IT : Shares, expenses in relation to - Expenditure incurred for purpose of sub-division of shares for purpose of easy trading of shares in market is revenue in nature
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[2012] 26 taxmann.com 12 (Gujarat)
HIGH COURT OF GUJARAT
G.S.F.C. Ltd.
v.
Deputy Commissioner of Income-tax (Asstt.)*
Akil Kureshi and MS. Harsha Devani, JJ.
Tax Appeal No. 202 of 2000
August 14, 2012
Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1987-88 - Whether expenditure incurred for purpose of sub-division of shares for purpose of easy trading of shares in market is revenue in nature and, therefore, allowable - Held, yes [In favour of assessee]
FACTS
• The assessee incurred an expenditure of Rs. 4.12 lakh for the purpose of sub-division of its shares. It claimed same as revenue expenditure.
• The revenue disallowed the same by holding that it was capital in nature.
• The Tribunal confirmed the order of Assessing Officer by holding that the expenditure was incurred in connection with the capital structure of the company and gave the company an advantage of enduring nature.
• On appeal by assessee
HELD
• The expenditure admittedly was made for the purpose of sub-division of the shares. It is not even the case of the Department that by such arrangement, share capital of the assessee company in any manner increased. Such sub-division was made only for the purpose of easy trading of the shares in the market. Such arrangement, therefore, may result into some benefit for the shareholders of the company, nevertheless it is difficult to see as to how the revenue can argue that such division of shares resulted into any enduring benefit for the company. [Para 7]
• In case of sub-division of the shares, there is no increase in the share capital of the company. So much is not even seriously disputed by the revenue. His contention, however, that by virtue of such sub-division, the company gains enduring benefit is without any support from the record. [Para 10]
CASE REVIEW
CIT v. General Insurance Corpn. [2006] 286 ITR 232/156 Taxman 96 (SC) (para 10) followed.
CASES REFERRED TO
Punjab State Industrial Development Corpn. Ltd. v. CIT [1997] 225 ITR 792/93 Taxman 5 (SC) (para 2), Ahmedabad Mfg. & Calico (P.) Ltd. v. CIT [1986] 162 ITR 800/28 Taxman 306 (Guj.) (para 3), CIT v. General Insurance Corporation [2006] 286 ITR 232/156 Taxman 96 (SC) (para 5), CIT v. Dalmia Investment Co. Ltd. [1964] 52 ITR 567 (SC) (para 9) and Wood Craft Products Ltd. v. CIT [1993] 204 ITR 545 (Cal.) (para 9) .
Manish J. Shah and J.P. Shah for the Appellant. K.M. Parikh for the Respondent.
JUDGMENT
Akil Kureshi , J - The appellant - Gujarat State Fertilizers Co. Ltd., the assessee has preferred this appeal under section 260A of the Income Tax Act, 1961 ("the Act" for short) calling in question a judgement of the Income Tax Appellate Tribunal ("the Tribunal" for short) dated 4.5.2000. At the time of admission of the appeal, the following substantial question of law was framed:
"Whether, the expenditure of Rs. 4,12,595/- for sub-division of shares of the company is revenue expenditure and therefore allowable?"
2. The issue arises in following factual background. The assessment year concerned is 1987-88. During the period relevant to the assessment year in question, the assessee had incurred expenditure of Rs. 3 lakhs by way of payment to the Registrar of Companies for raising the limit of authorized share capital of the company. The assessee had also expanded a sum of Rs. 4,12,595/- for the purpose of sub-division of its shares. The assessee claimed such expenditure as revenue expenditure. The revenue authorities, however, disallowed both the expenditures holding that the same are capital in nature. The issues reached the Tribunal. The Tribunal by the impugned judgement, treated both the above questions of allowability of both the expenditures separately. With respect to the payment of Rs.3 lakhs made by the assessee to the Registrar of Companies for raising the limit of authorized share capital of the company, the Tribunal was of the opinion that the issue was covered squarely against the assessee by virtue of a decision of the Supreme Court in case of Punjab State Industrial Development Corpn. Ltd. v. CIT [1997] 225 ITR 792/93 Taxman 5 (SC).
3. With respect to the payment of Rs. 4,12,595/- towards the expenditure incurred by the assessee for the purpose of sub-division of its shares, the Tribunal noted that the same was for the purpose of easy trading of such shares in the market and was essentially for the benefits of the shareholders. The Tribunal was of the opinion that such expenditure incurred was connected with the capital structure of the company and gave the company an advantage of enduring nature. The Tribunal, therefore, held that the revenue authorities rightly disallowed such expenditure treating the same as capital in nature. The Tribunal referred to and relied upon the decision of this Court in case of Ahmedabad Mfg. & Calico (P.) Ltd. v. CIT [1986] 162 ITR 800/28 Taxman 306 (Guj.).
4. It is this issue which the assessee has carried in appeal before us. Learned counsel for the appellant submitted that by virtue of sub-division of the shares, what the assessee company achieved was to increase its share base. This was solely with the purpose of easy trading of the shares in the market. Such sub-division did not increase the share capital of the company and only benefited the shareholders.
5. Counsel further submitted that the decision of the Division Bench of this Court in case of Ahmedabad Mfg. & Calico (P.) Ltd. (supra) has been overruled by the Apex Court in case of CIT v. General Insurance Corporation [2006] 286 ITR 232/156 Taxman 96. Counsel submitted that the facts of the present case are even stronger inasmuch as, in the case before this Court in Ahmedabad Mfg. & Calico (P.) Ltd. (supra) and before the Apex Court in case of General Insurance Corporation (supra), involved expenditure which was for issuance of bonus shares, whereas in the present case, expenditure was incurred for the purpose of sub-division of shares which had no element whatsoever of any increase in the share capital of the company.
6. On the other hand, Shri Parikh for the respondent submitted that by sub-division of the shares, the company desired to achieve easy trading of shares in the market. Such arrangement would, therefore, affect the share structure of the company. Shareholders would benefit because of ease with which the shares could be traded. Such arrangement, therefore, would result into enduring benefit to the company. He, therefore, submitted that despite the decision of the Apex Court in case of General Insurance Corporation (supra), expenditure in the present case should still be treated as capital in nature.
7. Having thus heard the learned counsel for the parties, we notice that in the present case, the expenditure admittedly was made for the purpose of sub-division of the shares. It is not even the case of the Department that by such arrangement, share capital of the assessee company in any manner increased. Such sub-division was made only for the purpose of easy trading of the shares in the market. Such arrangement, therefore, may result into some benefit for the shareholders of the company, nevertheless we are unable to see how the revenue can argue that such division of shares resulted into any enduring benefit for the company.
8. The Division Bench of this Court in case of Ahmedabad Mfg. & Calico (P. ) Ltd. (supra) was examining the question of expenditure incurred by the company for the purpose of issuance of bonus shares. The Division Bench opined that when bonus shares are issued, two things take place : (i) bonus is paid to the shareholders; and (ii) wholly or partly paid-up shares are issued against the bonus payable to the shareholders. Thus, the shareholders invest the bonus paid to them in the shares and that is how the bonus shares are issued to them. The Court was of the opinion that these shares are rights shares and are, therefore, integral part of the permanent structure of the company and are not in any way connected with the working capital of the company which is utilized to carry on day to day operations of the business. The Court was, therefore, of the opinion that it would not be correct to say that no benefit whatsoever is derived by the company when its profits and/or reserves are converted into paid-up shares. The Court was of the opinion that capitalization of profits or reserves by issuance of bonus shares benefits the company inasmuch as the past accumulated profits are permanently retained in the business and this would increase the creditworthiness of the company. On such basis, the Court was of the opinion that issuance of bonus shares would result into enduring benefits of the company. Any expenditure incurred for such purpose should, therefore, be treated as capital in nature.
