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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM
IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM आयकरअपीलसं./IT(SS)A No.150 to 154/AHD/2015 (�नधा�रणवष� / Assessment Year: (2004-05 to 2008-09) (Physical Court Hearing) Jivrajbhai Harkhabhai Balar, The DCIT, Central Circle-1, Vs. 59, Kantareshwar Society, Surat. Katargam Road, Surat-395004. �थायीलेखासं./जीआइआरसं./PAN/GIR No.: ABOPB8649M (Appellant) (Respondent) आयकरअपीलसं./ITA No.1245/AHD/2015 (�नधा�रणवष� / Assessment Year: (2010-11) Jivrajbhai Harkhabhai Balar, Vs. The DCIT, Central Circle-1, 59, Kantareshwar Society, Surat. Katargam Road, Surat-395004. �थायीलेखासं./जीआइआरसं./PAN/GIR No.: ABOPB8649M (Appellant) (Respondent)
Assessee by : Shri Rasesh Shah, CA Revenue by : Shri H. P. Meena, CIT(DR) & Ms Anupama Singla, Sr. DR Date of Hearing : 31/03/2022 Date of Pronouncement : 31/05/2022 आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned six appeals filed by the assessee, pertaining to the Assessment Years (AY) 2004-05 to 2008-09 and 2010-11, are directed against the orders passed by the Learned Commissioner of Income Tax (Appeals)-3, Surat [in short “the ld. CIT(A)”] dated 16.02.2015, which in turn arise out of an assessment order passed by the Assessing Officer u/s 143(3) r.w.s. 153C of the Income Tax Act, 1961 [hereinafter referred to as the “Act”]
Since, the issues involved in all the appeals are common and identical; therefore, these appeals have been heard together and are being disposed of by this consolidated order. For the sake of convenience, the grounds as well as the facts
IT(SS)A.150-154/AHD/2015 & ITA.1245/AHD/2015 Assessment Years. 2004-05 to 2008-09 & 2010-11 Jivrajbhai H. Balar narrated IT(SS)A Nos.150/AHD/2015 for assessment year 2004-05, have been taken into consideration for deciding the above appeals en masse.
Grounds of appeal raised by the assessee in lead case in IT(SS)A No. 150/AHD/2015 for assessment year 2004-05 are as follows: “1) The ld. Commissioner of Income Tax (Appeals) erred in law and on facts in confirming the action of the ld. AO of not considering the premium payable for conversion of agricultural land into non-agricultural land of Rs.17,24,800/- and Rs.6,40,00,000/- as forming part of cost of improvement of land and thereby not allowing deduction in respect thereof while calculating the capital gain in respect of transfer of land. 2) The ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in treating the amounts of conversion taxes (i.e. tax paid for the purpose of conversion of agricultural land into non-agricultural land) as land revenue and the land revenue duty representing recurring expenditure and thereby holding that the same is not allowable as deduction while calculating the capital gain in respect of transfer of land. 3) The ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in not allowing the indexation benefit in respect of conversion taxes paid by the appellant while calculating the capital gain on transfer of land. 4) The ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in considering the sums paid to two trusts totaling to Rs.3/- lacs as expenditure incurred for transfer of land instead of treating the same as part of cost of land. 5) The ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in not allowing the indexation benefit in respect of the sums paid to two trusts totaling to Rs.3/- lacs which represent the part of cost of land transferred by the appellant. 6) The appellant prays for granting such other relief as may be deemed just and proper by your Honours considering the factual and legal aspects of the case of the appellant. 7) The appellant craves leave to add, amend, alter, delete, substitute or modify any or all of the Grounds of Grounds of Appeal.”
At the outset, Learned Counsel for the assessee informs the Bench that assessee does not wish to press the claim of Rs.17,24,800/- mentioned in Ground No. 1 and assessee also does not wish to press Ground No. 2, therefore we dismiss the claim of Rs.17,24,800/- mentioned in Ground No.1 and we also dismiss Ground No.2 of the assessee, as not pressed. Therefore, in ground no.1 the relevant amount pressed by the assessee is to the tune of Rs.6,40,00,000/- only.
IT(SS)A.150-154/AHD/2015 & ITA.1245/AHD/2015 Assessment Years. 2004-05 to 2008-09 & 2010-11 Jivrajbhai H. Balar 5. Therefore, on merits, the effective grounds in these six appeals are as follows: (i) Disallowance of premium payable of Rs.6,40,00,000/-, for all the years for cost of improvement (Ground No.1) (ii)Disallowance of indexation benefit on conversion taxes paid by assessee (Ground no.3) (iii) Disallowance of indexation benefit of Rs.3,00,000/-, as expenses incurred for transfer of land not allowed to assessee.
Additional Grounds of appeal: The assessee has raised additional grounds of appeal challenging the validity of assessment made by assessing officer under section 153C of the Act. The additional ground raised by the assessee is reproduced below: “On the facts and in circumstances of the case as well as law on the subject, learned Assessing Officer has erred in issuing notice under section 153C and passing assessment order under section 143(3) r.w.s. 153C of the Act.”
