TaxTMI 
TaxTMI 
2018 (9) TMI 2164
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....essment for the impugned year, for which o proceedings 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....
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.... 30.09.2009 2009-10 25.09.2009 30.09.2010 2010-11 30.08.2010 30.09.2011 7. The ld. counsel for the assessee 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 p....
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....se Papers File, Page No. 1 to 8), which was seized during the search at the premise of M/s Om Kirti Construction Pvt. Ltd at "501-506 Shilp Tower Tagore Road Rajkot" vide Annexure A(l) dated 25.02.2011. Yours faithfully, Sd/- (Bablu Meena) Income-tax Officer Wd-1(2)(5), Rajkot Encl: 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 t....
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....lso pertinent to note that in the case of CIT Vs. Kabul Chawla (supra) Hon'ble Court has observed that return for Asstt. Years 2002-03, 2005-06 and 2006-07 were accepted under section 143(1) of the Act. Thus, Hon'ble Court has considered this acceptance of return as an assessment made under section 143(1). In concluding paragraph, the Hon'ble Court has held that on the date of search, assessments for A.Ys. 2002-03, 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 mat....
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....r expenses, ground filling expenses to the profit & loss account. On the basis of incriminating materials found during the course of search, the assessee had admitted unaccounted income of Rs. 1.62 crores, which comprised of debtors for different lands. This, according to the AO, was receivable from the debtors related to sale of land, and therefore, the AO assumed that assessee was indulging in land trading activities 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 t....
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.... that purchases were made for the investment purpose and not business purpose, the AO was justified in holding that activities of sale and purchase of share were in the nature of regular trading activities. He confirmed the order of the AO. 19. Aggrieved assessee is in further appeal before Tribunal. 20. Before us, the ld. counsel for the assessee while reiterating submissions made before the Revenue authorities further submitted 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.....
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....is can be found out from the treatment it gives to such purchase in its books of account. Whether it is treated stock-in-trade or investment. Whether shown in opening/closing stock or shown separately as investment or non-trading asset. (2) Whether assessee has borrowed money to purchase and paid interest thereon? Normally, money is borrowed to purchase goods for the purpose of trade and not for investing in an asset for retaining. (3) What is the 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 t....
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....effect of several factors has to be seen." 24. The Hon'ble Gujarat High Court had also an occasion to consider this issue in the case of Commissioner of Income Tax vs. Riva Sharkar A Kothari reported in 283 ITR 338. Hon'ble court has made reference to the test laid by it in its earlier decision rendered in the case of Pari Mangaldas Girdhardas vs. CIT reported in 1977 CTR 647. These tests read as under: "After analyzing various decisions of the apex court, this court has formulated certain tests to determine 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 ....
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.... as business income of the appellant. 6.1 The relevant portion of the submissions furnished by the appellant is reproduced as under: "The appellant had sold some shares during the year under consideration purchased by it in the year 2006 and had shown long term capital gain of Rs. 2,02,479/- as exempt u/s 10(38) in its return of income. The A.O. has treated the same as business income mainly on the ground that the assessee is a trader in shares. However, it is submitted that the figures shown by the A.O. in its assessment order of purchase and sale of shares are different 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. He....
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....ferent lands. Thus the unaccounted income disclosed by the appellant was comprising receivables for sale of land which proved that appellant was engaged in land trading activities and this activity was in the nature of business. In view of above facts, the AO treated the profit earned by the appellant from land trading activities as business income instead of capital gains as claimed by the appellant. 8.1 The relevant portion of the submissions furnished by the appellant is reproduced as under: "The assessee sold during the year agricultural land styled as 292/5, 292/2 for Rs. 2,25,000/-. It was purchased in F.Y. 2003-04 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 an....
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....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 31). A.Y. 2010-11: 1. Plots of land situated at Mavdi - 177 were sold for Rs. 21,90,5007- and plot of land at Raiya Survey no. 157/1 was sold for Rs. 2,67,01,6507-. The holding is above 3 years. In respect of plot at Mavdi - 177, it was a non-agricultural land at the time of purchase of the property by the assessee and it was not converted by assessee 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 i....