9. Such issue was examined by the Apex Court in case of General Insurance Corporation (supra). The Supreme Court was examining the question whether the expenditure incurred in connection with the issuance of bonus shares is a capital expenditure or a revenue expenditure. The Supreme Court noted that there was a conflict of opinion between different High Courts. The Gujarat High Court in case of Ahmedabad Mfg. & Calico (P.) Ltd. (supra) and certain other High Courts had taken a view that such expenditure would be capital in nature. On the other hand, the Bombay High Court and the Calcutta High Court had taken a contrary view. The Apex Court resolved the controversy holding that the issuance of bonus shares does not result in any inflow of fresh funds or increase in the capital employed. The capital employed remains the same. It was held that issuance of bonus shares by capitalization of reserves is merely a reallocation of the company's fund. In terms, the Apex Court held that the decision of the Gujarat High Court in case of Ahmedabad Mfg. & Calico (P.) Ltd. (supra) was contrary to the observations of the Supreme Court in the case of CIT v. Dalmia Investment Co. Ltd. [1964] 52 ITR 567. The Apex Court approved the decision of the Calcutta High Court in case of Wood Craft Products Ltd. v. CIT [1993] 204 ITR 545, making following observations :
"As observed earlier, the issue of bonus shares by capitalization of reserves is merely a reallocation of company's funds. There is no inflow of fresh funds or increase in the capital employed, which remains the same. If that be so, then it cannot be held that the Company has acquired a benefit or advantage of enduring nature. The total funds available with the company will remain the same and the issue of bonus shares will not result in any change in the capital structure of the company. Issue of bonus shares does not result in the expansion of capital base of the company.
The case Wood Craft Products Limited (supra) of the Calcutta High Court is similar to the case of the respondent. In that case as well there was increase of authorized share capital by the issue of fresh shares and a separate issue of bonus shares. The Calcutta High Court drew a distinction between the raising of fresh capital and the issue of bonus shares and held that expenditure on the former was capital in nature as it changed the capital base. On the other hand, in the case of bonus shares, was held to be revenue expenditure following the decision of the Supreme Court in Dalmia Investment Co. Ltd., (supra) on the ground that there was no change in the capital structure at all.
In our considered opinion, the view taken by the Bombay and Calcutta High Courts is correct to the effect that the expenditure on issuance of bonus shares is revenue expenditure. The contrary judgments of Gujarat and Andhra Pradesh High Courts are erroneous and do not lay down the correct law."
10. The issue, thus, stands squarely covered by the above decision of the Apex Court. It is, of course, true that in the present case, we are concerned with a slightly different nature of expenditure undertaken by the assessee company. Before the Supreme Court, the issue involved was regarding expenditure incurred in issuing bonus shares. In the present case, the expenditure is incurred for the purpose of sub-division of the shares. However, we do not see how the observations made by the Apex Court in the ratio laid down in case of General Insurance Corporation (supra) can be distinguished in view of such difference in facts. In case of sub-division of the shares also, there is no increase in the share capital of the company. So much is not even seriously disputed by the counsel for the revenue. His contention, however, that by virtue of such sub-division, the company gains enduring benefit is without any support from the record.
11. In the result, we answer the question in favour of the assessee. We allow the appeal to the above extent and reverse the decision of the Tribunal to the above extent. The appeal is disposed of accordingly.
IT : Assessment of search case made under Chapter XIV-B cannot be reopened under section 147
• Section 147 of the Act itself indicate that the same is in relation to income escaping assessment and applies in a case where income chargeable to tax has escaped assessment by virtue of either non-disclosure by way of non-filing of return, or non-disclosure by way of omission to disclose fully and truly all material facts for the purpose of assessment, or processing of material already available on record, if the same is within the stipulated period of limitation.
• Therefore, to contend that undisclosed income has escaped assessment despite an assessment having been framed under Chapter XIV-B of the Act by adopting the special procedure prescribed by the said Chapter is to contend what is inherently not possible. It cannot be a case of non-filing of return considering the provisions of section 158BC of the Act.
• It cannot be a case of non-disclosure of material facts considering the fact that everything which was undisclosed has already been unearthed at the time of search and the definition of "undisclosed income" itself indicates that not only what has been seized or recovered, but even income or property which has not been or would not have been disclosed for the purpose of the Act has been roped in.
• Furthermore, section 158BB of the Act also provides for not only for requisition of books of account or other documents, but on the basis of evidence found as a result of search and such other materials or information as are available with the Assessing Officer, undisclosed income of the block period shall be computed.
• Therefore, even if, assuming for the sake of argument, some income has not been disclosed in the return furnished under section 158BC of the Act, the Assessing Officer is bound to assess all undisclosed income after processing the entire material available with the Assessing Officer.
• The Assessing officer cannot be heard to state that undisclosed income has escaped assessment because the officer failed to apply his mind to the material available on record, there being no lack of disclosure.
Related case
CIT v. Usha International Ltd [2012] 25 taxmann.com 200 (Delhi)(FB) where it was held that Reopening of scrutiny assessment within the 4-year time limit cannot be challenged as "change of opinion" if subject matter of notice under section 148 was not examined by AO in original assessment under section 143(3) even though assessee had made full & true disclosures of all material facts in the original assessment proceedings under section 143(3). However, this decision was not in the context of an assessment made under Chapter XIV-B and distinguishable.
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[2012] 26 taxmann.com 185 (Agra - Trib.)
IN THE ITAT AGRA BENCH
Assistant Commissioner of Income-tax - 6, Jhansi
v.
Vidit Kumar Agarwal
BHAVNESH SAINI, JUDICIAL MEMBER
AND A.L. GEHLOT, ACCOUNTANT MEMBER
IT APPEAL NO. 279 (AGRA) o f 2011
C.O. No. 57 (Agra) of 2011
[ASSESSMENT YEAR 1999-2000]
OCTOBER 12, 2012
ORDER
A.L. Gehlot, Accountant Member - The appeal by the Revenue and the Cross Objection by the assessee have been filed against the order dated 31.03.2011 passed by the Ld. CIT(A)-II, Agra for the Assessment Year 1999-2000.
2. The grounds raised by the Revenue in its appeal are as under:-
"1. The Ld Commissioner of Income Tax (Appeals) has erred in law and on facts in holding the initiation of proceedings u/s 147 in the case as bad in law void ab-initio without properly appreciating the facts & circumstances of the case.
2. That the ld Commissioner of Income Tax (Appeals) has erred in law and on facts in holding the initiation of proceedings u/s 147 in the case as bad in law, void ab-initio ignoring the fact that in the absence of any separate and specific period of limitation for reopening of block assessment in Chapter XIV-B, the provisions contained in Chapter XIV prescribing the period of limitation for reopening of assessment must be understood to be applicable to assessment under Chapter XIV-B.
3. That the ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in holding the initiation of proceedings u/s 147 in the hands of individuals is justified in view of the ratio of decision of Hon'ble Guwahati High Court in the case of CIT v. Peer Chand Ratan Lal Baid HUF [2010] 322 ITR 544.
4. That the order of learned Commissioner of Income-tax (Appeals), Agra being erroneous in law and on facts deserves to be quashed and that of the Assessing Officer deserves to be restored.
5. That the appellant craves leave to add or alter any or more ground or grounds of appeal as may be deemed fit at the time of hearing of appeal."
3. The grounds raised by the assessee in its Cross Objection are as under :-
"1. (a) Because as no valid proceedings u/s 147 read with section 148 of the Act has been initiated in the case of the respondent, thus in the light of facts and in law the learned CIT(A)-II, Agra has correctly annul the reassessment framed by the AO.
(b) Because in any view of the facts of the case of the respondent assessee and in the light of relevant provisions of law the reassessment proceedings initiated by AO are illegal, bad in law and abinitio void and thus correctly annulled by the learned CIT(A)-II, Agra.
2. Because the learned CIT(A)-II, Agra grossly erred and transgressed his jurisdiction to give direction at page 12 of the impugned appeal order to concerned Ranges Heads to explore the possibilities of initiation of penalty proceedings u/s 271D of the Act for alleged prima-facie violation of section 269SS of the Act, though the issue relating to penalty u/s 271D of the Act was not subject matter of appeal or even under consideration of AO or learned CIT(A)-II, Agra.
