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2020 (3) TMI 778 - AT - Income TaxBogus capital gain - Addition being 33% of the total addition on account of short-term capital gain - whether assessee has used this transaction as a colorable device to reduce its tax liability by diverting the income ? - HELD THAT - In the present case there was no reference made by the authorities below suggesting that the transaction is carried out illegally, as the transaction in the instant case were within the ambit of the law as nothing being illegal/illegitimate was brought to our notice. The transactions carried out by the parties were very much normal transaction. There was no variance in the impugned transaction with regard to the terms of the agreement - impugned transaction cannot be regarded as colorable device merely on the reasoning that there is no tax liability arising in the hands of the seller being the wife of the assessee. Hence the ground of appeal of the assessee is allowed. Non granting the credit for the cash seized during the search by treating the same as advance tax - HELD THAT - The provisions for the adjustment of seized cash against the tax liability are contained under the provisions of section 132B of the Act. As per the provision, the cash seized during the search and seizure operation can be adjusted against the existing tax liability, and the liability of tax determined on the completion of the assessment. Now the question arises for the determination of the existing liability. In the instant case, the assessee has declared income of ₹ 1,22,16,750.00 in the return filed dated 30-9-2011 and the assessee has also requested to treat the seized cash as advance tax vide letter dated 29-09-2011. As a result of the disclosure of income in the return of income transpires that there was a liability of tax on the assessee. Thus in our considered view, the seized cash can be treated as an advance tax liability. See SHREEJI PRINTS PVT. LTD. VERSUS ASSISTANT COMMISSIONER OF INCOME TAX 2013 (7) TMI 19 - ITAT AHMEDABAD - cash seized during the search and seizure operation can be treated as advance tax liability in the given facts and circumstances. Explanation was brought by the Finance Act 2013 with effect from 1st June 2013. Thus the same cannot be applied to the facts of the case on hand. The Hon ble Supreme Court in the case of CIT Vs. Cosmos Builders promoters Ltd. 2016 (5) TMI 1407 - SC ORDER has held that such an amendment is prospective in nature. Accordingly, it cannot be applied to the case pertaining to the year under consideration. We are not inclined to sustain the order of the Ld.CIT (A). Accordingly, we set aside the order of the Ld.CIT (A) and direct the AO to treat the seized cash as an advance tax with effect from the date of seizure of cash. Interest u/s 234B - HELD THAT - As we have directed the AO to treat the amount seized during the proceedings as advance tax from the date of seizure of the same - we direct the AO to levy the interest under section 234B of the Act after giving the credit of ₹15 lakhs i.e. the cash seized during the search proceedings. Hence the ground of appeal of the assessee is allowed.
Issues Involved:
1. Addition on account of short-term capital gain. 2. Treatment of the transaction as a "colorable device." 3. Cost of acquisition of land. 4. Credit for cash seized as advance tax payment. 5. Charging of interest under Section 234B of the Income Tax Act. Issue-Wise Detailed Analysis: 1. Addition on Account of Short-Term Capital Gain: The primary issue was whether the addition of ?26,83,137/- (33% of ?81,30,720/-) on account of short-term capital gain was justified. The Assessing Officer (AO) argued that the assessee purchased land at a higher price to evade tax, while the assessee contended that the land's market value had increased due to its proximity to a developing area. The AO substituted the cost of acquisition with the Jantri value, resulting in the addition. The CIT(A) partially sustained the addition, attributing 33% to the transaction with the assessee's wife but deleted the remaining 67% related to the friend's wife. The Tribunal found that the AO failed to bring evidence to prove the market rate was at par with the Jantri value and concluded that the transaction could not be regarded as a colorable device merely based on the difference in value. 2. Treatment of the Transaction as a "Colorable Device": The AO and CIT(A) considered the transaction with the assessee's wife as a colorable device to evade tax, but the Tribunal disagreed. The Tribunal referenced the Supreme Court's ruling in McDowell & Co. Ltd vs. Commercial Tax Officer, stating that tax planning within the law is permissible unless proved otherwise. The Tribunal emphasized that the Revenue failed to provide evidence that the transaction was a sham or bogus, thus the transaction with the wife was not a colorable device. 3. Cost of Acquisition of Land: The AO doubted the cost of acquisition declared by the assessee, substituting it with the Jantri value. The assessee justified the higher purchase price with comparable cases and market conditions. The Tribunal noted that the assessee discharged his primary onus by providing necessary details, and the onus was on the Revenue to prove otherwise, which it failed to do. Thus, the Tribunal ruled in favor of the assessee, allowing the declared cost of acquisition. 4. Credit for Cash Seized as Advance Tax Payment: The assessee requested that the cash seized during the search be treated as advance tax. The CIT(A) denied this, stating that seized cash could only be adjusted against existing tax liability. The Tribunal, however, held that the seized cash could be treated as advance tax, referencing the Tribunal's decision in Shreeji Prints Pvt. Ltd. and the Calcutta High Court's ruling in CIT v. M/s Blb Securities (P) Ltd. The Tribunal directed the AO to treat the seized cash as advance tax from the date of seizure. 5. Charging of Interest Under Section 234B: The CIT(A) directed the AO to charge interest under Section 234B without adjusting the seized cash. The Tribunal, having directed the AO to treat the seized cash as advance tax, instructed the AO to levy interest under Section 234B after giving credit for the ?15 lakhs seized. This decision was based on the principle that if two reasonable constructions of a taxing provision are possible, the one favoring the assessee should be adopted. Conclusion: The Tribunal allowed the appeal of the assessee, concluding that the addition on account of short-term capital gain was not justified, the transaction was not a colorable device, the cost of acquisition declared by the assessee was valid, the seized cash should be treated as advance tax, and interest under Section 234B should be charged after adjusting the seized cash.
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