TMI Blog2022 (5) TMI 1461X X X X Extracts X X X X X X X X Extracts X X X X ..... re paid by the assesse to the Government as per Government rules. Therefore, amount paid to Government, has already been disclosed by the assessee. The premium paid or payable to Government cannot be incriminating material, as necessary records are with the Government and assessee. Land Revenue paid by the assessee and amount paid to two trusts should not be incriminating material, as these payments were disclosed by the assessee. Therefore, no addition/disallowance can be made by the AO without the aid of incriminating material seized/unearthed qua the assessee. We note that assessments were not pending on the date of search, no addition/disallowance can be made by the AO without the aid of incriminating material found/unearthed during search. Since the assessments were not pending on the date of search and no incriminating material qua the assessee was the basis for the addition/disallowance, so we allow the appeal of the assessee. AO did not allow index cost of acquisition in respect of land revenue, premium paid/payable, and payment to trusts. We note that these expenses were already on record and paid by the assessee to the Government. However, a part of the premium ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00,000/- as forming part of cost of improvement of land and thereby not allowing deduction in respect thereof while calculating the capital gain in respect of transfer of land. 2) The ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in treating the amounts of conversion taxes (i.e. tax paid for the purpose of conversion of agricultural land into non-agricultural land) as land revenue and the land revenue duty representing recurring expenditure and thereby holding that the same is not allowable as deduction while calculating the capital gain in respect of transfer of land. 3) The ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in not allowing the indexation benefit in respect of conversion taxes paid by the appellant while calculating the capital gain on transfer of land. 4) The ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in considering the sums paid to two trusts totaling to Rs.3/- lacs as expenditure incurred for transfer of land instead of treating the same as part of cost of land. 5) The ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in not allowing the indexation benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 143(2) was issued on 09.12.2009 and assessing officer framed the assessment under section 143(3) read with section 153C of the Income Tax Act, on 31.12.2009. During the assessment year under consideration, the assessee was carrying on the business of Cleaving of Diamonds on job-work basis. During the assessment proceedings, the assessing officer observed that assessee sold lands during the year and claimed Long term capital loss. The assessee had shown year of acquisition of the land in 1997 and had opening balance of the land account in his books at Rs.16,118/- as on 01.04.03. During the year, the assessee debited following expenses in the head of land account, which are as under: Opening balance 16,118 01.04.03 Premium payable 17,24,800 27.05.03 Premium paid 27,59,067 19.09.03 Revenue duty paid 1200 27.09.03 Revenue paid 33,000 5.12.03 Premium paid 35,20,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued a notice to the assessee to explain land premium expenses of Rs.17,24,800/- and land premium payable expenses of Rs.6,40,00,000/-. In response, the assessee furnished a demand notice from Nayab Collector . After verification, of such demand notice, the assessing officer observed that said demand notice, for premium was dated 09.09.2009 and till date no such premium had been paid by assessee. Instead, assessee filed special civil application in Gujarat High court challenging the same. Therefore, assessing officer noted that assessee neither accepted the order of payment of premium nor paid the same. Besides the notice was received only on 09.09.2009. The liability if any arose only on 09.09.2009. Therefore, further show cause notice was issued to the assessee. 9. In response to the show cause notice, the assessee submitted his explanation vide his letter dated 22.12.09, the same is reproduced below: As your goodself is aware, the relevant provisions of sec. 48 of the Act whereby the mode of computation of income chargeable to capital gains is prescribed read as under: The income chargeable under the head ;capital gains' shall be computed by deducting from the fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Opening balance 16118 27.05.03 premium paid 27,59,067 19.09.03 revenue duty paid 1200 27.09.03 revenue paid 33,000 5.12.03 premium paid 35,20,000 6.2.04 revenue duty 40,000 6.2.04 premium paid 39,60,000 31.03.04 Advance paid in previous year debited during the year 3,00,000 Total 1,06.29,385/- 11. The assessing officer also computed the index cost of the entire land, as follows: Right Calculation for the INDEX cost of the entire land: Opening balance from 1997 Rs 16118 So index cost (16118 x 463/331) = Rs 22,545 Total expenses incurred during the year (No indexing required) Rs. 1,06,13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dded back to the total income of the assessee during the year and long term capital loss claimed by the assessee to the tune of Rs.2,68,80,493/- was disallowed by the assessing officer. 16. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A). The ld CIT(A) adjudicated the issue relating to validity of assessment under section 153C of the Act, observing as follows: 18. Apparently, the 1st ground in the original grounds of appeal regarding validity of u/s 153C has been dropped in the revised grounds of appeal. Even otherwise, that ground was liable to be dismissed as a valid notice u/s 153C of the Act was issued, consequent to a search. The remaining grounds in the original grounds of appeal pertain to disallowance of the claim of Capital Loss of the appellant and the addition u/s 50C(1) of the I.T. Act. 17. On merits, the ld CIT(A) allowed the appeal of the assessee, partly observing as follows: 19. In the revised grounds of appeal, also addition u/s 50C(1) has been challenged. However, the premiums paid / payable for conversion of land from agricultural land to non-agricultural land are claimed as cost o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... premium @ 80% of Rs.20,000 per sq mtr, means that the correct fair market value of land as per land revenue / stamp duty authorities was Rs.20,000/- per sq mtr and not what was determined at the time of registration of the agreement. Though the exact break - up of premiums paid of Rs.27,59,067/-, Rs.35,20,000/- and Rs.39,60,000/- and premium payable of Rs.17,24,800/- and Rs.6,40,00,000/- has not been furnished, it is logical to presume that additional demand has been raised for short stamp duty/ short premium charged earlier. Since, the agreement mentions the land sold as non-agricultural land (as per appellant's submission), the State Government cannot have two standards for determination of market value of land one for stamp duty purpose and one for payment of premium for conversion, for agricultural land to non - agricultural land. 24. Without prejudice to the same, the issue whether he word MAY mentioned in the section 50C(2) of the Income Tax Act can be substituted with SHALL also need to be examined. The word used in section 50C(2) is MAY . This means it is not mandatory for the assessing officer to refer every case for valuation. The next issue is can we substitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39; May' and 'Shall' interchangeably. 24.3 The next issue then arises as to what should be parameters for exercising discretion. Since the word MAY is a judicial discretion should be a judicious decision. This means that there must be a prima facie case for reference necessary in the interest of justice and judicious exercise of power of reference to Experts' provided to the department in limited number at the cost of ex-chequer. Such reference is to be made only, where it is necessary due to existence of prima facie case justifying the reference. It should not be allowed to be used as tool for delaying the proceedings and using such experts in every case. 24.4 The above interpretation that May does not mean 'Shall is also supported by the decision of Hon'ble Supreme Court in the decision in case of Smt. P.L Noorjahan reported in 237 ITR 570 (SC). Therefore, the undersigned is under statutory obligation to follow the same. 24.5 The next issue involved is whether there is a prime facie case in this appeal for reference to the DVO? The answer is 'NO' for the reasons discussed in para 22 and 23. Without prejudice to the same, since appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of the above additions made by the assessing officer. Therefore, only the grounds of appeal for the assessment year 2004-05 in respect of penalty appeals are reproduced herein under, for reference. 1) The ld AO has erred in law and on facts in levying penalty u/s 271(1)(c) of the Act to the tune of Rs.14,00,573/- in respect of the addition made on the ground of earning of alleged long term capital gain. 2) It is, therefore, prayed that the impugned penalty levied by the Ld AO be deleted. 3) The Appellant craves leave to add, amend, alter, modify, substitute, delete, change or vary all or any of the Ground or Grounds of Appeal. The grounds of appeal in all years are identical. 28. In respect of penalty appeals, the appellant submitted that mere making of claim does not amount to concealment of income' and no material facts were suppressed before the Assessing Officer. The appellant submitted that the claim made was a bonafide claim and relied on a large number of judicial pronouncements in support of claim. 29. The contention of the appellant and the arguments of the Assessing Officer have been examined for both quantum appeals/ penalty appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t would be given. However, as mentioned in para '14' of this order, this aspect need to be verified by A.O. If the payment of this amount was made in F.Y 2004-05, then this amount will be treated as cost of improvement from A.Y 2005-06 onwards. Indexation will however be allowed from A.Y.2006-07 onwards in the ratio of cost inflation index of the year of sale and cost inflation index of F.Y 2004-05. Cost of improvement would be worked out in the ratio of area of plots sold to the total area of all the plots taken together. As regards the premium payable of Rs.6,40,00,000/- the said liability had arisen in Asstt Year 2010-11. But at the time this liability had arisen, the statutory limitation for filing the return u/s 139(1) had expired, till Asstt Year 2008-09. The