Income Tax Appellate Tribunal - Hyderabad
Sai Victory Construction, Sce'Bad, ... vs Assessee on 15 February, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'B', HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
IT(SS)A No.17/Hyd/11 : Block Period from 1.4.1990
to 4.1.2001
IT(SS)A No.18/Hyd/11 : Block Period from 1.4.1990
to 4.1.2001
M/s. Sai Victory Constructions, V/s. Dy. Commissioner of Income-tax
Secunderabad. Central Circle 4, Hyderabad
( PAN - ABKFS 7469 Q)
(Appellant) (Respondent)
Appellant by : Shri K.C.Devadas
Respondent by : Shri D.Sudhakar Rao DR
Date of Hearing 08.1.2014
Date of Pronouncement 05.3.2014
ORDER
Per Smt. Asha Vijayaraghavan, Judicial Member:
These two appeals by are by the assessee. While the first one is directed against the order of the Commissioner of Income-tax(Appeals) VI, Hyderabad dated 15.2.2011, passed in the context of block assessment made under S.158BD read with S,.158BC(c) of the Act, for the block period from 1.4.1990 to 4.1.2001, the appeal filed later is directed against the order of the CIT(A) VI dated 15.2.2011, confirming the penalty of Rs.28,46,592 levied under S.158BFA(2) of the Act. Since the factual background relating to both these appeals is common, these appeals are being disposed of with this common order for the sake of convenience.
2 IT(SS)A No.17 & 18/Hyd/2011M/s. Sai Victory Constructions, Secunderabad IT(SS)A No.17/Hyd/11 : Block Period from 1.4.1990 to 4.1.2001
2. Facts of the case in brief are that the assessee is a firm engaged in the construction of residential complexes at Hyderabad. A search and seizure operation under S1.32 of the Act was conducted on 24.1.2001 at the residential premises of one Shri T.Prakash, one of the partners of the assessee firm, as part of the search operations conducted in Tirumala Group of cases. During the course of search operations conducted, certain papers containing the rates, i.e. sale price of flats in respect of ventures constructed by the asee0firm, viz. 'Victory Vihar' and 'Victory Vision' were found. In view of the above, a notice under S.158BD r.w..s. 158BC was issued to the assessee calling for the return of income for the block period, comprising of assessment years 1991-92 to 2000- 01 and from 1.4.2000 to 4.1.2001, on 1.11.2002, admitting undisclosed income at Rs.120.60 lakhs. T.Prakash, during the course of search operations conducted, confirmed the fact of non-maintenance of regular books of account and non-filing of returns of income for the assessment years 1991-92 to 2000- 01, in the statement given by him.
3. There was no compliances to the notices issued by the Assessing Officer under S.143(2) and 142(1) of the Act. Hence, proceeding on the basis of seized material, being page Nos.31 and 32 of Annexure A/TP/1, which is a typed statement mentioning the names of Shri N.Surender Rao and Shri T.Prakash, partners of the assessee-firm, to the court with regard to some dispute, which showed that they sold commercial space at the rate of Rs.2,000 per sq. ft. and residential space at the rate of Rs.1,200 per sq. ft in the ventures constructed by the assessee firm. Based on the above information the Assessing Officer issued a show cause notice to the assessee as to why the above rates should not be adopted to arrive at the undisclosed income. On that basis, the Assessing Officer proposed to estimate the undisclosed income at Rs.52,02,000 being profit at 15% of the total receipts of Rs.3,46,40,000. Even to this show cause 3 IT(SS)A No.17 & 18/Hyd/2011 M/s. Sai Victory Constructions, Secunderabad notice, there was no response from the assessee. The Assessing Officer consequently, proceeded to estimate the income of the assessee, placing reliance on the decisions of the Ahmedabad Bench of the Tribunal in the case of Naresh Kumar B.Agarwal V/s. ACIT(104 Taxman 222) (Mag.) and Bombay Bench of the Tribunal in the case of Champion Construction Co. V/s. Ist ITO (5 ITD
495), and completed the assessment on a total income of Rs.52,02,000, vide order of assessment dated 29.10.2003, passed under S.158 BD read with S.158BC(c) of the Act.
