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Income Tax Appellate Tribunal, DELHI BENCH ‘C’ : NEW DELHI
Before: SHRI A.T. VARKEY & SHRI O.P. KANT
O R D E R PER A.T. VARKEY, JUDICIAL MEMBER :
CO No.213/Del/2013 The appeal filed by the revenue and the cross objection filed by the assessee are against the order of the CIT (Appeals)-III, New Delhi dated 15.03.2013 for the assessment year 2004-05.
The grounds of appeal taken by the revenue are as under :-
“1. On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the disallowance of long term capital loss of Rs.1,05,76,383/- shown to have been incurred on sale of property located at Masjid Moth, Greater Kailash-II, New Delhi.
2. On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the addition made by the A.O. on account of disallowance of long term capital loss by admitting additional evidence even though the A.O had objected to its admission on both on principle and on merits.
On the facts and in the circumstances of the case, the CIT(A) has erred, in violation of rule 46A of the Income Tax Rules 1962, by not following the decision of Hon'ble High Court in the case of Manish Buildwell Pvt. Ltd. 204 Taxman 106, wherein it was held by the Hon'ble jurisdictional High Court to give two stage opportunity under Rule 46A i.e. first before admission of additional evidence and second after admission of additional evidence.
4. The order of the Ld. CIT (A) is erroneous and is not tenable on facts and in law.
5. The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.”
The grounds taken in the cross objection by the assessee are as under:-
“1. That the order passed under section 153A / 143(3) and the additions made are illegal, bad in law and without jurisdiction. 2. That no incriminating material was seized during the search that suggested in any manner any undisclosed investment in the property at Masjid Moth, hence the addition made is illegal bad in law. 3. That the AO passed the order on his whims and fancies without appreciating the facts and evidence properly and without verifying and examining the record.”
CO No.213/Del/2013 3. Basically, the grounds of the revenue are against deleting the disallowance of long term capital loss of Rs.1,05,76,383/- shown to have incurred on sale of property by admitting additional evidences and also not giving opportunity under Rule 46A i.e. first before admission of additional evidence and second after admission of additional evidence; and cross objection of the assessee is that no addiction can be made without any incriminating material seized during search u/s 153A proceedings.
Brief facts of the case are that the assessee filed original return on 11.04.2005 declaring income of Rs.67,00,137/-. A search and seizure action u/s 132 of the Income Tax Act, 1961 (hereinafter ‘the Act’) was carried out in Kohinoor Foods Ltd. Group of cases on 05.12.2007 and a search warranted was issued on the assessee also. A notice u/s 153A was issued and in response to the said notice, the assessee filed return declaring income of Rs.67,00,136/- on 06.02.2009. Thereafter, the notices u/s 143(2) and 142(1) were issued and served on the assessee.
4.1 The AO noticed during the assessment proceedings that the assessee claimed that he had purchased a property in the year 1993 for Rs.84,26,500/- and the said property was sold during the year under consideration for a sum of Rs.85,00,000/-. It was noticed that after reducing the expenditure of brokerage/commission, the net sale consideration received was of Rs.82,84,000/-. The AO further noticed that by working out the benefit of cost
CO No.213/Del/2013 of indexation on the acquisition of the said property and improvement thereon, the value of the said asset came to Rs.1,88,60,383/- and the assessee thus claimed in his return of income long term capital loss of Rs.1,05,76,383/- (Rs.1,88,60,383/- minus Rs.82,84,000/-). The AO held that since the said property at Masjid Moth was not shown in the state of affairs/balance sheet filed by the assessee of earlier years, the said property had been acquired from the sources outside the books of accounts. Accordingly, he disallowed the long term capital loss as claimed by the assessee in his return of income and completed the assessment u/s 153A/143(3) of the Act.
