Income Tax Appellate Tribunal - Hyderabad
Sri Palla Gangadhar Rao, Hyd, Hyderabad vs Assessee on 19 February, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD "A " BENCH, HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND
SRI SAKTIJIT DEY, JUDICIAL MEMBER
ITA No.2097/Hyd/2012
Asstt. Year 2007-08
Sri Pulla Gangadhar Rao, -v- ACIT,Cir-8(1),
Hyderabad. Hyderabad.
PAN:BDTPP6027M
(Appellant) (Respondent)
Appellant By: Sri A.V. Raghu Ram
Respondent by: Smt. K. Haritha
Date of Hearing: 19-02-2014
Date of Pronouncement: 09-04-2014.
ORDER
PER SAKTIJIT DEY, J.M:
This appeal filed by the assessee is directed against the order dated 30-9-2011 of CIT (A)-III, Hyderabad pertaining to the assessment year 2007-08.
2ITA no.2097 of 2011 Palla Gangadhar Rao, Hyd.
2. There is a delay of seven days in filing the appeal. The assessee has filed a petition seeking condonation of delay accompanied by an affidavit explaining the cause of delay. Upon considering the averments made in the affidavit, we are satisfied that there was a reasonable cause for not filing the appeal in time. Therefore, we are inclined to condone the delay and admit the appeal for hearing on merits.
3. The assessee has raised five grounds. Ground Nos.1 and 5 are general in nature, hence they do not require any adjudication. Ground No.2 relates to validity of assessment proceedings initiated u/s 153C of the Act.
4. Briefly stated, the assessee is an individual. A search and seizure operation u/s 132 of the Act was conducted in case of Sri D. Nagarjuna Rao, Sri K. Srinivasa Reddy & Others, Miyapur, Hyderabad on 29-10-2007. As a consequence of aforesaid search and seizure operation, a notice u/s 153C read with section 153A of the Act was issued to the assessee calling upon him to file his return of income for the impugned assessment year. In response to such notice, the assessee filed his return of income on 1-12-2009 declaring total income of Rs.76,250/-. During the assessment proceedings, the Assessing Officer while examining the computation of total income filed by the assessee along with return of income noticed that the assessee has admitted sale consideration of Plot No.22, survey No.230 admeasuring 420 sq. yards situated at Madinaguda at Rs.14,70,000/-. He further noticed that as per the information available on record, the assessee had purchased the land vide registered document dated 20-9-2006 3 ITA no.2097 of 2011 Palla Gangadhar Rao, Hyd.
from Sri D. Nagarjuna Rao and Sri K. Venkateswara Reddy, partners of M/s Sri Sitaramanjayeya Constructions and the recorded consideration in the registered sale deed is Rs.14,70,000/-.
5. However, as alleged by the Assessing Officer, page No.38 of seized material marked as Annexure A/DNR/18 dated 29-10-2007 from the possession of Sri D. Nagarjuna Rao revealed the actual sale consideration of Rs.81,48,000 which was received by Sri D. Nagarjuna Rao and Sri K. Venkateswara Reddy towards sale of the property through Sri B. Thirumala Rao. He therefore concluded that on money of Rs.66,78,000/- was received by the vendors over and above the actual amount recorded in the registered sale deed towards sale consideration of the property. As mentioned in the assessment order, when Sri D. Nagarjuna Rao was confronted with the seized material and asked to explain the entries made therein, he stated that the said seized material contains details of sale consideration received toward sale of the property and the sum of Rs.81,48,000/- was received for sale of the above property. It was also admitted by him that the entries in the seized document was made by him in his own hand-writing. He further stated, the property was registered in the name of M/s Seetaramanjaneya Constructions a partnership firm in which he and Sri K. Venkateswara Reddy are partners. He further stated that the amount of Rs.81,48,000 was received on various stages through one Tirumala Rao towards sale of the said property. He further stated that the property was registered in the name of Sri P. Gangadhar Rao, the present assessee. It was stated 4 ITA no.2097 of 2011 Palla Gangadhar Rao, Hyd.
