2025 (10) TMI 748 - AT - Income Tax

Additions under assessment u/s 153A deleted as based on books not incriminating seizure; s.2(14)(iii) excludes agricultural lands

The ITAT (Mumbai) deleted additions made under assessment u/s 153A, holding they were not based on incriminating material seized during search but on the ... Assessment u/s 153A - Receipts as un-explained income - addition on account of brokerage income - HELD THAT:- Admittedly in the instant case, the assessment is unabated and it clearly appears from the opening stanza for making the addition in hand by the AO, that there is no reference of any incriminating document found during the search action carried out on 10.04.2013. Admittedly the Assessee in his books of account, had shown · advance received from VIPL, which resulted into making the addition, which goes to show that the addition under consideration does not emanate from any incriminating material found during the course of search and seizure operation carried out, but in fact the same is based on firstly the books of account of the Assessee, which were already available and considered by the AO while framing the original assessment order u/s 143(3) of the Act and secondly on the basis of verification done post search and during the course of assessment proceedings of VPPL that the Assessee has received brokerage from VPPL, therefore in view of the dictum laid down by the Hon'ble Apex Court in Abhisar case [2023 (4) TMI 1056 - SUPREME COURT] the addition in hand is unwarranted, hence the same is liable to be deleted on this score itself. Advance received from VIPL towards land deal - AO alternatively treated the said amount as addition u/s 41(1) - Addition in hand has been made only on the basis of 'fixed assets' schedule' which was available prior to search proceedings and Survey of India Report which is admittedly based on enquiry conducted post search but not before to that. It is also admitted fact that the assessment order has been passed u/s 153A of the Act but not u/s 153C of the Act, hence even otherwise any incriminating document found during the search of VPPL and VIPL (3rd person) but not the Assessee, has no relevance, until and unless the assessment proceedings have been initiated u/s 153C of the Act by following the due procedure of law, as enshrined in the provisions of section 153C of the Act, which is not the case here. Even otherwise, the Revenue Department during the course of search action carried out in the case of the Assessee also, had not found any incriminating material/documents leading to the addition in hand or the other addition adjudicated above, as appears from the Panchnama drawn during the course of search on 10.04.2013 at the premises of the Assessee. And therefore, both the authorities below in the respective orders passed by them, have also not pointed out any such incriminating material/document. Whereas it is an admitted fact that the details of the property sold depicting in the 'fixed assets' schedule' of the Assessee and the AO for making the addition used the details of 'fixed assets' schedule' only but admittedly not any incriminating material/documents. Addition of capital gain - Assessee in order to substantiate its claim that the lands sold by the Assessee were agricultural lands, has submitted the copies of revenue record i.e. 7/12 extracts confirming the year-wise calculation of the agricultural produces sold - Considering the claim of the Assessee u/s 2(14)(iii) of the Act, actual carrying on of the agricultural activity is not a necessary condition for deciding that nature of land as agriculture. Only Section 10(37) and Section 54B of the Act provide for agricultural activity to be carried out, as held by Hon'ble high Court and this is not the case of the Revenue here. As the Hon'ble Bombay High Court in Nitish Ramesh Chandra Chordia [2015 (4) TMI 227 - BOMBAY HIGH COURT] has reiterated 'that it is settled law that in such matters when there is any doubt or confusion, the view in favour the Assessee needs to be adopted', thus, on aforesaid analyzations, we are of the considered view that the lands sold by the Assessee were agricultural lands and did not fall within 8 Kms. from the outer limit of Panvel Municipal Council, hence the same cannot be considered as capital asset under the provisions of section 2(14) of the Act and therefore the Assessee has correctly not offered any profit earned from sale of agriculture lands situated outside limit as prescribed in section 2(14)(iii) of the Act. Consequently, addition under considerations on merits as well, is also liable to be deleted. ISSUES PRESENTED AND CONSIDERED 1. Whether addition of Rs. 6,81,11,103 by the Assessing Officer as brokerage/unexplained income is sustainable where (a) the assessment for the year was unabated on search under section 132, (b) no incriminating material pertaining to the assessee was found during search, and (c) the assessee produced post-assessment confirmations and ledger entries claiming the receipts were advances for land transactions. 2. Whether addition of Rs. 10,42,97,083 on account of short-term capital gains (and partly long-term capital gains) arising from sale of lands is sustainable where (a) the assessment was under section 153A after search but unabated, (b) the addition relied on a Survey of India/aerial report prepared post-search and fixed-assets schedule available pre-search, and (c) the assessee contends the lands were agricultural and situated beyond the statutory radius applicable for the assessment year. 3. Admissibility of additional evidence filed before the Appellate Authority under Rule 46A and whether failure to admit such evidence justifies sustaining additions. 