1. Whether the reopening of assessment under section 147 of the Income Tax Act, 1961, was justified based on the reasons recorded and information received from the Investigation Wing regarding alleged bogus purchases by the assessee trust.

2. Whether the addition of Rs. 1,85,00,000/- made by the Assessing Officer under section 68 of the Act treating the alleged bogus purchases as unexplained credit was sustainable.

3. Whether the statement recorded under section 132(4) of the Act of the alleged accommodation entry operator holds significant evidentiary value in absence of cross-examination and can be relied upon to establish bogus transactions.

4. Whether the Assessing Officer was required to conduct independent inquiry or third-party verification to establish the bogus nature of purchases before making additions.

5. Whether the assessee's status as a charitable trust registered under section 12A and claiming exemption under section 11, with excess application of income over receipts, negates the possibility of bogus purchases affecting taxable income.

6. Whether the proceedings initiated under section 147 are valid in light of the search conducted on the alleged accommodation entry operator and whether the Assessing Officer ought to have initiated proceedings under section 153C instead.

7. Whether penalty under section 271(1)(c) of the Act levied on the basis of the addition is justified when the addition itself is deleted.

Issue 1: Justification for reopening assessment under section 147

- Legal Framework and Precedents: Section 147 permits reopening where the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. Explanation 2(b) to section 147 extends time limits in certain cases. The reopening must be based on credible material and reasons recorded.

- Court's Reasoning: The Assessing Officer reopened the assessment based on information from the Investigation Wing indicating fictitious purchases from a shell entity linked to an accommodation entry operator. Reasons recorded detailed the modus operandi and linked the assessee's purchases to the shell entity. Sanction under section 151 was obtained as more than four years had elapsed.

- Findings: The reopening was procedurally valid with reasons recorded and sanction obtained. However, the credibility of the material was questioned due to absence of independent verification and inconsistencies in the statement of the alleged operator.

- Application of Law to Facts: The Court noted that the statement of the operator indicated that bogus bills were provided only from January 2018 onwards, whereas the assessment year in question was 2014-15. The Assessing Officer did not conduct further inquiry to establish that bogus bills were provided during the relevant year.

- Treatment of Competing Arguments: Revenue argued reopening was justified on credible information. Assessee contended that the information was selectively relied upon and no independent inquiry was made. The Court found merit in the assessee's argument that reopening based solely on such information without further investigation was not justified.

- Conclusion: Reopening was valid procedurally but the material basis for reopening was insufficient to establish escapement of income for the relevant year.

Issue 2: Validity of addition of Rs. 1,85,00,000/- under section 68 treating purchases as unexplained credit

- Legal Framework and Precedents: Section 68 allows addition of unexplained credits if the assessee fails to satisfactorily explain the nature and source of such credits. The genuineness of transactions must be established by the Assessing Officer.

- Court's Reasoning: The Assessing Officer treated the purchases from the shell entity as bogus and added the amount under section 68. The CIT(A) deleted the addition on grounds that the assessee and its employees did not know the alleged operator and no opportunity was given to cross-examine him. No third-party inquiry was conducted and no material was produced to prove the bills were fake. The assessee's application of income exceeded its receipts, negating tax liability.

- Key Evidence and Findings: The statement of the alleged operator indicated no bogus bills were provided during the relevant year. The assessee produced books of account, bank statements, and invoices. The excess application of income was Rs. 5,79,77,998/- beyond receipts.

- Application of Law to Facts: The Court held that addition under section 68 requires independent verification and cannot be based solely on third-party statements without cross-examination or inquiry. The excess application of income further negated any tax liability.

- Treatment of Competing Arguments: Revenue relied on investigation reports and statements to assert bogus nature. Assessee emphasized lack of independent inquiry and contradictory statements. The Court sided with the assessee on the need for independent inquiry and factual inconsistencies.

- Conclusion: Addition under section 68 was not sustainable and rightly deleted by the CIT(A).

Issue 3: Evidentiary value of statement recorded under section 132(4) without cross-examination

- Legal Framework and Precedents: Statements recorded under section 132(4) have evidentiary value but principles of natural justice require opportunity for cross-examination for such statements to be relied upon conclusively.

- Court's Reasoning: The CIT(A) and the Court noted that the assessee was not given opportunity to cross-examine the alleged operator. The statement indicated the operator began providing bogus bills only from 2018, post the relevant assessment year. Reliance on the statement without cross-examination was improper.

- Treatment of Competing Arguments: Revenue argued the statement has significant evidentiary value. Assessee argued that absence of cross-examination and contradictory content diminished its value. The Court held that reliance on such statements without cross-examination is not justified.

- Conclusion: Statement recorded under section 132(4) cannot be the sole basis for addition without cross-examination and independent verification.

Issue 4: Requirement of independent inquiry or third-party verification before making additions

- Legal Framework and Precedents: Judicial precedents mandate that Assessing Officers must conduct independent inquiry or third-party verification to establish the bogus nature of transactions before making additions.

- Court's Reasoning: The Assessing Officer failed to conduct any third-party inquiry or independent verification despite having access to books of accounts, bank statements, and invoices. The Court emphasized that additions based on mere information from investigation wing or statements without independent inquiry are not sustainable.

- Treatment of Competing Arguments: Revenue contended information from investigation wing sufficed. Assessee highlighted lack of inquiry and failure to verify facts. The Court concurred with the assessee's position.

- Conclusion: Independent inquiry is essential before making additions on account of alleged bogus purchases.

Issue 5: Effect of assessee's status as charitable trust and excess application of income on taxability and addition

- Legal Framework and Precedents: Under section 11, income of a charitable trust is exempt if applied for charitable purposes. Excess application of income over receipts negates taxable income. Denial of exemption is limited to diversion or misapplication of funds.

- Court's Reasoning: The assessee's application of income was Rs. 108,17,64,353/- against income of Rs. 102,37,86,355/-, showing excess application of Rs. 5,79,77,998/-. Even if the alleged bogus purchases were disallowed, the excess application negated any taxable income. The Court relied on precedents restricting denial of exemption to amounts diverted to prohibited persons.

- Treatment of Competing Arguments: Revenue argued bogus purchases warranted addition. Assessee argued excess application negated tax liability. The Court accepted assessee's argument.

- Conclusion: The assessee's excess application of income negates any tax liability and addition on account of alleged bogus purchases.

Issue 6: Validity of proceedings initiated under section 147 instead of section 153C post search

- Legal Framework and Precedents: Section 153C applies to assessments in cases where search or seizure has taken place. However, initiation under section 147 is not invalid merely because section 153C could have been invoked.

- Court's Reasoning: The assessee contended that since incriminating material was found during search on the alleged operator, proceedings should have been initiated under section 153C. The Revenue relied on judicial decisions holding that initiation under section 147 is valid even if section 153C could have been invoked.

- Conclusion: Proceedings under section 147 are valid and not vitiated by non-invocation of section 153C.

Issue 7: Validity of penalty under section 271(1)(c) when addition is deleted

- Legal Framework and Precedents: Penalty under section 271(1)(c) is contingent upon the addition being sustained. Deletion of addition generally leads to deletion of penalty.

- Court's Reasoning: Since the addition of Rs. 1,85,00,000/- was deleted, the penalty levied on the same basis was rightly deleted by the CIT(A). The Court upheld the deletion of penalty.

- Conclusion: Penalty under section 271(1)(c) was rightly deleted following deletion of addition.

1. ISSUES PRESENTED and CONSIDERED

• Whether the order passed under section 263 of the Income Tax Act, 1961 ("the Act") is justified on the grounds that the assessment order for AY 2018-19 is erroneous and prejudicial to the interest of the Revenue.
• Whether the Assessing Officer (AO) erred in allowing depreciation on goodwill in AY 2018-19 when the same was disallowed in the immediately preceding year (AY 2017-18) without any change in facts or legal position.
• Whether invoking section 263 of the Act is valid where the AO is alleged to have failed to make relevant inquiries or verify claims regarding depreciation on goodwill and escapement of income related to the amalgamating company.
• Whether the principle of consistency precludes revisional proceedings under section 263 when depreciation on goodwill was allowed in subsequent years after being disallowed in the earlier year.
• Whether the goodwill recorded post-amalgamation qualifies as a depreciable asset under the relevant provisions of the Act.
• Whether the Principal Commissioner of Income Tax (PCIT) exceeded jurisdiction by directing the AO to examine valuation aspects of goodwill pertaining to an earlier assessment year.
• Whether the invocation of section 263 proceedings is a mere difference of opinion or based on a substantive error prejudicial to Revenue.
• Whether the invocation of section 263 was a mechanical exercise ignoring the concluded reassessment proceedings and accepted returned income.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of invoking section 263 of the Act on grounds of erroneous and prejudicial assessment order

Legal Framework and Precedents: Section 263 of the Income Tax Act empowers the PCIT to revise an assessment order if it is found to be erroneous and prejudicial to the interest of the Revenue. Both conditions must be satisfied for exercise of revisional jurisdiction.

Court's Interpretation and Reasoning: The Court observed that the AO had disallowed depreciation on goodwill in AY 2017-18 based on facts and legal position applicable also to AY 2018-19. However, in AY 2018-19, the AO allowed the same depreciation claim without any inquiry or fresh justification, thereby failing to apply mind to the claim.

Key Evidence and Findings: The goodwill was recorded at Rs.1202.35 crores post-amalgamation, and depreciation of Rs.57.11 crores at 5% was claimed under the block for "Buildings," which was inconsistent with the intangible nature of goodwill. The AO's failure to disallow depreciation again despite no change in facts was found to be an error prejudicial to Revenue.

Application of Law to Facts: The Court held that the AO's order was erroneous and prejudicial as it allowed a claim previously disallowed without inquiry, violating the statutory requirement under section 263.

Treatment of Competing Arguments: The assessee's argument that the AO had accepted depreciation in subsequent years and thus the revisional jurisdiction was barred by the principle of consistency was rejected as the facts and legal position remained unchanged.

Conclusion: The revisional jurisdiction under section 263 was validly invoked as the assessment order was erroneous and prejudicial to Revenue.

Issue 2: Application of the principle of consistency in depreciation claims on goodwill

Legal Framework and Precedents: The principle of consistency generally prevents the Revenue from changing its stand arbitrarily in successive years unless there is a change in facts or law.

Court's Interpretation and Reasoning: The Court emphasized that the principle applies when a claim has been accepted in the past and continues without change. Here, the depreciation claim was disallowed in the first year and allowed in the next without any fresh basis or change in facts.

Key Evidence and Findings: No material indicated any change in facts or circumstances justifying allowance in AY 2018-19 after disallowance in AY 2017-18. The AO's failure to disallow in AY 2018-19 was an oversight, not a consistent application of law.

Application of Law to Facts: The principle of consistency was held inapplicable as the position was reversed; the claim was disallowed first and then allowed without justification.

Treatment of Competing Arguments: The assessee's reliance on subsequent allowance of depreciation was dismissed as irrelevant to the correctness of the earlier assessment.

Conclusion: The principle of consistency did not bar invoking section 263 to correct the erroneous allowance of depreciation in AY 2018-19.

Issue 3: Whether goodwill qualifies as a depreciable asset under the Act

Legal Framework and Precedents: Goodwill is an intangible asset. Depreciation on goodwill is generally not allowable under section 32 read with section 43(1) of the Act unless specific provisions or judicial precedents permit.

Court's Interpretation and Reasoning: The Court noted that goodwill recorded represented actual consideration paid over the value of assets taken over from the amalgamating company. However, the goodwill was treated as a depreciable building asset at 5%, which was inconsistent with its intangible nature.

Key Evidence and Findings: The AO's acceptance of depreciation claim without verifying the nature of asset or applying correct depreciation rate was flawed. The PCIT distinguished judicial precedents cited by the assessee, noting that higher forums have not upheld depreciation on goodwill on merits.

Application of Law to Facts: The Court found that the depreciation claim on goodwill was not legally sustainable as the asset was intangible and depreciation claimed under "Buildings" block was incorrect.

Treatment of Competing Arguments: The assessee's argument that goodwill falls within the definition of depreciable asset was rejected due to lack of legal basis and incorrect classification.

Conclusion: Goodwill does not qualify for depreciation as claimed, and the AO's failure to disallow depreciation was erroneous.

Issue 4: Whether the AO failed to make relevant inquiries or verify claims on depreciation and escapement of income

Legal Framework and Precedents: The AO is required to apply mind and make necessary inquiries to verify claims and ensure correct assessment.

Court's Interpretation and Reasoning: The Court observed that the AO did not make inquiries regarding the depreciation claim on goodwill despite disallowing it in the prior year and despite pending appeals. The AO also failed to clarify whether income of the amalgamating company (UMIPL) was offered to tax by the amalgamated entity (UMIL).

Key Evidence and Findings: The PCIT noted that the AO merely accepted the claim as shown in the computation without any inquiry or verification, which is insufficient to constitute proper assessment.

Application of Law to Facts: The AO's failure to apply mind and make inquiries rendered the assessment order erroneous and prejudicial.

Treatment of Competing Arguments: The assessee contended that primary details were provided and the claim was apparent from records, but the Court found this insufficient to absolve the AO of duty to verify.

Conclusion: The AO's failure to make relevant inquiries justified revision under section 263.

