TaxTMI 
TaxTMI 
2026 (4) TMI 1690
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....ing Officer has failed to appreciate that the search had taken place on assessee u/s 132 on 08.12.2021 relevant to assessment should have been framed under Section 147 read with Section 143(3) of the Act, by issuance of notice u/s 148 and, as such, the completion of assessment u/s 143(3) without complying with the mandatory requirement of issuance of notice u/s 148, the assessment as framed by the Assessing Officer deserves to be quashed. (b) That the Ld. Assessing Officer has failed to follow the mandatory requirement of compliance to Explanation-2(i) to section 148, which clearly substantiates the contentions of the assessee, that in the case of search after 1st day of April 2021, the Assessing Officer shall be deemed to have information, which suggest that the income chargeable to tax has escaped assessment and, as such, non-issue of notice u/s 148 for the Asst. Year 2021-22 under such specific provisions and completion of assessment u/s 143(3) being general provisions of assessment is bad in law. 2. Notwithstanding the above said ground of appeal, the Ld. CIT(A) has erred in dismissing the appeal of the assessee raising various grounds of appeal, which is agai....
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....8,10,093/- u/s 69C of the Act has been made on account of alleged payments of GWR and Bonus: a) That on the facts and circumstances of the case and in law, the Ld. AO and Ld. CIT(A) has erred in making the impugned addition by completely ignoring the submissions of the appellant and by invoking the provisions of Section 69C of the Act on the subject issue. b) That the confirmation of addition by the Ld. CIT(A) is again non substantial since the impugned addition is an outcome of reliance on certain vague statements so recorded of the employees which were never confronted even to the Directors/Human Resources Management or other Senior Officials of the company and, such, without any particulars of cross examination of such employees, the whole basis of making the addition is on surmises and conjectures. c) That the Ld. CIT(A) has failed to appreciate that the excel sheet on the basis of which, the addition have been made, does not depict the name of any employees of the assessee to whom, the alleged payments have been made. d) That the Ld. CIT(A) has failed to consider that the impugned addition has been made by the Ld. Assessing Officer not relyi....
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....n confirming the addition since no incriminating evidence was found during the year under consideration regarding the alleged bogus purchases made from RSG packaging and the such upholding of addition is also against the judgment of Hon'ble Delhi High Court in the case of Saksham Commodity, reported in 161 taxmann.com 485, in which, it has been held that the addition in search assessments has to be made only on the basis of evidence found during the course of search for that year. c) That the Ld. CIT(A) has erred by ignoring the facts that the impugned addition has been made merely by extrapolation of certain impugned evidences found and analyzed for the AY 2022-23 and not for the year under consideration, i.e. AY 2021-22 wherein the whims and fancies only the impugned addition has been made. 7. That in the facts and circumstances of the case, the Ld. CIT(A) has erred in facts and in law by sustaining the additions of Rs. 2,28,12,970/- made by the Ld. AO u/s 36(1)(iii) of the Act: a) that the Ld. CIT(A) and the Ld. AO failed to appreciate the documentary evidence and the submissions made by the appellant on this issue and the addition has been made in the....
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...., being fresh preferential allotment of shares to the appellant by M/s Kranti Buildwell Pvt. Ltd." Since the additional grounds are merely legal grounds which do not require appreciation of new facts, the same are admitted and taken on records in terms of decision of Hon'ble Apex Court in the case of National Thermal Power Co. Ltd. (229 ITR 383). 1.4 The Ld. AR advanced legal arguments as well as arguments on merits and drew attention to various documents as placed in the paper book. The detailed brief synopsis has also been filed during the course of hearing before us. The Ld. CIT-DR also advanced arguments and extensively controverted the arguments of Ld. AR. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. 1.5 The assessee being resident corporate assessee was subjected to search action by the department u/s 132(1) on 08-12-2021 which has led to impugned assessment on the assessee. The assessee filed return of income u/s 139(1) on 31-03-2022 declaring income of Rs. 48.48 Crores which was subjected to scrutiny after obtaining administrative approval of Ld. Pr. CIT(C), Gurugram vide his office letter F.No. Pr.CIT(C)/ ITO....
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.... 1. Shri Harpal Singh 14,99,999 51.61% 2. Smt. Rachna Singh 1 0.01 % 3. Torque Pharmaceuticals Pvt. Ltd. (assessee) 14,06,259 48.38% Total 29,06,2590 100.00 % 2.3 During search at hotel property, one original signed agreement was found which was seized as per Annexure A-1 Team HK1(2) (Pages 1-6). The agreement was between the assessee, Shri Harpal Singh / Mrs. Rachna and M/s LBPL. During search at corporate office of the assessee, one unsigned agreement between the assessee and M/s KBPL, M/s LBPL and Shri Harpal Singh was also found which was marked as Annexure A-5, TK-1 (Pages 60-64). 2.4 The signed agreement was in the shape of shareholders' agreement (SHA) dated 12-10-2020 between Shri Harpal Singh, Mrs. Rachna, the assessee and M/s LBPL. The agreement was with respect to purchase of 50% shares in M/s KBPL by the assessee. As per this agreement, Shri Harpal Singh agreed to sell his 7.50 Lacs number of shares to the assessee for a total consideration of Rs. 150 Crores i.e. Rs. 2000 per share. As per the agreement, the assessee was to appoint two directors on the board of M/s KBPL within 180 days from execution of the sai....
