2018 (8) TMI 1310 - AT - Income Tax

Assessment u/s 153C r.w.s 143(3) - agriculture land - capital asset u/s 2(14) or not - AO observed that the land owned by the assessee at Village Rojka Gujar, District- Sohna, Haryana was a barren and rocky terrain, which was not cultivable and no plantation activities were also permissible on the said land. Held that - A comparative reading of the pre-amended and amended provisions of section 153C clearly shows that the requirement to initiate proceedings u/s 153C in case of a person other than the person referred to in section 153A as per the pre-amended provisions was only that the books of account or documents seized belong to such person and the same are handed over to the Assessing Officer having jurisdiction over such other person. The amended provisions of section 153A, however, have made a material change in this requirement inasmuch as in addition to the satisfaction of the Assessing Officer having jurisdiction over a searched person about any books of account or documents seized being pertained to any other person or any information contained therein being related to such person and handing over of such books of account or documents seized to the Assessing Officer having jurisdiction over such other person, there is an additional requirement that the Assessing Officer having jurisdiction over such other person shall proceed against such other person in accordance with the provisions of section 153A only if he is satisfied that the books of account or documents seized have a bearing on the determination of the total income of such other person. As already discussed, both the seized documents belonging to the assessee in the present case as relied upon by the Assessing Officer in the satisfaction note were not having any bearing on the determination of the income of the assessee for the year under consideration. As a matter of fact, not only no addition on the basis of the said documents was made by the Assessing Officer in the assessment completed u/s 153C/143(3), but even there was no reference whatsoever to the said documents in the said assessment. The initiation of proceedings u/s 153C in the case of the assessee thus was bad in law and the assessment made by the Assessing Officer u/s 153C/143(3) in pursuance thereof is liable to be cancelled being invalid. We order accordingly and allow the additional ground raised by the assessee. - assessment order quashed - Decided in favor of assessee.

Summary

Issues Involved:
1. Validity of initiation of proceedings under section 153C of the Income Tax Act.
2. Taxability of capital gains arising from the sale of land.

Issue-wise Detailed Analysis:

1. Validity of initiation of proceedings under section 153C of the Income Tax Act:

The assessee contended that the assessment order passed by the Assessing Officer (AO) was without jurisdiction and void ab-initio because the proceedings initiated under section 153C were without satisfying the statutory conditions envisaged under the Act. The AO initiated proceedings based on two documents seized during a search: a copy of the current account with Syndicate Bank and details of property at Village Satvari Chattarpur. The assessee argued that these documents were not incriminating as the current account was disclosed in the return of income, and the property details did not include the land sold in the relevant year.

The Tribunal noted that the pre-amended provisions of section 153C required that the documents seized must belong to the assessee, but the amended provisions (effective from 01.06.2015) added that these documents must have a bearing on the determination of the total income of the assessee. The Tribunal relied on judicial precedents, including CIT vs. RRJ Securities Ltd. and Pr.CIT vs. Index Securities (P.) Ltd., which held that for initiating proceedings under section 153C, the seized documents must be incriminating and have a bearing on the income of the assessee.

The Tribunal found that the seized documents did not have any bearing on the determination of the income of the assessee for the relevant year, and no addition was made based on these documents in the assessment order. Therefore, the Tribunal held that the jurisdictional requirement for initiating proceedings under section 153C was not satisfied, and the assessment made under section 153C/143(3) was invalid and liable to be canceled.

2. Taxability of capital gains arising from the sale of land:

The AO had added ?31,92,187/- as capital gain arising from the sale of land, which was not disclosed by the assessee. The assessee contended that the land was agricultural and situated 8 kilometers away from the municipal limits of Gurgaon Municipal Corporation, thus not a capital asset. The AO, however, determined that the land was barren and rocky, not suitable for agricultural operations, and hence a capital asset under section 2(14) of the Act.

The CIT(A) upheld the AO's decision, concluding that no agricultural operations could have been performed on the land, and the documents provided by the assessee were not reliable. The Tribunal, however, did not delve into the merits of this issue because the assessment itself was found to be invalid due to the improper initiation of proceedings under section 153C.

Conclusion:
The Tribunal allowed the appeal of the assessee, canceling the assessment made under section 153C/143(3) due to the invalid initiation of proceedings under section 153C, thereby rendering the grounds related to the addition of capital gains infructuous. The order was pronounced on 13th July 2018.