by D. Nagarjuna Rao that the profit of Rs.43,68,000/- derived from the sale of the property was also offered to tax. When the aforesaid fact along with seized material was confronted to Sri Tirumal Rao, though he admitted the fact that he has negotiated with D. Nagarjuna Rao towards purchase of the said plot of 420 sq. yards on behalf of P. Gangadhar Rao, the present assessee but he flatly denied of having paid Rs.81,41,000 as mentioned in the seized document. It was further stated by him by him that whatever amount was paid by the assessee to him was handed over to D. Nagarjuna Rao by him. When the assessee was confronted with the seized material as well as the statements of D. Nagarjuna Rao and Tirumal Rao, the assessee also denied of having paid the consideration of Rs.81,41,000/- and stated that the amount mentioned in the sale deed was the actual amount paid and no on money was paid over and above what is mentioned in the registered sale deed.
6. The Assessing Officer however disbelieving the explanation of the assessee concluded that the assessee has paid the sale consideration of Rs.81,48,000/- as mentioned in the seized document and accordingly made an addition of Rs.80,70,000/- as unexplained investment u/s 69 of the Act. Being aggrieved of the assessment order so passed the assessee preferred an appeal before the CIT (A).
7. Before the first appellate authority, the assessee apart from challenging the additions made on merits, he also raised a legal issue pertaining to the validity of the proceedings initiated u/s 153C of the Act on the ground that 5 ITA no.2097 of 2011 Palla Gangadhar Rao, Hyd.
there is no material whatsoever before the Assessing Officer to assume jurisdiction u/s 153C of the Act. The CIT (A) though refused to admit the additional ground by pointing out some technical deficiency but at the same time dwelling upon the issues raised in the additional ground commented that the proceedings u/s 153C of the Act have been validly initiated as the seized document contained entries pertaining to the transactions in the immovable properties made by the assessee during the previous year and accordingly he dismissed additional ground raised on the issue of initiation of proceedings u/s 153C of the Act.
8. The learned AR submitted before us that apart from a single loose sheet i.e. page-38 of the Annexure/DNR/18, there is no other material before the Assessing Officer to initiate the proceeding u/s 153C of the Act. It was submitted by the learned AR even that loose sheet also cannot be considered to be belonging to the assessee as neither it mentions the name of the assessee nor refers to the transaction of purchase of property by the assessee. It was submitted that in the statement recorded from D. Nagarjuna Rao, he has categorically admitted that the entries made in the said loose sheet were in his own hand writing. It was therefore contended that when the seized material does not mention the name of assessee or as any reference to the transaction entered into by the assessee and it cannot be considered to be belonging to the assessee. It was submitted that the condition precedent for assuming jurisdiction u/s 153C is, the seized material or valuable articles or things must belong to the person against whom the proceedings u/s 153C is sought 6 ITA no.2097 of 2011 Palla Gangadhar Rao, Hyd.
to be initiated. The learned AR submitted that when there is no reference to the assessee in the seized document, only relying upon the statement of D. Nagarjuna Rao to whom the document originally belongs, proceedings cannot be initiated against the assessee u/s 153C of the Act. It was submitted that apart from aforesaid loose sheet there is no other evidence before the Assessing Officer which could show that the assessee has paid the amount of Rs.81,48,500/- to D. Nagarjuna Rao towards sale consideration of the property. The learned AR therefore submitted that when the seized document does not belong to the assessee, proceeding u/s 153C cannot be said to have been validly initiated. The learned AR relying upon a decision of Income-tax Appellate Tribunal, Hyderabad Bench in case of M/s. Shouri Constructions, Hyderabad vs. ACIT (ITA Nos. 2056 and 2057/Hyd/2011) and in case of T. Jaipal Reddy vs. ACIT (ITA NO.2058/Hyd/2011) dated 28/6/2013 contended that the co- ordinate bench of this Tribunal considering identical facts and circumstances wherein proceedings u/s 153C was initiated on the basis of the same seized material has quashed assessment order passed u/s 153C of the Act by holding that the seized material cannot be said to belonging to the assessee.
9. The learned DR, on the other hand, submitted that the validity of proceedings initiated u/s 153C cannot be challenged by the assessee as the seized material along with the statement recorded from D. Nagarjuna Rao clearly establishes the fact that the assessee has paid on money over and above the sale consideration as mentioned in the registered sale 7 ITA no.2097 of 2011 Palla Gangadhar Rao, Hyd.
deed. In support of such contention, the learned DR relied upon a decision of Hon'ble AP High Court in case of Ahuja Holdings Vs. CIT (346 ITR 177).