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....ld maintain their 50% shareholding in M/s KBPL after execution / completion of the deal. The voting rights would be in proportion to the respective share capital as held in the company. Therefore, the sole intent of the assessee was to acquire 50% ownership in M/s KBPL by paying Rs. 150 Crores. 2.6 The Ld. AO made further reference to one hand-written document which was seized as Annexure A-3 (Page 11). In this Page, the value per share was mentioned as Rs. 1173/- which was computed as per Balance Sheet dated 31-03-2020 of M/s KBPL. As per these calculations, the FMV of shares of M/s KBPL would be Rs. 1173/- per share. The 14,06,259 number of shares, if issued at Rs. 1173/- per share, would aggregate to Rs. 165 Crores approximately which was closer to the agreed value of Rs. 150 Crores. 2.7 On these facts, Ld. AO concluded that it was decided long back between the parties that the total investment to be done would be Rs. 150 Crores. However, the method and mode kept on changing to suit their plans and designs to evade taxes by undervaluing the deal. Ultimately Rs. 75 Crores was shown to be invested in the shares whereas the balance Rs. 75 Crores was planned to be compensated ....
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....ed to Shri AIS Bedi during the course of recording of his statement u/s 132(4) on 09-12-2021. In reply to Q.No.20, he admitted that there was a deal by the assessee to invest Rs. 150 Crores for acquisition of 50% ownership of the hotel property. In reply to Q.No.22, he admitted that the page was written as per his directions. The total deal was worth Rs. 150 Crore out of which Rs. 25 Crores was planned to be paid in the form of cash. Out of the same Rs. 7 Crores had already been paid whereas they had no intention of paying the remaining amount in cash. In reply to Q.No.21, it was stated that there was an agreement for the deal. In all Rs. 107 Crores had been paid which include Rs. 75 Crores for allotment of Shares of M/s KBPL to the assessee Rs. 25 Crores was paid in the form of unsecured loans to M/s LBPL and Rs. 7 Crores was paid in cash. The remaining amount was yet to be paid. It was thus established that the total deal was worth Rs. 150 Crores to be invested by the assessee for granting 50% ownership in the hotel property. 2.10 One valuation report of Shri Kashish Khunger was seized as Annexure A-5 (Pages 135-149). The same was valuation report dated 31-03-2021 for determin....
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..... The assessee, after making due diligence, market analysis and valuation of shares, jotted the offer down to Rs. 75 Crores. On the date of subject negotiation, the relevant shares of Shri Harpal Singh and its original documents were still in possession of the banker and therefore, the assessee had offered an alternative wherein it suggested for issue of fresh equity shares by M/s KBPL against the underlying consideration. The negotiation went back and forth and finally the transaction was done at Rs. 75 Crores for newly / freshly issued shares being issued to the assessee. The assessee justified valuation on the basis of Balance Sheet of KBPL as on 31-03-2021 which was arrived at Rs. 420.73 per share as per Rule 11UA(1)(c)(b). On these facts, the assessee opposed application of provisions of Sec.56(2)(x)(c). The valuation of Rs. 420.73 Lacs as furnished by the assessee has been extracted on Page Nos.62 to 65 of the assessment order. Upon perusal of the same, it could be seen that firstly, the assessee has computed book value per share of M/s LBPL as under: - Calculation of Fair Market Value of Shares of M/s Lok Priya Buildwell Pvt. Ltd. as per Rule 11UA(1)(c)(b) No. Parti....
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....well Pvt. Ltd. No. Particulars Amount A A=Book Value of all the assets Rs. 250,99,72,730/- (Other than Jewellery, artistic work, shares, securities and immovable property) in the Balance Sheet (Investment in shares of M/s Lok Priya Buildwell Pvt. Ltd.) a. (Rs. 172,05,00,000/-) As reduced by: - (i) any amount of Income Tax paid, if any, less the amount of Income Tax Refund claimed, if any; and (ii) any amount shown as asset including the amortized amount of deferred expenditure which does not represent the value of any asset; Nil Total A Rs. 78,94,72,730/- B The price which the jewellery and artistic work would fetch if sold in the open market on the basis of the valuation report obtained from a registered valuer Nil Total B Nil C Fair market value of shares and securities as determined in the manner provided in this rule(Investment in shares of M/s Lok Priya Buildwell Pvt. Ltd.) Rs. 59,16,47,605/- Total C Rs. 59,16,47,605/- D The value adopted or assessed or assessable by any authority of the Government for the purpose of payment of stamp duty in respec....
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....on the assets and set aside by the business for replacement of the asset on account of regular wear and tear. As per the terms of agreement, the reserve could be used only for specified purposes as detailed in the agreement. No sort of withdrawals could be made for any other purposes. Therefore, this was not mere reserves but ascertained liability for the assessee and accordingly, rightly reduced from the assets. 2.13 Upon perusal of assessee's documents & submissions, Ld. AO observed that land measuring 12694.422 Square Yard was allotted to M/s LBPL on lease hold basis for Rs. 101.37 Crores with annual ground rent of Rs. 253.42 Lacs for a period of 99 years. The land was allotted on 11-10-2006 and the collectors' rates as applicable on that date were perused. Applying circle rate of Rs. 25,000/- per square yards, the land would be valued for Rs. 31.37 Crores whereas it was allotted for Rs. 101.37 Crores i.e., at a premium of approx. 230% from existing circle rate. As per the terms of allotment, the assessee could transfer rights in the site subject to the condition that 50% of the unearned increase in the value of the land at the time of sale shall be payable to Municipal Corpo....