4. On appeal before the CIT(A), the assessee filed written submissions, pleading inter-alia as follows-
"M/s. Sri Sai Victory Constructions was a partnership firm, which came into existence with effect from 1.10.1997 by a partnership deed dated 23.10.1997 and was dissolved with effect from 31.12.2000 by a dissolution deed dated 11.1.2001. the following were the partners of this firm:
1. Shri. N. Surender Rao
2. Shri. Thota Prakash
3. Smt. Thota Laxmi
4. Smt. N. Anuradha
2. According to the Dissolution Deed, 'the books of account upto the date of dissolution i.e. 31.12.2000 shall remain in the custody of the party of the second part, Shri. Thota Prakash, 'who shall be responsible to produce the same before the Income-tax Department'. A copy of the dissolution deed is enclosed to this statement of facts.
3. No return of income was filed for any of the assessment years. A search u/s. 132 was conducted on 4.1.2001 at the premises of Shri. Thota Prakash, one of the partners of the firm, as a part of the search operations in Tirumala group of cases. As can be seen from the assessment order, a notice u/s. 158BD was issued on1.11.2002, the firm filed a block return for the period 1.4.2000 to 4.1.2001 admitting an undisclosed income of Rs. 9,66,000; a notice u/s. 143(2)/142(1) were issued; final show cause notice issued on 31.7.2003; and since there was no response, the undisclosed income was computed basing on the information available in the seized material.
4. The learned AD estimated the total undisclosed income at 4 IT(SS)A No.17 & 18/Hyd/2011 M/s. Sai Victory Constructions, Secunderabad Rs. 52,02,000/- by his assessment order dated 29.10.2003.
5. Shri. N. Surender Rao, erstwhile partner of the appellant firm, did not know anything about the assessment proceedings and receipt of the assessment order, since, according to the dissolution deed, the tax matters are to be looked after by another partner, Sri. Thota Prakash. And due to financial problems, this erstwhile partner of the appellant firm shifted his residence. It is only when his friend informed him that TRO of the IT Department was trying to locate his address in connection with tax arrears of the firm, this erstwhile partner of the appellant firm went to the Departmental Officers and found to his surprise that a huge demand of more than Rs. 60 lakhs is pending against the firm and the Department is pursuing for collection of the taxes by all means, including coercive methods. This erstwhile partner of the appellant firm has not been in contact with the other partner, Sri. T. Prakash, for the last four to five years and his present efforts to locate him have not been fruitful.
6. This erstwhile partner of the appellant firm, therefore, applied for copies of the assessment order and penalty order, and arranged for an immediate part payment of Rs. 2 lakhs, and handed over a cheque dt. 5.3.2008 for Rs. 5 lakhs, with great difficulty. A copy of the assessment order and the demand notice has just been received by him and this appeal is being filed immediately thereafter on the basis of the assessment order alone. This erstwhile partner of the appellant firm will be applying for copies of the seized papers and other details and other details and submit, if necessary, further facts subsequently.
7. This erstwhile partner of the appellant firm or his wife, another partner, did not receive earlier the assessment order and demand notice. They do not know on whom the notices were served earlier. The appellant will file a condonation petition, if necessary, after finding out the facts from the Department.
8. Aggrieved with the above assessment order, this erstwhile partner of the appellant firm files this appeal on the grounds submitted separately."