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....bsp; 2005-06 2006-07 2008-09 2009-30 Stock sold 9 Mavdi - 1 77 2005-06 Non-Agri land 2008-09 2009-10 2010-11 Holding Sold From the above details it is clear that appellant has been purchasing pieces of land almost every year. Similarly, in almost all the years, right from the year 2003-04 appellant has been selling pieces of land. The appellant has purchased mostly non-agricultural lands. Only three pieces of lands at serial number 5, 7 and 8 were (purchased as agricultural land out of which, in two cases the land has been converted into nonagricultural land. As noted by the AO, the land was divided into various plots and these plots were sold to the buyers. The land at Nana Mava 43 was purchased by the appellant in the year 2001-02 and it was sold in pieces 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 ....
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....of land and the profits earned there from were not fully disclosed in the regular books of accounts. Only a part of such sale considerations were reflected in the regular books and the balance consideration was received as unaccounted income. 8.2.5 There are several judicial pronouncements as per which above type of transactions are required to be treated as business transactions and resultant profits as business income. As per CBDT's recent Circular No. 4 of June, 2007, an assesses can have both portfolios, one for trading and other for investment provided it maintains separate account for each type, there are distinctive features for both and there is no intermingling of holdings in two portfolios. In case of appellant, above conditions are not satisfied. No separate accounts are maintained for two types of land. If there were distinct portfolios, the appellant may have income under both heads. The Hon'ble jurisdictional High Court in CIT v. Rewashanker A. Kothari [2006] 283 ITR 338 (Guj) laid down the following guidelines in order to determine whether profits arising on sale is business income (page 343): **** **** ***** 8.2.6 In view of a....
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....t nana mava Sr. No. 43/4 06.10.2005 224400.00 06.10.2005 224400.00 06.10.2005 390200.00 06.10.2005 673200.00 06.10.2005 30000.00 499352.00 06.10.2005 28.10.2005 06.10.2005 468000.00 561000.00 234000.00 This plot shown as assets and it is situated at Mavdi Sr. No. 1 77 06.10.2005 125200.00 06.10.2005 125200.00 06.10.2005 112200.00 06.10.2005 112200.00 06.10.2005 112200.00 A.Y. 2010-11 Cost Of Purchase Date/Year of Purchase Sales Consideration Place at where it shown 2919917 06.10.2005 2190500.00 This plot shown as assets and it is situated at mavdi Sr. No. 177 1026827.00 2003-04 26701650.00 This plot shown as assets and it is situated at Raiya 157/1 1748640.00 Sold from stock situated at Nana mava 43/4 A.Y. 2011-12 Cost Of Purchase Date/Year of Purc....
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....e portfolio for investment and trade, the Revenue authorities have clubbed both the accounts into one and treated all the sales as regular trading activities and accordingly treated as business income. It was also submitted by the assessee all the transactions were reflected in the capital account of the assessee, and therefore, it could not be treated as business income, which was not appreciated by the Revenue authorities. In our view, the ld. Revenue authorities, in a sweeping manner, treated the entire transactions of sale of shares as regular business without any basis and justification. There is no specific finding to the effect that the entire sale of shares is part of business activities of the assessee and is to be treated as business income of the assessee. There is no discussion as to the period of holding, and whether the transactions are intra-day or delivery based and/or size of the transaction, so as to determine whether income earned from the investment or through regular course of trading. In the absence of the same, we are not convinced with observation of the Revenue authorities on this issue, which we reverse and direct the AO to treat the gain from sale of shar....
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.... 34. On due consideration of the above facts and circumstances, and a perusal of the balance sheet of the assessee for the year 2010-11, it reveals that the assessee has capital of more than Rs. 4.82 crores which is sufficient to meet the interest free advances. There is nothing on record to suggest that the assessee has diverted its capital for non-business purpose and therefore following the judgment of Hon'ble Bombay High Court in the case of CIT Vs. Reliance Utilities and Powers Ltd., 313 ITR 340 no disallowance is warranted on this count. Accordingly all these grounds are allowed. Similarly, in Asstt.Year 2008-09, assessee has sufficient interest free funds therefore, no interest expenditure or processing charges deserves to be disallowed on the ground that interest bearing funds was used for non-business purpose. 35. Now only ground left for adjudication is ground no. 2 raised in the Asstt.Year 2008-09, whereby the assessee has agitated upholding the action of the he AO in construing jewellery of Rs. 1,93,006/- belonging to Smt. Anjanaben Joshi, as belonged to the assessee. 36. Brief facts of the case are that during the course of search at the residence of t....