Issue 5: Jurisdictional limits regarding examination of valuation of goodwill relating to earlier assessment year

Legal Framework and Precedents: The revisional authority cannot direct reassessment or inquiry into issues pertaining exclusively to an earlier assessment year under section 263.

Court's Interpretation and Reasoning: The PCIT directed the AO to examine valuation of goodwill pertaining to AY 2017-18 while deciding AY 2018-19. The Court noted this was beyond the scope of revisional jurisdiction under section 263 for the year under consideration.

Key Evidence and Findings: The valuation issue related to an earlier year and was already subject to assessment and appeal proceedings.

Application of Law to Facts: The Court held that the PCIT exceeded jurisdiction by directing inquiry into earlier year's valuation while revising the current year's assessment.

Treatment of Competing Arguments: No substantial argument was accepted to justify such direction.

Conclusion: Direction to examine earlier year valuation was beyond jurisdiction and void.

Issue 6: Whether revisional proceedings under section 263 amount to mere difference of opinion

Legal Framework and Precedents: Section 263 cannot be invoked merely because of a difference of opinion between AO and PCIT; the assessment order must be erroneous and prejudicial.

Court's Interpretation and Reasoning: The Court found that the AO's failure to disallow depreciation on goodwill, contrary to the previous year's order and without inquiry, constituted an error, not merely a difference of opinion.

Key Evidence and Findings: The AO's acceptance of depreciation at an incorrect rate and classification without verification was a substantive error.

Application of Law to Facts: The Court distinguished mere difference of opinion from an error affecting Revenue's interest.

Treatment of Competing Arguments: The assessee's claim of difference of opinion was rejected.

Conclusion: Revision under section 263 was not based on difference of opinion but on an error prejudicial to Revenue.

Issue 7: Whether section 263 proceedings were a mechanical exercise ignoring concluded reassessment and accepted returned income

Legal Framework and Precedents: Revisional proceedings must be based on fresh material or error; they cannot be a mechanical repetition of concluded proceedings.

Court's Interpretation and Reasoning: The Court noted that the reassessment under section 148 had concluded with no additions, and the returned income including the disputed amount was accepted. However, the PCIT found that the AO did not apply mind in the subsequent year's assessment.

Key Evidence and Findings: The PCIT's invocation of section 263 was based on the AO's failure to disallow depreciation in AY 2018-19, not on the reassessment of escaped income.

Application of Law to Facts: The revisional proceedings addressed a distinct error in AY 2018-19 assessment order and were not a duplication of earlier proceedings.

Treatment of Competing Arguments: The assessee's contention of duplication and mechanical exercise was rejected.

Conclusion: Section 263 proceedings were valid and not mechanical or duplicative.

1. ISSUES PRESENTED and CONSIDERED

• Whether penalty under section 272A(1)(d) of the Income-tax Act, 1961 can be imposed for failure to comply with notices issued under section 142(1) when the assessee claims non-receipt of such notices.
• Whether the existence of reasonable cause under section 273B of the Act can exempt the assessee from penalty liability for non-compliance with statutory notices.
• Whether the non-compliance with notices was willful or due to lack of knowledge arising from improper service, particularly considering the assessee's non-resident status.
• The applicability and scope of penalty provisions under section 272A(1)(d) in cases of non-cooperation and ex-parte assessment under sections 147 and 144 of the Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Imposition of penalty under section 272A(1)(d) for non-compliance with notices under section 142(1)

Legal Framework and Precedents: Section 272A(1)(d) imposes penalty for failure to comply with notices issued under sections 143(2), 142(1), etc. The penalty is predicated on the assessee's failure to furnish information or documents as required by the statutory notice.

Court's Interpretation and Reasoning: The Tribunal observed that the Assessing Officer (A.O.) issued multiple notices under section 142(1), which the assessee did not respond to. The A.O. completed assessment ex-parte under section 147 read with section 144 due to non-cooperation. The CIT(A) affirmed the penalty on the basis that the assessee failed to comply with statutory notices despite reminders and show cause notices.

Key Evidence and Findings: The Department relied on the fact that the assessee did not file return or respond to notices. The penalty notices under section 272A(1)(d) were also not responded to. However, the assessee claimed non-receipt of all such notices, citing lack of effective service, especially given the non-resident status.

Application of Law to Facts: The Tribunal noted that the fundamental basis for penalty under section 272A(1)(d) is willful default or failure to comply. Mere non-compliance without knowledge of the notices cannot constitute willful default. The absence of proof of proper service undermines the Department's case.

Treatment of Competing Arguments: While the Department emphasized non-cooperation, the assessee argued absence of knowledge due to non-service. The Tribunal found no material on record to show proper service in accordance with prescribed procedures for a non-resident assessee.

Conclusions: Penalty under section 272A(1)(d) cannot be sustained where the assessee was not effectively served and thus had no knowledge of the notices. Non-compliance due to lack of service does not amount to willful default.

Issue 2: Existence of reasonable cause under section 273B and its impact on penalty liability

Legal Framework and Precedents: Section 273B provides that no penalty shall be imposed if the assessee proves that there was reasonable cause for failure to comply with the provisions of the Act.

Court's Interpretation and Reasoning: The assessee contended that non-receipt of notices constituted reasonable cause for non-compliance. The Tribunal accepted that lack of knowledge due to improper service is a reasonable cause exempting penalty under section 273B.

Key Evidence and Findings: The assessee produced evidence of first knowledge of proceedings only upon receipt of a demand notice via email, months after the notices were allegedly issued. No evidence was presented by the Department to prove service of notices.

Application of Law to Facts: The Tribunal applied the principle that penalty should not be imposed where default is not deliberate or negligent but due to circumstances beyond the assessee's control, such as non-service.

Treatment of Competing Arguments: The Department did not produce any material to rebut the assessee's claim of non-service or to establish willful default. The Tribunal found the assessee's explanation credible.

Conclusions: The Tribunal held that reasonable cause existed under section 273B, warranting waiver of penalty.

Issue 3: Willful default versus lack of knowledge in the context of penalty under section 272A(1)(d)

Legal Framework and Precedents: The essence of penalty under section 272A(1)(d) is willful default in complying with statutory notices. Mere non-compliance without willfulness or negligence is insufficient for penalty.

Court's Interpretation and Reasoning: The Tribunal emphasized that willful default requires knowledge of the notice and deliberate refusal to comply. Here, the assessee's non-compliance was due to lack of knowledge arising from non-service.

Key Evidence and Findings: The assessee's long-term non-resident status and absence of any communication from the Department until receipt of demand notice supported the conclusion of absence of willful default.

Application of Law to Facts: The Tribunal found the penalty unsustainable in absence of proof of willful default.

Treatment of Competing Arguments: The Department's argument of non-cooperation was rejected due to lack of proof of proper service and knowledge.

Conclusions: No willful default was established; hence, penalty under section 272A(1)(d) was not justified.

Issue 4: Effect of non-resident status on service of notices and penalty proceedings

Legal Framework and Precedents: Proper service of notices on non-resident assessees requires adherence to prescribed procedures under the Act. Failure to serve notices effectively invalidates subsequent penalty proceedings based on non-compliance.

Court's Interpretation and Reasoning: The Tribunal noted the assessee's non-resident status for over 30 years and the lack of evidence that notices were served in accordance with the Act's requirements for non-residents.

Key Evidence and Findings: The assessee was unaware of any proceedings until receipt of demand notice by email. The Department failed to produce any proof of service of notices under sections 148A(b), 148, 142(1), or penalty notices.

Application of Law to Facts: The Tribunal held that the foundation of penalty proceedings-service of notices-was not established, rendering penalty untenable.

Treatment of Competing Arguments: The Department did not counter the assessee's claim with evidence of proper service.

Conclusions: Non-service of notices to a non-resident assessee negates the basis for penalty under section 272A(1)(d).

1. Issues Presented and Considered

• Whether the addition made under Section 56(2)(viib) of the Income Tax Act on account of share premium received by the assessee is justified, considering the valuation report based on the Discounted Cash Flow (DCF) method.
• Whether the Assessing Officer (AO) was correct in rejecting the valuation report relying on actual financial performance and disallowing the share premium as income.
• Whether depreciation @ 25% claimed on a non-refundable deposit paid to a society running a hospital, treated as an intangible asset, is allowable under Section 32(1)(ii) of the Income Tax Act.
• Whether depreciation disallowance in subsequent assessment years is justified when depreciation was allowed in earlier years on the Written Down Value (WDV) of the intangible asset.
• Whether the AO or appellate authorities can substitute or revalue the fair market value (FMV) of shares issued at premium when the valuation is done by a prescribed expert using prescribed methods under Rule 11UA of the Income Tax Rules.

2. Issue-wise Detailed Analysis

Issue 1 & 2: Validity of Addition under Section 56(2)(viib) on Share Premium and Rejection of Valuation Report

Legal Framework and Precedents:

• Section 56(2)(viib) of the Income Tax Act deems any share premium received in excess of the FMV as income from other sources.
• Rule 11UA(2)(b) prescribes methods for valuation of shares, including the Discounted Cash Flow (DCF) method and Net Asset Value (NAV) method.
• Precedents establish that valuation is not an exact science and is based on projections and assumptions at the time of valuation, which cannot be tested against actual performance retrospectively.
• Relevant judicial pronouncements emphasize that the AO cannot substitute or tinker with a valuation report prepared by a prescribed expert using prescribed methods unless there is a specific provision empowering such action.
• Commercial wisdom of investors, especially unrelated third-party investors, is to be respected and not lightly questioned by the Revenue.

Court's Interpretation and Reasoning:

• The assessee adopted the DCF method, a recognized and prescribed method under Rule 11UA, for valuation of shares.
• The AO rejected the valuation report by comparing projected profits with actual results and alleged the projections were unrealistic and speculative.
• The Court held that valuation based on DCF inherently involves future projections and assumptions which cannot be equated with actual financial performance.
• The AO lacks statutory authority to reject the valuation report without providing an alternative valuation prepared by a prescribed expert.
• The presence of prominent outside investors subscribing to the shares at the premium value supports the genuineness and commercial prudence of the valuation.
• Judicial precedents cited by the Court affirm that Revenue cannot sit in the armchair of a businessman to question commercial decisions or the valuation methodology adopted by the assessee.

Key Evidence and Findings:

• Valuation report prepared by a Chartered Accountant using DCF method as per Rule 11UA.
• AO's observations of losses and no revenue in earlier years contrasted with projected profits in valuation report.
• Subscription of shares at premium by reputed unrelated investors indicating acceptance of valuation.
• Prior assessment years where similar valuation reports were accepted or additions were made and subsequently deleted.

Application of Law to Facts:

• The assessee's valuation complies with statutory provisions and prescribed methods.
• AO's rejection based on hindsight comparison of projections with actuals is impermissible.
• Revenue's attempt to substitute valuation or discredit commercial wisdom of investors is unsustainable.

Treatment of Competing Arguments:

• Revenue argued that projections were unrealistic and premium was a colourable device for tax evasion.
• Assessee contended valuation was done by expert using prescribed method and was accepted by investors.
• The Court favored the assessee's position, emphasizing statutory scheme and judicial precedents.

Conclusions:

• Addition under Section 56(2)(viib) on account of share premium based on rejected valuation report is unsustainable.
• Valuation report prepared using DCF method by prescribed expert must be accepted unless specific statutory authority exists to reject or substitute it.
• Commercial prudence of investors subscribing at premium cannot be questioned by Revenue.
• Ground challenging addition under Section 56(2)(viib) is dismissed.

Issue 3 & 4: Allowability of Depreciation on Non-Refundable Deposit Treated as Intangible Asset

Legal Framework and Precedents:

• Section 32(1)(ii) of the Income Tax Act allows depreciation on intangible assets used for business or profession.
• Judicial precedents recognize that business or commercial rights acquired under agreements, including lease rights or concession rights, constitute intangible assets eligible for depreciation.
• Prior allowance of depreciation on the same asset in earlier years creates a binding precedent for subsequent years on WDV basis.

Court's Interpretation and Reasoning:

• The non-refundable deposit paid to acquire rights for operation and management of a hospital is a business or commercial right, an intangible asset.
• The AO's disallowance of depreciation in subsequent years is incorrect since depreciation was allowed in earlier years on the same asset's WDV.
• Findings of the CIT(A) and ITAT, supported by High Court decisions, affirm the intangible nature of the asset and allow depreciation.
• Revenue did not challenge the finding of intangible asset status before the ITAT, thereby accepting the factual basis.

Key Evidence and Findings:

• Agreements with government and society for hospital management rights.
• Payment of non-refundable deposit treated as acquisition cost of intangible asset.
• Depreciation claimed and allowed in earlier assessment years.
• Judicial precedents recognizing lease or concession rights as intangible assets.

Application of Law to Facts:

• The deposit qualifies as an intangible asset under Section 32(1)(ii).
• Depreciation on WDV basis is allowable in subsequent years once allowed earlier.

Treatment of Competing Arguments:

• Revenue argued that deposit was refundable or conditional, hence not eligible for depreciation.
• Assessee demonstrated the non-refundable nature and intangible asset status, supported by precedent.
• The Court upheld the assessee's claim and rejected Revenue's disallowance.

Conclusions:

• Depreciation on non-refundable deposit treated as intangible asset is allowable under Section 32(1)(ii).
• Disallowance of depreciation in subsequent years is improper once depreciation has been allowed on WDV.
• Ground challenging disallowance of depreciation is dismissed.