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....ich provided that FMV was to be calculated as per Rule 11UA(1)(c)(b). Applying the value of Rs. 1316.845 per share, Ld. AO computed difference of Rs. 110.18 Crores which would be deemed to the income of the assessee u/s 56(2)(x)(c) and accordingly, show-caused the assessee. 2.16 The assessee opposed the same on three grounds viz. (i) the immoveable property as mentioned in Rule 11UA(1)(c)(b) does not include leased rights of the land; (ii) The leasehold rights should not be equated to freehold rights by assessing the stamp valuation at par with circle rates existent in the area; (iii) While valuing the FMV of shares of M/s KBPL as per Rule 11UA(1)(c)(b), the liability associated with the transfer of leasehold rights i.e., transfer of 50% unearned profits to the Municipal Corporation and lease rental for 99 years should be recognized and due benefit need to be given. However, all these objections stood rejected by Ld. AO. 2.17 With respect to assessee's first objection, Ld. AO noted that during the course of search proceedings, two agreements were found and seized. One of the agreements was a signed agreement whereas the other agreement was an unsigned agreement. Both of these....
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....ection 56(2)(viib), FMV of the shares needs to be calculated as per method specified in Rule 11UA(2)(a) but for the purpose of Sec.56(2)(x)(c), FMV was required to be calculated as per the method prescribed in Rule 11UA (1)(c)(b). Thus, two different methods of valuation were prescribed. The Rule 11UA(2)(a) was applicable to Sec.56(2)(viib) which provide that the assets were to be considered at book value whereas Rule 11UA(1)(c)(b) was applicable for the purposes of Sec.56(2)(x)(c) which provide for taking the value of assets other than immoveable property, jewellery, artistic work, shares and securities at their book value. Therefore, all the specified assets should not be valued at book value for the purpose of Sec.56(2)(x)(c) which was actually applicable to the case of the assessee. The Ld. AO also referred to the provisions of Sec.2(47)(vi) which provide that transfer would include any transaction (whether by way of becoming 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 on in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immo....
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....le deed dated 09-07-2019 with respect to SCO property situated at Sector 9-D, Chandigarh wherein the circle rate was Rs. 3,08,880/- per square yards whereas the sale was executed at much higher price of Rs. 4,16,988/-. Therefore, the aforesaid objection was rejected. 2.20 The third objection was to consider the twin liabilities as associated with the hotel property. The first liability was payment of 50% unearned profits to Municipal Corporation and lease rental for remining period of the lease. The Ld. AO noted that valuation date was 31-03-2021 and the Balance Sheet as on 31-03-2021 need to be taken into consideration. The valuation has to be done on the basis of assets and liabilities as recognized by M/s KBPL and M/s LBPL on valuation date. These two liabilities were not recognized and therefore, the same was not to be considered. Even otherwise, only ascertained liabilities were to be considered. The unearned profit as payable to Municipal Corporation would be ascertained liability once the land was actually sold which was not the case here. The lease rental for 99 years was also not ascertained liability. If the lease rights are transferred at any point of time by way of s....
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....s/unascertained liability. 9. Keeping in mind the above calculation the FMV of shares of M/s KBPL was calculated as 1316.845 per shares. 2.22 Finally, the FMV of shares of M/s KBPL, as allotted to the assessee, was adopted at Rs. 1316.845 per share as against Rs. 533.33 as transacted by the assessee. The differential of the two was deemed to be the income of the assessee as per the provisions of Section 56(2)(x)(c) read with Rule 11UA)(1)(c)(b). The same stood quantified at Rs. 110,18,25,132/- which was added to the income of the assessee. 3. Issue of Cash Payment to Shri Harpal Singh 3.1 Proceeding further in the same directions, Ld. AO proceeded to make the addition of Rs. 7 Crores as stated to be paid by the assessee to Shri Harpal Singh in the above deal. To make the addition, Ld. AO referred to Page No.10 of Annexure A-3 as enumerated by us in preceding para 2.8. This page was confronted to Shri Navneet Gupta. In reply to Q. No.47, it was stated by him that the document was written by him on the directions of Shri AIS Bedi (Executive Director of the assessee company) and the said document was with respect to deal of JW Mariott between M/s KBPL and the assesse....
