement and admittedly the assessee was not given any opportunity to cross examine the concerned Director of M/s. Thakkar Agro Industrial Chem Supplies P. Ltd. who had made the above statement. The appellate authority had sought remand report and even at that stage the genuineness of the statement has not been established by allowing cross examination of the person whose statement was relied upon by the revenue. In these circumstances, the decision of the Tribunal being based on the fact, no substantial question of law can be said to arise from the order of the Tribunal. The appeal is dismissed with no order as to costs.”

180 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . 10.8 The Hon'ble Gujarat High Court in CIT vs M.K.

Brothers (163 ITR 249) held/observed as under:-

“Being aggrieved by the aforesaid order, the assessee went in second appeal before the Tribunal. It was urged on behalf of the assessee that the transactions in question were normal business transactions and the assessee had made payments by cheques. The parties did not come forward and if they did not come, the assessee should not suffer. However, on behalf of the Revenue, it was urged that detailed inquiries were made and thereafter the conclusion was reached. The Tribunal found that there was no evidence anywhere that these concerns gave bogus vouchers to the assessee. No doubt, there were certain doubtful features, but the evidence was not adequate to conclude that the purchases made by the assessee from the said parties were bogus. The Tribunal accordingly, did not sustain the addition retained by the Appellate Assistant Commissioner. Hence, at the instance of the Revenue, the aforesaid question has been referred to this court for opinion. On a perusal of the order of the Tribunal, it clearly appears that whether the said transactions were bogus or not was a question of fact. The Tribunal has also pointed out that nothing is shown to indicate that any part of the fund given by the assessee to these parties came back to the assessee in any form. It is further observed by the Tribunal that there is no evidence anywhere that these concerns gave vouchers to the assessee. Even the two statements do not implicate the transactions with the assessee in any way. With these observations, the Tribunal ultimately has observed that there are certain doubtful features, but the evidence is not adequate to conclude that the purchases made by the assessee from these parties were bogus. It may be stated that the

181 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . assessee was given credit facilities for a short duration and the payments were given by cheques. When that is so, it cannot be said that the entries for the purchases of the goods made in the books of account were bogus entries. We, therefore, do not find that the conclusion arrived at by the Tribunal is against the weight of evidence. In that view of the matter, we answer the question in the affirmative, that is, in favour of the assessee and against the Revenue. Accordingly, the reference stands disposed of with no order as to costs.”

10.9. The Mumbai Bench of the Tribunal in the case of

DCIT vs Rajeev G. Kalathil (2015) 67 SOT 52 (Mum. Trib.)(URO),

identically, held as under:-

“2.2.Aggrieved by the order of the AO, assessee preferred an appeal before the First Appellate Authority(FAA).Before him it was argued that assessee had filed copies of bills of purchase from DKE and NBE, that both the suppliers were registered dealers and were carrying proper VAT and registration No.s, that ledger accounts of the parties in assessee's books showed bills accounted for, that payment was made by cheques, that a certificate from the banker giving details of cheque payment to the said parties was also furnished. Copies of the consignment, received from the Government approved transport contractors showing that material purchased was actually delivered at the site was furnished before the AO. It was also argued that some of the material purchased from the said parties were lying part of closing stock as on 31.03.2009 as per the statement submitted on record. After considering the assessment order and the submissions made by the assessee, FAA held that the transactions were supported by proper documentary evidences, that the payments made to the parties by the

182 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . assessee were in confirmation with bank certificate,t hat the suppliers was shown as default under the Maharashtra VAT Act could not be sufficient evidences to hold that the purchases were non-genuine, that the AO had not brought any independent and reliable evidences against the assessee to prove the non-genuineness of the purchases, that there was no evidence regarding cash received back from the suppliers. Finally, he deleted the addition made by the AO .

“2.3.Before us, Departmental Representative argued that both the suppliers were not produced before the AO by the assessee, that one of them was declared hawala dealer by VAT department, that because of cheque payment made to the supplier transaction cannot be taken as genuine. He relied upon the order of the G Bench of Mumbai Tribunal delivered in the case of Western Extrusion Industries. (ITA/6579/Mum/2010-dated 13.11.2013). Authrorised representative (AR) contended that payments made by the assessee were supported by the banker’s statement, that goods received by the assessee from the supplie was part of closing stock,that the transporter had admitted the transportation of goods to the site.He relied upon the case of Babula Borana (282 ITR251), Nikunj Eximp Enterprises (P) Ltd. (216Taxman171)delivered by the Hon’ble Bombay High Court. 2.4.We have heard the rival submissions and perused the material before us. We find that AO had made the addition as one of the supplier was declared a hawala dealer by the VAT Department. We agree that it was a good starting point for making further investigation and take it to logical end. But, he left the job at initial point itself. Suspicion of highest degree cannot take place of evidence. He could have called for the details of the bank accounts of the suppliers to find out as whether there was any immediate cash withdrawal from their account. We find that no such exercise was done. Transportation

183 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . of good to the site is one of the deciding factor to be considered for resolving the issue. The FAA has given a finding of fact that part of the goods received by the assessee was forming part of closing stock. As far as the case of Western Extrusion Industries. (supra)is concerned, we find that in that matter cash was immediately withdrawn by the supplier and there was no evidence of movement of goods. But, in the case before us, there is nothing, in the order of the AO, about the cash trial. Secondly, proof of movement of goods is not in doubt. Therefore, considering the peculiar facts and circumstances of the case under appeal, we are of the opinion that the order of the FAA does not suffer from any legal infirmity and there are not sufficient evidence on file to endorse the view taken by the AO. So, confirming the order of the FAA, we decide ground no.1 against the AO.” 10.10. The Hon'ble jurisdictional High Court in CIT vs

Nikunj Eximp Enterprises Pvt. Ltd. (2015) 372 ITR 619 (Bom.)

held/observed as under:-

“7. We have considered the submission on behalf of the Revenue. However, from the order of the Tribunal dated April 30, 2010, we find that the Tribunal has deleted the additions on account of bogus purchases not only on the basis of stock statement, i.e., reconciliation statement but also in view of the other facts. The Tribunal records that the books of account of the respondent-assessee have not been rejected. Similarly, the sales have not been doubted and it is an admitted position that substantial amount of sales have been made to the Government Department, i.e., Defence Research and Development Laboratory, Hyderabad. Further, there were confirmation letters filed by the suppliers, copies of invoices for purchases as well as copies of bank statement all of which would indicate that the purchases

184 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . were in fact made. In our view, merely because the suppliers have not appeared before the Assessing Officer or the Commissioner of Income-tax (Appeals), one cannot conclude that the purchases were not made by the respondent-assessee. The Assessing Officer as well as the Commissioner of Income-tax (Appeals) have disallowed the deduction of Rs. 1.33 crores on account of purchases merely on the basis of suspicion because the sellers and the canvassing agents have not been produced before them. We find that the order of the Tribunal is well a reasoned order taking into account all the facts before concluding that the purchases of Rs. 1.33 crores was not bogus. No fault can be found with the order dated April 30, 2010, of the Tribunal.” 10.11. In the aforesaid case, the Hon'ble jurisdictional

High Court has made an elaborate discussion and affirmed the

finding of the Tribunal, wherein, the addition was deleted. The

factual finding recorded by the Ld. Commissioner of Income Tax

(Appeal) (para-22), page-22 is reproduced hereunder:-

“22. I have considered the facts of the case, submissions and contentions of appellant, as also the order of the' AO. It appears that the addition of Rs.2439,83,334/- has been made by the AO, only on the basis of statement Shri Sudhakar Shetty dated 23/9/2011, wherein he had admitted an come of Rs.50 crores in his own hands, as also in Sahana Group of companies, for F.Y. 201l-12, and his letter dated 30/1/2012, filed subsequently. There is no further material, either found or seized during the course of search, or brought on record during the assessment proceedings, to indicate that there was undisclosed income to the tune of Rs.24,39,83,334/- in .the hands of M/5.0asis Realty. In fact, the AO has added the balance' amount of Rs.24,39,83,334/- (Rs.50,00,00,000 - Rs.25,60,16,666) ' in the.

185 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . hands a of M/s Oasis Realty,' after considering various additions on account of bogus purchases in hands of M/s. Skylark Build and M/s. Oasis Realty for different years and no sound reasoning has been given in this regard. It is relevant to mention over here that Oasis Realty is an AOP consisting of two firms' of Shri Sudhakar Shetty Group, namely M/s. Skylark Build' and M/d; Shree Vrunda Enterprises, and another two companies of Oberoi Group; namely Oberoi Construction Ltd., and Astir Realty LLP, as members, From careful perusal of the statement of Shri Sudhakar Shetty given u/s.131, it appears that nowhere the name of Oasis Realty is stated. He is only talking about himself and Sahana Group companies. Further, from the perusal of letter dated 30/1/2012, it is quite clear that it is a kind of retraction of the earlier statement and through this letter; the assessee has only stated that they had initiated the process of in-depth verification of entire records/documents and after verification, if they find that there IS any expenditure debited under the head 'work-in-progress', which they might not be able corroborate to the entire satisfaction of the department, they would reduce the same from the value of work-in-progress as on 31/3/2'12. Therefore, nowhere .did the assessee offer additional income of Rs.24.39 .crores in the hands of M/s. Oasis Realty. During the course of appellate proceedings, this issue was specifically raised, during the course of meeting on 6/5/2015 and 7/5/2015, with the AO and as on 1/5/2015 with the Addl. CIT. Thereafter, a letter dated 8/5/2015 was sent, to the AO, seeking clarification, but no comments in this regard were furnished. It will not be out of place to mention over here that there is no material, other than the' above-mentioned statement and letter of the assessee, to corroborate the addition of Rs.24.39 crores. In fact, time and again, the Courts have emphasized that the additions be made on the basis of material available on' record and not simply on the basis of a statement given by the assessee. This issue has' also been emphasized by the CBDT vide instruction dated 10/3/2003, reproduced hereinabove, as also in subsequent clarifications issued later, that additions in search/ survey cases should be based on evidence gathered during the course of such actions. Further, various case laws relied upon by the assessee,

186 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . namely Paul Mathews & Son.s, vs. CIT 263 ITR 101 (Ker.), CIT vs. S. Khader Khan Son (2008) 214 CTR 589 (Mad.), DCIT vs. Premsons (2010) 130 TTJ 159 (Mumbai); CIT vs. Dhingra Metal Works {2010) 236 CTR 621 (Del.) and others support the contention of the assessee that such addition could not be made without' sufficient evidence against the assessee. 'In the circumstances, I hold· that the above addition has been made by the AO without sufficient basis and is, therefore, not sustainable in law. The same is, therefore, directed to be deleted. The AO is, however, free to consider this amount of Rs.24,39,83,334/- inappropriate hands, in accordance with law, if he feels that there is sufficient; basis for doing so. This ground is, accordingly, allowed in favour of the assessee.” 10.12. In the aforesaid, the First Appellate Authority

found that the addition was made by the Assessing Officer

merely on the basis of statement dated 23/09/2011, allegedly

tendered by Shri Sudhakar Shetty and there was no further

material either found or seized during the course of search or

brought on record by the Ld. Assessing Officer during the

assessment proceedings indicating that there was undisclosed

income to the tune of Rs.24,39,80,334/- in the hands of the

present assessee. In fact, the Ld. Assessing Officer added the

amount in the hands of M/s Oasis Reality after considering

various additions on account of bogus purchases in the hands of

the M/s Skylark Build and M/s Oasis Reality for different

reasons and no sound reasoning was given. It is further noted by

187 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . the Ld. Commissioner of Income Tax (Appeal) as well as by this

Tribunal that the statement tendered Shri Sudhakar Shetty, he

has nowhere mentioned the name of the Oasis Reality and

further on perusal of letter dated 30/01/2012, it is quite clear

that it is a retraction of earlier statement and the assessee has

only stated that they had initiated the process of in-depth

verification of entire record/document and only after such

verification, if it is found that any expenditure had been debited

under the head work in progress, which they might not be able

to corroborate to the entire satisfaction of the Department, they

would reduced the same from the value of work in progress as

on 31/03/2012. It is clear that the assessee nowhere offered

addition income in the hands of the M/s Oasis Reality. There is

further finding in the impugned order (page-23) that during

appellate proceedings, this issue was specifically raised on

06/05/2015 and 7/05/2015 with the Ld. Assessing Officer and

as on 01/05/2015 with the Addl. CIT. Thereafter, a letter dated

08/05/2015 was sent to the Assessing Officer seeking

clarification to which no comments were furnished. The Ld.

