TMI Blog2015 (11) TMI 1775X X X X Extracts X X X X X X X X Extracts X X X X ..... alls. We find that the said transaction is not a sale transaction. The Assessing Officer has held that the transaction entered into by the assessee with Kalani Bros and Padma Homes are colourable device on the ground that the lease agreement is stage managed affairs of the assessee. No interest was charged on the security deposit. AO has also referred this matter to District Registrar and he was of the view that it is a colourable device. As we have already held that transaction is not avoiding the tax and assessee has made registered agreement, therefore, unless and until, Assessing Officer proves that assessee has made this colourable device to avoid the tax. We find that in the instant case, during the course of hearing, AR has specifically submitted before us that the same transaction is already over and assessee has already transferred its land to some other person, therefore, this transaction is already over and when this transaction is already over, as per the decision of Jodhpur Bench (supra), the assessee is not liable for capital gain and CIT(A) is justified in his action. During the course of hearing, the ld. DR could not bring any contrary decision against the Jodhp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer while making assessment u/s 153A of the Act, only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which was not produced or not already disclosed or made known in the course of original assessment. In all these cases no assessments were pending on the date of search for these assessment years. No assessments were abated in terms of second proviso to section 153A of the Act. - Cross objection Nos. 25 & 26/Ind/2014, 27/Ind/2014, 23, 34 & 35/Ind/2014, 24, 36 & 37/Ind/2014 IT(SS)A Nos. 68 to 70/Ind/2014, 71 to 73/Ind/2014 (Arising out of ITA No. 104/Ind/2014, 68 to 70/Ind/2014, 102 & 103/Ind/2014) - - - Dated:- 6-11-2015 - Shri D.T. Garasia And Shri B.C. MEENA, JJ. Department by: Shri Rajeev Varshney Assessees by: Shri Vijay Mehta Shri Manjeet Sachdeva ORDER PER BENCH These appeals by the Revenue and cross-objections by the assessees are filed challenging the respective orders of learned Commissioner of Income Tax(A)-I, Indore dated 28.11.2013. 2. The short facts of the case are that the assessee in his balan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essors, administrators and assignees) of the one part. M/s Entertainment World Developers Pvt. Ltd., a Company incorporated under the Companies Act, 1956, having their registered office at 11, Tukoganj Main Road, Indore 452 001, hereinafter called the Lessee / Second Party (which expression unless it is repugnant to the context or meaning thereof, shall include their successors, administrators and assignees) of the other part. WHEREAS the Lessor owns and possesses a plot of land admeasuring 1,00,000 Sq. ft. at 11, Tukoganj Main Road, Indore, the details of which are as under: S.No. Plot No. Area in Sq. ft. Particulars 1. 11 70,484.00 Kalani Brothers (Indore) Pvt. Ltd. 2. 11/1 11/6 29,516.00 Padma Homes Pvt. Ltd. Total: 1,00,000.00 (hereinafter referred to as the Said Property) AND WHEREAS the Lessor had agreed to enter into an Agreement to Lease the said land to the Les ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ws: (a) To Kalani Brothers (Indore) P. Ltd. Rs.1,050.60 lacs (b) To Padma Homes P. Ltd. Rs. 440.40 lacs TOTAL: Rs.1,500.00 lacs That, the said additional amount will be paid by the Lessee to the Lessor on or before 31st March, 2006. 3. Matter carried to ld. CIT(A) and ld. CIT(A) has deleted the additions by observing as under: 4. Before computing the total income following points are discussed as under:- 4.1 Capital Gain on transfer of land :- 4.1.1 Examination of the Balance Sheet revealed that the assessee had shown receipt of Security Deposit of ₹ 7,04,93,487/-. On further examination of records of earlier assessment years, it was noticed that the asseee with M/s Padma Homes Pvt. Ltd., had entered into an agreement to lease out their plots admeasuring One Lac Sq. feet situated at 11, Tukoganj Main Road, Indore to M/s Entertainment World Developers Pvt. Ltd., Indore as per particulars given below:- S.No. Plot No. Area in Sq. Ft. Particulars ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s hereinafter enumerated. 1. That in lien and under the transactions of this indenture, a sum of ₹ 1,500 lacs is the security deposit to be deposited by the Lessee with the Lessor as per the following details: (a) To be deposited with Kalani Brothers (Indore) Pvt. Ltd. ₹ 1057.20 lacs (b) To be deposited with Padma Homes Pvt. Ltd. Rs. 442.80 lacs Total: Rs.1500.00 lacs Out of the above security deposit, a security deposit of ₹ 1,000 lacs is payable immediately on signing of this Agreement in the same proportion as indicated above. Thereafter, ₹ 500 lacs is payable before the start of the actual construction of the complex. The Lessee has also indicated that if the FAR permits, a hotel complex may also be built on the land. It is agreed that as and when the decision is taken over and above the security deposit of ₹ 1500 lacs as indicated above, additional security deposit of ₹ 500 lacs would be payable before the start of the construction of the hotel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Country Planning and or any other competent authority in respect of this plot of land. 7. That, the Lessee shall be responsible to pay regularly to the Indore Municipal Corporation or local authority, Electricity Board, the other authorities concerned, all lease taxes, fees, cess, etc. as are in force at present and / or as may be levied from time to time on the aforesaid plot of land and / or the building and the appurtenances to the constructed thereto and the Lessor shall not bear any burden of such charges. 8. That, the lessee shall have the rights to construct upon the plot of land, building or buildings in accordance with the rules and regulations and bye-laws etc. of the M.P. Government, Indore Municipal Corporation, Town Country Planning and or any other competent authority, for obtaining the necessary approvals of the competent authority as to the plans and layouts of the building and other construction to be done on the said plot of land. 9. That, the Lessee is free and entitled to obtain loans etc. by keeping mortgage the aforesaid property to any financial institution, banks etc. The Lessor shall cooperate with the Lessee in this respect for their necessary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce at 11, Tukoganj Main Road, Indore 452 001, hereinafter called the Lessee / Second Party (which expression unless it is repugnant to the context or meaning thereof, shall include their successors, administrators and assignees) of the other part. WHEREAS the Lessor owns and possesses a plot of land admeasuring 1,00,000 Sq. ft. at 11, Tukoganj Main Road, Indore, the details of which are as under: S.No. Plot No. Area in Sq. ft. Particulars 1. 11 70,484.00 Kalani Brothers (Indore) Pvt. Ltd. 2. 11/1 11/6 29,516.00 Padma Homes Pvt. Ltd. Total: 1,00,000.00 (hereinafter referred to as the Said Property) AND WHEREAS the Lessor had agreed to enter into an Agreement to Lease the said land to the Lessee on the terms and conditions referred to in the Agreement to Lease dated 21.05.2003. AND WHEREAS at the time the land-use of this property was for residential purposes. AND ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder: - This Lease Deed is made on 5th day of July, 2003 between M/s Kalani Brothers (Indore) Pvt. Ltd., a company incorporated under the Companies Act, 1956 having its Registered Office at 11, Tuko Ganj, MG Road, Indore 452001, hereinafter called the Lessor / First Party (which expression unless it is repugnant to the context or meaning thereof, shall include their successors, administrators and assignees) of the one part. AND Entertainment World Developers Pvt. Limited, a company incorporated under the Companies Act, 1956 and having its Administrative Office at 11, Tuko Ganj, MG Road, Indore-452001, hereinafter called to as Lessee/Second Party (which expression unless it is repugnant to the context or meaning thereof, shall include their successors, administrators and assignees) of the other part. WHEREAS the Lessor own and possess a plot of land at 11, Tukoganj Main Road, Indore, which admeasures 70484.00 square feet. AND WHEREAS the Lessors are intending to give the aforementioned demised premises to the Lessee on leasehold basis and the Lessee is intending to obtain the aforementioned land on lease. As both the parties are in consent with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , bank etc. The Lessor shall co-operate with the Lessee in this respect for their necessary consent wherever necessary for obtaining such loans by the Lessee by way of mortgage of the said plot of land. 7. That, this lease deed is irrevocable for a period of twenty nine (29) years during which at no time the Lessor shall increase the Lease Rent. In witness whereof the said lessor and lessee have hereto signed this deed of lease at Indore on this 5th day ofJuly,2003. 