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.... Harpal as part of the deal. 4. In Para 1, it has been categorically established that the valuation of shares of M/s KBPL issued to M/s TPPL has been under-valued. This further corroborates the cash expenses of Rs. 7 Cr given to Mr. Harpal Singh by M/s TPPL. Finally, the source of payment of Rs. 7 Crores was held to be unexplained and accordingly, added to the income of the assessee u/s 69C. 4. Addition of cash expenditure: 4.1 During search at Unit-III of the assessee at Baddi, Solan, all the data and information as contained in the desktop was forensically cloned and seized as per Annexure A11. An excel sheet was also prepared from the data contained in the path E:/Bhupinder/WAGES 3rd unit from the said desktop. This data pertained to alleged cash expenditure at Unit-III of the assessee during the period from FYs 2016-17 to 2021-22. This sheet was prepared in the presence of Shri Navdeep Singh (General Manager, Unit III) and the same was signed by him on 10-12-2021. The statement of Shri Navdeep Singh was recorded u/s 132(4) wherein he was shown the excel sheet as Exhibit-3 and asked to give comments on the same. In reply to Q. Nos. 26 & 28, it was stated ....
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.... Manager, HR) was recorded u/s 132(4) who made similar admission of cash payment. The same stood further corroborated by Overtime Muster Roll Register as found and seized as Annexure-A-3 (Team TK-2). This register contained entries from December, 2015 to October, 2021. In this register, there was no entry related to cash payment of overtime and bonus. The authorized signatory certified that no overtime had been performed during the entire period of six years. There was further corroboration in the shape of statement of Shri Manvendra Singh (QC Manager) as recorded u/s 132(4). The emails sent by Shri Sushil Kumar to HR Manager of Head office further corroborated the same. These emails conveyed monthly cash requirements for such payments to the employees. The cash expenditure incurred by this unit for this year aggregated to Rs. 38,11,737/-. 4.4 The total cash expenditure incurred by these three units during FYs 2016-17 to 2021-22 has finally been tabulated by Ld. AO at Para 2.20 of the assessment order. The payment made for this year on account of overtime payment / GWR/ bonus aggregated to Rs. 1,58,10,093/- as under: - (Amt. i....
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....t of Rs. 225 Lacs, amount of Rs. 2,00,59,322/- was stated to be received back after deduction of GST and commission. The Ld. AO sought further corroboration of the same by the visit of Shri Abhinav Gupta of RSG as recorded in visitor's register as well as in CCTV footage. 5.3 On the above facts, Ld. AO made allegation of bogus purchases by the assessee from RSG. The ledger account of RSG as appearing in the regular books of the assessee for the period from 01-04-2021 to 08-12-2021 was examined by Ld. AO. The assessee maintained multiple ledger accounts in the name of RSG. However, only two accounts marked as 't' and 'u' were utilized to record such kind of transactions with RSG. It was alleged by Ld. AO that the purchases recorded under these two ledgers were received back in cash through Shri Abhinav Gupta. These purchases were non-genuine. There was no description of material, quantity, rate, GST etc. in these two ledgers. It was thus established that these ledger accounts were used by the assessee to accommodate fake bills for the period from 01-04-2021 to 08-12-2021. These purchases would not enter the stock of the assessee. The Ld. AO sought corroboration of the same by ref....
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....arily endorsed the findings of Ld. AO and dismissed the appeal of the assessee. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 9. The Ld. AR has filed 5 paper books viz. Paper Book I to IV and a common paper book along with three brief synopsis which have been marked as Brief Synopsis-I, II & III. The same are in support of legal grounds, additional grounds of appeal as well as on quantum additions on merits. We have duly gone through the relevant documents coupled with rival submissions as made before us. 10. The assessee, in its legal grounds, has raised pertinent legal issues. In original Ground No.1, the assessee has contended that Ld. AO has erred in framing the assessment u/s 143(3) whereas as per extant statutory provisions, the assessment should have been framed u/s 147 r.w.s. 143(3) since the search took place on the assessee u/s 132 on 08-12-2021 which fall in AY 2022-23. The AY 2021-22 immediately precedes this year. Therefore, in this case, the assessment should have been framed u/s 148 whereas the impugned assessment has been framed u/s 143(3) without complying with the mandatory requirement of issuance of notice u/s 148.....
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....ime of reassessment, Ld. AO has option to make assessment under both the statutory provisions since the provisions do not bar application of other statutory provisions unlike the earlier provisions of Sec.153A which start with non-obstante clause. By referring to the statutory provisions, Ld. CIT-DR contended that new provisions of Sec.148 do not have any such non-obstante clause and the concept of abatement of assessment has not been provided in the new provisions unlike the earlier provisions. In such a case, when the time limit to issue notice u/s 143(3) was available with Ld. AO, the assessment could have been framed by Ld. AO u/s 143(3) as well u/s 147 r.w.s. 148 and there was no infirmity in the action of Ld. AO in framing assessment u/s 143(3). In such a case, Ld. AO would assume jurisdiction not only to make regular assessment but also empowered to consider material found during search action. There is no bar in the statute as such. The Ld. AR, on the other hand, maintained that this issue is no longer res-integra and now covered by various judicial decisions of various benches of the Tribunal and therefore, the same view may be taken. We have duly considered the rival subm....
