TMI Blog2016 (5) TMI 372X X X X Extracts X X X X X X X X Extracts X X X X ..... ture? - Held that:- It is noted that in the financial year 2003-04, assessee had constructed a project known as M/s.IBC Knowledge Park Pvt. Ltd., on Bannerghatta Road, Bengaluru. However, there were disputes between the assessee and Bangalore Housing Development and Investments, a partnership firm, with whom the assessee had entered into a joint development agreement. As a result, assessee could not sell the constructed properties. Sale of constructed properties is not a sine qua non for commencement of business. Assessee's business commenced when it had purchased land, obtained plan sanction and put up construction. Thus, when the business of the assessee had commenced during the financial year 2003-04, interest paid by the assessee on borrowed capital cannot be added back to the work in progress. The Tribunal in this regard has relied upon a decision in the case of K.Raheja Development [2005 (5) TMI 552 - ITAT MUMBAI], which has been held to be correct by this court. We hold that the Tribunal was right in giving relief to the assessee and the findings of the Tribunal would not call for any interference.- Decided in favour of assessee Disallowance of interest - Held that:- The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d party under Section 158BD of the Act, i.e., recording satisfaction that undisclosed income belongs to the third party, which was detected pursuant to a search under Section 133 of the Act, has not been complied with in the instant case. Therefore, the reassessment as such made under Section 158BD in respect of the assessee is not in accordance with law.- Decided in favour of assessee - I.T.A. Nos. 403/2009, C/W 402/2009, 410-412/2014, 394/2014 & 271/2015, 399/2014, 400/2014 & 351/2015, 402/2014 & 352/2015 - - - Dated:- 28-4-2016 - MR. JAYANT PATEL AND MRS. B.V. NAGARATHNA , JJ. FOR THE APPELLANT : SRI: K.V. ARAVIND, ADVOCATE FOR THE RESPONDENT : SRI: A. SHANKAR SRI. M. LAVA, ADVOCATES JUDGMENT These appeals, filed by the Revenue as well as the assessee, assail order dated 25/4/2014, passed by the Income Tax Appellate Tribunal (hereinafter referred to as the Tribunal for the sake of convenience), in ITA. Nos.903-905/Bang/2013 and C.O.Nos.103-105/Bang/2013 dated 25/4/2014. By the said order, the Tribunal has confirmed the order of the Commissioner of Income Tax (Appeals) (hereinafter referred to as the Appellate Commissioner ) and dismissed the appeals. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iculars having been furnished recorded a perverse finding, not supported by materials? (iv) Whether the Tribunal was correct in holding that the claim of ₹ 1,29,08,375/- shown as construction management fee is allowable to the extent of 25% even though no evidence has been adduced in support of the claim when this expense related to the property constructed by the assessee was let-out and rental income was received under the head 'Income from House Property' and the question of earning expenses did not arise and the same could be capitalized? Whether the Tribunal was correct in allowing depreciation on elevators, DG sets, Transformers and fixtures without appreciating that the assessee is not in the business of leasing out any of these assets and these fixtures are affixed with the building and were part of the leased are part of the leased building which do not have any independent existence and that no independent receipt/fees/ maintenance charges were received against these facilities/services and therefore, they are receipts are taxable as income from house property? 5. Briefly stated, the facts are that the assessee is a company registered under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellate Commissioner by the assessee by common order dated 21/3/2013, the Appellate Commissioner disposed of the appeals rejecting the challenge made by the assessee with regard to initiation of proceedings under Section 153C of the Act, while granting relief against disallowances made by the Assessing Officer by following the earlier order of the Tribunal for the assessment year 2004-05. The orders of the Assessing Officer, Appellate Authority and the Tribunal are at Annexures-A to F respectively. 10. Against the order of the Appellate Commissioner, Revenue had filed appeals before the Tribunal for three assessment years in question, which were numbered as ITA.Nos.903-905/2013. As regards the initiation of proceedings under Section 153C of the Act, the assessee filed cross-objections before the Tribunal and the same were numbered as C.O.Nos.103-105/Bang/2013. The Tribunal considered all the matters together and dismissed the appeals filed by the Revenue as well as the assessee's cross-objections by its order dated 25/4/2014, a copy of which is produced as Annexure-F. Thus, we have before us the appeals filed by the Revenue as well as by the assessee as noted above. 11. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preciation on the aforesaid assets against income received in the form of maintenance fee charged from the tenants of the building, which was offered to tax under the head income from business by the assessee. Reference was made to various clauses of the lease agreement dated 11/8/2003 entered into with M/s. Accenture Services Pvt. Ltd., to contend that the aforesaid facilities are fixtures and the maintenance fee received from the lessee in respect of those fixtures ought to be considered as income from house property and not income from business. He therefore contended that the assessee was not entitled to seek depreciation in respect of maintenance of amenities for which it received a separate fee. 14. Per contra, the submission of learned counsel for the assessee is that the issue was already decided by the Tribunal in the case of this very assessee for the assessment year 2004-05, wherein the Tribunal had held that rentals for the building and rent for the aforesaid facilities were separately charged and that the assessee was entitled to claim depreciation on the said assets in respect of maintenance of amenities for which it has received a separate fee. Items like elevator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... term of 4 years as per Clause 7 (d), by execution of a fresh lease which shall be duly registered, and the rent payable for the renewed term shall also be as provided in Annexure III. The detailed calculations of rent payable by the LESSEE for the entire duration of the lease and its renewal, is set out in Annexure III. The LESSEE shall pay an amount of ₹ 52,44,962/= to the LESSORS, towards one month's rent in advance and to be adjusted against rent for Tower A on commencement of the lease and after complete adjustment of the said amount, the LESSEE shall pay further amounts towards rent as provided herein. If, however, the lease is terminated prior to April 1, 2004, the said amount shall be refunded to the LESSEE and / or adjusted by the LESSEE against proceeds of the said Instruments. x x x (iv) Notwithstanding anything contained to the contrary, the rent payable shall be [(Actual Plinth Area + (27% of Actual Plinth Area)) multiplied by ₹ 22/-] for the first three years and thereafter for the 4th and the 5th year it shall be multiplied ₹ 25.30p (instead of ₹ 22/-) per Sq. Ft. per month of actual plinth area. Clauses 3 (a) and (f) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le by the LESSEE, only on the same being justified by the LESSOR and subject to LESSORS providing information and documents, to the satisfaction of the LESSEE, entitling the LESSORS to the escalation. 16. Thus, the lessee is required to pay not only the rentals on the building but also charges for the facilities provided by the assessee. The facilities and services provided by the assessee are at Annexure 2 to the said agreement. On a conjoint reading, it becomes clear that the rental income is income from house property. But the charges received towards provision and maintenance of facilities and services as per Annexure-2 cannot be construed to be income from house property. The said income, in our view, has to be considered as income from business and therefore, the claim for depreciation has to be allowed, which has been rightly done so by the Tribunal. Substantial question of law No.1 is accordingly answered in favour of the assessee. 17. As far as the second question of law is concerned, the same relates to payment of interest of ₹ 72.00 lakh on borrowed capital, as an allowable business expenditure. The contention of the Revenue is that there was no income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y because the assessee had not sold the flats it had constructed, it could not be said that the assessee had not commenced business. The moment land was purchased and several steps were taken towards construction of towers would imply that the assessee had commenced business. Therefore, disallowance on payment of interest was incorrect. 22. It is noted that in the financial year 2003-04, assessee had constructed a project known as M/s.IBC Knowledge Park Pvt. Ltd., on Bannerghatta Road, Bengaluru. However, there were disputes between the assessee and Bangalore Housing Development and Investments, a partnership firm, with whom the assessee had entered into a joint development agreement. As a result, assessee could not sell the constructed properties. Sale of constructed properties is not a sine qua non for commencement of business. Assessee's business commenced when it had purchased land, obtained plan sanction and put up construction. Thus, when the business of the assessee had commenced during the financial year 2003-04, interest paid by the assessee on borrowed capital cannot be added back to the work in progress. The Tribunal in this regard has relied upon a decision in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9/2006, the Tribunal did not find any infirmity in the order of the Appellate Commissioner in granting relief to the assessee. We do not find any infirmity in the order of the Tribunal. Accordingly, substantial question of law No.3 is answered against the Revenue. 27. Fourth substantial question of law is with regard to the correctness of allowing the claim of deduction on construction management fee to an extent of 25% even though no evidence has been adduced in support of the claim, when this expense related to the property constructed by the assessee which was let-out and rental income was received under the head Income from House Property and therefore, the question of earning expense did not arise and therefore, the same could not be capitalized. The case of the assessee is that it had supervised all the setting up of the interiors on behalf of M/s. Accenture Services Pvt. Ltd., and had earned income of ₹ 78.25 lakh towards construction management fee. During the course of such work, it had incurred certain expenses towards payment of professional charges to consultants and other services. According to the Revenue, expenses incurred under the head professional