statutory limitation period for filing of return, u/s 139(4) had also expired for assessment year 2007-08. In fact for all the assessment years under appeal, no returns of income were filed u/s 139(1)/139(4) of the IT Acts except for AY.2008-09. The returns of income for the first time has been filed u/s 153C of the IT Act for these years. For A Y 2008-09 it was filed u/s 139(4). The section 153C of the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f return of income. After raising the additional ground, assessee requested to assessing officer, vide assessee`s letter dated 03.08.2021 to furnish the copy of the satisfaction note but the satisfaction note was not supplied to the assessee. Though, the assessee has raised the ground regarding validity of assessment made under section 153C of the Act before CIT(A) but it was not pressed. However, assessee again raised the ground regarding validity of assessment made under section 153C of the Act before Honorable Tribunal. The ld Counsel also pointed out that since it is a legal issue, and all facts are already on record, therefore such ground can be raised at any point of time. 21. The ld Counsel further pointed out that assessing officer has not recorded the satisfaction note before issue of notice under section 153C of the Act, therefore, proceedings under section 153C becomes invalid in view of decision of Hon`ble Gujarat High Court in case of PCIT vs. Munisuvrat Corporation - Tax Appeal No. 187 of 2019. The SLP filed by the Department in Supreme Court was also dismissed in this case reported as 115 taxmann.com 265. The ld Counsel also relied on the circular no. 24 of 2015 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t assessing officer has not recorded the satisfaction note before issue of notice under section 153C of the Act, therefore, proceedings under section 153C becomes invalid and therefore assessment order passed by the assessing officer under section 153C r.w.s 143(3) should be quashed. We note that during the assessment stage, the assessee has raised the issue challenging the validity of assessment under section 153C of the Act. During the assessment proceedings the assessee requested the assessing officer to furnish the copy of the satisfaction note but the satisfaction note was not furnished to the assessee. On appeal, the assessee has raised the grounds of appeal before ld CIT(A) challenging validity of assessment made under section 153C of the Act, however, the assessee did not press this ground hence there is no detailed adjudication by CIT(A) on this issue. We note that in brief manner, the ld CIT(A) also adjudicated the issue relating to validity of assessment made under section 153C of the Act, observing as follows: 18. Apparently, the 1st ground in the original grounds of appeal regarding validity of u/s 153C has been dropped in the revised grounds of appeal. Even otherw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titled to raise the said challenge before the Tribunal. 28. From the above judgment of Hon`ble Jurisdictional Gujarat High Court in the case of Ramilaben Ratilal Shah(supra), it is vivid that legal issue can be raised by the assessee before the Tribunal. We note that assessee raised the objections about validity of assessment under section 153C of the Act during the assessment stage was well as during the appellate stage. Learned Counsel submits before us that additional ground of appeal may be admitted as it is being purely a legal issue and all facts are already on record. On the other hand, Learned DR for the Revenue pleaded that at this stage the assessee cannot raise additional ground on legal issue. We note that it is purely a legal issue and all facts are already on record which goes to the root of the matter and no further inquiry is required for deciding the same as all facts are already on record. Therefore, in the light of ratio laid down by the Hon'ble Supreme Court in the case of National Thermal Power Company Ltd., vs. CIT (1998) 229 ITR 382 (SC), we admit the additional ground raised by the assessee, (challenging the validity of assessment under section 153C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. The sale price reflected is Rs.16,17,91,847/- whereas, the sale consideration shown in the registered sale deed was only to the tune of Rs.4,52,60,000/-. Thus, the difference of Rs.11,65,31,847/- was added to the total income as unexplained expenditure under Section 69C of the Act. 4. Being aggrieved by the assessment order, the assessee preferred appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee and confirmed the addition made by the Assessing Officer. 5. Being dissatisfied by the order of the CIT(A), the assessee preferred second appeal before the ITAT. The ITAT allowed the appeal of the assessee, holding the assessment to be illegal and void ab-initio. The Revenue, being dissatisfied with the order of the ITAT, has approached this Court with the present Appeal. 