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....ion on the assessee on 08-12-2021. The whole purpose of scrutiny was to examine various issues which arise from the search action on the assessee. Such search cases were liable for complete scrutiny as per CBDT instructions (supra) and the provisions of mandatory approval by appropriate authority were made in the said instructions itself. The Ld. AO, guided by the said instructions, has obtained the required approval and finally issued notice u/s 143(2). Now the pertinent question that arises is whether the assessment was to be framed u/s 143(3) or u/s 147 r.w.s. 148. The argument of Ld. CIT-DR is that unlike earlier provisions of Sec.153A, the new Section 148 do not have non-obstante clause and as such, there is no bar in making assessment in either of these two sections. 13. All these legal issues, as rightly pointed out by Ld. AR, have comprehensively been dealt with by co-ordinate bench of Chandigarh Tribunal in the case of M/s Homelife Buildcon Pvt. Ltd. (ITA No.880/Chd/2024 & ors. order dated 17-07-2024). We find that on identical facts, the coordinate bench held as under: - 22. The core question before the Bench is whether, in the facts and circumstances of the c....
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....valuable articles are seized or requisitioned in the course of the search. This deeming provision is not limited only to the person searched, but also extends to "other persons", provided that due procedure under the law-specifically, the recording of satisfaction that such seized material belongs to the assessee and obtaining prior approval from the PCIT-is followed. 25. In the present case, where the AO has admittedly relied upon material seized during searches conducted on other persons, i.e., Sh. Ravi Kapoor and Sh. Ajay Kumar Prabhakar, it was mandatory for the AO to invoke the provisions of section 147 and not to bypass the statutory framework by proceeding under section 143(3). Granting such unfettered powers to the AO to rely on third-party material without adhering to the safeguards under section 147 would defeat the very purpose of the amendment and open the floodgates to arbitrary assessments. 26. The relevant extract Memorandum explaining the finance bill is reproduced as under:- '(ii) Assessments or reassessments or in re-computation in cases where search is initiated under section 132 or requisition is made under 132A, after 31st March 2021,....
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....the Assessing Officer (AO) has proceeded without obtaining such approval, which is a clear violation of the procedural safeguards envisaged under the law and, as such, vitiates the assessment proceedings. In the present case, approval has been granted for assessment framed u/s 143(3) only. The relevant provision of section 148B reads as under: Prior approval for assessment, reassessment or recompilation in certain cases. 148B. No order of assessment or reassessment or recompilation under this Act shall be passed by an Assessing Officer below the rank of Joint Commissioner, in respect of an assessment year to which clause (i) or clause (ii) or clause (iii) or clause (iv) of Explanation 2 to section 148 apply except with the prior approval of the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director. 30. A comparison of the requirement of approval under section 153D and section 148B is drawn, from which it is evident that approval under section 153D was earlier required only in cases where assessments were completed under section 153A/153C and also for search year. However, under the amended provisions, approval und....
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.... safeguard is crucial to prevent arbitrary and unregulated use of third-party material. 32. In the present case, there is no evidence to demonstrate that the prescribed procedure was followed, or that the Joint Commissioner was apprised of the seized material by forwarding copies of the documents found from the third party prior to framing the assessment. The complete failure to comply with the mandatory provisions of section 148B renders the reassessment not only. procedurally defective but also without jurisdiction. 33. Even we find while framing the assessment under section 143(3), the Assessing Officer (AO) has, on the last page of the assessment order, referred to an approval obtained from the supervisory authority. However, a bare perusal of this approval shows that it was obtained in reference to F. No. 299/36/2020/1DAR/INV3(3)/577 dated 15.07.2022, i.e., in accordance with the CBDT Circular dated 15th July 2022, and not under the mandatory provisions of section 148B of the Income-tax Act, 1961. At the outset, it is important to note that the approval so obtained does not mention or consider any of the seized materials sourced from the third party.....
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....proval from the Principal Commissioner of Income Tax (PCIT). The Ld. AO proceeded to frame assessment u/s 143(3) despite relying heavily on searched material. The AO, instead of complying with the jurisdictional preconditions laid down under the reassessment provisions, did not obtain prior sanction from the competent authority which violates the express mandate of law and also renders assessment a jurisdictional error. The AO bypassed the legal safeguards embedded in Sec. 147, thereby vitiating the assessment proceedings ab-initio. The plain reading of the Finance Act, 2021 and the Explanatory Memorandum to the Finance Bill clearly indicates that the legislative intent was to bring all searches conducted on or after 1st April 2021 within the ambit of the new reassessment regime u/s 147 and this new regime was introduced through significant amendments to Sec. 147 & Sec. 148 along with the insertion of Explanations 1 and 2 wherein the concept of "information suggesting escapement of income" was explicitly defined u/s 148. From the reading of Explanation 2 to Section 148, it was evident that in cases where a search is initiated on or after 1st April 2021, the Assessing Officer shall ....
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....thout obtaining such approval which was in clear violation of the procedural safeguards envisaged under the law and as such, vitiates the assessment proceedings. In the present case, approval has been granted for assessment framed u/s 143(3) only. The provisions of Sec.148B mandate prior approval of specified authority in respect of an assessment year to which clause (i) or clause (ii) or clause (iii) or clause (iv) of Explanation 2 to Sec. 148 applies. The bench drew parity between approval granted in earlier provisions of Sec.153D and the approval which is granted u/s 148B. It was noted that under the amended provisions, approval u/s 148B was now required in all cases where proceedings were initiated pursuant to a search, requisition, or survey, or where asset / material / documents found during such search pertain to or relate to another person. In such cases, the Assessing Officer must take the approval u/s 148B from the specified higher authority. In the absence of such an approval, the assessment would stand vitiated. The bench also referred to Manual of Office Procedure as issued by CBDT in February 2003, which lays down a mandatory protocol that in all search cases, especia....