charges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Senior Counsel, Sri.K.P.Kumar, appearing for the assessee is that under Section 132 of the Act, search was conducted on Mr. Yunus Zia, Mr.Ziaulla Sheriff and M/s. India Builders Corporation on 17/6/2008. One of the offices of the assessee is in the same premises where the search took place. Certain documents belonging to the assessee were seized and the Assessing Officer of the persons searched transferred the documents to the Assessing Officer of the assessee under Section 153C of the Act. The Assessment Orders under Section 153(3) read with section 153C were passed for the assessment years 2004-05 to 2008-09. The assessee's appeals pertain to 2004-05 to 2006-07 only. While highlighting the aforesaid factual details, learned Senior Counsel contended that in the absence of any incriminating material found during the search operation, the assessments made under Section 153C were without jurisdiction. That the purpose of Sections 153A to 153C of the Act is to bring to tax undisclosed income. However, for the relevant assessment years no new additions were made on the basis of the documents seized. That the additions made were the very same ones made in the earlier assessment or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucted under Section 132 or a requisition under Section 132A of the Act, were made under Sections 158BB, 158BC and 158BD of the Act. The aforesaid three sections deal with undisclosed income on the basis of the evidence found as a result of search or requisition of books of accounts or other documents and such other materials or information that are available with the Assessing Officer and such other relatable evidence. In other words, detection of undisclosed income was a sine qua non for invocation of those sections. But Section 153C of the Act mandates recording of satisfaction only to the extent of any money, bullion or other valuable articles or books of accounts or documents seized, which belong to the person other than the person who is searched. Therefore, what is required is recording of satisfaction regarding finding of material belonging to the other person. Sections 153A and 153C are silent about tracing of any undisclosed income. Further, on account of change in the scheme of the Act, introducing the concept of single assessment under Sections 153A and 153C of the Act, any incriminating material found during the course of search or requisition is sufficient for reopenin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sides have relied upon decisions of the Hon'ble Supreme Court as well as various High Courts including this Court in support of their respective contentions, which shall be referred to later. 39. On a perusal of the material on record, it is noted that during the course of search in the premises of M/s.India Builders Corporation on 17/06/2008, certain documents of the assessee company were found and seized by the concerned officer. Subsequently, proceedings under Section 153C of the Act were initiated by the Assessing Officer of the assessee. Assessee's contention that the proceedings were not initiated in accordance with law, was not accepted by the appellate Commissioner, who dismissed the appeals. Before the Tribunal, it was contended that the assessee also carried out its functions from the very premises which was searched. Therefore, assesse's documents were bound to be found in the said premises. Therefore, it was contended that Section 153C could not be invoked. 40. It was next contended before the Tribunal that the documents found did not lead to disclosure of undisclosed income of the assessee nor were they incriminating in nature. That the fundamental p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see was not accepted. In the circumstances, cross-objection of the assessee was partly allowed for the assessment year 2004-05 and for the assessment years 2005-06 and 2006-07 were dismissed by the Tribunal. 44. Before considering the rival contentions, it is necessary to advert to the scheme of the Act regarding special procedure for assessment in cases of search. Subsection (1) of Section 132 of the Act states that where the Chief Commissioner or any other officer mentioned therein having information in his possession, has reason to believe that inter alia, any person is in possession of any money, bullion, jewellery or other valuable article or thing (hereinafter referred to as valuable assets for the sake of convenience) and such valuable assets represents either wholly or partly income or property, which has not been, or would not be, disclosed for the purposes of the Act, then, the authorized officer can enter and search any building, place, vessel, vehicle or aircraft, where he has reason to suspect that such books of account, other documents, or valuable assets are kept or search any person, break open the lock of any door etc., seize any books of account, other docume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to, or any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to a person other than the person referred to in Section 153A, then, the books of account or documents or valuable assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of Section 153A, if that Assessing Officer is satisfied that the books of account or documents or valuable assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to in sub-section (1) of Section 153A. Sub-section (2) of Section 153C states that where books of account or documents or valuable assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other