TaxTMI 
TaxTMI 
2017 (3) TMI 1669
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....the assessee to file return of income for this assessment year. However, the assessee filed letter dated 23/07/2010 requesting the Assessing Officer (AO) to treat return filed u/s 139 as return in response to 153A. Subsequently, the assessment was completed by the AO at total income of Rs. 10,81,86,756/- vide order u/s 143(3) r.w.s.153A of the Act dated 28/12/2010. While doing so, the AO made addition of Rs. 1,25,66,700/- on account of profit on sale of properties to M/s.Brigade Enterprises and Rs. 50 lakhs on account of disallowance of development expenditure as offered by the assessee himself during the course of assessment proceedings and also made addition of unexplained investment of Rs. 32,50,000/- in various immovable properties and an amount of Rs. 30 lakhs was disallowed u/s 40A(3) of the Act. 3. Being aggrieved by the above assessment order, assessee preferred an appeal before the CIT(A) contending inter alia that the AO was not justified in making addition on account of transaction of sale of properties to M/s.Brigade Enterprises of Rs. 1,25,66,700/- and also not to have made addition on account of unexplained investment of Rs. 32,50,000/- as the same should be telesc....
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....85,051/- it was submitted that the two items of expenditure were considered under the head 'development expenditure' by the AO in the assessment order. During the course of assessment proceedings, the AO had directed the assessee to file details of development expenditure and labour charges and also to adduce proof to substantiate the expenditure. In compliance to the directions, the assessee had produced evidence of payment made to contractors in respect of development expenditure and labour charges and details of compliance of TDS provisions. The appellant, however, because of inability to produce certain proof in respect of development expenditure, offered suo motu disallowance of Rs. 50 lakhs for assessment year 2008-09 and Rs. 2 crores for the assessment year 2009-10. The AO, after duly considering the submissions made by the assessee had accepted the disallowance offered by the assessee on these two accounts. Thus it was contended that the AO accepted the disallowance after considering the entire issue of development expenditure in its proper perspective. Thus it was contended that the issue was duly considered by the AO and took one of the possible views. 7. As regards is....
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....ards cost of purchase of land which was sold in the subsequent assessment year i.e. 2009-10, (iii) Rs. 7,72,41,000/- on account of labour charges and (iv) Rs. 6,07.85,051/- on account of development expenditure. It is crystal clear from the perusal of the assessment order that additions were made based on the statement given by the assessee during the course of search and seizure operation u/s 132(4) of the Act. The AO also extracted, vide para.5.3 of the assessment order, the statement made by the assessee u/s 132(4) as under: 9. During the course of assessment proceedings, the appellant has filed detailed submissions/information corroborating the statements made u/s 132(4) of the Act. Now it is settled proposition of law that in case of assessment made pursuant to notice issued u/s 153A of the Act, addition should be confined or based on incriminating material alone. The AO is precluded to travel beyond the incriminating material for the purpose of making addition in the assessment made pursuant to notice u/s 153A of the Act. In this context, it is worth quoting from the judgment of the Hon'ble jurisdictional High Court in the case of CIT vs. IBC Knowledge Par....
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.... Officer can assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made. However, assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this sub-section pending on the date of initiation of the search under Section 132 or making of requisition under Section 132A, as the case may be, shall abate. The explanation states, save as otherwise provided in Sections 153A, 153B and 153C, all other provisions of the Act shall apply to the assessment made under Section 153A. Section 153B speaks about time-limit for completion of assessment under Section 153A. 46. 153C is relevant for the purposes of this case. Sub-section (1) of Section 153C begins with a non-obstante clause and it states that notwithstanding anything contained in Sections 139, 147, 148, 149, 151 and 153, where the Assessing Officer is satisfied that any valuable assets, seized or requisitioned, belongs to, or any books of account or documents, seized or requisitioned, pertains or pertain to, or any information c....
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....b) defines 'undisclosed income' to include any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property, which has not been or would not have been disclosed for the purposes of this Act or any expense, deduction or allowance claimed under this Act which is found to be false. Section 158BA deals with assessment of undisclosed income as a result of search, while Section 158BB deals with computation of undisclosed income of the block period. Block period is defined in Section 158B(a) to mean the period comprising previous years relevant to six assessment years preceding the previous year in which the search was conducted under Section 132 or any requisition was made under Section 132A and also includes the period up to the date of commencement of such search or date of such requisition in the previous year in which the said search was conducted or requisition was made. The proviso is not relevant for the purpose....
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....otice to the assessee i.e., the person searched for the purpose of assessment or reassessment of the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted. Section 153C as already noted, deals with assessment of income of any other person, when the Assessing Officer is satisfied that the books of account or documents or valuable assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to under sub-section(1) of Section 153A of the Act. In such a case, the Assessing Officer has to issue notice to assess or reassess income of other person under Section 153A of the Act. Thus, the fact that search has been conducted would not justify issuance of notice under Section 153A. If it is only during a valid search when certain incriminating materials are detected, notice could be issued. 50. Chapter XIV-B which deals with special procedure for assessment of search cases deals with undisclosed income as a result of search, the computation thereof and such other provisions. Undisclosed income is de....
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.... as they relate to any year covered in the block. Thus, a block assessment is justified only on the basis of evidence found during search and the materials or information relatable thereto. Section 153C is in pari materia with Section 158BD conferring jurisdiction over third parties to a search providing certain conditions before the Assessing Officer having jurisdiction over a third party can assume jurisdiction. Materials such as books of account, documents or valuable assets found during a search should belong to a third party which would lead to an inference of undisclosed income of such third party. Such an inference should be recorded by the Assessing Officer having jurisdiction over the searched persons and communicated to the Assessing Officer having jurisdiction over such third party along with the seized documents and other incriminating materials on the basis of which the Assessing Officer having jurisdiction over such third party would issue notice under Section 153C. On receipt of the aforesaid material, the Assessing Officer having jurisdiction over such third party would proceed against the said third party. Thus, where no material belonging to a third party....
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....or had he transferred the case to the Assessing Officer having jurisdiction over the matter. Therefore, the judgment of the High Court was set aside and the appeals were allowed. 52. The decisions relied upon by the learned Senior Counsel appearing for the assessee are as under: (a) In CIT v. Calcutta Knitwears [2014] 362 ITR 673/223 Taxman 115 (Mag.)/43 taxmann.com 446 (SC), the Hon'ble Supreme Court considered the question, as to at what stage of the proceedings under Chapter XIV-B, the Assessing Authority was required to record his satisfaction for issuing notice under Section 158BD of the Act. In that case, the facts were that a search operation under Section 132 of the Act was carried out in two premises of the Bhatia Group, namely M/s. Swastik Trading Co., and M/s. Kavita International Co., on 5/2/2003 and certain incriminating documents pertaining to the assessee-firm i.e., Calcutta Knitwear were traced in the said search. After completion of the investigation by the investigating agency and handing over of the documents to the assessee to the Assessing Authority, the latter had completed the block assessments in the case of Bhatia group. Since certain ....
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....ssessments under section 158BC of the Act should be satisfied that there is an undisclosed income which has been traced out when a person was searched under Section 132 or the books of account were requisitioned under Section 132A of the Act. This is in contrast to the provisions of section 148 of the Act where recording of reasons in writing are a sine qua non. Under Section 158BD, the existence of cogent and demonstrative material is germane to the Assessing Officers' satisfaction in concluding that the seized documents belong to a person other than the searched person is necessary for initiation of action under Section 158BD. The bare reading of the provision indicates that the satisfaction note could be prepared by the Assessing Officer either at the time of initiating proceedings for completion of assessment of a searched person under Section 158BC of the Act or during the stage of the assessment proceedings. It does not mean that after completion of the assessment, the Assessing Officer cannot prepare the satisfaction note to the effect that there exists income-tax belonging to any person other than the searched person in respect of whom a search was made under Section 13....
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....by making further investigations, which was impermissible, as the same would amount to reopening of a concluded assessment, without there being any additional material found at the time of search. Otherwise, it would give the Revenue a second opportunity to reopen a concluded assessment, which is impermissible in law. Merely because a search is conducted in the premises of the assessee, would not entitle the Revenue to initiate the process of reassessment, for which, there is a separate procedure prescribed in the statute. It is only when the conditions prescribed for reassessment are fulfilled that a concluded assessment can be reopened. The very same accounts which were submitted by the assessee, on the basis of which assessment had been concluded, cannot be reappreciated by the Assessing Officer merely because a search had been conducted in the premises of the assessee. (c) In Jai Steel (India) v. Asstt. CIT [2013] 36 taxmann.com 523/219 Taxman 223 (Raj.), it was held that no doubt the Assessing Officer is free to disturb income, expenditure or deduction de hors any incriminating material, while making an assessment under Section 153A of the Act. But in the context of a....
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....assessment or reassessment can be made. The word "assess" in Section 153A is relatable to abated proceedings (i.e., those pending on the date of search) and the word "reassess" to completed assessment proceedings. (vi) Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each assessment year on the basis of the finding of the search and any other material existing or brought on record of the Assessing Officer. (vii) Completed assessments can be interfered with by the Assessing Officer while making the assessment under Section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. The Delhi High Court further held that in the cases before it on the date of the search the assessment already stood concluded since no incriminating material was unearthed during the search, no additions could have been ma....
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....r the books of account or other evidence or materials seized in the course of search of an assessee represents or proves undisclosed income of another assessee. On the other hand, for transferring the file to the Assessing Officer of such other assessee, all that is required to be considered is whether the materials or books of account or evidence recovered relates to another assessee, which may or may not lead to an assessment in the case of the other assessee after transfer of the file to his Assessing Officer. This is only an internal arrangement to be made between two Departmental Officers and in this regard the only fact that needs to be verified is whether the assessee whose books of account or materials are recovered in the course of search of any other assessee, is a regular assessee before another Officer, and if so, to transfer the file to such other Officer for his consideration and for passing orders, whether assessment or penalty or such other order permissible under the Act by that Officer. (e) In Canara Housing Developnment Co. v. Dy. CIT [2014] 49 taxmann.com 98 (Kar.), a Division Bench of this court in the said case noted that in the course of search, incr....
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....the return of income filed by him. Even during the course of assessment proceedings, assessee made detailed submissions with regard to transactions entered into with M/s.Brigade Enterprises. The AO considering the submissions made u/s 132(4) as well as the statements made during the course of assessment proceedings, made further addition of Rs. 1,25,66,700/- on account of profit made in respect of transaction for sale of property to M/s.Brigade Enterprises apart from agreed additions of Rs. 50 lakhs on account of development expenditure. The issue of profit on account of transactions with M/s.Brigade Enterprises was discussed by the AO vide para.5.6 of the assessment order. After discussing the issue threadbare, the AO had chosen to make addition of Rs. 1,25,66,700/-. As regards development expenditure, the assessee had agreed to offer Rs. 50 laksh during the course of assessment proceedings on account of his failure to substantiate development expenditure of Rs. 2 crores for the assessment year 2009-10. Thus the issue of transaction with M/s.Brigade Enterprises and the development expenditure incurred thereon was thoroughly examined by the AO and the AO took one of the possible vi....
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.... a settled position in law that powers under Section 263 of the Act can be exercised by the CIT on satisfaction of twin conditions viz. the Assessment Order should be erroneous and prejudicial to the Revenue. By erroneous is meant contrary to law. Thus, this power cannot be exercised unless the CIT is able to establish that the order of the Assessing Officer is erroneous and prejudicial to the Revenue. Thus where there are two possible views and the Assessing Officer has taken one of the possible views, no occasion to exercise powers of Revision, can arise. Nor can Revisional power be exercised for directing a fuller inquiry to find out if the view taken is erroneous, when a view has already been taken after inquiry. This power of Revision can be exercised only where no inquiry as required under the law is done. It is not open to enquire in cases of inadequate inquiry. 7. Firstly, the Revenue contends that the exercise of powers under Section 263 of the Act is justified as in this case, as no inquiry in respect of the gifts received during the subject years was done by the Assessing Officer for the Assessment orders for Assessment Years 2007-08 and 2008- 09. This according....
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....s where the evidence produced gives rise to suspicion about its veracity that further scrutiny is called for. If there is nothing on record to indicate that the evidence produced is not reliable and the Assessing Officer was satisfied with the same, then it is not open to the CIT to exercise his powers of Revision without the CIT recording how and why the order is erroneous due to not examining the donors. Thus, this objection to the impugned order by the Revenue is also not sustainable. 9. It was next submitted that no enquiry was done by the Assessing Officer to find out whether the donor Mr Deepak Modi (father) had received money from M/s. Chang Jiang as claimed. Nor any inquiry was done to find out whether the sister had in fact earned amounts on account of Foreign Exchange Transactions as claimed by her. We find that this enquiry of a source of source is not the requirement of law. Once the Assessing Officer is satisfied with the explanation offered on inquiry, it is not open to the CIT in exercise of his revsional powers direct that further enquiry has to be done. At the very highest, the case of the Revenue is that this is a case of inadequate inquiry and not of "no....
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....to the Assessing Officer to decide whether the gifts were genuine and, if not, then the Assessment could be completed on application of Section 68 of the Act. In this case, the order passed by the Assessing Officer is not per se erroneous and further the CIT has not given any reasons to conclude that the order is erroneous. In fact, he directs the Assessing Officer to find out whether the order is erroneous by making further enquiry. This the decision of the Delhi High Court in D.G. Housing Projects Ltd. (supra), clearly negates. In the above view, the decision of Delhi High Court in D.G. Housing Projects Ltd. (supra) would not assist the Revenue in the present facts. " In light of the above judicial precedent, we hold that the CIT was not justified in exercising the power of revision as the AO accepted the claims after due enquiry on all items in the assessment proceedings. The CIT has not brought any material to show that incriminating material is found as a result of search and seizure operation supporting his views on the issues which are sought to be revised by him. 13. The issues sought to be revised by the CIT in assessment year 2009-10 are the same as in assessment year ....
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....e and state whether these lands were reflected in your returns of income filed? Document 2 Ans. The lands at Kagalipura village, Bangalore, were purchased by me in the name of my father Shri Hanumappa, my name and also jointly in my name and my wife Smt. Bhagya Nagaraja' names. I had purchased 52 acres 3 guntas of lands at kaggalipura for a total investment of Rs.7,19,07,095/-including registration charges. I have reflected these investments in lands at kaggalipura village in my return of income filed in my individual capacity. Q.No.5 Please explain the sources of the investments of Rs.7,19,07,095/- made during the F.Y.2005-06 ? Ans. had made an investment of Rs.7,19,07,095/- during the F.Y.2005-06 in purchasing lands measuring 52 acres and 3 guntas at kagalipura village, Kanakpura Road, Bangalore. These investments were made out of loan of Rs.4,50,00,000/- received from Mr. P. Dayanand Pai during the F.Y.2005-06. The balance amount was invested out of my own sources. I will produce the cash flow statement justifying the sources of investment. Q.No.6; Please give details of the lands purchased after making an agreement with....
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....s also stated by him that he has not filed the return for A.Y.2008-09 and admitted Rs. 8.43 crores as his income for the AY 2008-09. He also admitted a sum of Rs. 5.50 crores as his income for the AY 2009-10. In the statement, it was also stated by him that out of the total payments received from M/s Brigade Enterprises Limited, he had paid Rs 37,06,00,000/- to Sri P Dayananda Pal as his 50% share of the total consideration received from sale of lands. The relevant portion of his statement dated 31/03/2009 is reproduced below: "Q.No. 17 What is the amount of profit derived by you on transaction of land transfer to M/s. Brigade Enterprises and whether the same has been disclosed in the return of income filed by you before the Income Tax department? Ans. I have so far received a sum of Rs.96,22,38,125/-. Out of this, a sum of Rs.15,20,00,000/- was received during the F.Y.2006-07, Rs.72,57,78,425/- during the F.Y.2007-08 and Rs.8,44,59,700/- during the F.Y.2008-09. During the F.Y.2007-08, 1 had registered lands for which total consideration of Rs.66,24,63,125/- was received and during the F.Y. 2008-09, I have registered lands for w....
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....ch circumstances, the payment made to Mr. P. Dayanand Pai does not qualify for the expenses related to the land transaction with M/s. Brigade Enterprises. What do you say? Why the entire profit should not be taxed in your hands in your individual capacity? Ans. As per the understanding with Mr. Dayananda Pai, 50% of the sale consideration on account of sale to Brigade Enterprises belongs to Mr. Dayananda Pal. More over there is a consent letter from Dayananda Pai to sell the land as I could not have undertaken the sale without such consent letter. Under the circumstance 50% of the sale consideration does not belong to me at all. I am only eligible for 50% of the balance consideration which I have accounted in my books and as offered for tax. Q.No.21: So the entire amount of Rs. 37,06,00,000/- transferred to Mr. Dayananda Pai during the FY 2007-08 and FY 2008-09 is profit in the hands of Mr. Dayananda Pai. • Ans: Yes. " 5.6 Amount paid to Sri P Dayananda Pai: In his statement u/s 131 dated 31/3/2009, Shri Nagaraja has stated that, out of the total sale consideration received from M/s. Brigade Enterprises, he had paid ....
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....s also agreed that the entire expenses including the cost of acquisition of the land, development expenditure, commission shall be borne by Mr. H. Nagaraja only. Sri H. Nagaraja started repaying amount received from Sri Pai, as and when he was getting money from M/s Brigade Enterprises (As per Annexure-II). Sri H. Nagaraja sold such lands for a consideration of Rs.45,55,54,850 during financial year 2007-08 & 2008-09 (As per Annexure-III). Document 6 In the mean while during the course of such sale, Mr H. Nagaraja also agreed to acquire lands to the extent of 7.115 acres of land. situated within the vicinity of the land sold at Kaggalipura. This transaction was purely with M/s Brigade Enterprises & Mr. Pal had no role in this transaction. Mr. Nagaraja sold the lands so acquired to M/s Brigade Enterprises for a consideration of Rs: 12,30,18,450/- during the financial year 2008-09 & has offered the profit for tax." Along with the above 'notes', the assessee has also submitted details of payments received from Sri P Dayananda Pai as his share of investments and also the details of payments of 50% of the sale consideration to him. ....
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....entioned by Sri P Dayananada Pai that his firm has contributed Rs 8,55,66,700/- towards the cost of the property plus reimbursement of the development expenses. 5.6.5 In this connection, the assessee has submitted on 24/11/2010, a reconciliation statement of the amount received from M/s Brigade Enterprises Limited and the amount invested by Sri P Dayanada Pai. As per the reconciliation of amount received from M/s Brigade Enterprises Limited, out of the total payment of Rs 96,22,38,125/- received from M/s Brigade Enterprises Limited, an amount of Rs. 37,06,00,000/- has been paid to Sri P Dayananda Pai and the balance amount has been offered by him to tax as under: AY 2008-09: Rs 40,20,96,950/- AY: 2009-10 Rs 17,65,05,950/- AY 2010-11: Rs 1,30,35,225/- Total Rs 59,16,38,125/- Document 8 5.6.6 Further, as per the reconciliation of amount invested by Sri P Dayanada Pai, the total amount of Rs 37.06 crores paid to Sri P Dayananda Pai includes Rs 6.50 crores invested by him in the property. The assessee also furnished the details of payments received from and payments made to Sri P.Dayanada Pai. Further, as per the recon....
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....of properties at Kaggalipura which were subsequently sold to Brigade Enterprises Ltd. In the said statement, it has also been stated by you that you had refunded the loan during FY 2006-07. Subsequently, in your statement u/s 131 dated 3/11/2010 recorded by the Deputy Commissioner of Income-tax, Central Circle-1(1), Bangalore in the case of M/s Canara Housing Development Corporation, it has been stated by you that you had received Rs 5.75 crores from Sri P Dayananda Pai as his share of investment. Again vide your submission 24.11.2010, it has been claimed by you that you have received Rs.6.50 crores from Sri P Dayananda Pai as his share of investment in the property. 4 In this connection, Sri P Dayanada Pai was requested in his own case to give the details of his transactions with you relating to the said property. As claimed by him vide his submission dated 22/11/2010, has paid a total sum of Rs.8,55,66,700/- being his share towards the cost of the property plus reimbursement of development expenses. Further, as Document 10 5.6.9 Sri P Dayananda Pal claims to have accounted the transactions in the books of his partnership firm M....
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.... a residential layout from the year 2004-05. He entered into an agreement with Sri Dayanand Pal, wherein Sri.Pal agreed to make investment in such landsmeasuring 52.30 acres jointly with Mr.H. Nagaraja. It was agreed that Sri.Nagaraja will acquire the lands out of funds provided by Mr Pai & also from his own sources. Sri H Nagaraja purchased land to the extent of 52.3 acres after taking a sum of Rs.6.50 crores from Sri P Dayananda Pai. As per the MOU entered into with Mr.Pai, Mr.Nagaraja was to share 50% of the sale consideration received from M/s Brigade Enterprises for sale of land to the extent of 52.30 acres. It was also agreed that the entire expenses including the cost of acquisition of the land, development expenditure, commission shall be borne by Mr.H.Nagaraja Only. Sri.H.Nagaraja started repaying amount received from Sri.Pai, as and when he was getting money from M/s. Brigade Enterprises. Sri.H.Nagarja totally paid a sum of Rs.37.06 crores to Mr.Pai & out of which a sum of Rs.6.50 Crores has been adjusted as his investment towards the property & the balance of Rs 30.56 Crores has been adjusted against the sale considerati....