4. Correct legal test for determining whether land qualifies as agricultural land for exemption from capital gains for the assessment year involved: measurement of distance (shortest road distance v. aerial) and requirement (if any) of carrying on agricultural operations. 5. Whether, as a matter of law, the Assessing Officer exercising jurisdiction under section 153A can make additions in respect of completed/unabated assessments in absence of incriminating material unearthed during search (application of the ratio in Abhisar judgment reproduced by the Tribunal). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Addition of Rs. 6,81,11,103 as brokerage/unexplained income Legal framework: Relevant provisions include sections 132, 153A (reopening on search), section 41(1) (remission/cessation), and provisions governing assessment of unexplained income; procedural safeguards under Rule 46A for adduction of additional evidence. Precedent treatment: The Tribunal relied on the Supreme Court decision in Abhisar (summarised in para 14 reproduced in the order) establishing that where a search under section 132 results in unabated/completed assessments, no addition can be made in absence of incriminating material unearthed during search; but if incriminating material is found the AO may reassess taking that material into account. Interpretation and reasoning: The Tribunal found the addition did not originate from any incriminating material seized in the assessees' search; it was premised on (i) the assessee's own books showing an advance entry and (ii) verification during assessment of a group company showing a brokerage payment, documents and ledger entries that were not available to the AO at original assessment but were produced later (post-search). The Tribunal accepted that the confirmations and ledger statements, though filed post-assessment, corroborated the business practice of taking advances for land deals, sample sale deeds, and fixed assets schedule showing prior land sales. The AO and appellate authority had doubted the additional evidence under Rule 46A and found no corroborative details of the proposed deal or its non-materialisation; the Tribunal, however, found on the facts that the payer confirmed the advances and there was no remission/cessation within section 41(1). The Tribunal applied the business-man/prudent businessman test (as reiterated in Shivraj Gupta and related authorities) and concluded the receipts were advances in the ordinary course of a land-dealing business rather than unexplained income or brokerage. Ratio vs. Obiter: Ratio - where addition in a 153A assessment is not based on incriminating material unearthed in search, Abhisar bars making such addition in respect of unabated/completed assessments; on facts, corroborative post-assessment confirmations/ledgers and business evidence may rebut AO's characterisation. Obiter - detailed comments on credibility of specific vouchers and dates were fact-driven observations. Conclusion: Addition of Rs. 6,81,11,103 deleted both on the legal ground (Abhisar dictum) and on merits (receipts constituted advances in the course of land-dealing business; alternative invocation of section 41(1) not attracted). Issue 2 - Addition of Rs. 10,42,97,083 as capital gains / taxable income from sale of land Legal framework: Definition of 'capital asset' in section 2(14)(iii) as applicable to the assessment year 2008-09 (pre-Finance Act 2013 amendment), rules on agricultural land exclusion, and post-search powers under section 153A; Survey of India / aerial mapping evidence and measurement rules for distance from municipal limits; scope of section 50C not invoked here but analytical references to capital gains rules included. Precedent treatment: The Tribunal applied the jurisdictional High Court decisions holding that the 2013 amendment prescribing aerial measurement applies prospectively (from A.Y.2014-15) and that for prior years shortest road distance (physical measurement) governs; the Tribunal also cited a jurisdictional High Court decision that actual agricultural operations are not necessary to classify land as agricultural for section 2(14)(iii). Interpretation and reasoning: The AO's addition relied on fixed assets schedule (pre-search material) and Survey of India / aerial reports prepared post-search claiming lands fell within 8 km. The Tribunal found no incriminating material seized from the assessee to justify reassessment under Abhisar; consequently, additions based on non-incriminating material were legally unsustainable. On the merits, the Tribunal held (i) for the assessment year in question the statutory test is shortest road distance and the Survey report did not clarify measurement method, (ii) the assessee produced Google maps showing shortest road distance in excess of 8 km and the Revenue did not rebut that evidence, and (iii) revenue records (7/12 extracts), sale deeds and sample transactions supported agricultural character. The Tribunal also relied on the principle that when doubt or confusion exists, the view favourable to assessee should be adopted and the High Court authority (Ashok Thakkar) that physical agricultural activity is not a precondition under section 2(14)(iii). The Tribunal therefore concluded lands were agricultural and situated beyond the statutory radius for that year and deleted the addition also on merits. Ratio vs. Obiter: Ratio - additions in a 153A assessment that are not traceable to incriminating material found in search are impermissible under Abhisar for unabated assessments; for pre-2014 years distance must be measured by shortest road distance, and doubt in measurement evidence is resolved in favour of the assessee. Obiter - observations on the probative weight of Survey of India and aerial mapping reports in the