10. We have heard submissions of the parties and perused the material on record as well as the orders of the revenue authorities On a perusal of the assessment order, it is very much evident that the seized material on the basis of which the Assessing Officer has initiated proceedings u/s 153C of the Act is page-38 of annexure A/DNR/18. The learned DR has also produced a copy of seized material before us.
11. The translated version of the aforesaid seized material which also forms part of the statement recorded from Tirumala Rao has been extensively quoted in para-4 of the assessment order. The same reads as under:-
"Tirumala Rao account"
Date Description Amount (Rs.)
25-08-2006 cash 60,000
02-09-2006 cash 10,00,000
05-09-2006 cash 40,00,000
20-09-2006 cash 29,50,000
21-09-2006 cash 1,38,000
---------------
81,48,000
-----------------
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Palla Gangadhar Rao, Hyd.
A perusal of the aforesaid seized document clearly mentions that in the heading it is mentioned as 'Tirumala Rao account' and below that dates and amounts along with the word cash have been mentioned. Nothing has been mentioned whether they are receipts or payments. The aforesaid loose sheet neither mentions the name of the assessee nor it refers to the plot Number, survey number etc., for which the payment was allegedly made. There is nothing in the seized document to suggest that it relates to the sale transaction of plot No.22, Survey No.230 admeasuring 420 sq. yards at Madinaguda. Apart from the aforesaid seized document, the only other evidence on the basis of which the Assessing Officer concluded that the assessee has paid the amount of Rs.81,48,000/- is the statement recorded from D. Nagarjuna Rao wherein he stated that an amount of Rs.81,48,000/- was received from Tirumala Rao towards sale consideration of the property. However the statement recorded from B. Tirumala Rao would show that he has categorically denied of having paid Rs.81,48,000/- to D. Nageswara Rao. The assessee also in the statement recorded from him has denied of having paid anything over and above the amount mentioned in the sale deed.
12. In the aforesaid circumstances in our view, the Assessing Officer could not have initiated proceedings u/s 153C of the Act solely on the basis of the loose sheets i.e., page No.38 of annexure A/DNR/18. Reading of section 153C 9 ITA no.2097 of 2011 Palla Gangadhar Rao, Hyd.
of the Act makes it clear that the primary condition for initiating proceedings u/s 153C, the Assessing Officer must be satisfied that jewellery and other valuable articles or books of accounts or documents seized belongs to a person other than the person referred to in section 153A of the Act. In the present case, the so called seized material on the basis of which the Assessing Officer has initiated proceedings u/s 153C of the Act was admittedly not seized from the possession of the assessee but a third person Sri D. Nagarjuna Rao against whom the search and seizure operation was carried out u/s 132 of the Act. Further, the said person not only admitted that the seized material belongs to him but the entries made therein are also in his hand writing. A reference to the seized material also makes it clear that neither it mentions the name of the assessee nor has any reference towards the property purchased by the assessee. Only thing it mentions is the name of Tirumala Rao and some entries with regard to the cash payment/receipts. Since the seized document has no reference either to the assessee or to the property purchased by the assessee it cannot be said to be belonging to the assessee as envisaged u/s 153C of the Act. Besides, merely because D. Nagarjuna Rao has stated that he has received the amount of Rs.81,48,000/- from Tirumala Rao towards sale of the property in question it cannot be inferred on that basis alone, that the assessee has paid the said amount towards purchase of the property. More so, both the assessee and Tirumala Rao have denied of making the said payment to B. Nagarjuna Rao. In the aforesaid circumstances, the inference 10 ITA no.2097 of 2011 Palla Gangadhar Rao, Hyd.
drawn by the Assessing Officer, in our view, is not legally sustainable.