Issue 5: Authority of AO or Appellate Authorities to Substitute or Revalue FMV of Shares

Legal Framework and Precedents:

• Section 56(2)(viib) and Rule 11UA prescribe valuation methodologies and require valuation to be done by prescribed experts.
• There is no express provision empowering AO to substitute or revalue the FMV determined by prescribed experts.
• Judicial pronouncements hold that AO cannot reject valuation reports without statutory authority or provide alternative valuations.

Court's Interpretation and Reasoning:

• Valuation done by Chartered Accountant using DCF method is a recognized and prescribed method.
• AO's rejection of valuation report without statutory power to substitute or revalue is impermissible.
• The valuation is a technical matter to be left to experts and cannot be overruled by AO or appellate authorities on mere disagreement.

Key Evidence and Findings:

• Valuation report by prescribed expert using DCF method.
• AO's rejection based on comparison with actuals and allegations of unrealistic projections.
• Judicial precedents disallowing AO's substitution of valuation.

Application of Law to Facts:

• AO's action in rejecting valuation report and making addition is not supported by law.
• Appellate authorities correctly upheld valuation report and deleted addition.

Treatment of Competing Arguments:

• Revenue argued for rejection of valuation due to unrealistic projections and lack of supporting evidence.
• Assessee relied on statutory provisions and expert valuation report.
• The Court favored the statutory scheme and expert valuation, rejecting Revenue's contention.

Conclusions:

• AO or appellate authorities cannot substitute or revalue FMV determined by prescribed expert under Rule 11UA.
• Valuation report prepared using prescribed methods must be accepted unless statutory authority exists to reject or substitute.

Additional Observations

• The Court emphasized that valuation is inherently based on approximations and projections, not exact arithmetic precision.
• Commercial prudence of reputed investors subscribing to shares at premium supports genuineness of valuation and share premium received.
• Revenue's challenge based on hindsight comparison of projections with actuals is legally untenable.
• Other grounds raised by Revenue were consequential or academic and hence not adjudicated.

1. Whether the appellate authority was justified in passing an order without granting any personal hearing to the appellant.

2. Whether the disallowance made under section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962, was justified.

3. Whether the invoking of Rule 8D by the Assessing Officer without recording objective satisfaction under section 144(2) of the Act was valid.

4. Whether the appellate authority was bound to accept the appellant's working of disallowance under section 14A in light of consistent past practice and earlier Tribunal orders.

5. Whether the addition under section 43CA of the Act on account of difference between stamp duty value and actual sale consideration was justified.

6. Whether the addition of foreign currency translation difference and profit on redemption of preference shares to income was justified, considering the nature of the gain as a book entry and prior treatment of foreign exchange losses.

7. Whether the disallowance of carry forward of long-term capital loss on sale of shares on which Securities Transaction Tax (STT) was paid was justified.

8. Whether the disallowance of carry forward of long-term capital loss on the ground that section 10(38) of the Act exempts long-term capital gains and includes the term "loss" was valid.

9. Whether the appellate authority erred in not following binding precedent of the Tribunal regarding carry forward of long-term capital loss on shares on which STT was paid.

10. Whether the appellate authority erred in upholding the initiation of penalty proceedings based on purported satisfaction recorded by the Assessing Officer.

Issues 2, 3, and 4: Disallowance under Section 14A read with Rule 8D

Legal Framework and Precedents: Section 14A of the Income Tax Act mandates disallowance of expenditure incurred in relation to exempt income. Rule 8D prescribes the method for computing such disallowance. The Assessing Officer must record objective satisfaction under section 14A(2) before invoking Rule 8D. The Supreme Court and various High Courts have held that the AO must first be dissatisfied with the assessee's suo motu disallowance before applying Rule 8D.

Court's Interpretation and Reasoning: The Assessing Officer rejected the assessee's suo motu disallowance of Rs. 35,01,925/- and computed disallowance under Rule 8D at Rs. 2,16,68,975/-, adding a balance of Rs. 1,81,67,050/- to income. However, the AO did not record any objective satisfaction or examine the nexus between the expenditure and exempt income before invoking Rule 8D. The Tribunal relied on a Coordinate Bench decision in the assessee's own case and a Bombay High Court ruling which held that mere non-conformity with Rule 8D does not amount to satisfaction required under section 14A(2). The AO's approach was held to be "putting the cart before the horse."

Key Evidence and Findings: The assessee had made suo motu disallowance and furnished computations. The AO's order did not refer to the assessee's accounts or expenditure to record dissatisfaction. The disallowance was computed mechanically using average investment method without objective satisfaction.

Application of Law to Facts: Without recording dissatisfaction based on the assessee's accounts, invoking Rule 8D is impermissible. The AO's disallowance is therefore unsustainable.

Treatment of Competing Arguments: The Revenue relied on a Gujarat High Court decision where detailed reasons were given for disallowance under section 14A. However, that case was factually distinguishable as the AO there recorded detailed satisfaction. The Tribunal preferred the Coordinate Bench decision aligned with Supreme Court precedents.

Conclusion: The additional disallowance under section 14A read with Rule 8D is deleted. Grounds relating to section 14A disallowance are allowed.

Issue 5: Addition under Section 43CA on Sale of Immovable Property

Legal Framework and Precedents: Section 43CA applies where sale consideration received is less than the value adopted by the stamp valuation authority. However, judicial precedents allow a tolerance limit of 10% difference between stamp duty value and sale consideration without invoking section 43CA.

Court's Interpretation and Reasoning: The assessee is not a real estate trader but a media company disposing of immovable properties. The difference between stamp duty value (Rs. 2.07 crores) and sale consideration (Rs. 1.90 crores) was Rs. 17,46,440/-, which is within the 10% tolerance limit. The addition under section 43CA was therefore unwarranted.

Key Evidence and Findings: Tax Audit Report and Form 3CD disclosed the difference. The assessee declared the income under capital gains correctly. The difference was within permissible limits.

Application of Law to Facts: The addition under section 43CA is not justified as the difference falls within the accepted tolerance.

Treatment of Competing Arguments: Revenue relied on the AO and CIT(A) orders but did not effectively counter the tolerance limit argument.

Conclusion: Addition under section 43CA is deleted. Ground relating to section 43CA addition is allowed.

Issue 6: Addition of Foreign Currency Translation Difference and Profit on Redemption of Preference Shares

Legal Framework and Accounting Standards: AS-11 requires foreign currency monetary items to be translated at year-end rates with exchange differences recorded in reserves and amortized over time. Such entries are book entries and do not represent actual income or gain unless realized.

Court's Interpretation and Reasoning: The amount of Rs. 37,64,61,452/- represented unamortized foreign exchange translation differences carried as a reserve in the books of a merged subsidiary, written back upon redemption of preference shares. The profit on redemption was separately computed and reflected. The foreign exchange difference was a book entry and not consideration for capital gains. The AO and CIT(A) did not examine these facts adequately.

Key Evidence and Findings: Detailed submissions and annexures showing prior treatment of exchange differences, accounting entries, and assessment orders of the merged subsidiary were submitted. The amount was not claimed as income or deduction in earlier years.

Application of Law to Facts: Since the amount is a book entry under AS-11 and not actual income, it should not be added to income. The matter requires verification and opportunity to the assessee.

Treatment of Competing Arguments: Revenue relied on AO and CIT(A) orders without addressing the accounting treatment.

Conclusion: The matter is remitted to AO for verification after hearing the assessee. Ground relating to foreign currency translation difference is allowed for statistical purposes.

Issues 7, 8, and 9: Disallowance of Carry Forward of Long-Term Capital Loss on Sale of Shares on which STT was Paid

Legal Framework and Precedents: Section 10(38) exempts long-term capital gains arising from transfer of equity shares or units on which STT is paid. The question is whether this exemption extends to losses and whether such losses can be carried forward and set off against other capital gains. Tribunal precedents have held that section 10(38) excludes only income and not the computation of capital gains or losses, allowing carry forward and set off of losses.

Court's Interpretation and Reasoning: The AO disallowed carry forward of loss on the ground that income is exempt under section 10(38) and thus loss cannot be carried forward. The CIT(A) upheld the AO's order, expressing concern that allowing carry forward and set off against unrelated capital gains (movable or immovable property) would hinder verification by AO in subsequent years.

Key Evidence and Findings: The assessee claimed carry forward of loss on shares on which STT was paid. Tribunal precedent (Raptakos Brett & Co. Ltd.) supports carry forward and set off. However, CIT(A) emphasized practical difficulties in verification.

Application of Law to Facts: The CIT(A)'s reasoning is a valid administrative concern. The Tribunal upheld the CIT(A)'s order as a reasoned decision.

Treatment of Competing Arguments: The assessee relied on binding precedent allowing carry forward; the Revenue emphasized administrative difficulties.

Conclusion: The disallowance of carry forward of long-term capital loss is upheld. Grounds relating to this issue are dismissed.

Issue 1: Passing Order Without Personal Hearing

Legal Framework: Principles of natural justice require that an appellant be given an opportunity of personal hearing before adverse orders are passed.

Court's Interpretation and Reasoning: The appellate order was passed without granting any personal hearing to the appellant. The grounds raised include challenge to the validity of such order.

Conclusion: The grounds relating to absence of personal hearing are allowed, implying that orders passed without hearing are not justified.

Issue 10: Initiation of Penalty Proceedings Based on Purported Satisfaction

Legal Framework: Penalty proceedings require proper satisfaction recorded by the Assessing Officer based on material and reasons.

Court's Interpretation and Reasoning: The appellate authority upheld initiation of penalty based on satisfaction recorded by AO. No detailed analysis or findings provided in the judgment extract.

Conclusion: No interference indicated; issue not elaborated, presumed upheld.

Application of Decisions to Assessment Year 2016-17

All grounds raised for AY 2016-17 are identical to those for AY 2015-16. The Tribunal applied the same reasoning and conclusions mutatis mutandis to AY 2016-17 appeals.

Final Disposition

The appeals are partly allowed: disallowance under section 14A and addition under section 43CA are deleted; foreign currency translation difference issue remitted for verification; disallowance of carry forward of long-term capital loss upheld; absence of personal hearing ground allowed; other grounds as per above analysis.

1. ISSUES PRESENTED and CONSIDERED

• Whether the addition of Rs. 14,92,643/- as undisclosed business profit on unexplained cash deposits is justified.
• Whether the addition of Rs. 31,03,000/- under the head income from other sources on unexplained credit entries in bank accounts is sustainable.
• Whether the addition of Rs. 6,94,853/- as long-term capital gain arising from cancellation of flat booking is valid.
• Whether the addition of Rs. 52,361/- under income from other sources on account of difference in interest income requires adjudication.
• Whether the imposition of interest under Sections 234A and 234B of the Income Tax Act, 1961 is justified.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Addition of Rs. 14,92,643/- as undisclosed business profit on unexplained cash deposits

- Legal Framework and Precedents: Under the Income Tax Act, unexplained cash deposits can be treated as undisclosed income if not satisfactorily explained by the assessee. Profit is often computed on such unexplained turnover using the declared profit rate under presumptive taxation provisions (Section 44AD).

- Court's Interpretation and Reasoning: The assessee submitted a fresh working demonstrating that the unexplained cash deposits, when adjusted, result in a negative figure, negating the basis for addition. However, this new explanation was not previously considered by the Assessing Officer (AO) or the National Faceless Appeal Centre (NFAC).

- Key Evidence and Findings: The assessee provided a detailed fact sheet with computations excluding certain amounts from the unexplained deposits. The Revenue pointed out non-cooperation during remand proceedings, weakening the assessee's case before the lower authorities.

- Application of Law to Facts: The Tribunal noted that the new computations and explanations were not examined by the AO, and the assessee was not given an opportunity to present evidence during remand. Principles of natural justice require that fresh explanations be considered by the AO with due opportunity.

- Treatment of Competing Arguments: The Revenue relied on the remand report and non-response of the assessee to notices, while the assessee emphasized fresh submissions and supporting documents.

- Conclusion: The issue is restored to the AO for fresh consideration after affording the assessee an opportunity of being heard to verify the correctness of the new working and explanations.

Issue 2: Addition of Rs. 31,03,000/- under income from other sources on unexplained credit entries

- Legal Framework and Precedents: Unexplained credits in bank accounts can be treated as income from other sources if the assessee fails to satisfactorily explain their nature.

- Court's Interpretation and Reasoning: The assessee submitted fresh explanations and supporting documents for each of the four credit entries totaling Rs. 31,03,000/-, which were not considered by the lower authorities.

- Key Evidence and Findings: The fresh submissions include documentary evidence supporting the nature of the credits.

- Application of Law to Facts: Since the explanations and evidence were not examined by the AO or NFAC, the Tribunal found it appropriate to remit the matter for fresh verification and decision.

- Treatment of Competing Arguments: The Revenue did not dispute the need for fresh examination but relied on the previous findings.

- Conclusion: The issue is restored to the AO for fresh adjudication after giving the assessee due opportunity to substantiate the nature of the credits.

Issue 3: Addition of Rs. 6,94,853/- as long-term capital gain from cancellation of flat booking

- Legal Framework and Precedents: Capital gains tax arises on transfer of capital assets. The calculation of long-term capital gain requires verification of cost of acquisition and consideration received.