188 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . Commissioner of Income Tax (Appeal) as well as this Tribunal

did not find any other material except the statement and the

letter of the assessee to corroborate the addition. It is an

established position of law that no addition can be made simply

on the basis of statement and it has to be corroborated with

material available on record. This issue has been emphasized by

CBDT Instruction dated 10/03/2003 mentioned in the

impugned order and subsequent clarification issued from time to

time that the addition in search and survey cases should be

based on evidences gathered during such actions. This view find

support from the decision in the case of Paul Mathews & Sons vs

CIT (263 ITR 101) (ker.), CIT S. Kadar khan Sons (2008) 214

CTR 589 (Mad.), DCIT vs Prem Sons (2010) 130 TTJ 159 (Mum)

and CIT vs Dhingra Metal Work (2010) 236 CTR 621 (Del.). The

Hon'ble Kerala High Court in the case of Paul Mathews & Sons

vs CIT ((supra)) held as under:-

“2. The assessee is a contractor. The assessment was completed under Section 143(3) of the IT Act for the asst. yr. 1998-99 on 7th Feb.. 2001 fixing the income at Rs. 10,08,090. For the asst. yr. 1999-2000 the assessment was completed on 8th Parch, 2001, fixing the income at Rs. 13,81,760, and for the asst. yr. 2000-2001 the assessment was completed on 8th March, 2001, fixing the income at Rs. 13,18,660. There was a survey operation under Section 133A of the IT Act on 23rd Jan., 2001, and

189 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . a statement was also recorded from the managing partner Roy Mathew. It was admitted that there was some irregularities and discrepancies in the books of accounts, in that there was excess payment of cash over what is available as per cash book and also unaccounted investment in properties and suppression of receipt and inflation of expenses. In the course of such statement given by the managing partner he offered an amount of Rs. 43 lakhs as additional income for the three years i.e., for 1998-99 at Rs. 13 lakhs, for 1999-2000 at Rs. 10 lakhs and for 2000-2001 at Rs. 20 lakhs. The AO determined the business income for the asst. yr. 1998-99 at Rs. 8,26,550, taking the net profit at 8 per cent of the total receipt of Rs. 1,22,92,150. For the asst. yr. 1999-00 the business income was determined at Rs. 7,72,960, taking the net profit at 8 per cent of the total receipts of Rs. 1,14,41,748, and for the asst. yr. 2000-01 at Rs. 8,18,255, at the same rate of net profit from the total receipt of Rs. 1,22,46,673. But according to the CIT this was erroneous and prejudicial to the interest of Revenue. He also noted certain receipts other than transport receipts such as discount, interest, compensation, etc., shown by the assessee in the P&L a/c and considered by it for the computation had however, not been considered by the AO. Hence, he issued notice under Section 263 of the IT Act on 12th Dec., 2001, requiring the assessee to explain why the assessment orders should not be modified suitably. The assessee submitted that during the survey under Section 133A the managing partner stated that their income for the three years is around Rs. 43 lakhs and the total income fixed as per the assessment proceedings for the above three years also comes to Rs. 43,42,881. It was also contended that for the asst. yr. 1998-1999 an advance of Rs. 19 lakhs was received by the partners. The AO accepted the explanation for Rs. 13 lakhs and the balance Rs. 6 lakhs was allowed to be telescoped. In addition, the assessee had estimated an income of Rs. 12 lakhs before payment of salary to the partners for the asst. yr. 2000- 2001 and remitted the advance tax also. It was submitted that the assessee had co-operated with the Department in the survey proceedings and for completion of assessment proceedings, there was no difference between the income offered for assessment and income finally assessed.

190 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . only as against the disclosed income of Rs. 43 lakhs. Hence, according to the CIT, the additional income disclosed for each year should have been taken into account separately while making the assessment. Hence, he set aside the assessment and directed the AO to reframe the assessment afresh taking into consideration the omissions/mistakes pointed out. The assessee, aggrieved thereby, appealed to the Tribunal.

191 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . facts and circumstances as according to the assessee, the twin conditions required for invoking the said provision has not been satisfied in this case. It is also contended that the ITO has applied his mind and that only after discussions with the assessee and his representatives and after satisfying that what is offered is reasonable income that the AO accepted the offer made by the assessee while making the additions and completing the assessments. It is also contended that the ITO has no jurisdiction to take any sworn statement in the course of the survey under Section 133A of the IT Act and as such any statement so taken has no evidentiary value and is non est and is not binding on the appellant.

192 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . under Section 263. He also contended that the statement made during the course of the survey are voluntarily made and any information so gathered have, therefore, evidentiary value and nothing prevents the IT Department in relying on those statements. He also contended that at any rate, the CIT only directed the ITO to reframe the assessment order afresh after taking into consideration the omissions/mistakes pointed out in the order of the CIT.

"133A Power of Survey--(1) Notwithstanding anything contained in any other provision of this Act, an, IT authority may enter :

(a) any place within the limits of the area assigned to him, or

(b) any place occupied by any person in respect of whom he exercises jurisdiction, or

(c) any place in respect of which he is authorised for the purposes of this section by such IT authority, who is assigned the area within which such place is situated or who exercises jurisdiction in respect of any person occupying such place, at which a business or profession is carried on, whether such place be the principal place or not of such business or profession, and require any proprietor, employee or any other person who may at that time and place be attending in any manner to, or helping in, the carrying on of such business or profession--

(i) to afford him the necessary facility to inspect such books of account or other documents as he may require and which may be available at such place

(ii) to afford him the necessary facility to check or verify the cash, stock or other valuable article or thing which may be found therein, and

(iii) to furnish such information as he may require as to any matter which may be useful for, or relevant to, any proceeding under this Act."

193 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . documents inspected by him, provided the authority records his reasons for doing so and also shall not retain the books of account for a period not exceeding 15 days. Section 133A(3)(iii) enables the authority to record the statement of any person which may be useful for, or relevant to, any proceeding under the Act. Section 133A however, enables the IT authority only to record any statement of any person which may be useful, but does not authorize for taking any sworn in statement. On the other hand, we find that such a power to examine a person on oath is specifically conferred on the authorised officer only under Section 132(4) of the IT Act in the course of any search or seizure. Thus, the IT Act, whenever it thought fit and necessary to confer such power to examine a person on oath, the same has been expressly provided whereas Section 133A does not empower any ITO to examine any person on oath. Thus, in contra- distinction to the power under Section 133A, Section 132(4) of the IT Act enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the IT Act. On the other hand, whatever statement recorded under Section 133A of the IT Act is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any sworn in statement which alone has the evidentiary value as contemplated under law. Therefore, there is much force in the argument of the learned counsel for the appellant that the statement, elicited during the survey operation has no evidentiary value and the ITO was well aware of this.

194 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . Rs. 43 lakhs (Rs. 13 lakhs for the asst. yr. 1998-99. Rs. 10 lakhs for the year 1999-2000 and Rs. 20 lakhs for 2000-2001). While completing the assessment, the AO did not take this aspect into consideration and determined the business income at Rs. 8,26,550 for the asst. yr. 1998-99, taking the net profit at 8 per cent of the total receipt of Rs. 1,22,92,150, at Rs. 7,72,960 taking the net profit at 8 per. cent of the total receipts of Rs. 1,14,41,748 for the asst. yr. 1999-2000 and for the asst. yr. 2000-2001 at Rs. 8,18,255 at the same rate of net profit from the total receipt of Rs. 1,22,46,673. According to him, this is a mistake or omission in the assessment order and hence he has considered this order to be erroneous insofar it is prejudicial to the interest of the Revenue. The assessee specifically raised a contention before the CIT that the managing partner, during the survey under Section 133A, has stated that their income for the three years i.e., 1998-99, 1999-2000 and 2000-2001 is around Rs. 43 lakhs and as per the assessment proceedings for the above three years also, the total income determined is 43,42,881 as worked out below :

Rs. Assessment year 1998-99 : Net profit before salary to 9,83,870 partners Capital gain 1,81,536 11,64,906 Assessment year 1999-2000 : Net income before salary to 9,15,430 partners Add : Interest on capital 1,73,615 debited in the account Capital gain 6,08,800 16,97,845 Assessment year 2000-01 : Net income before salary to 9,79,730 partners Capital gain 5,00,400 14,80,130

195 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . According to him, if the capital gain for all the three years are taken out, the income assessed under the head 'business' or 'profession' comes to Rs. 24,17,774 as against the disclosed income of Rs. 43 lakhs. This is the basis on which he has invoked his powers under Section 263 of the IT Act.

On. No. 13 : As per the material found at your premises and the admissions made in this sworn statements there are various omissions and shortcomings on your part. With all these infirmities how do you propose to settle your tax matters ?

Ans : I do admit that we have not disclosed our true income in the returns filed for the asst. yrs. 1998-99, 1999-2000 and 2000-2001. In this connection I would like to state that we had introduced Rs. 19,00,000 towards advance for sale of and through the capital/current account of all the three partners during the previous year relevant to the asst. yr. 1998- 99. However, we understand that the amount advanced by the parties namely, M.A. Pappu and Estappan, were since confirmed only Rs. 6,00,000. In order to purchase peace and with a view to co-operate with the Department, we offer the balance amount of Rs. 13,00,000 for asst. yr. 1998-99. Similarly, to cover up all the shortcomings and possible omissions, we offer an additional income of Rs. 10,00,000 for asst. yr. 1999-2000 and Rs. 20,00,000 for asst. yr. 2000-2001. The abovesaid amount of Rs. 43,00,000/(13+10+20+) is in addition to the income already declared for assessment for the respective years. We express our willingness to make addition of Rs. 13,00,000 as offered above in the assessment for the asst. yr. 1998-99 which is pending now. The revised return of income for asst. yrs. 1999-2000 and 2000-2001 shall be filed by 20th March, 2001 after paying tax under Section 140A........".

196 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . upon him and one made by the appellant on the mistaken understanding of facts. Similarly, the purported offer for Rs. 10 lakhs and Rs. 20 lakhs for the asst. yrs. 1999-2000 and 2000-2001 are also not based on any material and does not represent the true income of the appellant. Therefore, subsequent to the survey, the case was posted several times and the AO had discussions with the appellant and its representatives. Finally, since the AO could not determine the true and correct profits of the appellant on the basis of the books of accounts and other materials which came to his notice during the course of the survey, the AO, during the assessment proceedings, agreed for adopting the income at 8 per cent of the total contract receipts and the appellant had also agreed vide their letter dt. 6th Feb., 2001, addressed to the AO for the same. According to him, the appellant is having 20 lorries and the estimated income thereon is worked out in accordance with the provisions of Section 44AE even if Section 44A is not applicable to the appellant, the total income that could be estimated will be Rs. 4,80,000 per year and the estimate agreed at 8 per cent of the turnover for all the years is almost double this amount. Thus, the estimate at 8 per cent is reasonable and the AO has exercised his powers vested in him in a judicious manner while completing the assessment. Thus, according to him, Section 263 was not available to him to be invoked in this case since there is a provision which could be invoked only as an exception to the general rule that a superior authority cannot unless in an appeal or revision require the ITO to make a reassessment in a particular manner.

197 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . the assessee had received an advance of Rs. 19 lakhs (from M.O. Pappu, Rs. 10 lakhs and from M.D. Esthappan Rs. 9 lakhs) and the advances received from Pappu of Rs. 10 lakhs has been explained. Regarding the advance of Rs. 9 lakhs received from M.D. Esthappan only three lakhs is found to be genuine. Hence, the balance of Rs. 6 lakhs is to be explained which is telescoped in the income already disclosed at Rs. 8,26,550. It was in such circumstances that no separate addition was made to the account. It was also found by the ITO that accordingly on discussion, the total income of the assessee for the asst. yr. 1998-99 is determined at Rs. 8,26,550. Thus, the ITO considered the factual aspects of the matter regarding the advance claimed to have been received from M.O. Pappu and M.D. Esthappan and the balance of Rs. 6 lakhs out of the 19 lakhs was also telescoped in the income already disclosed. In the statement in the course of survey, the managing partner only stated that an amount of Rs. 19 lakhs was introduced towards advance for sale of land to Pappu and Esthappan confirmed only six lakhs. It was on this basis that the balance of Re. 13 lakhs were offered for the asst. yr. 1998-99. That was confirmed by Pappu and Esthappan as Rs. 6 lakhs was found to be a mistake and the assessment orders in their case were also produced. The ITO also verified the above aspects. Therefore, the assumption that what was offered in the statement of 43 lakhs is in addition to what has been assessed and on the basis that the statement has got evidentiary value is erroneous. The materials collected during the course of survey has been borne in mind by the AO who was well aware of the evidentiary value of the statement. At the same time, such survey conducted unearthed certain income and the ITO rightly, on the basis of the accounts and offer made and the admissions made before him, came to the conclusion that what was offered in the written offer made by the assessee is reasonable. According to us the alleged admission contained in the answer to question No. 13 in the statement of the managing partner of the assessee obtained under Section 133 A is only a qualified one and the assessee had clearly explained the same before the AO by cogent materials and the same was accepted by the said officer. In such circumstances, the question as to whether the CIT could have invoked his power under Section 263 of the Act to hold that the order of the ITO is erroneous and prejudicial to the interest of the Revenue is justifiable in law arises for consideration.