3. Because the direction made by the learned CIT(A)-II, Agra to the concerned Range Heads to explore the possibilities of initiation of penalty proceedings u/s 271D of the Act for alleged prima-facie violation of section 269SS of the Act being both against the facts and in law thus the same is illegal and bad in law.
The respondent seeks permission to modify and/or add any other ground/grounds of cross objection as the circumstances of the case might require or justify."
4. The brief facts of the case are that on 03.06.1998 Police Authorities at Jhansi intercepted a car in which three persons namely Shri Ram Kishan Agarwal, Shri Vidit Kumar Agarwal (assessee) and Shri Deepak Agarwal were traveling. The Driver of the car was Shri Kamta Prasad Agarwal. On search of the vehicle, the Police authorities found cash of Rs. 32,34,600/- in three bags. The Police authorities recorded the statement of occupants of the car and the information was passed on to Income Tax Department. Consequently cash of Rs.32,34,600/- was requisitioned by the Department under section 132A of the Income Tax Act, 1961 ('the Act' hereinafter). As per the A.O. the assessment proceedings in the name of A.O.P. consisting of Shri Vidit Kumar Agarwal, Shri Ram Kishan Agarwal & Shri Deepak Agarwal were initiated under the provisions of Chapter XIVB of the Act. Thereafter all the three individual Shri Vidit Kumar Agarwal, Shri Ram Kishan Agarwal & Shri Deepak Agarwal filed Wit Petitions before the Hon'ble Allahabad High Court challenging the initiation of assessment proceedings. The Hon'ble High Court disposed of all these writs with the direction to the Department to decide as to whether the aforesaid amount which was seized was disclosed or undisclosed income of the petitioners and thereafter the Department should proceed in the matter. In consequence to the direction of the Hon'ble High Court, the DCIT, Circle-1, Jhansi passed an order dated 14.01.2000 and came to the conclusion that the seized amount was undisclosed income of these three persons from whose possession the cash was recovered and requisitioned under section 132A of the Act. Again the appellants filed second Writ Petitions before the Hon'ble High Court and the High Court dismissed the Writ Petitions holding that petitioners had the right to appeal under section 246A of the Act before the CIT(A). These three individuals filed appeal before the CIT(A) which was dismissed by the CIT(A). Again all the three persons filed Writ Petitions before the Hon'ble High Court. Again, the High Court dismissed the Writ Petitions holding that the appellant had right to appeal before the I.T.A.T.
5. Apart from the above proceedings, proceeding under section 158BC of the Act was initiated in the status of A.O.P. consisting of Shri Vidit Kumar Agarwal, Shri Ram Kishan Agarwal & Shri Deepak Agarwal. The assessment was made in the status of A.O.P. vide order dated 29.06.2000. The A.O.P. preferred appeal before the CIT(A). The CIT(A) vide his order dated 31.05.2002 held that the cash seized represented undisclosed income of the A.O.P. The A.O.P. further filed appeal before the I.T.A.T and the I.T.A.T. vide its order dated 20.01.2005 in IT(SS)A No.21/Agr/2002 allowed the appeal of A.O.P. by holding that the assessment in the status of A.O.P. was bad in law and, therefore, quashed the order passed under section 158BC of the Act. The relevant finding of I.T.A.T. which has been reproduced by the CIT(A) at page no.3 of his order from paragraph no.48 of the order of I.T.A.T. is as under :-
"So far as issue relating to assessee's claim that cash belonging to three individuals stand explained by them, we are of the opinion that in view of above discussion, the issue, so far as present assessee is concerned, is only academic because whether the cash was explained or unexplained, the fact remains that action can be taken only in the hands of individuals and not in the hands of AOP."
6. On receipt of I.T.A.T.'s order, the A.O. initiated proceedings under section 148 of the Act and made the assessment which is the impugned Assessment Order. The reasons for reopening recorded by the A.O. which is reproduced in Paper Book filed by the assessee at page nos.101 to 104 reads as under :-
"Reasons recorded u/s 147 of the Income-tax Act, 1961 in the case of Sri Vidit Kumar Agarwal, Behind Bandhu Press Sabun Gram, Mauranipur, Jhansi for A.Y. 1999-2000
According to brief facts of the case, on the night of 3.6.1998, Police Party at Jhansi intercepted a Maruti Car bearing Registration No.PB-08-T-8130 in which three persons namely Sri Ram Kishan Agarwal, Sri Vidit Kumar Agarwal and Sri Deepak Kumar Agarwal, in addition to the driver were travelling.
On checking by the Police, cash of Rs.32,34,600/- contained in three bags was found. The police had also found a slips from the possession of Sri Ram Kishan Agarwal containing the following details :-
| | " 10 × 491 - 4,91,00 | 8,41,400 |
| | 5 T | 4,91,000 |
| | "15 T | 3,50,400 |
| | | 32,34,600 |
| | Total Amount | 35,85,000 |
The Police recorded the Statements of three persons namely Sri Ram Kishan Agarwal, Sri Vidit Kumar Agarwal and Sri Deepak Kumar Agarwal. On 3.6.1998 the Police informed the Income-tax Authorities at Jhansi who requisitioned the cash recovered under section 132A of the Act on the basis of authorization issued by the Director (Income-tax) Kanpur and issued notices under section 131 of the Act in the case of all the aforesaid three individuals on 3.6.1998. In their statements, all the three persons stated that they were carrying the cash so seized for the purpose of real state property through Sri Kailash Agarwal (Kamarya) to whom the cash was expected to be handed over. As regards to source of acquisition of the cash, Sri Deepak Agarwal stated that the cash of Rs. 8,34,600/- belongs to him. The remaining Rs. 16,00,000/- and Rs. 8,00,000/- was admitted by Sri Vidit Kumar Agarwal and Sri Ram Kishan Agarwal respectively as belongs to them. The statement of above named Sri Kailash Agarwal (Kamariya) was also recorded on oath on which he denied to have any connection with the cash seized and even knowledge of any land deal with them. In view of the above, block assessment proceedings were started u/s. 158 BC of the Income-tax, 1961. In the meantime, the assessee filed writ petitions before the Hon'ble High Court, Allahabad challenging the requisition order dated 4.6.1998 and prayed or the stay of the block assessment proceedings. The Hon'ble Allahabad High Court, vide orders dated 19.3.1999, directed that the department would first decide as to whether the cash seized was disclosed or undisclosed income of the petitioners and therefore, they shall be entitled to proceed in the matter.
Consequent upon these orders of the Hon'ble High Court, Allahabad, the block assessment proceedings were stayed for the time being and in compliance with the directions of the Hon'ble High Court, a speaking order dated 14.1.2000 was passed by the AO, whereby after making necessary inquiries and the material brought on record, it was held by the AO that the entire cash seized was undisclosed income of the persons, namely S/Sri Sri Vidit Kumar Agarwal Ram Kishan Agarwal, and Sri Deepak Kumar Agarwal (AOP). The appeals filed before CIT(A)-II against three orders dated 14.1.2000 have been dismissed, upholding the action of the AO, vide orders dated 21.7.2000 in Appeal No.CIT(A)-II/20 and 2l/Cir.I/Jhs/2000-0l/596 and 597. After passing the orders dated 14.1 2000 by the Id CIT(A)-II, orders u/s 158BC(C) of the Income-tax Act, 1961 were passed by the AO on 29.6.2000. During the course, the assessee moved petitions u/s. 144A of the Income-tax Act, 1961 which were decided by the Ld. JCIT, Range-2, Agra vide his order dated 29.6.2000, issuing directions u/s. 144A of the income-tax Act, 1961 to the AO that the sum of Rs. 40,76,000/- should be added as undisclosed income of the assessee (AOP).