4.1.6 Perusal of the above agreement and agreement to lease supplementary agreement to lease submitted earlier clearly indicates that the entire facts especially the amount of security deposit was not disclosed to the Stamp Duty Authorities. In this matter correspondence was made with the subregistrar and the sub-registrar vide his letter dated 26/12/2006 had informed this office that the complete facts were not divulged in the registered deed. The relevance and implications of the same are discussed elsewhere in the body of this order. The letter of the Sub-registrar is extracted elsewhere in the body of this order. 4.1.7 Before proceeding further in the matter, it would be necessary to mention t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove judgment of the Hon ble ITAT, Jodhpur Bench is not relevant to the assessee s case as there are glarding differences between the two, which can be listed as follows:- (i) that in the above mentioned case of LAKE PALACE HOTELS (LPH for short form) the lease deed was very well drafted, duly registered and disclosing the full details about various transactions between the two parties. Whereas in the assessee s case the Agreement to lease has different facts and figures from the claimed Lease deed i.e. the amount of ₹ 15+5 crores is no where to be seen in the claimed lease deed. (ii) Further in the case of LPH the security deposit of ₹ 2.5 Cr was made for land only and mentioned in the lease deed. Whereas in the assessee s case the agreement to sale mentions the security deposit taken for the land and the building attached and no where does the lease deed mention of the security deposit. (iii) Further in the case of LPH a clear 9% interest was being paid on the refundable security deposit so made. Whereas in the case of the assessee the said refundable security deposit has been made without any interest of any kind, which raises valid apprehensions about t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be Capital gains Further the grounds taken by the assessee in view of section 269A of the IT Act, 1961 are not acceptable in view of the fact that the said chapter has .. ceased to operate in respect of transfer of immovable property made after 30/09/1986 . Therefore keeping the above mentioned facts and circumstances in mind, the submissions made by the assessee are not acceptable and hence refuted. Therefore keeping and mind the above mentioned circumstances, facts of the case the fact that capital gains has been made by the assessee in view of the fact that the same was not mentioned or to be correctly put as hidden in the lease deed, which has been further endorsed by the registrar through his abovementioned letter. Therefore, I come to the conclusion that the above mentioned income of the assessee worth ₹ 1057.20 lacs (accrual basis) should be held as income of the assessee from capital gains made u/s 45 of the I.T. Act, 1961 and hence, taxed accordingly. 4.1.9 Having taken a note of above facts and the amount of the security deposit claimed to have been received in the previous years 2003-04 to 2005-06 vide this office query letter dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the land would revert back after the lease period. Hence there is no relinquishment of any asset. So far as enabling the enjoyment as mentioned in clause vi of sub section 47 of section of 2 of the Income tax Act is concerned, it is submitted that the clause does not and can not cover every type of transaction enabling the enjoyment of any immovable property. Had it been so every transaction of letting out property by house owner to a tenant or a simple transaction of a hotel giving room to a customer shall get caught by the term enabling the enjoyment of immovable property and shall become subject to clutches of Capital Gains provisions. The clause is restricted only to those transactions as mentioned in the clause itself e.g. by way of becoming a member of a cooperative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever . Even the term in any other manner used in the clause also cannot be extended to cover any type of enabling the enjoyment as it is the settled rules of interpretation that all clauses of a provision shall take colour from each other while interpreting them. That in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... institutions and banks only. (iv) That, as per the terms and conditions of the lease agreement the property has to necessarily revert back to the lessor that is the assessee. (v) That, such a provision as mentioned in cl. 9 was necessary for allowing the lessor to obtain loans for construction owned by the lessor. That section 105 of the Transfer of Property Act, 1992 defines lease as under: - A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms. Unquote: Thus in lease it is only transfer of right to enjoy such property for a certain time. The transferor has not transferred all of his rights, but he has his residual rights in the property transferred, which are lessor s rights , and such a transaction is not covered in the definition of the Transfer. As per Section 2(47) of Income Tax Act, 1961, the said leased property is ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D. The case of the Assessee also does not falls under section 2(47)(v) where it provides that any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882). To fall under this section the immovable property, of which possession has been given, has to be in performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882. CTR ENCYCLOPAEDIA OF INDIAN TAX LAWS Capital gains /Depreciation, etc.-Tax implications of lease of land and construction of commercial premises thereon. Section 45 Section 32 Opinion Sought One of our clients entered into an agreement with a private party having vacant land and the entire land was taken for 31 years lease. During the lease period, the lessee will construct the building and enjoy the same upto 31 years at his sole discretion and thereafter entire building along with land will revert back to the lessor. The lease deed is subject to the lessee making available two units (shops) in the commercial complex to be built ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, there is also no transfer by assessee on reversion, building being a mere accretion to such land. There is therefore, no liability on reversion of the lease. That since the lessee did not enjoy the rights as owner of the property in question and did not have any saleable rights therein too has to be taken into consideration before deciding the taxability on the amount received as security deposits. Your Honour s attention is also drawn to 130 CTR (Articles) 163 authorised by learned Shri N M Ranka at 173 LONG LEASE: In certain cases of long lease the lessee is allowed to construct a building on the land leased out own the same during the period of lease. The building to be surrendered to the lessor free of cost on the termination of the lease and the lessor has the reversionary interest to get back the building Further your Honour s attention is also drawn to CIT v/s. Gulab Ray Sons 173 ITR 552 (M.P.), wherein the assessee leased out a property namely Jakson Hotel on monthly rent of ₹ 40,000/- for a period of 20 years. During the course of assessment proceedings the A.O. treated the rental income as business income as against income from property. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of premium as specified in the agreement for transfer; (B) In a case where the consideration for the transfer consists of rent only, the aggregate of the moneys (if any) payable by way of rent and the amounts for the service or things forming part of or constituting the rent, as specified in the agreement for transfer; (C) In a case where the consideration for the transfer consists of premium and rent, the aggregate of the amount of the premium, the moneys (if any) payable by way of rent and the amounts for the service or things forming part of or constituting the rent, as specified in the agreement for transfer, And where the whole or any part of the consideration for such transfer is payable or any date or dates falling after the date of such agreement for transfer, the value of the consideration payable after such date shall be deemed to be the discounted value of such consideration as on the date of such agreement for transfer, determined by adopting such rate of interest as may be prescribed in this behalf. UNQUOTE:- Since no premium has been charged for giving the said property on lease for 29 years and the security deposit is a refundable deposit aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s CIT 176 ITR 417. The lease was for 99 years and the lessor has received non-refundable premium/salami. In the instant case, there is no premium or salami received by the lessor and the amount is received by way of a refundable deposit on the termination of the lease agreement or on the completion of the lease period of 29 years. In this matter the assessee would like to rely on the judgment of the Hon ble Income-tax Appellate Tribunal, Jodhpur Bench in the case Addl. CIT vs Lake Palace Hotel, 83, TTJ, 103. In yet another case reported in 57 IU TR 422, CIT Vs Panbari Tea Co. Ltd. wherein the Hon ble Supreme Court has held: on the facts, that the sum of ₹ 11,250/- was a capital receipt: The real test of a salami or premium is whether the amount paid, in a lump sum or in instalments is the consideration paid by the tenant for being let into possession. When the interest of the lessor is parted with for a price, the price paid is premium or salami, but the periodical payments made for the continuous enjoyment of the benefits under the lease are in the nature of rent. The former is a capital receipt and the latter are revenue receipts Your Honor s attention is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee (i.e. M/s Kalani Brothers (Indore) Pvt. Ltd.) and M/s Padma Homes (P) Ltd., held major portion of share holding M/s EWDPL as per particulars given below: P.Y. A.Y. Share holding of M/s.Padma Homes (P) Ltd. Share holding of assessee i.e. M/s Kalani Brothers (Indore) Ltd. Total shares of M/s EWDPL 2003-04 2004-05 2,63,691 (26.36%) 6,29,579 (62.95%) 10,00,000 2004-05 2005-06 2,83,360 (25.20%) 6,76,870 (60.20%) 11,24,310 2005-06 2006-07 33,90,036 (242.9%) 79,76,601 (571.7%) 13,95,231 4.1.12.2 Examination of details further revealed that Shri Manish Kalani and Smt. Padma Kalani held the major portion of shares in the assessee company and M/s Padma Homes (P) Ltd., as particulars given below: A. Share holding pattern of Shri Manish Kalani A.Y. Holding of share in Kalani Brot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 1,77,000/- 17.06.2003 14,760/- 23.06.2003 2,95,07,513/- A.Y. 2005-06 S.N. Name Date of Share Application Money received by EWDPL Amount of Share Application Money Date of Security Deposited by EWDPL Amount of Security Deposit 1. M/s Kalani Brothers (Indore) Pvt. Ltd. 16.04.2004 3,50,00,000/- 16.04.2004 3,50,00,000/- 2. M/s Padma Pvt. Ltd. 16.04.2004 1,50,00,000/- 16.04.2004 1,50,00,000/- A.Y. 2006-07 S.N. Name Date of Share Application Money received by EWDPL Amount of Share Application Money Date of Security Deposited by EWDPL Amount of Security Deposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (47) of the I.T. Act. 4.1.13.2 In view of the above it has become necessary to analyze the provisions of Transfer of Property Act and relevant provisions of the I.T. Act with regard to the meaning of expression transfer of assets and their applicability especially in the backdrop of facts of the case discussed in the preceding paras. 4.1.13.3 The Legislature in sub-section (47) of section (2) of the I.T. Act has stipulated the meaning of transfer for the purposes of charging capital gain. As per this sub-clause of section (2) the expression transfer includes (i) the sale, exchange or relinquishment of the asset; or the extinguishment of any rights therein; or (ii) the compulsory acquisition thereof under any law; or (iii) in case where the assets is converted by the owner thereof into, or is treated by him as, stock in trade of a business carried on by him, such conversion or treatment;][or] (iv) the maturity or redemption of a zero coupon bond; or] (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s there are other transactions also which may not be categorized as transfer in the Transfer of Property Act but are considered as transfer for the purposes of capital gain in the Income Tax Act. 4.1.13.7 Still proceeding further as per clause (vi) of sub-section (47) of section 2 of I.T. Act, the Legislature expressed that any transaction or any arrangement in any other manner whatsoever which has the effect of transferring or enabling the enjoyment of any immovable property constitutes transfer . The expression any transaction as it suggest has a wide peripherally. Thus from this it is apparent that the main yardstick of judging any transaction of transfer from the angle of charging capital gain, is to ascertain whether that transaction enables the transferee rights to enjoy over the property. From this it also follows that any transaction inclusive of transfer of land on lease as defined in Transfer of Property Act resulting into rendering of rights to enjoy rights would tantamount to transfer within the definition of transfer envisaged in clause (vi) of sub-section (47) of section 2 of the I.T. Act for the purposes of charging capital gain. 4.1.13.8 Momenta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the agreement the lessee was given the right to demolish the existing structure for the purposes of construction of the project and the lessee was to proceed further as per the norms for construction of the project. The relevant clauses 4,5,6,7,8,9,10 11 of the Agreement to Lease given in para of this order may be referred to. (c) the Lessee was rendered right to obtain loans by keeping mortgage the aforesaid property to any financial institution, banks etc. (d) the lease is irrevocable for a period of 29 years during which at no time would any increase be permitted for the Lease rent. (e) the Lessee can sell a portion of the project or certain areas of the project, so constructed, the Lesser will give consent for sale of such areas and will join in the transfer of the proportionate land to the built-up area sold to any other party and in that event the consideration of proportionate area of the land shall be paid to the Lesser. 4.1.16 From the above conditions outlined in the Agreement to Lease it is apparent that the lessee was practically rendered all the rights which an owner of property enjoys. Thus it is apparent that without taking into account other f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to be reiterated that as per the scheme of charging capital gain under the income tax it is not necessary that all the conditions laid down in section 2(47) are invariably required to be fulfilled. Therefore, as held in the preceding paras that the transaction of the assessee falls in the category of transaction specified in clause (vi) of sub-section (47) of section 2 it is not necessary to adjudicate or offer comments on assessee s arguments with regard to the applicability of the provisions specified in clause-(i) of sub-section (47) of section 2 of the I.T. Act. 4.1.19.1 Still it would be reiterated that the rendering of various rights dealt on the issue of enjoyment of rights in the preceding para itself points that there was a relinquishment / extinguishment of rights of the assessee in the plot leased out for all practical purpose. Therefore, it would rather be incorrect on the part of the assessee to assert that merely on the condition of expiry of the lease period the security deposit would be refundable and the land leased out would