person after the due date for furnishing the return of income for the assessment year relevant t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch the said search was conducted or requisition was made. The proviso is not relevant for the purpose of this case. 48. Section 158BD is relevant for the present case and it states that where the Assessing Officer is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under Section 132 or whose books of account or other documents or any assets were requisitioned under Section 132A, then the books of account, other documents or valuable assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed under Section 158BC against such other person and the provisions of Chapter XIV-B shall apply accordingly. Section 158BE prescribes time limit for completion of block assessment. Section 158BH states that except as otherwise provided in Chapter XIV-B all other provisions of the Act shall apply to the assessment made under the said chapter. Section 153C provides for the role of the Assessing Officer having jurisdiction over the person searched/requisitioned as regards third party liability. The said section covers assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of search, the computation thereof and such other provisions. Undisclosed income is defined in Clause (b) of Section 153B. Undisclosed income includes money, bullion or other valuable assets. It is only when the concerned officer has information about the same and has reason to believe that the said valuable assets has not been or would not be disclosed would give jurisdiction to the officer authorized to conduct a search operation. Therefore, the object and purpose of a search is to detect undisclosed income. As defined under Clause (b) of Section 158B of the Act, it is only when the undisclosed income is detected in a search operation that there would be assessment or re-assessment, under the provisions of Chapter XIV-B of the Act, of the person who is presumed to be in possession of the undisclosed income. If during the course of search, any valuable assets belongs to or any books of account or document seized or requisitioned pertains to or any information contained therein relates to a person other than the persons searched, then the Assessing Officer, on recording satisfaction, can also assess and re-assess the income of any other person. Thus, what emerges is that the sine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceed against the said third party. Thus, where no material belonging to a third party is found during a search, but only an inference of an undisclosed income is drawn during the course of enquiry, during search or during post-search enquiry, Section 153C would have no application. Thus, the detection of incriminating material leading to an inference of undisclosed income is a sine qua non for invocation of Section 153C of the Act. 51. Before considering the decisions cited at the Bar, it is necessary to refer to a decision of the Hon'ble Supreme Court in Manish Maheshwari vs. Asst. Commissioner of Income-Tax another [(2007) 289 ITR 341 (SC)]. In that case, search was conducted on one of the directors of the assessee-company M/s. Indore Construction (Pvt.) Ltd. When the search was conducted in the premises of the director Sri. Manish Maheshwari and his wife several incriminating documents relating to the company were seized. While dealing with Section 158BD of the Act, the Hon'ble Supreme Court has observed as under: Condition precedent for invoking a block assessment is that a search has been conducted under Section 132, or documents or assets have been requisiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pleted the block assessments in the case of Bhatia group. Since certain other documents did not pertain to the person searched under Section 132 of the Act, the Assessing Authority therein thought it fit to transmit those documents, which according to him pertained to undisclosed income on account of investment element and profit element of the assessee-firm and required to be assessed under Section 158BC read with Section 158BD of the Act to another Assessing Authority in whose jurisdiction the assessments could be completed. In doing so, the Assessing Authority recorded his satisfaction note dated 15/7/2005. The jurisdictional Assessing Authority for the assessee had issued show-cause notice under Section 158BD for the block period of six years dated 10/2/2006 to the assessee. The assessee had replied that no action could be initiated against the assessee and requested the Assessing Authority to drop the proceedings. The stand of the assessee was rejected by the Assessing Authority, who concluded the assessment proceedings under Section 158BD of the Act. It was also held that notice could be issued even after completion of the proceedings of the searched person under Section 158B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d person in respect of whom a search was made under Section 132 or requisition of books of account were made under Section 132A of the Act. The language of the provision is clear and unambiguous. The Legislation has not imposed any embargo on the Assessing Officer in respect of the stage of proceedings during which the satisfaction is to be reached and recorded in respect of the person other than the searched person. Further Section 158BE(2)(b) only provides for the period of limitation for completion of block assessment under Section 158BD in case of the person other than the searched person as