particular fact matrix. Conclusion: Addition of Rs. 10,42,97,083 deleted on legal ground (absence of incriminating material per Abhisar) and on merits (lands qualified as agricultural and were beyond 8 km by shortest road distance; Revenue failed to rebut assessee's evidence). Issue 3 - Admissibility of additional evidence under Rule 46A Legal framework: Rule 46A(1)-(4) governing adduction of additional evidence before appellate authorities, principles of natural justice and requirement to show sufficient cause for non-production before AO. Precedent treatment: Tribunal considered remand report objections by AO that additional evidence did not satisfy Rule 46A exceptions; appellate authority initially rejected evidence on both Rule 46A and merits. Interpretation and reasoning: The Tribunal accepted that additional documentary evidence was produced post-assessment and that AO had earlier called for supporting evidence; nonetheless it found that the confirmations and ledgers were verifiable and realistic in the factual matrix (business practice, sample sale deeds, payer confirmations filed during remand). The Tribunal evaluated admissibility within Rule 46A but resolved the dispute primarily by finding the additions themselves unsustainable under Abhisar and on merits, thereby rendering Rule 46A objections immaterial to final disposition. Ratio vs. Obiter: Ratio - admissibility under Rule 46A requires sufficient cause, but where the ultimate legal basis for addition fails (absence of incriminating material), non-admission of additional evidence does not sustain the addition. Obiter - factual acceptance of confirmations and their evidentiary value in this case. Conclusion: Rule 46A objections did not preclude ultimate relief to the assessee; the Tribunal deleted the additions despite the appellate authority having earlier rejected additional evidence. Issue 4 - Measurement of distance and requirement of agricultural operations for land to be excluded from 'capital asset' Legal framework: Section 2(14)(iii)(b) definition as applicable to the assessment year (pre-2014): distance measured by shortest road distance; post-2014 amendment prescribes aerial measurement but applies prospectively; section 10(37) and section 54B address agricultural use requirements for specific exemptions. Precedent treatment: The Tribunal followed the jurisdictional High Court holding that aerial measurement applies prospectively and therefore shortest road distance governs for the assessment year; it also relied on High Court authority holding actual agricultural operations are not necessary to establish agricultural character for section 2(14)(iii). Interpretation and reasoning: On the facts, the Survey of India / aerial reports lacked clarity on measurement method and therefore were less probative; Google maps shortest-road printouts produced by assessee were unchallenged and favored the assessee; absence of evidence of active cultivation is not fatal to agricultural classification under section 2(14)(iii) for the relevant statutory test. Ratio vs. Obiter: Ratio - for assessment years before 01-04-2014, statutory distance must be measured by shortest road distance; lack of active agricultural operations does not preclude classification as agricultural land under section 2(14)(iii) for capital asset exclusion. Obiter - guidance on probative value of Survey/aerial reports where measurement method is unspecified. Conclusion: The Tribunal applied the correct statutory test (shortest road distance) and the jurisprudence that agricultural character does not require evidence of cultivation; on that basis the lands qualified as agricultural and were outside the statutory radius for the year, supporting deletion of the capital gains addition. Issue 5 - Jurisdictional principle under section 153A in absence of incriminating material (application of Abhisar) Legal framework: Principles from Abhisar reproduced by the Tribunal: (i) AO assumes jurisdiction under section 153A on search, (ii) pending assessments stand abated, and (iii) for unabated/completed assessments additions can be made only if incriminating material is found; otherwise AO cannot reassess completed assessments save under sections 147/148. Precedent treatment: Tribunal relied on Abhisar as binding on the question whether additions in a 153A assessment may be based on non-incriminating material in respect of an unabated assessment. Interpretation and reasoning: The Tribunal held both additions at issue were not based on incriminating material seized in the assessee's search; therefore Abhisar bars such additions in respect of the completed assessment year. The Revenue's reliance on post-search material from related group companies did not cure the deficiency because the assessment was under section 153A (not section 153C) and no incriminating documents of the assessee were produced during the search. Ratio vs. Obiter: Ratio - Abhisar governs and bars additions in 153A for unabated assessments unless incriminating material relating to the assessee is found during search; use of other available material cannot replace the requirement. Obiter - commentary on distinctions between sections 153A and 153C in application of third-party material. Conclusion: Both additions were legally unsustainable under Abhisar and therefore deleted; the Tribunal gave effect to Abhisar as the controlling precedent on the limits of AO's powers in section 153A assessments. Disposition on Cross-Objection / Delay Condonation Reasoning and conclusion: The Tribunal condoned delay in filing the cross-objection as bona fide and found the grounds raised by Revenue to be rendered infructuous by allowing the assessee's appeal; accordingly the cross-objection was dismissed as infructuous.