TaxTMI 
TaxTMI 
TaxTMI 
2018 (9) TMI 2164
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....ngs were pending on the date of search, is void-ab-initio as the same has been passed without referring to any incriminating material found as a result of search." 3. On the strength of Hon'ble Supreme Court decision in the case of CIT Vs. Varas International, 284 ITR 80(SC) and National Thermal Power Co. Ltd. Vs. CIT, 229 ITR 383 (SC), it was contended by the ld. counsel for the assessee that if a legal issue going to effect the taxability of an assessee, then the assessee can be permitted to raise such issue at any stage. He further contended that law with regard to jurisdiction of AO for passing assessment orders in search case under section 153A has been developed subsequent to the passing such orders. He made reference to the following decisions: i) CIT Vs. Kabul Charwala, 380 ITR 0183 (Del) ii) CIT Vs. Kurele Papers, 380 ITR 571 (Del) iii) CIT Vs. Lata Jain, 384 ITR 543 (Del) iv) CIT Vs. Somaya Construction Ltd. 387 ITR 529 (Guj) 4. According to the ld. counsel for the assessee, all these decisions have come after adjudication of appeal by the ld. CIT(A). On the other hand, the ld. DR opposed prayer of the assessee and contended that entertaining such ground of app....
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....sessee contended that in the Asstt. Years 2007-08, 2008-09 and 2009-10 no assessment was pending on the date of search i.e. 25.2.2011. The time limit to issue notice under section 143(2) was also expired, therefore, according to the decision of Hon'ble Delhi High Court in the case of CIT s. Kabul Chawala, the AO can only scrutinize the return of non-abated years when some material has been found in search retable to that year, and if there is no material found, then the AO could not have reopened the issue for these years. In other words, Asstt. Years 2007-08, 2008-09 and 2009-10, if no materials have been found, then he cannot take cognizance under section 153A of the Act. 8. The ld. DR on the other hand, contended that this issue was raised for the first time before the Tribunal, which requires examination of facts. 9. We have directed the ld. DR to submit the details of any incriminating material found during the course of search. In response to our query after conclusion of hearing, the ld. CIT-DR got information from the AO and placed on record the details. The letters written by the ld. AO as well as ld. CIT(A) to the Tribunal read as under: "No.CIT/DR/ITAT/e-Bench/DAS/Se....
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....ncl: As above Income-tax Officer Wd-1(2)(5), Rajkot Copy for kind information please: 1. The Pr. Commissioner of Income-tax-1, Rajkot. 2. The Addl. CIT Range-1 (2) Rajkot." 10. We have duly considered rival contentions and gone through the record. Hon'ble Delhi High Court in the case of CIT Vs. Kabul Chawla (supra) has examined scope of section 153A. After a detailed analysis Hon'ble Court has summarized legal proposition emerging out for application of section 153A. Such proposition reads as under: "37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153 A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercis....
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....3, 2005-06 and 2006-07 already stood completed and no incriminating material was unearthed during the search, therefore, no addition should have been made to the income of the assessee. 11. In the light of the above, let us examine facts of the present case. There is no dispute that in the Asstt. Years 2007-08 to 2009-10 time limit to issue notice under section 143(2) was expired. The returns of the assessee were accepted under section 143(1) of the Act. Thus, it is to be construed that these assessments were completed and not pending on the date of search. In view of the Hon'ble Delhi High Court decision, the additions in these years can only be made if during the course of search some incriminating materials were found. 12. The ld. DR has placed on record seized material contained in Annexure A/1 and Annexure A/2. A perusal of annexure A/1 would indicate that it contained certain details regarding steel scrap on page no. 4 of the A/1, details of certain rentals. Similarly annexure A/2 contained balance sheet of Om Kirti Construction Pvt. Ltd. and certain other financial statements. But all these details are pertained to financial year 2010-11 or relates to Om Kirti Construction....
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....s on regular basis, which was adventure in the nature of trade. Thus, the ld. AO made additions of Rs. 1,12,005/- Rs. 28,92,848/- and Rs. 2,75,73,406/- for the assessment years 2007-08, 2009-10 and 2010- 11 respectively. 16. In the assessment year 2007-08, the ld. AO further noticed that the assessee has shown exempt long term capital gain of Rs. 2,02,479/-on sale of shares without any supporting evidence. On being show caused by the AO, the assessee filed copies of invoices for purchase and sales of shares. The AO construed that assessee has engaged in the business of trading in shares by looking into the size of transaction and treated profit on share trading activities to the extent of Rs. 2,02,479/- as business income and added to the total income. 17. Aggrieved by action of the ld. AO in treating both income from sale of land and sale of shares as business income, the assessee carried the matter in appeal before the ld. First Appellate Authority. So far as first issue, i.e. income from sale of land is concerned, the assessee interalia pleaded before the ld. first appellate authority that the ld. AO was erred in presuming that entire land transactions....