The relevant material facts, as culled out from the material on record, are as follows. A search action under section 132 of the Income-Tax Act, 1961 was carried out at the business as well as residential premises of the Dokania Group (Balar sub- group) of cases on 14.02.2008. In view of the above search action, a notice under section 153C of the Income Tax Act was issued on the assessee, on 09.11.2009. In response to the said notice, the assessee furnished the return of income, on 09.12.2009, declaring total income of Rs.2,67,961/-. Thereafter, a notice under section 143(2) was issued on 09.12.2009 and assessing officer framed the assessment under section 143(3) read with section 153C of the Income Tax Act, on 31.12.2009. During the assessment year under consideration, the assessee was carrying on the business of Cleaving of Diamonds on job-work basis. During the assessment proceedings, the assessing officer observed that assessee sold lands during the year and claimed Long term capital loss. The assessee had shown year of acquisition of the land in 1997 and had opening balance of the land account in his
IT(SS)A.150-154/AHD/2015 & ITA.1245/AHD/2015 Assessment Years. 2004-05 to 2008-09 & 2010-11 Jivrajbhai H. Balar books at Rs.16,118/- as on 01.04.03. During the year, the assessee debited following expenses in the head of land account, which are as under: Opening balance 16,118 01.04.03 Premium payable 17,24,800 27.05.03 Premium paid 27,59,067 19.09.03 Revenue duty paid 1200 27.09.03 Revenue paid 33,000 5.12.03 Premium paid 35,20,000 6.2.04 Revenue duty 40,000 6.2.04 Premium paid 39,60,000 31.03.04 Advance paid towards land cost in last year debited during the year 3,00,000 31.03.04 Premium payable 6,40,00,000 Total cost of land 7,63,54,185
The total area of the land 15705.859 Sq Mtr. Total land sold during the year 5289.74 Sq Mtr The assessee valued the cost of land 7,63,54,185 X 5289.74 / 15705.73 = (Rs.) 2,57,16,122/- The assessee valued the index cost of the land as under: Index of the year of purchase i.e. 1997 -98 331 Index of the year of sale i.e. 2003-04 463
Accordingly, the assessee worked out the indexed cost of land sold during the year: 2,57,16,122 X 463 / 331 = Rs 3,59,71,494/- Total sale value of the land Rs 90,91,001/- Accordingly assessee claimed Long term capital loss: (-) Rs 2,68,80,493/-
The assessee acquired the land in 1997 and shown it in the balance sheet at Rs.16,118/-. The same balance was shown till 01.04.03. In the financial year 2003- 04 i.e. AY 2004-05, the assessee paid various land premium expenses total of
IT(SS)A.150-154/AHD/2015 & ITA.1245/AHD/2015 Assessment Years. 2004-05 to 2008-09 & 2010-11 Jivrajbhai H. Balar Rs.1,06,13,267/- to the State Government. So the total cost incurred during financial year ( FY) 2003-04 including opening balance comes at Rs.1,06,29,385/-.However, assessing officer observed that assessee debited two expenses viz: Rs.17,24,800/- on 01.04.03 as premium payable and debited Rs. 6,40,00,000/- on 31.03.04, as Premium payable and raised the cost of land and shown the total cost of land at Rs.7,63,54,185/-. The land premium expenses of Rs.17,24,800/- was paid on 28.05.04 which is relating to assessment year 2005-06 and land premium payable expenses of Rs.6,40,00,000/- debited by the assessee as expenses on 31.03.04 and included in the cost, have not been paid till date. Therefore, assessing officer issued a notice to the assessee to explain land premium expenses of Rs.17,24,800/- and land premium payable expenses of Rs.6,40,00,000/-. In response, the assessee furnished a demand notice from "Nayab Collector". After verification, of such demand notice, the assessing officer observed that said demand notice, for premium was dated 09.09.2009 and till date no such premium had been paid by assessee. Instead, assessee filed special civil application in Gujarat High court challenging the same. Therefore, assessing officer noted that assessee neither accepted the order of payment of premium nor paid the same. Besides the notice was received only on 09.09.2009. The liability if any arose only on 09.09.2009. Therefore, further show cause notice was issued to the assessee.
In response to the show cause notice, the assessee submitted his explanation vide his letter dated 22.12.09, the same is reproduced below:
“As your goodself is aware, the relevant provisions of sec. 48 of the Act whereby the mode of computation of income chargeable to capital gains is prescribed read as under: "The income chargeable under the head ;capital gains' shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset, the following amounts viz;" (i) Expenditure incurred wholly and exclusively in connection with such transfer, (ii) The cost of acquisition of the asset and the cost of any improvement thereto. Since as per the notice of the Deputy Collector, Choryasi Prant, Surat, the sum of Rs.6,40,00,000/- is to be paid as premium for conversion of the impugned land into non- agricultural land character, the same constitutes the expenditure incurred
IT(SS)A.150-154/AHD/2015 & ITA.1245/AHD/2015 Assessment Years. 2004-05 to 2008-09 & 2010-11 Jivrajbhai H. Balar wholly and exclusively in connection with the transfer of the land. Your goodself will thus find that as per the above provisions of sec. 48 of the Act, the above sum is deductible from the value of sale consideration, so as to arrive at the quantum of capital gain chargeable to tax. In this regard, your goodself's kind attention is drawn to the sub-clause (i) of sec. 48 of the Act reproduced above wherein the word "incurred" is used. From the use of the word "incurred" your goodself's will find that as per the relevant provisions of the computation of capital gain as laid down in sec. 48 of the Act, the expenditure incurred in connection with the transfer is required to be deducted from the sale consideration to arrive at the chargeable capital gain irrespective of the fact whether the same is paid or not.”
However, the assessing officer rejected the contention of the assessee and observed that demand notice of the land premium payable was received by the assessee on 09.09.2009. The assessee filed special civil application to the Hon'ble High Court of Gujarat against the State of Gujarat for reduction of the amount of premium and appears to have got a stay on the order for payment of premium as nothing has been paid by the assessee so far. Hence, at this stage it is also not defined that whether the assessee will pay this premium or not in future, so when any cost which is not defined or is not necessary to be paid or the exact amount is not ascertained at the current time, the assessee cannot take this future and uncertain expenditure in the cost of property for calculating the Long term capital gain (LTCG). After considering the submission of the assessee, the assessing officer has himself computed the cost of the entire land as follows; Right Calculation for the cost of the entire land by AO: Opening balance 16118 27.05.03 premium paid 27,59,067 19.09.03 revenue duty paid 1200 27.09.03 revenue paid 33,000 5.12.03 premium paid 35,20,000 6.2.04 revenue duty 40,000 6.2.04 premium paid 39,60,000 31.03.04 Advance paid in previous year debited during 3,00,000 the year Total 1,06.29,385/-
IT(SS)A.150-154/AHD/2015 & ITA.1245/AHD/2015 Assessment Years. 2004-05 to 2008-09 & 2010-11 Jivrajbhai H. Balar 11. The assessing officer also computed the index cost of the entire land, as follows: Right Calculation for the INDEX cost of the entire land: Opening balance from 1997 Rs 16118 So index cost (16118 x 463/331) = Rs 22,545 Total expenses incurred during the year (No indexing required) Rs. 1,06,13,267 Total Index Cost of the land Rs. 1,06,35,812
Thereafter, assessing officer computed Index Cost for the Land Sold, during the Year as follows: The total Index cost of the entire land comes at Rs 1,06,35,812/-. The total area of the land was 15705.859 Sq Mtr and the land sold by the assessee during the year under consideration is 5289.74 Sq Mtr. So the index cost of the land sold during the year comes as under: 1,06,35,812 X 5289.74/ 15705.859 = 35,82,234/- (Rs) 13. Sale consideration shown by assessee for Land Sold during the Year is as follows: The assessee sold land during the year under consideration is 5289.74 Sq Mtr out of the total area of the land was 15705.859 Sq Mtr. The total sale value shown by the assessee for this part of the land was at Rs 90,91,001/-
Total sale consideration as per Stamp Duty Authority ( Jantri Price ) for the Land Sold During the Year is as follows: The assessee sold land during the year under consideration is 5289.74 Sq Mtr. The jantri price or value as per Stamp duty authority comes at the rate of Rs. 2001.06/- per sq Mtr. So the total value as per Stamp Duty Authority comes as under: 5289.74 X 2001.05 = Rs.1,05,85,101/- So from the above discussion the value of the land sold during the year as per Stamp Duty Authority comes at Rs 1,05,85,101 /- whereas the assessee shown the total sale value of the land sold during the year at Rs. 90,91,001/-.