- Court's Interpretation and Reasoning: The assessee produced for the first time confirmations from the builder and related documents concerning the booking and cancellation of the flat, which were not available to the AO earlier.

- Key Evidence and Findings: The documents include confirmation letters and payment details supporting the transaction and cost basis.

- Application of Law to Facts: The Tribunal emphasized the necessity of verifying these documents before finalizing the capital gain computation, ensuring correct application of capital gains provisions.

- Treatment of Competing Arguments: The Revenue relied on the AO's original computation, while the assessee sought re-examination based on new evidence.

- Conclusion: The issue is remitted to the AO for fresh consideration after due opportunity to the assessee to substantiate the transaction and cost details.

Issue 4: Addition of Rs. 52,361/- under income from other sources on account of difference in interest income

- Legal Framework and Precedents: Interest income must be declared accurately; discrepancies can lead to additions.

- Court's Interpretation and Reasoning: The assessee did not press this ground of appeal before the Tribunal.

- Conclusion: This ground is deemed abandoned and requires no adjudication.

Issue 5 & 6: Imposition of interest under Sections 234A and 234B of the Income Tax Act, 1961

- Legal Framework and Precedents: Interest under Section 234A is for delay in filing return; Section 234B relates to default in payment of advance tax.

- Court's Interpretation and Reasoning: These grounds are consequential upon the additions made and require no separate adjudication.

- Conclusion: No separate adjudication is necessary on these grounds.

1.1 Whether the limitation period prescribed under Section 153(3) of the Income Tax Act, 1961 (the Act) for passing a fresh assessment order on remand applies cumulatively or concurrently with the timelines prescribed under Section 144C of the Act for eligible assessees.

1.2 Whether the period of eleven months prescribed under Section 144C(4) and (13) for completion of assessment proceedings is over and above, or subsumed within, the limitation period under Section 153(3) or Section 153(1) of the Act.

1.3 The interpretation and interplay between the non-obstante clauses contained in Section 144C(1), (4), and (13) and the limitation provisions in Section 153, particularly with respect to eligible assessees defined under Section 144C(15).

1.4 Whether the procedure under Section 144C constitutes a separate code for eligible assessees, distinct from the general assessment procedure under Sections 143 and 144, and the implications of such distinction on the limitation period for assessment.

1.5 The scope and effect of the non-obstante clauses in Section 144C on the applicability of Section 153 timelines to draft and final assessment orders.

1.6 Whether the timelines prescribed under Section 144C for the Dispute Resolution Panel (DRP) and the Assessing Officer are independent of, or included within, the limitation periods under Section 153.

1.7 The validity of the High Courts' judgments holding that the entire procedure under Section 144C must be completed within the limitation period prescribed under Section 153.

1.8 The meaning and scope of "assessment order" and "fresh assessment" in the context of Sections 144C and 153.

1.9 The relevance of legislative intent, including Budget speeches and explanatory notes, in interpreting the interplay between Sections 144C and 153.

1.10 The effect of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) and related notifications on limitation periods.

2.1 Interpretation of the interplay between Section 144C and Section 153(3) limitation periods

- Legal framework: Section 153(3) prescribes a limitation period of nine months (extended to twelve months from 1.4.2019) from the end of the financial year in which an appellate order under Section 254 or similar is received by the Commissioner for passing a fresh assessment order. Section 144C prescribes a specific procedure for eligible assessees involving a draft order, objections to the DRP, directions by the DRP, and final assessment order within fixed timelines.

- Court's reasoning: The Court emphasized that Section 144C is a special procedural code applicable only to eligible assessees (non-resident companies and certain others) and contains its own timelines for completion of assessment proceedings. The non-obstante clauses in Section 144C(4) and (13) specifically override the limitation provisions in Section 153 or 153B for passing the assessment order under Section 144C.

- Key findings: The timelines under Section 144C for passing the final assessment order (one month from end of month in which acceptance or objections period expires, or one month from end of month in which DRP directions are received) are independent and additional to the limitation period under Section 153(3) for passing a fresh assessment order on remand.

- Application to facts: The Court held that the limitation period under Section 153(3) applies to passing the draft assessment order under Section 144C(1), while the timelines under Section 144C(4) and (13) for passing the final assessment order operate over and above that period. Thus, the procedure under Section 144C is not subsumed within the limitation period prescribed under Section 153(3).

- Competing arguments: Revenue argued that Section 144C timelines are to be read cumulatively within Section 153(3) limitation, while respondents contended that Section 153(3) applies to the entire procedure. The Court rejected the latter, holding that the non-obstante clauses in Section 144C exclude the application of Section 153(3) timelines for final assessment order.

- Conclusion: The limitation period under Section 153(3) governs the passing of the draft assessment order, and the timelines under Section 144C govern the subsequent procedure, including DRP directions and final assessment order, which are additional and independent.

2.2 Scope and effect of non-obstante clauses in Section 144C

- Legal framework: Section 144C(1) contains a non-obstante clause "notwithstanding anything to the contrary contained in this Act" requiring the Assessing Officer to forward a draft order to the eligible assessee. Sections 144C(4) and (13) contain non-obstante clauses "notwithstanding anything contained in Section 153 or 153B" requiring the assessment order to be passed within one month from specified events.

- Court's interpretation: The non-obstante clause in Section 144C(1) is a legislative device to establish a distinct procedural code for eligible assessees, mandating the issuance of a draft order before final assessment. It is not directed at overriding the limitation provisions in Section 153. In contrast, the non-obstante clauses in Sections 144C(4) and (13) explicitly override the limitation periods in Section 153 or 153B for passing the final assessment order.

- Reasoning: The Court examined authoritative precedents on non-obstante clauses, emphasizing that such clauses only override conflicting provisions to the extent intended by the legislature and must be read in context. The non-obstante clause in Section 144C(1) does not conflict with Section 153 but establishes a different procedural step. The clauses in 144C(4) and (13) specifically deal with limitation periods and thus override Section 153 timelines for final assessment.

- Conclusion: The non-obstante clause in Section 144C(1) establishes a separate procedure for eligible assessees, while those in Sections 144C(4) and (13) override limitation periods for final assessment orders, thereby separating the timelines for draft and final orders.

2.3 Meaning of "assessment order" and "fresh assessment" under Sections 144C and 153

- Legal framework: Section 153(3) refers to "an order of fresh assessment" to be passed within the prescribed limitation period. Section 144C(1) requires forwarding a "draft order" of assessment, which is not a final assessment order. Sections 144C(4) and (13) deal with passing the final assessment order.

- Court's reasoning: The Court held that the draft order under Section 144C(1) is distinct from the final assessment order contemplated under Section 143(3) and Section 153(3). The draft order is a preliminary step in the special procedure for eligible assessees, while the final assessment order determines total income and tax payable.

- Key findings: The "order of fresh assessment" under Section 153(3) means the final assessment order and not the draft order. The procedure under Section 144C contemplates a draft order first, followed by objections and directions, and then a final order. The timelines for these stages are separately prescribed.

- Conclusion: The draft assessment order under Section 144C is not an "order of fresh assessment" within the meaning of Section 153(3). The final assessment order under Section 144C is the "order of fresh assessment" subject to the timelines prescribed in Section 144C(4) and (13).

2.4 Legislative intent and purpose behind Section 144C and its timelines

- Material: Budget speeches of Finance Ministers (2009 and subsequent years), Memorandum to the Finance Bill 2009, and explanatory notes to Finance Acts of 2016, 2017, 2021, and 2022.

- Court's interpretation: The legislative intent behind Section 144C was to provide an alternative dispute resolution mechanism within the Income Tax Department for speedy disposal of tax disputes involving eligible assessees, particularly foreign companies and non-residents. The DRP mechanism was introduced to reduce prolonged litigation and uncertainty affecting foreign investment.

- Reasoning: The Court emphasized that the procedure under Section 144C was designed to be expeditious and distinct from the general assessment procedure. The timelines prescribed under Section 144C reflect a balance between giving the revenue adequate time to assess and protecting the assessee's rights to timely resolution.

- Conclusion: The timelines under Section 144C are intended to provide a fast-track dispute resolution mechanism and must be interpreted as a separate procedural code with fixed timelines, independent of the limitation periods under Section 153.

2.5 Principles of statutory interpretation applied

- The Court applied established principles including purposive interpretation, strict construction of taxing statutes, and harmonious construction of apparently conflicting provisions.

- It rejected interpretations that would render provisions futile or unworkable, emphasizing that statutes must be construed to give effect to legislative intent and to ensure operability.

- The Court distinguished between non-obstante clauses and "subject to" clauses, noting that non-obstante clauses override conflicting provisions only to the extent intended.

- It held that the non-obstante clauses in Section 144C must be read in context and not to negate the entire limitation framework under Section 153.

- The Court reaffirmed that equitable considerations or adequacy of time are not grounds to depart from clear statutory language in fiscal statutes.

2.6 Treatment of competing High Court judgments and precedents

- The Bombay and Madras High Courts held that the entire procedure under Section 144C must be completed within the limitation period prescribed under Section 153(3), thus subsuming Section 144C timelines within Section 153.

- The Supreme Court, in the opinion dissenting from the majority, rejected this view, holding that such interpretation would be unworkable and contrary to legislative intent, and that Section 144C timelines operate independently and additionally.

- The majority judgment held that the High Courts' interpretation is correct, that the limitation under Section 153(3) applies to the entire procedure under Section 144C, and no additional time beyond Section 153 is available.

- The Court considered precedents on statutory interpretation, non-obstante clauses, and the meaning of assessment orders, and found the High Courts' approach consistent with statutory scheme and legislative intent.

- The Court distinguished the Madras High Court's decision in Roca Bathroom Products Pvt. Ltd., which supported the High Courts' view, and overruled the contrary view that Section 144C timelines are additional.

2.7 Impact of TOLA and related notifications on limitation periods

- The Court noted that due to the COVID-19 pandemic, the Central Board of Direct Taxes issued notifications extending limitation periods under Section 153 to 30.09.2021.

- These extensions were relevant in the facts of the case where the draft assessment order was passed on 28.09.2021, just before the extended limitation period expired.

- The Court held that the extended limitation period under Section 153(3) applied and that no final assessment order could be passed after expiry of this period.

2.8 Application of law to facts and conclusions

- The respondents were eligible assessees under Section 144C(15) and the assessment proceedings involved draft orders, objections, DRP directions, and final assessment orders.

- The Income Tax Appellate Tribunal set aside the original assessment and remanded the matter, triggering Section 153(3) limitation period for fresh assessment.

- The Assessing Officer passed a draft assessment order and final assessment order after expiry of the limitation period prescribed under Section 153(3) (as extended by TOLA), but within the timelines prescribed under Section 144C.

- The High Courts held that the final assessment orders were barred by limitation as the entire Section 144C procedure must be completed within Section 153(3) timelines.

- The Supreme Court majority concurred with the High Courts, dismissing the Revenue's appeals and holding that the limitation period under Section 153(3) subsumes the timelines under Section 144C.

- The dissenting opinion held the opposite view, that Section 144C timelines are independent and additional to Section 153(3).

2.9 Consequences of the Court's interpretation

- If the procedure under Section 144C is to be completed within the limitation period prescribed under Section 153(3), the Assessing Officer must pass the draft assessment order within the limitation period and complete the entire procedure including DRP directions and final assessment order within the same period.

- Failure to comply with the limitation period under Section 153(3) results in the assessment order being time-barred and the return of income filed by the assessee must be accepted.

- The Court emphasized that adequacy of time or practical difficulties faced by the Assessing Officer cannot override the statutory limitation periods.

- The Revenue is not precluded from taking other lawful steps in accordance with the Act.

2.10 Additional observations

- The Court noted that the option to file objections before the DRP is exercised by the assessee and cannot be a ground for extending limitation periods.

- The procedure under Section 144C is a continuation of the assessment proceedings and not an appeal proceeding.

- The timelines under Section 144C are designed to ensure expeditious disposal of disputes involving eligible assessees, consistent with the legislative objective of promoting foreign investment and reducing uncertainty.

- The Court directed constitution of an appropriate Bench to consider the divergent opinions expressed.

1. Whether the income arising from the revaluation of partnership firms and subsequent reconstitution, including the credit of goodwill to partners' current accounts, is taxable under section 28(iv) of the Income Tax Act.

2. Whether the transaction involving change in profit-sharing ratios pursuant to a Memorandum of Family Arrangement constitutes a "transfer" chargeable to tax under sections 2(47), 45(4), and related provisions of the Income Tax Act.

3. Whether the arrangement entered into by the partners is a family arrangement exempt from capital gains tax or a business arrangement attracting tax.

4. Whether the assessee's share in the partnership firms being reduced to 0.01% and compensation received for relinquishment of profit-sharing rights amounts to income taxable under the Act.

5. Whether the reopening of assessment proceedings under section 148/147 of the Income Tax Act was valid, having regard to the procedural requirements including furnishing of reasons for reopening, disposal of objections, and adherence to the principles laid down by the Supreme Court in GKN Driveshafts (India) Ltd. v. ITO.

6. Whether the Assessing Officer complied with the requirement of passing a speaking order disposing of objections to reopening before proceeding with reassessment.