198 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . "A bare reading of Section 263 of the IT Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the CIT suo motu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interest of the Revenue. The CIT has to be satisfied of twin conditions, namely, (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interest of the Revenue. If one of them is absent--if the order of the ITO is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue recourse cannot be had to Section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the AO, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase "prejudicial to the interests of the Revenue" is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the ITO, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase "prejudicial to the interest of the Revenue" has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue, for example when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the ITO is unsustainable in law."

"Where an assessee is assessed on an income voluntarily returned, it is not prejudicial to the interests of the Revenue only if it is found that the assessment was made on the basis that the income had been earned by the assessee which was assessable. Where an income has not been earned and is not assessable, merely because the assessee wants it to be assessed in his or her hands in order to assist some one else who would have been assessed to a larger amount, an assessment so made will be erroneous and prejudicial to the Revenue and the CIT has jurisdiction under Section 33B of the Indian IT Act, 1922, to cancel the assessment and proceedings

199 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . for assessment may be initiated under the provisions of the Act against some other assessee who according to the IT authorities would be liable for the income thereof."

Applying the above principles, we find on a reading of the ITO's order that the view taken by the ITO cannot be said to be unsustainable in law so as to call it an order passed erroneously. The ITO has seized books of accounts and elicited certain answers which has no evidentiary value. However, making also these figures and finding that there was certain omissions and remissions on the part of the assessee, the assessee has voluntarily offered certain amounts to be treated as additional income for the assessment years in question and certain statements made during the course of such survey especially regarding the advance received from M.O. Pappu and Esthappan. But the same has been explained by the assessee, which explanation was accepted after referring to the records and the assessment orders passed in their case. The ITO was satisfied about the actual amount received towards advance and only an amount of Rs. 6 lakhs out of the balance was to be further explained and they were telescoped. The entire sum of Rs. 19 lakhs was considered for the block assessment completed as early as on 28th Oct., 1999, in the case of M.O. Devassy alias Pappu much before the survey. In these circumstances, the statement of the assessee that the amount of Rs. 13 lakhs offered by him in the statement during the course of survey is only a mistake of fact cannot be brushed aside. Further, in the light of the voluntary disclosure in the letter given in writing by the assessee the facts given by him has been verified with the books of accounts and it was only after consideration of the various aspects of the matter and related facts that the AO accepted the offer made by the assessee. In such circumstances, the view taken by the ITO cannot be said to be prejudicial to the Revenue nor can it be said to be erroneous. We find nothing in the order of the ITO to warrant a finding that it is unsustainable in law. For the above reasons, we hold that the CIT was not justified in law in invoking the powers under Section 263 of the IT Act as the twin conditions precedent to exercise the power has not been satisfied in this case. Besides the decision is also erroneous. Hence, we set aside the order of the Tribunal and the CIT and confirm the order of the ITO.

We answer the question in the affirmative i.e., in favour of the assessee and against the Revenue.”

200 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . 10.13. Likewise Hon'ble Delhi High Court in the case of CIT

vs Dhingra Metal Work (2010) 236 CTR 621 (Del.) held as

under:-

"Question No. 13 : Do you have any other business concerns being run from this premises, i.e., B-70/3, Wazirpur Industrial Area ?

Answer : Yes, the company known as M/s D.M.W. (P) (Ltd.) is also in operation from this premises. This company was incorporated in May, 2000."

201 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . said addition holding that AO did not make any independent enquiry and further that AO had not made out a case that the amount surrendered during the survey operation had not been included in the final books of account.

"5. We have heard the rival contentions and perused the material on record. A perusal of the assessment order indicates that the sole basis of making the addition is the assessee's statement during the course of survey recorded under s. 133A(iii) stating to surrender as immediately explanation could not be given. Vide letter dt. 29th Nov., 2004, the reconciliation of stock of the assessee and its associated concern M/s DMW was given which has not been controverted by AO. Thereafter, the issue remained silent and only during the course of assessment, AO took up the same. The assessee's statement during the course of survey is not binding as evidence more so when it is given in the eventuality of non- availability of ready explanation. It has not been held the assessee had no explanation to offer; addition has been made only on survey statement. From the record, it clearly emerges that both the concerns are independent entities separately assessed under income-tax and various other Departments. Both are registered under various laws including excise and maintain statutory record of excise, stock registers books of account are duly audited. With all these facts present on record, addition cannot be made ignoring the reconciliation and evidence filed by assessee and relying only on a statement which was given due to non-availability of ready explanation. The assessee immediately thereafter furnished correct stock statement which have not been controverted by the AO. In view thereof, we are inclined to uphold the order of CIT(A) deleting addition."

"133A. Power of survey.'(1) Notwithstanding anything contained in any other provision of this Act, an IT authority may enter'

(a) any place within the limits of the area assigned to him, or

(b) any place occupied by any person in respect of whom he exercises jurisdiction, or

(c) any place in respect of which he is authorised for the purposes of this section by such IT authority, who is assigned the area within which such

202 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . place is situated or who exercises jurisdiction in respect of any person occupying such place

at which a business or profession is carried on, whether such place be the principal place or not of such business or profession, and require any proprietor, employee or any other person who may at that time and place be attending in any manner to, or helping in, the carrying on of such business or profession'

(i) to afford him the necessary facility to inspect such books of account or other documents as he may require and which may be available at such place,

(ii) to afford him the necessary facility to check or verify the cash, stock or other valuable article or thing which may be found therein, and

(iii) to furnish such information as he may require as to any R matter which may be useful for, or relevant to, any proceeding under this Act.

Explanation.'For the purposes of this sub-section, a place where a business or profession is carried on shall also include any other place, whether any business or profession is carried on therein or not, in which the person carrying on the business or profession states that any of his books of account or other documents or any part of his cash or stock or other valuable article or thing relating to his business or profession are or is kept.

(2) An IT authority may enter any place of business or profession referred to in sub-s. (1) only during the hours at which such place is open for the conduct of business or profession and, in the case of any other place, only after sunrise and before sunset.

(3) An IT authority acting under this section may,'

(i) if he so deems necessary, place marks of identification on the books of account or other documents inspected by him and make or cause to be made extracts or copies therefrom,

(ia) impound and retain in his custody for such period as he thinks fit any books of account or other documents inspected by him :

Provided that such IT authority shall not'

(a) impound any books of account or other documents except after recording his reasons for so doing; or

(b) retain in his custody any such books of account or other documents for a period exceeding ten days (exclusive of holidays) without obtaining the approval of the Chief CIT or Director General therefor, as the case may be,

203 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . (ii) make an inventory of any cash, stock or other valuable article or thing checked or verified by him,

(iii) record the statement of any person which may be useful for, or relevant to, any proceeding under this Act.

(4) An IT authority acting under this section shall, on no account, remove or cause to be removed from the place wherein he has entered, any cash, stock or other valuable article or thing.

(5) Where, having regard to the nature and scale of expenditure incurred by an assessee, in connection with any function, ceremony or event, the IT authority is of the opinion that it is necessary or expedient so to do, he may, at any time after such function, ceremony or event, require the assessee by whom such expenditure has been incurred or any person who, in the opinion of the IT authority, is likely to possess information as respects the expenditure incurred, to furnish such information as he may require as to any matter which may be useful for, or relevant to, any proceeding under this Act and may have the statements of the assessee or any other person recorded and any statement so recorded may thereafter be used in evidence in any proceeding under this Act.

(6) If a person under this section is required to afford facility to the IT authority to inspect books of account or other documents or to check or verify any cash, stock or other valuable article or thing or to furnish any information or to have his statement recorded, either refuses or evades to do so, the IT authority shall have all the powers under [sub-s. (1) of s. 131] for enforcing compliance with the requirement made :

Provided that no action under sub-s. (1) shall be taken by an Asstt. Director or a Dy. Director or an AO or a TRO or an Inspector of IT without obtaining the approval of the Jt. Director or the Jt. CIT, as the case may be.

Explanation.'In this section,'

(a) 'IT authority' means CIT, Jt. CIT, a Director, a Jt. Director, or an Asstt. Director or Dy. Director or an AO and for the purposes of cl. (i) R of sub-s. (1), cl. (i) of sub-s. (3) and sub-s. (5), includes an Inspector R of IT;

(b) 'proceeding' means any proceeding under this Act in respect of any year which may be pending on the date on which the powers under this section are exercised or which may have been completed on or before such date and includes also all proceedings under this Act which may be commenced after such date in respect of any year."

204 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . and to record sworn statement. This would also be apparent from s. 132(4) of the Act. The said section is reproduced hereinbelow :

"132. Search and seizure.'. . .

(4) The authorised officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian IT Act, 1922 (11 of 1922) or under this Act.

Explanation.'For the removal of doubts, it is hereby declared that the examination of any person under this sub-section may be not merely in respect of any books of account, other documents or assets found as a result of the search, but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Indian IT Act, 1922 (11 of 1922), or under this Act."

(emphasis, italicized in print, supplied)

"The provision also enables the IT authority to impound and retain in his custody for such period as he thinks fit any books of account or other documents inspected by him, provided the authority records his reasons for doing so and also shall not retain the books of account for a period not exceeding 15 days. Sec. 133A(3)(iii) enables the authority to record the statement of any person which may be useful for, or relevant to, any proceeding under the Act. Sec. 133A, however, enables the IT authority only to record any statement of any person which may be useful, but does not authorize taking any sworn statement. On the other hand, we find that such a power to examine a person on oath is specifically conferred on the authorised officer only under s. 132(4) of the IT Act in the course of any search or seizure. Thus, the IT Act, whenever it thought fit and necessary to confer such power to examine a person on oath, the same has been expressly provided whereas s. 133A does not empower any ITO to examine any person on oath. Thus, in contradistinction to the power under s. 133A, s. 132(4) of the IT Act enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the IT Act. On the other hand, whatever statement is recorded under s. 133A of the IT Act it is not given any evidentiary value obviously for the reason

205 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . that the officer is not authorised to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law. Therefore, there is much force in the argument of learned counsel for the appellant that the statement elicited during the survey operation has no evidentiary value and the ITO was well aware of this." 14. Moreover, the word "may" used in s. 133A(3)(iii) of the Act clarifies beyond doubt that the material collected and the statement recorded during the survey is not a conclusive piece of evidence by itself. 15. In any event, it is settled law that though an admission is extremely important piece of evidence, it cannot be said to be conclusive and it is open to the person who has made the admission to show that it is incorrect. 16. Since in the present case, the respondent-assessee has been able to explain the discrepancy in the stock found during the course of survey by production of relevant record including the excise register of its associate company, namely, M/s D.M.W (P) Ltd., we are of the opinion that the AO could not have made the aforesaid addition solely on the basis of the statement made on behalf of the respondent-assessee during the course of survey. 17. In view of the aforesaid, present appeal being bereft of merit, is dismissed.” 10.14. Hon'ble Kerala High Court in Paul Mathews &

Sons vs CIT ((supra)), considering the decision from Hon'ble

Apex Court in the case of Malabar Industrial Company Ltd. vs

CIT (2000) 243 ITR 83 and Smt. Taradevi Agarwal vs CIT (1973)

88 ITR 323 (Supreme Court) held that the statement elicited

during the survey operation had no evidentiary value. Likewise,

the Hon'ble Delhi High Court in Dhingra Metal Works ((supra))

considering the decision from Kerala High Court in the case of

Paul Mathews & Sons ((supra)), Hon'ble Madras High Court in

CIT vs S Khader Khan Sons ((supra)) have taken a similar view.

206 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . Thus, we find no infirmity in the conclusion drawn by the Ld.

Commissioner of Income Tax (Appeal) in holding that the

impugned addition was made by the Ld. Assessing Officer

without sufficient basis and hence not sustainable in law.