Further from the perusal of the order of the Ld. CIT (A)-II, Agra dated 21.7.2000, in the Individual appeal of Sri Ram Kishan Agarwal, S/o. Sri Shiv Ram Agarwal, Gursarain, Jhansi has observed as under :-
"In the circumstances when there is no nexus established between cash withdrawals from the bank and amount available with the appellant on the date of search, it can only be said that these withdrawals have been only used as a convenient explanation to explain the cash found on 3.6.1998. Sine no nexus has been established between the cash withdrawn on various dates and the cash in the possessions of three persons on 3.6.1998, it can't be said that it was the same money, merely on the basis of assessee's claim. The AO has analysed in depth before coming the conclusion on 14.1.2000 that the money found in possession of three persons S/Sri Ram Kishan Agarwal (appellant), Sri Deepak Kumar Agarwal (AOP) and also Sri Vidit Kumar Agarwal was found unexplained sources. It, was, therefore, held as undisclosed income of these persons. As there is no error such conclusion of the AO, it is upheld"
On the perusal of order dated 20.01.2005 by Hon'ble ITAT, Agra Bench, Agra in Para No.7 of the order which is emerged as under :-
"In the statement recorded by the Learned ACIT, Sri Ram Kishan Agarwal has admitted that cash of Rs.8 lacs belonged to him, whereas cash amounting to Rs.l6 lacs belonged to Sri Vidit Kumar Agarwal, and cash amounting to Rs.8,34,600/- belonged to Sri Deepak Agarwal."
Thus from the above, the Hon'ble ITAT has held that the cash so seize actually was belonging to the three individuals namely:-
1. Sri Ram Kishan Agarwal S/o Sri Shiv Ram Agarwal
2. Sri Vidit Kumar Agarwal
3. Sri Deepak Kumar Agarwal
The Hon'ble ITAT, Agra in the above order has further observed in Para No.42 on Page No.29 as under :-
"In view of the above discussion, we are of the opinion that there is OP and consequently no assessment could be frame in the status of AOP"
Again in Para No.37 on page No.26 of the above appellate order, it has further been observed that :-
"This aspect can further be considered in the light of evidences which was or could be available with the Director of Income-tax (Investigation), Kanpur and that evidence in the light of the facts and circumstances of the case could be as follows :-
(i) Information from the Police authorities for having intercepting the car and recovered the cash in question contained in three bags.
(ii) Statements of three concerned persons given before the police authorities and their admission to own their respective cash.
(iii) Statements recorded by the ACIT, Jhansi on 03.6.1998 of all the three individuals wherein they had owned their respective cash and explained the source of the same.
Once again, in the same order in para No.47 & 48 at Page No.33 it has again been held by the Hon'ble ITAT, Agra as under :-
"Para 47. Even otherwise we are further of the opinion that the issue is squarely covered by the decision of Hon'ble High Court, Allahabad in the case of Jaiswal Motor Finance (Supra) because all the three individuals having accepted the cash as belonging to them or as theirs cash, no addition could be made in the hands of AOP"
Para 48. "So far as issue relating to the assessee's claim that cash belonging to three individuals stand explained by them, we are of the opinion that in view of the above decision, this issue, so far as present assessee is conceded, is only academic because whether the cash was explained or unexplained, the fact remains that action can be taken only in the hands of individual and not in the hands of AOP".
In view of the above facts, I have reason to believe that income of Rs. 16,00,000/- chargeable to tax has escaped to tax within the meaning of Section 147/150(1) of the Income-tax Act, 1961. In order to bring the income chargeable to tax under the tax net, approval may kindly be accorded to issue notice u/s 148 of the Income-tax Act, 1961."
7. The assessee filed an appeal before the CIT(A) challenging the validity of reopening on the ground that in case of documents or any asset requisitioned under section 132A, then the A.O. shall proceed to assess the undisclosed income in accordance with the provisions of Chapter XIVB of the Act. The CIT(A), after considering the assessee's submissions and various judgements and orders, found that the reassessment proceedings are void ab-initio. The relevant finding of CIT(A) is reproduced as below :-
"2.1 I have analysed the matter and I agree with the Ld. AR that where books of accounts, assets etc. have been requisitioned after 30.6.1995, the AO can only invoke the provisions of Chapter XIV B and cannot take action under the provisions of sec. 147 of the Act. I also agree with the Ld. AR that the Hon'ble ITAT while deciding the appeal in the case of the AO has not given any direction to the AO to initiate proceedings u/s 147 of the Act. I am of the opinion as the cash had been requisitioned u/s132A of the Act, therefore, the action had to be taken under the provisions of Chapter XIVB of the Act notwithstanding whether in the case of AOP or individuals. For this proportion of law reliance is placed on the judgement of Cargo Clearing Agency Gujrat v. JCIT (307 ITR 1) (Guj) the held portion of which reads as under :-
"When one considers the entire scheme relating to procedure for assessment/reassessment s laid down in the group of sections from sec.147 to sec.153 and compares the same with special procedure for assessment of search cases under Chapter XIVB it becomes apparent that the that the normal procedure laid down in Chapter XIV has been given a go bye when chapter XIVB itself lays down that the said chapter provides for a special procedure for assessment of search cases. The stand of revenue that sec. 158BH permits all other provisions of the Act to apply to assessment made under chapter XIVB does not merit acceptance. Sec. 158BH begins with the words 'save as otherwise provided in this chapter. Therefore, before going to any other provision of the Act one has to consider whether any provision has been made in chapter XIVB which is dealing with the assessment of undisclosed income so as to warrant exclusion of other provisions of the Act. Not only this, the chapter heading indicates that the chapter is relatable to a distinct self contained procedure for assessment of search cases, and when one considers the relevant provisions of the chapter this becomes abundantly clear. On a plain reading of sec. 158BH it becomes apparent that once a provision has been made for assessment under chapter XIVB no other proviso of the act shall be applicable, but if there is no provision made in chapter XIVB all other provisions of the Act shall apply to assessment made under chapter XIVB. The sec, 158BH does not stipulate application of other provisions of the Act to an assessment to be made under chapter XIVB, but requires applicability of other provisions of the Act to an assessment already made under chapter XIVB. The said provision, by adopting the principle of incorporation, provides for applicability of other provisions of the Act to an assessment which is, already made to ensure that the machinery provisions, like provisions for recovery etc., have not to be engrafted in chapter XIVB, sec. 158BA opens with non obstante clause and provides that in a case of search initiated after 30th June, 1995 the AO shall proceed to assess the undisclosed income in accordance with provisions of chapter XIVB, notwithstanding anything contained in any other provisions of the Act. Therefore, provisions of sec. 158BA(1) have to be read in conjunction with sec. 158BH. The legislature has provided a special procedure for assessment of search cases and assessment has to be framed in accordance with the provisions of chapter XIVB. On a harmonious reading of both sec. 158BA and sec. 158BH, it becomes clear that only where a provision is not made in chapter XIVB providing for a special, procedure for assessment will other provisions of the Act be made applicable."
Also, recently Hon'ble High Court of Kerala in the case of CIT v. Sivanandan (52 DTR) Ker. 428 held that once the AO proceeds to make block assessment u/s 1588C based on materials gathered during search u/s 132 he cannot proceed to make reassessment u/s 147 on the basis of same material. Reliance in this regard has been aptly placed by the Ld. AR, on the following case laws :-
(i) Mangal Singh, HUF v. ACIT 42 DTR 58 (Del)
(ii) Western India Baker (P) Ltd. v. ACIT 87 ITD 607 (Mum.)
Following these judgements I hold that initiation of reassessment proceedings in both the cases was avoid ab-initio and, therefore, I annul the assessments framed by AO, in case of both the appellants. It is not considered necessary to adjudicate upon other grounds of appeal as I have annulled the assessments. However, the concerned Range Heads are directed to explore the possibilities of initiation of penalty proceedings u/s 271D of the Act as there is prima-facie violation of sec.269SS of the Act."
