Income Tax Appellate Tribunal - Panji
Sri Balaji Constructions ,, ... vs The Acit,, Rajahmundry on 10 January, 2018
ITA No.387/Vizag/2014
M/s. Sri Balaji Constructions, Kakinada
आयकर अपील य अ धकरण, वशाखापटणम पीठ, वशाखापटणम
IN THE INCOME TAX APPELLATE TRIBUNAL,
VISAKHAPATNAM BENCH, VISAKHAPATNAM
ी वी. दग
ु ाराव, या यक सद य एवं
ी ड.एस. सु दर "संह, लेखा सद य के सम%
BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER &
SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER
आयकर अपील सं./I.T.A.No.387/Vizag/2014
( नधारण वष / Assessment Year: 2008-09)
M/s. Sri Balaji Constructions ACIT, Central Circle
Kakinada Rajahmundry
[PAN No.ABKFS3444D]
(अपीलाथ' / Appellant) (()याथ' / Respondent)
अपीलाथ क ओर से / Appellant by : Shri G.V.N. Hari, AR
याथ क ओर से / Respondent by : Shri Debakumar Sonowal,
DR
सुनवाई क तार ख / Date of hearing : 03.01.2018
घोषणा क तार ख / Date of Pronouncement : 10.01.2018
आदे श / O R D E R
PER Bench:
This appeal filed by the assessee is directed against order of the
Commissioner of Income Tax (Appeals) {CIT(A)}, Guntur vide ITA
No.447/CIT(A)/GNT/10-11 dated 24.2.2014 for the assessment year
2008-09.
1
ITA No.387/Vizag/2014
M/s. Sri Balaji Constructions, Kakinada
2. The assessee filed return of income declaring income of ` 63,920/-
on 29.7.2008. A search and seizure operation was conducted in the
group cases of the assessee on 3.2.2009. Subsequently, the A.O. has
issued a notice u/s 153C of the Income Tax Act, 1961 (hereinafter called
as 'the Act') on 3.3.2010 calling for the return of income and the
assessee has filed the return of income on 23.4.2010 admitting total
income of ` 63,920/-. Thereafter, the A.O. conducted the enquiries and
completed the assessment u/s 143(3) r.w.s. 153C of the Act on total
income of ` 11,69,338/-. During the assessment proceedings, the A.O.
made addition of ` 11,05,418/- on estimation basis. During the search
proceedings, the assessee has admitted additional income of ` 20 lakhs
for the assessment year 2009-10 and accordingly, filed the return of
income. The assessing officer has recorded a statement u/s 131 of the
Act on 2.3.2009 from Shri Kotta Srinivas, wherein, the flat buyer
admitted that he had agreed to pay ` 11,75,000/- and paid ` 11 lakhs
for purchase of flat No.S-5 (1075 Sft) as per which the sale price worked
out to Rs.1,093/- per Sft. The A.O. collected the information from the
flat buyers and also market information regarding the cost of
construction and the sale price of the flats and also recorded the
statements from the land owners and determined the sale price at an
average rate of ` 989/- and the cost of construction at ` 650/- and
2
ITA No.387/Vizag/2014
M/s. Sri Balaji Constructions, Kakinada
accordingly estimated the undisclosed income at ` 11,05,500/- and
brought to tax.
3. Aggrieved by the order of the A.O., the assessee went on appeal
before the CIT(A) and the Ld. CIT(A) allowed the assessee's appeal
partly. Against the order of the CIT(A), the assessee is in appeal before
this Tribunal.
4. During the appeal hearing, the Ld. A.R. of the assessee has
argued that for the assessment year 2008-09, there was no
incriminating material available with the A.O. to invoke the provisions
u/s 153C of the Act. The entire assessment was made on market
information collected by the A.O. without any basis of incriminating
material. Therefore, The ld. A.R. argued that the notice issued u/s 153C
of the Act is bad in law and consequent assessment made by the A.O.
required to be quashed.
5. On the other hand, the ld. D.R. supported the order of the lower
authorities and argued that the DDIT has recorded the statement u/s
132(4) of the Act wherein the assessee has admitted the additional
income of Rs.20 lakhs u/s 132(4) of the Act and hence the assessing
officer has rightly issued the notice u/s 153C of the Act for the
assessment year 2008-09 it require to be upheld.