IT(SS)A.150-154/AHD/2015 & ITA.1245/AHD/2015 Assessment Years. 2004-05 to 2008-09 & 2010-11 Jivrajbhai H. Balar 15. Based on the above facts and taking into account the provisions of section 50C of the Act, the assessing officer computed the long term capital gain as follows: Total area of the land 15705.859 Sq Mtr Total cost of the land Rs.1,06,35,812 Total area of land sold 5289.74 Sq Mtr Total cost of the land sold during the year Rs.35,82,234/- Total sale value received for the land sold during the ye Rs.90,91,001/- Total value as per Stamp value Authority for the land sold i Rs.1,05,85,101/- So the LONG TREM CAPITAL GAIN (1,05,85,101 - 35,82,234) = 70,02,867/- This long term capital gain of Rs. 70,02,867/- was added back to the total income of the assessee during the year and long term capital loss claimed by the assessee to the tune of Rs.2,68,80,493/- was disallowed by the assessing officer.
Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A). The ld CIT(A) adjudicated the issue relating to validity of assessment under section 153C of the Act, observing as follows: Apparently, the 1st ground in the original grounds of appeal regarding “18. validity of u/s 153C has been dropped in the revised grounds of appeal. Even otherwise, that ground was liable to be dismissed as a valid notice u/s 153C of the Act was issued, consequent to a search. The remaining grounds in the original grounds of appeal pertain to disallowance of the claim of ‘Capital Loss’ of the appellant and the addition u/s 50C(1) of the I.T. Act.”
On merits, the ld CIT(A) allowed the appeal of the assessee, partly observing as follows:
“19. In the revised grounds of appeal, also addition u/s 50C(1) has been challenged. However, the premiums paid / payable for conversion of land from agricultural land to non-agricultural land are claimed as ‘cost of improvement’ of land, rather that the expenses incurred for transfer of land. Consequently, claim of indexation on that has been made from the year of payment as mentioned in para 13 of this order. In the return filed, indexation was claimed from the Financial Year 1997-98. 20. In the revised grounds, the appellant also claimed indexation on the payment made to trusts requesting the said payments to be considered as ‘cost of acquisition' of land.
IT(SS)A.150-154/AHD/2015 & ITA.1245/AHD/2015 Assessment Years. 2004-05 to 2008-09 & 2010-11 Jivrajbhai H. Balar
As regards, the issue of addition u/s 50C(1), the said addition has been made due to difference in the agreement value and valuation, as per stamp duty authorities. As per section 50C(1), the stamp duty valuation is to be taken as "deemed value’’ of sale consideration. A reference u/s 50C(2) of the Act may be made to the Valuation Officer, only if the appellant makes out a prima facie for such reference. The word used is ‘MAY’ and not ‘SHALL’ and a judicial discretion is to be exercised to decide whether it is fit for reference to valuation officer or not. 22. The appellant in the grounds of appeal has not requested for reference of land for valuation. However, the fact that the State Government has charged hefty premium for conversion of land from agricultural land to non-agricultural land first at the market value of Rs.1,100 per sq mtr and then at the market value of Rs.4,800/- per sq mtr and lastly at the market value of Rs.20,000/- per sq mtr, which establishes that even the stamp duty valuation at the time of registration of sale agreement was much lower than actual fair market value of land. The revised premium demand notice by Revenue Authorities of the land convey that fair market value (jantry value) of the land was Rs.20,000/- per square meter on the date of sale. Therefore, there is no prima facie case, for reference to the Valuation Officer. Even otherwise, the appellant cannot request for reference u/s 50C(2) of the Act as the determination of premium on the basis of market value determined by land revenue authorities has been later on challenged by the appellant, before the Hon'ble High Court. 23. It is true that the stamp duty levied at the time of registration of agreement was on valuation less than Rs.20,000/- per sq mtr and the assessing officer has made addition u/s 50C(1) on the basis of that figure only. However, the fact that the State Government has later on charged premium @ 80% of Rs.20,000 per sq mtr, means that the correct fair market value of land as per land revenue / stamp duty authorities was Rs.20,000/- per sq mtr and not what was determined at the time of registration of the agreement. Though the exact break - up of premiums paid of Rs.27,59,067/-, Rs.35,20,000/- and Rs.39,60,000/- and premium payable of Rs.17,24,800/- and Rs.6,40,00,000/- has not been furnished, it is logical to presume that additional demand has been raised for short stamp duty/ short premium charged earlier. Since, the agreement mentions the land sold as non-agricultural land (as per appellant's submission), the State Government cannot have two standards for determination of market value of land one for stamp duty purpose and one for payment of premium for conversion, for agricultural land to non - agricultural land. 24. Without prejudice to the same, the issue whether he word "MAY" mentioned in the section 50C(2) of the Income Tax Act can be substituted with “SHALL” also need to be examined. The word used in section 50C(2) is “MAY”. This means it is not mandatory for the assessing officer to refer every case for valuation. The next issue is can we substitute " May' with “Shall". Let us examine the words "May" and "Shall" used in different sections of the Act. The relevant portions of some such sections where word “May" is used are reproduced herein under: (A) SECTION 142(1)
IT(SS)A.150-154/AHD/2015 & ITA.1245/AHD/2015 Assessment Years. 2004-05 to 2008-09 & 2010-11 Jivrajbhai H. Balar For the purpose of making an assessment under this Act, the Assessing Officer may serve ………… (B) SECTION 142A(1) For the purposes of making an assessment or reassessment under this Act, where an estimate of the value of any investment referred to ...........................is required to be made, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him. (C) SECTION 271(1)(C) If the Assessing Officer............ is satisfied that any person- ………………. has concealed the particulars ............... he may direct that such person shall pay by way of penalty (D) SECTION 142 (2A) If, at any stage of the proceedings before him, the assessing officer...............he may, ……………………………………… (E) 133(6) The Assessing Officer, the Deputy Commissioner (Appeals), the Joint Commissioner or the Commissioner (Appeals)] may, for the purposes of this Act,- ……………………….. (6) require any person…………………giving information in relation to such points or matters ………….. (F) 133A (1) Notwithstanding anything contained in any other provision of this Act, an income-tax authority may enter— 24.1 As against above the relevant portions of some such sections where word “Shall” is used are reproduced herein under: (A) SECTION 271D (1) If a person takes or accepts any loan or deposit in contravention of the provisions of section 269SS. he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit so taken or accepted.] (B) 271E (1) If a person repays any loan or deposit referred to in section 269T otherwise than in accordance with the provisions of that section, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit so repaid. (C) 272A(1) If any person.......................................... he shall pay, by way of penalty………… 24.2 Therefore, if 'may' can be substituted with shall, then sections 133Aand 133(6) should be invoked in every case. That will lead to an absurd interpretation. The legislature did not intend to use the words' May' and 'Shall' interchangeably.