8. We have heard the ld. Representatives of the parties and records perused. The issue under consideration is whether under the facts and circumstances of the case, the A.O. can initiate reopening proceedings under section 147 of the Act by issuing notice under section 148 dated 31.10.2005 where cash has been requisitioned under section 132A dated 30.06.1998 (block period 01.04.1988 to 04.06.1998) of the Act. To examine the issue, we would like to discuss some aspects of the relevant schemes of the Act. Chapter XIV of the Act, in juxtaposition, provides for procedure for assessment. Sections 147 of the Act deals with income escaped assessment. An Assessing Officer may assess or reassess any income chargeable to tax which has escaped assessment "for any assessment year" if the Assessing Officer has reason to believe that such income has escaped assessment. The power to assess or reassess such income and also any other income which is liable to tax and has escaped assessment is subject to the provisions of sections 148 to 153 of the Act. Under section 147 of the Act, the Assessing Officer is empowered not only to assess or reassess income which has escaped assessment but also recompute the loss or depreciation allowance or any other allowance, as the case may be. Explanation 2 to section 147 of the act lays down three classes of cases wherein it shall also be deemed to be a case where the income chargeable to tax has escaped assessment. Proviso to section 147 of the Act stipulates that no reassessment proceedings shall be commenced after the expiry of four years from the end of the relevant assessment year in a case where assessment has been framed under section 143(3) of the Act or under section 147 of the Act for the relevant assessment year, unless income has escaped assessment for such assessment year by reason of failure or omission to either to file return under section 139 of the Act, or in response to notice under section 142(1)or section 148 of the Act, or to disclose fully and truly all material facts necessary for the assessment of that assessment year.
8.1 Under section 148 of the Act, the Assessing Officer is required to serve on the assessee a notice requiring the assessee to furnish within the prescribed period a return of income, but even before issuing such notice under section 148 of the Act, the Assessing Officer is mandated under sub-section (2) of section 148 of the Act to record reasons. The return of income which an Assessing Officer may call for from an assessee is in relation to income which has escaped assessment, for which an assessee is assessable under the Act during the previous year corresponding to the relevant assessment year.
8.2 The Chapter XIV-B of the Act lays down a special procedure for assessment of search cases. When one considers the entire scheme relating to procedure for assessment/reassessment as laid down in the group of sections from section 147 to section 153 of the Act and compares the same with special procedure for assessment of search cases under Chapter XIV-B of the Act it becomes apparent that the normal procedure laid down in Chapter XIV of the Act has been given a go by. Under section 158B of the Act, "block period" and "undisclosed income" have been defined. Section 158BA of the Act opens with non obstante clause and provides that in a case of search initiated after June 30, 1995, the Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions of Chapter XIV-B of the Act, notwithstanding anything contained in any other provisions of the Act. Therefore, the provisions of section 158BA(1) of the Act have to be read in conjunction with section 158BH of the Act. The Legislature has provided a special procedure for assessment of search cases and assessment has to be framed in accordance with the provisions of Chapter XIV-B of the Act. On a harmonious reading of both sections 158BA and section 158BH of the Act it becomes clear that only where a provision is not made in Chapter XIV-B of the Act providing for a special procedure for assessment will other provisions of the Act be made applicable. Thus, on a plain reading of provisions of Chapter XIV-B of the Act, it becomes apparent that once a provision has been made for assessment under Chapter XIV-B of the Act, no other provision of the Act shall be applicable, but if there is no provision made in Chapter XIV-B of the Act, all other provisions of the Act shall apply to assessment made under Chapter XIV-B of the Act.
8.3 Section 158BB of the Act provides for modality of computation of undisclosed income of the block period. Such undisclosed income of the block period has to be the aggregate of the total income of the previous yeas falling within the block period. If the different aggregates which are provided for in clauses (a) to (f) are seen, it becomes clear that the computation of undisclosed income is first made in accordance with the provisions of the Act, thereafter reduction or increase as is provided in different clauses has to be made, and the Explanation indicates the exceptions. Clause (f) under sub section (1) of section 158BB of the Act provides for reducing the aggregate total income computed for the block period by the aggregate of the total income, in case where assessment for undisclosed income had been made earlier under clause (c) of section 158BC, on the basis of such assessment. In other words, it only means that where previous assessment has been framed under Chapter XIV-B of the Act the aggregate of such total income assessed for the block period in case of a search where block period is a different block period from the earlier block period, while assessing for a subsequent block period, such earlier aggregate has to be deducted. When this provision is read in the context of section 158BC, more particularly the first proviso thereunder, it becomes clear that the Legislature does not intend to reopen a block assessment. Any such interpretation would run counter to the legislative intent as noted hereinbefore from the contemporaneous exposition through the Memorandum Explaining the Finance Bill as well as various Circulars issued by the Central Board of Direct Taxes explaining different amendments.
8.4 Section 158BC of the Act itself indicates that where the Legislature wanted to incorporate other provisions of the Act a specific mention has been made, when a provision has been made for adopting sections 142, 143, 144 and 145 of the Act. Contra, where the Legislature does not want a provision, not falling within Chapter XIV-B of the Act, to be resorted to the two provisos under clause (a) of section 158BC of the Act have specifically made this clear. The first proviso stipulates that no notice under section 148 is required to be issued for the purpose of proceeding under Chapter XIV-B of the Act. The second proviso stipulates that person, who has already furnished a return under section 158BC (a) of the Act, shall be entitled to file a revised return as provided for in section 139(5) of the Act. Thus, these provisions are inherent indicators in the special procedure scheme to show that suction 158BH of the Act has limited application. There is one more aspect of the matter. Entire Chapter XIV-B of the Act relates to assessment of search cases, viz., undisclosed income found as a result of search. One cannot envisage escapement of undisclosed income once a search has taken place and material recovered, on processing of which undisclosed income is brought to tax. Section 147 of the Act itself indicate that the same is in relation to income escaping assessment and applies in a case where either income chargeable to tax has escaped assessment by virtue of either non-disclosure by way of non-filing of return, or non-disclosure by way of omission to disclose fully and truly all material facts for the purpose of assessment, or processing of material already available on record, if the same is within the stipulated period of limitation. Therefore, to contend that undisclosed income has escaped assessment despite an assessment having been framed under Chapter XIV-B of the Act by adopting the special procedure prescribed by the said Chapter is to contend what is inherently not possible. It cannot be a case of non-fling of return considering the provisions of section 158BC of the Act. It cannot be a case of non-disclosure of material facts considering the fact that everything which was undisclosed has already been unearthed at the time of search and the definition of "undisclosed income" itself indicates that not only what has been seized or recovered, but even income or property which has not been or would not have been disclosed for the purpose of the Act has been roped in. Furthermore, section 158BB of the Act also provides for not only for requisition of books of account or other documents, but on the basis of evidence found as a result of search and such other materials or information as are available with the Assessing Officer, undisclosed income of the block period shall be computed. Therefore, even if, assuming for the sake of argument, some income has not been disclosed in the return furnished under section 158BC of the Act, the Assessing Officer is bound to assess all undisclosed income after processing the entire material available with the Assessing Officer. The Assessing officer cannot be heard to state that undisclosed income has escaped assessment because the officer failed to apply his mind to the material available on record, there being no lack of disclosure.
8.5 To appreciate the issue, we would like refer some relevant judgments. Hon'ble Gujarat High Court in the case of Cargo Clearing Agency (Gujarat) v. JCIT, 307 ITR 1 (Guj) held as under: (page no.29)
"Thus, viewed from any angle, the stand of the Revenue does not merit acceptance. Once assessment has been framed under section 158BA of the Act in relation to undisclosed income for the block period as a result of search there is no question of the Assessing Officer issuing notice under section 148 of the Act for reopening such assessment as the said concept is abhorrent to the special scheme of assessment of undisclosed income of block period. At the cost of repetition it is required to be stated and emphasized that the first proviso under section 158BC(a) of the Act specifically provides that no notice under section 148 of the Act is required to be issued for the purpose of proceeding under Chapter XIV-B of the Act.
In the circumstances, the impugned notice dated April 16, 1999, under section 148 of the Act cannot be upheld and is hereby quashed and set aside."
8.6 Hon'ble Kerala High Court in the case of CIT v. Sivanandan (52 DTR) Ker. 428 wherein it has been held that once the A.O. proceeds to make block assessment u/s. 158BC based on materials gathered during search u/s 132, he cannot proceed to make reassessment u/s 147 on the basis of same material.