5. While it is evident from the cause title of the impugned order of the CIT(A) that first appeal before the CIT(A) against the order of assessment dated 29.10.2003 was instituted on 22.1.2010, it is the claim of the assessee that the assessee firm was dissolved with effect from 31.12.2000 by a dissolution deed 5 IT(SS)A No.17 & 18/Hyd/2011 M/s. Sai Victory Constructions, Secunderabad dated 11.1.2001, and according to the dissolution deed, the books of account upto the date of dissolution, i.e. 31.12.2000 shall remain in the custody of the party of the second part, Shri Thota Prakash, who shall be responsible to produce the same before the income-tax Department. It was the case of the assessee that the partner, Surender Rao did not know anything about the assessment proceedings and the receipt of assessment order, sicne tax matters, as per the dissolution deed were to be looked after by Thota Prakash, who due to financial problems, shifted this residence. It was also only after coming to know from his friend that TRO of Income-tax Department were trying to locate his residence in connection with tax arrears of the firm, the matter was enquired with the Income-tax Department, only to come to know by surprise that assessment was made with huge tax demand. It was thus the claim of the assessee that while no return was claimed for any of the assessment years, consequent upon search action on the premises of the Shri Thota Prakash under S.132 of the Act on 4.1.2001, and subsequent initiation of the proceedings under S.158BD in the case of the assessee, the assessee had to filed block return admitting undisclosed income of Rs.9,66,000, as against which Assessing Officer estimated the undisclosed income at Rs.52,02,000.
6. The CIT(A), at the outset, took note of the fact that the assessment order was served by affixture. He also took note that that the show cause letter dated 25.9.2002, and other notices sent subsequently were properly served on the assessee, though even in response to the same, there was no response from the assessee, except filing of the block return. In the circumstances, he found no merit in the contention of the assessee that the assessment order was not served, and consequently, the prayer for condonation of delay does not arise at all. The CIT(A) further observed that even if it was taken that Surender Rao was not aware of the facts of the case as the partnership was dissolved, the condonation of delay in filing of appeal cannot be accepted, as the Authorised Representative of the assessee at the appellate proceedings had never raised 6 IT(SS)A No.17 & 18/Hyd/2011 M/s. Sai Victory Constructions, Secunderabad this issue and sought to file any application seeking condonation of delay. The CIT(A), accordingly concluded that the appeal as barred by limitation.
7. The CIT(A), thereafter, proceeded to consider the facts of the case on the merits of the assessment made, in the light of further written submissions of the assessee, duly extracting the same and also the statement given by Surender Rao, discussed in the show cause letter dated 25.9.2002 issued to the assessee, and ultimately concluded that the assessee had received much higher consideration than what it had disclosed in the return of income. He further observed that the contention of the assessee that the document seized based on which the assessment was completed was an unsigned document and a dumb document. Even if such a contention is accepted, he observed, that glaring evidence given by Surender Rao in his sworn statement clearly shows that they have yielded much higher price than what is shown in the return of income. For these reasons, the CIT(A) confirmed the addition made by the Assessing Officer.
8. Aggrieved, assessee is in second appeal before us.
9. Effective grounds of the assessee in this appeal are as follows-
"1. The order of the CIT(A) is erroneous in law as well as on facts.
2. The CIT(A) ought to have observed that there was no delay in filing of the appeal as there was no proper service of assessment order and demand notice on any partner including the present appellant (partner) Sri N.Surender Rao.
3. The CIT(A) ought to have admitted the appeal for consideration even if it is assumed that there was delay in view of the facts and circumstances of the case.
4. The CIT(A) erred in confirming the computation of income at Rs.52,02,000/- without considering the fact that there was no seized material supporting such computation.
5. The order of the CIT(A) is erroneous in law as the same was without proper appreciation of facts as well as legal aspects of the case.
6, ...."
7 IT(SS)A No.17 & 18/Hyd/2011
M/s. Sai Victory Constructions,
Secunderabad
10. During the course of appellate proceedings before us, learned counsel has also filed additional grounds of appeal, alongwith a petition seeking admission of the same. The said additional grounds read as follows-
"1. The satisfaction as enjoined in Section 158BD of the ITA Act of 1961 that the appellant has undisclosed income not having been recorded by the Assessing Officer as laid down in the decision of the Supreme Court in Manish Maheshwari V/s. Asst. CIT and another reported in 289 ITR 341(SC) and the order passed u/s. 158BD r.w.Seciton158BC(c) of the IT Act of 1961 on 29.10.2003 is invalid and bad in law and is to be quashed.