10.15. Now, we shall take up the cross objection (C.O.

244/Mum/2017) preferred by the assessee challenging the

validity of notice u/s 148 of the Act and further holding that the

assessment order passed u/s 143(3) r.w.s. 147 is a valid

assessment. It is noted that this cross objection is barred by

limitation by 210 days. Considering the stand taken by us on

condonation of delay in earlier paras of this order, on the same

reasoning, the delay is condoned. So far as, the merits of the

cross objection is concerned, since, we have affirmed the order of

the Ld. Commissioner of Income Tax (Appeal), therefore, this

Cross objection has remained for academic interest only.

case of Shri Sudhakar M. Shetty (ITA No.2904 to

2906/Mum/2015 and ITA No.3148/Mum/2015 along with the

cross objections filed by the assessee (C.O. No.207 to

207 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . 209/Mum/2016). In the appeals of the Revenue, the issue has

to be examined on legal as well as on merits. The following

grounds have been raised by the Revenue:-

For Assessment year 2008-09

For Assessment year 2009-10

For Assessment year 2010-11

208 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . of the IT Act on account that M/s. Skylark Build created a goodwill without any ground and credited the same among the capital of the partners on the liability side according to their share ratio which was Rs. 1,21,60,00,000/- in assessee’s case

For the Assessment year 2011-12

For the Assessment year 2012-13

11.1. It is noted that the appeals of the Revenue are

barred by limitation by the 38 days in filing the appeal before

this Tribunal. The Ld. CIT-DR contended that delay may be

condoned, whereas, the Ld. counsel for the assessee,

contended that the Department is expected to explain the

delay of each day, therefore, delay may not be condoned.

209 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . Considering the identical issue in earlier paras of this order,

while dealing with the issue of delay, in the appeals of the

assessee as well as of the Revenue, on the same reasoning,

the delay is condoned.

assessee as well as the Revenue is identical. We have

considered the rival submissions and perused the material

available on record. The ground raised has already been

mentioned above. The facts, in brief, are that the assessee is

the chairman and key person of Sahana Group, which is

engaged in the business of real estate development. A search

and seizure action had taken place at the residential premises

of Shri Sudhakar M. Shetty, on 22nd September, 2011.

Simultaneously, survey u/s 133A of the Act was carried out

and the premises of the group concern at different places.

During the course of search/survey, certain incriminating

document were found and seized/impounded. During the

course of survey proceedings in the case of M/s Skylark

Buildcon Pvt. Ltd, the assessee offered additional income of

210 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . Rs.50 crores during tendering his statement recorded u/s

132(4)/131 of the Act on 22 and 23rd September, 2011 on

account/ various omissions and commissions. The assessee

later on change his stand and vide letter dated 30/01/2012

stated that the disclosure made of Rs.50 crores may be

considered in the hands of M/s Oasis Reality (AOP), which is

a joint venture of Sahana Group and Oberai Group.

Subsequent to search, the Ld. Assessing Officer issued notice

on 10/09/2012, u/s 153A of the Act, and in response thereto,

the assessee declared income of Rs.85,51,860/- in its return

filed on 20/03/2013. The Ld. Assessing Officer, while

completing the assessment, assessed at an amount of

Rs.1,30,75,921/- as income from other sources in the hands

of the assessee on the ground that cash has been generated

out of bogus bills booked by the firm M/s Skylark Build,

where the assessee is a partner and that such cash had come

and was misappropriated by the partners. Finally, the

assessment was completed vide order dated 24/03/2014 at

211 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . an income of Rs.2,19,27,700/- by passing an order u/s 143(3)

r.w.s. 153A of the Act.

12.1. On appeal before the Ld. Commissioner of

Income Tax (Appeals), the assessee challenged the addition

and consequent passing of order u/s 153A of the Act without

finding any incriminating documents. Plea was also raised

that no pending assessment or reassessment proceedings

were there, therefore, the assessment had not abated and

further no incriminating material was found during search

proceedings at the premises of the assessee and since, the

assessment or reassessment had not abated, no addition

could have been made on the basis of available material. The

Ld. Commissioner of Income Tax (Appeals) considered the

provisions of section 153A, decision of Anil Kumar Bhatia

from Hon'ble Delhi High court, Canara Housing Development

Co. Vs DCIT, order dated 27/05/2014, the decision from

Hon'ble jurisdictional High Court in CIT vs Murli Agro

Products, order dated 29/10/2010, the proceedings under

section 153A of the Act were held to be validly initiated.

212 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . However, on merits of the addition, as income from other

sources, the assessee claimed that the addition in the hands

of the partnership firm were made on the basis of roving

enquiry made by the Ld. Assessing Officer and consequent

order passed u/s 143(3) r.w.s. 153C without finding any

incriminating documents. The Ld. Commissioner of Income

Tax (Appeals) considered the Circular No.8/2014, dated

30/03/2014, submissions of the assessee made vide letter

dated 09/07/2014 (page-14 onwards of the impugned order)

and further submissions dated 17/09/2014 (page-16 onwards

of the impugned order) and considering the decision in the

case of UmaCharan Shaw & Brothers vs CIT 37 ITR 271

(Supreme Court), CIT vs K. Mahim Udma 22 ITR 133(Kerala),

Dhankeshwari Cotton Mills Ltd. 26 ITR 775 (Supreme Court),

CIT vs Anumpam Kapoor (2008) 299 ITR 179 (P & H), ACIT vs

Metro Construction Co. (2013) 36 CCH 249 (Mum.), Sunita

Dhadda vs DCIT (2012) 148 TTJ 719 (JP) found that the

alleged bogus purchases transactions and the consequent

addition was made in the hands of the firm i.e. M/s Skylark

213 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . Build. Thus, no separate addition was required to be made on

the same transactions in the hands of the assessee as it will

amount to double taxation on the same income. It was

observed that no material was brought on record by the Ld.

Assessing Officer that any cash had exchange hands in the

transactions of alleged bogus purchase and misappropriated

by the partners. Before this Tribunal, no contrary material

was brought on record by the Revenue contradicting the

finding of the Ld. Commissioner of Income Tax (Appeals),

thus, the stand taken by the Ld. First Appellate Authority is

affirmed, resulting into dismissal of appeal filed by the

Revenue.

12.2. Now, we shall take up the cross objection 207 to

209/Mum/2016, wherein, following grounds have been

raised.

A) There were no pending assessment or reassessment proceedings for the impugned year and accordingly the assessment had abated

B) There was no incriminating material which was found during the course of search proceedings

C) Since the assessment or reassessment had not abated, the Assessing Officer could have made additions only on the basis of

214 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . the material available and not on the basis of presumption, inferences and alleged practice.

12.3. The crux of the argument advanced on behalf of the

assessee as mentioned in his written submissions. The Ld. CIT-

DR defended the addition made by the Ld. Assessing Officer.

12.4. We have considered the rival submissions and

perused the material available on record. The facts, in brief, are

that a search action was carried out by the Revenue at the

residential premises of Shri Sudhakar M. Shetty, on 22nd

September, 2011. As the search had taken place, the case was

selected for scrutiny as required under the provisions of section

153A of the Act. The Assessing Officer passed the assessment

order on 24th March, 2014. While framing the assessment order

in respect of these years, the Assessing Officer assessed certain

amount in the hands of the assessee as income from other

source and added on the ground that cash was generated out of

bogus purchases booked by the partnership firm M/s. Skylark

Build and/or AOP firm M/s. Oasis Realty, wherein according to

Assessing Officer, the assessee is a member having 43% share.

The stand of the assessee before this Tribunal was that the

215 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . present assessee is not a member of AOP firm M/s. Oasis Realty

as alleged by the Assessing Officer. The said AOP came into

existence in 2009 by entering a JV agreement in which two

partnership firms namely M/s. Skylark Build and M/s. Shree

Vrunda Enterprise on one part and two concerns of Oberoi

group on other part became members of the said AOP. Later on,

M/s.Skylark Build was converted into a Pvt. Limited company

under chapter IX of the Companies Act, 1956. The name of the

said company was Skylark Buildcon Private Limited. By virtue of

change of status, the said M/s. Skylark Buildcon Private Limited

became member of the said AOP. It was also pleaded that during

the course of search at the residential premises, no

incriminating documents were found in respect of the assessee,

except cash and jewellery. In respect of cash and jewellery,

appeal was filed in respect of assessment year 2012-13. As

regards other additions made in assessment years under

appeals, no incriminating documents were found. It is noted that

the First Appellate Authority has deleted those additions on

merits in the appeal preferred before him in respect of those

216 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . additions. The Commissioner of Income tax (Appeals) has not

decided the issue that in the absence of incriminating

documents, no additions can be made. The case of the assessee

is covered by the decision in the case of CIT VS. SINHGAD

TECHNICAL EDUCATION SOCIETY CIVIL APPEAL NO. 11081

TO 11083 OF 2017 order dated 29th August, 2017, wherein, the

Hon'ble Apex Court held as under:-

“18. The Tribunal permitted this additional ground by giving a reason that it was a jurisdictional issue taken up on the basis of facts already on the record and, therefore, could be raised. In this behalf, it was noted by the Tribunal that as per the provisions of s. 153C of the Act, incriminating material which was seized had to pertain to the assessment years in question and it is an undisputed fact that the documents which were seized did not establish any co- relation, document-wise, with these four assessment years. Since this requirement under s. 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of s. 153C of the Act. Para 9 of the order of the Tribunal reveals that the Tribunal had scanned through the Satisfaction Note and the material which was disclosed therein was culled out and it showed that the same belongs to asst. yr. 2004-05 or thereafter. After taking note of the material in para 9 of the order, the position that emerges therefrom is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the respondent, argued that notice in respect of asst. yrs. 2000-01 and 2001-02 was even time- barred.” 12.5. In another case of M/s IDEAL APPLIANCES CO PVT

LTD VS. DCIT, ITA NO. 173 TO 177/M/2015, order dated 31st

December, 2015(Mum) it was held as under :

217 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . “7. We have heard both the parties and perused the orders of the Revenue Authorities as well as the cited decision of the Tribunal in the case of Shri Govind Agarwal v. ACIT being ITA No: 3389/Mum/2011 dated 10.01.2014 (supra); All Cargo Global Logistics v. Addl.CIT (supra); SKS Ispat and Power Limited vs. DCIT CC 45 (ITA 8746/M/12 and ITA 8747/M/12) (supra) as well as the judgment of the Hon’ble Bombay High Court in the cases of CIT v. All Cargo Global Logistic (374 ITR 645) (supra), copies of which are placed on record. On perusal of the said decisions, we find they are relevant for the proposition that “when no assessment has abated, the question of making any addition or making disallowance which are not based on only material found during the search is bad in law”. In this regard, we find it relevant to extract the relevant paras from the decision of the Tribunal in the case of Shri Govind Agarwal (supra) and the same is as follows :

“12. We have heard the parties and their divergent stands on the legal issue and the validity of the instant assessment/reassessment with the routine additions u/s 68 and section 14A of the Act based on the accounted transactions. The instant case for the AY 2002-03 deals with the case of disturbing the “completed assessment”. Earlier the assessment was completed u/s 143(1) of the Act. Completeness of the summary assessment is considered and held in favour of the assessee vide many judgments cited above. In the assessment u/s 153A, the AO made (i) Addition u/s 68 on account of artificially inflated investment in house duly disclosed in the balance sheet of the assessee Rs.31,33,070/-; and (ii) disallowance u/s 14A: Rs. 23,31,469/-. Admittedly, there is no incriminating material before the AO to support the above additions. The valuation report, which is garnered by the authorities constitutes mere estimates and the provision of section 132 is not required to obtain such report from the DVO. As such, for making aforesaid additions of Rs 31,33,070/-, AO has not used even the said valuation report and the AO disallowed what is reported in the books. Similar is the case with the additions u/s 14A of the Act. Therefore, undisputedly, the impugned quantum additions are made merely based on the entries in the accounted books and certainly not based on either the unaccounted books of accounts of the assessee or books not produced to the AO earlier or the incriminating material gathered by the investigation wing of the revenue. Considering the legal propositions place before us by the assessee’s counsel, we are of the opinion, such assessments or additions are unsustainable in law.”

218 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . “9. From the above settled legal position of the issue that in the absence of any incriminating material found during search, additions made on the assessed income are unsustainable in law, we are of the considered opinion that the additions made in the instant case are not sustainable and accordingly, we delete the same. Considering our decision on the legal issue in favour of the assessee, the other grounds demand no specific adjudication. Thus, on the legal ground, the assessee succeeds and rest of the grounds are dismissed as academic.” Following the aforesaid decision and the ratio laid down

therein, we are of the view that it is a settled proposition of law

that in the absence of any incriminating material found during

the search, no addition can be sustained. Thus, the cross

objections of the assessee are allowed.

assessee and the Ld. Commissioner of Income Tax (Appeals) has

deleted the addition in ITA No.2904/Mum/2015, which has been

affirmed by us, therefore, the appeal of the Revenue is also

dismissed. This will cover ITA No.2905, 2906 and

2907/Mum/2015, ITA NO.3148/Mum/2016 and cross appeal

of the assessee in ITA No.2450/Mum/2015 on legal ground as

well as on merit. Thus, on identical reasoning the appeals of the

Revenue are dismissed.