Aggrieved, the assessee filed an appeal before the first appellate authority and the ld. CIT (A), after observing the submissions of the assessee, deleted the addition as under :-
“6. I have gone through the above submissions of the appellant and have perused the AO's order and considered the facts and evidences on record. 6.1 From the perusal of the assessment order it is seen that AO’s objection is that the said property at Masjid Moth has not been shown in the balance sheet for the assessment years 2002-03 and 2003-04 and since no documents viz. purchase deed and sale deed for the said property were filed, the AO accordingly disallowed the capital loss claimed by the appellant in its return of income. 6.2 It is further seen from the balance sheet filed by the appellant during the appellate proceedings from Assessment Years 1994-95 to 2003-04 that the said property has duly been reflected in the appellant's books of accounts. The perusal of purchase deed and sales deed of the property in question shows that: (a) Vipps India Ltd acquired land from POA by obtaining perpetual Lease hold rights of land vide lease deed dated 06.02.1981.
CO No.213/Del/2013 (b) By agreement dated 5.9.85 and supplementary agreement dated 07.12.1988 Vipps India Ltd entered into agreement with.1.K. Synthetics for constructing multi storied commercial bldg. (c) J.K. Synthetics purchased the flat from Vipps India Ltd. (d) DDA granted to Vipps India Ltd the occupancy certificate on 24.2.92. (e) J.K. Synthetics agreed to sell the property to appellant, apartment No.501 for Rs.76.50 lakhs on 28.07.1983. (f) Appellant sold the flat to Mr. Shri Shyam Lal Sethi on 12.1.2001. From the sequence of above events and from the details of balance sheet filed during the appellate proceedings from Assessment years 1994-95 till 2003-04, it is seen that the property at Masjid Moth" New Delhi have regularly been declared in the appellant's books of accounts, therefore there is no force in the AO's view that the property in question is an unaccounted one and thus the long term loss incurred on the sale of such property is not allowable. 6.3 When the AO was given the opportunity to give his comments on the documents, the appellant filed during the appellate proceedings, the AO vide his letter dated 24.12.1012had objected to the above documents as additional evidence. In this regard, I am of the view that the balance sheet which were filed from Assessment Year 1994-95 till Assessment year 2003-04 is part of the AO’s assessment record, therefore there is no question of filing any new/additional evidences, therefore the objections raised under Rule 46A by the AO in this regard does not hold good at all. But having said that, the new documents viz. purchase deed and sale deed of the said property which were filed during the appellate proceedings for the first time, I admit them under Rule 46A in view of the appellant's contention that said property was sold 5 years back and they were given just 40 days to collect all the details. Thus taking in totality all the facts and evidences on record, the sale deed and purchase deed are taken as additional evidence as appellant's case falls under Rule 46A(1)(b) and (d). 6.4 Thus from the above discussion and from the perusal of the appellant balance sheet for Assessment Year 1994-95 till 2003-04 where the property in question is regularly duly been reflected, I hold that the AO's view that loss on sale of property is not allowable being an unaccounted assets is not correct. Hence, the addition of Rs.1,05,76,383/- made by the AO deserves to be deleted.”
Ld. DR relied on the order of the AO and submitted that the said property was not shown in the state of affairs/balance sheet filed by the assessee of CO No.213/Del/2013 earlier years. He further submitted that the ld. CIT (A) was not right in accepting the additional evidences like sale deed and purchase deed produced for the first time by the assessee before him and also not giving the opportunity to the AO under Rule 46A before and after the admission of the same. He, therefore, pleaded that the order of the CIT (A) be set aside and that of the AO be restored.