2. Whether on the facts and circumstances of the case the CIT(A) VI Hyderabad was justified and correct in law in holding that the service of assessment order by "Affixture" at the premises bearing no- 403 Raghuram Apartments, Malakpet, Hyderabad only on Ex- Partner Mr.T.Prakash was valid and if not, whether the appeal filed by the Appellant through Ex-Partner, Mr.N.Surender Rao on 03/03/2008 was within the period of limitation as laid down by the jurisdictional High Court in the case of CIT V/s. Gangadhar Goud Ram Gowd and Co. reported in 158 ITR 0075(AP)."
11. Since the above additional grounds are legal in nature and go to the root of the matter, relying on the decision of the Apex Court in the case of National Thermal Power Corporation Ltd. V/s. CIT (229 ITR 383) we admit the same and proceed to dispose of these appeals, taking into account those additional grounds as well.
12. Let us first take up for consideration, the first additional ground, which is a legal one which goes to the root of the matter. The objection of the assessee in this ground is with regard to non-recording of satisfaction by the Assessing Officer before invoking the provisions of S.158BD in the case of the assessee.
13. We heard both sides and perused the orders of the Revenue authorities. It is no doubt true that the condition precedent for initiating a block assessment under S.158BD is reaching/recording satisfaction by the Assessing Officer, as enjoined in S.158BD of the I.T. Act, 1961, to the effect that 8 IT(SS)A No.17 & 18/Hyd/2011 M/s. Sai Victory Constructions, Secunderabad incriminating material indicating undisclosed income assessable in the hands of the assessee, was found during S.132 proceedings of the person searched. Disputing the contention of the assessee that the Assessing Officer did not record either satisfaction, as envisaged in the Act, before initiating the proceedings under S.158BD of the Act, or reasons, the Learned Departmental Representative demonstrated taking us through the material that such satisfaction has in fact been recorded by the Assessing Officer. In the circumstances, we find no merit in the first additional ground of the assessee of the assessee in this appeal. The same is accordingly rejected.
14. Now turning to the second additional ground, which relates to the service of assessment order on the assessee by affixture at the premises of a partner, and its impact on the computation of period of limitation. Ground No.2 originally raised by the assessee in this appeal is also on this very issue.
15. We heard both sides and perused the impugned orders or the Revenue authorities and other material on record. It is the contention of the assessee that there was no delay in filing of the appeal before the CIT(A), as there was no proper service of assessment order and demand notice on any partner, by affixture, including the present partner, N.Surender Rao, is no proper service. In support of these contentions, besides referring to the decision of the jurisdictional High Court noted in the ground itself, learned counsel also relied upon the decision of the Punjab and Haryana High Court in the case of CIUT V/s. Naveen Chander (323 ITR 49). We find merit in this contention of the assessee. In the case of CIT V/s. Gangadhar Gowd Rama Gowd and Co (supra), relied upon by the learned counsel for the assessee, it has been held, considering the fact of service of orders refusing the registration of the firm on one of the partners by name, after dissolution of the said firm, the appeal filed by the other partner, on obtaining certified copies of the relevant orders, was held to be within time and not barred by limitation. Facts and circumstances of the case being identical in the case on hand as well, we are of the view that 9 IT(SS)A No.17 & 18/Hyd/2011 M/s. Sai Victory Constructions, Secunderabad there was no delay in the filing of the first appeal before the CIT(A), and consequently, the CIT(A) was not justified in holding the appeal before him as barred by limitation. We accordingly set aside the impugned order of the CIT(A) on this aspect. Assessee's grounds on this aspect are accordingly allowed.
16. Notwithstanding the fact that the appeal as held to be barred by limitation, since the CIT(A) has proceeded to dispose of the appeal of the assessee on merits as well, we proceed to dispose of the appeal on the merits of other grounds as well.
17. Assessee's ground on the merits of the assessment is that the CIT(A) erred in confirming the estimation of undisclosed income at Rs.52,02,000 without considering the fact that there was no seized material supporting such computation.