7. Whether the reassessment orders are liable to be quashed for non-compliance with mandatory procedural safeguards.

Issue 1: Taxability of income arising from revaluation and credit of goodwill under section 28(iv)

- Legal Framework and Precedents:

Section 28(iv) taxes "the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession." The Supreme Court in Mahindra & Mahindra Ltd. v. CIT clarified that for applicability of section 28(iv), the benefit must arise in the course of business and must be other than in the form of money; monetary receipts are generally not taxable under this provision.

Other precedents include CIT v. Smt. Chetanaben B. Sheth, where valuation of goodwill received on retirement from a firm was held not taxable under section 28(iv), and DCIT v. Manish M. Chheda (ITAT Mumbai), which held that increase in partner's capital due to revaluation of firm assets lacks nexus with business and is not taxable under section 28(iv).

- Court's Interpretation and Reasoning:

The Tribunal observed that the goodwill credited to the partners' current accounts was a monetary receipt and not a non-monetary benefit or perquisite arising in the course of business. The revaluation of the firm's assets and credit of goodwill did not amount to income in the hands of the partners under section 28(iv). The increase in capital due to revaluation does not have a nexus with the business carried on by the firm.

- Application of Law to Facts:

The assessee's share in profits was reduced significantly, but it continued as a partner with 0.01% share. The goodwill credited was reflected in the current accounts, and withdrawals were made against these accounts. However, the Tribunal found that no non-monetary benefit or perquisite arose to the partners in the course of business, and the amounts credited were monetary in nature.

- Treatment of Competing Arguments:

The Revenue argued that the credit of goodwill was a benefit arising from business and taxable under section 28(iv). The assessee contended that the amounts were monetary and not taxable under section 28(iv). The Tribunal relied on the Supreme Court and High Court rulings to reject the Revenue's contention.

- Conclusion:

The Tribunal held that section 28(iv) is not attracted, and the credit of goodwill to partners' current accounts does not constitute taxable income under this provision.

Issue 2: Whether the transaction constitutes a "transfer" chargeable under sections 2(47) and 45(4)

- Legal Framework and Precedents:

Section 45(4) deals with capital gains arising from transfer of capital assets by way of distribution on dissolution or otherwise of a firm or AOP/BOI. Section 2(47) defines "transfer" for capital gains purposes. Family arrangements generally do not constitute transfers attracting capital gains, as held in various judicial decisions including National Company Law precedents.

- Court's Interpretation and Reasoning:

The Tribunal found that the arrangement was a family arrangement among members of the same family, realigning profit-sharing ratios without alienation of assets. The arrangement did not amount to a transfer within the meaning of section 2(47), nor did it attract section 45(4). The partners continued in the firm with revised shares, and the transaction was not a dissolution or retirement triggering capital gains.

- Application of Law to Facts:

The Memorandum of Family Arrangement involved redistribution of profit-sharing ratios among family members. The assessee's share was reduced but not extinguished. The arrangement was not a business transaction but a family settlement, and thus exempt from capital gains tax provisions.

- Treatment of Competing Arguments:

The Revenue contended that the transaction was a business arrangement involving transfer of rights and was taxable. The assessee asserted it was a family arrangement exempt from capital gains tax. The Tribunal accepted the assessee's characterization based on the familial relationship and nature of the arrangement.

- Conclusion:

The Tribunal held that the transaction does not amount to a transfer attracting capital gains tax under sections 2(47) and 45(4).

Issue 3: Distinction between Family Arrangement and Business Arrangement

- Legal Framework and Precedents:

Family arrangements involve settlement among family members of disputes or property interests, typically not involving formal contracts or business operations. Business arrangements are formal agreements aimed at commercial objectives with legal and financial obligations.

- Court's Interpretation and Reasoning:

The Tribunal examined the features of the arrangement and noted that all parties were family members, the arrangement was to realign profit-sharing ratios within family entities, and no alienation of business assets occurred. The arrangement lacked the formalities and objectives of a business arrangement and was thus a family arrangement.

- Application of Law to Facts:

The partners were family members, and the arrangement aimed at independent control of firms by different family members while maintaining family harmony. The arrangement did not involve distribution of family property but adjustment of business interests within the family.

- Treatment of Competing Arguments:

The Revenue argued the arrangement was a business arrangement to evade tax. The assessee contended it was a family arrangement exempt from capital gains tax. The Tribunal accepted the assessee's position based on the nature and parties to the arrangement.

- Conclusion:

The arrangement was a family arrangement and not a business arrangement.

Issue 4: Taxability of compensation received for relinquishment of profit-sharing rights

- Legal Framework and Precedents:

Compensation for relinquishment of profit-sharing rights may be taxable as income from business or other sources depending on facts. However, in family arrangements, such compensation is often not treated as taxable income if it does not amount to a transfer or alienation.

- Court's Interpretation and Reasoning:

The Tribunal noted that the assessee continued as a partner with a nominal share and that the compensation was part of family arrangement without transfer of capital assets. The compensation did not arise from business activity but from realignment of family interests.

- Application of Law to Facts:

The compensation credited to current accounts was in lieu of reduction of profit-sharing rights but did not amount to transfer of capital assets or goodwill. The assessee did not derive income from business or profession in this context.

- Treatment of Competing Arguments:

The Revenue argued the compensation was taxable income under section 28(iv) or as income from other sources. The assessee denied such taxability. The Tribunal relied on judicial precedents to support non-taxability in this context.

- Conclusion:

The compensation received for relinquishment of profit-sharing rights was not taxable income.

Issue 5: Validity of reopening of assessment under sections 147/148

- Legal Framework and Precedents:

Section 148 requires recording of reasons for reopening assessment and issuance of notice. The Supreme Court in GKN Driveshafts (India) Ltd. v. ITO mandates that reasons must be furnished to the assessee, objections allowed, and a speaking order disposing objections passed before proceeding with reassessment. Non-compliance may render reassessment void.

- Court's Interpretation and Reasoning:

The Tribunal found that the Assessing Officer did not furnish the reasons recorded for reopening to the assessee in a timely and proper manner. The objections filed by the assessee were not disposed of by a speaking order before passing the reassessment order. The AO's passing of a draft order containing disposal of objections was held to be insufficient and contrary to the Supreme Court's directions.

- Application of Law to Facts:

The AO issued notice under section 148 but did not provide reasons for reopening until much later and did not pass a separate speaking order disposing objections before assessment. The reassessment order was passed shortly after the draft order, which included disposal of objections in its body, violating procedural safeguards.

- Treatment of Competing Arguments:

The Revenue contended that reasons were provided and objections disposed of in compliance with law. The assessee argued non-compliance with GKN Driveshafts procedural safeguards. The Tribunal accepted the assessee's contention based on the record.

- Conclusion:

The reassessment proceedings were invalid due to non-compliance with mandatory procedural safeguards and are liable to be quashed.

Issue 6: Compliance with requirement of speaking order disposing objections

- Legal Framework and Precedents:

The Supreme Court and various High Courts have held that the AO must pass a speaking order disposing objections to reopening before proceeding with reassessment. The disposal must be prior to assessment order and must show application of mind.

- Court's Interpretation and Reasoning:

The Tribunal found that the AO merely rejected objections in the draft assessment order without a separate speaking order. This approach was held to be inadequate and in violation of settled law.

- Application of Law to Facts:

The assessee filed objections to reopening which were not disposed of by a speaking order before final assessment. The draft order's remarks were insufficient to meet the procedural requirement.

- Treatment of Competing Arguments:

The Revenue argued that objections were disposed of adequately. The assessee argued procedural non-compliance. The Tribunal sided with the assessee.

- Conclusion:

The AO failed to comply with the requirement of passing a speaking order disposing objections prior to assessment, rendering reassessment invalid.

Issue 7: Quashing of reassessment orders for procedural non-compliance

- Legal Framework and Precedents:

Non-compliance with procedural safeguards such as furnishing reasons, disposal of objections, and adherence to GKN Driveshafts principles vitiates the jurisdiction of the AO and renders reassessment orders void ab initio.

- Court's Interpretation and Reasoning:

The Tribunal held that failure to provide reasons and dispose objections by a speaking order strikes at the root of jurisdiction. The reassessment orders passed without compliance are non-est in law.

- Application of Law to Facts:

The AO's failure to furnish reasons timely and dispose objections properly led to quashing of reassessment orders for AY 2015-16 and 2016-17.

- Treatment of Competing Arguments:

The Revenue's contention of compliance was rejected by the Tribunal based on record and judicial precedents.

- Conclusion:

Reassessment orders for both years are quashed for procedural non-compliance.

1. ISSUES PRESENTED and CONSIDERED

• Whether the Income Tax Appellate Tribunal (ITAT) was justified in sustaining an addition of Rs. 7,50,000 under Section 69A of the Income Tax Act, 1961, treating the amount as unexplained money despite the appellant/assessee's submission of bank statements and income tax returns for multiple years.
• Whether the Standard Operating Procedure (SOP) prescribed in the CBDT Circular No. 3/2017 dated 21/02/2017, specifically Clauses 1.1 and 1.3 relating to Source Specific General Verification Guidelines for cash deposits, was properly followed by the Assessing Officer and the ITAT.
• Whether the failure to conduct verification as per the CBDT Circular renders the addition under Section 69A unsustainable and liable to be set aside.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification of addition under Section 69A of the Income Tax Act for unexplained cash deposits

Relevant legal framework and precedents: Section 69A of the Income Tax Act permits the Assessing Officer to treat any sum found credited in the books of an assessee for which no satisfactory explanation is offered as income of the assessee. The burden lies on the assessee to explain the source and nature of the cash deposits.

Court's interpretation and reasoning: The Assessing Officer observed cash deposits of Rs. 11,00,000 during the demonetization period and found the explanation offered by the assessee unsatisfactory. Consequently, the entire amount was added as unexplained money under Section 69A. This addition was affirmed by the Commissioner of Income Tax (Appeals) and partly sustained by the ITAT, which reduced the addition by Rs. 3,50,000 based on CBDT Instruction No. 3/2017.

Key evidence and findings: The appellant/assessee had deposited Rs. 11,00,000 in cash during the demonetization period. Bank account statements for three financial years and income tax returns for six financial years were submitted by the assessee to explain the source of the deposits.

Application of law to facts: While the Assessing Officer and CIT(A) did not accept the explanation and added the entire amount, the ITAT recognized the applicability of the CBDT Circular and allowed a partial deduction of Rs. 3,50,000, treating it as cash in hand at the relevant time.

Treatment of competing arguments: The appellant contended that the addition was unjustified as the source was explained by documentary evidence and the SOP under the CBDT Circular was not followed. The Revenue supported the addition on the ground of inadequate explanation.

Conclusions: The addition under Section 69A cannot be sustained without following the prescribed verification procedure as per the CBDT Circular. The partial allowance by the ITAT was a recognition of this principle but insufficient without full compliance with the SOP.

Issue 2: Compliance with CBDT Circular No. 3/2017 (Clauses 1.1 and 1.3) regarding verification of cash deposits

Relevant legal framework and precedents: The CBDT Circular No. 3/2017 dated 21/02/2017 provides Source Specific General Verification Guidelines for unexplained cash deposits during demonetization. Clause 1.1 exempts verification for cash deposits up to Rs. 2.5 lakh for individuals without business income (Rs. 5 lakh for senior citizens). Clause 1.3 mandates detailed verification if deposits exceed these thresholds, including consideration of bank statements, past income, returns filed, and cash withdrawals before quantifying undisclosed amounts.

Court's interpretation and reasoning: The Court noted that the appellant/assessee had submitted bank statements for three years and income tax returns for six years, which were not considered by the Assessing Officer or CIT(A). The ITAT partially allowed the appeal relying on the Circular but did not ensure full compliance with Clauses 1.1 and 1.3.

Key evidence and findings: The appellant's submission of detailed bank statements and income tax returns was a crucial factor under the Circular's guidelines. The authorities failed to conduct the requisite verification as mandated.

Application of law to facts: The failure to verify the source of cash deposits in accordance with the Circular's SOP meant that the addition of Rs. 7,50,000 as unexplained money was premature and legally unsustainable.

Treatment of competing arguments: The appellant argued for remand to allow proper verification as per the Circular. The Revenue opposed setting aside the addition. The Court emphasized adherence to the Circular's verification process as mandatory.

Conclusions: Non-compliance with the CBDT Circular's verification procedure invalidates the addition under Section 69A. The matter requires remand to the Assessing Officer for verification and fresh adjudication in line with Clauses 1.1 and 1.3 of the Circular.

Issue 3: Effect of non-compliance with SOP on the validity of additions under Section 69A

Relevant legal framework and precedents: The CBDT Circular is binding on income tax authorities and prescribes a mandatory procedure for verifying cash deposits during demonetization. Non-compliance may render the assessment order unsustainable.

Court's interpretation and reasoning: The Court held that since the SOP was not followed, the addition of Rs. 7,50,000 was bad in law. The impugned orders by the ITAT, CIT(A), and Assessing Officer were set aside to the extent of the addition, and the matter was remitted for fresh verification.

Key evidence and findings: The absence of verification under the Circular despite submission of relevant documents by the assessee was a critical defect.

Application of law to facts: The addition was quashed not on merits but due to procedural lapses in verification, requiring reassessment.

Treatment of competing arguments: The Revenue's insistence on sustaining the addition despite procedural non-compliance was rejected.