8.7 The Hon'ble Guwahati High Court has considered the judgement of Hon'ble Gujarat High Court in the case of Cargo Clearing Agency (Gujarat) v. JCIT and observed that the view taken by the Hon'ble Gujarat High Court does not take care of situation that has arisen in the case before the Guwahati High Court. The Court has also examined section 158BC(a) of the Act including first proviso to section 158BC(a) of the Act. The relevant finding of the Court is reproduced as below :-
(322 ITR page no.557)
"The exclusion of section 148 by the first proviso to section 158BC(a) of the Act has been understood by us to be in the context of the notice that is required to be issued by the Assessing Officer following an action taken under section 132 and/or section 132A of the Act, as the case may be. Such notice, in the fact of a concluded assessment for any of the assessment years included in the block period, may partake of the character of reopening such an assessment, to clarify which the first proviso to section 158BC(a) has been inserted. The question that confronts the court in the present case is a stage after conclusion of the assessment for the block period whereas the aforesaid proviso deals with the stage of initiation of the block assessment proceeding.
Consequently and in the light of the foregoing discussions while dismissing the appeal of the Revenue we deed it proper and appropriate to record our conclusion that the provisions of section 147/148 will apply to an assessment for block period made under Chapter XIV-B of the Act. The appeal is consequently dismissed subject to our views as made above."
8.8 Hon'ble M.P. High Court in case of Ramballabh Gupta v. ACIT & Others, 288 ITR 347 (M.P.) wherein it has been held that the A.O. does not have jurisdiction to issue notice under section 148 of the Act in respect of those 6 Assessment Years which falls within the exclusive jurisdiction of section 153A of the Act.
8.9 In the light of above discussion, if we consider the facts of the case under consideration, we notice from the admitted facts that the stage of impugned assessment is not an assessment made under section 147/148 of the Act after completion of block assessment but it is a case of original block assessment itself. Therefore, the judgement of Hon'ble Guwahati High Court relied upon by the Revenue does not help to the Revenue, rather this judgement is against the Revenue as the Court has clearly held that the proviso deals with the stage of initiation of block proceeding and the said proviso provides that no notice under section 148 is required to be issued for the purpose of proceedings under the Chapter XIV of the Act whereas in the case under consideration, the A.O. initiated proceedings under section 147 by issuing notice under section 148 of the Act for the A.Y. 1999-2000 which is a part of block period assessment and there was no original block period assessment. Under the facts and circumstances, the action taken by the A.O. is not in accordance with law. The material based on which the A.O. reopened the regular assessment is the material pertained to requisition under section 132A of the Act and such material is subject to only block assessment. The Hon'ble M.P. High Court in case of Ramballabh Gupta v. ACIT & Others, 288 ITR 347 (M.P.) wherein it has been held that the A.O. does not have jurisdiction to issue notice under section 148 of the Act in respect of those 6 Assessment Years which falls within the exclusive jurisdiction of section 153A of the Act. The Hon'ble High Court of Kerala in the case of CIT v. Sivanandan, 52 DTR Kerala 428 held that once the A.O. proceed to make block assessment under section 158BC based on material gathered during the search under section 132, he cannot proceed to make reassessment under section 147 on the basis of same material.
9. In the light of above discussions, the CIT(A) has rightly quashed the assessment order framed by the A.O. The order of the CIT(A) is confirmed on the issue.
Cross Objection No.57/Agr/2011 by the assessee
10. Ground no.1 of the Cross Objection is in support of order of the CIT(A).
11. Ground nos. 2 & 3 are in respect of some observation of CIT(A) directing the A.O. to explore the possibility of initiation of penalty proceedings under section 271D of the Act.
12. After hearing the ld. Representatives of the parties, we find that when the CIT(A) has annulled the assessment made by the A.O., under the circumstances, such unwarranted direction and observation are not required. Therefore, the same are deleted.
13. The assessee in it's C.O. has raised some additional grounds which read as under : -
"1. Because no valid reassessment proceedings u/s 147 read with sec. 148 of I.T. Act, 1961 have been initiated in case of the assessee.
2. Because in any view of the case of the assessee, the sources of cash amounting to Rs.16 lakhs requisitioned u/.s 132(A) of I.T. Act, 1961 by the department were beyond doubt explained and thus the learned AO has erred both in law and on facts in treating the same to be unexplained.
3. Because the learned CIT(A)-II, Agra has erred both in law and on facts in not adjudicating all grounds of appeal raised by the assessee in the appeal memo."
14. The additional grounds raised in the Cross Objection are in respect of merit of the case. The CIT (A) has annulled the assessment on legal issue and mentioned that he did not consider it necessary to adjudicate upon other grounds of appeal. We have confirmed the order of CIT (A) on legal issue. Under the circumstances, we are also of the view that the CIT (A) has rightly held that the other grounds need not to be adjudicated upon. In the light of the facts, the additional grounds raised are dismissed, as the legal issue has been decided in favour of the assessee.
15. In the result, appeal of Revenue is dismissed and Cross Objection of the assessee is partly allowed, as discussed above.
IT : Applicability of section 50C - Deeming provisions as contained in section 50C can be invoked in case of seller of property and not in case of purchaser of property for purpose of section 69B
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[2012] 26 taxmann.com 13 (Ahmedabad - Trib.)
IN THE ITAT AHMEDABAD BENCH 'D'
Deputy Commissioner of Income-tax, Circle-9
v.
Virjibhai Kalyanbhai Kukadia*
MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER
AND ANIL CHATURVEDI, ACCOUNTANT MEMBER
IT APPEAL NO. 372 (AHD.) OF 2010
[ASSESSMENT YEAR 2006-07]
AUGUST 31, 2012
Section 50C, read with section 69B, of the Income-tax Act, 1961 - Capital gains - Full value of consideration in certain cases - Whether section 50C is a deeming provision where under stamp duty rate is treated as full value of consideration for purpose of computing capital gain under section 48 - Held, yes - Whether it is applicable to seller of property and therefore, cannot be invoked in case of purchaser of property for purpose of section 69B - Held, yes - Whether where Assessing Officer estimated value of land purchased by assessee by relying on prevailing jantry price of land without bringing any material on record to prove that assessee had in fact made investments over and above than that recorded in books, no addition could be made under section 69B by invoking section 50C - Held, yes [In favour of assessee]
FACTS
Facts
• The assessee had acquired land.
• The Assessing Officer was of the view that there was lots of variation between the purchase price shown by the assessee and the jantry price and therefore the purchase price as shown by the assessee was quite low.
• He observed that the assessee had paid additional stamp duty on the land acquired.
• The assessee was asked to clarify and show cause as to why not investment of land be estimated at the prevailing jantry rates and treated as undisclosed investments.
• The assessee inter alia submitted that the jantry price could not be used as a measure to work out estimated investment in the absence of corroborative evidence. It was further submitted that the though the purchase was executed much earlier (in the Financial year 2000-01) at the then prevailing price, the assessee could not execute the documents at that time.
• It was further submitted that there were certain adverse peculiar facts like disputed property, dispute about reservation for University etc., which had impact on the purchase price.
• He also submitted that provision of section 50C could not be invoked to make addition under section 69B and the ingredients for invoking section 69B were absent.
• The Assessing Officer rejected said contention estimated the value of land after considering the prevailing jantry price of land as on 31-3-2005 and worked out the net undisclosed investment at Rs. 2,56,26,205.
• On appeal, the Commissioner (Appeals) held that the provisions of section 50C is applicable in the case of a seller of property and cannot be invoked in the case of purchaser of property for the purpose of section 69B.
• He therefore deleted, addition made under section 69B.
Argument of department
• The department submitted that the assessee had not submitted any documentary evidence to prove that the deal for purchase of land had taken place in financial year 2000-01.
Argument of assessee
• On the other hand the assessee submitted and placed on record the copies of the agreements and its English translation and from it he pointed out to the fact that the payment for the land had been made in financial year 2000-01 and the enjoyment of the property was transferred in financial year 2005-06 at the prevailing market price.
Issue for consideration
• Whether section 50C can be involved for making addition under section 69B in hands of purchaser?