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....ted that the assessee has shown the land in question as investment since long. The ld. AO construed that the assessee was doing activities of trading in land and did not maintain separate accounts. Most of the land holding by the assessee was for more than three years, and therefore, there is no question of denying long term capital gain from the sale of the land. Purchase of land was shown in the balance sheet as investment and not as stock-in-trade. Whatever the loss or profit accrued, as also expenditure have been debited and capitalised in the account of the assessee, and therefore, there is no question of denying claim of the assessee. Assumption drawn by the Revenue authorities is not based on evidence, rather a non-appreciation of facts on record. 21. So far as profit on sale of share is concerned, the ld. counsel for the assessee reiterated the submissions that purchase of shares were for the purposes of investment and profit, if any, was directly credited to the capital account of the assessee and not accounted in trading account of the assessee. The ld. AO was not right in mixing both transactions and treating them as for trading purpose. On the other hand, the ld. DR su....
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....he frequency of such purchase and disposal in that particular item? If purchase and sale are frequent, or there are substantial transaction in that item, if would indicate trade. Habitual dealing in that particular item is indicative of intention of trade. Similarly, ratio between the purchases and sales and the holdings may show whether the assessee is trading or investing (high transactions and low holdings indicate trade whereas low transactions and high holdings indicate investment). (4) Whether purchase and sale is for realizing profit or purchases are made for retention and appreciation its value? Former will indicate intention of trades and latter, an investment. In the case of shares whether intention was to enjoy dividend and not merely earn profit on sale and purchase of shares. A commercial motive is an essential ingredient of trade. (5) How the value of the items has been taken in the balance sheet? If the items in question are valued at cost, it would indicate that they are investments or where they are valued at cost or market value or net realizable value (whichever is less), it will indicate that items in question are treated as stock-in-trade. (6) How the ....
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....ne as to whether an assessee can be said to be carrying on business. (a) The first test is whether the initial acquisition of the subject-matter of transaction was with the intention of dealing in the item, or with a view to finding an investment. If the transaction, since the inception, appears to be impressed with the character of a commercial transaction entered into with a view to earn profit, it would furnish a valuable guideline. (b) The second test that is often applied is as to why and how and for what purpose the sale was effected subsequently. (c) The third test, which is frequently applied, is as to how the assessee dealt with the subject-matter of transaction during the time the asset was the assessee. Has it been treated as stock-in-trade, or has it been shown in the books of account and balance sheet as an investment. This inquiry, though relevant, is not conclusive. (d) The fourth test is as to how the assessee himself has returned the income from such activities and how the Department has dealt with the same in the course of preceding and succeeding assessments. This factor, though not conclusive, can afford good and cogent evidence to judge the nature of th....
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....rent from the one which has been claimed as long term capital gain. Those which were in the nature of trade have been directly shown in profit and loss account and treated separately as business income The shares which were in the nature of investment and not in the nature of trade, profit of which have been directly shown in the capital account of the appellant. The A.O. has mixed both the share transactions of business and investment and has treated both as held for trading purposes. Hence, as these shares were held for the purpose of investment, it was claimed as long term capital gain. Hence, the sale of said shares is in the nature of investment and not trade." 6.2 I have carefully considered the submissions made by the appellant and have gone through the assessment order as well. 6.2.1 Admittedly, the appellant is in the business of share trading. No details have been furnished to show that relevant purchases in shares were shown in the balance sheet of earlier year as 'investment' and not stock. There are frequent purchase and sale transactions of shares carried out by the appellant. Appellant has not given any reason or evidence, either during assessment pr....
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....-04 for Rs. 1,12,885/- (indexed cost 1,26,853/-). The assessee claimed profit on sale of land of Rs. 1,12,005/- as long term capital gain. The A.O. has treated the same as business income mainly on the ground that the assessee is a dealer in real estate. The appellant submits that it has even in A.Y. 2005-06, shown income as capital gain on sale of real estate separately and in other years also, income from land held as business asset is shown as business profits. The declaration during survey was in respect of business income from real estate and it cannot be presumed that all land dealings are on business account. From the balance sheet of preceding year (31-03-2006) (PB Page No. 26 - 28), it will be seen that all lands are shown as investments and there was no dealing in land and it was not treated as business income. Thus, the holding period is more than three years. The assessee has not dealt with, any land as a trader. The incomes are by way of mainly share from firms (not being real estate firms), interest/remuneration as partner, agriculture etc. Even in accounts the profit was credited to capital account directly. Hence, the character is that of investment in agricultur....