Conclusions: Additions under Section 69A must comply with the CBDT Circular's SOP. Non-compliance mandates setting aside the addition and remand for fresh verification.

1. ISSUES:

1.1 Whether the withholding agent is "an assessee in default" under section 201(1) for failure to deduct tax at source under section 194C on payments to transporters.

1.2 Whether the Proviso to section 201(1) absolves the withholding agent where declarations in Form No. 15-I under section 194C(6) were furnished, but the declarations' dates/financial year entries relate to a subsequent assessment year.

1.3 Whether interest under section 201(1A) and late fees under section 234E are chargeable for the alleged non-deduction/non-filing of TDS and TDS returns.

1.4 Whether remand to the assessing officer is appropriate where the taxpayer contends that relevant documentary evidence exists but proper representation was not made before lower authorities.

2. RULINGS / HOLDINGS:

2.1 On the question of default under section 201(1): The appellate authority had confirmed the assessing officer's view treating the taxpayer as "assessee in default" in respect of payments of Rs. 5,85,84,115/- for non-deduction of TDS under section 194C, noting that "it was not the case of the appellant that the tax was not deductible on these payments." The Tribunal, however, set aside the orders below and remitted the matter to the assessing officer for fresh adjudication after affording an opportunity of being heard.

2.2 On applicability of the Proviso to section 201(1): The appellate authority held that declarations in Form No. 15-I were dated April-May 2017 and "are related to F.Y. 2017-18" and therefore "are not relevant to the year under consideration" (F.Y.2016-17); it further found that the requirements of the proviso were not demonstrated. The Tribunal remitted the issue to the assessing officer for fresh consideration.

2.3 On interest and late fees: The appellate authority confirmed charging of tax in default along with interest under section 201(1A). The question of interest under section 201(1A) and late fees under section 234E was directed to be reconsidered on remand by the assessing officer.

2.4 On remand: The Tribunal held that, "in the interest of justice and fair play," another opportunity should be provided to the taxpayer to represent the case properly and file all evidence in possession; consequently the orders of the lower authorities were set aside and the matter remitted for fresh adjudication.

3. RATIONALE:

3.1 Statutory framework applied: sections 194C (liability to deduct TDS on payments to contractors/transporters), section 201(1) (treatment as assessee in default for failure to deduct), proviso to section 201(1) (conditions under which the person "shall not be deemed to be an assessee in default"), section 201(1A) (interest on tax in default), and section 234E (late fee for delay in furnishing statements).

3.2 The Proviso to section 201(1) was expressly considered; the appellate authority quoted the proviso verbatim: "Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a payee or on sum credited to the account of a payee shall not be deemed to be an assessee in default in respect of such tax if such payee- 1. has furnished his return of income under section 139 2. has taken into account such sum for computing income in such return of income, and 3. has paid the tax due on the income declared by him in such return of income, INCOME TAX DEPARTMENT and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed."

3.3 Factual basis for the appellate authority's findings included absence of TDS return entries marked 'T' in Form 26Q for the relevant year and the dates/fiscal year entries on Form No. 15-I; on that basis the proviso's conditions were found not to be met. The Tribunal did not decide the substantive merits but remitted because proper representation was not made and the taxpayer claimed possession of additional documentary evidence.

3.4 No dissenting or concurring opinions were recorded; no doctrinal shift was announced. The remedial action taken was to "set aside" the orders below and remit for fresh decision after affording opportunity of being heard.

1. ISSUES:

1.1 Whether cash deposits partly accepted as pertaining to the period before demonetization and partly treated as unexplained by the Assessing Officer can be sustained as addition under the charging provision "unexplained money u/s. 69A" without independent investigation into the specific disputed amount.

1.2 Whether the appellate authority committed "non-application of mind" by referring to the entire SBN amount when the assessment order disputed only a specific portion of the deposits.

1.3 Whether application of an incorrect charging provision (e.g., Section 69 instead of Section 69A) or travelling beyond the scope of the appeal vitiates the addition.

1.4 Whether additions characterized as "misplaced and uncalled for, arbitrary and bad in law" should be deleted and the assessing officer directed accordingly.

2. RULINGS / HOLDINGS:

2.1 On the disputed deposits the Court holds that the addition under "unexplained money u/s. 69A" cannot be sustained where the appellate authority failed to apply independent mind to the specific amount in controversy; the appellate order is set aside and the addition deleted.

2.2 The Court finds that the appellate authority's treatment constituted "non-application of mind" because it considered the entire SBN amount (Rs. 3,60,000) whereas the assessment order only disputed Rs. 2,30,500, and therefore the appellate conclusion lacked proper adjudication on the relevant quantum.

2.3 The Court accepts the proposition that application of an incorrect charging section or making additions beyond the scope of the appeal vitiates the order; a wrong provision applied to the facts amounts to non-application of mind and renders the addition void.

2.4 Concluding disposition: the additions made u/s. 69A are held to be "misplaced and uncalled for, arbitrary and bad in law" and the Assessing Officer is directed to delete the addition; grounds of appeal are allowed.

3. RATIONALE:

3.1 Legal framework: the Court applied the statutory scheme distinguishing Section 69 (unexplained investments) and Section 69A ("unexplained money, bullion, jewellery or other valuable article") and emphasized that the correct charging provision must correspond to the nature of the transaction under scrutiny.

3.2 Application of principle: where only a part of deposits was contested by the assessment, the quasi-judicial authority was required to examine and adjudicate specifically on that quantum; considering the entire SBN amount without addressing the assessment's limited dispute constitutes "non-application of mind".

3.3 Precedential support: the Court relied on prior decisions establishing that (a) additions made under an incorrect and irrelevant charging section are "not sustainable and valid being bad in law", (b) a tribunal or appellate authority that travels beyond the scope of the appeal in imposing a different charging provision vitiates its order, and (c) non-application of mind by a fact-finding authority renders the addition void ("void ab initio").

3.4 Doctrinal point: the role of a "quasi-judicial authority" encompasses dispensing both "substantive and equitable justice"-substantive as to tax liability and equitable as to the "proper application of mind considering the facts and circumstances of the case"; failure in the latter undermines the validity of the order.

3.5 Disposition and remedy: in light of the foregoing framework and authorities, and on examination of the facts on record, the addition under Section 69A was held arbitrary and the Assessing Officer was directed to delete the addition; no differing or dissenting opinion was recorded.

1. ISSUES:

1. Whether failure to file Form 67 on or before the due date prescribed under section 139(1) and rule 128(9) precludes claim for foreign tax credit under section 90/91.

2. Whether filing Form 67 during the course of assessment proceedings but before completion of assessment suffices for claiming "foreign tax credit".

3. Whether the requirement in Rule 128(9) is "mandatory" or "directory and not mandatory" for denial of foreign tax credit.

2. RULINGS / HOLDINGS:

1. The Court holds that non-filing of "Form 67" by the due date prescribed under section 139(1) and rule 128(9) does not automatically preclude the claim of "foreign tax credit" under section 90/91; the requirement in Rule 128(9) is to be treated as "directory and not mandatory".

2. The Court holds that filing Form 67 during the assessment proceedings, i.e., before completion of the assessment, is sufficient to claim foreign tax credit and directs lower authorities to allow the credit as claimed where Form 67 was submitted before completion of assessment.

3. The Court sets aside the impugned order denying credit for delay in filing Form 67 and directs the grant of foreign tax credit, following consistent decisions of coordinate benches that treat Rule 128(9) as directory.

3. RATIONALE:

1. Applied statutory and regulatory framework: section 90/91 (entitlement to relief/credit), section 139(1) (due date for filing return), Rule 128 (clauses (4) and (9)) of the Income-tax Rules, 1962; noting that Rule 128(4) specifies conditions where credit would not be allowed while Rule 128(9) prescribes timing for furnishing Form 67.

2. Interpreted procedural rule as directory because Rule 128(9) does not prescribe any adverse consequence or express denial of credit for non-compliance; where a procedural provision prescribes no negative consequence, non-adherence is not treated as mandatory.

3. Relied on consistent tribunal precedents holding that Form 67 submitted before completion of assessment suffices to claim foreign tax credit; distinguished situations involving violation of statutory provisions that carry express consequences from non-compliance with a rule that does not prescribe denial.

4. Noted legislative amendment extending the filing timeline for Form 67 "on or before the end of the assessment year", which reinforces the non-mandatory character of earlier timing requirements in Rule 128(9).

5. Concluded that, in the absence of any provision in the Act or Rule prescribing denial of credit for delayed filing of Form 67, the appropriate remedy is to allow the foreign tax credit where Form 67 was filed during assessment proceedings prior to completion of assessment.

1. ISSUES PRESENTED and CONSIDERED

• Whether Common Area Maintenance (CAM) charges paid by tenants to mall owners constitute "rent" under Section 194I of the Income Tax Act, 1961, thereby attracting TDS at the rate prescribed under that section.
• Whether CAM charges are payments for services/work and thus liable for TDS deduction under Section 194C of the Income Tax Act, 1961.
• Whether the Assessing Officer's treatment of CAM charges as rent leading to short deduction of TDS and consequent declaration of the assessee as an assessee-in-default under Section 201(1) of the Act is justified.
• Whether the Tribunal's and High Court's precedents on the classification of CAM charges for TDS purposes are applicable and binding on the present cases.
• Whether any substantial question of law arises from the classification of CAM charges for TDS deduction under the Income Tax Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Classification of CAM Charges for TDS Deduction under Sections 194I or 194C

Relevant legal framework and precedents:

• Section 194I of the Income Tax Act mandates TDS on rent payments for land, building, or machinery.
• Section 194C of the Income Tax Act mandates TDS on payments to contractors for carrying out any work, including supply of labor for carrying out work.
• Precedents from ITAT Delhi Bench and Delhi High Court have consistently held that CAM charges are payments for services related to maintenance and not rent for use of premises. Notably, decisions in Kapoor Watch Company Pvt. Ltd. vs. ACIT and Liberty Retail Revolutions Limited have clarified this distinction.

Court's interpretation and reasoning:

• The Court examined the factual nature of CAM charges, emphasizing that these are payments made by tenants for maintenance services of common areas such as cleanliness, utilities, and upkeep, which are shared expenses and not payments for occupying or using premises.
• The Court noted that CAM charges are fundamentally contractual payments for services rendered, distinct and separate from rent payments for the use of leased premises.
• The Court concurred with the reasoning of the ITAT and coordinate Bench decisions that only payments for use of premises or equipment fall under Section 194I, while payments like CAM charges for maintenance services fall under Section 194C.

Key evidence and findings:

• Factual record confirming that CAM charges are not part of rent but separate payments for maintenance services.
• Prior departmental proceedings and ITAT decisions confirming that mall owners collect CAM charges separately from rent and deduct TDS under Section 194C at 2%.
• Orders of CIT(A) and AO treating CAM charges as rent and declaring assessee as assessee-in-default were found contrary to the established legal position.

Application of law to facts:

• Applying the legal framework and precedents, the Court held that CAM charges do not constitute rent and thus do not attract TDS under Section 194I.
• Since CAM charges are payments for maintenance work, they are liable for TDS deduction under Section 194C at the prescribed rate of 2%.
• The AO's and CIT(A)'s orders treating CAM charges as rent and holding the assessee in default were set aside.

Treatment of competing arguments:

• The Revenue argued that CAM charges are composite payments including rent and should attract TDS under Section 194I, relying on certain earlier decisions.
• The Court rejected this view, relying on consistent ITAT and High Court decisions distinguishing CAM charges from rent.
• The Revenue's reliance on the composite agreement was found unpersuasive in light of factual and legal clarity on the nature of CAM charges.

Conclusions:

• CAM charges are not rent for use of premises and thus do not attract TDS under Section 194I.
• CAM charges are contractual payments for maintenance services and attract TDS under Section 194C at 2%.
• Orders treating CAM charges as rent and holding the assessee in default under Section 201(1) are erroneous and liable to be set aside.

Issue 3: Validity of Declaration of Assessee as Assessee-in-Default under Section 201(1)

Relevant legal framework and precedents:

• Section 201(1) of the Income Tax Act provides for deeming a person an assessee-in-default for failure to deduct or pay TDS as required under the Act.
• Precedents establish that incorrect classification of payments for TDS purposes can lead to such declarations but must be based on correct legal interpretation of the nature of payments.

Court's interpretation and reasoning:

• The Court found that the AO and CIT(A) erred in treating CAM charges as rent and thus short deducting TDS under Section 194I.
• Since CAM charges are liable to TDS under Section 194C and were deducted accordingly, the declaration of the assessee as an assessee-in-default was unjustified.

Application of law to facts:

• The Tribunal and High Court set aside the orders declaring the assessee in default, holding that proper TDS deduction was made under the correct provision.

Conclusions:

• The assessee cannot be held in default for short deduction of TDS where the deduction was made under the correct provision applicable to CAM charges.

Issue 4: Applicability and Binding Nature of Precedents on CAM Charges Classification

Relevant legal framework and precedents:

• Decisions of coordinate Benches of ITAT and the Delhi High Court on identical issues form binding precedents.
• Recent Delhi High Court decisions have consistently held CAM charges to be liable for TDS under Section 194C, not Section 194I.