be returned, there was no relinquishment / extinguishment of right of the assessee. In this context, it has to be mentioned that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est was payable. In this context the Agreement to lease extracted in para 4.2 of this order be referred to. ii. The transaction in the above referred case was between two strange parties and the agreement of lease was approved by the regulating agencies i.e. Company Law Board whereas, in the instant case the transaction was between two related concerns. In this context, the share holding pattern of the concerned concern has been given in para 4.1.12.1 of this order may be referred to. iii. In the case referred above entire facts were disclosed in the deed registered with the Government Authorities, whereas in the case of the assessee facts disclosed in the agreement to lease and the lease registered with the State Government Authorities were quite different. As a matter of fact in the deed registered there was no reference of the huge amount of security deposit transferred from EWDPL to lessor. In this context, the content of the agreement to lease and content of the lease agreement registered given in para 4.1.5 of this order may be referred to. iv. In the case referred above a complete and a logical time based mechanism has been drawn up as to how and when, in wha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. In this context, the details given in para 4.1.11 of this order may be referred to. Examination of Bank statements of the above concerns further revealed that just prior to the giving of the security deposit M/s EWDPL had shown the receipts of share application money from the lesser (the details of share application money given and subsequent payment of security deposit are given in para 4.1.11 of this order). From these facts and the facts discussed above, it is apparent that the lease agreement with a clause that the security deposit received would be refunded to the lessee on the expiry of the lease or its termination was merely a colourable device to evade the actual nature of the transaction payment of legitimate taxes on capital gain. Here it has to be reiterated that the Sub-Registrar of Properties vide his letter dated 26.12.2006 extracted in para 4.1.7 of this order had also noticed that by not disclosing the entire facts to the State Govt., the concerned concern(s) viz the assessee, M/s Padma Homes Pvt. Ltd. and M/s EWDPL had hatched a conspiracy to evade the payment State Government s legitimate dues also. Needless to reiterate that there is neither any room for re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50/- I am satisfied that the assessee had concealed the correct particulars of its income and furnished inaccurate particulars of income. Hence, penalty proceedings u/s 271(1)(c) of the Income Tax Act are separately being initiated. 3. The written submissions filed by the appellant are reproduced hereunder :- Submissions dated 25.02.2013 Under the instruction from the above mentioned assessee we submit as under: 1. The appellant company is registered under Companies Act, 1956 with the registered address at 11, Tukoganj Main Road, Indore. The appellant was primarily engaged in the business of dealing in goods and there were continuous losses till AY 2003-04. The assessee owned a plot of land which was given on lease in AY 2004-05. The said transaction has lead to the series of tax litigation which is contested in the aforesaid appeals. 2. To provide brief summary wise events for the impugned appeals, we would first and foremost draw your honours attention to an event chart as under Sr. No. Date Particulars 1. 31.10.2004 Return o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings. 5. It may be noted that in the future assessment years AY 2005-06 and AY 2006-07, no addition on account of the said transaction was made in the original scrutiny proceedings for the said years. 6. Subsequent to the above events, a search action u/s 132 was conducted on the appellant s business premises on 16.04.2009 and accordingly assessment proceedings u/s 153A were initiated. The same were concluded vide order u/s 143(3) r.w.s. 153A on 29.12.2013 (here after referred on search assessment order ). 7. Herein it is pertinent to note that the addition made in the above mentioned search assessment order pertained to the issue already dealt in the original assessment order i.e. lease transaction categorized as sale transaction. We draw your honour s attention to the fact that the aforesaid issue bores no relation to the any of the material / documents / records found and seized during the search action on 16.04.2009. The issue relating to the lease transaction was already dealt with in the original assessment order. Accordingly, we submit that the entire search assessment order is bad in law and hence is liable to be quashed. With reference to the said content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved a security deposit of ₹ 7,04,92,487 in FY 2003-04 in respect of the said lease. The operative part relating to the security deposit is reproduced as under 1. That in lien and under the transactions of this indenture, a sum of ₹ 1,500 lacs is the security deposit to be deposited by the Lessee with the Lessor as per the following details: (c) To be deposited with Kalani Brothers (Indore) Pvt. Ltd ₹ 1057.20 lacs (d) To be deposited with Padma Homes Pvt. Ltd. Rs. 442.80 lacs Total Rs.1500.00 lacs Out of the above security deposit, a security deposit of ₹ 1,000 lacs is payable immediately on signing of this Agreement in the same proportion as indicated above. Thereafter, ₹ 500 lacs is payable before the start of the actual construction of the complex. This security deposit is refundable by the Lessor to the Lessee at the end of the lease period stipulated herein or at the termination of this lease deed with the mutual consent of the Lessor and Lessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO and our submission on the same are dealt as under - 14.1 The AO relies on the definition of the transfer as provided in the section 2(47)of the Income Tax Act, 1961 to state that the lease transaction entered into by the appellant is a transfer of Capital asset as per Income Tax Act and hence liable to income tax. To justify the said stand, the AO in both the original assessment order as well as search assessment order rely on the clauses in the agreement to lease dated 21.05.2003 to state that the lease was practically rendered all the rights which on owner of property enjoys and accordingly clause (vi) of Section 2(47) squarely applies. Further elaboration on the clauses of the agreement will be done in the next point in this submission. Presently we submit countering the application of section 2(47)(vi) of the Income Tax Act. The said section is reproduced here for ease of reference- 2(47) transfer , in relation to a capital asset, includes :- (i) the sale, exchange or relinquishment of the asset, or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law; or (iv) in a case where th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it is submitted that if the interpretation made by the AO of the said clause prevails then every type of transaction enabling the enjoyment of any immovable property would be treated as transfer . Had it been so every transaction of a hotel giving room to a customer shall get caught by the term enabling the enjoyment of immovable property and shall become subject to clutches of Capital Gains provisions. The clause is restricted only to those transactions as mentioned in the clause itself e.g. by way of becoming a member of a co-operative society, company other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever . The purpose of the said clause is also crystal clear - in the above mentioned transactions, although in fact there is a transfer of shares/ membership, in substance there is transfer of underlying immovable property. Thus, the said provision is a way partakes the clarificatory nature that when a transaction involves underlying transfer of immovable property then the said transaction would also be treated as transfer extinguishable to capital gains tax. There is no such scenario in the appellants transaction. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer of the proportionate land to the built-up area sold to any other party and in that event the consideration of proportionate area of the land shall be paid to the lesser. From the above conditions outlined in the Agreement to Lease it is apparent that the lessee was practically rendered all the rights which an owner of property enjoys. 14.2.1 Now let us consider our submissions in the above regards. First and foremost, out of the above 5 points enumerated in (a) to (e), the first 4 points are all the rights which are incidental to any normal long term lease transaction. The AO mentions all the points but doesn t comment as to how a lessor of vacant plot of land granting right to erect structure thereon transfers the ownership right to the lessee. Further, the clause granting mortgage rights to the lessee is present in all long term leases. The clause can be effectively used by the lessee to maximize its returns. 14.2.2 The only right which AO repetitively delves on is the right to sell granted to the lessee. On this aspect, we would like to state that the registered lease deed never contained the said right. Our further submissions on said aspect are c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09.10.2006 Lease agreement registered with the registrar superseding the earlier registered deed (with the terms regarding security deposit but without the term relating to lessee s right to sell) (paper book pages 57 67) 14.3.2 The moot point to note in the above chronology is that both the registered agreements do not contain the term provided right to the lessee to sell the leased land. It is vehemently submitted by the assessee that the registered document easily demonstrates the final intention of the parties to the legal rights and obligations they agree to bind to. The date of the first registered deed i.e. just 45 days after the agreement to lease evidences the essential point that the appellant did not intend to give the lessee the right to sell. The date signifies that the intention was not an afterthought or an tax evasive tactic. 14.3.3 In above scenario, we submit that the agreement to lease dated 21.05.2003 doesn t provide any proof regarding the rights and obligations of the transacting parties. The AO is completely wrong taking the said deed as the basis of the conclusion that the lease transaction is indeed a transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er in the matter with regard to the assessee s argument that every type of transaction enabling the enjoyment of any immovable property for instance the letting out of house to a tenant or a simple transaction of a hotel giving room to a customer would also tantamount for the purposes of capital gain u/s 45, it would again be suffice to say the instances relied upon by the assessee are totally misplaced. It has to be mentioned that the house is primarily given on rent for allowing the tenant to reside in that house and not for the purpose of other enjoyment over the property as given by the assessee by leasing out to the lessee as discussed at length in the preceding paras. Similarly, in the case of giving a room to a customer in a hotel, the customer is entitled only to stay in the hotel room for few days. He is not entitled to carry out any other activity such as modification / alteration / renovation in the room contrary to the various amenities / rights rendered by the assessee in leasing out property to the lessee. In view of these facts it would rather be incorrect by any yardstick on the part of the assessee to equate these transactions with the transaction of leasing out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olding in EWDPL. Further it provides the flow of fund. In the nutshell, it evidences that the appellant invested into EWDPL and EWDPL paid the security deposit out of the said investment proceeds. Based on the above facts the AO proceeds to hold as under Before parting from the issue, it would not be necessary to reiterate that on examination of the details it was noticed that all the three concerns viz the assessee, M/s Padma Homes Pvt. Ltd. and M/s EWDPL are the associated concerns. As a matter of fact, in all these concerns the major portion of the share holders is common. In this context, the details given in para 4.1.11 of this order may be referred to. Examination of Bank statements of the above concerns further revealed that just prior to the giving of the security deposit M/s EWDPL had shown the receipts of share application money from the lesser (the details of share application money given and subsequent payment of security deposit are given in para 4.1.11 of this order). From these facts and the facts discussed above, it is apparent that the lease agreement with a clause that the security deposit received would be refunded to the lessee on the expiry of the leas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. In this regards, first we draw your honours attention to the clause relating to the lease rent. The said clause clearly indicates the consideration of ₹ 81,000 per annum for the use of land. The AO in its both the assessment orders has not commented anything on the said lease rent. Taking forward the AOs logic of the transaction being transfer the said lease rent would also form part of the consideration for the appellant. However, the AO doesn t treat the lease rent as consideration and simply taxes the same as business income. The appellant doesn t comprehend the logic of the same. Whereas AO treats the one part of the agreement relating to security deposit as colourable device , the other part of the agreement is left untouched by the AO. 17. Taking the above contention forward, it is stated that since the security deposit is refundable after the period of 29 years of lease or on termination of the Lease Deed, it cannot be said to be a CONSIDERATION , because a refundable deposit is a debt and not a consideration received. The only consideration therefore which can be considered for the purposes of Section 2(47) read with section 53A, is the lease rent amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt as income. (emphasis supplied by us) 20. As the highlighted portion suggests, there are no capital gain implications on long term lease. Only taxable income which arises is rental income . Another noted author Shri N M Ranka also opines as under at 130 CTR (Articles) 163 -- LONG LEASE: In certain cases of long lease the lessee is allowed to construct a building on the land leased out own the same during the period of lease. The building to be surrendered to the lessor free of cost on the termination of the lease and the lessor has the reversionary interest to get back the building 21. The another legal precedent can be found in the judgment of ITAT, Jodhpur Bench in the case of Additional CIT vs. Lake Place Hotels (83 TTJ 1031).The primary and the basic fact of the said case is exactly similar to the appellants case. There was a long term lease with a clause of refundable deposit. The AO in the said case also treated the transaction as transfer and taxed the same under capital gains. The ITAT duly considered the facts and ultimately categorically held that the refundable deposit can not be considered as consideration and no capital gain can be charged. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two additional grounds in the appeal against 153A order for AY 2005-06 relating to the additions which were also made in the original assessment order u/s 143(A). We submit that the same may be considered by your honour while disposing off the appeal against the said assessment order which is not presently dealt in. 26. From the above facts of the case and legal precedents, it is crystal clear that the transaction entered into by the appellant is of a long term lease and in no circumstances the same can be treated das transfer of an immovable property. Thus we submit before Your Honours to direct the same to AO and delete the unjust demand raised. Submissions dated: 24.09.2013 As submitted vide the earlier submissions, it is hereby reiterated that the appellant company was primarily engaged in the business of dealing in goods and there were continuous losses till AY 2003-04. The appellants owned a plot of land which was given on lease in AY 2004-05. The said transaction had lead to the series of tax litigation which is contested in the aforesaid appeals. A detailed submission covering the entire factual and legal contentions of the appellant was presented vide our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rch under section 132 or requisition under section 132A, as the case may be, shall abate. It is clarified that the appeal, revision or rectification proceedings pending on the date of initiation of search under section 132 or requisition shall not abate . Accordingly as far as completed assessments are concerned, they do not abate and pending appeals etc. in respect thereof continue to exist notwithstanding the fact that the search has been made. Thus a in the present case, the original pending appellate proceedings were still pending. The AO cannot proceed to make the same addition in the block assessment without any incriminating material found in the course of search. The said view prevents the AO to undo what has already been completed and has become final in the original assessment proceedings. Further reliance can be placed on the decision of the Special Bench of the Mumbai ITAT in the case of M/s All Cargo Global Logistics Limited Vs DCIT 137 ITD 287 (Mum)(SB), wherein the scope of assessment u/s 153A was discussed. The copy of the said judgment is enclosed in the compilation at Annexure B. The relevant extract has been reproduced as below (i) in assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment under section 153A will be made on the basis of incriminating material. It is to be noted that the view has also been considered as well as approved by Indore ITAT in the case of Shri Arun Sehlot, vs ACIT 3(1), Bhopal (ITAT Indore). The said decision is the jurisdictional ITAT bench s decision for the appellant. Thus, relying on the above mentioned judicial precedents, it is vehemently submitted that the additions made by the AO in the search assessment orders are void as not being made on the basis of incriminating material found. 2. Transaction entered into by the appellant cannot be treated as transfer of capital asset - The AO relies on the definition of the transfer as provided in the section 2(47) of the Income Tx Act, 1961 to state that the lease transaction entered into by the appellant is a transfer of Capital asset as per Income Tax Act and hence liable to income tax. The said section is reproduced here for ease of referencde- 2(47) transfer , in relation to a capital asset, includes, -- (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or (iii) the compulsory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming a member of a co-operative society, company other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever . In regards to the same, we rely on the Ejusdem generis principle of interpretation. Ejusdem generis is a latin mxim which means that there is a list of words in a statue followed by some general words, the general words are limited to the same sort of items as are mentioned in the specific things set out in the list. The doctrine of ejusdem generis arises if a catchall phrase ends a list. The catchall phrase would refer to things similar in character to the other items in the list. For e.g., if in a list included, dogs cats, parakeets and similar animals, the catchall phrase, similar animals would mean other types of pets since the other animals in the list are common pets. The said principle is established principle in the Income Tax laws. The latest case to rely the said principle was Supreme Court decision in the case of CIT vs.Smifs Securities Limited. In the said seminal ruling, the Hon ble Apex Court held that depreciation was allowable on Goodwill by invoking the principle of ejusdem generis which mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as transfer and taxed the same under capital gains. The ITAT duly considered the facts and ultimately categorically held that the refundable deposit can not be considered as consideration and no capital gain can be charged. The relevant portion is reproduced herewith for your honours consideration- It may be pointed out that to charge capital gains under s.45 r/ws. 48, the following four conditions are required to be fulfilled that; (i) There should be a capital asset; (ii) Capital asset should be transferred; (iii) Consideration has been received in lieu of transfer; and (iv) There was cost of acquisition and cost of improvement. All the four are conditions precedent and in case any requirement remains unfulfilled, there is no question of charging the capital gains. In the instant case, the assessee had not received any consideration in lieu of the transfer of capital asset because the land in question had been given on lease and the assessee received lease rent year after year and on that lease rent, tax had been paid in accordance with law. As in the above case, the appellant vehemently submits that there is no transfer of the asset and accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al gain implications on long term lease. Only taxable income which arises is rental income . Another noted author Shri N M Ranka also opines as under at 130 CTR (Articles)163- LONG LEASE: In certain cases of long lease the lessee is allowed to construct a building on the land leased out own the same during the period of lease. The building to be surrendered to the lessor free of cost on the termination of the lease and the lessor has the reversionary interest to get back the building 4. Legality of registered sale deed to be preferred over the unregistered sale deed Another contention of the appellant relates to the fact that the registered agreements do not contain the term provided right to the lessee to sell the leased land. In this relation, the appellant draws attention to the section 50 of the Indian Registration Act which in clear terms provides that the registered deed will prevail over the unregistered ones. The said section is reproduced herewith : 1) Every document of the kinds mentioned in clauses (a), (b), (c) and (d) of Section 17, sub-section (1) and clauses (a) and (b) of Section 18, shall, if duly registered, take effect as regards the property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms of the agreement provide for payment to the assessee (Lessor) by M/s. Rachana Pictures (Lessee) for lease of ₹ 70 lakh and the assessee has already received the said sum of ₹ 70 lakhs (considered as deposit by the assessee) which is not refundable, then there is no other conclusion possible except that the amount of ₹ 60,66,667 constitutes the value of closing stock of the film 'Gentleman' because, the whole cost of production of the film has been debited to the profit and loss account. Therefore, even if we look at the case of the assessee from this angle, then also the income would be enhanced by the amount of ₹ 60,66,667 and there would be no relief to the assessee. As the highlighted portion of the said judgment establishes, the facts of the said case are grossly different from the appellants own case. The assessee in the above case has received a deposit of 70 lakhs for leasing out rights of a film. Accordingly it offered only part of the deposit received as income for the concerned year. The Tribunal had held that the entire deposit was taxable in the year in which the deposit was received as the entire cost of the film was debited to P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tting room rent and not from sale of real estate. As an example, two hotels can be on the same street adjacent to each other i.e. can be located on lands which are similarly priced but the income of both the hotels can vary greatly, depending upon the facilities and star rating of the two hotels. 2. In an annuity business income model, the graph of income vs. the interest cost is greatly skewed. Since the business model is not based on sale income, the capital cost of the asset is largely funded through bank loans as there are no internal accruals from sale of the individual shops and the units which can go in construction cost of the property. The entire construction cost is funded by equity and debt. Due to this reason, in the initial years, there is no surplus/profit as the interest cost is very high. Over the years, the interest cost comes down due to repayment of loans where as the lease rents/annuity income keep on rising as per the escalation clause of the contracts or the revenue share model from the total business done in the shopping mall. 3. The income of shopping mall come from lease rent or percentage of the total revenues /shopping done by the shop whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wanted to reduce their capital expenditure by taking the land on lease for a long period during which they will earn profits after the loan is substantially/fully repaid. In their business model, it was estimated that loan will be fully repaid by the year 201819 and the lease period of 29 years is till the year June 2032. 