219 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . 14. Now, we shall take up the appeal of the Revenue in

the case of M/s Sahana Builders & Developers Pvt. Ltd. (ITA

No.2900, 5275 & 2902/Mum/2015) for Assessment Years 2008-

09, 2010-11 and 2011-12 and Cross Objections of the assessee

(C.O. 205 & 206/Mum/2016 and C.O. 176/Mum/2017). In the

appeals of the Revenue, following grounds have been raised.

For Assessment year 2008-09

For Assessment year 2010-11

220 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. .

For the Assessment year 2011-12 3. Whether on the facts and circumstances of the case and in law, Ld the CIT(A) was justified in directing the AO to delete the additions of Rs. 53,99,682/- made on account of cash siphoned off from the AOP M/s. Oasis Realty by booking bogus purchase in the hand of AOP.

For the Assessment year 2012-13

14.1. The assessee has also filed cross appeal for

Assessment Year 2012-13 (ITA No. 2451/Mum/2015). The

assessee has raised the following grounds:-

221 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. .

14.2. The assessee has also raised additional ground, which

is as under:-

14.3. During hearing, in the appeals of the Revenue, the Ld.

CIT-DR, defended the assessment order and consequent addition

made therein, whereas, the Ld. counsel for the assessee

defended the order of the Ld. Commissioner of Income Tax

(Appeal) on merit but on legal issue, the Ld. counsel advanced

arguments which are identical to the ground raised as additional

ground. The Ld. Counsel relied upon the decision from Hon'ble

Apex Court in NTPC Ltd. vs CIT (229 ITR 383) (Supreme Court)

222 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . and also the decision from Hon'ble jurisdictional High Court in

DIT vs Ingram Micro India Exports Pvt. Ltd. (2015) 234 taxman

464 (Bom.).

14.4. We have considered the rival submissions and

perused the material available on record. So far as, admission of

legal issue is concerned, the Hon'ble Apex Court in NTPC

Company Ltd. vs CIT((Supra)) held as under:-

“5. Under s. 254 of the IT Act, the Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under s. 254 only to decide the grounds which arise from the order of the CIT(A). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier.

8.. The reframed question, therefore, is answered in the affirmative, i.e., the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee. We remand the

223 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . proceedings to the Tribunal for consideration of the new grounds raised by the assessee on the merits.”

14.5. Likewise, Hon'ble jurisdictional High Court in the

case of DIRECTOR OF INCOME TAX VS. INGRAM MICRO

(INDIA) EXPORTS PVT. LTD. (2015) 234 Taxman 464 (Bom)

held as under:-

“4. After hearing both sides and perusing the relevant material including the impugned orders, we are of the view that there is much substance in the contention of Mr. Mistri. The additional ground was permitted and with regard to the validity of the proceedings under s. 153C as the Tribunal concluded that this issue or question goes to the root of the case. If it is answered either way, the matter would come to an end. The Tribunal has noted that the additional ground is the legal ground going to the root of the case. The AO did not allow inspection of the record to the assessee or its counsel and that is why they have raised additional ground about validity of the proceedings under s. 153C. That is about absence of any satisfaction being recorded by the officer who was assessing the search party. There is no dispute about the fact that the assessee was not searched and the search has been conducted in the case of Ingram Micro (India) Exports Pte. Ltd./Tech Pacific (India) Ltd. at their business premises in Mumbai. Therefore, in terms of s. 153A and 153C of the IT Act, proceedings can only be initiated after the AO arrives at a satisfaction that the seized material pertains to other persons, namely, persons other than the searched party. It is only then the persons other than the searched parties can be proceeded against. There is nothing in the assessment order which would indicate that the assessment officer arrived at such satisfaction. The Tribunal noted that it has allowed this additional ground to be raised after hearing the departmental representatives' objection. To do complete justice and to both sides the Tribunal gave enough opportunity to the Revenue to produce the files and if the same contain the satisfaction of the AO, then, to rely upon it before the Tribunal. The Tribunal noted that more than 20 months passed after

224 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . the first direction to produce the record was issued. Despite repeated adjournments and as noted by the Tribunal in para 9 of the impugned order, the satisfaction requisite for initiation of the proceedings under s. 153C was not available. The record in that behalf was not produced. In these circumstances, not only did the Tribunal find that it was necessary and in the interest of justice to permit raising of an additional ground, but to answer it. It is only to enable it to answer it that it relied on the settled principles and the judgment of the Hon'ble Supreme Court in the case of Manish Maheshwari vs. Asstt. CIT (2007) 208 CTR (SC) 97 : (2007) 289 ITR 341 (SC). It is only to enable the Tribunal to refer to the settled principles and for re- enforcing its conclusion that this judgment is referred.”

14.6. Likewise in ITO VS. JASJIT SINGH CO-138 TO

142/DEL/2014 decided on 23rd September, 2014. It was held

as under:-

“6 Having gone through the above cited decision, we come to the conclusion that the whole purpose of preferring the appeal and cross objections and raising new ground for the first time before the appellate authority is to correctly assess the tax liability of an assessee. When we consider the present case under the above back ground, we find that there is no dispute that for deciding the issue raised before the ITAT in the cross objections regarding validity of the assessment order on the basis that (i) the Assessing Officer had not recorded satisfaction while proceeding for framing assessment under sec. 153-C of the Act; (ii) the Assessing Officer had not signed the manuscript of the assessment order as required under sec. 282A of the Act; (iii) no incriminating documents in respect of the assessee was found from the possession of persons covered under sec. 153A of the Act, no new facts outside the record of the authorities below is required to be considered. In other words, the question of law raised above is arising from the facts which are on record in the assessment proceedings. When there is no need to consider the new facts outside the record for the adjudication of the above issue and undisputedly when those issues are necessary to consider to correctly assess the tax liability of an assessee, as per

225 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . the ratios held down by the Hon’ble Supreme Court in the case of NTPC, there is no reason why such a question should not be allowed to be raised.” 14.7. The Hon'ble Bombay High Court in CIT VS. PRUTHVI

BROKERS & SHAREHOLDER (P) LTD (2012) 349 ITR

336(BOM) held/observed as under:-

“10. A long line of authorities establish clearly that an assessee is entitled to raise additional grounds not merely in terms of legal submissions, but also additional claims to wit claims not made in the return filed by it. It is necessary for us to refer to some of these decisions only to deal with two submissions on behalf of the Department. The first is with respect to an observation of the Supreme Court in Jute Corporation of India Ltd. vs. CIT (1990) 88 CTR (SC) 66 : 1991 Supp (2) SCC 744 : (1991) 187 ITR 688 (SC). The second submission is based on a judgment of the Supreme Court in Goetze (India) Ltd. vs. CIT (2006) 204 CTR (SC) 182 : (2006) 157 Taxman 1 (SC).

11(A). In Jute Corporation of India Ltd. vs. CIT (supra) for the asst. yr. 1974-75 the appellant did not claim any deduction of its liability towards purchase tax under the provisions of the Bengal Raw Jute Taxation Act, 1941, as it entertained a belief that it was not liable to pay purchase tax under that Act. Subsequently, the appellant was assessed to purchase tax and the order of assessment was received by it on 23rd Nov., 1973. The appellant challenged the same and obtained a stay order. The appellant also filed an appeal from the assessment order under the IT Act. It was only during the hearing of the appeal that the assessee claimed an additional deduction in respect of its liability to purchase tax. The AAC permitted it to raise the claim and allowed the deduction. The Tribunal held that the AAC had no jurisdiction to entertain the additional ground or to grant relief on a ground which had not been raised before the ITO. The Tribunal also refused the appellant's application for making a reference to the High Court. The High Court upheld the decision of the Tribunal and

226 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . refused to call for a statement of case. It is in these circumstances that the appellant filed the appeal before the Supreme Court.

The Supreme Court held as under :

"5. In CIT vs. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC), a three Judge Bench of this Court discussed the scope of s. 31(3)(a) of the IT Act, 1922 which is almost identical to s. 251(1)(a). The Court held as under : 'If an appeal lies, s. 31 of the Act describes the powers of the AAC in such an appeal. Under s. 31(3)(a) in disposing of such an appeal the AAC may, in the case of an order of assessment, confirm, reduce, enhance or annul the assessment; under cl. (b) thereof he may set aside the assessment and direct the ITO to make a fresh assessment. The AAC has, therefore, plenary powers in disposing of an appeal. The scope of his power is co-terminus with that of the ITO. He can do what the ITO can do and also direct him to do what he has failed to do.'

227 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . (B) It is clear, therefore, that an assessee is entitled to raise not merely additional legal submissions before the appellate authorities, but is also entitled to raise additional claims before them. The appellate authorities have the discretion whether or not to permit such additional claims to be raised. It cannot, however, be said that they have no jurisdiction to consider the same. They have the jurisdiction to entertain the new claim. That they may choose not to exercise their jurisdiction in a given case is another matter. The exercise of discretion is entirely different from the existence of jurisdiction.” 14.8. It is also noted that Hon'ble Apex Court in a later

decision on 29/08/2017 in CIT VS. SINHGAD TECHNICAL

EDUCATION SOCIETY CIVIL APPPEAL NO. 11081 TO 11083

OF 2017 held as under:-

“18. The Tribunal permitted this additional ground by giving a reason that it was a jurisdictional issue taken up on the basis of facts already on the record and, therefore, could be raised. In this behalf, it was noted by the Tribunal that as per the provisions of s. 153C of the Act, incriminating material which was seized had to pertain to the assessment years in question and it is an undisputed fact that the documents which were seized did not establish any co-relation, document-wise, with these four assessment years. Since this requirement under s. 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of s. 153C of the Act. Para 9 of the order of the Tribunal reveals that the Tribunal had scanned through the Satisfaction Note and the material which was disclosed therein was culled out and it showed that the same belongs to asst. yr. 2004-05 or thereafter. After taking note of the material in para 9 of the order, the position that emerges therefrom is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior

228 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . counsel appearing for the respondent, argued that notice in respect of asst. yrs. 2000-01 and 2001-02 was even time-barred.

Considering the totality of facts and respectfully following the

aforesaid decisions from Hon'ble Apex Court/Hon'ble

jurisdictional High Court, the additional ground raised by the

assessee is admitted.

hereunder the relevant provision of section 153C of the Act for

ready reference and analysis:-

“153C. (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 any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong 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 such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A.”

229 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . If the aforesaid provision of the Act is analyzed, we

observed that as per Section 153C, where the Assessing

Officer is satisfied that where the books of account or

documents seized belong to a person other than the person

referred to in Section 153A, then the books of account or

documents shall be handed over to the Assessing Officer

having jurisdiction of such other person and that Assessing

Officer shall proceed against each such other person in

accordance with the provisions of Section 153A. Section 153A

reads as under :-

“153A. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where asearch is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall – (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139;

(b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the

230 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . previous year in which such search is conducted or requisition is made.” 15.1. Thus, as per Section 153A(1)(b), the Assessing Officer

is empowered to assess or reassess the total income of the six

assessment years immediately preceding the assessment year

relevant to the assessment year in which search is conducted.

Thus, in other words, he has to assess the year under search

and six preceding years. As per proviso to Section 153C, for the

purpose of Section 153C, the date of receiving the books of

account or documents shall be considered the date of search.

Therefore, with the combined reading of proviso to Section 153C

and Section 153A(1)(b), it is clear that in the case of the person

in whose case action is required under Section 153C, the

Assessing Officer is empowered to take action under Section

153C for the year in which the seized document is received by

him and the preceding six years. In the case under appeal before

us, as mentioned by the Assessing Officer in paragraph 2 of his

order, the seized material was received on 12th March, 2009

from ACIT, Central Circle-17. Thus, the year in which seized

material was seized is previous year 2008-09 relevant to AY

231 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . 2009-10. The preceding six years would be AY 2008-09, 2007-

08, 2006-07, 2005-06, 2004-05 and 2003-04. Therefore, after

considering the facts of the assessee’s case and combined

reading of Section 153C as well as Section 153A, in our opinion,

the issue of notice under Section 153C for AY 2001-02 & 2002-

03 is barred by limitation. Accordingly, we quash the same and

consequentially, the assessment order passed in pursuance to

the notice issued under Section 153C is also quashed. Our view

find support from the decision in M/S. R.L.ALLIED INDUSTRIES

VS. Income Tax Officer, ITA NO. 567/DEL/2011 DECIDED ON

28TH NOVEMBER, 2014, wherein, it was observed/held as

under:-

“ The facts of the case are that assessment for AY 2001-02 and 2002-03 has been completed under Section 143(3) read with Section 153C of the Income tax Act, 1961. As per assessment order, the search and seizure action under Section 132 was carried out on R.L. Group on 13th December, 2005. During the course of such search, various documents were found and seized out of which certain documents are claimed to be belonging to M/s R.L.Allied Industries i.e., the assessee. As per paragraph 2 of the assessment order, the seized material pertaining to the assessee was received on 12th March, 2009 from ACIT, Circle-17, accordingly, notice under Section 153C was issued and served upon the assessee on 24th March, 2009. The learned counsel for the assessee has claimed that as per Section 153C proviso, the date of receiving the books of account or documents is deemed to be the date of search under Section 153A. He also referred to Section 153A and pointed out that the notice can be issued under Section 153C for six years preceding the year of search. He, therefore, submitted that as per the proviso to Section 153C, the date of receiving the books of account would be the date of search and, therefore, the notice under Section 153C could not have been issued for AY 2001-02 and 2002-03. Accordingly, the issue of notice under Section 153C

232 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . was barred by limitation and consequently, the assessment for these two years is non-est and void ab-initio. It was held by the Hon’ble Income tax Appellate Tribunal as under :

“5. We have heard the arguments of both the sides and perused relevant material placed before us. The relevant facts as mentioned by the Assessing Officer in paragraph 1 and 2 of the assessment order read as under :-

“Search & seizure action u/s 132 of the Income Tax Act was carried out on R.L. Group on 13/12/2005. This operation was carried out at Premises No. B-265, Derawala Nagar, Delhi. This premise belongs to Sh. Ram Lal Bhatia Partner of M/s R.L. Allied Industries. At this premise, certain documents were found and seized. Out of this, Pages of Annexure A-1 to A-3, A-7 to A-9, A-15 to A-18 and A-21 to A-24 belong to M/s R L Allied Industries.