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...., so far as may be, apply accordingly as if such return were a return required to be furnished under section 139: Provided that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the Assessing Officer has obtained prior approval of the specified authority to issue such notice. Explanation 1.-For the purposes of this section and section 148A, the information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment means,- (i) any information flagged in the case of the assessee for the relevant assessment year in accordance with the risk management strategy formulated by the Board from time to time; (ii) any final objection raised by the Comptroller and Auditor General of India to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of this Act. Explanation 2.-For the purposes of this section, where,- (i) a search is initiated....
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....account or documents are seized or requisitioned in case of any other person. Thus, the assessee's case gets covered under clause (i) of Explanation-2 and it would thus be clear case of deemed escapement of income for three AYs immediately preceding the AY relevant to previous year in which search is initiated. The search on the assessee has happened on 08-12-2021 which falls in previous year 2021-22 and the relevant AY would be 2022-23. The immediately three AYs would be 2019-20, 2020-21 & 2021-22. Thus, AY 2021-22 is the specified assessment year for which Ld. AO is deemed to have information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee. Therefore, for this year, the assessment ought to have been framed u/s 147 by issuing notice u/s 148. In such a case, prior approval of specified authorities has to be obtained. However, the approval, as already noted by us in preceding paragraphs, has been obtained by Ld. AO from specified authority to issue notice u/s 143(2) and not for issuance of notice u/s 148. We further find that the provisions of Sec.148B, as inserted by Finance Act, 2022, mandate that no order of assessment or reasse....
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....se to notice u/s 142(1). It empowers the AO to scrutinize the return if he considers that income has been understated or tax was underpaid. However, when a search u/s 132 takes place and materials are found indicating possible escapement of income, the statute envisages a different route for carrying out assessment or reassessment u/s 147 r.w.s. 148 which is special mechanism for bringing to tax the income discovered in consequence of a search. Although Sec.148 (inserted w.e.f. 01-04-2021) does not begin with a non-obstante clause similar to the erstwhile section 153A, its context and Explanation-2 make it clear that where a search is initiated, the jurisdiction thereafter must flow through this special channel, subject to prior satisfaction and approval of the Principal Commissioner or Commissioner. The legislative intent is to ensure that when a search is carried out, the assessment is framed under the specific provisions meant for such cases and not under the general provision of Sec.143(3). This position finds substantial support from the ratio of various decisions of Hon'ble High Court and Hon'ble Supreme Court unanimously holding that once a search was conducted and p....
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.... decision in Pushpanjali Construction Pvt. Ltd. (ITA No.1001/Del/2025) wherein it was held that approval granted in a mechanical manner without application of mind renders the assessment order invalid. Once the statutory approval suffers from non-application of mind, the consequential assessment cannot survive in the eyes of law. On these facts, the assessment order was held to be without jurisdiction and the assessment order was held to be passed without taking the approval from the competent authority as envisaged under the Act. The approval was mechanical one and was not in accordance with law. Finally, the assessment order was quashed on legal grounds. In this decision, the bench has already considered the argument of absence of non-obstante clause as raised by Ld. CIT-DR. We find that the above said legal propositions squarely apply to the facts of the present case before us. These decisions have subsequently been followed by Delhi bench of Tribunal in the case of Montage Enterprises (P.) Ltd. vs. DCIT (182 Taxmann.com 11) and a similar view has been taken. 16. Finally, considering the entirety of facts and circumstances of the case, we would hold that the assessment ought ....
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.... allotment the shares do not exist as such". Therefore, it is only on allotment that the shares come into existence. In every case, the words "allotment of shares" having used to indicate the creation of shares appropriation out of unappropriated share given to a particular person which is also referred to in the notice of clause to the Finance Bill 2010. Therefore, the aim and intention behind amending the provision of sec.56 is to prevent the practice of transferring unutilized shares at a price which are allotted for the first time by way of right shares. The amendment was, therefore, never meant to aim the "fresh issue" or "fresh allotment" of shares by a company. This decision has been followed by Hyderabad Tribunal in the case of Thermodyne Dynamics Pvt. Ltd. (176 Taxmann.com 485) to hold that the provisions of Section 56(2)(viia) are not attracted to fresh allotment of shares since allotment does not constitute 'receipt' of shares. All these grounds are inter-connected grounds and stem from same facts. The same are adjudicated on merits as under. 18. It could be seen that both these addition stems from some material as found during search on the assessee. The primary fact....
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....as a pre-condition for transfer of such rights by the assessee. Lastly, the liability which is classified as FF&E reserves has not been allowed to the assessee on the ground that the same was not an ascertained liability. 19. From the enumerated facts, it could be well said that conclusion of Ld. AO stems from two agreements which have been found from the possession of the assessee during search. The first agreement has been found (marked as Annexure A-1, Team HK1(2), Pages 1-6) which is between Shri Harpal Singh / Ms. Rachna Singh, the assessee and M/s LBPL. The agreement is in the nature of Shareholders' agreement (SHA) dated 12-10-2020 with respect to purchase of 50% shares in M/s KBPL by the assessee. As per this agreement, Shri Harpal Singh has agreed to sell his 7.50 Lacs number of shares in M/s KBPL for aggregate value of Rs. 150 Crores i.e., at Rs. 2000/- per share. By virtue of this agreement, the assessee would, indirectly, become 50% owner in M/s LBPL who ultimately own the hotel property. One of the stipulations was that the shareholders would continue to maintain shareholdings interest in M/s LBPL in specified portions only viz. 50% stake by Shri Harpal Singh / Mrs.....