IT(SS)A.150-154/AHD/2015 & ITA.1245/AHD/2015 Assessment Years. 2004-05 to 2008-09 & 2010-11 Jivrajbhai H. Balar 24.3 The next issue then arises as to what should be parameters for exercising discretion. Since the word “MAY" is a judicial discretion should be a judicious decision. This means that there must be a prima facie case for reference necessary in the interest of justice and judicious exercise of power of reference to ‘Experts' provided to the department in limited number at the cost of ex-chequer. Such reference is to be made only, where it is necessary due to existence of prima facie case justifying the reference. It should not be allowed to be used as tool for delaying the proceedings and using such experts in every case. 24.4 The above interpretation that ‘May’ does not mean 'Shall’ is also supported by the decision of Hon'ble Supreme Court in the decision in case of Smt. P.L Noorjahan reported in 237 ITR 570 (SC). Therefore, the undersigned is under statutory obligation to follow the same. 24.5 The next issue involved is whether there is a prime facie case in this appeal for reference to the DVO? The answer is 'NO' for the reasons discussed in para 22 and 23. Without prejudice to the same, since appellant has filed Writ Petition before Hon'ble High Court, against determination of market value, the reference cannot be made even otherwise. Moreover, the appellant has not even taken a ground / argument on this issue and has not asked for such a reference to valuation officer. 25. Coming back to the facts in the case of the appellant, the rights which the appellant had were rights as 'Ganaotia’ which were the rights of possession and doing agricultural operations under Bombay Tenancy and Agricultural Lands Act, 1948. Since the two trusts had claimed ownership rights over the land, the payment to the trust was required to be paid (as the decision of Hon'ble High Court) on the date on which, the appellant sells or transfers the land. The application for conversion of land from agricultural land to non-agricultural land was made in FYs.2002-03 and in the same year, the payment was made to the Trusts. Though it was treated as “advance” in that year and debited in the books in F Y 2003-04 when first plot was sold. The asset which has been sold is 'non-agricultural land’. In fact, the assets sold are plots having specific plot numbers and plotting scheme has been approved by the Competent Authority. Therefore, what the assessee has sold is not his right as ‘Ganaotia’ but various plots made out of non-agricultural land, approved by the Town Planning Authorities and the said asset did not exist prior to FY 2003-04 or AY 2004-05, when the first sale was made. The approvals of Government for conversion (as per appellant’s statement in Writ Petition) were received in Asstt Year 2004-05 and AY 2005-06. 26. The appellant submitted that as per sale agreements executed, the appellant has sold non- agricultural lands and as per the terms of agreement local authority cesses, education, cess, specific tax, outgoings and government dues were paid by the appellant till the date of agreement and if anything on such account was pending, it would be paid by the appellant. In case purchaser pays the same, the appellant would reimburse the same. However, all the taxes and cesses, etc. pertaining to the property, after the sale of agreement would be borne by the purchaser. Relying on those terms, the appellant claimed that the liability to pay Rs.6,40,00,000/- is of appellant and not the purchaser.
IT(SS)A.150-154/AHD/2015 & ITA.1245/AHD/2015 Assessment Years. 2004-05 to 2008-09 & 2010-11 Jivrajbhai H. Balar 27. As regards penalty appeals, the penalty has been levied in respect of the above additions made by the assessing officer. Therefore, only the grounds of appeal for the assessment year 2004-05 in respect of penalty appeals are reproduced herein under, for reference. 1) The ld AO has erred in law and on facts in levying penalty u/s 271(1)(c) of the Act to the tune of Rs.14,00,573/- in respect of the addition made on the ground of earning of alleged long term capital gain. 2) It is, therefore, prayed that the impugned penalty levied by the Ld AO be deleted. 3) The Appellant craves leave to add, amend, alter, modify, substitute, delete, change or vary all or any of the Ground or Grounds of Appeal." The grounds of appeal in all years are identical. 28. In respect of penalty appeals, the appellant submitted that mere making of claim does not amount to ‘concealment of income' and no material facts were suppressed before the Assessing Officer. The appellant submitted that the claim made was a bonafide claim and relied on a large number of judicial pronouncements in support of claim. 29. The contention of the appellant and the arguments of the Assessing Officer have been examined for both quantum appeals/ penalty appeals. 30. As regards the quantum appeals, the issue is decided as under: (a) The amount of Rs.16,118/- paid in FY 1997-98 is to be treated as ‘cost of acquisition’ of land and indexation is to be given in respect of the same on the basis of cost inflation index of FY 1997-98 and the year of sale on the proportionate cost, out of Rs.16,118/- (in proportion to the area sold in each assessment year and the total area of all the plots). (b) The premium of Rs.1,02,39,067 paid in the Financial Year 2003-04 is to be treated as 'cost of improvement" and proportionate cost of improvement is to be worked out in respect of land sold in each assessment years, in the ratio of area of land sold to the total area of all the plots taken together. (c) The indexation benefit is not to be given for AY 2004-05 in respect of premium of Rs.1,02,39,067/-. It will be given from AY 2005-06 onward on the basis of cost inflation index of F Y 2003-04 and the year of sale. (d) As regards, the amount of Rs.3,00,000 paid to the Trust as per the order of the Hon'ble Gujarat High Court, the said amount was to be paid by the appellant, if he decided to sell or transfer the land and that too in the year of sale. Therefore, technically, this was an appropriation of sale consideration of land by over riding title, in view of the decision of the Hon'ble High Court. As a result, this amount of Rs.3,00,000 is to be treated as “Expenditure" incurred for transfer of land. The corresponding amount for each year is to be worked out in the ratio of area sold in
IT(SS)A.150-154/AHD/2015 & ITA.1245/AHD/2015 Assessment Years. 2004-05 to 2008-09 & 2010-11 Jivrajbhai H. Balar that year to the total area of all the plots. Since this amount is to be treated as "Expenditure” in connection with transfer, this is required to be deducted from the sale consideration. However, no indexation benefit is to be given. (e) As regards, the land revenue and land revenue duty paid Rs.74,200/- in FY 2003-04, this is a recurring expenditure, in respect of land revenue and it cannot be treated as 'cost of acquisition', cost of improvement, or expenditure related to the transfer. Therefore, no deduction for this amount is to be given. (f) The premium of Rs.17,24,800/- has been paid on 28.05.2009 i.e. in FY 2009-10 as per page 4 of the appellant's submission dated 06.05.2010. Therefore, in respect of sales made from the assessment years 2004-05 to Asstt Year 2008-09, no deduction for this amount would be given. However, as mentioned in para '14' of this order, this aspect need to be verified by A.O. If the payment of this amount was made in F.Y 2004-05, then this amount will be treated as cost of improvement from A.Y 2005-06 onwards. Indexation will however be allowed from A.Y.2006-07 onwards in the ratio of cost inflation index of the year of sale and cost inflation index of F.Y 2004-05. Cost of improvement would be worked out in the ratio of area of plots sold to the total area of all the plots taken together. As regards the premium payable of Rs.6,40,00,000/- the said liability had arisen in Asstt Year 2010-11. But at the time this liability had arisen, the statutory limitation for filing the return u/s 139(1) had expired, till Asstt Year 2008-09. The statutory limitation period for filing of return, u/s 139(4) had also expired for assessment year 2007-08. In fact for all the assessment years under appeal, no returns of income were filed u/s 139(1)/139(4) of the IT Acts except for AY.2008-09. The returns of income for the first time has been filed u/s 153C of the IT Act for these years. For A Y 2008-09 it was filed u/s 139(4). The section 153C of the Income Tax Act is similar to section 148 and has been enacted to assess re-assess an income which had escaped assessment and detected, consequent to a search u/s 132, or requisition u/s 132A. In the said return, claim of liability cannot be made which had not arisen by the time, the return of income u/s 139 (1) or 139(4) was due. Even otherwise, the appellant has not paid this amount of Rs.6,40,00,000/- till date and has disputed the same, for intimation before the Hon'ble High Court. Apparently, the levy has been stayed and the liability has not crystallized. Without prejudice to the same, the letter for such disputed liability was issued and received in Asstt Year.2010-11. Therefore, no deduction for this amount of Rs.6,40,00,000 is allowed as ‘cost of improvement’ or ‘expenses’ in connection with transferor both the above reasons i.e. the liability did not accrue in A.Y 2004-05 to A.Y 2008-09 and even after A.Y 2010-11 that it has neither crystallized nor paid till date. (i) Addition u/s. 50C(1) for all the years is confirmed in view of discussion from para 21 to 24 of this order. 30.1 It need to be clarified that total area of land and total area of all the plots taken together may not be the same. Due to plotting scheme, some area must have been left for roads etc. Therefore, for apportionment of cost, the area of all the plots taken together will go to the denominator and not the total area of land. The A.O will work out the cost in this manner for the decision given in para 30(a) to 30(i) of this order.