18. The Assessing Officer has taken note of two pages, being pages 31 and 32 of seized material, which revealed that the assessee sold commercial space at the rate of RS.2000 per sq. ft. and residential space at the rate of Rs.1,200 per sq. ft. in the ventures constructed by the assessee firm, the Assessing Officer estimated the gross receipts at Rs.3,46,40,000 and estimated the net profit thereon at 15% thereof, and accordingly arrived at the undisclosed income to be assessed in the hands of the assessee at Rs.52,02,000. On appeal, the CIT(A) confirmed the assessment thus made by the Assessing Officer. Aggrieved, assessee is in second appeal before us.
19. The learned counsel for the assessee submitted that the seized papers referred to above, based on which the impugned block assessment with huge addition has been made, are unsigned sheets -'Statement of Shri Surender Rao and Shri T.Pakash' dated 8.6.1999. This statement is according to the learned counsel, is counter to criminal complaint filed by three of the purchasers of the flat, flat No.1, 2 and 3 in third floor of Victory Vihar. IT was further submitted that there were disputes between the assessee firm and three of the 10 IT(SS)A No.17 & 18/Hyd/2011 M/s. Sai Victory Constructions, Secunderabad buyers on account of delay in registering the flats purchased by them. Finally, the disputes were settled in Lok Adalat and the three flats namely, flat No.1, 2 and 3 in III Floor of Victory Vihar were registered in the names of the buyers on 6.7.2000. It was also pointed out that the sale consideration has been clearly mentioned in these documents, as under-
Flat No.1, 3rd Floor, Victory Vihar Rs.3,50,000
Flat No.2, 3rd Floor, Victory Vihar Rs.4,60,000
Flat No.3, 3rd Floor, Victory Vihar Rs.3,50,000
It was submitted that the figures in the seized statement were very much higher than the actual figures and are not correct. Further, no such statement was filed by the assessee firm or its partners before any authority, and the partner Shri Surender, is not aware of these papers. It was submitted therefore, that the unsigned statement prepared by somebody, without knowledge of the facts, apparently as a counter to the criminal complaint, cannot be relied upon for making an assessment. In support of these contentions, the learned counsel placed reliance on the decision of Delhi Bench of the Tribunal in the case of Dimsy Food & Chemicals (P) Ltd. Vs. DCIT(24 SOT 65)(Delhi)(URO), wherein it was held that impugned addition made by authorities on the basis of dumb documents only is liable to be deleted. Further, reliance is also placed on the decision of ACIT V.s. Dr.Kamala Prasad Singh (3 ITR (Trib) 0533), wherein observing that the documents found and seized and relied upon for making the addition, had neither date nor the name of the assessee, it was held that it was not known in what connection the notings were made and those documents being dumb document, addition could not be made on the basis of assumptions and presumptions. The Assessing Officer, therefore, is not justified in adopting the rates per sq. ft., based on such seized unsigned papers.
20. Without prejudice to the above contentions, learned counsel also submitted that the Assessing Officer is also not justified in estimating the profit 11 IT(SS)A No.17 & 18/Hyd/2011 M/s. Sai Victory Constructions, Secunderabad at 15% of the receipt, since the assessee firm worked on the project with borrowed money, and had to fight various litigations. He submitted that there were also disputes between the partners and the assessee had to encounter various other problems. As such there was no profit at all in these projects. In this connection, it is submitted that the Tribunal in the case of Dr.Saifuddin Ahmed, Hyderabad V/s. Dy. CIT. Central Circle,3, Hyderabad, considering similar facts, has directed estimation of net profit adopting a rate of 8%. He therefore, submitted that the estimation of profit by the Assessing Officer adopting a rate of 15% in the present case is excessive, and therefore, at least, reasonable relief should be granted to the assessee, while estimating the net profit.
21. The Learned Departmental Representative, on the other hand, strongly supporting the impugned orders of the Revenue authorities submitted that it was a clear cut case where the sale consideration was much higher than the one disclosed in the registered sale deeds, and the same was borne out by the documents seized. Taking us through the assessment order, the Learned Departmental Representative pointed out that the partner Shri Surender Rao has been summoned and his sworn statement of partner, has been recorded, and it is after taking into account the particulars revealed by him, the impugned assessment was made, and as such, it is not correct to say that Shri Surender Rao is not aware of the details. Consequently, it is submitted that the assessment made is quite reasonable, and the same should be sustained.