Court's interpretation and reasoning:

• The Court expressly followed the decision of the coordinate Bench in Liberty Retail Revolutions Limited and other ITAT decisions such as Kapoor Watch Company Pvt. Ltd.
• The Court noted that these precedents have settled the issue conclusively and are directly applicable to the present appeals.

Application of law to facts:

• The Court applied these precedents to the facts of the present appeals, finding no reason to deviate from the established legal position.

Conclusions:

• The precedents are binding and support the conclusion that CAM charges attract TDS under Section 194C, not Section 194I.

Issue 5: Existence of Substantial Question of Law

Relevant legal framework and precedents:

• Substantial question of law arises where there is a significant legal issue requiring interpretation or where there is conflict in law.

Court's interpretation and reasoning:

• Given the clear and consistent precedents on the classification of CAM charges for TDS purposes, the Court found no substantial question of law arises in these appeals.

Conclusions:

• No substantial question of law arises from the issue of TDS deduction on CAM charges as the legal position is settled.

1. ISSUES PRESENTED and CONSIDERED

• Whether the Tribunal was justified in confirming the disallowance of deduction of interest income under Section 80P(2)(a)(i) of the Income Tax Act, 1961, relying on the assessee's own case for an earlier assessment year.
• Whether the Tribunal was justified in relying on the Supreme Court decision in Totgars' Cooperative Sale Society Ltd. v. ITO, despite factual distinctions rendering that precedent inapplicable.
• Whether the Tribunal was justified in rejecting the alternative submission that attributable cost of funds used for deposits should be deducted to increase eligible business profit qualifying for deduction under Section 80P(2)(a)(i).
• Whether the Tribunal was justified in holding that interest on personal loans and house building loans to staff do not qualify as income attributable to banking business and thus are not eligible for deduction under Section 80P.
• Whether income from commission, miscellaneous and sundry incomes relate to business activities and qualify for deduction under Section 80P(2)(d) or 80P(2)(a)(i) (not pressed and hence not considered).

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1, 2 and 3: Deduction of Interest Income under Section 80P(2)(a)(i) and Applicability of Totgars' Cooperative Sale Society Ltd. Decision

Legal Framework and Precedents: Section 80P(2)(a)(i) provides deduction for profits and gains attributable to the business of banking or providing credit facilities by a cooperative society. The key interpretative question is the scope of the term "attributable to." The Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT held that "attributable to" is wider than "derived from," allowing inclusion of receipts beyond direct business conduct. The Supreme Court decision in Totgars' Cooperative Sale Society Ltd. involved a cooperative engaged in both credit facilities and marketing of agricultural produce, with deposits arising from retained sale proceeds payable to members.

Court's Reasoning and Findings: The Court examined the facts distinguishing the present case from Totgars. Here, the interest income arose from short-term deposits of surplus funds, which were not amounts due or liabilities payable to members, but funds temporarily held pending repayment to NABARD as per fixed schedules. The Court relied on Karnataka High Court decisions (Guttigedarara Credit Cooperative Society Ltd. and Tumkur Merchants Souharda Credit Cooperative Ltd.) and Telangana & Andhra Pradesh High Court decision (Vavveru Co-operative Rural Bank Ltd.) which interpreted "attributable to" broadly to include interest earned on temporary deposits of surplus funds by cooperative societies engaged in credit facilities. It was held that such interest income is integral and incidental to the lending business and thus eligible for deduction under Section 80P(2)(a)(i).

Application of Law to Facts: The cooperative society's business model involves wholesale borrowing and retail lending, causing floating funds that must be prudently invested. Interest earned on such investments is not from a separate business but arises from the credit facility business itself. The Court found the Tribunal erred in applying Totgars, which concerned retained sale proceeds (a liability), unlike the present surplus funds scenario.

Treatment of Competing Arguments: The Revenue's reliance on Totgars was rejected as factually distinguishable. The argument that the attributable cost of funds should be deducted to increase eligible profits was accepted in principle, supporting a wider interpretation of "attributable to."

Conclusion: The disallowance of deduction of interest income under Section 80P(2)(a)(i) was not justified. The interest income on short-term deposits of surplus funds is attributable to the business of providing credit facilities and qualifies for deduction. The Tribunal's reliance on Totgars was misplaced. Issues 1, 2, and 3 are answered in favour of the assessee.

Issue 4: Deduction of Interest on Personal Loans and House Building Loans to Staff

Legal Framework: Section 80P provides deduction for income attributable to the cooperative society's banking or credit facility business. The question is whether interest on personal loans to members and house building loans to staff qualify.

Court's Interpretation and Reasoning: The Court distinguished between two components: (a) interest on personal loans to members, and (b) interest on house building loans to staff. The society's membership includes individuals (Class D members) eligible to receive loans. Interest on personal loans to these members is directly connected to the credit facility business and qualifies for deduction under Section 80P(2)(a)(i).

Conversely, interest on house building loans to staff, even if secured by mortgage and some staff being members, was held not to be income attributable to the banking business. The Assessing Officer, CIT(A), and Tribunal consistently held this income does not qualify for deduction under Section 80P.

Application of Law to Facts: The personal loans fall squarely within the cooperative's lending business to members, whereas house building loans to staff are outside the scope of the business activity qualifying for deduction.

Treatment of Competing Arguments: The assessee's contention that house building loan interest should be deductible was rejected due to lack of direct connection with the business of providing credit facilities to members.

Conclusion: Interest on personal loans to members qualifies for deduction under Section 80P(2)(a)(i), but interest on house building loans to staff does not. Issue 4 is partly answered in favour of the assessee (personal loans) and partly against (house building loans to staff).

Issue 5: Deduction of Income from Commission, Miscellaneous and Sundry Incomes

This issue was expressly not pressed by the appellant and therefore rejected as not pressed. No further analysis was undertaken.

1. ISSUES PRESENTED AND CONSIDERED

• Whether the payment of Rs. 80 Crores made by the assessee to another entity is covered under the provisions of Section 194H of the Income Tax Act, 1961, requiring deduction of tax at source (TDS) as "commission or brokerage."
• Whether the payment in question constitutes "commission or brokerage" within the meaning of Section 194H, particularly considering the proviso to Explanation (i) which includes payments received for services rendered (not being professional services) or for any services in the course of buying or selling goods or in relation to any transaction relating to any asset, valuable article or thing, excluding securities.
• Whether the transactions between the assessee and the payee were on a principal-to-principal basis or involved an agency relationship that would attract the provisions of Section 194H.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Applicability of Section 194H to the payment of Rs. 80 Crores

Relevant legal framework and precedents: Section 194H mandates deduction of tax at source on payments by way of commission or brokerage at the prescribed rate. The Explanation (i) to Section 194H expands the definition of "commission or brokerage" to include payments for services rendered (other than professional services) or services in the course of buying or selling goods or relating to any transaction involving assets or valuable articles, excluding securities.

The Supreme Court's authoritative interpretation clarified that the element of agency is essential for a payment to qualify as commission or brokerage under Section 194H, emphasizing that payments made on a principal-to-principal basis do not attract this provision.

Court's interpretation and reasoning: The Court examined the nature of the transaction and the relationship between the parties. It noted that the payment was made pursuant to a joint venture agreement forming an Association of Persons (AOP), where both parties contributed assets and shared responsibilities. The payee had acquired tenancy rights in its own name and brought these as capital contribution. The development expenses were borne by the assessee, and the payment was made as consideration for the joint venture arrangement.

The Court relied on the factual finding that the transactions were on a principal-to-principal basis, not involving an agency relationship. It held that the payment could not be characterized as commission or brokerage under Section 194H since there was no element of agency or services rendered in the course of buying or selling goods by one party on behalf of the other.

Key evidence and findings: The joint venture agreement, the formation of the AOP, the assignment agreements between the payee and tenants, and the manner in which tenancy rights were acquired and contributed were examined. The Assessing Officer's survey report and the subsequent appellate orders were also considered. The CIT (Appeals) and ITAT both found that the payment was not commission or brokerage but part of a principal-to-principal transaction.

Application of law to facts: Given the absence of agency and the nature of the joint venture, the payment did not fall within the ambit of Section 194H. The Court emphasized that the wide definition in Explanation (i) does not extend to payments made in principal-to-principal dealings. The Supreme Court's precedent was applied to confirm that mere payments in the course of buying or selling goods do not automatically attract TDS under Section 194H unless there is an agency element.

Treatment of competing arguments: The Revenue contended that the payment was commission or brokerage and thus liable for TDS under Section 194H. The Court rejected this argument on the ground that the Revenue did not challenge the factual findings regarding the principal-to-principal nature of the transactions. The Court distinguished the present case from cases where agency or service element exists, relying on the Supreme Court's reasoning that the definition of commission or brokerage requires an agency relationship.

Conclusion: The payment of Rs. 80 Crores was not commission or brokerage within the meaning of Section 194H. Therefore, there was no requirement to deduct tax at source under this provision.

Issue 2: Interpretation of "commission or brokerage" under Explanation (i) to Section 194H

Relevant legal framework and precedents: Explanation (i) to Section 194H includes payments for services rendered (not professional) or services in the course of buying or selling goods or relating to transactions involving assets. The Supreme Court clarified that the definition requires the payment to be made to a person acting on behalf of another, i.e., an agent.

Court's interpretation and reasoning: The Court reiterated that the element of agency is crucial. It cited the Supreme Court's example distinguishing a car dealer purchasing cars on principal-to-principal basis from a dealer acting as agent for the manufacturer. The Court noted that without agency, the payment cannot be considered commission or brokerage.

Key evidence and findings: The Court relied on the joint venture agreement and the fact that the payee acquired tenancy rights in its own name, indicating independent ownership and no agency. The nature of the joint venture and the financial arrangements further supported the absence of agency.

Application of law to facts: The Court applied the Supreme Court's interpretation to the facts, concluding that the payment was not for services rendered as an agent but was a principal-to-principal transaction. Therefore, the payment did not fall within the Explanation (i) to Section 194H.

Treatment of competing arguments: The Revenue's argument that the wide definition in Explanation (i) covers the payment was rejected because it ignored the essential element of agency. The Court emphasized that the definition cannot be stretched to cover all payments made in the course of buying or selling goods.

Conclusion: The payment did not constitute "commission or brokerage" under Explanation (i) to Section 194H as there was no agency relationship involved.

Issue 3: Nature of transactions - Principal to Principal vs. Agency

Relevant legal framework and precedents: The distinction between principal-to-principal transactions and agency relationships is fundamental in determining the applicability of TDS provisions under Section 194H. The Supreme Court's ruling clarified that only payments made to agents for services rendered attract Section 194H.

Court's interpretation and reasoning: The Court accepted the factual findings of the ITAT and CIT (Appeals) that the transactions were on a principal-to-principal basis. The joint venture arrangement and the manner in which tenancy rights were acquired and contributed supported this conclusion.

Key evidence and findings: The joint venture agreement, formation of AOP, assignment agreements with tenants, and the financial arrangements between the parties were key evidence. The payee's independent acquisition of tenancy rights in its own name was significant.

Application of law to facts: Since the transactions were principal-to-principal, the payment was not commission or brokerage. The Court held that the absence of agency negates the applicability of Section 194H.

Treatment of competing arguments: The Revenue's contention that the payment was commission or brokerage was dismissed due to lack of challenge to the factual findings and the absence of agency.

Conclusion: The principal-to-principal nature of the transactions excludes the payment from the scope of Section 194H.

1. Whether additions on account of alleged unaccounted cash deposits and interest thereon for AYs 2012-13, 2015-16, and 2018-19 are sustainable in the absence of corroborative evidence beyond sworn statements recorded during search proceedings.

2. Whether the Assessing Officer (AO) was justified in making substantive and protective additions by consolidating deposits and interest of multiple partnership firms under the name of a single firm, disregarding their separate legal entity status.

3. Whether additions on account of alleged unaccounted cash loans advanced to a third party and corresponding interest for AY 2015-16 can be sustained based solely on seized documents from a third-party premise without corroborative evidence linking the assessee.

4. Whether additions on account of unexplained cash found and seized during search proceedings for AY 2018-19 are justified, considering reconciliations furnished by the assessee and the existence of multiple partnership firms operating independently from the same premises.

5. Whether the AO's reliance on statements recorded under Section 132(4) of the Income-tax Act, 1961, without independent corroboration, suffices to uphold additions under the Act.

Relevant Legal Framework and Precedents:

- Income can be taxed only in the relevant assessment year to which it pertains; opening balances from prior years cannot be treated as income of a subsequent year.

- Statements recorded under Section 132(4) are admissible but not conclusive evidence; corroboration is necessary to sustain additions.

- Income of one person cannot be assessed in the hands of another without legal justification; separate legal entities must be assessed independently.

- Judicial precedents emphasize the need for independent evidence beyond self-incriminating statements to uphold additions.

Court's Interpretation and Reasoning:

- The AO relied primarily on the sworn statement of the Managing Partner, who admitted cash deposits of Rs. 6,83,07,000/- pertained to FY 2010-11 (AY 2011-12), yet the AO made the addition in AY 2012-13, which is legally impermissible.

- The AO consolidated deposits and interest of 74 partnership firms and made substantive additions in the hands of a single firm, disregarding the distinct legal status and separate PANs of each firm.

- The AO failed to produce any corroborative material from the seized documents or field inquiries that independently established the deposits as unaccounted or linked solely to the assessee firm.