IT(SS)A.150-154/AHD/2015 & ITA.1245/AHD/2015 Assessment Years. 2004-05 to 2008-09 & 2010-11 Jivrajbhai H. Balar
From the above findings of Ld. CIT(A), it is clear that Ld. CIT(A) allowed the appeal of the assessee partly.
Aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us.
Shri Rasesh Shah, Learned Counsel for the assessee begins by pointing out that assessee was not supplied the satisfaction note recorded under section 153C of the Act, although assessee filed the return of income within due date mentioned under notice of 153C of the Act. The Learned Counsel pointed out that as per the guidelines given by the Hon’ble Gujarat High Court in case of Sahakari Khand Udhyog Mandli Ltd. v/s. ACIT – 370 ITR 107, which was in context of section 148 of the Act, wherein it was laid down that assessing officer should supply reasons recorded in response to return filed under section 148 of the Act within 30 days of filing of return of income. After raising the additional ground, assessee requested to assessing officer, vide assessee`s letter dated 03.08.2021 to furnish the copy of the satisfaction note but the satisfaction note was not supplied to the assessee. Though, the assessee has raised the ground regarding validity of assessment made under section 153C of the Act before CIT(A) but it was not pressed. However, assessee again raised the ground regarding validity of assessment made under section 153C of the Act before Honorable Tribunal. The ld Counsel also pointed out that since it is a legal issue, and all facts are already on record, therefore such ground can be raised at any point of time. 21. The ld Counsel further pointed out that assessing officer has not recorded the satisfaction note before issue of notice under section 153C of the Act, therefore, proceedings under section 153C becomes invalid in view of decision of Hon`ble Gujarat High Court in case of PCIT vs. Munisuvrat Corporation - Tax Appeal No. 187 of 2019. The SLP filed by the Department in Supreme Court was also dismissed in this case reported as 115 taxmann.com 265. The ld Counsel also relied on the circular no. 24 of 2015 issued by the CBDT.
IT(SS)A.150-154/AHD/2015 & ITA.1245/AHD/2015 Assessment Years. 2004-05 to 2008-09 & 2010-11 Jivrajbhai H. Balar 22. Without prejudice to the above, Learned Counsel also submitted that addition if any can be made under section 153C of the Act, based on incriminating material found during the search. In fact, there was no incrementing material found during the course of search in respect of the assessee under consideration, therefore no addition should be made in the hands of the assessee.
On merits, learned Counsel submitted that assessee is following mercantile system of accounting, therefore liability in respect of premium payable of Rs.6,40,00,000/- has accrued in the hands of the assessee, hence eligible for index cost of acquisition. The ld Counsel also submitted that indexation benefit in respect of conversion taxes and amount paid to trust has not been provided to the assessee which is not acceptable in the eye of law.
On the other hand, the Ld. DR for the Revenue, vehemently pleaded that issue relating to satisfaction note, under section 153C of the Act was there before the assessing officer. However, during the appellate proceedings, although the assessee has raised ground relating to section 153C of the Act, but did not press,( waived the ground) hence there is no adjudication by ld CIT(A) on the issue of satisfaction note, under section 153C of the Act. Therefore, at this stage the assessee does not have right to raise this legal issue.
On merits, learned DR pleads that liability in respect of premium payable of Rs. 6,40,00,000/- has not been paid till date, hence liability has not been crystalized therefore, no benefit of cost of acquisition should be provided to the assessee in respect of premium payable of Rs. 6,40,00,000/-. Besides, indexation benefit in respect of conversion taxes should not be allowed to assessee, as these are routine expenses, and amount paid to trust belongs to current assessment year hence indexation benefit should not be provided. Therefore, ld DR prays the Bench that addition made by the assessing officer should be confirmed.
We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case
IT(SS)A.150-154/AHD/2015 & ITA.1245/AHD/2015 Assessment Years. 2004-05 to 2008-09 & 2010-11 Jivrajbhai H. Balar laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. Before us, ld Counsel has raised additional grounds of appeal stating that assessing officer has not recorded the satisfaction note before issue of notice under section 153C of the Act, therefore, proceedings under section 153C becomes invalid and therefore assessment order passed by the assessing officer under section 153C r.w.s 143(3) should be quashed. We note that during the assessment stage, the assessee has raised the issue challenging the validity of assessment under section 153C of the Act. During the assessment proceedings the assessee requested the assessing officer to furnish the copy of the satisfaction note but the satisfaction note was not furnished to the assessee. On appeal, the assessee has raised the grounds of appeal before ld CIT(A) challenging validity of assessment made under section 153C of the Act, however, the assessee did not press this ground hence there is no detailed adjudication by CIT(A) on this issue. We note that in brief manner, the ld CIT(A) also adjudicated the issue relating to validity of assessment made under section 153C of the Act, observing as follows: Apparently, the 1st ground in the original grounds of appeal regarding “18. validity of u/s 153C has been dropped in the revised grounds of appeal. Even otherwise, that ground was liable to be dismissed as a valid notice u/s 153C of the Act was issued, consequent to a search. The remaining grounds in the original grounds of appeal pertain to disallowance of the claim of ‘Capital Loss’ of the appellant and the addition u/s 50C(1) of the I.T. Act.”
