SSP Aviation Ltd. v. Dy. CIT - Taxpublishers.in

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The Tax Publishers2012 TaxPub(DT) 2131 (Del-HC) : (2012) 046 (I) ITCL 0160 : (2012) 346 ITR 0177 : (2012) 252 CTR 0291 : (2012) 207 TAXMAN 0260 : (2012) 070 DTR 0275 INCOME TAX ACT, 1961 --Search and seizure--Proceedings under section 153CSatisfaction regarding undisclosed income--The petitioner was a company based in Delhi mainly engaged in the business of real estate development. It was regularly filing returns of income under the Income Tax Act, 1961. In respect of the assessment years 2003-04 to 2008-09, it had filed returns of income. On 5-1-2009, there was a search under section 132 of the Puri Group of Companies namely, P Construction Ltd., and its associate concerns. This court is not concerned with the validity of the search on Puri Group of Companies in the present writ petition. Section 153C provides for the assessment of income of any person, other than the person who is searched under section 132. It is enough to notice that under sub-section (1) of section 153C, if the assessing officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized in the course of the search belongs to a person, other than the person who was searched, then such assets or books of account or documents shall be handed over by him to the assessing officer having jurisdiction over such other person. Once that is done, the assessing officer having jurisdiction over such other person shall proceed against him for making an assessment or re-assessment of his income in accordance with the provisions of section 153A. The petitioner in was not searched under section 132. However, some documents belonging to it were found during the search carried out in the premises of Puri Group of Companies. Therefore, in accordance with section 153C(1), the assessing officer recorded a satisfaction note on 3-11-2010. A copy of the satisfaction note as well as the Collaboration Agreement dt. 28-4-2006 and the Assignment Agreement dt. 21-7-2006, which find mentioned in the satisfaction note were supplied to the petitioner by the assessing officer under cover of letter dt. 5-12-2010. Enquiries were made from the petitioner, pursuant to the issue of notice to it on the basis of the aforesaid documents and the satisfaction note. The petitioner was asked by the investigation wing of the Income-tax Department about the nature of the monies received by the petitioner from E MGF Land Ltd. (MGF). In response to the enquiries, the petitioner, by letter dt. 19-2-2009, informed the investigation wing that the monies received from MGF were held by it as security deposit in terms of the Assignment-cum-Nomination Agreement dt. 21-7-2006 between it and MGF for sale of development rights, which have been acquired by the petitioner from the Puri Group of Companies. The petitioner explained to the income tax authorities that the amounts received for sale of the development rights from MGF were duly reflected in its audited accounts as current liabilities for the relevant years and it was also explained that since the monies were received with several pre-conditions and obligations regarding the timely completion of the real estate project, which was a pre-requisite for recognition of revenue and since till date those obligations and conditions have not been fulfilled, the petitioner did not take cognizance of any revenue from the monies/deposits received from MGF. Copies of the petitioner's letter dt. 19-2-2009 and the Assignment-cum-Nomination Agreement dt. 21-7-2006. While matters rested as above, the assessing officer issued notice under section 153A (wrongly mentioned as section 153C in the assessment orders) to the petitioner on 3-11-2010, calling upon the petitioner to furnish returns of income in respect of six assessment years immediately preceding the assessment year relevant to the previous year in which the search was conducted under section 132. Since the search was conducted on 5-1-2009 relevant for the assessment year 2009-10, the petitioner filed returns of income for the six earlier years, namely, the assessment years 2003-04 to 2008-09. The assessment year 2003-04 was the first year of assessment since the petitioner was incorporated as a company only on 8-1-2003. For the assessment years 2003-04 to 2006-07 and the assessment year 2008-09, the assessments were completed under section 143(3) read with section 153C at 'NIL' income as returned by petitioner. In all the aforesaid assessment years, the assessee had incurred expenses which were shown in it profit and loss account but there was no income since there was no business activity. Normally, the expenses incurred by the petitioner should have been carried forward to the subsequent years but according to the assessing officer in the absence of any income during the above years those expenses were to be disallowed and since they were disallowed he assessed the total income at `Nil for all the assessment years and also refused carry forward of any loss. However, in respect of the assessment year 2007-08, there was a significant difference in the pattern of the assessment made under section 143(3) read with section 153C by order dt. 30-12-2010. For this year also, the petitioner had filed a return declaring income of `Nil on 2-12-2010 in response to the notice issued under section 153A. In the course of the assessment proceedings, the assessing officer, who is the respondent in the present proceedings, referred to the agreements seized during the search in the offices of Puri Group of Companies and held that a reading of documents and the transactions recorded therein prima facie showed that the petitioner had sold development rights in the land, the profit from which are taxable in the assessment year 2007-08. He also noticed that the assessee had received a sum of Rs. 44 crores as deposit in the previous year relevant to the assessment year 2008-09 from MGF, which was not offered for taxation in that year. The respondent, therefore, asked the petitioner to explain why no income was offered from the transaction, despite receipt of a substantial amount for the transfer of the development rights. In response to the same, the petitioner filed a detailed reply, the gist of which is that the money was received as security deposit and not as income and that until and unless the conditions and stipulations regarding the transaction are fulfilled by the parties, no income can be said to have accrued to the petitioner. The reply of the petitioner is set out in full in the assessment order dt. 30-12-2010 for the assessment year 2007-08. The respondent did not accept the explanation of the petitioner. According to him, the petitioner had acquired the development rights in the land from Puri Construction Ltd. on 28-4-2006 and within a short period of time assigned or sold the rights to MGF on 21-7-2006. Since this date fell within the financial year ending 31-3-2007, the profit from the transaction had accrued to the petitioner and became taxable in the assessment year 2007-08. The respondent further noted that the total consideration payable by MGF to the petitioner for assignment of the development rights was Rs. 86 crores and this was payable on successful completion of the project, out of which an amount of Rs. 50 crores was payable to the petitioner against due performance of the agreement and in case of successful and timely completion of the project, the security deposit would stand adjusted against the total consideration of Rs. 86 crores. He further noticed that the petitioner had received Rs. 44 crores from MGF till 31-3-2008 against transfer of the development rights. In the balance sheet of the petitioner as on 31-3-2007, the entire amount of Rs. 86 crores was shown as part of construction work-in-progress. According to the respondent, the petitioner had failed to explain why no income was recognised by it out of the total consideration of Rs. 86 crores received from MGF. MGF was found to have claimed the amount as part of the cost of the project. According to him, the profit on the sale of development rights had accrued to the petitioner in the previous year relevant to the assessment year 2007-08. Referring to the judgment of the Bombay High Court in the case of C.D. Kapadia v. CIT (2003) 260 ITR 491 (Bom) : 2003 TaxPub(DT) 1029 (Bom-HC), he held that the entire amount of Rs. 86 crores was taxable as the income of the petitioner for the assessment year 2007-08. The petitioner had submitted before the respondent, in the course of the assessment proceedings, that the receipt from MGF was linked to the percentage of completion method and the profits from the transaction will be shown according to the said method and was, in fact, shown in the subsequent assessment year. This plea was, however, turned down by the assessing officer on the ground that the petitioner is not a contractor or developer and that it had purchased and sold development rights and therefore, the profits cannot be assessed on the basis of the percentage of completion method. In this view of the matter, the entire amount of Rs. 86 crores was assessed in the assessment year 2007-08 by order dt. 30-12-2010, passed under section 153C read with section 143(3). It is against the aforesaid assessment orders for the assessment years 2003-04 to 2008-09 passed on 29-12-2010 and 30-12-2010 that the petitioner has filed the present writ petition. The main contention of the petitioner is that the assessing officer has illegally assumed jurisdiction under section 153C read with section 153A, that there was no undisclosed income to be assessed in the petitioner's hands and therefore, a writ of certiorari should issue to quash the proceedings as null and void. Held: The machinery provided in sections 153C read with 153A merely facilitates an enquiry regarding the existence or otherwise of undisclosed income in the hands of the person other than the searched person. The starting point of the enquiry is the seizure of the valuable article or books of account or document, which according to the satisfaction reached by the assessing officer, belongs to a person other than the searched person. It is necessary to notice the difference between the two provisions in order to deal with the contention put forward by the counsel for the petitioner that the seizure itself is invalid or illegal on the ground that there could not have been any satisfaction before issuing the warrant of authorization under section 132 that the petitioner had earned undisclosed income because the income reflected in the seized documents, namely, the Collaboration Agreement dt. 24-8-2006 and the Assignment Agreement dt. 21-7-2006, had already been taken note of in the account books of the petitioner. At the time when the assessing officer having jurisdiction over the searched person reaches the satisfaction that the document belongs to a person other than the searched person, it is not necessary for him to also reach a firm conclusion/opinion that the document shows undisclosed income belonging to such other person. That is a matter for enquiry, which is to be conducted in the manner prescribed by section 153C. The fact that the procedure envisaged by section 153C is somewhat cumbersome and that the person, other than the searched person, is put to some inconvenience, cannot be an argument to hold that the entire proceedings are bad in law. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 2131 (Del-HC) : (2012) 046 (I) ITCL 0160 : (2012) 346 ITR 0177 : (2012) 252 CTR 0291 : (2012) 207 TAXMAN 0260 : (2012) 070 DTR 0275