“153C. (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 any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong 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 such other person notice and assess

233 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . or reassess income of such other person in accordance with the provisions of section 153A.”

(b) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139;

(b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made.”

234 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . the seized document is received by him and the preceding six years. In the case under appeal before us, as mentioned by the Assessing Officer in paragraph 2 of his order, the seized material was received on 12th March, 2009 from ACIT, Central Circle-17. Thus, the year in which seized material was seized is previous year 2008-09 relevant to AY 2009-10. The preceding six years would be AY 2008-09, 2007-08, 2006-07, 2005-06, 2004-05 and 2003-04. Therefore, after considering the facts of the assessee’s case and combined reading of Section 153C as well as Section 153A, in our opinion, the issue of notice under Section 153C for AY 2001-02 & 2002-03 is barred by limitation. Accordingly, we quash the same and consequentially, the assessment order passed in pursuance to the notice issued under Section 153C is also quashed.” 15.2. We also find support from the decision in JASJIT

SINGH VS. ACIT ITA NO. 1436/DEL/2012 order dated 5th

NOVEMBER, 2014. In this case, a search and seizure action had

taken place on 19th February, 2009. It had been alleged that

documents belonging to assessee were found in said search. As a

result, the assessment of the assessee was centralised by the

CIT on 16th June, 2009 and jurisdiction of assessing officer was

transferred to the Assessing Officer who had passed the order.

As the documents pertaining to the assessee were handed over

to the Assessing Officer after 16/06/2009 (the date of

centralization of the case) and as per the provisions of section

153C proviso 1, the date of search would be 16/06/2009 which

falls under assessment year 2010-11 and the six previous years

would be from assessment year 2004-05 to 2009-10 and not

235 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . from assessment year 2003-04 to 2008-09 as done by the

Assessing Officer.

15.3. We also draw support from the decision in ACIT VS.

INLAY MARKETING (P) LTD (2015) 167 TTJ (DEL) 273. The issue

involved in this case was regarding when the limitation starts in

the case of other person, other than searched person? It was

held that limitation starts from the date of issue of satisfaction

note, section 153C is applicable six preceding assessment years

from the date of issue of satisfaction note. The Tribunal held as

under:-

“30. On careful consideration of above submissions, we observed that in the recent decision of Tribunal ‘E’ Bench Mumbai in the case of SKS Ispat & Power Ltd. vs. Dy. CIT in ITA No. 8746/Mum/2010 and other appeals the order dt. 7th May, 2014, we observe that the issue of limitation prescribed under s. 153(1) of the Act has been decided by following the decision of Tribunal, Delhi ‘H’ Bench, in the case of V.K. Fiscal Services (P) Ltd. vs Dy. CIT (supra) in favour of the assessee with following observations and conclusions : "15. We also find that the CIT(A) made a reference to the incriminating material, which yielded disclosure of some undisclosed income. But, on perusal of the documents, we find that the CIT(A) entered into an error zone and the disclosure is only Rs. 5 crores in this case and the same relates to the lands deals. In principle, this disclosure has nothing do with the impugned additions under s. 68 or 14A of the Act. In the instant case, specific to the assessee, no incriminating material with the details was referred either in the assessment order or in the order of the CIT(A) for making the impugned additions. As per the cited judgment in the case of Jai Steels Ltd. (supra), the assessment

236 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . under s. 153A is only for reiteration rather than making any additions in a routine manner without the strength of the incriminating materials Similar view was taken up by the Tribunal, Delhi ‘H’ Bench, in the case of V.K. Fiscal Services (P) Ltd. vs. Dy. CIT vide ITA Nos. 5460 to 5465/Del/2012 (www.itatonline.org). In this regard, para 13 from the said order of the Tribunal, Delhi Bench (supra), is relevant and the same reads as under : ‘13. Applying the above case law to the facts of the case, we have to necessarily quash the assessment proceedings for asst. yrs. 2004-05, 2005-06, 2007-08, 2008-09 on the following grounds :

(a) No books of account belonging to the assessee were found and seized in the premises of the other person. What was found was in the hard disk was only a confirmation of account with an attached annexure. Such documents cannot be said to be books of account or documents belonging to the assessee.

(b) The Revenue has not produced the record of the searched person to demonstrate that satisfaction was recorded during the course of assessment proceedings in the case of M/s Global Reality Ventures (P) Ltd. On the date of recording of satisfaction, first notice under s. 153(c) was issued. There is no indication whatsoever, that the assessment proceedings in the case of Global Reality Ventures (P) Ltd. were in progress or not, at the point of time and that the AO during the course of that proceedings recorded this satisfaction. The procedure contemplated under the Act was not followed.

(c) The satisfaction is recorded on 23rd July, 2010. The relevant assessment year would be 2011-12. The six preceding assessment years relevant to this assessment year would be 2005-06/2006-07/2007-08/2008-09/2010-11. Thus, the notice issued under s. 153C for the asst. yr. 2004-05 is clearly barred by limitation.

(d) Even otherwise, as there is no incriminating material found during the course of search, the AO should have dropped the proceedings initiated under s. 153C of the Act.

237 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . (e) As there is no dispute that no assessment or reassessment has abated in this case for the reason, that the date of search, the date of search which in the case on hand would be 25th March, 2010, by virtue of first proviso to s. 153C, i.e., the date of passing an order under s. 127 transferring the cases of the assessee to the present AO, no assessment or reassessment was pending. When no assessment has abated, the question of making any addition or making disallowance which is not based on only material found during the search is bad in law." 31. In view of above decision and as per letter and spirit of s. 153(1) of the Act, we are inclined to hold that since in this case satisfaction was recorded on 5th July, 2010 and notice under s. 153C was issued on 6th July, 2010, the only conclusion that can be drawn is that the AO of such other person other than searched has taken over the possession of the seized document on 5th July, 2010. Accordingly, as per s. 153A(1) of the Act, the AO can issue a notice under s. 153A of the Act for the previous year in which the search is conducted and for the purpose of s. 153C of the Act on the date on which the document is handed over to the AO of the person other than the searched person for six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition or handing over of document or material is made. In the case in hand, the relevant date of handing over may easily be inferred from satisfaction note i.e. 5th July, 2010 and, thus, relevant previous year is 2010-11 and obviously the asst. yr. would be asst. yr. 2011-12. Six preceding previous years and relevant assessment year would be as under : Previous year Asst. yr. 1.4.2009 to 31.3.2010 2010-11 1.4.2008 to 31.3.2009 2009-10 1.4.2007 to 31.3.2008 2008-09 1.4.2006 to 31.3.2007 2007-08 1.4.2005 to 31.3.2006 2006-07 1.4.2004 to 31.3.2005 2005-06

238 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . assumption of jurisdiction under s. 153C of the Act have not been fulfilled and the same is barred by limitation for asst. yrs. 2003-04 and 2004-05. In view of above discussion, we quash the notice issued under s. 153C of the Act and consequently, the assessments completed in pursuance to such notice are also quashed for asst. yrs. 2003-04 and 2004-05 as the same are barred by limitation and also not initiated properly without having valid assumption of jurisdiction as required under s. 153C of the Act.

15.4. The case of the assessee further find support form the

decision in ARN INFRASTRUCTURE INDIA LTD VS. ACIT (2017)

1 NYPCTS 415(DEL). In this case also, the date of satisfaction

note was 21st July, 2014 and the notice under s. 153C was

issued on 23rd July, 2014, previous six assessment year was

held from assessment year 2009-10 to 2014-15.

15.5. We may also refer the decision in CIT VS. RRJ

SECURITIES LTD (2016) 282 CTR (DEL). In this case search

and seizure operations were undertaken under s. 132 of the Act

in the case of Sh. B.K. Dhingra, Smt. Poonam Dhingra and M/s

Madhusudan Buildcon (P) Ltd. (hereinafter called as 'searched

persons') on 20th Oct., 2008. Certain documents belonging to

the assessee company and a computer hard disc containing soft

copies of working papers, balance sheets and data for income-

tax filings, were seized during the search. The Assessing Officer

239 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . of the searched persons recorded a 'Satisfaction note' on 8th

September, 2010 to the effect that the documents seized and the

data contained in the hard disc belonged to the assessee and,

hence, s. 153C was invocable. On the aforesaid basis,

proceedings were initiated under s. 153C and a notice dated 8th

September, 2010 for the assessment years 2003-04 to 2008-09

was issued to the assessee. The Tribunal, after considering

various issues and judicial pronouncements held as under:-

“24. As discussed hereinbefore, in terms of proviso to s. 153C of the Act, a reference to the date of the search under the second proviso to s. 153A of the Act has to be construed as the date of handing over of assets/documents belonging to the assessee (being the person other than the one searched) to the AO having jurisdiction to assess the said assessee. Further proceedings, by virtue of s. 153C(1) of the Act, would have to be in accordance with s. 153A of the Act and the reference to the date of search would have to be construed as the reference to the date of recording of satisfaction. It would follow that the six assessment years for which assessments/reassessments could be made under s. 153C of the Act would also have to be construed with reference to the date of handing over of assets/documents to the AO of the assessee. In this case, it would be the date of the recording of satisfaction under s. 153C of the Act, i.e., 8th Sept., 2010. In this view, the assessments made in respect of asst. yrs. 2003-04 and 2004-05 would be beyond the period of six assessment years as reckoned with reference to the date of recording of satisfaction by the AO of the searched person. It is contended by the Revenue that the relevant six assessment years would be the assessment years prior to the assessment year relevant to the previous year in which the search was conducted. If

240 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . this interpretation as canvassed by the Revenue is accepted, it would mean that whereas in case of a person searched, assessments in relation to six previous years preceding the year in which the search takes place can be reopened but in case of any other person, who is not searched but his assets are seized from the searched person, the period for which the assessments could be reopened would be much beyond the period of six years. This is so because the date of handing over of assets/documents of a person, other than the searched person, to the AO would be subsequent to the date of the search. This, in our view, would be contrary to the scheme of s. 153C(1) of the Act, which construes the date of receipt of assets and documents by the AO of the assessee (other than one searched) as the date of the search on the assessee. The rationale appears to be that whereas in the case of a searched person, the AO of the searched person assumes possession of seized assets / documents on search of the assessee; the seized assets/ documents belonging to a person other than a searched person come into possession of the AO of that person only after the AO of the searched person is satisfied that the assets/documents do not belong to the searched person. Thus, the date on which the AO of the person other than the one searched assumes the possession of the seized assets would be the relevant date for applying the provisions of s. 153A of the Act. We, therefore, accept the contention that in any view of the matter, assessments for asst. yr. 2003-04 and asst. yr. 2004-05 were outside the scope of s. 153C of the Act and the AO had no jurisdiction to make an assessment of the assessee's income for that year.”

15.6. In the light of the ratio laid down in the aforesaid

cases, in the case of the assessee six assessment years would be

preceding to assessment year 2014-15 (i.e the previous year in

which jurisdiction was transferred to the Assessing Officer i.e. on

5th March, 2014 and the satisfaction note was also recorded on

13th March, 2014 (whether valid or not). Hence, six preceding

241 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . assessment years will be 2008-09, 2009-10, 2010-11, 2011-12,

2012-13 & 2013-14. As the present assessment year under

appeal is falling within six assessment years, the assessment

should have passed u/s. 153C of the Act and not u/s. 147 of the

Act. This make the notice issued u/s. 148 and the assessment

order passed on that basis as bad ab-inito. Our view find

support from the ratio laid down in ITO VS. ARUN KUMAR

KAPOOR (2011) 140 TTJ 249(AMRITSAR). In this case, the facts

of the case is that of one M/s. Today Homes & Infrastructure (P.)