From the above findings of ld CIT(A), it is abundantly clear that issue relating to validity of assessment made, under section 153C of the Act, was there before the ld CIT(A), however, ld CIT(A) dismissed the ground of the assessee stating that valid notice under section 153C was issued to the assessee. Therefore, issue relating section 153C was there before both the authorities, that is, before Assessing Officer as well as before Ld. CIT(A). We do not find merit in the arguments of ld DR for the Revenue to the effect that assessee did not press, (waived the ground) relating to the issue of satisfaction note, under section 153C of the Act, therefore, before Tribunal assessee does not have right to raise this legal issue. We note that even if the assessee waived the ground regarding validity of
IT(SS)A.150-154/AHD/2015 & ITA.1245/AHD/2015 Assessment Years. 2004-05 to 2008-09 & 2010-11 Jivrajbhai H. Balar assessment made u/s 153C of the Act, even then, assessee has right to raise such legal issue again before the Tribunal. Such action of the assessee is permitted under the law as held by the Hon’ble Gujarat High Court in case of Ramilaben Ratilal Shah vs. CIT - 152 Taxman 37. The findings of the Hon`ble Court is reproduced below: “10. Insofar as question No. 1 is concerned the Tribunal’s order cannot be permitted to stand. In the case of P.V. Doshi (supra) this High Court in almost identical fact situation held that the conditions prescribed for initiating reassessment proceedings are mandatory and, therefore, there could never be a waiver of mandatory provision. That jurisdiction could not be conferred on the authority by mere consent, but only on fulfilment of conditions precedent for the exercise of jurisdiction. If jurisdiction could not be conferred by consent, there would be no question of waiver, acquiescence or estoppel or the bar of res judicata being attracted because the order in such a case would lack inherent jurisdiction and would be a void order or a nullity. Therefore, in the facts of the present case the Tribunal had wrongly come to the conclusion that the assessee had waived its right to challenge reassessment proceedings before CIT(A), and was thus not entitled to raise the said challenge before the Tribunal.”
From the above judgment of Hon`ble Jurisdictional Gujarat High Court in the case of Ramilaben Ratilal Shah(supra), it is vivid that legal issue can be raised by the assessee before the Tribunal. We note that assessee raised the objections about validity of assessment under section 153C of the Act during the assessment stage was well as during the appellate stage. Learned Counsel submits before us that additional ground of appeal may be admitted as it is being purely a legal issue and all facts are already on record. On the other hand, Learned DR for the Revenue pleaded that at this stage the assessee cannot raise additional ground on legal issue. We note that it is purely a legal issue and all facts are already on record which goes to the root of the matter and no further inquiry is required for deciding the same as all facts are already on record. Therefore, in the light of ratio laid down by the Hon'ble Supreme Court in the case of National Thermal Power Company Ltd., vs. CIT (1998) 229 ITR 382 (SC), we admit the additional ground raised by the assessee, (challenging the validity of assessment under section 153C of the Act).
It is undisputed fact that under Article 265 of the Constitution, the State is entitled to recover or realise only that tax which is imposed in accordance with law.
IT(SS)A.150-154/AHD/2015 & ITA.1245/AHD/2015 Assessment Years. 2004-05 to 2008-09 & 2010-11 Jivrajbhai H. Balar It is the duty of the State to see that justice is done to its citizens. The Hon’ble Supreme Court of India has held that this provision under Article 265 of the Constitution of India is applicable not only for levy but also for the collection of taxes and the expression “assessment” within its compass covers both the aspects carried out by the executive functionary.[Chottabhai Vs. Union of India 1962 SCR Supl.2 1006 ]. Therefore, it is required that whole of the process of taxation must follow the procedures which are valid under the law and must adhere to law i.e. substantive one as well as procedural one too. Therefore, in other words it is provided in the Constitution of India that every step should be taken to ensure that levy and collection of the taxes is strictly in accordance with law–not only substantive one but the procedural law, as well.
The Ld Counsel contended before us that assessee was not supplied the satisfaction note recorded under section 153C of the Act despite of the request made by the assessee during the assessment stage. The Ld Counsel pointed out that it is the duty of the assessing officer to furnish the copy of the satisfaction note to the assessee, however he has failed to do so. The assessee has filed his return of income within due date mentioned in the notice under section 153C of the Act, however assessing officer has not supplied the satisfaction note. In such case the proceedings under section 153C of the Act becomes invalid. For this, Ld Counsel relied on the judgment of Jurisdictional Hon’ble Gujarat High Court in case of PCIT Vs. Munisuvrat Corporation - Tax Appeal No. 187 of 2019. The findings of the Hon`ble Court is reproduced below: “3. It appears from the materials on record, that the assessment was finalised under Section 143(3) r.w.s 153C of the I.T Act on 30.3.2014 consequent to the search action under Section 132 of the I.T Act determining the total income at Rs.11,65,31,847/-. It also appears that in the assessment order, an addition was made amounting to Rs.11,65,91,847/-, on the basis of the document being 'saudachithi'. The said document was recovered from the bank locker of one Shri Kirit M. Shah and was seized. The sale price reflected is Rs.16,17,91,847/- whereas, the sale consideration shown in the registered sale deed was only to the tune of Rs.4,52,60,000/-. Thus, the difference of Rs.11,65,31,847/- was added to the total income as unexplained expenditure under Section 69C of the Act.
IT(SS)A.150-154/AHD/2015 & ITA.1245/AHD/2015 Assessment Years. 2004-05 to 2008-09 & 2010-11 Jivrajbhai H. Balar 4. Being aggrieved by the assessment order, the assessee preferred appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee and confirmed the addition made by the Assessing Officer. 5. Being dissatisfied by the order of the CIT(A), the assessee preferred second appeal before the ITAT. The ITAT allowed the appeal of the assessee, holding the assessment to be illegal and void ab-initio. The Revenue, being dissatisfied with the order of the ITAT, has approached this Court with the present Appeal. 6. We take notice of the principal argument that was canvassed by the assessee before the ITAT. The principal argument has been noted by the ITAT in para 7, which reads as under:
"7. Feeling aggrieved and dissatisfied, the assessee has come up before this Tribunal by way of this appeal. The learned counsel for the assessee submitted that section, 153C of Income Tax Act, 1961, prescribed a mandatory requirement of recording of satisfaction by the AO of seized person about the belonginess of seized material by other person. The AO of the searched person is also required to hand over such searched material to the AO of the other person who then proceed for making the assessment of other person. In the instant case, the AO of the searched person has not recorded the satisfaction in the assessment of the assessee. The assessee has raised this issue before the learned CIT(A) but learned CIT(A) has taken adverse view by holding that the AO had jurisdiction over under section 153 C of the Act as the satakhat belonged the assessee. Hence, the AO was fully empowered to initiate proceedings under section 153 C of the Act. The learned counsel for the assessee, referred the CBDT circular No. 24/2015 dated 31st December 2015 which is regarding recording of satisfaction under section 158BD/153C of the Act wherein in para 4 it was mentioned as "The guidelines of the Hon'ble Supreme Court as referred in para 2 above, with regard to recording of satisfaction note may be brought to the notice of all for strict compliance. It is further clarified that even if the AO of the searched person and "other person" is one and the same, then also he is required to record his satisfaction as held by the courts." The