7. There is no income being earned by Entertainment World Developers Limited by sale of property and hence, the lease transaction cannot be treated as a sale transaction as has been done by the Ld. AO. 8. Entertainment World Developers Ltd. had planned to develop 10 Malls across the country and had plans to go public by the year 2008/09 and it was expected that when they go public, their shares will be quoted at a higher premium. 9. In view of this, the Appellant invested the amount received as interestfree security deposit in the share capital of Entertainment World Developers Ltd. in the expectation of substantial future profit, when the Entertainment World Developers Ltd goes public and its shares are quoted at premium. 10. Further, at the end of lease period of 29 years, the land with or without structure (as the structure belongs to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... U/RH/0135/2004, in Para No.19, it is held as follows: - Quote: - 19. Thus the exigibility of levy depends upon the language of the fiscal statute. Nothing can be added to or subtracted from the words of the taxing statute. Nothing can be implied in the taxing statute. It is the express words of the taxing statute which determine the field of its operation. There is neither intendment nor equity in a taxing statute. Unquote: - Emphasis laid by the Appellant. (iii) IN THE SUPREME COURT OF INDIA in the matter of Mathuram Agrawal Vs. State of Madhya Pradesh MANU/SC/0692/1999, AIR 2000 SC 109, where in the last lines of Para No. 11, it is held as follows: - Quote: - 11. . Words cannot be added to or substituted so as to give a meaning to the statute which will serve the spirit and intention of the legislature. THE STATUTE SHOULD CLEARLY AND UNAMBIGUOUSLY CONVEY THE THREE COMPONENTS OF THE TAX LAW I.E., THE SUBJECT OF THE TAX, THE PERSON WHO IS LIABLE TO PAY THE TAX AND THE RATE AT WHICH THE TAX IS TO BE PAID. IF THERE IS ANY AMBIGUITY REGARDING ANY OF THESE INGREDIENTS IN A TAXATION STATUTE THEN THERE IS NO TAX IN LAW. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven though actual reduction took place after year of account was over agreement to reduce commission was already their during currency of account year larger income neither accrued nor received by assessee firm Tribunals decision upheld by both High Court and Supreme Court, appeal dismissed . Unquote: - (ii) Further, in Para No.10, it is clearly held as follows: - Quote: - 10. .Income tax is a levy on income. No doubt, the Incometax Act takes into account two points of time at whichthe liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income, if income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a hypothetical income which does not materialize. . Unquote: - (III) IN THE SUPREME COURT OF INDIA in the matter of Commissioner of Income Tax, West Bengal II Vs. Birla Gwalior (P) Ltd. AIR (1973) SC 2486, MANU/SC/0220/1973, where case note gives a reference to short facts and the final judgment, as follows: - Quote: - (i) Case Note: Direct Taxation commission whether sum of ₹ 111779 said to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it remains the income of the recipient, even though given up, the tax maybe payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account (emphasis supplied). Hence it is clear that this Court in Morvi Industries case did emphasise the fact that the real question for decision was whether the income had really accrued or not. It is not a hypothetical accrual of income that has got to be taken into consideration but the real accrual of the income. Unquote: - (IV) IN THE SUPREME COURT OF INDIA in the matter of State Bank of Travancore, Kerala Vs. Commissioner of Income Tax, MANU/SC/0282/1986, AIR (1986) SC 757, where in the CaseNote it is held as follows: - Quote: - ..Thus, theory of real income could be and should be extended to interest on sticky loans and that on principle such interest being hypothetical could not be brought to tax therefore, sums representing interest on sticky advances in instant case being hypothetical and not real income of Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rought to profit and loss account of assessee, cannot be included in income of assessee Held, yes Whether CBDT circular dated 9-10-1984 is in conflict with provisions of section 145 Held, no . Unquote: - (VI) The Supreme Court in CIT v. Chamanlal Mangaldas Co. reported in 39 ITR 8 has held that the income tax act only taxes the real income and there is no provision under the Act to tax the hypothetical income which has never arisen or accrued to the assessee. (VII) The Bombay High Court in FGP Ltd. vs. CIT reported in 177 Taxman 147 has held that what could be assessed was real income as income tax is tax on income. The test therefore, before income can be taxed is whether there is real accrual of income. As in the assessee s case there is no accrual of income, there cannot be any tax on hypothetical basis. (VIII) IN THE HIGH COURT OF ALLAHABAD in the matter of Commission of Income Tax Vs. Govind Prasad Prabhu Nath (1988) 172 CTR (ALL)62, MANU/UP/0231/1987, where in Para No.7, 8, 10, 11, 14 16, it is held as follows: - Quote: - 7. Let us now advert to the relevant provisions of the Income Tax Act, 1961 (hereinafter referred to as the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... three distinct terms. So far as receiving of income is concerned, there can be no difficulty ; it conveys a clear and definite meaning and I can think of no expression which makes its meaning plainer than the word ' receiving ' itself. The words ' accrue ' and ' arise ' also are not defined in the Act...' Accruing ' is synonymous with ' arising ' in the sense of springing as a natural growth or result. The three expressions accrues ' ' arises ' and ' is received ' having been used in the section, strictly speaking ' accrues' should not be taken as synonymous with ' arises ' but in the distinct sense of growing up by way of addition or increase or as an accession or advantage ; while the word ' arises' means comes into existence or notice or presents itself. The former connotes the idea of growth or accumulation and the latter of the growth or accumulation with a tangible shape as to be receivable. 14. Later, Shah J., speaking for their Lordships of the Supreme Court in CIT v. Ashokbhai Chimanbhai MANU/SC/0140/1964 : [1965]56ITR42(SC) , has stated the proposition thus : Under the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rld Developers Private Limited i.e. ICICI Ventures Pvt Ltd and Phoenix Mills Ltd. It was intended that once Entertainment World Developers Limited sets up a series of shopping malls (the business plan had contemplated setting up of 10 shopping malls in different cities of India), they would list their stock in a public exchange. It was expected that if the business plan had succeeded as anticipated and ten shopping malls would have been established, then the shares of Entertainment World Developers Ltd. would have been quoted at fairly good premium in the stock exchange. The Appellant then would have made large gain, if Appellant at that time would have taken a decision to exit. 19. Hence, it was never intended either by the Appellant to sell their land and it was never the intention of Entertainment World Developers Limited to purchase the land. The business model as explained above was to earn income from operation and running of shopping Malls by Entertainment World Developers Limited and the intention of Appellant was to give their land on a long lease and invest interest-free security deposit in equity in the manner explained above to gain from the share price of E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal and submissions of appellant. 