6. We take notice of the principal argument that was canvassed by the assessee before the ITAT. The principal argument has been noted by the ITAT in para 7, which reads as under: 7. Feeling aggrieved and dissatisfied, the assessee has come up before this Tribunal by way of this appeal. The learned counsel for the assessee submitted that section, 153C of Income Tax Act, 1961, prescr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that looking to facts that not only satisfaction note but also order sheet are not traceable, it is very likely that the AO was maintaining confidential folder incorporating important papers somehow got misplaced hence, not ready available with the AO i.e. Income Tax officer, ward-1(3)(7) Surat also filed an affidavit dated 17.8.2018 to this effect that from transfer memo of records, no satisfaction note was received and same is not available on assessment record. The assessee is also agitating that even in its own case no satisfaction was recorded as regard to its belongingness to certain incriminating documents seized from the premises of Shir Kiritbhai M. Shah. The learned counsel for the assessee further relied in the case of Pepsi co India Holding Pvt. Ltd. V. ACIT (2015) 370 ITR 295 (Delhi) (2014) 50 taxmann.com 199 (Delhi) wherein it was observed as follows: In the instant case, it is nobody's case that Jaipuria Group had disclaimed those documents as belonging to them. Unless and until it is established that the documents as belonging to them. Unless and until it is established that the documents do not belong to the searched person, the provisions of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... com 199(Delhi) where the Assessing officer is satisfied that any money , bullion jewellery or other valuable article or thing or books of account or other than the person referred to in section 153A.. In view of this phrase, it is necessary that before the provisions of section 15 C can be invoked, the Assessing officer of the searched person must be satisfied that the seized material (which includes documents) does not belong to the person referred to in section 153 A i.e., the searched person. In the satisfaction note, which is the subject matter of these writ petitions, there is nothing therein to indicate that the seized documents do not belong to the Jaipuria Group. This is even apart from the fact that there is no disclaimer on the part of the Jaipuria Group insofar as these documents are concerned. In the present case, there is not satisfaction that seized document belonged to the assessee. Ttherefore, proceeding initiated under section 153 C are bad in law. The similar issue had come up before the Hon ble High Court of Madhya Pradesh int he case of CIT Vs Mechmen (2015) 60 taxmann.com 484 (MP), wherein the Hon ble High court discussing the various judgments has held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court was also dismissed in the case of Munisuvrat Corporation (supra) reported as 115 taxmann.com 265. Based on this factual position, Ld. Counsel prays the Bench that assessment order framed under section 153C of the Act may be quashed. 31. We have heard both the parties on this legal issue and note that Assessing Officer should provide the satisfaction note that to the assessee, and if the Assessing Officer fails to do so, then in that situation assessment proceedings would became illegal and void ab initio, as held by the jurisdictional Hon'ble Gujarat High Court in the case of Munisuvrat Corportion (supra). 32. Without prejudice to above, ld Counsel also pleaded that addition for AY 2004-05 to 2007-08 are not valid as they are not based on any material found in the course of the search. The assessment for A.Y. 2004-05 to 2007-08 were framed u/s 153C of the Act, therefore the addition should be based on incriminating material found in the course of the search where assessment is pending. It is to be noted that for all these four years no assessment were pending as no notice u/s 142(1) or 148 were issued before issue of notice u/s 153C of the Act on 09.11.2009. To su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO without the aid of incriminating material found/unearthed during search. For coming to such a conclusion, we rely on the order of Hon ble Delhi High Court in CIT vs. Kabul Chawla (2016) 380 ITR 573 (Del), wherein their lordships have held as under: Summary of legal position 37. On a conspectus of Section 153A(1) of the Act, read with provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the total income of the aforementioned six years in separate will be onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis for the addition/disallowance, so we allow the appeal of the assessee. 37. The assessing officer did not allow index cost of acquisition in respect of land revenue, premium paid/payable, and payment to trusts. We note that these expenses were already on record and paid by the assessee to the Government. However, a part of the premium is still payable by assessee. The assessee did not hide any expenditure. It is also not the case of the assessing officer that assessee has paid land revenue, premium etc. to the Government out of unaccounted income. Therefore, search team did not find any new material, hence without incriminating material, the addition should not be made. We also note that assessee has not been provided satisfaction under section 153C of the Act, hence assessment framed by the assessing officer becomes invalid. Therefore, we delete the additions for assessment years 2004-05 to 2007-08. 38. Since, we have allowed the appeal of the assessee, based on the alternative plea raised by the ld Counsel that no incriminating material were unearthed by the search team during the search action, therefore, we do not deal with other arguments made by the ld Couns ..... 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