SHANTHA ALIAS SHANTHAMMA,BANGALORE V. DCIT, CENTRAL CIRCLE-2(4), BANGALORE

ITA 465/BANG/2025

AI Insights

The case involves an appeal by Shantha Alias Shanthamma against the order of the CIT(A)-15, Bangalore, which confirmed the additions made by the Assessing Officer under section 153C of the Income Tax Act for the assessment year 2020-21. The primary contention was the invalidity of the notice issued under section 153C due to the absence of incriminating documents specifically related to the assessee, as well as procedural lapses such as the non-issuance of notice under section 143(2) and the use of a non-existent Document Identification Number (DIN). The Tribunal examined the legality of the assessment proceedings, focusing on the requirements for issuing notices under sections 153C and 143(2), the validity of the DIN, and the handling of electronic evidence. The Tribunal concluded that the assessment was not legally sustainable and thus set aside the order.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 775072 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2020-2021
• Appeal Filed On: 04-03-2025
• Other Referred Cases: Abhisar Buildwell P. Ltd. (2023) 149 taxmann.com 399, CIT vs. Calcutta Knitwears (2014) 6 SCC 444, Pepsi Foods Pvt Ltd vs. ACIT 367 ITR 112, Ganpati Fincap Services Pvt Ltd vs. CIT 395 ITR 692, CIT vs. Laxman Das Khandelwal, Chaturbhuj Dwarkadas Kapadia v. CIT [(2003) 129 Taxman 497 (Bom HC)], CIT vs. Dr. T.K. Dayalu [(2011) 202 Taxman 531 (Kar HC)], Shri Sunil Kumar Sharma v. DCIT [(2024) 159 taxmann.com 179 (Kar.)]
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MURALI MOHAN M
• Assessee Lawyers: DEEPAK
• Keywords: Set aside; Business income; Capital asset; Document seized; Documents seized; Gift; Capital Gains; Principle of natural justice; Validity of assessment; Procedural lapse
• Section: 144; 143(3); 132; 153A; 131; 139

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI KESHAV DUBEY, JUDICIAL MEMBER ITA No. 465/Bang/2025 Assessment Year: 2020-21 Shantha Alias Shanthamma, V Sudhindranath, No.51/7/1, Chitrakoot, Ratna Avenue, Richmond Road, Bangalore – 560 025. PAN – ASYPS 3056 Q Vs. The Dy. Commissioner of Income Tax, Circle – 2(4), Bangalore. . APPELLANT RESPONDENT Assessee by : Shri Deepak, Advocate Revenue by : Shri Murali Mohan M, CIT (DR) Date of hearing : 17.07.2025 Date of Pronouncement : 04.09.2025 O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: This is an appeal filed by the assessee against the order passed by the ld. CIT(A)-15, Bangalore vide order dated 27/03/2024 in DIN No. ITBA/APL/M/250/2023-24/1063502674(1) for the assessment year 2020- 21. 2. The assessee has raised following grounds of appeal: “1. Invalidity of Notice Under Section 153C/ Absence of any incriminating documents: Printed from counselvise.com ITA No.465/Bang/2025 Page 2 of 22 . The Hon'ble Commissioner of Income Tax (Appeals) erred in not accepting the fact that no incriminating material was found pertaining to the Appellant, which warranted the issuance of notice under Section 153C of the Income Tax Act. Your Appellant had already declared income from the same in her income tax returns for the said year. Therefore, the entire assessment proceedings initiated under this section are bad in law and liable to be quashed. 2. Addition Without Issuance of Notice Under Section 143(2) The Learned Assessing Officer completed the appeal order by making an addition of Rs. 134,33,42,009/- without issuing any notice under Section 143(2) of the Income Tax Act. This procedural lapse renders the assessment order invalid and unsustainable in law. 3. Non-Existent DIN Renders Assessment Order Void The Hon'ble Commissioner of Income Tax (Appeals) failed to appreciate that the Document Identification Number (DIN) mentioned in the assessment order by the Learned Assessing Officer is non-existent. As per CBDT Circular No. 19 of 2019 dated 14/08/2019, any order issued without a valid DIN is invalid and void ab initio. Hence, the impugned assessment order is legally unsustainable and deserves to be set aside. The impugned order does not reflect on the Income Tax portal even to this day and hence, the order should also be considered as invalid and void ab initio. 4. Questionable Integrity of Electronic Evidence Used for Additions The Hon'ble Commissioner of Income Tax (Appeals) did not properly consider the fact that all additions made in the assessment were based on electronic evidence seized from the searched party. However, no hash value was provided to either the searched party or the Appellant to ensure the integrity of the electronic evidence. Since the authenticity of the electronic evidence is questionable, any additions made based on such evidence are bad in law and should be deleted. 5. Failure to Provide Satisfaction Note and Seized Materials The Commissioner (Appeals) has erred in not accepting the contention of the Appellant about providing the satisfaction note and the copy of the seized materials, which are crucial for a fair assessment. 6. Addition of Capital Gain on Estimation Basis The Commissioner (Appeals) has erred in not accepting the contention of the Appellant by adding the capital gain on an estimation basis in the year under consideration for the Joint Development Agreement (JDA) entered in the years 2008-09 and 2012-13. There has been erroneous computation of Capital Gain by Learned AO. 7. Incorrect Year of taxation of the Capital Gains. The Commissioner (Appeals) has erred in not accepting the contention of the Appellant that the Capital Gains were taxed during AY 2020-21 instead of AY 2019-20. 8. Taxation of Refundable Deposit Printed from counselvise.com ITA No.465/Bang/2025 Page 3 of 22 . The Commissioner (Appeals) has erred in not accepting the contention of the Appellant by taxing the refundable deposit received in the year under consideration, which is against the settled principles of taxation. 9. Double Taxation of Apartment Sale Proceeds The Commissioner (Appeals) has erred in not accepting the contention of the Appellant by taxing the receipt from the sale of the apartment twice, leading to unjust enrichment. 10. Violation of Principles of Natural justice The Hon'ble Commissioner of Income Tax (Appeals) erred in not acknowledging that no show cause notice was issued to the Appellant online before the conclusion of the assessment order. The failure to provide an opportunity for the Appellant to present its case constitutes a gross violation of the principles of natural justice. Consequently, the assessment order is illegal and deserves to be annulled. Request for Relief: Considering the aforementioned grounds, your Appellant respectfully request the Honorable Income Tax Appellate Tribunal to consider this appeal and provide appropriate relief by: a. Setting aside the order passed by the Learned Commissioner (Appeals) and allowing the Appeal filed by your Appellant, b. Deleting the additions made by the Learned Assessing Officer, c. Directing the Income Tax Authorities to abate any penalty proceedings initiated, b. Any other relief deemed fit and just by the Honorable Commissioner (Appeals) in the interest of equity and justice. The Appellant craves leave to submit such further facts/documents/evidence at or before the hearing of this appeal as may be necessary to dispose of this appeal according to law.” 3. The assessee in the present appeal has challenged the validity of assessment framed by the Revenue and also agitated the additions made by the lower authorities on merit of the case. 4. The facts in brief are that the assessee is an individual. A search proceeding under section 132 of the Act carried in the case of the assessee’s husband Shri Durgappa Lakkana as on 19th February 2020. 5. During the search it emerged that the assessee and her husband has entered JDA dated 17th December 2012 M/s SJR Prime Corporation Pvt ltd. for development of residential house in the name and style of Printed from counselvise.com ITA No.465/Bang/2025 Page 4 of 22 . “SJR Plaza City Project”. The assessee, her husband and her husband’s brother Shri D Prakash were the owner of land property admeasuring of 11 acers 33 guntas bearing various survey numbers. Shri D Prakash has gifted his share of land property to Shri Durgappa Lakkana in lieu of 15 flats as a goodwill. Accordingly, in the impugned property, the assessee’s share stood at 72.2% and her husband share stood at 27.8%. The possession of entire land property (11 acers 33 guntas) after conversion as NA Land was transferred to M/s SJR Prime Corporation Pvt as per the above-mentioned JDA for development of Residential Flats. The assessee and her husband were entitled to receive 37% of the super built-up area i.e. 365 Flats (or 519404 sq. ft.). Furthermore, the assessee has received occupancy certificate for 365 flats being her share in the developed property. Besides above, there were also other JDA found during the course of search. 6. Subsequent to the search proceeding (19th February 2020), the assessee has filed return of income for the year under consideration i.e. A.Y. 2020-21 under section 139 of the Act as on 30th December 2020 declaring total income at Rs. 4,46,26,820/- only. 7. Thereafter, the AO of the assessee in the capacity of AO of the person other than search person recorded his satisfaction under section 153C of the Act as on 3rd September 2021. As per the note, the AO of the search person was satisfied that the material found during the search i.e. JDA and occupancy certificate belong to or pertain to the assessee. As the assessee has not offered tax on JDA transactions, the material has bearing on the income of the assessee. Hence, the AO issued notice under section 153C of the Act dated 07th September 2020. Printed from counselvise.com ITA No.465/Bang/2025 Page 5 of 22 . 8. During the assessment proceeding, the AO was of the view that the assessee should have offered the construction cost of 365 flats as capital gain in JDA transaction with M/s SJR Prime Corporation Pvt in A.Y. 2013-14 i.e. the JD agreement year or in the assessment year relevant to the year in which occupancy certificate was received but the assessee failed. Therefore, the AO was view that capital gain should be brought to tax in the year under consideration i.e. A.Y. 2020-21. Therefore, the AO estimated the cost of construction at Rs. 3000 per sq. ft. and accordingly computed the cost of construction for super built-up area of 519404 sq. ft. at Rs. 155,82,12,000/- (519404 sq. ft. x Rs. 3000) and after adjustment of index cost of land for Rs. 1.68 crore worked out the long-term capital gain of Rs. 154,14,12,000/- in which assessee share (72.2%) stood at Rs. 111,28,99,464/- only. Thus, the AO proposes to add the same to the total income through show cause notice dated 18th September 2021 and 20th September 2021. But the assessee failed response the show causes notice. Hence, the AO added the long-term capital of Rs. Rs. 111,28,99,464/- to the total income of the assessee on account of transfer of land through JDA. 9. Likewise, the AO also computed the capital gain regarding another JDA entered by the assessee with M/s Sunil Mantri Reality Ltd as on 20-03-2009 for development of residential flats in the name and style of “Mantri Premiro Projects”. In the impugned JDA, the assessee in the developed project received super built-up area of 1,28,014 Sq. Ft. The AO applying the average cost of construction at Rs. 3000 per sq. ft. and worked out construction cost at Rs. 38,40,42,000/- and after giving the adjustment of index cost of land computed the capital gain at Rs. Printed from counselvise.com ITA No.465/Bang/2025 Page 6 of 22 . 37,56,42,000/- only. The impugned capital gain was added to the total income of the assessee. 10. The AO further found that during the year under dispute the assessee has sold 15 flats “SJR Plaza City Project” and 14 Flats in “Mantri Premiro Projects” on which received consideration of Rs. 7,53,77,252/- and Rs. 8,52,88,148/- respectively but not paid advance tax on the same. Hence, the AO treated the receipt of Rs. 7,53,77,252/- and Rs. 8,52,88,148/- as business income and added to the total income of the assessee. 11. Besides the above, the AO found that the assessee had received refundable deposit of 1.5 crores in pursuant to the JDA with M/s Sunil Mantri Reality Ltd but the same was not refunded and retained by the assessee. Hence, the AO treated the impugned deposit as income of the assessee from other sources. 12. The AO also disallowed 50% of cost incurred by the assessee in order to complete the project under the name and style of “Mantri Premiro Projects” which the assessee incurred in compliance with the direction of Hon’ble Bombay High Court. 13. The aggrieved assessee preferred an appeal before the learned CIT(A). The learned CIT(A) confirmed the addition and disallowances made by the AO. 14. Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before us. Printed from counselvise.com ITA No.465/Bang/2025 Page 7 of 22 . 15. The learned AR for the assessee, before us submitted that the notice issued under section 153C of the Act was invalid in law because there was no incriminating material found during the search that pertained to the assessee. Relying on the Supreme Court’s ruling in Abhisar Buildwell P. Ltd. (2023) 149 taxmann.com 399, the learned AR argued that the existence of incriminating material relating to the assessee is a necessary condition for initiating proceedings under section 153C of the Act. In the absence of such materials, the entire proceedings become void ab initio and without jurisdiction. 16. The learned AR highlighted that the documents referred to by the AO were already disclosed voluntarily by the assessee’s husband in a sworn statement under section 131 of the Act dated 13th May 2019 which is much prior to the search proceedings dated 19th February 2020. No fresh incriminating documents were found during the search that could be linked to the assessee. Therefore, invoking the provisions of section 153C of the Act was not justified. Moreover, the assessee had already declared the income from the concerned real estate projects— SJR Pallazza City and Mantri Primero—in her tax returns, and paid taxes accordingly. Hence, the ld. AR contended, it was illogical and unlawful for the Department to allege that these documents were incriminating in nature. 16.1 The ld. AR further contended that issuing a notice under section 153C of the Act after the return had been filed and the income declared was not only bad in law but also violated natural justice. The learned AR emphasized that incriminating material must directly indicate undisclosed Printed from counselvise.com ITA No.465/Bang/2025 Page 8 of 22 . income, financial irregularities, or tax evasion. In this case, there was no such material. 17. The learned AR also pointed out that the assessee was never provided with a copy of the satisfaction note of the AO of the search person or the seized material, which are essential for a fair assessment. As per settled legal principles, including rulings in CIT vs. Calcutta Knitwears (2014) 6 SCC 444, Pepsi Foods Pvt Ltd vs. ACIT 367 ITR 112, and Ganpati Fincap Services Pvt Ltd vs. CIT 395 ITR 692, the satisfaction note must be specific, not mechanical, and must precede the issuance of notice under section 153C of the Act. The failure to record and provide such satisfaction invalidates the jurisdiction assumed under section 153C of the Act. 18. Furthermore, the ld. AR also argued that the mandatory notice under section 143(2) of the Act was never issued before completing the assessment, thereby violating a jurisdictional requirement and making the assessment order invalid. The return filed by the assessee under section 153C of the Act on 23.09.2021 was neither considered, nor a notice under section 143(2) of the Act was issued to her. As held by the Hon’ble Supreme Court in CIT vs. Laxman Das Khandelwal, issuance of a valid 143(2) notice is a legal precondition for making an assessment under section 143(3) of the Act, which applies to the year of search too. The AO instead wrongly issued notice under section 153C r.w.s. 153A of the Act for the year of search, i.e. AY 2020-21, which was contrary to law. Printed from counselvise.com ITA No.465/Bang/2025 Page 9 of 22 . 19. The learned AR also argued against the validity of the assessment order on account of absence of valid DIN, an assessment order is invalid. The ld. AR also challenged the validity of the assessment on account of failure to meet the precondition specified under section 65B of the Indian Evidence Act for relying on the electronic evidence. 20. Besides above the learned AR also argued on merit against the addition or disallowances made by the AO and confirmed by the learned CIT(A). 21. In conclusion, the AR prayed that the entire assessment be quashed as it suffers from multiple legal defects, including lack of jurisdiction, procedural irregularities, and violation of statutory safeguards and judicial precedents. 22. On the contrary, the learned DR strongly opposed the assessee’s claim that notice issued under section 153C of the Act was invalid due to lack of incriminating materials. The DR submitted that the assessee’s argument is factually and legally incorrect. During the search conducted on 19/02/2020 at the residence of Shri Durgappa Lakkanna, who is the husband of the assessee, various documents were found and seized. These include electronic records stored in a hard disk marked A/T1/132/01, which clearly contained material directly related to the assessee, Mrs. Shantha. These materials included Joint Development Agreements (JDAs) and supporting papers for projects such as the SJR Palazza City, Premero Project, and Aditya Tussar Project. The seized documents revealed significant income from these real estate Printed from counselvise.com ITA No.465/Bang/2025 Page 10 of 22 . transactions that was either not disclosed or incorrectly declared, especially in respect of capital gains. 23. The DR submitted that the seized documents had a direct nexus with the total income of the assessee and therefore qualify as incriminating material. Relying on the decision of the Hon’ble Delhi High Court in CIT v. SSP Aviation Ltd. [2012] 346 ITR 177, it was argued that there is no requirement for the documents to conclusively prove undisclosed income. It is enough if the documents belong to or pertain to the assessee, which in this case is clearly established. Therefore, the Assessing Officer rightly recorded satisfaction and validly issued the notice under section 153C of the Act for bringing the escaped income to tax. The assessee's denial of the existence of incriminating material is, therefore, without basis and liable to be rejected. 24. On the issue of non-issuance of notice under section 143(2) of the Act, the learned DR argued that the assessee failed to e-verify her return filed under section 153C of the Act. Since verification is a legal requirement, the return remained defective and invalid. As a result, the system did not permit generation of notice under section 143(2) Act. The AO, therefore, had no choice but to proceed under section 144 read with Section 153C of the Act. The DR contended that there was no violation of law or natural justice because the assessee was given multiple opportunities to comply, which she failed to do. 25. Regarding the objection of non-existent DIN, the learned DR clarified that the assessment order bears a valid DIN (ITBA/AST/M/153C/2021-22/1036090192(1)), as mentioned on the first Printed from counselvise.com ITA No.465/Bang/2025 Page 11 of 22 . page of the order. If the DIN is not traceable on the portal due to technical or manual uploading issues, the order does not become invalid. Clause 3 of CBDT Circular No. 19/2019 allows for manual communication in cases of technical difficulties. As long as the date of issue and signature of the officer are present, which they are there in this case, accordingly, the procedural requirements are fulfilled. 26. Finally, the learned DR addressed the assessee’s objection regarding non-furnishing of the satisfaction note and seized materials. It was submitted that the Assessing Officer had already recorded proper satisfaction identifying specific documents belonging to the assessee. Furthermore, there is no legal requirement to share the satisfaction note or seized material unless the assessee makes a specific request, which she did not. The relevant materials were also referred to in the show cause notices issued during assessment. Therefore, no prejudice has been caused to the assessee and this ground too deserves to be dismissed. 27. The Learned AR, in rejoinder, respectfully submits that the arguments advanced by the Revenue are untenable both on facts and in law. The primary contention of the assessee remains that the very foundation of assessment under section 153C of the Act is invalid for want of jurisdiction, owing to the absence of a valid and specific satisfaction note, absence of incriminating material, non-issuance of mandatory notices, and procedural lapses that go to the root of the matter. Printed from counselvise.com ITA No.465/Bang/2025 Page 12 of 22 . 28. Firstly, on the issue of incriminating material, the AR submits that the Revenue has failed to demonstrate that any material found during the search was incriminating in nature and pertained specifically to the assessee. The assessee had already disclosed income from the concerned real estate projects in her regular returns. The Revenue’s reliance on JDAs and supporting documents recovered from the assessee’s husband does not amount to new or undisclosed evidence that can justify issuance of notice under section 153C of the Act. 29. Secondly, the satisfaction note relied upon by the Revenue is not recorded by the AO in the capacity of AO of the person other than search person. Furthermore, separate satisfaction notes for each assessment year, as mandated by law, were not recorded. The Hon’ble Karnataka High Court in the case of Shri Sunil Kumar Sharma v. DCIT [(2024) 159 taxmann.com 179 (Kar.)] has categorically held that a consolidated satisfaction note covering multiple years is invalid and vitiates the entire proceedings. This view has also been affirmed by the Hon’ble Supreme Court. In the present case, no such year-wise satisfaction has been recorded, and therefore, the assessment proceedings are void ab initio. 30. Thirdly, on the issue of non-uploading of the assessment order on the ITBA portal, the ld. AR reiterates that this is not a mere procedural lapse but a fatal defect. The CBDT Circular No. 19/2019 dated 14.08.2019 mandates that every assessment order must be electronically generated and uploaded. Manual communication is permissible only under specific exceptions, with prior written approval and subject to regularization within 15 working days. In the present Printed from counselvise.com ITA No.465/Bang/2025 Page 13 of 22 . case, no such approval or regularization was done. The order remains untraceable on the portal even as of today. As clarified by Para 4 of the Circular, such communication must be treated as non-est and deemed to have never been issued. 31. The ld. AR also refutes the Revenue’s contention that the assessee failed to verify the return filed in response to notice under section 153C of the Act. The return was filed within time, and the assessee was entitled to the statutory period of 120 days for verification. The AO neither issued notice under section 143(2) of the Act nor acknowledged the return filed, rendering the entire assessment process violative of natural justice. 32. On the issue of non-production of the satisfaction note and seized materials, the ld. AR submits that despite repeated requests, no such materials were shared with the assessee. The ld. AR clarifies that under law, furnishing the satisfaction note and seized materials is a mandatory jurisdictional requirement. The ld. AR also stresses that the AO of the searched person and the other person being the same does not dilute the statutory mandate to record satisfaction in writing and initiate proceedings correctly. 33. In conclusion, the Learned AR humbly prays that the Hon’ble Tribunal may kindly accept the assessee’s appeal, quash the assessment proceedings initiated under section 153C of the Act, and grant relief as prayed. Printed from counselvise.com ITA No.465/Bang/2025 Page 14 of 22 . 34. We have heard the rival contentions of both the parties and perused the materials available on record. The primary issue before us is whether the assessment made under section 153C of the Act, in the case of the assessee, Mrs. Shantha alias Shanthamma, is valid in law in the given facts and circumstances. 34.1 The foundation of the present assessment is a search conducted under section 132 of the Act at the residence of the assessee’s husband, Shri Durgappa Lakkanna, on 19.02.2020. Based on certain documents allegedly JDAs, Occupancy certificate and other document relating to the JDAs found during the search, the Assessing Officer issued a notice under section 153C of the Act and proceeded to make additions primarily on account of capital gains from joint development agreements (JDAs), treatment of sale proceeds from flats as business income, and inclusion of refundable deposits as income from other sources. 34.2 At the outset, we find force in the contention of the assessee that the jurisdiction assumed under section 153C of the Act is invalid in the absence of incriminating material pertaining to the assessee. It is settled law, as held by the Hon’ble Supreme Court in Abhisar Buildwell Pvt. Ltd. (2023) 149 taxmann.com 399, that for invoking section 153C of the Act, the Revenue must possess incriminating materials belonging to or relating to the assessee which is unearthed during the search. In the present case, the documents relied upon by the AO, such as JDAs and occupancy certificates, were already disclosed in a sworn statement given by the assessee’s husband under section 131 of the Act on 13.05.2019, i.e., much before the date of search. There is no indication that any fresh material was found during the search that had not already Printed from counselvise.com ITA No.465/Bang/2025 Page 15 of 22 . been disclosed. Therefore, in our considered opinion the issuance of notice under section 153C lacks jurisdiction and is void ab initio. 34.3 Further, the satisfaction note recorded by the AO does not comply with the legal mandate. In terms of the law laid down by the Hon’ble Karnataka High Court in Sunil Kumar Sharma v. DCIT (2024) 159 taxmann.com 179, a separate satisfaction note must be recorded for each assessment year to which the seized material relates. A consolidated satisfaction note for multiple years is not valid and renders the entire proceedings null. The relevant finding of the Hon’ble Karnataka High Court in the said case is extracted as under: 53. Further, satisfaction note is required to be recorded under section 153C of the IT Act for each Assessment Year and in the impugned proceedings, a consolidated satisfaction note has been recorded for different Assessment Years, which also vitiates the entire assessment proceedings. In view of all these findings, it is said that the appeals do not have any substance for seeking intervention as sought for by the appellant/Revenue. 34.4 In the present case, no such year-wise satisfaction note has been recorded, and therefore, the proceedings under section 153C of the Act are legally unsustainable. 34.5 Another fundamental flaw in the assessment proceedings is the failure to issue a valid notice under section 143(2) of the Act after the assessee filed her return under section 153C of the Act. Though the Revenue contends that the return was invalid due to non-verification, it is undisputed that notice under section153C of the Act was issued on 7th September 2021, the assessee had filed the return within time and had the window to verify it. However, no opportunity was provided by the AO to cure any defect, and assessment was completed vide order dated 30th September 2021. Hence, the assessment was completed within a Printed from counselvise.com ITA No.465/Bang/2025 Page 16 of 22 . month after issue of notice under section 153C of the Act. It is settled law that issuance of a valid notice under section 143(2) of the Act is a jurisdictional requirement, and failure to do so renders the assessment invalid, as held by the Hon’ble Supreme Court in CIT v. Laxman Das Khandelwal [2019] 108 taxmann.com 183. 34.6 We also note that the satisfaction note and seized documents relied upon by the Department were never furnished to the assessee, despite forming the very basis of assumption of jurisdiction. This failure violates the principles of natural justice and procedural fairness, particularly when the assessee has raised specific grounds challenging the jurisdiction under section 153C of the Act. 34.7 We also find merit in the submission that the impugned assessment order was never uploaded on the ITBA portal, and no valid Document Identification Number (DIN) was traceable. As per CBDT Circular No. 19/2019 dated 14.08.2019, every order or communication issued by the Department must bear a valid, system-generated DIN. Any manual issuance is permitted only under exceptional circumstances, and such manual orders must be regularized by uploading them on the system within 15 working days. However, we are also conscious to the fact that the issue of DIN is pending before the Hon’ble Supreme Court in the case of CIT Vs. Brandics Mauritius Holdings Ltd. reported in 158 taxmann.com 247. Hence, we refrain ourselves from giving any final verdict regarding the validity of the assessment in absence of valid DIN. As such, the issue remains open. Printed from counselvise.com ITA No.465/Bang/2025 Page 17 of 22 . 34.8 In light of the above legal and factual analysis, we are of the considered opinion that the assessment order passed under section 153C of the Act is invalid for multiple reasons: absence of incriminating material, lack of valid and separate satisfaction notes for each year, non- issuance of notice under section 143(2) of the Act, and violation of principles of natural justice. Accordingly, we set aside the assessment order and allow the appeal filed by the assessee. The additions made by the Assessing Officer are hereby deleted. 34.9 Without prejudice to the above, we proceed to adjudicate the issue on the merit of the addition. In this regard, we note that the learned AR on merit before us submitted that the assessee, had duly filed her return of income for Assessment Year (AY) 2020-21 under section 139(1) of the Act, within the prescribed time limit. The CPC also processed the return under section 143(1) of the Act, and the intimation to that effect is also on record. 34.10 It was further submitted that the assessee had entered into a Joint Development Agreement (JDA) with M/s SJR Prime Corporation Pvt. Ltd. on 17.12.2012, which is much before the date whereas the provisions of section 45(5A) of the Act came into force, i.e. 01.04.2018. The copy of the JDA is already placed on record. Moreover, a Final Supplementary Sharing Agreement was also entered into, clearly indicating the share in constructed area, a copy of which is also enclosed. In addition, the assessee had entered into another JDA with M/s Sunil Mantri Realty Ltd. on 20.03.2009, also prior to the applicability of Section 45(5A) of the Act. All income arising from these development Printed from counselvise.com ITA No.465/Bang/2025 Page 18 of 22 . agreements has been duly disclosed by the assessee in her returns of income filed for the relevant years. 34.11 The learned AR emphasized that section 45(5A) of the Act, introduced by the Finance Act, 2017, applies prospectively from 01.04.2018 and hence is not applicable to JDAs executed prior to that date. Since the assessee’s JDAs were executed in 2009 and 2012 respectively, the income from capital gains has to be taxed in accordance with the law prevailing prior to the introduction of section 45(5A) of the Act. 34.12 To support this, the learned AR relied on judicial precedents. In the case of Chaturbhuj Dwarkadas Kapadia v. CIT [(2003) 129 Taxman 497 (Bom HC)], it was held that capital gains in case of JDAs are taxable in the year in which the agreement is executed and possession is handed over, and not in the year of construction. Similarly, in CIT v. Dr. T.K. Dayalu [(2011) 202 Taxman 531 (Kar HC)], it was held that once possession is transferred under a development agreement, capital gains accrue in the year of such transfer. 34.13 Accordingly, the AR contended that the assessee has complied with the provisions of law as applicable to her case and offered the capital gains in the correct assessment years. Therefore, no adverse inference should be drawn, and the addition made may kindly be deleted. 34.14 Considering the facts in totality, we find that the assessee had entered into two Joint Development Agreements (JDAs) one with M/s Printed from counselvise.com ITA No.465/Bang/2025 Page 19 of 22 . SJR Prime Corporation Pvt. Ltd. on 17.12.2012 for the “SJR Plaza City Project” and another with M/s Sunil Mantri Realty Ltd. on 20.03.2009 for the “Mantri Premero Project”. Both agreements were entered into prior to 01.04.2018, the effective date of the introduction of section 45(5A) of the Act. Thus, the deeming provision under section 45(5A), which provides for capital gain taxation in the year of receiving completion certificate, does not apply to the assessee’s case. 34.15 The assessee’s claim is that she has offered the capital gains to tax in the relevant assessment years in accordance with the prevailing law. The assessee filed her return of income under section 139 of the Act for A.Y. 2020–21 declaring total income of ₹4,46,26,820/-, which included gain from the sale of flats. The return was duly processed under section 143(1) of the Act by the CPC, Bangalore, and no discrepancies or mismatches were reported at that stage. These facts indicate that the income offered was consistent with the revenue’s own database and processing systems. 34.16 We also note that the assessee had sold 15 flats from the “SJR Plaza City Project” and 14 flats from the “Mantri Premero Project” during A.Y. 2020–21 and offered the corresponding gains in that year. This is in line with the accepted principle that when flats developed under a JDA are later sold, the income from such sale can be assessed either as capital gains or business income, depending on the facts each case. In the present case, the assessee has treated the gains from the sale of flats as taxable in the year of sale and paid tax accordingly. No evidence has been brought on record by the AO to show that any part of this income remained unoffered to tax or was suppressed. Printed from counselvise.com ITA No.465/Bang/2025 Page 20 of 22 . 34.17 Moreover, it is a settled position of law, as held in Chaturbhuj Dwarkadas Kapadia v. CIT [(2003) 129 Taxman 497 (Bom.)] and CIT v. Dr. T.K. Dayalu [(2011) 202 Taxman 531 (Kar.)], that capital gains under a development agreement are taxable either in the year in which possession is handed over or when consideration is crystallized, depending on the facts and circumstances. The assessee’s JDAs, being of earlier origin (2009 and 2012), were not governed by the deeming fiction of section 45(5A) of the Act, and the assessee had already disclosed the capital gains in accordance with the prevailing legal framework. 34.18 Therefore, in our considered view, the additions made by the Assessing Officer on account of estimated capital gains based on the cost of construction of flats rather than actual sale are unjustified. The AO failed to appreciate that the assessee had already offered the income in the year of actual sale and paid tax accordingly. Estimating capital gain based on construction cost and taxing it in A.Y. 2020–21, without any corresponding realization by the assessee in that year, results in double taxation and goes against the principles of real income. Accordingly, on merits also, we hold that the addition of ₹111.29 crore (in respect of SJR Project) and ₹37.56 crore (in respect of Mantri Project) towards capital gains is not sustainable. 34.19 Moving ahead, we note that the AO has added sales proceeds of Rs. 7,53,77,252/- Rs. 8,52,88,148/- from the sale of flats in “SJR Plaza City Project” and “Mantri Premero Project” by assigning the reason that advance tax was not paid. In this regard, we find that the assessee has Printed from counselvise.com ITA No.465/Bang/2025 Page 21 of 22 . already offered tax on sale 15 flats in the “SJR Plaza City Project” and 14 flats in “Mantri Premero Project”. Therefore, taxing the sale proceeds separately by the AO will amount to double taxation. Hence, we hereby direct the AO to delete the addition of receipt of sale proceeds. 34.20 Coming issue of taxing the non-refundable deposit of Rs. 1.5 crore as income under the head ‘other sources’. The learned AR before us reiterated that the amount was received as refundable deposit and the assessee is liable to repay the same as per the term of the JDA. Therefore, the same has been treated as liability in the books of accounts. In this regard, we note that it is not disputed the amount was received under JDA as refundable deposit from the party namely Mantri Reality Ltd. The assessee continues to show the same as liability. Hence in our considered opinion as long as the assessee has not written off, the inclusion of refundable deposits as “income from other sources” is not justifiable. 34.21 Furthermore, we note that the AO in the assessment order has disallowed the 50% amount of expenditure claimed by the assessee as incurred for completion of the project “Mantri Premero Project”. The learned CIT(A) also confirmed the impugned disallowances. However, we note that the assessee before us has not raised specific ground in this connection neither the learned AR made any argument or submission. Be that as maybe, we note that the assessment order itself has been set aside on technical grounds. Eventually, the impugned addition or disallowance is not maintainable. Printed from counselvise.com ITA No.465/Bang/2025 Page 22 of 22 . Accordingly, we delete the additions made by the authorities below and allow the ground of appeal on merits as well. Hence, the ground of appeal of the assessee is hereby allowed. 35. In the result, the appeal of the assessee is hereby allowed. Order pronounced in court on 4th day of September, 2025 Sd/- Sd/- (KESHAV DUBEY) (WASEEM AHMED) Judicial Member Accountant Member Bangalore Dated, 4th September, 2025 / vms / Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore Printed from counselvise.com "