- The assessee furnished detailed computerized accounting records seized during the search, showing separate deposit details for all 74 firms, which the AO did not adequately reconcile or disprove.

- The AO's field inquiries were limited and inconclusive, failing to establish non-existence of depositors conclusively.

Key Evidence and Findings:

- Sworn statement under Section 132(4) admitted cash deposits related to FY 2010-11, not AY 2012-13.

- Seized computer hard disk contained detailed deposit records for all 74 firms, supporting genuineness of deposits.

- No independent evidence of interest payments or unaccounted deposits was brought on record beyond the statement.

Application of Law to Facts:

- Taxation must align with the relevant assessment year; addition for deposits pertaining to earlier year in subsequent year is invalid.

- Without corroborative evidence, reliance solely on sworn statements for additions is legally unsustainable.

- Consolidation of income of multiple distinct entities into one firm's assessment violates legal principles of separate entity assessment.

Treatment of Competing Arguments:

- Revenue contended that deposits were unaccounted and interest payments were made only to partners, relying on the statement and field inquiries.

- Assessee argued that the statement was misinterpreted, not corroborated, and detailed records disproved the AO's conclusions.

- The Tribunal accepted the assessee's submissions, noting the AO's failure to produce independent evidence and reconcile seized data.

Conclusions:

- Additions on account of unaccounted deposits and interest for AY 2012-13 and other years are deleted.

- Consolidation of 74 firms' income in the hands of a single firm is impermissible.

- Reliance solely on Section 132(4) statements without corroboration is insufficient to sustain additions.

Relevant Legal Framework and Precedents:

- Additions cannot be made solely on documents seized from third-party premises without corroborative evidence linking the assessee.

- The burden of proof lies on the Revenue to establish taxability by adducing proper evidence corroborating seized material.

- Statements of third parties or documents maintained by them do not bind the assessee unless corroborated.

Court's Interpretation and Reasoning:

- The AO made additions based on an Excel sheet seized from a third party, containing loan and interest entries allegedly involving the assessee.

- The AO did not conduct enquiries to verify genuineness or confront the assessee with the seized material adequately.

- No enquiry was made with persons named in the statements or to ascertain the actual lender.

- The assessee denied advancing such loans and challenged the reliability of the third-party documents.

- The Tribunal observed that the Excel sheet lacked necessary details such as transaction nature, year, and ownership, and was a flawed document without corroboration.

Key Evidence and Findings:

- Excel sheet seized from third-party premises not maintained by the assessee.

- No corroborative evidence such as bank records, ledger entries, or statements from concerned parties was produced.

- Statements of third parties did not directly implicate the assessee.

Application of Law to Facts:

- Without corroborative evidence, the Excel sheet cannot be relied upon to make additions.

- The AO's failure to conduct proper enquiries and verify the seized documents renders the additions unsustainable.

Treatment of Competing Arguments:

- Revenue argued that the seized material and third-party statements justified additions.

- Assessee contended that such material was inadmissible against it without corroboration and proper opportunity to cross-examine.

- The Tribunal sided with the assessee, emphasizing the need for corroborative evidence and proper procedure.

Conclusions:

- Additions on account of alleged unaccounted loans and interest based on third-party seized documents are deleted.

Relevant Legal Framework and Precedents:

- Additions for unexplained cash can be made only if the cash found exceeds the book balance or is otherwise unexplained.

- The burden of proof lies on the Revenue to establish that seized cash is unexplained and represents undisclosed income.

- Reconciliation furnished by the assessee, if credible and unrefuted, must be accepted.

Court's Interpretation and Reasoning:

- Cash of Rs. 1,10,10,000/- was seized from premises shared by 74 partnership firms.

- Books of account of all 74 firms reflected a total cash balance of Rs. 2,38,52,901/-, exceeding the seized cash.

- The assessee furnished reconciliation explaining most of the difference between book balance and physical cash, including payments to retiring partners and unrecorded payments.

- The AO did not examine or verify the seized hard disk data containing accounting records of all firms.

- The AO made substantive addition on the basis of physical cash found without adequately disproving the reconciliation.

Key Evidence and Findings:

- Statement of Managing Partner admitting the physical cash represented aggregate cash of all 74 firms.

- Detailed reconciliation supported by seized digital records.

- No incriminating material or evidence disproving reconciliation was produced by the Revenue.

Application of Law to Facts:

- Since book balance exceeded physical cash and reconciliation was furnished, addition for unexplained cash is not justified except for a marginal unreconciled amount.

- The AO failed to discharge burden of proving cash as unexplained beyond reasonable doubt.

Treatment of Competing Arguments:

- Revenue contended that reconciliation was not supported by verifiable contemporaneous documents and that other firms were only on paper.

- Assessee demonstrated existence of separate firms with independent books and reconciled cash balances.

- Tribunal accepted assessee's explanation due to lack of contrary evidence.

Conclusions:

- Substantive addition on account of unexplained cash is deleted except for Rs. 5,34,732/- unreconciled amount sustained.

- Protective addition in hands of other firm is deleted.

Relevant Legal Framework and Precedents:

- Statements recorded under Section 132(4) are self-incriminating and admissible but not conclusive.

- Such statements require corroboration by independent evidence to sustain additions.

- Judicial authorities have held that admissions can be retracted and are not binding if shown to be incorrect or misunderstood.

Court's Interpretation and Reasoning:

- The AO heavily relied on statements recorded under Section 132(4) for additions.

- The Tribunal observed that these statements were not corroborated by seized material or independent inquiries.

- The assessee retracted or clarified the statements, and the AO failed to verify or reconcile with seized records.

Key Evidence and Findings:

- Statements admitted cash deposits and cash balances but did not admit them as unaccounted income.

- No independent evidence supported the AO's conclusions based solely on these statements.

Application of Law to Facts:

- Additions cannot be sustained solely on Section 132(4) statements without corroboration.

- The AO's failure to investigate or verify renders reliance on such statements legally untenable.

Treatment of Competing Arguments:

- Revenue argued statements are important evidence.

- Assessee argued statements were misinterpreted and lacked corroboration.

- Tribunal upheld the assessee's position consistent with established legal principles.

Conclusions:

- Additions based solely on Section 132(4) statements without independent corroboration are unsustainable.

1. Issues Presented and Considered

• Whether the addition under section 43CA of the Income-tax Act, 1961, on account of difference between stated consideration and stamp duty value of commercial properties sold, is justified for the assessment year (AY) 2015-16.
• Determination of the correct year of assessment in which the transfer of property took place for taxation purposes.
• Applicability of section 2(47)(v) read with section 53A of the Transfer of Property Act, 1882, in recognizing the date of transfer based on possession and receipt of consideration.
• Whether the valuation adopted by the Departmental Valuation Officer (DVO) as on 3rd May 2015 is relevant and can be used for addition under section 43CA for AY 2015-16.
• Whether the same income can be taxed twice in two different assessment years on the same transaction.
• Interpretation and applicability of sub-sections (3) and (4) of section 43CA concerning the timing of stamp duty valuation when consideration is received prior to agreement date.

2. Issue-wise Detailed Analysis

Issue 1: Justification of Addition under Section 43CA for AY 2015-16

Relevant Legal Framework and Precedents: Section 43CA mandates that where the consideration received or accruing as a result of transfer of land or building is less than the stamp duty value adopted or assessed by the stamp valuation authority, the stamp duty value shall be deemed to be the full value of consideration for computing income from business or profession.

Court's Interpretation and Reasoning: The Assessing Officer (AO) invoked section 43CA for AY 2015-16 based on the date of registration of the agreement (3rd March 2015) and compared the stated consideration with the DVO's stamp duty valuation as on 3rd May 2015. This resulted in an addition of Rs. 3,56,85,000.

Key Evidence and Findings: The transaction was completed on 13th July 2013 when full consideration was received and possession handed over. The agreement to sell was executed and registered much later due to buyer's delay. The income was offered in AY 2014-15. The DVO valuation date did not coincide with either the date of agreement or actual transfer.

Application of Law to Facts: Since the transaction was completed in FY 2013-14 (AY 2014-15), the provisions of section 43CA cannot be applied for AY 2015-16 based on registration date. The timing of the transaction for tax purposes is the date possession was delivered and consideration received, not the date of registration.

Treatment of Competing Arguments: Revenue relied on registration date; assessee relied on possession and receipt of consideration date. The Court found the assessee's argument consistent with statutory provisions and factual matrix.

Conclusion: Addition under section 43CA for AY 2015-16 is unsustainable as the transaction was completed earlier and income was already offered in AY 2014-15.

Issue 2: Correct Year of Assessment for Taxation of Transfer

Relevant Legal Framework and Precedents: Section 2(47)(v) of the Income-tax Act defines "transfer" to include allowing possession of immovable property in part performance of a contract as per section 53A of the Transfer of Property Act, 1882.

Court's Interpretation and Reasoning: The Court emphasized that once possession is handed over under a written agreement with full consideration received, the transaction qualifies as a transfer. The formal registration is a procedural formality and does not determine the year of assessment.

Key Evidence and Findings: Possession was delivered and full payment received on 13.07.2013. The assessee offered income in AY 2014-15 accordingly. The AO himself initiated reassessment for AY 2014-15 acknowledging the transaction date.

Application of Law to Facts: The transaction must be taxed in AY 2014-15, the year in which transfer took place in terms of possession and receipt of consideration.

Treatment of Competing Arguments: Revenue argued for AY 2015-16 based on registration date; assessee argued for AY 2014-15 based on possession and payment. The Court found the latter consistent with statutory provisions and principles of taxation.

Conclusion: The correct year of assessment is AY 2014-15; the transaction cannot be taxed in AY 2015-16.

Issue 3: Applicability of Section 2(47)(v) and Section 53A of Transfer of Property Act

Relevant Legal Framework and Precedents: Section 2(47)(v) incorporates part performance of contract under section 53A of Transfer of Property Act as constituting transfer for income tax purposes.

Court's Interpretation and Reasoning: The Court held that all conditions under section 53A were fulfilled: written agreement, signed by parties, full consideration paid, and possession delivered. Hence, the transaction was complete on 13.07.2013.

Key Evidence and Findings: The buyer took possession and paid full consideration on 13.07.2013. The delay in registration was at buyer's volition and did not affect transfer.

Application of Law to Facts: The transaction qualifies as "transfer" under section 2(47)(v) on the date of possession and payment, not on registration.

Treatment of Competing Arguments: Revenue's reliance on registration date is inconsistent with statutory definition and principle of part performance.

Conclusion: The transaction date for tax purposes is the date possession was delivered and consideration received, i.e., 13.07.2013.

Issue 4: Relevance and Legality of DVO Valuation as on 3rd May 2015

Relevant Legal Framework and Precedents: Section 43CA requires adoption of stamp duty valuation as on date of agreement when part or whole consideration is received prior to agreement date.

Court's Interpretation and Reasoning: The DVO valuation was on 3rd May 2015, which neither coincided with date of agreement (31.12.2014) nor date of transfer (13.07.2013). The valuation was thus irrelevant and lacked legal foundation.

Key Evidence and Findings: The DVO report was not even referred to in the reassessment order for AY 2014-15, indicating its questionable evidentiary value.

Application of Law to Facts: Since entire consideration was received before agreement date, stamp duty valuation must be as on agreement date, not on a later date.

Treatment of Competing Arguments: Revenue relied on DVO valuation for addition; assessee challenged its relevance and timing.

Conclusion: DVO valuation as on 3rd May 2015 is irrelevant and cannot be basis for addition under section 43CA for AY 2015-16.

Issue 5: Double Taxation of Same Income in Two Different Assessment Years

Relevant Legal Framework and Precedents: Doctrine of consistency and finality of proceedings prohibits taxing the same income twice.

Court's Interpretation and Reasoning: The AO made identical additions under section 43CA in AY 2014-15 (reassessment) and AY 2015-16 (original assessment). The appellate authority deleted addition for AY 2014-15 but confirmed it for AY 2015-16. Revenue did not appeal deletion for AY 2014-15, which attained finality.

Key Evidence and Findings: Income was offered and assessed in AY 2014-15. No appeal against deletion in AY 2014-15.

Application of Law to Facts: The same income cannot be taxed twice in different years. Revenue's attempt to tax in AY 2015-16 is inconsistent and contrary to settled principles.

Treatment of Competing Arguments: Revenue's stand was inconsistent; assessee relied on principle of non-double taxation.

Conclusion: Addition in AY 2015-16 is barred as income was already assessed in AY 2014-15.

Issue 6: Interpretation of Sub-sections (3) and (4) of Section 43CA

Relevant Legal Framework and Precedents: Sub-sections (3) and (4) provide that where consideration is received prior to agreement date through banking channels, stamp duty valuation as on agreement date shall be adopted.

Court's Interpretation and Reasoning: Entire consideration was received on 13.07.2013, prior to agreement date (31.12.2014). Therefore, stamp duty valuation as on agreement date should be used if section 43CA applies.

Key Evidence and Findings: No part consideration received after agreement date; full payment was made earlier.

Application of Law to Facts: The valuation date used by AO (3rd May 2015) does not comply with statutory mandate.

Treatment of Competing Arguments: Revenue ignored statutory requirement; assessee correctly invoked sub-sections (3) and (4).

Conclusion: Even if section 43CA applied, valuation date must be agreement date, not a later date.