Ltd. A search action had taken place on 28th March, 2006

during the course of which certain incriminating documents

were allegedly seized. The Dy. CIT, Central Circle-22, New Delhi

intimated the Assessing Officer of the assessee about seizure of

certain documents pertaining to the assessee during search and

enclosed copy of those documents requesting him to take

appropriate action under s. 153C/148 of the Act. The Assessing

Officer issued notice u/s. 148. During the course of appellate

proceedings before the Commissioner of Income Tax(Appeals),

the assessee took an additional ground of appeal to the effect

242 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . that the reassessment proceedings initiated by the Assessing

Officer under s. 148 are illegal and void ab-initio. Hence, notice

issued under s. 148 of the Act and proceedings under s. 147 of

the Act by the Assessing Officer are illegal and void ab initio. In

view of the provisions of s. 153C of the Act, s. 147/148 stands

ousted. In the instant case, the procedure laid down under s.

153C has also not been followed by the Assessing Officer and,

therefore, assessment was held invalid by the Commissioner of

Income tax (Appeals). The matter then carried to before the

Hon’ble Income tax Appellate Tribunal. The Tribunal in the

aforesaid case held/concluded as under:-

While deciding the matter, the Hon’ble Income tax Appellate Tribunal has held as under :

“7.2. The undisputed facts are that a search was conducted under s. 132 of the Act in the case of M/s. Today Homes & Infrastructure (P.) Ltd. on 28th March, 2006, during the course of which certain incriminating documents were allegedly seized. It is also a matter of record that the Dy. CIT, Central Circle-22, New Delhi intimated the Assessing Officer of the assessee about seizure of certain documents pertaining to the assessee during search and enclosed copy of those documents requesting him to take appropriate action under s. 153C/148 of the Act. It is after that that during the course of appellate proceedings before the CIT(A) the assessee took an additional ground of appeal to the effect that the reassessment proceedings initiated by the Assessing Officer under s. 148 are illegal and void ab initio. In the instant case, the learned CIT(A) has correctly observed that the Assessing Officer should have issued notice under s. 153C of the Act

243 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . and should have framed the assessment under s. 153C r/w s. 153A of the Act. Sec. 153C of the Act reads as under : "153C. Notwithstanding anything contained in s. 139, s. 147, s. 148, s. 149, s. 151 and s. 153, where the Assessing Officer is satisfied that any money, bullion or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in s. 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 such other person notice and assess or reassess income of such other person in accordance with the provisions of s. 153A." 8. On a perusal of the above provisions, it would be clear that the provisions of s. 153C of the Act were applicable, which supersedes the applicability of provisions of ss. 147 and 148 of the Act. As we have already noted hereinabove that the documents were seized during the search under s. 132 of the Act and the same were sent to the assessee's Assessing Officer at Amritsar by the officer at Delhi in our view, the learned CIT(A) has correctly observed that only the provision in which any assessment could be made against the assessee in the IT Act was s. 153C r/w s. 153A of the Act. It is also apparent from the record that the officer at Delhi has mentioned in his letter that the necessary action may be taken as per law under s. 153C/148 of the Act. Hence, notice issued under s. 148 of the Act and proceedings under s. 147 of the Act by the Assessing Officer are illegal and void ab initio. In view of the provisions of s. 153C of the Act, s. 147/148 stands ousted. In the instant case, the procedure laid down under s. 153C has not been followed by the Assessing Officer and, therefore, assessment has become invalid. We also observe that the CIT(A) was justified in following the ratio laid down by the Hon'ble Supreme Court in the case of Manish Maheshwari vs. Asstt. CIT & Anr. (2007) 208 CTR (SC) 97 : (2007) 289 ITR 341 (SC) wherein it has been held that if the procedure laid down in s. 158BD is not followed, block assessment proceedings would be illegal. The CIT(A) has correctly observed that the provisions of s. 153C are exactly similar to the provisions of s. 158BD of the Act in block assessment proceedings. Thus, considering the entire facts and the circumstances of the present case, we hold that the CIT(A) was fully justified in quashing the reassessment order. We also do not find any merit in the submissions of the learned Departmental Representative that during the course of search, it was found at premises of M/s. Today Homes & Infrastructure (P.) Ltd. pertaining to M/s. P.R. Infrastructure Ltd. and not the assessee. In this regard, we may point out that the contention

244 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . raised by the learned Departmental Representative is factually incorrect and contrary to the available records of seized documents specifically mentioned in the assessment order dt. 30th Dec, 2008. In view of the above factual discussion, we do not find any merit and substance in the contention of the learned Departmental Representative. Therefore, we uphold the order of the CIT(A) and dismiss the ground Nos. 1 to 4 of the appeal.”

15.7. We may also mention the decision from the Delhi Bench of

the Tribunal decided on 20/05/2016 in the case of RAJAT

SUBHRA CHATTERJI VS ACIT ITA NO. 2430/DEL/2015. In this

case, the Assessing Officer on the basis of information received

from the Investigation Wing of the Department initiated

reopening proceedings under sec. 147 of the Act after recording

reasons to belief that there was escapement of assessment of

taxable income. The Assessing Officer had received information

that a search & seizure operation under sec. 132 of the Act was

carried out by the Director of Income-tax (Inv.) on 06.09.2011 on

the Rockland Group of Cases. After going through the

information received as well as the documents available in the

office of the Assessing Officer, the Assessing Officer found that

Rockland Hospital Ltd. had issued sweat equity shares without

any amount being paid as consideration to the

directors/employees/professionals. In this chain, the assessee

245 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . had also received sweat equity shares without any consideration.

The Assessing Officer initiated the reassessment proceedings on

8.7.2013 and in response to the notice issued under sec. 148,

the assessee filed his reply on 11.3.2013. Thereafter, the

assessment was framed under sec. 147/143(3) of the Act. The

Commissioner of Income tax (Appeals) upheld the order of the

Assessing Officer. Then matter was carried to Hon’ble Income tax

Appellate Tribunal, wherein, it was held as under:-

“7. On having gone through the decisions cited above especially the decision of Amritsar Bench in the case of ITO vs. Arun Kumar Kapoor (supra), we find that in that case as in the present case before us, reassessment was initiated on the basis of incriminating material found in search of third party and the validity of the same was challenged by the assessee before the Learned CIT(Appeals) and the Learned CIT(Appeals) vitiated the proceedings. The same was questioned by the Revenue before the ITAT and the ITAT after discussing the cases of the parties and the relevant provisions in details has come to the conclusion that in the above situation, provisions of sec. 153C were applicable which excludes the application of sections 147 and 148 of the Act. The ITAT held the notice issued under sec. 148 and proceedings under sec. 147 as illegal and void ab-initio. It was held that Assessing Officer having not followed procedure under sec. 153C, reassessment order was rightly quashed by the Learned CIT(Appeals). In the present case before us, it is an admitted fact, as also evident from the reasons recorded and the assessment order that the initiation of reopening proceedings was made by the Assessing Officer on the basis of information received from the Directorate of Income-tax (Inv.) on the basis of search & seizure operation conducted at the premises of Rock Land Group of Cases and the documents related to the assessee found during the course of search were made available to the Assessing Officer of the present assessee. We thus, respectfully following the decision of Co-ordinate Bench of the ITAT in the case of ACIT vs. Arun Kapur – 140 TTJ 249 (Amritsar), hold that provisions

246 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . of sec. 153C of the Act were applicable in the present case for framing the assessment, if any, which excludes the application of sec. 147 of the Act, hence, notice issued under sec. 148 of the Act and assessment framed in furtherance thereto under sec. 147 read with section 143(3) of the Act are void ab initio. The reassessment in question is accordingly quashed.” 16. During hearing, the ld. counsel for the assessee also

asserted that the Assessing Officer provided the reasons for

issuing notice u/s. 148 at 6.15 p.m. on 24th March, 2014 and

passed the order on the very same day and hence, deprived your

appellant of a reasonable opportunity of being heard to raise

objections against the issue of notice u/s. 148 and thus violated

the principles laid down by the Hon’ble Supreme Court in the

case of GKN Driveshafts (I) Ltd vs. ITO & others (2003) 259 ITR

19 (SC).

In the light of the foregoing discussion and judicial

pronouncements discussed hereinabove, it can be concluded

that the notice issued u/s. 148 and assessment order passed

under section 143(3) r.w.s. 147 have failed all litmus test. As the

notice u/s. 148 itself has no leg to stand, thus, the order passed

by the Assessing Officer, on the basis of such notice, is ab-initio

bad in law.

247 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . 17. Now, we shall take up the cross objections of the

assessee (C.O. 205, 206/Mum/2016 and C.O. 176/Mum/2017),

wherein, following grounds have been raised.

That the learned Commissioner of Income tax (Appeals) has erred in law as well as under the circumstances of the case in not deciding the issue that the assessing officer has erred in making the additions without finding indiscriminating documents A) There were no pending assessment or reassessment proceedings for the impugned year and accordingly the assessment had abated

B) There was no incriminating material which was found during the course of search proceedings

C) Since the assessment or reassessment had not abated, the Assessing Officer could have made additions only on the basis of the material available not on the basis of presumption, inferences and alleged practice. 17.1. The assessee has also raised additional grounds of

appeal, which is as under:-

That on the facts and circumstance of the case and the provisions of law, the assessment framed by the learned Assessing Officer and confirmed by the Commissioner of Income tax (Appeals) is against the statutory provisions of the act and without complying the procedures prescribed u/s. 153C of the Income tax Act, 1961 and as such the assessment being bad in law and deserved to be quashed. 17.2. So far as, admission of additional ground is

concerned, the. Ld. counsel placed reliance upon the decision

like NTPC Company Ltd. vs CIT ((supra)), DIT vs Ingram Micro

248 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . (India) Exports Pvt. Ltd. (2015) 234 taxman 464 (Bom.), Income

Tax Officer vs Jasjit Singh ((supra)), CIT vs Pruthvi Brokers and

Share Holders (P.) Ltd. (2012) 349 ITR 336 (Bom.), later decision

from Hon'ble Apex Court in CIT vs Singhad Technical Education

Society ((Supra)). It was contended that being a legal ground, the

same has to be admitted by the Tribunal. The Ld. CIT-DR

contended that since the legal ground has been raised for the

first time before this Tribunal, therefore, may not be admitted.

17.3. We have considered the rival submissions and

perused the material available on record. Without going into

much deliberation, we note that considering the decision cited

before under section, we have deliberated upon this issue in

earlier paras of this order.

17.4. So far as, the merits of the additional ground that the

assessment order and confirmation of the same by the Ld.

Commissioner of Income Tax (Appeal) is against the statutory

provisions of the Act, without applying the procedure laid down

u/s 153C of the Act and consequent assessment being bad in

law/deserves to be quashed has been deliberated upon by under

249 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . section in earlier paras of this order. The facts, in brief, are that

a search action was carried out at the residential premises of

Shri Sudhakar M. Shetty, Director of the Company on 22nd

September, 2011 and survey action at the business premise of

the assessee. Certain documents, but not incriminating,

belonging to the assessee was found during the course of search

at the residential premises of Shri Sudhakar M. Shetty, Director

of the assessee company. These documents were subject to

scrutiny in early action which had taken place on 18th January,

2007 at the premises of aforesaid person i.e. Shri Sudhakar M.