INCOME TAX ACT, 1961

--Search and seizure--Proceedings under section 153CSatisfaction regarding undisclosed income--The petitioner was a company based in Delhi mainly engaged in the business of real estate development. It was regularly filing returns of income under the Income Tax Act, 1961. In respect of the assessment years 2003-04 to 2008-09, it had filed returns of income. On 5-1-2009, there was a search under section 132 of the Puri Group of Companies namely, P Construction Ltd., and its associate concerns. This court is not concerned with the validity of the search on Puri Group of Companies in the present writ petition. Section 153C provides for the assessment of income of any person, other than the person who is searched under section 132. It is enough to notice that under sub-section (1) of section 153C, if the assessing officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized in the course of the search belongs to a person, other than the person who was searched, then such assets or books of account or documents shall be handed over by him to the assessing officer having jurisdiction over such other person. Once that is done, the assessing officer having jurisdiction over such other person shall proceed against him for making an assessment or re-assessment of his income in accordance with the provisions of section 153A. The petitioner in was not searched under section 132. However, some documents belonging to it were found during the search carried out in the premises of Puri Group of Companies. Therefore, in accordance with section 153C(1), the assessing officer recorded a satisfaction note on 3-11-2010. A copy of the satisfaction note as well as the Collaboration Agreement dt. 28-4-2006 and the Assignment Agreement dt. 21-7-2006, which find mentioned in the satisfaction note were supplied to the petitioner by the assessing officer under cover of letter dt. 5-12-2010. Enquiries were made from the petitioner, pursuant to the issue of notice to it on the basis of the aforesaid documents and the satisfaction note. The petitioner was asked by the investigation wing of the Income-tax Department about the nature of the monies received by the petitioner from E MGF Land Ltd. (MGF). In response to the enquiries, the petitioner, by letter dt. 19-2-2009, informed the investigation wing that the monies received from MGF were held by it as security deposit in terms of the Assignment-cum-Nomination Agreement dt. 21-7-2006 between it and MGF for sale of development rights, which have been acquired by the petitioner from the Puri Group of Companies. The petitioner explained to the income tax authorities that the amounts received for sale of the development rights from MGF were duly reflected in its audited accounts as current liabilities for the relevant years and it was also explained that since the monies were received with several pre-conditions and obligations regarding the timely completion of the real estate project, which was a pre-requisite for recognition of revenue and since till date those obligations and conditions have not been fulfilled, the petitioner did not take cognizance of any revenue from the monies/deposits received from MGF. Copies of the petitioner's letter dt. 19-2-2009 and the Assignment-cum-Nomination Agreement dt. 21-7-2006. While matters rested as above, the assessing officer issued notice under section 153A (wrongly mentioned as section 153C in the assessment orders) to the petitioner on 3-11-2010, calling upon the petitioner to furnish returns of income in respect of six assessment years immediately preceding the assessment year relevant to the previous year in which the search was conducted under section 132. Since the search was conducted on 5-1-2009 relevant for the assessment year 2009-10, the petitioner filed returns of income for the six earlier years, namely, the assessment years 2003-04 to 2008-09. The assessment year 2003-04 was the first year of assessment since the petitioner was incorporated as a company only on 8-1-2003. For the assessment years 2003-04 to 2006-07 and the assessment year 2008-09, the assessments were completed under section 143(3) read with section 153C at 'NIL' income as returned by petitioner. In all the aforesaid assessment years, the assessee had incurred expenses which were shown in it profit and loss account but there was no income since there was no business activity. Normally, the expenses incurred by the petitioner should have been carried forward to the subsequent years but according to the assessing officer in the absence of any income during the above years those expenses were to be disallowed and since they were disallowed he assessed the total income at `Nil for all the assessment years and also refused carry forward of any loss. However, in respect of the assessment year 2007-08, there was a significant difference in the pattern of the assessment made under section 143(3) read with section 153C by order dt. 30-12-2010. For this year also, the petitioner had filed a return declaring income of `Nil on 2-12-2010 in response to the notice issued under section 153A. In the course of the assessment proceedings, the assessing officer, who is the respondent in the present proceedings, referred to the agreements seized during the search in the offices of Puri Group of Companies and held that a reading of documents and the transactions recorded therein prima facie showed that the petitioner had sold development rights in the land, the