TaxTMI 
TaxTMI 
2015 (11) TMI 1775
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....ment World Developers P. Ltd., Indore as per details given below: S.No. Plot No. Area in sq. ft. Particulars 1 11 70484.00 Kalani Bros. (Indore) P. Ltd. 2 11/1-11/6 29516.00 Padma Homes P. Ltd. TOTAL 100000.00 As per the agreement to lease dated 21.5.2003, M/s. Entertainment World Developers P. Ltd. (M/s. EWDPL) had agreed to pay security deposit of Rs. 4,42,80,000 and Rs. 10,57,20,000 to the M/s. Padma Homes P. Ltd. and M/s. Kalani Bros.(Indore) P. Ltd., respectively. The agreement to lease is reproduced in the assessment order page 2 to page 5. After lease agreement, a supplementary agreement to lease was executed on 1st March 2006. As per the supplementary agreement to lease, M/s. EWDPL had further agreed to pay Rs. 15 crores as per the particulars given below to the M/s. Padma Homes P. Ltd. and M/s. Kalani Bros. (Indore) P. Ltd.: S.No. Amount of security deposit Security deposit to be paid to (Rs.) 1 M/s. Kalani Bros P. Ltd. Rs.10,54,92,000 2 M/s. Padma Homes P. Ltd. Rs.4,45,08,000 The supplementary agreement to lease reads as under: "SUPPLEMENTARY AGREEMENT TO LEASE This supplementary Agreement to the Lease Agreement dat....
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....ed from 1.5 to 2.5 allowing the Lessee to exploit the property in a manner which will fetch him a higher return and since the present Collector's guideline is also Rs. 320/- per sq. ft., the Lessor and the Lessee have mutually decided to increase the security deposit to Rs. 3,000.00 lacs accounting for higher return which the Lessee will earn due to the FAR having increased from 1.5 to 2.5. AND WHEREAS now that the Mall has become operational, it is agreed between the Lessor and the Lessee that the said increased security deposit of Rs.3,000.00 lacs will be paid as follows: - (a) To Kalani Brothers (Indore) Pvt. Ltd. Rs.2,114.52 lacs (b) To Padma Homes Pvt. Ltd. Rs. 885.48 lacs Total Rs.3,000.00 lacs NOW THIS DEED WITNESSETH AS FOLLOWS: 1. That, the following security deposit has already been paid by the Lessee to the Lessor in terms of Agreement dated 21st May, 2003: (a) To Kalani Brothers (Indore) P. Ltd. Rs.1,054.92 lacs (b) To Padma Homes P. Lt....
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....oganj Main Road, Indore, hereinafter called to as "Lessee/Second Party" (which expression unless it is repugnant to the context or meaning thereof, shall include their successors, administrators and assignees) of the other part. WHEREAS the Lessors own and possess a plot of land admeasuring 1,00,000 sq. Ft. the details of which are as under: - 1. 11 70484 Kalani Brothers 2. 11/1-11/6 29516 Padma Homes Pvt. Ltd. Total 100000 AND WHEREAS the Lesee has applied to Madhya Pradesh Housing Board for construction of a Housing-cum-Family Entertainment Centre-cum-Multiplex-cumshopping Mall (hereinafter referred to as the project on) the aforesaid land, owned by the Lessors. AND WHEREAS the Lessors are intending to give the aforementioned land to the Lessee on lease hold basis and the Lessee is intending to obtain the aforementioned land on lease. As both the parties are in consent with this transaction, the execution of this deed is being executed and performed with the consent and compliance of the conditions hereinafter enumerated. 1. T....
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....e is not paid in time, on or before the due date, the Lessor shall have the right to change interest @ 15% per annum. The Lease rent and the interest thereon shall be charged on the aforesaid land and the structure erected thereon. All such dues will be as first charge and any encumbrance created by the Lessee would not affect or postpone the said charge. 4. That, the Lessee shall demolish the existing structure for the purposes of construction of the said project and do all such acts and deeds that may be necessary for the construction of the said project on the aforesaid land. All expenses with regard to the construction of the said project by the Lessee and all liabilities and obligations arising out of the development of the said project shall be of the Lessee. 5. That, all the expenses related to the execution of this deed, Stamp Duty, Registration Fees etc., shall be born by the Lessee. 6. That, the Lessee shall abide by all the rules, regulations, orders and byelaws etc., as are in force at the present and as may be laid down from time to time by the M.P. Government, Indore Municipal Corporation, Town & Country Plannin....
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.... :- S.N. Amount of security deposit Security deposit to be paid to (Rs.) 1 M/s. Kalani Brothers P. Ltd.,(i.e. assessee) Rs. 10,54,92,000/- 2 M/s. Padma Homes Pvt. Ltd. Rs. 4,42,80,000/- 4.1.4 The extract of the Supplementary Agreement to lease is reproduced as under:- " SUPPLEMENTARY AGREEMENT TO LEASE This supplementary Agreement to the Lease Agreement dated 21st day of May, 2003, is executed on this 1st day of March, 2006 BY AND BETWEEN (c) Kalani Brothers (Indore) Pvt. Ltd. and (d) M/s Padma Homes Pvt. Ltd. Both Companies incorporated under the Companies Act, 1956, having their registered office at 11, Tukoganj Main Road, Indore - 452 001, hereinafter called the "Lessor / First Party" (which expression unless it is repugnant to the context or meaning thereof, shall include their successors, administrators and assignees) of the one part. M/s Entertainment World Developers Pvt. Ltd., a Company incorporated under the Companies Act, 1956, having their registered office at 11, Tukoganj Main Road, Indore - 452 001, hereina....
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.... (b) To Padma Homes Pvt. Ltd. Rs. 885.48 lacs Total Rs.3,000.00 lacs" 4.1.4.1 Examination of the details revealed that M/s. EWDPL had made the payment of security deposit to the assessee of Rs. 21,05,52,000/- as per particulars given below: Previous Year Amount of security deposit paid 2003-04 Rs. 7,04,92,487/- 2004-05 Rs. 3,41,00,000/- 2005-06 Rs.10,59,59,513/- 4.1.5. Further the assessee and other concern(s) namely M/s. Padma Homes Pvt. Ltd. and M/s EWDPL had got registered the lease agreement with the Registrar of Properties. The extract of the lease agreement registered is as under: - This Lease Deed is made on 5th day of July, 2003 between M/s Kalani Brothers (Indore) Pvt. Ltd., a company incorporated under the Companies Act, 1956 having its Registered Office at 11, Tuko Ganj, MG Road, Indore 452001, hereinafter called the "Lessor / First Party" (which expression unless it is repugnant to the context or meaning thereof, shall include their successors, administrators and assignees) of the one part. AND Entertainment World Developers....
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.... time by the MP Government Indore Municipal Corporation town & Country Planning and/or any other competent authority in respect of this plot of land. 5.That the Lessee shall be responsible to pay regularly to the Indore Municipal Corporation or local authority, Electricity Board the other authorities concerned, all lease taxes, fees, cess etc as are in force at present and/or as may be levied from time to time on the aforesaid plot of land and/ or the building and the appurtenances to be constructed thereto and the Lessor shall not bear any burden of such charges. 6. That the Lessee is free and entitled to obtain loans etc by keeping mortgage the aforesaid demised premises and structures constructed thereon to any financial institution, bank etc. The Lessor shall co-operate with the Lessee in this respect for their necessary consent wherever necessary for obtaining such loans by the Lessee by way of mortgage of the said plot of land. 7. That, this lease deed is irrevocable for a period of twenty nine (29) years during which at no time the Lessor shall increase the Lease Rent. In witness whereof the said lessor and lessee have hereto si....
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....lear case of capital gains being made by the assessee in above mentioned transaction. Further as discussed before right to enjoyment has been clearly established. Further consideration has been paid as discussed above. Further as per submissions made by the assessee citing the decision of ITAT, Jodhpur Bench in the case:- "ADDITIONAL COMMISSIONER OF INCOME TAX VS. LAKE PALACE HOTELS & MOTELS LTD (2004) 83, ITJ (jd) 1031 in case of lease of land the refundable deposit cannot be considered as consideration and no capital gain can be charged based on such deposit can the rent receivable under such lease for the period of 72 years should be taxed as normal income. In this case it was clearly held that refundable deposit cannot be considered as consideration for granting of the lease." The above judgment of the Hon'ble ITAT, Jodhpur Bench is not relevant to the assessee's case as there are glarding differences between the two, which can be listed as follows:- (i) that in the above mentioned case of "LAKE PALACE HOTELS (LPH for short form)" the lease deed was very well drafted, duly registered and disclosing the full details about various transactions between ....
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.... the assessee is irrelevant to this case. Further since no mention of the above-mentioned points i.e. security ("Premium" to be correct) etc. is mentioned in the claimed lease deed. Further how the said security deposit shall be refunded and how and in what form / shape the property shall be received is also not mentioned in claimed lease deed. Therefore looking at the above, valid apprehensions arise that the assessee has deliberately used all "colorable device" to deceive the state exchequer and the Central Govt. of its legal dues. It can be validly concluded that the money paid was in lieu of transfer, which in turn was not revealed in the claimed lease deed. Therefore the moot question is that for the said undisclosed amount on the transfer so made, what kind of tax treatment should be meted out? The logical answer shall be "Capital gains" Further the grounds taken by the assessee in view of section 269A of the IT Act, 1961 are not acceptable in view of the fact that the said chapter has "..... ceased to operate in respect of transfer of immovable property made after 30/09/1986". Therefore keeping the above mentioned facts and circumstances in mind,....
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....the lessee at the end of the lease period stipulated or at the termination of lease deed with the mutual consent, whichever is earlier. In respect of the query why the payment received from Entertainment World Developers Ltd., Indore be not treated as capital gain arising out of property transferred, it is submitted that a lease with refundable deposit is neither a relinquishment of right as contemplated in Sec. 2(47)(i) of the Income Tax Act nor it can be considered as enabling the enjoyment as contemplated in Sec. 2(47)(vi) of the Income Tax Act. With respect to "relinquishment of right", it is submitted that the Apex Court in case of Rasiklal Maneklal (HUF) 177 ITR 198 has clearly held that "A relinquishment takes place when the owner withdraws himself from the property and abandons his rights thereto". In the assessee case also the right to the property has not been abandoned and it is clearly provided that the land would revert back after the lease period. Hence there is no relinquishment of any asset. So far as enabling the enjoyment as mentioned in clause vi of sub section 47 of section of 2 of the Income tax Act is concerned, it is submitted tha....
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....e deposit cannot be considered as consideration and no capital gain can be charged based on such deposit and the rent receivable under such lease for the period of 72 years should be taxed as normal income. Further, it is submitted that honorable high court of Rajasthan dismissed the department appeal in the case of M/s. The Lake Palace Hotels and Motels filed by the department against the order of the Tribunal. Commissioner of Income Tax, Udaipur v/s. M/s. The Lake Palace Hotels and Motels 2008-TIOL-312HC-RAJ-IT. Further it is submitted as under: (i) That the lessee, who has given a huge amount as a refundable security deposit, cannot be expected to retain the property in the original shape and pay lease rent for a period of 29 years. (ii) That, in any given business the assessee obtains loans from financial institution, banks and out side sources. (iii) That, in the case of the assessee the lessee has been allowed to obtain loans from financial institutions and banks only. (iv) That, as per the terms and conditions of the lease agreement the property has to necessarily revert back to the lessor that is the assessee. (v) That, such a provision as ....
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....e property. Explanation: For the purposes of sub-clauses (v) and (vi), "immovable property" shall have the same meaning as in clause (d) of section 269UA;] Unquote: A. In the instant case the Assessee has given the property on lease for 29 years and the security deposit is refundable at the end of the lease period or on termination of the lease during the lease period, as provided in the Lease Deed. By giving the property on lease, the assessee has not relinquished of all his rights and he has the residual rights as the Lessor of the property and the property reverts back to him after 29 years. Therefore, it is not a sale, exchange, or relinquishment of the asset. B. Since by leasing the property, the assessee's rights therein are not totally extinguished and he has the residual rights as the "Lessor" in the property and land reverts back to him on termination of the lease during the lease period or after 29 years, therefore, it does not fall in the category of 2(47)(ii), C. (iii)& section 2(47)(iii)and(iv) are not applicable in the case of Assessee. D. The case of the Assessee also does not falls un....
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....back his possession on reversion, there is no liability for the owner because he is only getting back his property with accretion which should clearly be taken to be enhancement of the value of the property not taxable till it is realized by way of sale. It is on the above principles of law that the issue has to be decided. Period of 31 years is a long duration for lease. The proposal of the assessee getting a building 31 yeas later or on termination of lease cannot give rise to any tax liability. All that can be taxed is the annual value of rent as income. The question of taxing reversionary right over the building after 31 years does not arise now. In fact it is a mere accretion to the value of the property. The value as on date if reversion will be higher because of the then prevailing prices. Such increase in value and the accretion on account of super structure are of the same nature. Since the property (super structure) will be old, one cannot even be sure whether it may not have a negative value requiring the assessee to demolish the same at his own cost to put to better use. Since the land always belonged to assessee, there is also no transfer by assessee on rever....
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....as to be "consideration" for transfer of any immovable property in terms of the contracts. The assessee has given the property on lease for 29 years for a refundable deposit on a annual lease rent of Rs. 34,000/- per annum therefore, it is not a transfer as defined in Transfer of Property Act, 1982 because the assessee still has the residual right as the lessor. Therefore for any transaction to fall under Section 2(47)(vii) Such a transaction has to be in the nature referred to in Section 53A of the Transfer of Property Act 1882 which provides that there has to be "consideration" for such transfers of immovable property. The "consideration for transfer" is not defined in the income-tax Act. However, since in explanation of Section 2(47) for the purposes of "immovable Property" reference of Section 269UA has been given, therefore for the purposes of "consideration for Transfer" of the immovable property by way of lease can be derived from section 269UA(b)(iii) which is reproduced here below. QUOTE:- "(iii) if the immovable property is to be transferred by way of lease,- (A) in a case where the consideration for the transfer c....
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....on 53A. In such an event, the discounted value of the lease rent of Rs. 81,000/- X 29/23,45,000 for its present value would come to Rs. 9,03,833/- (Rupees Nine lacs three thousand eight hundred thirty-three), which can at the most be treated as the consideration and not the Security Deposit which is refundable deposit and hence is a debt. However since the assessee is offering the lease rent as a revenue receipt in the relevant year, the same cannot be taxed a consideration received for leasing the property. Assuming that the discounted value of the lease rentals is the consideration for transfer, then also for the purposes of capital gains the acquisition cost of the asset, which in this case the transfer of property on lease, for which the consideration has been received, has to be determined and if that cost is not determinable, then as per the judicial decision given by the various cost including the Supreme Court in the case of CIT Vs B C Srinivas Shetty 128 ITR 294(SC) no capital gains can be charged. It may be mentioned here that if the assessee receives any premium or salami as a consideration of the lease, it may be treated as consideratio....
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....t to be non taxable capital receipt and as such no taxability arises on security deposit received". 4.1.11 I have very carefully gone through the assessee's above submission supra and noticed that the arguments putforth by the assessee were almost similar and identical to that putforth during the course of original assessment proceedings. Still for the sake of brevity the same may be summarized as under: (i) There was no relinquishment of rights of the assessee in the Plot Leased out to M/s. EWDPL within the meaning of the provisions of section 2 (47)(i) of the I.T. Act nor the leasing out of the Plot could be considered as enabling the enjoyment as contemplated in section 2(47)(vi). (ii) The security deposit is refundable on the expiry /termination of lease and accordingly it is debt for the assessee and not a sale consideration for transfer of plot. (iii) In support of its claim the assessee relied upon various case laws especially Rajasthan High Court's decision in the case CIT vs The Lake Palace Hotels and Motels report in 213 ITR 735. 4.1.12 Before commenting upon the assessee's above arguments it would again be necess....
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.... 4,22,880/- 21.06.2003 2,84,92,487/- 17.06.2003 35,240/- 20.06.2003 3,50,00,000/- 2. M/s Padma Pvt. Ltd. 03.06.2003 2,28,780/- 23.06.2003 2,95,07,513/- 05.06.2003 18,000/- 11.06.2003 1,77,000/- 17.06.2003 14,760/- 23.06.2003 2,95,07,513/- A.Y. 2005-06 S.N. Name Date of Share Application Money received by EWDPL Amount of Share Application Money Date of Security Deposited by EWDPL Amount of Security Deposit 1. M/s Kalani Brothers (Indore) Pvt. Ltd. 16.04.2004 3,50,00,000/- 16.04.2004 3,50,00,000/- 2. M/s Padma Pvt. Ltd. 16.04.2004 1,50,00,000/- 16.04.2004 1,50,00,000/- A.Y. 2006-07 S.N. Name Date of Share Application Money received by EWDPL Amount of Share Application Money Date of Security Deposited by EWDPL Amount of Security Deposit 1. M/s Kalani Brothers (Indore) Pvt. Ltd. 18.10.2005 60,00,000/- 07.03.2006 4,51,07,200/- 31.03.2006 8,06,04,313/- 09.03.2006 1,02,20,000/- 31.03.2006 5,06,32,313/- 2. M/s Padma Pvt. Ltd. 31.03.2006 ....
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....owner thereof into, or is treated by him as, stock in trade of a business carried on by him, such conversion or treatment;][or] (iv) the maturity or redemption of a zero coupon bond; or] (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882);; or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring or enabling the enjoyment of, any immovable property" 4.1.13.4 Here it would be necessary to mention that the Legislature has used word 'or' at the end of each of limb of the clause(s) of sub-section (47) of section (2) of the I.T. Act. From this it follows that each of the clause is separate and independent code in itself. From this it also follows that the Legislature in the above section has intended that in the event of fulfillment of any of the conditions envisaged in....
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....ther that transaction enables the transferee rights to enjoy over the property. From this it also follows that any transaction inclusive of transfer of land on lease as defined in Transfer of Property Act resulting into rendering of rights to enjoy rights would tantamount to transfer within the definition of transfer envisaged in clause - (vi) of sub-section (47) of section 2 of the I.T. Act for the purposes of charging capital gain. 4.1.13.8 Momentarily parting from the issue as regards the assessee's contention that there was no relinquishment of right in the plot leased out to M/s. EWDPL it would suffice to say that the assessee's this transaction had automatically been culminated into relinquishment or extinguishment of its right in the plot leased out as the transaction falls in the category of transaction classified in clause-(vi) of sub-section (47) of section 2 of the I.T. Act. Hence, for the sake of convenience and proper perspective I first take the transaction under clause(vi) of sub-section (47) of section 2 of the I.T. Act. 4.1.15 In the backdrop of above facts it has to be mentioned that as per the Agreement to Lease, the Lessee had applied to M.....
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....oject, so constructed, the Lesser will give consent for sale of such areas and will join in the transfer of the proportionate land to the built-up area sold to any other party and in that event the consideration of proportionate area of the land shall be paid to the Lesser. 4.1.16 From the above conditions outlined in the Agreement to Lease it is apparent that the lessee was practically rendered all the rights which an owner of property enjoys. Thus it is apparent that without taking into account other factual aspect of the case, the provisions of clause (vi) of sub section (47) of section 2 of the Income Tax Act are squarely applicable in its case. 4.1.17 Proceeding further in the matter that as regards the assessee's contention that the leasing out of the plot also does not fall within the parameters of the definition of transactions outlined in clause (vi) of sub-section (47) of section (2) of the I.T. Act on account of the fact that the provisions of this clause are mainly applicable in the circumstances whereby a person by virtue of becoming a member of, or acquiring share in a co-operative society, company or other association of persons is....
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.... it would be reiterated that the rendering of various rights dealt on the issue of enjoyment of rights in the preceding para itself points that there was a relinquishment / extinguishment of rights of the assessee in the plot leased out for all practical purpose. Therefore, it would rather be incorrect on the part of the assessee to assert that merely on the condition of expiry of the lease period the security deposit would be refundable and the land leased out would be returned, there was no relinquishment / extinguishment of right of the assessee. In this context, it has to be mentioned that M/s. EWDPL had already incurred huge amount of expenditure of Rs. 94,22,91,392/- on the construction of the structure at the leased out plots over a period ranging from F.Y. 2003-04 to 2007-08 (particulars of expenditure are given in para 4.1.12.3 of this order may be referred to). Needless to say M/s. EWDPL had already given the shops / multiplex / hotel on lease / rent to various concern(s) / person(s). Taking into account of this fact and also of the fact that keeping in mind the approach of a prudent business mid the huge structure would not be demolished merely on the ground that a....
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....e referred above entire facts were disclosed in the deed registered with the Government Authorities, whereas in the case of the assessee facts disclosed in the agreement to lease and the lease registered with the State Government Authorities were quite different. As a matter of fact in the deed registered there was no reference of the huge amount of security deposit transferred from EWDPL to lessor. In this context, the content of the agreement to lease and content of the lease agreement registered given in para 4.1.5 of this order may be referred to. iv. In the case referred above a complete and a logical time based mechanism has been drawn up as to how and when, in what amounts etc. the said security deposit has to be refunded. Contrary to this in the assessee's case no mechanism of this sort has been defined or even mentioned. In this context the letter of the sub-registrar dated 26/12/2006 scanned on page No. 16 of this order may be referred to. It seems from the above report of the registrar that it has been deliberately not done so as to conspire and keep the state govt. as well as the central govt. devoid of its dues. Further stren....
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....hese facts and the facts discussed above, it is apparent that the lease agreement with a clause that the security deposit received would be refunded to the lessee on the expiry of the lease or its termination was merely a colourable device to evade the actual nature of the transaction payment of legitimate taxes on capital gain. Here it has to be reiterated that the Sub-Registrar of Properties vide his letter dated 26.12.2006 extracted in para 4.1.7 of this order had also noticed that by not disclosing the entire facts to the State Govt., the concerned concern(s) viz the assessee, M/s Padma Homes Pvt. Ltd. and M/s EWDPL had hatched a conspiracy to evade the payment State Government's legitimate dues also. Needless to reiterate that there is neither any room for returning of the deposit by the lesser to the lessee nor any chance of termination / expiry of the lease period as elaborately discussed in the preceding paras. As a matter of fact the above facts themselves lift the corporate veil of the actual nature of the transaction. Hence I hold that the transaction of leasing out with the condition of returning of security deposit after the expiry of lease period apparentl....
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....t, 1956 with the registered address at 11, Tukoganj Main Road, Indore. The appellant was primarily engaged in the business of dealing in goods and there were continuous losses till AY 2003-04. The assessee owned a plot of land which was given on lease in AY 2004-05. The said transaction has lead to the series of tax litigation which is contested in the aforesaid appeals. 2. To provide brief summary wise events for the impugned appeals, we would first and foremost draw your honours attention to an event chart as under - Sr. No. Date Particulars 1. 31.10.2004 Return of income filed for AY 2004-05 declaring loss of Rs. 42,200/- 2. 29.12.2006 Assessment for AY 2004-05 completed u/s 143(3) determining total income of Rs. 10,44,46,750 after a addition of capital gain on lease transaction. 16.04.2009 Search action conducted u/s 132 on the appellants premises 3. 22.10.2010 Proceedings u/s 153A initiated against the appellant for AY 2004-05, 2005-06 and 2006-07 4. 22.11.2010 Return of income for AY 2004-05, 2005-06 and 2006-07 filed u/s 153A declaring losses of Rs. 42,200/-, Rs. 5,67,420/- and income of Rs. 9,17,049 respectively 5. ....
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....g to the lease transaction was already dealt with in the original assessment order. Accordingly, we submit that the entire search assessment order is bad in law and hence is liable to be quashed. With reference to the said contention we rely on the Circular No. 7 of 2003 which clarifies the position of the pending appeals as on the date of the search. The relevant portion is produced herewith- "The Assessing Officer shall assess or reassess the total income of each of these six assessment years. Assessment or reassessment, if any, relating to any assessment years falling within the period of six assessment years pending on the date of initiation of the search under section 132 or requisition under section 132A, as the case may be, shall abate. It is clarified that the appeal, revision or rectification proceedings pending on the date of initiation of search under section 132 or requisition shall not abate......." 8. Accordingly as far as completed assessments are concerned, they do not abate and pending appeals etc. in respect thereof continue to exist notwithstanding the fact that the search has been made. Thus a in the present case, the original pending appellate ....
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.... Lessor to the Lessee at the end of the lease period stipulated herein or at the termination of this lease deed with the mutual consent of the Lessor and Lessee, whichever is earlier. No interest on the said security deposit will be paid to the Lessor by the Lessee. 11. Herein it is pertinent to note that the aforesaid lease deed was not a registered deed. The implication of the said statement as well as discussion on the same has been done at paras 14.3.1. of the submission. 12. Continuing on the above reproduced agreement, the highlighted portions of the above clause clearly indicate that the deposit is entirely redundable. In fact, the said clause also indicates that the lease deed can also be terminated prior to the expiry of the entire lease period and in such a event, the deposit will be refundable to the lessor. The moot issue herein is that the entire deposit is refundable and the lease deed costs a legal obligation on the appellant to refund the same. The said aspect is accepted by the AO who doesn't offer any comments as to what would be the consequence in the event of the refund of the security deposit. Thus arises the first conte....
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....transfer", in relation to a capital asset, includes :- (i) the sale, exchange or relinquishment of the asset, or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment;] [or] (iva) the maturity or redemption of a zero coupon bond; or] (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882; or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring or enabling the enjoyment of, any immovable property." 14.1.1 The first and foremost vehement contention of the appellant is....
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....ip, in substance there is transfer of underlying immovable property. Thus, the said provision is a way partakes the clarificatory nature that when a transaction involves underlying transfer of immovable property then the said transaction would also be treated as "transfer" extinguishable to capital gains tax. There is no such scenario in the appellants transaction. It is a simple lease transaction which has been juxtaposed into a "transfer" transaction by the AO through his imagined and extended interpretations given to terms of the lease. Even the term "in any other manner" used in clause also cannot be extended to cover any type of "enabling the enjoyment" as it is the settled rule of interpretation that all clauses of a provision shall take colour from each other while interpreting them. 14.1.4 We also draw your honours attention to a very significant distinguishing factor in the above case - in all the above cases the member or the shareholder (transferee) will be the ultimate owner of the property on the basis of his membership or ownership of the shares. There will be no reversion back to the any other person. No where the AO comments on or distinguishes the sai....
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....to the lessee. Further, the clause granting mortgage rights to the lessee is present in all long term leases. The clause can be effectively used by the lessee to maximize its returns. 14.2.2 The only right which AO repetitively delves on is the "right to sell" granted to the lessee. On this aspect, we would like to state that the registered lease deed never contained the said right. Our further submissions on said aspect are contained in para 14.3.2 below. 14.3 Next we draw your honours attention to the claims made by the AO regarding appellant deliberately using "colourable devices" to deceive the state exchequer and the central government of its legal dues. The AO in its original order relies on the fact that the "registered lease deed" of the appellant doesn't enumerate the fact relating to the security deposit. The relevant comments of the AO in the said order has been reproduced as under- "After going through the report that clearly mentions about the difference between agreement to lease and the lease deed as registered with the registrar office, shows that stamp duty on an amount of 15+5 crores has been sought to be evaded as ....
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....vide any proof regarding the rights and obligations of the transacting parties. The AO is completely wrong taking the said deed as the basis of the conclusion that the lease transaction is indeed a "transfer" transaction. The said deed which in legal terms a nullity. A registered agreement always provides for the ultimate proof of the contractual rights and obligations. 14.3.4 In this relation, we also rely on section 50 of the Indian Registration Act which in clear terms provides that the registered deed will prevail over the unregistered ones. The said section is reproduced herewith - "1) Every document of the kinds mentioned in clauses (a), (b), (c) and (d) of Section 17, sub-section (1) and clauses (a) and (b) of Section 18, shall, if duly registered, take effect as regards the property comprised therein, against every unregistered document relating to the same property, and not being a decree or order, whether such unregistered document by of the same nature as the registered document or not" 14.3.5 Based on the above legal position, we submit that the AO was fundamentally wrong to consider the terms of the agreement to lease which is basica....
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....y to the various amenities / rights rendered by the assessee in leasing out property to the lessee. In view of these facts it would rather be incorrect by any yardstick on the part of the assessee to equate these transactions with the transaction of leasing out of the plot to the lessee. Hence, I do not find any merit in assessee's this contention. ...... ...... Before parting from the issue it would also be necessary to mention that as per the Agreement to lease the assessee has rendered right to the lessee to even sale the project or a part of the project so under taken, a situation of selling of a shop at a floor above the ground floor may arise. The purchaser would have the absolute right of ownership over that shop. Thus, at the expiry of the lease period the fate of the ownership of the shop would arise. Moreover, in that situation as per the terms of lease agreement the structure was to be demolished. Thus this casts a serious doubt on th entire transaction claimed to have been under taken by the assessee. As a matter of fact by virtue of this transaction the assessee had relinquished its right in the aforesaid plot. 14....
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....ey from the lesser (the details of share application money given and subsequent payment of security deposit are given in para 4.1.11 of this order). From these facts and the facts discussed above, it is apparent that the lease agreement with a clause that the security deposit received would be refunded to the lessee on the expiry of the lease or its termination was merely a colourable device to evade the actual nature of the transaction payment of legitimate taxes on capital gain. Here it has to be reiterated that the Sub-Registrar of Properties vide his letter dated 26.12.2006 extracted in para 4.1.7 of this order had also noticed that by not disclosing the entire facts to the State Govt., the concerned concern(s) viz the assessee, M/s Padma Homes Pvt. Ltd. and M/s EWDPL had hatched a conspiracy to evade the payment State Government's legitimate dues also. Needless to reiterate that there is neither any room for returning of the deposit by the lesser to the lessee nor any chance of termination / expiry of the lease period as elaborately discussed in the preceding paras. As a matter of fact the above facts themselves lift the corporate veil of the actual nature of the t....
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....hat since the security deposit is refundable after the period of 29 years of lease or on termination of the Lease Deed, it cannot be said to be a "CONSIDERATION", because a refundable deposit is a debt and not a "consideration" received. The only consideration therefore which can be considered for the purposes of Section 2(47) read with section 53A, is the lease rent amount of Rs. 81,000/- per year to be received over a period of 29 years which is not refundable and therefore, this is the only consideration that can fall within the ambit of section 2(47) read with section 53A. In such an event, the discounted value of the lease rent of Rs. 81,000/- X 29/23,45,000 for its present value would come to Rs. 9,03,833/- (Rupees Nine lacs three thousand eight hundred thirty-three), which can at the most be treated as the consideration and not the Security Deposit which is refundable deposit and hence is a debt. 18. In view of the above, our contention is that the said amount of Rs. 9,03,833 may be considered as "consideration" for capital gain purposes. It is to be noted that the said contention is without prejudice to our primary submission that there is no capit....
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....c fact of the said case is exactly similar to the appellants case. There was a long term lease with a clause of refundable deposit. The AO in the said case also treated the transaction as "transfer" and taxed the same under capital gains. The ITAT duly considered the facts and ultimately categorically held that the refundable deposit can not be considered as consideration and no capital gain can be charged. The relevant portion is reproduced herewith for your honours consideration- "It may be pointed out that to charge capital gains under s.45 r/ws. 48, the following four conditions are required to be fulfilled that; (i) There should be a capital asset; (ii) Capital asset should be transferred; (iii) Consideration has been received in lieu of transfer; and (iv) There was cost of acquisition and cost of improvement. All the four are conditions precedent and in case any requirement remains unfulfilled, there is no question of charging the capital gains. In the instant case, the assessee had not received any consideration in lieu of the transfer of capital asset because the land in question had been given on lease and the assessee received lease rent year a....
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....eby reiterated that the appellant company was primarily engaged in the business of dealing in goods and there were continuous losses till AY 2003-04. The appellants owned a plot of land which was given on lease in AY 2004-05. The said transaction had lead to the series of tax litigation which is contested in the aforesaid appeals. A detailed submission covering the entire factual and legal contentions of the appellant was presented vide our submissions dated 25.02.2013 for the both the appeallants. In furtherance to the said submissions, we now present legal submission covering the only the legal aspects of all the appeals including the appeals arising from original assessment as well as assessment in pursuance of search proceedings (under section 153A). The primary addition in all the above appeals relates to the addition of capital gain by treating the lease transaction as a sale transaction. Herein it is pertinent to note that the addition made in the above mentioned search assessment order pertained to the issue already dealt in the original assessment order i.e. lease transaction categorized as sale transaction. 1. Additions made in search assessment o....
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....undo what has already been completed and has become final in the original assessment proceedings. Further reliance can be placed on the decision of the Special Bench of the Mumbai ITAT in the case of M/s All Cargo Global Logistics Limited Vs DCIT 137 ITD 287 (Mum)(SB), wherein the scope of assessment u/s 153A was discussed. The copy of the said judgment is enclosed in the compilation at Annexure B. The relevant extract has been reproduced as below" "(i) in assessments that are abated, the AO retains the original jurisdiction as well as the jurisdiction conferred on him by s. 153A for which assessments shall be made for each of the 6 assessment years separately; In other cases, in addition to the income that has already been assessed, the assessment u/s 153A will be made on the basis of incriminating material i.e. (a)the books of accounts and other documents found in the course of the search but not produced in the course of original assessment and (b) undisclosed income or property disclosed in the course of search." The said extract clearly brings out the essence of assessment to be carried out u/s 153A, and makes it clear that....
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....sp; The AO relies on the definition of the "transfer" as provided in the section 2(47) of the Income Tx Act, 1961 to state that the lease transaction entered into by the appellant is a "transfer" of Capital asset as per Income Tax Act and hence liable to income tax. The said section is reproduced here for ease of referencde- "2(47) "transfer", in relation to a capital asset, includes, -- (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law; or (iv) in a case where the assets is converted by the owner thereof into, or is treated by him as, stock in trade of a business carried on by him, such conversion or treatment;][or] (iva) the maturity or redemption of a zero coupon bond; or] (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4) of 1....
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....ine of "ejusdem generis" arises if a catchall phrase ends a list. The catchall phrase would refer to things similar in character to the other items in the list. For e.g., if in a list included, dogs cats, parakeets and similar animals, the catchall phrase, "similar animals" would mean other types of pets since the other animals in the list are common pets. The said principle is established principle in the Income Tax laws. The latest case to rely the said principle was Supreme Court decision in the case of CIT vs.Smifs Securities Limited. In the said seminal ruling, the Hon'ble Apex Court held that depreciation was allowable on "Goodwill" by invoking the principle of ejusdem generis which means terms falling withinthe sweep of the general definition must be included in it though not expressly named. The income-tax law grants depreciation to know-how, patents, copyrights, trademarks, franchises or any other business or commercial rights of similar nature. The Supreme Court had no hesitation in granting depreciation to "goodwill" as well because it fell within the sweep of the elastic phrase "any other business or commercial rights of similar nature". The ....
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....p; (i) There should be a capital asset; (ii) Capital asset should be transferred; (iii) Consideration has been received in lieu of transfer; and (iv) There was cost of acquisition and cost of improvement. All the four are conditions precedent and in case any requirement remains unfulfilled, there is no question of charging the capital gains. In the instant case, the assessee had not received any consideration in lieu of the transfer of capital asset because the land in question had been given on lease and the assessee received lease rent year after year and on that lease rent, tax had been paid in accordance with law." As in the above case, the appellant vehemently submits that there is no "transfer" of the asset and accordingly no capital gain arises. Further, similar to the facts of the said case, in the appellants case too the lease rent received year on year has been taxed as "business receipts". Further, it is pertinent to note herein that the above judgment has been affirmed by the Hon'ble Rajasthan High Court in decision cited at 321 ITR 165. The AO in its search assessment order has distinguished certain fa....
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.... the lessor free of cost on the termination of the lease and the lessor has the reversionary interest to get back the building"" 4. Legality of registered sale deed to be preferred over the unregistered sale deed Another contention of the appellant relates to the fact that the registered agreements do not contain the term provided right to the lessee to sell the leased land. In this relation, the appellant draws attention to the section 50 of the Indian Registration Act which in clear terms provides that the registered deed will prevail over the unregistered ones. The said section is reproduced herewith :- "1) Every document of the kinds mentioned in clauses (a), (b), (c) and (d) of Section 17, sub-section (1) and clauses (a) and (b) of Section 18, shall, if duly registered, take effect as regards the property comprised therein, against every unregistered document relating to the same property, and not being a decree or order, whether such unregistered document by of the same nature as the registered document or not" Relying on the above, it is submitted that the registered lease deed has to be considered good in the eyes of law and accordingly the s....
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....closing stock of the film 'Gentleman' because, the whole cost of production of the film has been debited to the profit and loss account. Therefore, even if we look at the case of the assessee from this angle, then also the income would be enhanced by the amount of Rs. 60,66,667 and there would be no relief to the assessee. As the highlighted portion of the said judgment establishes, the facts of the said case are grossly different from the appellants own case. The assessee in the above case has received a deposit of 70 lakhs for leasing out rights of a film. Accordingly it offered only part of the deposit received as income for the concerned year. The Tribunal had held that the entire deposit was taxable in the year in which the deposit was received as the entire cost of the film was debited to P&L. Further, the said deposit was non-refundable. However, the leasing agreement entered into by the appellant in the present case, clearly states the refundable nature of the deposit and hence the said cannot be treated as income of the assessee as done in the above mentioned case law by the assessee. The AO further relies on the decision of the....
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....n an annuity business income model, the graph of income vs. the interest cost is greatly skewed. Since the business model is not based on sale income, the capital cost of the asset is largely funded through bank loans as there are no internal accruals from sale of the individual shops and the units which can go in construction cost of the property. The entire construction cost is funded by equity and debt. Due to this reason, in the initial years, there is no surplus/profit as the interest cost is very high. Over the years, the interest cost comes down due to repayment of loans where as the lease rents/annuity income keep on rising as per the escalation clause of the contracts or the revenue share model from the total business done in the shopping mall. 3. The income of shopping mall come from lease rent or percentage of the total revenues /shopping done by the shop whichever is higher. As the turnover of the shop increases, the income of the shopping Mall also increases whereas the interest cost reduces due to repayments of the loan. 4. Hence, the profit/surplus is rear ended in the total business plan period or it comes out of increase in the equity ....
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....nd the lease period of 29 years is till the year June 2032. 7. There is no income being earned by Entertainment World Developers Limited by sale of property and hence, the lease transaction cannot be treated as a sale transaction as has been done by the Ld. AO. 8. Entertainment World Developers Ltd. had planned to develop 10 Malls across the country and had plans to go public by the year 2008/09 and it was expected that when they go public, their shares will be quoted at a higher premium. 9. In view of this, the Appellant invested the amount received as interestfree security deposit in the share capital of Entertainment World Developers Ltd. in the expectation of substantial future profit, when the Entertainment World Developers Ltd goes public and its shares are quoted at premium. 10. Further, at the end of lease period of 29 years, the land with or without structure (as the structure belongs to the Lessee) will revert back, by which time, the land value will further increase and the Appellant will gain. 11. Thus, the Appellant's model was the same as that of other investors in Entertainment World Deve....
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....sp; Quote: - "19. Thus the exigibility of levy depends upon the language of the fiscal statute. Nothing can be added to or subtracted from the words of the taxing statute. Nothing can be implied in the taxing statute. It is the express words of the taxing statute which determine the field of its operation. There is neither intendment nor equity in a taxing statute." Unquote: - Emphasis laid by the Appellant. (iii) IN THE SUPREME COURT OF INDIA in the matter of Mathuram Agrawal Vs. State of Madhya Pradesh - MANU/SC/0692/1999, AIR 2000 SC 109, where in the last lines of Para No. 11, it is held as follows: - Quote: - "11. ............................ Words cannot be added to or substituted so as to give a meaning to the statute which will serve the spirit and intention of the legislature. THE STATUTE SHOULD CLEARLY AND UNAMBIGUOUSLY CONVEY THE THREE COMPONENTS OF THE TAX LAW I.E., THE SUBJECT OF THE TAX, THE PERSON WHO IS LIABLE TO PAY THE TAX AND THE RATE AT WHICH THE TAX IS TO BE PAID. IF THERE IS ANY AMBIGUITY REGARDING ANY OF THESE INGREDIENTS IN A ....
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....2 per cent whether larger commission already accrued during the previous year and thus assessable Tribunal decide question in favour of Assessee onbasis that even though actual reduction took place after year of account was over agreement to reduce commission was already their during currency of account year larger income neither accrued nor received by assessee firm Tribunals decision upheld by both High Court and Supreme Court, appeal dismissed". Unquote: - (ii) Further, in Para No.10, it is clearly held as follows: - Quote: - "10. ...................Income tax is a levy on income. No doubt, the Incometax Act takes into account two points of time at whichthe liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income, if income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a hypothetical income" which does not materialize. ............................................................. Unquote: - (III) IN THE SUPREME COURT OF INDIA in the matter of Commissioner of Income Tax, West Bengal II Vs. Birla Gwalior (P) ....
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....time at which the liability to tax is attracted, viz , the accrual of the income or its receipt, yet the substance of the matter is the income. if income does not result at all, there cannot be a tax, even though in bookkeeping, an entry is made about a hypothetical income" which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax maybe payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account" (emphasis supplied). Hence it is clear that this Court in Morvi Industries' case did emphasise the fact that the real question for decision was whether the income had really accrued or not. It is not a hypothetical accrual of income that has got to be taken into consideration but the real accrual of the income." Unquote: - (IV) IN THE SUPREME COURT OF INDIA in the matter of State Bank of Trava....
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....est income on advances given to RIL, 'L' company and RIIL and assessee had no right to charge interest on such advances". ix) Hon'ble Supreme Court in the case of UCO Bank vs. CIT (1999) 04 Taxmann 547 (SC). Section 5, read and sections 199 and 145, of the Income-tax Act, 1961 - Income - Accrual of - Assessment year 1981-82 - Whether in view of CBDT circular, dated 9-10-1984, interest on a loan whose recovery is doubtful and which has not been recovered by assessee-bank for last three years but has been kept in a suspense account and has not been brought to profit and loss account of assessee, cannot be included in income of assessee - Held, yes - Whether CBDT circular dated 9-10-1984 is in conflict with provisions of section 145 - Held, no". Unquote: - (VI) The Supreme Court in CIT v. Chamanlal Mangaldas & Co. reported in 39 ITR 8 has held that the income tax act only taxes the real income and there is no provision under the Act to tax the hypothetical income which has never arisen or accrued to the assessee. (VII) The Bombay High Court in FGP Ltd. vs. CIT reported in 177 Taxman 147 has held that what could be assesse....
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....hips think......connotes a periodical monetary return ' coming in ' with some sort of regularity or expected regularity from definite sources." 11. Mukerji J. has defined these terms in Rogers Pyatt Shellac & Co. v. Secretary of State for India [1925] 1 ITC 363 as follows : "Now what is income ? The term is nowhere defined in the Act...... In the absence of a statutory definition, we must take its ordinary dictionary meaning...... The policy of the Act is to make the amount taxable when it is paid or received either actually or constructively. ' Accrues ', ' arises ' and ' is received ' are three distinct terms. So far as receiving of income is concerned, there can be no difficulty ; it conveys a clear and definite meaning and I can think of no expression which makes its meaning plainer than the word ' receiving ' itself. The words ' accrue ' and ' arise ' also are not defined in the Act...' Accruing ' is synonymous with ' arising ' in the sense of springing as a natural growth or result. The three expressions " accrues ' ' arises ' and ' is received ' having been used in the section, st....
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....ax Act, 1961, which provides for taxability of the notional income, which has not been received and not accrued to the assessee in terms of the agreement or otherwise. In the light of the above judicial pronouncements it is submitted that no notional interest on interest free security deposit can be taxed in the hands of the assessee. 18. That the Appellant has invested the security deposit received by them, as equity, in the company i.e. Entertainment World Developers Ltd., which is in business of operation and running of shopping malls. Their business model was the same as that of other investors in Entertainment World Developers Private Limited i.e. ICICI Ventures Pvt Ltd and Phoenix Mills Ltd. It was intended that once Entertainment World Developers Limited sets up a series of shopping malls (the business plan had contemplated setting up of 10 shopping malls in different cities of India), they would list their stock in a public exchange. It was expected that if the business plan had succeeded as anticipated and ten shopping malls would have been established, then the shares of Entertainment World Developers Ltd. would have been quoted at fairly good premium....
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....before your honour. Copy of the Additional Grounds of appeal is enclosed herewith. That since the following additional grounds goes to the root of the matter and are legal in nature the same may kindly be admitted since the omission of the ground was not willful and raising of the grounds may kindly be permitted in view of the decision of the Apex Court in the case of NTPC Vs.CIT 229 ITR 383. Held APPEAL TO APPELLATE TRIBUNAL-POWERS OF TRIBUNAL-QUESTION OF LAW ARISING FROM FACTS FOUND BY INCOME TAX AUTHORITIES AND HAVING A BEARING ON TAX LIABILITY OF ASSESEE-QUESTIONS RAISED FOR FIRST TIME BEFORE TRIBUNAL-TRIBUNAL HAS JURISDICTION TO DECIDE SUCH QUESTION-INCOME TAX ACT, 1961, s.254 4. I have seen the assessment order, the grounds of appeal and submissions of appellant. 5. The six appeals of the appellant pertaining to AY 2004-05 (three), AY 200506 (two) and AY 2006-07 (one) are taken together because of the reasons as mentioned in the table reproduced below :- S.No. Appeal No. A.Y. Grounds of Appeal Remarks 1. IT-916/2011-12 2004-05 U/s 153A Addition made on account of long germ g....
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....is. This addition of Rs. 10,44,46,950/- made U/s. 143(3) is included in addition of Rs. 20,92,78,750/- made in the assessment U/s 153A for the assessment year 2004-05. As can be seen from this table the five appeals have common grounds, hence, they are covered in one single order in succeeding paragraphs. 6. In this case, appellant and another company M/s Kalani Brothers Pvt. Ltd. have given a total 1 lakh sq. ft. land situated at 11, Tukoganj main Road, Indore to M/s Entertainment World Developers Pvt. Ltd. through a lease agreement dated 21.05.2003. Out of this 70484 sq. ft. belong to M/s Kalani Brother Pvt. Ltd. and 29516 sq. ft. belong to appellant. In lieu of this lease agreement the appellant gets a fixed lease rent on annual basis and a non interest bearing refundable deposit to be returned back after the lease period of 29 years. 7. The appellant has later entered into another lease agreement with enhanced refundable deposit as the land use has changed from residential to commercial and FAR of the said land has increased from 1.5 to 2.5. When such lease agreements were got registered, the refundable deposit was not shown in the such agreement. ....
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....s, in assessment done u/s 153A. Besides this an amount of Rs. 10,44,46,750/- of such security deposit was also added in AY 2004-05 in assessment done u/s 143(3) and same addition was confirmed in application filed by appellant before AO u/s 154 of the income Tax Act.. 11. The AO's apprehension and reliance on the finding that the lease deed was not well drafted or there was difference in registered and unregistered lease deed or any such point will not help to prove that there was any transfer of such land, unless it is proved that handing over of such land was irrevocable. By not showing security deposit appellant did avoid payment of dues of state government pertaining to stamp duty valuation authority for which necessary information was already passed on to that department by AO. However, AO failed to state how appellant is avoiding payment of tax to central government when section 45 r.w.s. 48 of the Income Tax Act does not make such lease transactions taxable. 12. This agreement could be termed as colorable device only when it can be shown that though it is lease agreement but conditions mentioned are such which actually tantamount to transfer of land. But AO failed to sho....
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....sit could not be held as value of consideration in view of the fact that land was leased for 29 years and AO could not prove from the terms of agreement that land transfer was irrevocable or that the security deposit was not refundable. Besides as held by the Hon'ble Rajasthan High Court in aforesaid case that even combined reading of section 45 and section 48 of the Income Tax Act nowhere provide for any deemed profit. Hence, the addition made in the search assessments u/s 153A of Income Tax Act on account of such deemed long term capital gain of Rs. 20,92,75,750/- is hereby deleted in AY 2004-05 and similar addition made in AY 2005-06 and AY 2006-07 is also deleted. The similar addition made in the normal assessment u/s 143(3) in AY 2004-05 of Rs. 10,44,46,750/- is also deleted and as a result, the order passed by AO u/s 153A of the Income Tax Act upholding such addition is also cancelled. 14. The another ground raised in normal scrutiny assessment u/s 143(3) for AY 2005-06 is against disallowance of Rs. 4,35,398/- as cost of demolition charges of building. Appellant argued that this is not the cost of demolition charge of building, but it represents the WDV of buil....
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....arch of assessment for AY 2004-05, that assessment u/s 153A was not valid and that amount of security deposit received on the basis of lease agreement could not be taxed as capital gain. Appeal no. IT-761/06-07 for AY 2004-05 against assessment u/s 143(3) is also allowed as the only addition of security deposit as per lease agreement being held as deemed sale consideration is deleted. On that same basis appeal no. IT-21/07-08 for AY 2004-05 against order passed by AO u/s 154 of the Income Tax Act is also allowed. Appeal no. IT-917/11/12 related to search assessment for AY 2005-06 is allowed, as the addition of security deposit of Rs. 4,41,00,000/- is deleted and addition of Rs. 4,35,398/- under the head "building written off" and disallowance out of various expenses of Rs. 90,137/- is deleted from search assessment, as those additions were confirmed in regular assessment. Appeal no. IT-630/2007-08 for AY 2005-06 is dismissed as all three disallowances of Rs. 4,35,398/-, Rs. 50,000/- and Rs. 40,137/- are confirmed. Appeal no. IT-918/2011-12 for AY 2006-07 is partly allowed as while addition of security deposit of Rs. 10,59,59,513/- is deleted, the legal groun....
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....ent it has been charged lesser than the market rate can be considered as consideration for grant of lease in respect of which the capital gains has to be computed ?" 6. From the above question of law admitted by Hon'ble Rajasthan High Court, nowhere it is stated that if the assessee has received any security deposit against the lease rent of security deposit, it is not chargeable to capital gain u/s 45 r.w.s. sec. 48 of I.T. Act. Therefore, ld. CIT(A) is not justified in relying upon the decision of Hon'ble Rajasthan High Court. We therefore are of the view that the issue in controversy is covered by the Jodhpur ITAT Bench but it is not decided by Hon'ble Rajasthan High Court. 7. We find that in the instant case, assessee has transferred the land and received security deposit and that security deposit was again reinvested in making the construction of the malls. We find that the said transaction is not a sale transaction. The Assessing Officer has held that the transaction entered into by the assessee with Kalani Bros and Padma Homes are colourable device on the ground that the lease agreement is stage managed affairs of the assessee. No interest was charged on the se....
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....sp; Assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search under section 132 or requisition under section 132A, as the case may be, shall abate. It is clarified that the appeal, revision or rectification proceedings pending on the date of initiation of search under section 132 or requisition shall not abate..........." Accordingly, as far as completed assessments are concerned, they do not abate. The AO cannot proceed to make the same addition in the block assessment without any incriminating material found in the course of search. The said view prevents the AO to undo what has already been completed and has become final in the original assessment proceedings. 9. We have heard both the sides. We have also gone through the case laws relied upon by both the sides. We have also considered various relevant facts of the case. It is a settled legal position that once a search and seizure action has taken place u/s 132 of the Act or a requisition has been made u/s 132A, the provisions of section 153A trigged and Assessing Officer is bound to issue notice u/s ....