Shetty, marked as Annexure-A This annexure A is a loose paper

file, containing page 1 to 55. In this file, page no. 27 to 48, is

deed of purchase dated 28th October, 2004 entered into between

the assessee and one M/s. Suru Consultants Pvt. Ltd for a

consideration of Rs. 2,25,00,000/-. Similarly, page no. 1 to 16 of

the Annexure is an agreement for development dated 15.10.2004

entered into between M/s. Anand Associates and the assessee

for a consideration of Rs. 5.21 Crores. Similarly, during the

course of search on 18th January, 2007 at the premises of the

250 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . assessee, loose papers of annexure A-9 containing ledger

account of M/s. Anand Associates as appearing in the books of

accounts of the assessee was seized. (Refer Paper Book page

number 42 & 43). The said transactions as appearing in the said

ledger shows payment of Rs.5.21 crores to M/s. Anand

Associates, being consideration mentioned in the agreement

found and seized during the current search at the premises of

Shri Sudhakar M. Shetty. Similarly, during the course of search

on 18th January, 2007 at the premises of the assessee, loose

papers of annexure A-9 containing ledger account of M/s. Suru

Consultants Pvt. Ltd as appearing in the books of accounts of

the assessee was seized. (Refer Paper Book page number 42 &

44). The said transactions as appearing in the said ledger show

payment of Rs.2.25 crores to M/s. Suru Consultants Pvt Ltd.

being consideration mentioned in the agreement found and

seized during the current search at the premises of Shri

Sudhakar M. Shetty. No additions have been made either in the

proceedings which have taken place on account of documents

found and seized during the course of search on 18th January,

251 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . 2007 or on the basis of the alleged documents found and seized

during the course of present search as the transactions are

reflected in the books of accounts. Further, nothing was

discussed about the seized documents in any of the assessment

orders passed on the basis of notice issued u/s. 153C of the Act

for the assessment year 2006-07 to 2011-12. Earlier, case was

with regular Assessing Officer to whom seized documents were

not handed over. The regular assessment proceedings were going

on with the said Assessing Officer. Later on, by an order dated

5th March, 2014 passed u/s. 127(2), the proceeding was

transferred to the Dy. Commissioner of Income tax Central

Circle-29, Mumbai. After transfer of jurisdiction over the case of

the assessee, the Assessing Officer has issued a notice u/s.

153C of the Income tax Act, 1961 for the assessment year 2006-

07 to 2011-12 and a notice u/s. 148 for the assessment year

2012-13. The Assessing Officer, in his capacity as a Assessing

Officer of the searched person i.e. Shri Sudhakar M. Shetty has

neither recorded any satisfaction note nor officially handed over

the seized material to the Assessing Officer of the present

252 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . assessee, which is precondition for issuing a notice u/s. 153C of

the Act. So far as, the cases relied upon by the assessee are

concerned, we have already deliberated upon them in earlier

paras of this order, therefore, in view of the aforementioned

facts/judicial pronouncements, the additional ground raised by

the assessee is admitted and heard.

17.5. The submissions of the assessee on the legal issue

involved in these cross objections including appeals are that the

Assessing Officer issued notice u/s 153C of the Act right from

Assessment Year 2006-07 to 2011-12. The provisions of section

153A r.w.s 153C prescribes, the following conditions for

issuance of notice u/s 153C by the Assessing Officer of the other

person, other than the search person.

i. There should be a search action;

ii. The documents found during the course of such search action be incriminating one and should belong to other person;

253 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . iii. The Assessing Officer of searched person should have recorded a satisfaction note that incriminating documents belonging to third person are found;

iv. The Assessing Officer of searched person should handover the satisfaction note and documents belonging to other person to the Assessing Officer of the other person;

v. The Assessing Officer of the other person can then issue notices u/s. 153C of the preceding six assessment years from the date on which such documents are received from the Assessing Officer of searched person. 17.6. We note that if all the above conditions are fulfilled

then only notice issued u/s 153C of the Act will be a valid

notice. There is no dispute that a search action had taken place

at the residential premises of Shri Sudhakar M. Shetty, who is

partner of assessee firm. Hence conditions no. (i) is complied

with.

The real problem starts with condition no. (ii) (a) where there is a condition that documents belonging to other persons are found (b) documents so found are incriminating in nature giving rise to unaccounted income of other person and in whose case the notices u/s. 153C of the Income tax Act, 1961 were issued.

254 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . At present, in these appeals, such notices u/s. 153C were

issued on the basis of paper found, not incriminating in nature,

during the course of search which have taken place at the

residential premises of its Director Shri Sudhakar M. Shetty.

The second part of this condition no. (ii) is that the documents

should be incriminating in nature giving rise to any undisclosed

income of other person . We find that no additions have been

made either in the proceedings which have taken place on

account of documents found and seized during the course of

search on 18th January, 2007 or on the basis of the alleged

documents found and seized during the course of present search

as the transactions are reflected in the books of accounts.

Further, nothing was discussed about the seized documents in

any of the assessment orders passed on the basis of notice

issued u/s. 153C of the Act for the assessment year 2006-07 to

2011-12. It is further noted that in the present cases, neither

the documents reveal any undisclosed income of the assessee

nor even referred to by the Assessing Officer in the impugned

assessment orders. Hence, the documents are not incriminating

255 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . in nature. In the absence of incriminating documents, the

assessment order passed under section 153C was invalid.

assessee in its favour. The first case is that of CIT VS. REFAM

MANAGMENT SERVICES (P) LTD (2016) 386 ITR 693 (DEL). In

the catch note, the Hon'ble Court observed as under:-

“Search and seizure—Assessment under s. 153C—Validity— No incriminating material for the assessment year in question having been recovered during search, assessment under s. 153C was invalid—The only document seized during the search in question was a cheque book pertaining to the assessee which reflected issue of cheques during the period Aug., 2008 to October, 2008, relevant to the asst. yr. 2009-10—CIT vs. RRJ Securities Ltd. (2016) 282 CTR (Del) 321 : (2015) 128 DTR (Del) 57 followed”

Finally, the Hon'ble Court held that “No incriminating

material for the assessment year in question having been

recovered during search, assessment under s. 153C was

invalid.”

18.1. The next decision relied upon by the Ld. counsel for

the assessee is DCIT VS. SATKAR ROADLINES PVT LTD (2016)

175 TTJ 198 (DEL), wherein, it was held/observed as under:-

256 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. .

“19. In the light of the case law cited above and on a reading of ss. 153A and 153C the exercise that is required to be done by the AO has been spelt out by the Co-ordinate Bench of this Tribunal in the case of DSL Properties (P) Ltd. vs. Dy. CIT 33 Taxman.com 420 vide para 15 has held that if the AO is assessing the person searched as well as other person whose assets, books of account or documents were found at the time of search, then also, first while making the assessment in the case of the person searched, he has to record the satisfaction that the money bullion, jewellery or other valuable article or thing or books of account or documents belonged to the person other than the person searched. Then the copy of this satisfaction note is to be placed in the file of such other person and the relevant document should also be transferred from the file of the person searched to the file of such other person. Thereafter, in the capacity of the AO of such other person, he has to issue the notice under s. 153A r/w s. 153C. The AO of the searched person and such other person may be the same but these are two different assessees and therefore the AO has to carry out the dual exercise first as the AO of the person searched in which he has to record the satisfaction, during the course of assessment proceedings of the person searched. We concur with the said view of the Co-ordinate Bench and would like to add that this satisfaction must be an objective satisfaction based on an enquiry by the AO to establish that the documents referred to in s. 153C which is found during the search under s. 132, which are seized or requisitioned belong to a person other than the person searched; and there should be a clear finding to that effect based on which only satisfaction as envisaged under s. 153C can be inferred. Such a finding by the AO is required for attaining the said satisfaction and then it should be recorded in the file of the assessee which is a ‘sine qua non’ to trigger the jurisdiction for the AO to proceed against such other person. In this case this exercise of recording the satisfaction during the assessment proceedings of the person searched has not been carried out and the satisfaction does not satisfy the requirement of s. 153C. We could not find any mention of any seized materials like valuable articles or things or any books of account or documents have been referred even in the impugned assessment orders. The AO lacks jurisdiction to initiate proceedings under s. 153C against the assessee and therefore, the issuance of notice itself is null and void and therefore quashed. Consequently, the impugned assessment order passed under s. 153C is also a nullity. 20. Since we have quashed the notice under s. 153C of the Act itself, the other grounds are not adjudicated being academic.

257 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . 21. As the facts and circumstances in the case of the assessee in other five asst. yrs. i.e. 2004-05 to 2008-09 are similar to asst. yr. 2003-04, we order that the impugned assessment orders passed under s. 153C in asst. yrs. 2004-05 to 2008-09 are also a nullity. 22. Before we part with this order, we were wondering whether during search, Revenue authorities can resort to carte blanche seizure of anything and everything from the premises of the raided party without the said documents having any bearing in assessment of income as per law. It should be remembered that any exercise of power under s. 153C has catastrophic effect on the party against whom proceedings are reopened for scrutiny for six assessment years. So the raiding party has to apply its mind at least to prima facie satisfy itself that the documents seized have a nexus with income. Any arbitrary exercise of power which is unbridled is a sworn enemy of the Art. 14 of the Constitution and such exercise of power would offend the right to privacy and rule of law which is a basic feature of the Constitution. Therefore, the officers conducting the search while seizing the documents has to exercise the said powers with extreme care and caution; and seizure must be used with circumspection. The Hon’ble apex Court and the Hon’ble Delhi High Court in N.K. Textile Mills vs. CIT (1966) 62 ITR 58 (Del), has frowned upon the practice of indiscriminate seizure paving way for reopening of assessments which finally will fall in case it is not incriminating and will be an exercise of futility. 23. In the result, all the appeals preferred by the Revenue are dismissed and the cross-objections filed by the assessee are allowed.” 18.2. As regards condition no. (iii) that the Assessing Officer

of searched person should have recorded a satisfaction note that

incriminating documents belonging to third person are found;

The Assessing Officer, in his capacity as the Assessing Officer

of Shri Sudhakar M. Shetty (searched person) has neither

issued any satisfaction note nor handed over the documents to

258 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . himself (in the capacity of Assessing Officer of the other

person) by passing a handover note. The reasons were

recorded by the Assessing Officer (in his capacity as an

Assessing Officer of other person i.e. of the assessee)

for issuing notice u/s. 153C to the assessee. The relevant

note is appearing in the paper books filed in connection with

the following appeals are as under:

Appeal No CO.205/M/16 CO.176/M/17 CO206/M/16 Assessment Year 2008-09 2010-11 2011-12 Paper Book Page 48 22 35 No.

Ld. Assessing Officer, which are reproduced hereunder:-

259 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. .

On perusal of aforesaid reasons, it emerges that the 19.1.

reasons so recorded are recorded by the Assessing Officer in

his capacity of other person and not by the Assessing Officer

in a capacity of searched person. This can be proved on

account of following reasons :-

a) Name and PAN of the assessee are mentioned on the top of the reasons and not the name of Shri Sudhakar M. Shetty, in whose case the search had taken place. b) Nothing is mentioned either about handover of the documents by the Assessing Officer or receiving of documents by the Assessing Officer of the assessee.

260 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . c) Again and again, the word assessee is used which the assessee only. d) In para 3, it was mentioned that “I am satisfied that documents seized as above belong to the assessee” also shows that this reasons are recorded by the Assessing Officer in his capacity as a Assessing Officer of the assessee and not by him in his capacity as Assessing Officer of searched person. e) The Assessing Officer of the searched person cannot say and write that “Issue notice u/s. 153C”. On the other hand, only the Assessing Officer of other person, other than Assessing Officer of searched person can say and write “Issue notice u/s. 153C”

19.2. The above facts reflects that neither satisfaction note

was issued by the Assessing Officer in his capacity as a

Assessing Officer of the searched person nor the documents

were handed over (by way of note for transfer of documents) to

the Assessing Officer of the other person. It was argued by the

learned DR that the Assessing Officer of the searched person

and other person is one and some, then, why the satisfaction

note prepared by the Assessing Officer of other person should

not be treated as a satisfaction note prepared by the Assessing

Officer of searched person. We find that we have deliberated

upon this issue along with cited decisions in earlier paras of this

order while dealing with the issue in the case of different

assessee. Although the Assessing Officer of the searched person

and other person was the same Officer, even in those cases, it

261 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. . was held that satisfaction note by the Assessing Officer in his

capacity of searched person is precondition required to confer

jurisdiction on the Assessing Officer of other person. Even the

CBDT has issued a circular in this regard making it clear that

even if the Assessing Officer of searched person and other

person is same, a satisfaction note is required to be passed by

the Assessing Officer in his capacity of search person. Following

the aforesaid case laws, issue in hand and the deliberation made

thereupon in earlier paras of this order, we find merit in the

cross objections of the assessee, consequently, on this aspect

also, we decide in favour of the assessee. Thus, the Cross

Objections, filed by the assessee are allowed.

Finally, appeals of the assessee, the appeals of the Revenue

and the cross objections are disposed of in terms indicted

hereinabove.

Order was pronounced in the open court on 29/08/2018.

Sd/- Sd/- (Rajesh Kumar) (Joginder Singh) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य / JUDICIAL MEMBER मुंबई Mumbai; �दनांक Dated:- 29/08/2018 Pradeep J. Chowdhury, Sr.P.S. & f{x~{tÜ? P.S/.�न.स/

262 Skylark Build Skylark Buildcon P. Ltd. Smt. Hemlata S. Shetty, Oasis Realty Shri Sudhakar M. Shetty Sahana Builders & Developers (P) Ltd. .

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT, Mumbai. 4. आयकर आयु�त / CIT(A)- , Mumbai 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file.

आदेशानुसार/ BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai