The ACIT, Central Circle-2, RAJKOT-GUJARAT V. M/s. Radhaswami Salt Works, GANDHIDHAM

ITA 538/RJT/2012

• Counselvise Citation: [2024] 130 COUNSELVISE.COM (IT) 0847 (ITAT-RAJKOT)
• Duration Of Justice: 11 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2024
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Next Hearing Date: 06-02-2024
• Assessment Year: 2010-2011
• Appeal Filed On: 25-09-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Cost of acquisition; Capital receipt; Capital Gains; Search and seizure; Competent authority
• Section: 143(3); 192; 132; 153A; 234B; 2; 2(14); 244A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT (Conducted Through Virtual Court) Before: Shri Waseem Ahmed, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member M/s.Balaji Salt Works PAN: AAGFB6809G Plot No. 12, Sector-1, Gandhidham-Kutch Vs The ACIT, Central Circle-2, Rajkot The ACIT, Central Circle-2, Rajkot ... APPELLANT Vs M/s. Balaji Salt Works PAN: AAGFB6809G Plot No. 12, Sector-1, Gandhidham-Kutch ... RESPONDENT M/s. Radhaswami Salt Works PAN: AAHFR9790D Plot No. 12, Sector-1, Gandhidham-Kutch Vs The ACIT, Central Circle-2, Rajkot The ACIT, Central Circle-2, Rajkot ... APPELLANT Vs M/s. Radhaswami Salt Works PAN: AAHFR9790D Plot No. 12, Sector-1, Gandhidham-Kutch ... RESPONDENT Assessee Represented: Shri Tushar Hemani, Sr Counsel with Shri Parimal Sinh Parmar A.R. Revenue Represented: Shri Shramdeep Sinha, CIT-DR Date of hearing : 07-02-2024 Date of pronouncement : 29-02-2024 ITA Nos. 532 & 537/Rjt/2012 Assessment Year 2010-11 ITA Nos. 533 & 538/Rjt/2012 Assessment Year 2010-11 I.T.A Nos. 532 & 533/Rjt/2012 and Ors. A.Y. 2010-11 Page No Balaji Salt Works and Osr. vs. ACIT 2 आदेश/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 lands from Government of Gujarat for their Salt manufacturing business. M/s. Coastal Gujarat Power Limited [CGPL] a power generating company of TATA group needed part of these lands for set up of their Power Plants. Therefore the assessees proposed to surrender part of their lease hold rights back to Government of Gujarat and also entered into an Memorandum of Understanding with M/s. CGPL on 05-08-2008. Pursuant to the same M/s. Balaji Salt Works and M/s. Radhaswami Salt Works received a sum of Rs.6.84 Crs and Rs.29.92 Crs from I.T.A Nos. 532 & 533/Rjt/2012 and Ors. A.Y. 2010-11 Page No Balaji Salt Works and Osr. vs. ACIT 3 M/s. CGPL for surrender of their respective pieces of lands. Though the assessees had taken a stand that the receipt of money from M/s. CGPL are not in the nature of income, but however after the search action, the assessees herein filed their respective Returns of Income on 31-05-2010 disclosing capital gains of Rs.6,76,27,156/- and Rs.29,43,34,415/=. The Ld AO accepted the returned income by passing assessment orders u/s.143[3] on 11-03-2011 and charged interest under sections 234 B & C of the Act and demanded taxes thereon. 3. Aggrieved against the assessment orders, the assessees filed appeals before Commissioner of Income Tax [Appeals]. The Ld CIT[A] by his common appellate order held that the "Leasehold rights' is a capital asset as per Section 2(14) of the Act. The cost of acquisition of leasehold rights' is taken to be 'Nil’ as per amendment in section 55(2)(a) of the Act vide Finance Act, 1994, w.e.f. 01-04.1995. However consideration received from the third party on account of surrender of leasehold right is assessable to tax as capital gains since section 45(1) does not stipulate as to the person from whom consideration is to be received. Thus Ld. CIT[A] dismissed this issue against the assessee by a detailed order observing as follows: “ ... 6.3. Coming to the issue of capital gains on account of surrender of leasehold rights in favour of or consideration received from a third party, the decision of Hon'ble High Court of Calcutta in the case of A Gasper vs. CIT [1979] 117 ITR 581 (Cal) is quite relevant. The fact of this case is that the assessee was a tenant in premises No.240E, Acharya Jagadish Chandra Bose Road, Calcutta. He was a monthly tenant in the property since 1940 under certain earlier landlords. On March 27, 1967, the landlords entered into agreement for leasing out the property to Associated Batteries Makers (Eastern) Ltd. permitting them to construct a building on the said premises. I.T.A Nos. 532 & 533/Rjt/2012 and Ors. A.Y. 2010-11 Page No Balaji Salt Works and Osr. vs. ACIT 4 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 because it was not received from the landlords for the extinguishment of his monthly tenancy under them. But there is no merit in his contention Section 45(1) of the Act is wholly silent as to the person from whom the consideration money for transferring a capital asset is to be received by the assessee. Moreover, it, inter alia, provides that any profits or gains arising from the transfer of a capital asset shall he chargeable to income-tax under the head "Capital gains". The assessee has transferred this capital asset to the Associated Batteries from whom it has received the aforesaid amount and, therefore, if must be held that this receipt is assessable to tax as the capital gains in the hands of the assessee. Further, simultaneously with the aforesaid transfer the right of the assessee in the monthly tenancy under the landlords or his leasehold interest was extinguished and, therefore, it does not matter in the least that the aforesaid amount was not received from the landlords for the extinguishment of his aforesaid rights in the aforesaid capital asset, for, as already stated, Section 45(1) of the Act does not say from whom the consideration money is to be received for transfer of a capital asset and, further, Section 2 (47) of the Act says that the word "transfer", in relation to a capital asset, includes the extinguishment of any rights therein." (v) The above decision of the Hon'ble High Court has been approved by the Supreme -Court in the same case reported at 192 ITR 382 (SC) I.T.A Nos. 532 & 533/Rjt/2012 and Ors. A.Y. 2010-11 Page No Balaji Salt Works and Osr. vs. ACIT 5 6.4. Considering the entire facts and circumstances of the case and in view of the judicial decisions cited above, the appellants are liable to capital gains tax on account of consideration received from the third party CGPL on account of surrender of leasehold rights in view of following judicially settled principles summarized as under: (i) "Leasehold rights' is a capital asset as per Section 2(14) of the Act. (ii) Surrender of such leasehold rights amounts to 'transfer' as per section 2(47) of the Act as it amounts to extinguishment of the rights of the appellants. (iii) The cost of acquisition of leasehold rights' is taken to be 'Nil as per amendment in section 55(2)(a) of the Act vide Finance Act, 1994, w.e.f. 01-04.1995. (iv) Consideration received from the third party or account of surrender of leasehold right is assessable to tax as capital gains since 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, I.T.A Nos. 532 & 533/Rjt/2012 and Ors. A.Y. 2010-11 Page No Balaji Salt Works and Osr. vs. ACIT 6 which action has no sanctity in the eyes of law for the reason that no warrant of authorization u/s 132 was furnished to the appellant assessee till to date and therefore the search u/s 132 and subsequent assessment proceedings are null and void in the eyes of law. The appellant is not aware whether a legally valid warrant of authorization for search u/s 132 of the Income Tax Act, 1961 was issued at all in the case of the appellant assessee because the appellant had not been furnished copy of any search authorization. The appellant is also unaware whether any satisfaction note was ever recorded for authorizing search u/s 132 in the case of the appellant. b) The appellant submits that the search u/s 132 of the Income Tax Act, 1961 and the subsequent proceedings did not reveal any unaccounted/ undisclosed income for any of the assessment years, referred to in section 153A or search related assessment year, which is evident from the fact that no addition whatsoever had been made in any of the seventy assessment order passed in the group cases of the appellant. As a matter of fact, in all the assessments made u/s 153A and 143(3) for the search related assessment years, the income assessed is the same as the income returned which is based as per the books of accounts maintained by the appellant assessee. There is no addition whatsoever on account of the "UNDISCLOSED/ UNACCOUNTED INCOME' detected as a result of search or seizure of the books of accounts and documents. c) It is therefore, prayed that the assessment order under appeal passed without sanction of law deserves to be quashed. 2. The CIT(A) IV grossly erred in Law and on the facts of the case in upholding the action of the AO in including an amount of Rs. 6,76,27,156/- as income of appellant assessee under the head income from capital gain and subjecting the same to the tax in utter disregard to the fact that the amount in question is not income within the meaning and scheme of the Income Tax Act, 1961 being a capital receipt and therefore, the same is not taxable. It is therefore prayed that a capital receipt amounting to Rs.6,76,27,156/-included in the total income may please be deleted. 3. The Ld. CIT(A) IV had grossly erred in law and facts in upholding the action of the AO in charging interest u/s 234B for the period upto 01/05/2010 in utter disregard to the fact that the appellant firm was prevented from paying the Advance Tax by the Income 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 I.T.A Nos. 532 & 533/Rjt/2012 and Ors. A.Y. 2010-11 Page No Balaji Salt Works and Osr. vs. ACIT 7 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 years covered by the search u/s 132, including the assessment for A.Y.2010-11 had been finalized and concluded. 5.2 The Learned CIT(A) grossly erred in Law and facts of the case in not directing the AO to release the seized cash / FDRs in accordance with the second proviso to section 132B of the Income Tax Act which provides that the assets are required to be released within a period of 120 days from the date on which the last of the authorization for search u/s 132 was executed. It is therefore prayed that the assessing officer may please be directed to release the seized cash and FDRs which are still in the custody of the department along- with interest u/s 132B(4) r.w.s. 244A of the Income Tax Act and such interest may be granted upto the date of release of the seized assets. 5. Learned Senior Counsel Sri Tushar Hemani appearing for the assessee submitted that the assessee is not pressing ground no. 1 namely legality of the search action and consequent assessment. Thus Ground No. 1 raised by the assessee is hereby dismissed. 6. Regarding Ground No. 2, Ld. Senior Counsel Mr. Tushar Hemani appearing for the assessee submitted that the Lower Authorities failed to appreciate the two fold transactions involved in the present I.T.A Nos. 532 & 533/Rjt/2012 and Ors. A.Y. 2010-11 Page No Balaji Salt Works and Osr. vs. ACIT 8 case namely (i) between the assessee and Government of Gujarat, wherein the assessee surrendered leasehold rights of the lands voluntarily in favour of the Government and the assessee has not received any compensation from the Government in lieu thereof. (ii) Another transaction is the assessee entered into a MOU with M/s. CGPL, however not transferred the lands to M/s. CGPL but received a sum of Rs.6.84 crores from M/s. CGPL. Thus both the transactions are independent and different, but the Lower Authorities were not justified in treating “sum received by assessee from M/s. CGPL” as “consideration for transfer of leasehold rights over lands by assessee in favour of the State Government”. The authorities failed to consider that the receipt in question is a ‘windfall receipt’ received once in a lifetime by the assessee without any possibility of receiving any such sum in future (i.e. not of recurring in nature). Hence, such sum is a “capital receipt” not chargeable to tax under the head “capital gain”. Further with the surrender of leasehold rights over the lands in question in favour of the State Government, whereby source of generation of income from 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); I.T.A Nos. 532 & 533/Rjt/2012 and Ors. A.Y. 2010-11 Page No Balaji Salt Works and Osr. vs. ACIT 9 (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 Mineral Development Corpn-132 ITR 526 (Guj); (iii) Guj Mineral Development Corpn-249 ITR 787 (SC); (iv) Tuticorin Alkali Chemicals-227 ITR 172 (SC); 6.3. Ld Senior Counsel further submitted that the AO is duty bound to determine correct income of the assessee and ensure the only legitimate tax on the correct income is to be collected from the assessee and relied upon Article 265 of the Constitution of India. 7. Per contra Ld. CIT DR Shri Sharamdeep Sinha appearing for the Revenue submitted that when the assessee voluntarily filed the Return of income accepting the capital gains on surrender of leasehold rights, thereafter the assessee is not aggrieved and not correct in challenging by way of appeal further. The claim of the assessee that its surrender of lease hold rights to Government of Gujarat is independent of its receipt of money from M/s. CGPL is negated by the copy of proposal for lease rights surrender of Balaji Salt Works [Page 1 & 2] and copy of MoU [page 3] submission in paper book dated 23-01-2024. A conjoint reading of the documents I.T.A Nos. 532 & 533/Rjt/2012 and Ors. A.Y. 2010-11 Page No Balaji Salt Works and Osr. vs. ACIT 10 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 on page 3 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. 8. We have given our thoughtful consideration and perused the materials available on record including the Paper Book filed by the Assessee which contains the MOU entered between the M/s. CGPL and M/s. Balaji Salt Works dated 05.08.2008 wherein it was mutually agreed between the parties as follows: “....2. The proposed channel route (design to be finalized) thru the saltpan land leased to Balaji Salt Works ad measures approximately 330 acres (actual measurement to be undertaken). The current lease right expires in 2015. 3. Mr. A. F. Sethna & partners in Balaji Salt Works have agreed to 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. I.T.A Nos. 532 & 533/Rjt/2012 and Ors. A.Y. 2010-11 Page No Balaji Salt Works and Osr. vs. ACIT 11 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 16.09.2008 and 20.12.2008 approved and accepted the surrender of leasehold rights by both the assessees namely M/s. Balaji Salt Works and M/s. Radhaswamy Salt Works as follows: “In view of above mentioned details and application of applicant unit cited at Read-(4), it is ordered to take the land of sea area ad-measuring a.80-00 gu. as per mark A from A.325-00 Gu. land which has been approved on lease, under the government which has been measured vide M.R.No.2/76/08-09 of D.I.L.R. Bhuj. Henceforth, lease will be continued with partners of Shree Balaji Salt Works, Anjar for the land situated at Mauje Tragadi of Mandavi Taluka, ad-measuring in Tra. S. Paiki 210 land, ad-measuring in 67-00 acres and land situated at Mauje Nana Bhadiya, Tra. S. No.553 paiki, acre 44-00 gu. and land of sea area ad-measuring in 134-00 acre, thus total a. 245-00 gu. land and tenure of the lease will be up to 31.07.2009.” 9.1. It is seen from the above order of the District Collector, Kutch M/s. Balaji Salt Works surrendered only 80 Acres of lease hold lands and retaining balance 245 Acres of land. Thus the claim of source of generation of income from business of salt manufacture has come to I.T.A Nos. 532 & 533/Rjt/2012 and Ors. A.Y. 2010-11 Page No Balaji Salt Works and Osr. vs. ACIT 12 an end forever and the income earning activities from manufacture of salt have been stopped in the absence of requisite lands are found to be not legally correct. It is thereafter, the assessees received the consideration of Rs.6.84 crores and Rs.29.92 crores from M/s. CGPL for surrender of their respective piece of lands. 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 of surrender of leasehold rights, the same is assessable to tax as capital gains, since Section 45(1) of the Act does not stipulate as to the person from whom consideration is to be received. Further perusal of the MOU entered between the parties, it is a clear cut case that the assessees were compensated by a sum of Rs.8.55 lakhs per acres of lands surrendered to Government of Gujarat and a week thereafter the above compensation payment is payable to the assessees by M/s. CGPL. 11. On an identical transaction where compensation received from third party 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 hereinabove) 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. I.T.A Nos. 532 & 533/Rjt/2012 and Ors. A.Y. 2010-11 Page No Balaji Salt Works and Osr. vs. ACIT 13 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 cash/FDRs against the self-assessment tax liability from the said date i.e. 15.09.2010 on which the period of 120 days is over in terms of section 132B of the I.T. Act. 1.1. In the process, the Ld. CIT(A) failed to consider that in the present case, only FDRs were seized, which were in the name of third parties. 13. For better understanding the facts more clarly, the Returned Income, Assessed Income of the assessees and applicable Income Tax with Education Cess and Interest charged u/s. 234B & C of the Act by the A.O. are tabulated as follows: Name of the Appellants Returned Income Assessed Income Tax and Edu. Cess 234B & C Interest M/s. Balaji Salt Works 6,93,12,430 6,93,12,430 1,44,51,943 22,42,712 M/s. Radhaswamy Salt Works 30,09,58,261 30,09,58,261 6,26,79,650 9757,941 13.1 During the course of search, FDRs of Rs.1,60,75,905/- seized from M/s. Balaji Salt Works and FDR’s Rs.6,44,00,000/- seized from M/s. Radhaswamy Salt Works. The assessees vide their letter dated I.T.A Nos. 532 & 533/Rjt/2012 and Ors. A.Y. 2010-11 Page No Balaji Salt Works and Osr. vs. ACIT 14 30.04.2010 submitted before the A.O. requesting for adjustment of the seized FDRs as follows: "We hereby unconditionally authorize the Income Tax Department to adjust the tax liability for the. AY 2010-11, alongwith interest thereon by premature encashment of the above referred seized FDRs of the assessee firm only, with immediate effect." 13.2. There was no response from the Ld.A.O, therefore the assessees vide letter dated 05.05.2010 requested the Assessing Officer as follows: "During the course of search u/s 132, statement of Shri NT Rayudu, who is a partner in the firm of M/s Balajl Salt Works and who is spouse of MRS. N. SUJATHARANI, partner of the firm of M/s Radhaswamy Salt Works was recorded u/s 132(4) of the Income Tax Act. In the said statement, Shri NT Rayudu, partner has clearly stated that the respective firms will pay tax on the amount received in respect of the transaction of surrender of the leasehold rights on the land owned by the Government, in current financial year i.e. assessment year 2010-11. Further, Shri Madhukant B. Patel, who is a partner in both the firms had also admitted this position vide his letter dated 30/04/2010, requested them to treat the same as statement u/s 132(4) of the Income Tax Act only. The unpaid advance tax in respect of income which has been admitted in the statement recorded u/s 132(4), takes the character of existing tax liability within the meaning 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." I.T.A Nos. 532 & 533/Rjt/2012 and Ors. A.Y. 2010-11 Page No Balaji Salt Works and Osr. vs. ACIT 15 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 the provisions attached with the section. 14.1. The first proviso to section 132B(1)(i) enables the assessee to make an application within 30 days from the end of the month in which the asset was seized. In these cases, Search and Seizure action made on 18-03-2010 and Application for release/adjustment of Cash and FDRs are made 28-04-2010 which is well within the prescribed period 30 days from the end of the month in which the asset was seized. 14.2. First proviso further provides for release of the assets, the assessee is required to explain the nature and source of acquisition of such assets to the satisfaction of the AO. On such satisfaction and with prior approval of the Competent Authority, the AO is empowered to release the assets to the person from whose custody the assets were seized. It is undisputed fact that the Assessing Officer accepted the returned income as the Assessed income of the respective assessees namely compensation received on surrender of Leasehold lands. The seized Cash and FDRs are from the disclosed source of income (capital gains only) by the respective assessees and therefore I.T.A Nos. 532 & 533/Rjt/2012 and Ors. A.Y. 2010-11 Page No Balaji Salt Works and Osr. vs. ACIT 16 no addition or disallowance made by the AO while framing scrutiny assessments u/s.143[3] of the Act. As the AO has not acted upon the Application for release/adjustment of FDRs, there was no occasion for him to record his satisfaction and prior approval from the Competent Authority for release of seized goods. 14.3. The second proviso to section 132B(1)(i) makes it clear that the assets are required to be released within a period of 120 days from the date on which the last of the authorizations for search under section 132 or for requisition under section 132A, as the case may be, was executed. In the present cases, last date of search action concluded on 15-05-2010 and the outer time period of 120 days expired on 15-09-2010, but the Ld AO has not acted upon the Application for release of the seized goods and thereby retained the seized FDRs beyond the period of 120 days prescribed in the 2 nd Proviso to section 132B(1)(i) of the Act. 14.4. Now coming to the main section 132B(1) of the Act, which 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 reassess ment including any penalty levied or interest payable in connection with 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 I.T.A Nos. 532 & 533/Rjt/2012 and Ors. A.Y. 2010-11 Page No Balaji Salt Works and Osr. vs. ACIT 17 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 Revenue, the same were considered by the Co-ordinate Bench of this Tribunal in ITA Nos. 526 to 531/Rjt/2012 and ITA Nos. 135 to 138/Rjt/2015 vide order dated 31.01.2024 in the Partners case Sri. Nune Trimurtulu Rayudu & others -Vs- ACIT wherein it is held as follows: “16. Ld. Senior Counsel Shri Tushar Hemani appearing for the assessee submitted that since FDRs were seized during the course of search and were released after completion of assessment, the assessees are eligible for interest u/s.132B[4] of the Act. The Ld CIT[A] denied the benefit of interest u/s.132B[4] broadly on the count that section 132B[4][b] refers to “money” which does not include “FDRs”. Our attention was invited to section 132[1][iii] wherein also, FDRs are not specifically included, however Department treats FDRs as “money” for the purpose of seizure, then same view should be adopted for the purpose of granting interest u/s.132B[4] of the Act. I.T.A Nos. 532 & 533/Rjt/2012 and Ors. A.Y. 2010-11 Page No Balaji Salt Works and Osr. vs. ACIT 18 The Ld Counsel relied upon decision of the Delhi High Court in the case of Ajay Gupta -Vs- CIT reported in 297 ITR 125 [Del]. Thus pleaded that FDRs would fall within the ambit of “money” and resultantly, the assessee shall be eligible for claiming interest u/s.132B[4] of the Act. 17. Per contra, Ld. CIT-DR Shri Shramdeep Sinha appearing for the Revenue supported the orders passed by the Ld. CIT(A) and also clarified that seized FDRs were not treated as “money” but as “other valuable article or things” as provided under section 132[1][iii] of the Act. Further seized FDRs continue to earn interest from the Bank or Financial Institution, therefore FDRs cannot be equated with “Money” and no question of granting interest u/s.132B[4] of the Act and requested to uphold the order of the lower authorities and dismiss the appeals filed by the asseessees. 18. We have carefully considered the submissions of the rival parties and perused the provisions of law. Section 132(1)(c) of the Act reads "Any person is in possession of any Money, Bullion, Jewellery or Other Valuable Article or Things". Hence, Money is different from bullion, jewellery or other valuable article or things. Seized FDRs cannot be treated as “Money”, but only as “Other Valuable Article or Things”. As per section 132B[4][a] of the Act, the assessee is entitled to interest on the amount by which the aggregate amount of “Money” seized after 120 days. Thus the arguments of the assessee are not in consonance to the provisions of law and the same is liable to be rejected. The case law of Ajay Gupta -Vs- CIT relied by the assessee is not relating to seizure of FDRs but of “Money” and hence not applicable to the facts of the present case. Whereas the Madras High Court judgment in the case of Anil Kumar Kedia (cited supra) which was relied by the Ld. CIT(A) is squarely applicable to the facts of the present case. Thus we do not any infirmity in the orders passed by the lower authorities and the same does not require any interference and the assessee appeals are hereby dismissed. 19. In the result the appeal filed by the assessee is hereby dismissed.” 17. Respectfully following the ratio of the decision herein above, the Grounds raised by the Assessee is hereby dismissed and the Revised Ground No. 1.1 raised by the Revenue is hereby allowed. I.T.A Nos. 532 & 533/Rjt/2012 and Ors. A.Y. 2010-11 Page No Balaji Salt Works and Osr. vs. ACIT 19 18. In the result, the appeals filed by the Assessees and Revenues are Partly allowed. Order pronounced in the open court on 29 -02-2024 Sd/- Sd/- (WASEEM AHMED) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 29/02/2024 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, राजकोट