two years from the end of the month in which the notice under this Chapter was served on such other person in respect of search carried on after January 1, 1997. The said section does neither provide for nor impose any restrictions or conditions on the period of limitation for preparation of the satisfaction note under Section 158BD and consequent issuance of notice to the other person. In the result, we hold that for the purpose of Section 158BD of the Act a satisfaction note is sine qua non and must be prepared by the Assessing Officer before he transmits the records to the othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r deduction de hors any incriminating material, while making an assessment under Section 153A of the Act. But in the context of a search, Section 153A to 153C cannot be interpreted to be a further innings for the Assessing Officer and/or the assessee beyond the provisions of Sections 139 (return of income); 139(5) (revised return of income); 147 (income escaping assessment) and 263 (revision of orders) of the Act. It was also held that it was not open for the assessee to seek deduction or claim expenditure, which had not been claimed in the original assessment, which assessment already stood completed, only because a assessment under Section 153A of the Act in pursuance of search or requisition was required to be made. (d) In Commissioner of Income-Tax v. Kabul Chawla [2016] 380 ITR 573 (Delhi), the Delhi High Court has held that (i) once a search takes place under Section 132 of the Act, notice under Section 153A(1) will have to be mandatorily issued to the person in respect of whom search was conducted requiring him to file returns for six assessment years immediately proceeding the previous year relevant to the assessment year in which the search takes place. (ii) Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting material was unearthed during the search, no additions could have been made to the income already assessed. The questions were accordingly answered in favour of the assessee. 53. Learned counsel for the Revenue has relied upon the following citations in support of his contentions: (a) In Kamleshbhai Dharamshibhai Patel vs. CIT [(2013) 31 Taxmann.com 50 (Gujarat)], on considering Section 153C of the Act, it was observed that the said section begins with a non obstante clause. Requirements for assuming jurisdiction under Section 153C (1) are, that the Assessing Officer is satisfied that any valuable assets or books of account or document seized or requisitioned belongs to a person other than the person referred in section 153A of the Act. In such a case, he shall handover to the Assessing Officer having jurisdiction of such other person, the books of account or document or documents or valuable assets seized or requisitioned. That the valuable assets or books of account seized or documents seized or requisitioned should belong to a person other than a person referred in Section 153A of the Act. (b) In Filatex India Ltd. vs. CIT [49 Taxman 465 (Delhi)], the court rejecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leading to undisclosed income being seized, held that the block assessment roped in only the undisclosed income and the regular assessment proceedings were preserved, resulting in multiple assessments. Under Section 153A, however, the Assessing Officer has been given the power to assess or reassess the total income of the six assessment years in question in separate assessment orders. Once the assessment is reopened, the Assessing Authority can take note of the income disclosed in the earlier return, any undisclosed income found during search or any other income which is not disclosed in the earlier return or which is not unearthed during the search, in order to find out what is the total income of each year and then pass assessment order. (f) Similarly, in Gopal Lal Badruka vs. DCIT [(2012) 346 ITR 106], the search revealed incriminating material and undisclosed income. (g) in SSP Aviation Ltd. vs. DCIT [(2012) 20 Taxmann.com 214 (Delhi)], the observations of the court were in light of the fact that incriminating material had been found. (h) In CIT vs. Anil Kumar Bhatia [(2012) 211 Taxman 453 (Delhi)], the court did not express any opinion as to whether Section 153 A c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time of or along with the initiation of proceedings against the searched person under section 158BC of the act; or (b) in the course of the assessment proceedings under section 158BC of the Act; or (c) immediately after the assessment proceedings are completed under section 158BC of the Act of the searched person. 2. Several High Courts have held that the provisions of section 153C of the Act are substantially similar/pari-materia to the provisions of section 158BD of the Act and therefore, the above guidelines of the Hon'ble SC, apply to proceedings u/s 153C of the IT Act, for the purposes of assessment of income of other than the searched person. This view has been accepted by CBDT. 3. The guidelines of the Hon'ble Supreme Court as referred to in para 2 above, with regard to recording of satisfaction note, may be brought to the notice of all for strict compliance. It is further clarified that even if the AO of the searched person and the other person is one and the same, then also he is required to record his satisfaction as has been held by the Courts. 4. In view of the above, filing of appeals on the issue of recording of satisfaction note should a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