5. The six appeals of the appellant pertaining to AY 2004-05 (three), AY 200506 (two) and AY 2006-07 (one) are taken together because of the reasons as mentioned in the table reproduced below :- S.No. Appeal No. A.Y. Grounds of Appeal Remarks 1. IT-916/2011-12 2004-05 U/s 153A Addition made on account of long germ gain on accrual basis of refundable interest free security deposit to be received against lease of land treating it as sale consideration for transfer of land of ₹ 20,92,78,750/- as against amount of ₹ 7,04,92,487/- received during the year. The addition made of ₹ 20,92,78,750/- on accrual basis also includes amount of refundable security free deposit received in subsequent years, i.e. ₹ 3,41,00,000/- received in the AY 2005-06 and ₹ 10,59,59,513/- received in the AY 2006-07. 2 IT-917/2011-12 2005-06 i) Addition made on ₹ 4,35,398/- to the income of assessee tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As can be seen from this table the five appeals have common grounds, hence, they are covered in one single order in succeeding paragraphs. 6. In this case, appellant and another company M/s Kalani Brothers Pvt. Ltd. have given a total 1 lakh sq. ft. land situated at 11, Tukoganj main Road, Indore to M/s Entertainment World Developers Pvt. Ltd. through a lease agreement dated 21.05.2003. Out of this 70484 sq. ft. belong to M/s Kalani Brother Pvt. Ltd. and 29516 sq. ft. belong to appellant. In lieu of this lease agreement the appellant gets a fixed lease rent on annual basis and a non interest bearing refundable deposit to be returned back after the lease period of 29 years. 7. The appellant has later entered into another lease agreement with enhanced refundable deposit as the land use has changed from residential to commercial and FAR of the said land has increased from 1.5 to 2.5. When such lease agreements were got registered, the refundable deposit was not shown in the such agreement. 8. On this land a shopping mall was constructed by M/s Entertainment World Developers Pvt. Ltd. known as Treasure Island (TI, Indore) in which various shops were gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd same addition was confirmed in application filed by appellant before AO u/s 154 of the income Tax Act.. 11. The AO s apprehension and reliance on the finding that the lease deed was not well drafted or there was difference in registered and unregistered lease deed or any such point will not help to prove that there was any transfer of such land, unless it is proved that handing over of such land was irrevocable. By not showing security deposit appellant did avoid payment of dues of state government pertaining to stamp duty valuation authority for which necessary information was already passed on to that department by AO. However, AO failed to state how appellant is avoiding payment of tax to central government when section 45 r.w.s. 48 of the Income Tax Act does not make such lease transactions taxable. 12. This agreement could be termed as colorable device only when it can be shown that though it is lease agreement but conditions mentioned are such which actually tantamount to transfer of land. But AO failed to show which conditions of the agreement prove that it is a transfer of land when lease is revocable on completion of 29 years whereby land will come back to appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was irrevocable or that the security deposit was not refundable. Besides as held by the Hon ble Rajasthan High Court in aforesaid case that even combined reading of section 45 and section 48 of the Income Tax Act nowhere provide for any deemed profit. Hence, the addition made in the search assessments u/s 153A of Income Tax Act on account of such deemed long term capital gain of ₹ 20,92,75,750/- is hereby deleted in AY 2004-05 and similar addition made in AY 2005-06 and AY 2006-07 is also deleted. The similar addition made in the normal assessment u/s 143(3) in AY 2004-05 of ₹ 10,44,46,750/- is also deleted and as a result, the order passed by AO u/s 153A of the Income Tax Act upholding such addition is also cancelled. 14. The another ground raised in normal scrutiny assessment u/s 143(3) for AY 2005-06 is against disallowance of ₹ 4,35,398/- as cost of demolition charges of building. Appellant argued that this is not the cost of demolition charge of building, but it represents the WDV of building written off. Even that cannot be allowed to appellant because there was no business done by appellant and the only source of income is lease rent from leasing out o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axed as capital gain. Appeal no. IT-761/06-07 for AY 2004-05 against assessment u/s 143(3) is also allowed as the only addition of security deposit as per lease agreement being held as deemed sale consideration is deleted. On that same basis appeal no. IT-21/07-08 for AY 2004-05 against order passed by AO u/s 154 of the Income Tax Act is also allowed. Appeal no. IT-917/11/12 related to search assessment for AY 2005-06 is allowed, as the addition of security deposit of ₹ 4,41,00,000/- is deleted and addition of ₹ 4,35,398/- under the head building written off and disallowance out of various expenses of ₹ 90,137/- is deleted from search assessment, as those additions were confirmed in regular assessment. Appeal no. IT-630/2007-08 for AY 2005-06 is dismissed as all three disallowances of ₹ 4,35,398/-, ₹ 50,000/- and ₹ 40,137/- are confirmed. Appeal no. IT-918/2011-12 for AY 2006-07 is partly allowed as while addition of security deposit of ₹ 10,59,59,513/- is deleted, the legal ground raised against invoking of section 153A is rejected as no proof is adduced to show that order u/s 143(3) was passed in that case and hence search a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of lease in respect of which the capital gains has to be computed ? 6. From the above question of law admitted by Hon ble Rajasthan High Court, nowhere it is stated that if the assessee has received any security deposit against the lease rent of security deposit, it is not chargeable to capital gain u/s 45 r.w.s. sec. 48 of I.T. Act. Therefore, ld. CIT(A) is not justified in relying upon the decision of Hon ble Rajasthan High Court. We therefore are of the view that the issue in controversy is covered by the Jodhpur ITAT Bench but it is not decided by Hon ble Rajasthan High Court. 7. We find that in the instant case, assessee has transferred the land and received security deposit and that security deposit was again reinvested in making the construction of the malls. We find that the said transaction is not a sale transaction. The Assessing Officer has held that the transaction entered into by the assessee with Kalani Bros and Padma Homes are colourable device on the ground that the lease agreement is stage managed affairs of the assessee. No interest was charged on the security deposit. We find that the Assessing Officer has also referred this matter to District Registra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs pending on the date of initiation of the search under section 132 or requisition under section 132A, as the case may be, shall abate. It is clarified that the appeal, revision or rectification proceedings pending on the date of initiation of search under section 132 or requisition shall not abate .. Accordingly, as far as completed assessments are concerned, they do not abate. The AO cannot proceed to make the same addition in the block assessment without any incriminating material found in the course of search. The said view prevents the AO to undo what has already been completed and has become final in the original assessment proceedings. 9. We have heard both the sides. We have also gone through the case laws relied upon by both the sides. We have also considered various relevant facts of the case. It is a settled legal position that once a search and seizure action has taken place u/s 132 of the Act or a requisition has been made u/s 132A, the provisions of section 153A trigged and Assessing Officer is bound to issue notice u/s 153A of the Act. Once notices are issued u/s 153A of the Act then assessee is legally obliged to file return of income for six years. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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