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....er allotment of impugned shares, the assessee's shareholding is to the extent of 48.38% only. As per signed agreement dated 12-10-2020, Shri Harpal Singh agreed to sell his 7.50 Lacs shares to the assessee for consideration of Rs. 150 Crores. The unsigned agreement envisages fresh allotment of 15 Lacs shares to the assessee for a consideration of Rs. 150 Crores. Quite clearly, considering the logic of Ld. AO, these two agreements could not go side-by-side since if both the agreements are considered together, the assessee's shareholding would become 75% i.e., sum of 7.5 Lacs shares as proposed to be acquired from Shri Harpal Singh (as per agreement dated 12-10-2020) and another 15 Lacs additional shares as proposed to be issued by M/s KBPL to the assessee as per unsigned and undated agreement. If seen on standalone basis also, the assessee has not purchased proposed 7.5 Lacs number of shares from Shri Harpal Singh as per signed agreement. The assessee has also not been allotted 15 Lacs shares as proposed in the unsigned agreement. Therefore, both these documents run contrary to the actual transaction that has happened i.e., allotment of 14,06,259 number of shares by M/s KBPL to the ....
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....hereas they had no intention of paying the remaining amount in cash. Against this consideration, the receipt of Rs. 5 Crores was found during search which was signed by Shri Harpal Singh. When confronted, Shri Harpal Singh admitted that the receipt of Rs. 5 Crores was issued by him. However, he stated that this was a mere arrangement to raise capital to square-off the deal. There was no scope of cash transactions and nothing was transacted. The same stood rejected by Ld. AO who made allegations of unaccounted cash expenditure for Rs. 7 Crores and the same was consequently added to the income of the assessee as a separate addition. 23. At the same time, Ld. AO has revalued the hotel land and building and finally arrived at value of Rs. 1316.845 per share as against allotment price of Rs. 533.33 per share. The differential of the two has been added to the income of the assessee invoking the provisions of Sec.56(2)(x)(c). In the process, the assessee's objection to valuation (land being leasehold land) and reduction of liabilities (payment of 50% unearned profits to Municipal Corporation and lease rentals) as connected with hotel property stood rejected by Ld. AO. The Ld. AO has di....
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....d.= (A+B+C+D-L) Rs. 59,17,06,776/- Rs. 391,14,74,111/- Fair Market Value of total stake of M/s Kranti Buildwell Pvt. Ltd (47045295 (shares of m/s Kranti Buildwell Pvt Ltd)/47050000 (total no of shares issued and subscribed for Lok Priya Buildwell Pvt Ltd as on date) Rs. 59,16,47,605/- Rs. 391,10,82,963/- Thereafter, the valuation of Shares of M/s KBPL, has been computed by the assessee and Ld. AO as under: - Valuation of Shares of M/s Kranti Buildwell Pvt Ltd No. Particulars Amount as per Appellant Amount as per Ld. AO A. A= book value of all the assets Rs. 2,50,99,72,730/- Rs. 2,50,99,72,730/- (Other than jewellery, artistic work, shares, securities and immovable property) in the balance-sheet (Investment in Shares of M/s Lok Priya Buildwell) (Rs. 1,72,05,00,000/-) (Rs. 1,72,05,00,000/-) as reduced by, - (i) any amount of income-tax paid, if any, less the amount of income-tax refund claimed, if any; and (ii) any amount shown as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset; Nil Nil Total A Rs. 78,94,72,7....
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....ich stood exchanged between the parties as per the seized documents. The respective statements made u/s 132(4) are not shown to have any valid retraction and therefore, these statements, in our considered opinion, were important and valid piece of evidence which could certainly be used while framing the assessment particularly when the same stood corroborated with seized material (cash receipt) during search on the assessee. Therefore, these documents as well as the recorded statements u/s 132(4) are to be taken at their face value and are to be fully relied upon to draw adverse inference against the assessee. Under these circumstances, the allegation of Ld. AO that the shares were issued at less than FMV would have no legs to stand since the said allegation run contrary to the search findings which indicate that the assessee has parted with much more money than the one as found recorded in the regular books of accounts. The Ld. AO could not blow hot and cold at the same time. The provisions of Sec. 56(2)(x)(c) would get attracted only if the shares are actually issued at less than FMV which is not the case here. Quite clearly, extra consideration has flown in the shape of agreed c....
