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TMI Blog2024 (3) TMI 202X X X X Extracts X X X X X X X X Extracts X X X X ..... alaji Salt Works and copy of MoU submission in paper book dated 23-01-2024. A conjoint reading of the documents suggests that the act of surrender of lease hold land by the assessees and M/s.CGPL application to Government of Gujarat was a planned action. Further MoU speaks of receipt of 80% of total consideration to both Radhaswamy Salt Works/Balaji Salt Works upon their making an application of surrender to Government of Gujarat. The act of these assessees in not disclosing the actual intent and purpose of surrender of lease deed to Government authority and withholding material information regarding their proposal/MOU with CGPL does not make their act of surrender voluntary and thus the lower authorities is correct in charging Capital Gains on the above transaction, which does not require any interference and assessee appeal is liable to be rejected. No doubt, the above surrender of leasehold rights amounts to transfer as per Section 2(47) of the Act, as it amounts to extinguishment of the rights of the assessees, which is a capital asset as per Section 2(14) of the Act. Though the consideration is received from M/s. CGPL, a third party, not from Government of Gujarat on account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ANT MEMBER AND SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER For the Appellant : Shri Tushar Hemani, Sr Counsel with Shri Parimal Sinh Parmar A.R. For the Respondent : Shri Shramdeep Sinha, CIT-DR ORDER PER T.R. SENTHIL KUMAR:- These cross appeals are filed by two different Assessees as against Common Appellate orders dated 30.07.2012 passed by the Commissioner of Income Tax (Appeals)-IV, Ahmedabad arising out of the assessment orders passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) relating to the same Assessment Year 2010-11. The Assessees herein M/s. Balaji Salt Works and M/s. Radhaswami Salt Works are engaged in the manufacturing and trading of salt and identical issues are involved in these appeals, for the sake of convenience the same are disposed of by this consolidated order. 2. Brief facts of the case is that a search and seizure action under section 132 of the Act was conducted at the premises of the appellants on 18.03.2010. During the course of search, Cash and Fixed Deposit Receipts [FDRs] were seized. The two assessees namely M/s. Balaji Salt Works and M/s. Radhaswami Salt Works were having lease hold rights on 680 acres of land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akers (Eastern) Ltd. permitting them to construct a building on the said premises. The assessee was also a party to the said agreement. As part of the agreement, the assessee received a sum of Rs. 4,50,000/- in consideration of which he permitted the new lessees to put up the construction. He transferred his tenancy rights to Associated Batteries and became a licensee in respect of the premises under Associated Batteries. The findings of the Hon'ble High Court in the above case are as under: Section 2(47) of the I.T, Act, 1961, says that transfer, in relation to capital asset, includes the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law. Therefore, the contention of Mr. Banerjee that no capital asset has been transferred must be rejected because the assessee's monthly tenancy right or the leasehold right is a capital asset and it has been transferred to the Associated Batteries with the consent of the landlords and on such transfer his nights in it stood extinguished Mr. Banerjee finally argues that the aforesaid amounts received by the assessee cannot be held to be capital gains b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce section 45(1) does not stipulate as to the person from whom consideration is to be received. 6.5. In view of the above, I am of the considered opinion that the appellants have rightly disclosed the amount of capital gains accrued as a result of surrender of leasehold rights on the plot of land in the returns of income and same has been rightly accepted by the AO as per assessment orders passed u/s 143(3) of the Act. This ground of appeal is accordingly dismissed. 4. Aggrieved against the common appellate orders, the assessees are in appeals before us raising the following Grounds of Appeal in ITA 532/Ahd/2012: 1. The Ld. CIT(A) IV grossly erred in Law and on the facts of the case in not adjudicating the ground of appeal with respect to the illegality of the search seizure operation u/s 132 and consequential illegality of the assessment order u/s 143(3) dated 11/03/2011 which was passed pursuant to such illegal search seizure operation. a) That the impugned assessment order u/s 143(3) was passed on the basis of a search carried out u/s 132 of the Income Tax Act, 1961 at the business premises of the appellant assessee on 18/03/2010, which action has no sanctity in the eyes of law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Department which had ILLEGALLY seized the DISCLOSED FDR's of Rs. 1,60,75,905/- during Search which was supposed to be used for payment of taxes, and the assessee immediately requested the department for the release and /or adjustment of the same towards the payment of Income tax. This request for adjusting the FDR towards income tax liability for the year under consideration was never expressly rejected by the department. The AO adjusted the FDR's on completion of the assessment and after issuing of demand notice u/s 156, by charging interest u/s 234B. In fact FDR's should be adjusted immediately when assessee expressly in writing lawfully instructed for adjustment of FDR's towards Income Tax Liability. Therefore, the learned CIT(A) is not justified in confirming the interest charged u/s 234B for the period upto 01.05.2010. It is therefore prayed that the interest charged u/s 234B may please be deleted. 5.1 The Learned CIT(A) grossly erred in Law and facts of the case in not directing the AO to release the seized cash / FDRs which are still retained by the department despite the fact that the assessment proceedings penalty proceedings for all the assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om business of salt manufacture has come to an end forever. Thus the income earning activities from manufacture of salt have been stopped in the absence of requisite lands. Therefore the amount received from M/s.CGPL, being capital receipt in nature, cannot be subjected to tax and relied upon the following judgments: (i) Oberoi Hotels P. Ltd. vs. CIT-236 ITR 903 (SC); (ii) Kettlewell Bullen Co. vs. CIT-53 ITR 261 (SC); (iii) Guffic Chem (P.) Ltd. vs. CIT-332 ITR 602 (SC); (iv) India Gelatine Chemicals-47 SOT 134 (Ahd); (v) PL Chemicals Ltd v ACIT-86 ITD 46 (Madras); (vi) Gujarat Gas Co. Ltd. vs. JCIT-245 ITR 84 (Guj); (vii) Sushil Kumar Das v. ITO-48 SOT 102 (Kol); 6.2. Ld Senior Counsel further submitted that the mere fact that the assessee has declared the underlying sum as income under the capital gains cannot be a ground to treat the underlying sum as capital gains when, as a matter of fact, such sum is a 'capital receipt'. It is well settled that 'entries in the books of accounts are not the guiding factor for determining the correct nature of any income and reliance is placed on following decisions: (i) Kedarnath Jute Mfg. Co. Ltd.-82 ITR 363 (SC); (ii) Guj Minera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o surrender the leasehold rights to the Gujarat Govt. CGPL would apply for allotment of the said land on ownership basis immediately thereafter. 4. The value of renunciation of lease by Balaji Salt Works in favour of CGPL has been negotiated at Rs 8.55 lacs/acre 5. CGPL will pay the money on finalization of measurement of land and execution of agreement between Parties and Tata Power / CGPL. 6. The Business Development group of Tata Power CGPL will explore the feasibility of business options on the contiguous plots of land ( a c above) within 6 months of signing of this proposal note. 8.1. On execution of the above MOU a timelines for actions also proposed in the MoU as follows: 2. Measurement of land under b above 4 Weeks 3. Surrender of leasehold rights 6 Weeks 4. Payment to Lessees 7 Weeks 5. CGPL's application to GoG for allotment 8 Weeks 6. Exploring finalizing New Business area 6 months 9. As per the above MOU, surrender of leasehold rights to be done within six weeks from the date of MOU namely 05.08.2008 both the assessees filed their respective application for surrendering leasehold rights to Govt. of Gujarat. The District Collector, Kutch vide his proceedings dated 16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arty was held to be a transfer within the meaning of Section 2(47) r.w.s. 45(1) of the Act, by Hon ble Calcutta High Court in the case of A Gasper Vs. CIT (already reproduced in Para 3 herein above) which was approved by Hon ble Supreme Court reported in 192 ITR 382. Thus we do not find any legal force in the submissions made by the assessee, further the case laws relied by the assessee are clearly distinguishable with the facts of the present assessee s case. Therefore, we do not find any infirmity in the order passed by the Ld. CIT(A) who was confirmed the surrender of leasehold rights is liable to capital gains, which was rightly disclosed by the assessees in their respective Returns of Income. Therefore Ground No. 2 raised by the assessee is devoid of merits and the same is hereby dismissed. 12. then assessee s Ground No. 3 and Ground No. 4.1 and 4.2 (wrongly mentioned as 5.1 and 5.2) which are interconnected with the Revenues Appeals. 12.1. The Revenue s Revised Grounds of Appeal reads as under: 1. The Ld. CIT(A) has erred in law and on facts in granting relief in charging of interest u/s. 234B of the I.T. Act by holding that the appellant is entitled to adjustment of seized c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and scope section 132B. The assessee could not pay advance tax on such income, because the FDR's etc were seized by the department during the search u/s 132 before the end of financial year, on 18th and 19th March 2010, It is further submitted before your honour that the as the prohibitory order is still not revoked and consequently search proceedings are still in force on date 04/05/2010. In view of this neither self-assessment tax can be paid due to un-lawful seizure of Disclosed FDR's, in the name of the firm. Therefore, the unpaid advance tax and/or self-assessment tax for A.Y. 2010-11 is an existing tax liability. 14. Taking into account above factual details, let us analyze the case with the Provisions of law. Section 132B(1) prescribes the procedure for application of assets seized u/s. 132 of the Act. It prescribes that the assets seized u/s. 132 can be adjusted against any existing liability as per IT, WT or the amount of liability determined on the completion of regular assessment or reassessment including any penalty levied or interest payable in connection with such assessment or reassessment. Let us deal with this main section little later and first consider th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such assessment or reassessment. As per this sub-section, the Ld AO ought to have adjusted against the tax liability of Rs. 1,44,51,943 and Rs. 6,26,79,658/- while framing the regular assessment as against the FDRs of Rs. 1,60,75,905/- and Rs. 6.44 crores seized from M/s. Balaji Salt Works and M/s. Radhaswamy Salt Works respectively. In that event also, the assessee is entitled for refund of surplus FDRs seized by the Department as per section 132B [3] of the Act and therefore there is no question of levy of interest under section 234 B and C of the Act. Thus in our considered view, the Ld AO miserably failed to adhere to the provisions of section 132B[1] of the Act and the Ld CIT [A] is not justified in confirming the interest charged u/s. 234B of the Act for the period up to 15-09- 2010. Therefore we direct the Ld AO to rework the computation in accordance with the provisions of law after providing proper opportunity of hearing to the assessees. 15. In the result, the grounds raised by the Assessees are allowed and the Revised grounds raised by the Revenues are hereby dismissed. 16. Regarding Ground No. 5.1 5.2 raised by the Assessee and Revised Ground No. 1.1 raised by the Reven ..... X X X X Extracts X X X X X X X X Extracts X X X X
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