HELD
Analysis of section 69B
• Section 69B is a deeming fiction. It is provided that addition can be made by the Assessing Officer when the following three conditions are satisfied:
(1) If it is found that the assessee has made investment or the assessee is found to be the owner of any bullion, jewellery or other valuable article, and
(2) If it is found that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in that behalf in the books of account maintained by the assessee, and
(3) Either the assessee offers no explanation about such extra amount or the explanation offered by him is not satisfactory. [Para 8]
• The above conditions are cumulative. If all these circumstances exist the excess amount may be deemed to be the income of the assessee for the financial year in which the said investment was made or the assessee became the owner of bullion etc. [Para 9]
Analysis of section 50C
• Section 50C is a deeming provision where under the stamp duty rate is treated as full value of consideration for the purpose of computing capital gain under section 48. It is applicable to the seller of property and therefore cannot be invoked in case of purchaser of property for the purpose of section 69B.
• The Commissioner (Appeals) has given a finding that the Assessing Officer has not made any independent enquiry or collected corroborative evidence to justify the addition. [Para 11]
• In the case of ITO v. Harley Street Pharmaceuticals Ltd. [2010] 38 SOT 486 (Ahd.) it has been held that provisions of section 50C are applicable only for computation of capital gains in real estate transaction in respect of seller only and not for the purchaser. Legal fiction cannot be extended any further and has to be limited to the area for which it is created. Section 50C creates a legal fiction for taxing capital gains in the hands of the seller and it cannot be extended for taxing the difference between apparent consideration and valuation done by Stamp Valuation Authorities as undisclosed investment under section 69. [Para 14]
Conclusion
• In view of the totality of aforesaid facts and relying on the decisions of the High Courts and of the co-ordinate Bench, it is held that provisions of section 50C cannot be applied for making addition under section 69B. In the instant case, since the Assessing Officer has relied on the jantry rates without bringing any material on record to prove that assessee had in fact made investments over and above than that recorded in the books, no addition could be made in the instant case and therefore no interference is called for to the order of the Commissioner (Appeals). Thus the order of the Commissioner (Appeals) is upheld. In the result the appeal of the revenue is dismissed. [Para 15]
CASE REVIEW
CIT v. Naresh Khattar (HUF) [2003] 261 ITR 664/130 Taxman 15 (Delhi); Smt. Amar Kumari Surana v. CIT [1997] 226 ITR 344/[1996] 89 Taxman 544 (Raj.) and ITO v. Harley Street Pharmaceuticals Ltd. [2010] 38 SOT 486 (Ahd.) (para 15) followed.
CASES REFERRED TO
CIT v. Naresh Khattur, HUF [2003] 261 ITR 664/130 Taxman 15 (Delhi) (para 7), Smt. Amar Kumari Surana v. CIT [1997] 226 ITR 344/[1996] 89 Taxman 544 (Raj.) (para 7) and ITO v. Harley Street Pharmaceuticals Ltd. [2010] 38 SOT 486 (Ahd.) (para 7).
D.P. Gupta for the Appellant. R.N. Vepari for the Respondent.
ORDER
Anil Chaturvedi, Accountant Member - This appeal is filed by the Revenue against the order of CIT (A)-V, Surat dated 12-10-2009 for the assessment year 2006-07.
2. The Revenue has raised following grounds:
"1. The Ld. CIT (A)-V, Surat has erred in facts and in law in deleting the addition made by the A.O. at Rs. 2,56,26,205/- u/s. 69B despite the fact that all evidences collected by the A.O. proved unaccounted investment by the assessee."
2. The Ld. CIT (A) has erred in facts and in law in deleting the addition made by the A.O. Rs. 2,56,25,205/- u/s. 69B despite the fact that comparable sale instances by a state body like SUDDA (Surat Urban Development Authority) also showed rates higher than that paid by the assessee."
3. Since ground No.1 and 2 are interconnected the same are disoposed of together for the sake of convenience.
4. Assessee is an individual engaged in the business of diamond manufacturing and its import and export. The assessee filed his return of income on 26-2-2007 declaring total income of Rs.77,63,910/-.The case was selected for scrutiny. During the course of assessment from the particulars furnished by the assessee the A.O. noticed that assessee had acquired following properties:
| Property Name | Area | Value Rs. | Rate per Sq. Mtr Rs.. | Rate as per old jantry price | Rate as per new jantry. Rs. |
| Agricultural land 112 Althan | 13182 Sq. Mtr. | 47,18,936 | 357/ sq.mtr. | Rs.1500/-sq.mtr. | 7500/ sq.mtr. |
| Agri. land 121 Bharthana | 8802 Sq. Mtr. | 31,58,160 | 358/sq. mtr. | Rs.600/-Sq.Mtr. | 4500/-Sq.Mtr. |
| Agri. land 115 Bharthana | 5716 Sq. Mtr. | 18,50,899 | 323/sq.mtr. | Rs.600/-sq.mtr. | 4500/ Sq.mtr. |
| Agri. land 24 Rundh | 9713 | 9,00,000 | 92/sq.mtr. | Rs. 800/-sq.mtr. | 8000/-Sq.mtr. |
The A.O. was of the view that there was lot of variation between the purchase price shown by the assessee and the jantry price and therefore the purchase price as shown by the assessee was quite low. The A.O. observed that the assessee had paid additional stamp duty on the land acquired. The assessee was asked to clarify and show cause as to why not the investment of land be estimated at the prevailing jantry rates and treated as undisclosed investments. The assessee interalia submitted that jantri price cannot be used as a measure to work out estimated investment in the absence of corroborative evidence. It was further submitted that the though the purchase was executed much earlier (in the F.Y. 2000-2001) at the then prevailing price, the assessee could not execute the documents at that time. It was further submitted that there were certain adverse peculiar facts like disputed property, dispute about reservation for University etc., which had impact on the purchase price. The assessee also submitted that provision of section 50C cannot be invoked to make addition u/s. 69B and the ingredients for invoking section 69B were absent. The assessee also relied on a number of judgments. The contentions of the assessee were not found acceptable by the A.O. The A.O. after considering the prevailing jantry rates and proposed jantry rates (effective from 1-4-2008) and after considering certain instances of market price concluded that the price at which the sale deed were executed were quite low. In order to determine the correct value of the properties, the A.O. referred the matter to DVO. Since the case was getting time barred and report from DVO was still pending, he went ahead and estimated the value of land after considering the prevailing jantry price of land as on 31-3-2005 and worked out the net undisclosed investment at Rs. 2,56,26,205/-. Aggrieved by the action of the A.O., the assessee carried the matter before CIT(A).
4.1 Before CIT(A) it was submitted by the assessee that the deeming provisions as contained in section 50C cannot be applied while invoking Sec. 69B. It was further submitted the addition u/s. 50C can only be made in the hands of the seller and no provisions of the Act permits the A.O. to estimate transaction price and add the difference in the hands of purchaser. CIT(A) agreed with the contentions of the assessee and deleted the addition by holding as under:
"10. I have carefully considered the assessment order and submission made by the A.R. and case laws before me. I have gone through the paper book produced before me. The short issue is regarding invoking of section 69B with regard to investments made by the assessee in purchase of land. Section 69B provides:
"Where in any financial year the assessee has made investments or is found to be owner of any bullion, jewellery or other valuable articles and [assessing] office finds that the amount expended on making such investment or acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of income, and the assessee offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the [assessing] officer, satisfactory, the excess amount may be deemed to be the income of the Assessee for such financial year".
11. It is clear from the aforesaid provision that there has to be a finding of fact that the assessee has expended investment more than what is recorded in the books and for such excess investment the assessee has no explanation or the explanation given is not found satisfactory by the assessing officer. In such a case the excess investment can be considered as unexplained and added u/s.69 of the Act. In this case undisputedly the appellant had under taken purchase of land and the purchase prices as shown in the sale deeds are recorded in the books of accounts. The Assessing Officer estimated the purchase price higher than what is shown by the appellant in the books of accounts. While estimating the purchase price, the assessing officer has relied on jantry price prevailing in that year.