learned counsel for the assessee, submitted that the assessment proceedings carried under section 153-C of the Income Tax Act, 1961 were without recording of any satisfaction by the AO. The learned counsel contended that in the assessee's case no satisfaction was recorded by the AO of the person searched. The learned counsel for the assessee submitted that assessee has requested the AO vide letter dated 17th April 2018 to furnish copy of satisfaction note recorded under section 153 C in the case of to represent the case before Tribunal. However, it was not supplied to the assessee. Therefore, the Bench of Tribunal has also requested the AO vide letter dated 17th April 2018 to furnish copy of satisfaction note recorded under section 153C in the case of to represent the case before Tribunal. However, it was not supplied to the assessee. Therefore, the Bench of Tribunal has also requested the learned Departmental Representative to supply copy of satisfaction note if any recorded by the AO. In compliance thereof, the AO vide letter dated 20.8.2018 submitted that looking to facts that not only satisfaction note but also order sheet are not traceable, it is very likely that the AO was maintaining confidential folder incorporating important papers somehow got misplaced hence, not ready available with the AO i.e. Income Tax officer, ward-1(3)(7) Surat also filed an affidavit dated 17.8.2018 to this effect that from transfer memo of records,
IT(SS)A.150-154/AHD/2015 & ITA.1245/AHD/2015 Assessment Years. 2004-05 to 2008-09 & 2010-11 Jivrajbhai H. Balar no satisfaction note was received and same is not available on assessment record. The assessee is also agitating that even in its own case no satisfaction was recorded as regard to its belongingness to certain incriminating documents seized from the premises of Shir Kiritbhai M. Shah. The learned counsel for the assessee further relied in the case of Pepsi co India Holding Pvt. Ltd. V. ACIT (2015) 370 ITR 295 (Delhi) (2014) 50 taxmann.com 199 (Delhi) wherein it was observed as follows: "In the instant case, it is nobody's case that Jaipuria Group had disclaimed those documents as belonging to them. Unless and until it is established that the documents as belonging to them. Unless and until it is established that the documents do not belong to the searched person, the provisions of section 153C do not get attracted because the very expression used in section 153 C is that 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 153 A...". In view of this phrase, it is necessary that before the provisions of section 153 C can be invoked, the Assessing officer of the searched person must be satisfied that the seized material ( which included documents) does not belong to the person referred to in section 153 A, i.e., the searched person. In the satisfaction note, which is the subject matter of these writ petitions, there is nothing therein to indicate that the seized documents do not belong to the Jaipuria Group. This even apart from the fact that there is no disclaimer on the part of the Jaipuria Group insofar as these documents are concerned.(para 14)" 6. The Tribunal, ultimately recorded its findings as reflected in para 12 of the impugned order, which read thus:
"12. We have heard the rival submissions and have perused the materials available on record. We find that the assessing officer has issued notices under section 153C of the Act based on search under section 132(1) which was carried out in the case of Shri Kirit M. Shah. The Assessing Officer issued notices under section 153C and initiated the assessments proceeding for the years under consideration. The provisions of section 153C can be invoked only after recording a satisfaction in the case of persons searched qua the assets or books or documents seized during the course of search belong to some other person. In the instant case, the Assessing officer of other concerned assessee has not recorded any satisfaction qua the belongingness of the seized documents with the assessee. Similarly, as admitted by the AO vide letter dated 20.8.2018 that there was no satisfaction note is available in the case of the assessee, led to believe that there was no satisfaction note recorded int he case of the assessee as well as in the case searched person, therefore, the assessment proceeding initiated by way of issue of notice under section 153C read with section 153A is bad in law. The Hon’ble Delhi High Court in the case of Pepsi Co. India Holding Pvt. Ltd. V. ACIT (2015) 370 ITE 295 (Delhi) (2014) 50 taxmann.com 199(Delhi) "where the Assessing officer is satisfied that any money , bullion jewellery or other valuable article or thing or books of account or other than the person referred to in section 153A.." In view of this phrase, it is necessary that before the provisions of section 15 C can be invoked, the Assessing officer of the searched person must be satisfied that the seized material (which includes documents) does not belong to the person referred to in section 153 A i.e., the searched person. In the satisfaction note, which is the subject matter of these writ
IT(SS)A.150-154/AHD/2015 & ITA.1245/AHD/2015 Assessment Years. 2004-05 to 2008-09 & 2010-11 Jivrajbhai H. Balar petitions, there is nothing therein to indicate that the seized documents do not belong to the Jaipuria Group. This is even apart from the fact that there is no disclaimer on the part of the Jaipuria Group insofar as these documents are concerned. In the present case, there is not satisfaction that seized document belonged to the assessee. Ttherefore, proceeding initiated under section 153 C are bad in law." The similar issue had come up before the Hon’ble High Court of Madhya Pradesh int he case of CIT Vs Mechmen (2015) 60 taxmann.com 484 (MP), wherein the Hon’ble High court discussing the various judgments has held that the AO is obliged to record satisfaction (in case of the searched person) that the assets or documents do not belong to the searched person and these in fact belong to some other persons other than the searched person. This is sine quo non despite the fact that the AO of searched and non-searched person is same. Thereafter, he has to handover the material to the AO of non searched person having jurisdiction over him (may be the same AO). After receipt of the material and due verification, the AO of non-searched person has to issue notice under section 153 C of the Act and to proceed in the matter. Thus, we are of the view that the Assessing officer of the person searched has to necessarily form a satisfaction that the item referred to in section 153 C belongs or belong to a person other than the person searched. Apparently, in the present appeals, no such satisfaction has been recorded by the Assessment officer. The learned DR has not controverted the submission of the learned counsel for the assessee that in the case of the persons searched, no satisfaction as regard to the belongingness of any document to the present assessees was recorded. The learned counsel for the assessee relied on circular No. 24/2015 dated 31.12.2015, issued by the CBDT, in which, the Board following the decision of Hon'ble Supreme Court in case of M/s Calcutta Knitwear's (civil Appeal No. 3958 of 2014 dated 12.3.2014), has directed that where the satisfaction by the Assessing officer of the person searched and other person is not found recorded, the Department should not press that mater in Appeal. Thus, keeping in view rival submissions in light of judicial pronouncements as discussed above and CBDT Circular (supra) the assessment in the assessee case for the assessment year under consideration is held as illegal and void-ab initio. Accordingly, the grounds raised by the assessees relating to applicability of section 153C are allowed." 7. Having heard the learned counsel appearing for the parties and having gone through the materials on record, we are of the view that no error, not to speak of any error of law, is said to have been committed by the Tribunal in the impugned order. 8. We would not like to disturb the finding of fact arrived at by the Tribunal. 9. In the result, this Appeal fails and is hereby dismissed.”
The SLP filed by Department in Supreme Court was also dismissed in the case of Munisuvrat Corporation (supra) reported as 115 taxmann.com 265. Based on this factual position, Ld. Counsel prays the Bench that assessment order framed under section 153C of the Act may be quashed.