22. We heard both sides and perused the impugned orders of the Revenue authorities and other material available on record. Based on the typed sheets of paper which were found and seized at the time of search, which disclosed the rates at which commercial and space has been sold by the assessee in different ventures undertaken by it, the Assessing Officer proceeded to make the impugned block assessment, adopting a rate of Rs.2,000 per sq. ft. of commercial space and Rs.1,200 per sq. ft. of residential space. The question before us for consideration is as to the evidentiary value of the documents found 12 IT(SS)A No.17 & 18/Hyd/2011 M/s. Sai Victory Constructions, Secunderabad and seized at the time of search, since the same, viz. two typed sheets, are unsigned papers. It is well settled position of law that undisclosed income for the purpose of block assessment has to be completed solely on the basis of seized material and any enquiry made by the Assessing Officer thereafter relatable to such material, meaning thereby neither any enquiry report nor any document procured either before or after search can be considered while computing the undisclosed income of the assessee. Similarly, it is also settled position that any document found and seized during the course of search has to be interpreted literally and nothing can be added or subtracted. The material found and seized in the present case are two sheets of typed paper. They are simply unsigned and cannot be attributed to the assessee. Such unsigned papers are mere dumb documents and cannot be relied upon for making a block assessment. We are supported in this behalf by the decision of the Patna Bench of the Tribunal in the case of as in ACIT V/s. Dr.Kamla Prasad Singh (3 ITR (Trib) 533), relied upon by the learned counsel for the assessee before us. Consequently, the impugned addition made by the Assessing Officer on the basis of such unsigned papers in the present case cannot be sustained. We accordingly delete the same, setting aside the impugned orders of the Revenue authorities on this issue, and allowing the grounds of the assessee in this appeal.
23. In the result, assessee's appeal, IT(SS)A No.17/Hyd/2011 is allowed.
IT(SS)A No.18/Hyd/2011
24. This appeal is directed against the order of the Commissioner of Income-tax(Appeals) VI Hyderabad dated 15.2.2011 confirming the penalty imposed under S.158BFA(2) of the Act.
13 IT(SS)A No.17 & 18/Hyd/2011M/s. Sai Victory Constructions, Secunderabad
25. We heard both sides and perused the orders of the Revenue authorities. The Assessing Officer initiated the penalty proceedings for concealment, while completing the block assessment proceedings as above. In the absence of any response from the assessee to the show cause notice, Assessing Officer imposed penalty of Rs.28,46,592. On appeal, the CIT(A) confirmed the penalty levied by the Assessing Officer. In view of our decision in the context of quantum appeal of the assessee, being IT(SS)A No.17/Hyd/2011, whereby we have deleted the addition, based on which the impugned penalty has been levied, the present appeal of the assessee against the penalty levied also deserves to be allowed. As the very basis for the penalty no longer survives, the impugned penalty is cancelled, and the grounds of the assessee in this appeal as well are allowed.
26. In the result, appeal of the assessee is allowed.
27. To sum up, both the appeals of the assessee are allowed.
Order pronounced in the court on 5.3.2014
Sd/- Sd/-
(Chandra Poojari ) (Asha Vijayaraghavan)
Accountant Member Judicial Member
Dt/- 5th March, 2014
Copy forwarded to:
1. M/s. Sai Victory Constructions, C/o. M/s. B.Narsing Rao & Co., Chartered Accountants, Plot No.554,Road No.92, Jubilee Hills, Hyderabad 500 096.
2. Dy. Commissioner of Income-tax Central Circle 4, Hyderabad
3. Commissioner of Income-tax(Appeals) VI Hyderabad
4. Commissioner of Income-tax VI Hyderabad 5 Departmental Representative, ITAT, Hyderabad.
B.V.S