12. In my view, the burden is on the assessing officer to prove that the amount expended in making investment in the property exceeds the amount recorded in the books. The Assessing Officer relied on the jantry and on that basis presumed that the amount expended is more than the amount recorded in the books. Such presumption can not be the basis for making the addition as the Assessing Officer has not made any independent enquiry or collected corroborative evidences to justify the addition. The Assessing Officer has failed to bring on record any relevant material to support his estimated transaction price. The jantry price can be treated as an evidence for the limited purpose of section 50C. The same can be construed as guide to indicate that investment recorded in books is under estimated. But this fact alone is not good enough to justify the addition on account of undisclosed investment in the property. Much more was required to be done by Assessing Officer by way of adducing supporting evidences to sustain the addition u/s. 69B, which has not been done nor brought out in the assessment order.
13. The only provision under the Act where recourse to the value adopted by the State Valuation authorities can be taken is section 50C. There is no other section in the Act which authorities the Assessing Officer to take any action particularly under section 69B by placing reliance on the value adopted by the State Valuation authority commonly known as jantry price. Here also, section 50C is very specific and contains a deeming provision whereunder the value as per jantry price is treated as full value of consideration for the purpose of computing capital gain under section 48. This provision is applicable in the case of a seller of property and cannot be invoked in the case of purchaser of property for the purpose of section 69B. This has been held by the Ahmedabad Bench of ITAT in ITA No.1749/Ahd/2008 dated 29-8-2008 in the case of Bharatkumar N. Patel. In view of this and in the absence of fulfilling the basic requirements of section 69B I am inclined not to agree with the addition made by the Assessing Officer. The Assessing Officer, is therefore directed to delete Rs. 2,56,26,205/- made under section 69B of the Act."
5. Aggrieved by the action of CIT(A), the Revenue is now in appeal before us.
6. Before us the Ld. D.R. submitted that the assessee had not submitted any documentary evidence to prove that the deal for purchase of land had taken place in F.Y. 2000-01.The Ld. D.R. further submitted that the price at which the assessee had shown the purchase of land is far below the market rates and the government rates. He further submitted that the market rate, revised jantry rates of the price of lands and the jantry price of land for F.Y. 2005-06 give the idea of market rate prevailing in F.Y. 2005-06. The contention of the assessee that the land is different from the land sold by Surat Urban Development Authority (SUDA) through auction is not supported by any documentary evidence. He thus submitted that the order of the Assessing Officer be upheld.
7. On the other hand the Ld. A.R. submitted and placed on record the copies of the agreements and its English translation and from it he pointed out to the fact that the payment for the land have been made in F.Y. 2000-01 and the enjoyment of the property was transferred in F.Y. 2005-06 at the prevailing market price. In such case the question of considering the jantri rates or comparable rates of subsequent period cannot be applied. The land that was purchased was on the outskirts of the city and was not developed at the time of its purchase. It was further submitted that provisions of section50C cannot be applied while making addition u/s. 69B. He thus urged that the order of CIT(A) be upheld. The Ld. A.R. also relied on the decisions in the case of CIT v. Naresh Khattar HUF [2003] 261 ITR 664/130 Taxman 15 (Delhi), Smt. Amar Kumari Surana v. CIT [1997] 226 ITR 344/[1996] 89 Taxman 544 (Raj.), ITO v. Harley Street Pharmaceuticals Ltd. [2010] 38 SOT 486 (Ahd.) and various Other decisions.
8. We have heard the rival submissions and perused the material on record. In the present case before us, the issue is applicability of provisions of section 69B. Section 69B reads as under:
"Amount of investments, etc., not fully disclosed in books of account - Where in any financial year the assessee had made investments or is found to be the owner of any bullion, jewellery, or other valuable article, and the A.O. finds that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of income, and the assessee offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the A.O., satisfactory, the excess amount may be deemed to be the income of the assessee for such financial year."
When we examine the provisions of Sec.69B, we find that section 69B is a deeming fiction. It is provided that addition can be made by the A.O. when the following three conditions are satisfied:
(1) If it is found that the assessee has made investment or the assessee is found to be the owner of any bullion, jewellery or other valuable article, and
(2) If it is found that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in that behalf in the books of account maintained by the assessee, and
(3) Either the assessee offers no explanation about such extra amount or the explanation offered by him is not satisfactory.
9. The above conditions are cumulative. If all these circumstances exist, the excess amount may be deemed to be the income of the assessee for the financial year in which the said investment was made or the assessee became the owner of bullion etc.
10. The factual position is that during the year the assessee had acquired land. It has been submitted by the assessee that it had paid the consideration for purchase of land in F.Y. 2000-01 and got the possession of land in F.Y. 2000-01 but the documents could not be executed in F.Y. 2000-01 and were therefore executed in the F.Y. 2005-06 relevant to A.Y. 2006-07. The assessee had also brought on record the copies of the agreement. The Ld. D.R. could not controvert this fact by bringing any material to the contrary on record. A.O. was of the view that market rate during the period cannot be less than the jantri price of land. He accordingly, taking into consideration the prevailing jantri price of land, estimated the undisclosed investment at Rs.3,62,54,200/-. After adjusting for the value disclosed in the books of accounts of Rs.1,06,27,995/-considered Rs.2,56,26,205/- as the net undisclosed income. The A.O. has thus relied on the jantri price and on that basis presumed that the amount expended is more than the amount recorded in the books. The A.O. has failed to bring on record any material to support his estimated price.
11. Section 50C is a deeming provision where under the stamp duty rate is treated as full value of consideration for the purpose of computing capital gain under section 48. It is applicable to the seller of property and therefore cannot be invoked in case of purchaser of property for the purpose of section 69B. CIT(A) has given a finding that the A.O. has not made any independent enquiry or collected corroborative evidence to justify the addition.
12. In the case of Naresh Khattar (HUF) (supra) the Hon'ble Delhi High Court has held that to invoke the provisions of Sec.69B, the burden is on the Revenue to prove that the real investment exceeds the investment shown in the books of accounts of the assessee.
13. In the case of Smt. Amar Kumari Surana (supra) (Raj.) the Hon'ble High Court has observed as under:
"10. It is true that merely on the basis of fair market value no addition can be made u/s. 69B of the Act, 1961, but on the basis of sufficient material on record some reasonable inference can be drawn that petitioner has invested more amount than the shown in account books, then only the addition u/s. 69B can be made. The burden is on the Revenue to prove that real investment exceeds the investment shown in account books of the assessee."
14. In the case of Harley Street Pharmaceuticals Ltd. (supra) it has been held that provisions of Sec.50C are applicable only for computation of capital gains in real estate transaction in respect of seller only and not for the purchaser. Legal fiction cannot be extended any further and has to be limited to the area for which it is created. Section 50C creates a legal fiction for taxing capital gains in the hands of the seller and it cannot be extended for taxing the difference between apparent consideration and valuation done by Stamp Valuation Authorities as undisclosed investment u/s. 69.
15. In view of the totality of aforesaid facts and relying on the decisions of the Hon'ble High Courts and of the co-ordinate Bench, we are of the view that provisions of Sec.50C cannot be applied for making addition u/s. 69B. In the present case, since the A.O. has relied on the jantry rates without bringing any material on record to prove that assessee has in fact made investments over and above than that recorded in the books, no addition can be made in the present case and therefore no interference is called for to the order of CIT(A). We thus uphold the order of CIT(A). In the result the appeal of the Revenue is dismissed
16. In the result, appeal of the Revenue is dismissed.
Reopen the case of seller under 147 and tax him accordingly.The provisions of sec. 50C are applicable only to seller and not to purchaser. It is better if such information is passed on the concerned Assessing Officer and not wasting our time in making additions which we are sure are going to be delted by the appellate authorities.
Income Tax
Whether in case of demerger, demerged company cannot claim Sec 10A benefits for income of financial year in which demerger takes place - YES: ITAT
THE issues before the Bench are - Whether the assessee, a demerged company is entitled to deduction u/s 10A, in respect of the profit as declared in its return of income till the date of demerger - Whether in view of section 10A(7A), only the resulting company will be entitled for deduction u/s 10A and the demerged company will not be allowed any deduction for the income offered for the financial year in which the demerger took place. And the verdict partly goes in favour of Revenue.
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