IT(SS)A.150-154/AHD/2015 & ITA.1245/AHD/2015 Assessment Years. 2004-05 to 2008-09 & 2010-11 Jivrajbhai H. Balar 31. We have heard both the parties on this legal issue and note that Assessing Officer should provide the satisfaction note that to the assessee, and if the Assessing Officer fails to do so, then in that situation assessment proceedings would became illegal and void ab initio, as held by the jurisdictional Hon'ble Gujarat High Court in the case of Munisuvrat Corportion (supra).
Without prejudice to above, ld Counsel also pleaded that addition for AY 2004-05 to 2007-08 are not valid as they are not based on any material found in the course of the search. The assessment for A.Y. 2004-05 to 2007-08 were framed u/s 153C of the Act, therefore the addition should be based on incriminating material found in the course of the search where assessment is pending. It is to be noted that for all these four years no assessment were pending as no notice u/s 142(1) or 148 were issued before issue of notice u/s 153C of the Act on 09.11.2009. To support his arguments, Ld. Counsel relied on the following judgments: PCIT vs Saumya Construction [81 taxmann.com 292] (Guj HC) CIT vs Continental Warehousing Corporation (Nhava Sheva) Ltd [58 taxmann.com 78] (Bombay HC) CIT vs Kabul Chawla [380 ITR 573] (Del HC)(SLP Dismissed in SC – 380 ITR (ST) 4) CIT vs Veerprabhu Marketing Ltd.[ 388 ITR 574](Cal HC) PCIT vs. Meeta Gutgutia [ 82 taxmann.com 287 ](Del. HC)
We note that following were the disputed expenditure:
Opening balance 16,118 01.04.03 Premium payable 17,24,800 27.05.03 Premium paid 27,59,067 19.09.03 Revenue duty paid 1200 27.09.03 Revenue paid 33,000 5.12.03 Premium paid 35,20,000 6.2.04 Revenue duty 40,000 6.2.04 Premium paid 39,60,000 31.03.04 Advance paid towards land cost in last year debited during the year 3,00,000 31.03.04 Premium payable 6,40,00,000 Total cost of land 7,63,54,185
IT(SS)A.150-154/AHD/2015 & ITA.1245/AHD/2015 Assessment Years. 2004-05 to 2008-09 & 2010-11 Jivrajbhai H. Balar
The premium was paid by the assessee by account payee cheque to the government. Taxes paid by assessee for the purpose of conversion of agricultural land to non- agricultural land cannot be incriminating material, because these taxes were paid by the assesse to the Government as per Government rules. Therefore, amount paid to Government, has already been disclosed by the assessee. The premium paid or payable to Government cannot be incriminating material, as necessary records are with the Government and assessee. Land Revenue paid by the assessee and amount paid to two trusts should not be incriminating material, as these payments were disclosed by the assessee.
Therefore, no addition/disallowance can be made by the AO without the aid of incriminating material seized/unearthed qua the assessee. We note that assessments were not pending on the date of search, no addition/disallowance can be made by the AO without the aid of incriminating material found/unearthed during search. For coming to such a conclusion, we rely on the order of Hon’ble Delhi High Court in CIT vs. Kabul Chawla (2016) 380 ITR 573 (Del), wherein their lordships have held as under:
“Summary of legal position 37. On a conspectus of Section 153A(1) of the Act, read with 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 153A(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 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
IT(SS)A.150-154/AHD/2015 & ITA.1245/AHD/2015 Assessment Years. 2004-05 to 2008-09 & 2010-11 Jivrajbhai H. Balar 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 property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.
We also note that the Hon'ble Calcutta High Court in ITA No. 661 of 2008 Commissioner of Income Tax vs.Veerprabhu Marketing Ltd. has also held as under:
“We agree with the view expressed by the Karnataka High Court that incriminating material is pre-requisite before power could have been exercised u/s 153(C) r.w Section 153(A). In the case before us, the AO has made a disallowance of the expenditure, which was held disclosed, for one reason or the other, but such disallowances made by the AO were upheld by the LD.CIT(A) but the Ld. Tribunal deleted these disallowance. We find no infirmity in the aforesaid Act of the Ld. Tribunal. The appeal is, therefore, dismissed”.
Since the assessments were not pending on the date of search and no incriminating material qua the assessee was the basis for the addition/disallowance, so we allow the appeal of the assessee.
The assessing officer did not allow index cost of acquisition in respect of land revenue, premium paid/payable, and payment to trusts. We note that these expenses were already on record and paid by the assessee to the Government. However, a part of the premium is still payable by assessee. The assessee did not hide any expenditure. It is also not the case of the assessing officer that assessee has paid land revenue, premium etc. to the Government out of unaccounted income.
IT(SS)A.150-154/AHD/2015 & ITA.1245/AHD/2015 Assessment Years. 2004-05 to 2008-09 & 2010-11 Jivrajbhai H. Balar Therefore, search team did not find any new material, hence without incriminating material, the addition should not be made. We also note that assessee has not been provided satisfaction under section 153C of the Act, hence assessment framed by the assessing officer becomes invalid. Therefore, we delete the additions for assessment years 2004-05 to 2007-08. 38. Since, we have allowed the appeal of the assessee, based on the alternative plea raised by the ld Counsel that no incriminating material were unearthed by the search team during the search action, therefore, we do not deal with other arguments made by the ld Counsel on merits. 39. Since, we have adjudicated the issue taking lead case in IT(SS)A Nos.150/AHD/2015 for assessment year 2004-05. The facts as well as grounds of appeal raised by the assessee in other assessment years are same and identical, therefore our above observations made in IT(SS)A Nos.150/AHD/2015, shall apply mutatis mutandis to the aforesaid other appeals of the assessee, except appeals pertaining to assessment years 2008-09 and 2010-11. 40. In the result, appeals filed by the assessee for assessment years 2004-05 to 2007-08, ( IT(SS)A Nos. 150 to 153), are allowed. 41. For assessment years 2008-09 and 2010-11, we note that these two assessments were framed by the assessing officer under section 143(3) of the Act, and these assessments are abated assessments therefore, the concept of incriminating material do not apply to these assessment years. As per ld Counsel, since the disputed premium payable Rs. 6,40,00,000/- has not been settled by the Hon`ble Gujarat High court, and dispute is still going on. Therefore, we remit back these two appeals to the file of the assessing officer with the direction to calculate the index cost of acquisition as per the outcome of the judgment of the Hon`ble Gujarat High Court.
IT(SS)A.150-154/AHD/2015 & ITA.1245/AHD/2015 Assessment Years. 2004-05 to 2008-09 & 2010-11 Jivrajbhai H. Balar 42. In the result, appeal filed by the assessee for assessment years 2008-09 and 2010-11 (IT(SS)A No.154/Ahd/2015 & ITA No.1245/Ahd/2015) are allowed for statistical purposes.
Registry is directed to place one copy of this order in all appeals folder / case file(s).
Order is pronounced in the open court on 31/05/2022 by placing the result on the Notice Board as per Rule 34(5) of the Income Tax (Appellate Tribunal) Rule 1963.
Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat �दनांक/ Date: 31/05/2022 SAMANTA Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. Pr.CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr.PS/PS ITAT, Surat