13. It is a fact that D. Nagarjuna Rao is engaged in the business of real estates and Sri Tirumala Rao by his own admission is a broker. In the aforesaid circumstances, the entries made in the seized document in the name of Tirumala Rao if at all can be said to be representing receipts/payments it could very well be relating to some other transaction, but certainly it cannot be treated to be the payments made by the assessee towards purchase of the property in question. It will be pertinent to mention here that on the basis of the said seized material i.e., A/DNR/18 relating to some some other transactions similar assessments u/s 153C of the Act were also made in case of M/s Shouri Constructions and T. Jaipal Reddy. When the issue came up before the Tribunal the co- ordinate bench of the Tribunal in ITA Nos. 2056 and 2057/Hyd/2011 in case of M/s Shouri Constructions and T. Jaipal Reddy dated 28-6-2013 (supra) while considering the issue of validity of proceedings initiated u/s 153C of the Act accepted the contention of the assessee and held that the proceedings initiated u/s 153C of the Act on the basis of the so called incriminating material is invalid in law. At this point, it will be relevant to look into the finding of the Tribunal in this regard which is extracted hereunder:-
" 10. Thus the condition precedent for assumption of jurisdiction u/s 153C is, the AO must be satisfied that the seized materials belongs to such other person. The word belong has not been defined under the Act. As per the dictionary meaning 'belong to' means be the property of; be the rightful possession of; be due to. Undisputedly seized document on the basis of 11 ITA no.2097 of 2011 Palla Gangadhar Rao, Hyd.
which proceeding u/s 153C is initiated against the assessee is a loose sheet marked as 'A/DNR/18'. At our request the learned DR has submitted a copy of the aforesaid seized material which is reproduced below:
11. Since the seized document reproduced hereinabove is not properly visible, we are also annexing herewith a copy of the said document to this order, which should be treated as part of this order.
12. This document was seized from the business premises of D. Nagarjuna Rao in course of action u/s 132 of the Act against him. In the impugned assessment order the AO has also observed that the said D. Nagarjuna Rao had admitted that entries in the seized documents were made by him in his own handwriting. While considering the objection of the assessee, the AO has also admitted the fact that neither the name of the assessees appear in the seized document nor it bears their signature. The notings made in the seized document only shows that an amount of Rs. 74,81,250/- was paid to Mr. Venkatesh towards sale consideration of the property. When the document in question was not seized from the assessee but from a third party, who admittedly has made the entries therein and furthermore when the seized document neither mentions the name of the assessee or bears his signature, then by no stretch of imagination it can be said to be belonging to the assessee. Thus, the precondition for initiating proceeding u/s 153C is not satisfied. Therefore, the initiation of proceeding u/s 153C against the assessee is without jurisdiction. The Hon'ble Gujarat High Court in case of Vijaybhai N. Chandrani Vs. ACIT [supra] while considering identical issue held as under:-
"12. On a plain reading of the aforesaid provisions it is apparent that sections 153A, 153B and 153C lay down a scheme for assessment in case of search and requisition. Section 153A deals with procedure for issuance of notice and assessment or reassessment in case of the person where a search is initiated under section 132 or books of account, other documents or assets are requisitioned under section 132A after the 31st day of May, 2003. Section 153B lays down the time limit for completion of 12 ITA no.2097 of 2011 Palla Gangadhar Rao, Hyd.
assessment under section 153A. Section 153C which is similarly worded to section 158BD of the Act, provides that where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing. or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A he shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person. However, there is a distinction between the two provisions inasmuch as under section 153C notice can be issued only where the money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belong to such other person, whereas under section 158BD if the Assessing Officer is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under section 132 or whose books of account or other documents or assets were requisitioned under section 132A, he shall proceed against such other person under section 158BC.
13. Thus a condition precedent for issuing notice under section 153C and assessing or reassessing income of such other person, is that the money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned should belong to such person. If the said requirement is not satisfied, recourse cannot be had to the provisions of section 153C of the Act.
14. Examining the facts of the present case in the light of the aforesaid statutory scheme, it is an admitted position as emerging from the record of the case, that the documents in question, namely the three loose papers recovered during the search proceedings do not belong to the petitioner. It may be that there is a reference to the petitioner inasmuch as his name is reflected in the list under the heading Samutkarsh Members Details and certain details are given under different columns against the name of the petitioner along with other members, however, it is nobody's case that the said documents belong to the petitioner. It is not even the case of the revenue that the said three documents are in the handwriting of the petitioner. In the circumstances, when the condition precedent for issuance of notice is not fulfilled any action taken 13 ITA no.2097 of 2011 Palla Gangadhar Rao, Hyd.
under section 153C of the Act stands vitiated."