profit from which are taxable in the assessment year 2007-08. He also noticed that the assessee had received a sum of Rs. 44 crores as deposit in the previous year relevant to the assessment year 2008-09 from MGF, which was not offered for taxation in that year. The respondent, therefore, asked the petitioner to explain why no income was offered from the transaction, despite receipt of a substantial amount for the transfer of the development rights. In response to the same, the petitioner filed a detailed reply, the gist of which is that the money was received as security deposit and not as income and that until and unless the conditions and stipulations regarding the transaction are fulfilled by the parties, no income can be said to have accrued to the petitioner. The reply of the petitioner is set out in full in the assessment order dt. 30-12-2010 for the assessment year 2007-08. The respondent did not accept the explanation of the petitioner. According to him, the petitioner had acquired the development rights in the land from Puri Construction Ltd. on 28-4-2006 and within a short period of time assigned or sold the rights to MGF on 21-7-2006. Since this date fell within the financial year ending 31-3-2007, the profit from the transaction had accrued to the petitioner and became taxable in the assessment year 2007-08. The respondent further noted that the total consideration payable by MGF to the petitioner for assignment of the development rights was Rs. 86 crores and this was payable on successful completion of the project, out of which an amount of Rs. 50 crores was payable to the petitioner against due performance of the agreement and in case of successful and timely completion of the project, the security deposit would stand adjusted against the total consideration of Rs. 86 crores. He further noticed that the petitioner had received Rs. 44 crores from MGF till 31-3-2008 against transfer of the development rights. In the balance sheet of the petitioner as on 31-3-2007, the entire amount of Rs. 86 crores was shown as part of construction work-in-progress. According to the respondent, the petitioner had failed to explain why no income was recognised by it out of the total consideration of Rs. 86 crores received from MGF. MGF was found to have claimed the amount as part of the cost of the project. According to him, the profit on the sale of development rights had accrued to the petitioner in the previous year relevant to the assessment year 2007-08. Referring to the judgment of the Bombay High Court in the case of C.D. Kapadia v. CIT (2003) 260 ITR 491 (Bom) : 2003 TaxPub(DT) 1029 (Bom-HC), he held that the entire amount of Rs. 86 crores was taxable as the income of the petitioner for the assessment year 2007-08. The petitioner had submitted before the respondent, in the course of the assessment proceedings, that the receipt from MGF was linked to the percentage of completion method and the profits from the transaction will be shown according to the said method and was, in fact, shown in the subsequent assessment year. This plea was, however, turned down by the assessing officer on the ground that the petitioner is not a contractor or developer and that it had purchased and sold development rights and therefore, the profits cannot be assessed on the basis of the percentage of completion method. In this view of the matter, the entire amount of Rs. 86 crores was assessed in the assessment year 2007-08 by order dt. 30-12-2010, passed under section 153C read with section 143(3). It is against the aforesaid assessment orders for the assessment years 2003-04 to 2008-09 passed on 29-12-2010 and 30-12-2010 that the petitioner has filed the present writ petition. The main contention of the petitioner is that the assessing officer has illegally assumed jurisdiction under section 153C read with section 153A, that there was no undisclosed income to be assessed in the petitioner's hands and therefore, a writ of certiorari should issue to quash the proceedings as null and void. Held: The machinery provided in sections 153C read with 153A merely facilitates an enquiry regarding the existence or otherwise of undisclosed income in the hands of the person other than the searched person. The starting point of the enquiry is the seizure of the valuable article or books of account or document, which according to the satisfaction reached by the assessing officer, belongs to a person other than the searched person. It is necessary to notice the difference between the two provisions in order to deal with the contention put forward by the counsel for the petitioner that the seizure itself is invalid or illegal on the ground that there could not have been any satisfaction before issuing the warrant of authorization under section 132 that the petitioner had earned undisclosed income because the income reflected in the seized documents, namely, the Collaboration Agreement dt. 24-8-2006 and the Assignment Agreement dt. 21-7-2006, had already been taken note of in the account books of the petitioner. At the time when the assessing officer having jurisdiction over the searched person reaches the satisfaction that the document belongs to a person other than the searched person, it is not necessary for him to also reach a firm conclusion/opinion that the document shows undisclosed income belonging to such other person. That is a matter for enquiry, which is to be conducted in the manner prescribed by section 153C. The fact that the procedure envisaged by section 153C is somewhat cumbersome and that the person, other than the searched person, is put to some inconvenience, cannot be an argument to hold that the entire proceedings are bad in law.