On the other hand, the ld. AR for the assessee relied on the order of the ld. CIT (A) and reiterated the submissions made before him. He submitted that the assessee sold equity share of M/s. Satnam Overseas Ltd., M/s. Union Overseas Bank, M/s. Oriental Bank of Commerce and M/s. Global Trust Bank and units of UTI and after claiming the indexation on the cost of acquisition of the equity shares/units showed long term capital gain on shares at Rs.92,77,748 for the year. Against this income, the assessee adjusted the long term loss of Rs.79,724/- carried forward from last year and thus, the assessee had declared long term capital gain of Rs.91,98,024/- from the sale of shares and also declared long term capital gain from sale of Hamidpur property at Rs.21,45,214/-. Therefore, total long term capital gain so declared was Rs.1,13,43,238/- (Rs.91,98,024/- + Rs.21,45,214). He submitted that in the same year, the assessee sold a property located at Masjid Moth, New Delhi which was purchased in the year 1993-94 for Rs.84,26,500/- and the sale consideration of the property was shown at Rs.85,00,000/- and Rs.2,16,000/-
CO No.213/Del/2013 was claimed towards brokerage and commission on sale of this property, therefore, the net sale consideration was declared at Rs.82,84,000/-. He submitted that after indexation on the cost of acquisition and improvements thereto, the indexed cost of property was worked out at Rs.1,88,60,383/- resulting into long term capital loss of Rs.1,05,76,383/-.
7.1 As regards the objection of the AO that the assessee became the owner of the property only on 14.02.2003, ld. AR submitted that the property was purchased in 1993 as per Agreement to Sell dated 28.07.1993 from M/s. J.K.
Synthetics Ltd. and the assessee was reflecting the same in the balance sheets filed from AYs 1994-95 showing a value of Rs.84,26,500/- and it continued to show till AY 2003-04 showing a value of Rs.1,09,17,797/- (including cost of improvement) as on 31.03.2003. As regards AO’s objection that the assessee became owner of the property only on 14.02.2003 by virtue of an irrevocable power of attorney executed by M/s. Vipps India, he clarified that as the assessee sold the property to Shri Sethi vide sale deed dated 12.06.2004 and since the buyer, Shri Sethi insisted for an irrevocable power of attorney signed by the original seller to Ms. J.K. Synthetics Ltd., the power of attorney was executed to facilitate the sale. He further submitted that there was no financial transaction between M/s. Vipps India and the assessee and also there was no relationship of buyer and seller i.e. between M/s. Vipps India and the assessee. He also submitted that as far as, the assessee was concerned the purchase was made
CO No.213/Del/2013 from M/s. J.K. Synthetics Ltd. and in this regard, he referred to Para A of Agreement to Sell on Page 1 in which perpetual lease deed was made in the name of M/s. Vipps India which sold it to M/s. J.K. Synthetics Ltd. and from whom the assessee had purchased the property. Therefore, he submitted that the contention of the AO that the assessee had become the owner of the property only on 14.02.2003 was erroneous as the property in question was purchased by the assessee in the year 1993.
7.1 Ld. AR further submitted that the assessee purchased the property against agreement to sell dated 28.07.1993 and the said property was duly reflected in the balance sheet as on 31.03.1994 i.e. AY 1994-95 being the book value at Rs.84,26,500/-. He also submitted that the same was regularly shown in the balance sheet for AYs 1994-95 to 20003-04 and the ld. CIT (A) rightly appreciated the same on the basis of the evidences filed before him.
7.2 As regards the objection of revenue under Rule 46A, ld. AR submitted that the AO was given the opportunity by the ld. CIT(A) to comment on the documents filed by the assessee and the AO objected to the documents filed as additional evidence. He submitted that the ld. CIT (A) rightly appreciated that the balance sheets for AYs 1994-95 to 2003-04 filed before the ld. CIT (A) were part of the AO’s assessment record and as regards the new documents i.e. purchase deed and sale deed of the property which were filed during the appellate proceedings for the first time, again the ld. CIT (A) rightly held that CO No.213/Del/2013 the said property was sold five years back and that they were given just 40 days to collect all the documents. Therefore, he submitted that the ld. CIT (A) was right in accepting the additional evidences.
7.3 Ld. AR also submitted that the AO made the addition without looking into the facts of the case and unsupported by any seized material in possession and made the addition in respect of the regular items which were already disclosed in the original return of income filed before the search operation. In this regard, he relied on various judicial pronouncements wherein it was held that, “the items of regular assessment cannot be added back in the proceedings u/s 153A when no incriminating documents were found in respect of disallowed amounts in the search proceedings.”