3
ITA No.387/Vizag/2014
M/s. Sri Balaji Constructions, Kakinada
6. We have heard both the parties, perused the materials available
on record and gone through the orders of the authorities below. A
search and seizure operation was conducted in the group cases of the
assessee on 3.2.2009 and during the course of search, the assessee has
admitted additional income of Rs.20 lakhs for the assessment year
2009-10. There was no search carried out by Income Tax Department
in the case of the assessee and there was no material found in the
premises of the searched person relating to the assessee evidencing the
undisclosed income for the assessment year 2008-09. As per the
provisions of section 153C of the Act, the A.O. is permitted to invoke the
provisions of section 153C of the Act by issuing notice u/s 153C of the
Act, when there is an incriminating material available with the searched
person and the satisfaction not recorded by the A.O. In the assessee's
case as per the assessment order, the entire assessment order made on
estimation basis but not on the basis of any incriminating material. The
A.O. has invoked the provisions of section 153C of the Act since the
books of accounts were not produced by him during the search
proceedings and held that the assessee has not maintained the books of
accounts. However, on verification of paper book filed by the assessee
it is observed that the assessee is maintaining the books of accounts,
compiled profit and loss account and balance sheet as per the books of
4
ITA No.387/Vizag/2014
M/s. Sri Balaji Constructions, Kakinada
accounts and filed the return of income on 29.7.2008. The assessee's
case is also covered by section 44AB of the Act for tax audit. Therefore,
merely because the books of accounts could not be produced on the
date of search or could not be traced it cannot be presumed that the
assessee has not maintained the books of accounts. Further, the search
was conducted in the residence of Sri Subba Rao but not in the business
premises. The Ld. CIT(A) has accepted in the order that the assessee
had maintained the books of accounts in paragraph No.4.3.7 which is
extracted as under:
"4.3.7 In the appellant's case, the A.O. has recorded that books of
accounts were not available at the time of search. On the other hand, the
appellant himself has stated that the books of accounts were presented
during the course of assessment proceedings. What is relevant however
is that the appellant prepared his books of accounts on percentage
completion method and had them audited on 25.9.2008. The profit and
loss account has been prepared on the basis of the same percentage
completion method. This method is regularly employed by real estate
developers and is in fact the preferred method of accounting as opposed
to other methods, such as project completion method. The advantage of
the percentage completion method employed by the appellant firm is that
revenue cannot be postponed and it is recognised the moment it is
received. The assessing officer has given no finding as to why he has
rejected the method of accounting followed by the appellant except to say
that books of accounts were not available at the time of search. The
Assessing Officer was bound to explain why the method of accounting
followed by the appellant in preparing its final accounts submitted along
with the return of income did not, in his opinion, reveal the true and
correct income of the appellant firm. Having failed to do so, I find no
basis in the Assessing Officer's rejection of the method of accounting
followed by the appellant firm.
4.3.8 Secondly, as discussed above, books of accounts can be rejected
even where the method of accounting is acceptable but the books are
found to be false or fabricated. The Assessing Officer has referred to
statements of certain flat owners, where the amount claimed to have
been paid by them has been found to be in excess of what is recorded in
5
ITA No.387/Vizag/2014
M/s. Sri Balaji Constructions, Kakinada
the books of accounts. Further, the Assessing Officer has mentioned that
the appellant firm could not submit supporting bills and vouchers for
various expenses claimed. These are valid grounds for rejection of books
of accounts. Thus, regarding grounds of appeal No.1 & 2 the Assessing
Officer's action in rejecting the method of accounting is held as incorrect
while his rejection of books of accounts based on incorrect entries
recorded therein is upheld."
7. From the order of the Ld. CIT(A), it is evident that the assessee
has maintained the books of accounts and followed the consistent
method of project completion method. The CIT(A) also found that there
is no basis for rejection of the method of account followed by the
assessee. There is no incriminating material available to the revenue in
the premises of the searched person relating to the assessee. The
statement recorded u/s 132(4) of the Act related to the A.Y. 2009-10
but not related to the assessment year 2008-09. During the appeal
hearing, the ld. D.R. did not place any evidence with regard to the
incriminating material found in the premises of the searched person
relating to the assessee. Now it is settled issue that for initiating the
proceedings u/s 153C of the Act, it is incumbent upon the A.O. to have
the incriminating material evidencing the undisclosed income. In the
assessee's case no such evidence was found during the course of search
in the group cases. As per the provisions of section 153C of the Act, it is
mandatory to have the satisfaction of the A.O. that money, bullion,
jewellery or other valuable article or thing or any books of accounts,
documents seized or requisitioned pertains to or relates to the assessee,
6
ITA No.387/Vizag/2014
M/s. Sri Balaji Constructions, Kakinada
which means that unless there is an incriminating material belonging to
the assessee is found, the action u/s 153C of the Act is not permissible.
In the assessee's case there was no incriminating material found and
seized from the premises of the group cases. Therefore, we hold that
the notice issued u/s 153C of the Act is not sustainable and accordingly
quashed. This view is upheld by the Hon'ble Supreme Court in the case
of CIT Vs. Sinhagad Technical Education Society (2017) 84
Taxmann.com 290 (SC). Respectfully following the judgement of the
Hon'ble Supreme Court, we hold that the notice issued u/s 153C of the
Act is unsustainable and accordingly quashed.
8. In the result, the appeal filed by the assessee is allowed.
The above order was pronounced in the open court on 10th Jan'18.
Sd/- Sd/-
(वी. दग
ु ाराव) ( ड.एस. सु दर "संह)
(V. DURGA RAO) (D.S. SUNDER SINGH)
या यक सद य/JUDICIAL MEMBER लेखा सद य/ACCOUNTANT MEMBER
#वशाखापटणम /Visakhapatnam:
'दनांक /Dated : 10.01.2018
VG/SPS
आदे श क त)ल#प अ*े#षत/Copy of the order forwarded to:-
1. अपीलाथ / The Appellant - M/s. Sri Balaji Constructions, C/o M. Anandam & Co.,
Chartered Accountants, 7A, Surya Towers, S.P. Road, Secunderabad
2. याथ / The Respondent - The ACIT, Central Circle, Rajahmundry
3. आयकर आय+
ु त / The CIT, Guntur
4. आयकर आय+
ु त (अपील) / The CIT (A), Guntur
7
ITA No.387/Vizag/2014
M/s. Sri Balaji Constructions, Kakinada
5. #वभागीय त न.ध, आय कर अपील य अ.धकरण, #वशाखापटणम /
DR, ITAT, Visakhapatnam
6. गाड फ़ाईल / Guard file
आदे शानस
ु ार / BY ORDER
// True Copy // Sr. Private Secretary ITAT, VISAKHAPATNAM 8