13. The ITAT, Bangalore Bench in case of P. Srinivas Naik Vs. ACIT [supra] has held as under:
"7. We have heard both the parties. It is an undisputed fact that books of account or document does not belong to the assessee, as these were seized from the premises of Shri Reddy. It is nowhere stated that these books of account or documents showed that all the transactions belonging to the assessee. Such books of account or documents contained the transactions relating to the group concerns of Shri Reddy. No valuable belonging to the assessee has been seized during the course of search. The term belonging, implied something more than the idea of casual association. It involves the notion of continuity and indicates one more or less intimate connection with the person over a period of time. The books of account or documents seized during the course of search have a close association with the group concern of Shri Reddy. It records the transaction carried out by that group. It does not record the transaction carried out by the assessee. Under Wealth-tax Act, assets belonging to assessee were taxable. The expression belonging to the assessee connotes both the complete ownership and limited ownership of interest. Of course belonging to is capable connoting, interest, which is less than absolute perfect legal title. However, there should be some limited ownership of interest, if it is to be permitted that the assets belongs to the assessee. In the instant case, documents or books of account found during the course of search and seized cannot be termed, to be indicating any limited interest of the ownership of the assessee in such books of account or documents. The language used in section 153C is materially different from the language used under section 158BD. As per section 158BD, if any undisclosed income relates to other person, then action against such other person can be taken provided such undisclosed income is referable to the document seized during the course of search. However, section 153C says that if valuable or books of account or documents belonging to other persons are seized then action under section 153C 14 ITA no.2097 of 2011 Palla Gangadhar Rao, Hyd.
can be taken against that person. In the instant case, we are satisfied that books of account or documents do not belong to the assessee and, therefore, the Assessing Officer was not justified in initiating action under section 153A read with section 153C of the Income-tax Act. The Assessing Officer is free to take proper remedial measure as per law."
14. We, in the preceding paragraphs, have already held that the seized document on the basis of which proceeding u/s 153C was initiated cannot be said to be belonging to the assessee. Therefore, considered in the light of the ratios laid down in the judicial precedents referred to above, the assumption of jurisdiction u/s 153C has to be held as invalid and consequentially the assessment order passed must be declared as without jurisdiction. Accordingly, we set aside the order passed by the CIT(A) and allow the appeal of the assessee.
As can be seen from the aforesaid observations, the Tribunal has categorically held that since the seized material has no reference to the assessee, it cannot be considered to be belonging to the assessee for enabling the initiation of proceedings u/s 153C of the Act. Facts in the present case being materially the same, as the Assessing Officer has relied upon the same seized material i.e., A/DNR/18 and since the seized material has no reference to the assessee, it cannot be said to be belonging to the assessee so as to empower the Assessing Officer to assume jurisdiction u/s 153C of the Act. In the aforesaid view of the matter, we hold that the assessment proceedings initiated not being in accordance with the provisions of section 153C, is invalid in law and consequently the assessment order passed is nullity in eye of law. Accordingly, we set aside the order of the CIT (A) and allow the appeal of the assessee on this legal issue.
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14. Since we have allowed the appeal of the assessee on the legal issue of validity of proceedings u/s 153C of the Act, we desist ourselves from dwelling upon the merits of the addition made by the Assessing Officer as raised in ground Nos. 3 and 4.
15. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the court on 09-04-2014.
Sd/- Sd/-
(CHANDRA POOJARI) (SAKTIJIT DEY )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad,
Dated the 9 th April, 2014.
Jmr*
Copy to:-
1) C/o S/Sri K. Vasant Kumar, A.V. RaghuRam
Advocates, 610, 6 th Floor, Babhukhan Estate, Basheerbagh, Hyderabad.
2) The ACIT, Cir-16(3), Aayakar Bhavan, Hyderabad.
3) CIT (A)-III, Hyderabad.
4) CIT-II, Hyderabad.
5) The Departmental Representative, I.T.A.T.,
Hyderabad.
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