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....ommissioner, transfer his rights in the site subject to the condition that 50% (fifty percent) of the unearned increase in the value of the land at the time the said rights in the siteare sold or transferred shall we payable to the Municipal Corporation,Chandigarh before registering such sale or transfer. The value of the property for this purpose shall be assessed by the Additional Commissioner-cum-Estate officer or any other authority, which may be appointed by the Commissioner,Municipal Corporation, Chandigarh whose decision shall be final and binding on the sub-lessee. The sub lessee shall also be liable to pay unearned increase / Transfer fees / charges as per the provision of the Rules 1973 as amended from time to time in this behalf. Upon perusal of the terms of allotment, it could very well be seen that the property was a leasehold property which was acquired in the auction process. The assessee was liable to pay lease premium as well as ground rent per year at specified rates. The assessee thus enjoyed limited rights in the property. These rights could be transferred by the assessee subject to payment of 50% unearned increase in the value of the land to the Municipal Co....
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....d property. Section 105 of the Transfer of Property Act, 1882, defines 'lease' as a transfer of a right to enjoy an immovable property for a certain time, or in perpetuity against consideration of a price paid or promised to the transferor by the transferee, who accepts the transfer on such term. As such, lease is only a transfer of right to enjoy an immovable property and not the transfer of immovable property itself. The property under consideration is a leasehold property the ownership of which vests with the Central Government as noted by Hon'ble Apex Court in Estate Officer vs. Charanjit Kaur, CIVIL APPEAL NO. 4964 OF 2021 (arising out of SLP (Civil) NO. 5051 OF 2018). This case was related to an appeal for conversion of a leasehold site in Chandigarh into a freehold site. The context of the argument as made by the appellant Estate Office, UT Chandigarh states as under: - "That the title of leasehold property vests with the Central Government in terms of Section 3 of the Act and the Rules framed thereunder. The Central Government had granted lease of residential plots for a period of 99 years under the 1973 Rules. The conversion fee fixed to convert leasehold property....
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....mp duty had been paid was to be construed as correct value and no addition was required to be made in hands of assessee as per Section 43CA. In the present case also, Ld. AO is not able to find out the correct stamp duty value and therefore, the claim of the assessee is to be accepted. On these facts, we would hold that the action of Ld. AO in applying Collector rates as applicable to freehold Shopcum- Office (SCO) and Shop-cum-Flat (SCF) properties in the area is clearly flawed and the said computations could not be accepted. There is a fundamental error since the impugned property is neither an SCO nor an SCF but a leasehold property. Consequently, the revaluation as done by Ld. AO suffer from infirmity and legally liable to be set aside. In the absence of established leasehold rates, the rates as applicable to freehold SCO or SCF could not be applied to the impugned land and building. We order so. 28. Proceeding further, if the liability of payment of 50% unearned increase in land value alone is considered, the same amounts to Rs. 264.67 Crores (50% of stamp duty value of Rs. 529.34 Crores as computed by Ld. AO as on 31-03-2021) which would drastically reduce the value of the....
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....nerality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely: ..... (x) where any person receives, in any previous year, from any person or persons on or after the 1st day of April,2017,- ..... (c) any property, other than immovable property, - (A) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property; (B) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration ..... Explanation. - For the purposes of this clause, the expressions "assessable", "fair market value", "jewellery", "property", "relative" and "stamp duty value" shall have the same meanings as respectively assigned to them in the Explanation to clause (vii). It could be seen that the relevant provisions of Sec. 56(2)(x)(c) of the Act provide that where any person receives, in any previous year, from an....
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....he Act that the immovable property for Section 56(2)(x)(c) only includes Land or Building but not the rights in such land or building. Whenever the legislature has intended to include "lease rights" within the ambit of a property definition, it has been done explicitly within the specific section. An example would be provisions of Sec.54D (1) which define 'capital asset' to include 'land or building or any right in land or building'. No such expression has been used in Explanation to Section 56(2)(vii). The express use of one specific expression inherently excludes the other. Therefore, in our considered opinion, this argument of Ld. AR has substantial force and the same is to be accepted. 30. Another argument of Ld. AR is that fresh allotment of shares would not attract the impugned provisions of Sec.56(2)(x)(c). To support the same, Ld. AR has quoted the decision of Hon'ble Gujarat High Court in the case of PCIT vs. Jashawanlal Shah (154 Taxmann.com 568) holding that the provisions of Sec.56(2)(vii)(c) ought to be applied only in case of transfer of shares and the allotment of new shares cannot be regarded as transfer of shares under Section 56(2)(vii)(c). This....
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.... in preceding para-4. From the detailed facts, it is quite clear that ample clinching documentary evidences have been found from all the three units of the assessee which indicate that the assessee indulged in incurring such cash expenditure. There is clear admission by the concerned employees who were running the three units of the assessee. The mode and manner in which such expenditure was being quantified and disbursed to the employee has also been elaborated by them in their respective statements u/s 132(4). No plausible explanation has been furnished by the assessee to controvert the findings of Ld. AO. Therefore, the addition of Rs. 158.10 Lacs so made by Ld. AO stand confirmed on merits. 33. The next issue that falls for our consideration is alleged bogus purchases from RSG. From the enumerated facts, it is quite clear that Page No.107 contains transactions for FY 2021-22. The whole exercise as well as conclusion of Ld. AO is based on this page. The relevant Page for this year is Page No.94 (Annexure-41) which contain only few entries for this year. It has been contended by Ld. AR that the allegation could not be extrapolated to the entire year for which no notings was fo....