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....ssessee after its purchase and in respect of plot at Raiya no 157/1, it was converted into non-agricultural in the year 2008-09, hence it can be seen that the intention of the assessee was to keep the Raiya plot as investment only as the assessee had keep the said land as agricultural for three years and more and then got converted into non-agricultural one. 2. In the balance sheet (PB - II, Page 32), both were treated and disclosed as investment. 3. In the trading account, lands held as stock have been shown and treated separately (PB - II, Page 28) which clearly establishes the intent of the assessee. 4. Holding period is not too short. 5. Gain on sale is directly credited to capital account of assessee - individual and disclosed separately (PB - II, Page 36). From the above factual analysis which is on record, it may kindly be appreciated that (i) large pan of activities of assessee is by way of partner of firms carrying on steel business, (ii) There is nothing on record brought out by the A.O. to show that the intention was to deal in lands at the time of purchase thereof. The Supreme Court in case of H. Holck Larsen in (1986) 160 ITR 67 has propounded that inten....
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....ces in the years between 2003-04 and 2009-10. Similarly, the land at Mavdi 177 was purchased by the appellant in the year 2005-06 and was sold in the years 2008-09, 2009-10 and 2010-11. 8.2.2 As noted by the AO, in order to decide whether the transaction is in the nature of business activity or sale of assets, some of the criteria required to be examined are as under: 1. whether the purchase and sale was allied to usual trade or business/was incidental to it or was an occasional independent activity 2. whether the purchase was made solely with the intention of resale at a profit or for long-term appreciation 3. whether scale of activity is substantial 4. whether transactions were entered into continuously and regularly during the year 5. whether the purchases are made out of own funds or borrowings 6. ratio of sales to purchase 7. time devoted to the activity and the extent to which it is the means of livelihood. 8.2.3 As clear from the facts of this case, the transactions of purchase and sale of land have been continuously carried out by the appellant, year by year. These are not occasional independent activities. The pieces of land are not sold as such ....
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....her profits arising on sale is business income (page 343): **** **** ***** 8.2.6 In view of above factual and judicial matrix, it is held that AO was justified in treating the profit from land trading activity as business income of the appellant. Accordingly, the related grounds are dismissed for all the relevant assessment years." 26. Though, the ld. CIT(A) has taken cognizance of land holding in para 8.2.1, but at the cost of repetition, we would like to mention that during the course of hearing, the ld. counsel for the assessee placed on record complete details of land owned by the assessee and treatment given to this land i.e. whether in the 'investment' portfolio or 'trade' portfolio. The ld. CIT(A) has already taken note of nine pieces of land which we have reproduced while taking cognizance of CIT(A)'s finding contained in para 8.2.1. The remaining land whose details have been submitted by the ld. counsel for the assessee reads as under: "A.Y. 2005-06 GIDC plot at Lodhika Cost Of Purchase Date/Year of Purchase Sales Consideration Place at where it shown 317463.00 2003-04 178878.00 2002-03 179589.00 196503.00 266349.00....
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....04 2035000.00 2900000.00 467000.00 This plot shown as assets and it is situated at Raiya 157/1 27. Thus, a perusal of order of Revenue authority would indicate that the main force which weighed in the mind of Revenue authorities to treat the income of the assessee as business income and not capital gain are that (i) transactions of purchase and sale were continuous and substantial, (ii) plots of land sub-dividend with intent to make trading activities and earn profit, and (iii) the assessee has borrowed funds for purchases. In other words, these three factors persuaded the ld. CIT(A) to labour a belief that the land purchased in the year of 2004 and held for more than three years is to be treated as a trade asset. Accounts furnished before us show that the assessee was dealing in lands both as a trader as well as investor. He had kept separate accounts for both types of dealings. Income earned and expenditure incurred has been accounted in the capital account of the assessee. Period of land holding is more than three years. They were reflected in the balance sheet as investment. We find that the frequency of such purchase or sale in said portfolio was not large enough to doubt....
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....his ground, assessee is aggrieved by the action of ld. CIT(A) in upholding addition of Rs. 1,29,949/- made by the AO. 30. After hearing both the sides, we have gone through the record carefully. We find that an amount of Rs. 1,29,949/- was found credited to the capital accounts of the assessee. No explanation or details were furnished at the time of assessment by the assessee, therefore, the same was treated as unexplained credit and added to the income of the assessee. Though the assessee has not furnished before us any details thereof, however, submitted that since the assessee has disclosed an amount of Rs. 1.62 crores during the search, addition may be deleted by giving telescoping effect. In order to ensure that the assessee is not taxed twice for the same source of income, the AO is directed to give benefit of telescoping against the addition made on account of disclosure of Rs. 1.62 made during the course of search. Thus, this addition of Rs. 1,29,949/- is deleted. 31. In the result, ITA No. 744/RJT/2014 is allowed. 32. Now we shall deal with other common issue regarding disallowance of interest on loan. This issue is raised in ground no. 2 i....