7.4 In view of his submissions made above, ld. AR wants us not to interfere with the order of the ld. CIT (A) and pleaded to uphold the same.
We have heard both the sides and perused the material on record. First of all, we are inclined to decide the cross objection raised by the assessee in which the assessee raises the ground that without any incriminating materials, being unearthed during the search, no addition can be made u/s 153A of the Act. The DR’s objection that this ground was never raised by the assessee before the CIT (A), so we shall not entertain the same cannot be countenanced in the light of the law laid by the Hon’ble Supreme Court in National Thermal Power Co. Ltd. vs. CIT – (1998) 229 ITR 383 (SC). In that case, the assessee had deposited its CO No.213/Del/2013 funds not immediately required by it on short term deposits with banks. The interest received on such deposits was offered by the assessee itself for tax and the assessment was completed on that basis. Even before the Commissioner of Income-tax (Appeals), the inclusion of this amount was neither challenged by the assessee nor considered by the Commissioner of Income-tax (Appeals). The assessee filed an appeal before the Tribunal. The inclusion of the amount was not objected to even in the grounds of appeal as originally filed before the Tribunal.
9. Subsequently, the assessee by a letter raised additional grounds to the effect that the said sum could not be included in the total income. The assessee contended that on an erroneous admission, no income can be included in the total income. It was further contended that the ITO and the Commissioner of Income-tax (Appeals) had erred and failed in their duty in adjudicating the matter correctly and by mechanically including the amount in the total income.
It is pertinent to note that the assessee contended that it was entitled to the deduction in view of two orders of the Special Benches of the Tribunal and the assessee further stated that it, had raised these additional grounds on learning about the legal position subsequently.
The Tribunal declined to entertain these additional grounds. The Supreme Court did not answer the question on merits, but framed the following question and held as under:-
CO No.213/Del/2013 "4. The Tribunal has framed as many as five questions while making a reference to us. Since the Tribunal has not examined the additional grounds raised by the assessee on merit, we do not propose to answer the questions relating to the merit of those contentions. We reframe the question which arises for our consideration in order to bring out the point which requires determination more clearly. It is as follows: “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." Under Section 254 of the Income Tax Act the Appellate 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 the 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. I~ 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 is 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 Section 254 only .to decide the grounds which arise from the order of the Commissioner of Income Tax (Appeals). Both the assessee as well as the Department has 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."
Therefore, the objection of the ld. DR regarding adjudication of this ground is rejected and we proceed to deal with it. From a perusal of the assessment order, we do not find a whisper of any incriminating materials found during search to make the impugned addition. The AO makes the addition after issuing questionnaire and finally assess u/s 144 of the Act. The ld. DR could not point out from the assessment order, whether the AO takes note of any incriminating materials found during search which was the basis for making this impugned addition. The Hon’ble jurisdictional High Court in the case of CIT vs. Kabul Chawla in ITA 707 / 2014 has laid the law on this issue as under :-
CO No.213/Del/2013 “37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs “in which both the disclosed and the undisclosed income would be brought to tax”. iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post- search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment “can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material.” v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.”
CO No.213/Del/2013 12. After careful perusal of the assessment order, we find that addition made by the AO by disallowing Rs.1,05,76,583/- was not based on any incriminating material found during search operation. Accordingly, the addition is held to be not sustainable in law and so directed to be deleted. 13. On merits also, we concur with the ld. CIT (A)’s order to delete the addition and since we fully agree with the view expressed by the ld. CIT (A), we do not wish to record our own reasons for that and for such a proposition, we rely on the Hon’ble Apex Court decision in CIT vs. K.Y. Pilliah & Sons – (1967) 62 ITR 411.
In the result, the appeal of the department is dismissed and the cross objection of the assessee is allowed. Order pronounced in open court on this day of 22nd February, 2016.