Income Tax Appellate Tribunal - Chennai
Kvp Sadayandi, Chennai vs Dcit, Central Circle-1, Chennai on 27 September, 2024
आयकर अपीलीय अिधकरण, 'बी' यायपीठ, चे ई।
IN THE INCOME TAX APPELLATE TRIBUNAL
'B' BENCH: CHENNAI
ी एबी टी. वक , ाियक सद एवं
ी एस.आर. राघुनाथ, लेखा सद के सम
BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND
SHRI S.R. RAGHUNATHA, ACCOUNTANT MEMBER
आयकर अपील सं./ITA No. 1080 & 989/Chny/2023
िनधारण वष/Assessment Years: 2014-15 & 2016-17
Sadayandi Pothiraj v. The DCIT,
No.3A-D-1, Cathdral Main Road, Central Circle-1(3),
Nungambakkam, Chennai.
Chennai-600 034.
[PAN: ACXPP 8538 R]
(अपीलाथ /Appellant) ( यथ /Respondent)
आयकर अपील सं ./ITA No. 1078/Chny/2023
िनधारण वष/Assessment Years: 2014-15
K.V.P. Sadayandi v. The DCIT,
No. 3, North Car Street, Central Circle-1(3),
Tirunelveli Town, Chennai.
Tirunelveli - 627 006
[PAN: AJTPS 5915 J]
(अपीलाथ /Appellant) ( थ /Respondent)
आयकर अपील सं ./ITA No. 1079 & 990/Chny/2023
िनधारण वष/Assessment Years: 2014-15 & 2016-17
Sadayandi Magesh v. The DCIT,
TC 16/158, Easwara Vilasam Road, Central Circle-1(3),
Vazhuthacaud P.O. Chennai.
Thiruvananthapuram-695 014.
[PAN: ACVPM 6890 K]
(अपीलाथ /Appellant) ( थ /Respondent)
ITA No.989-993/Chny/2023 (AY 2016-17)
ITA No.1075-1080/Chny/2023 (AY 2014-15)
Sadayandi Pothiraj & Others
:: 2 ::
आयकर अपील सं ./ITA No. 1077 & 991/Chny/2023
िनधारण वष/Assessment Years: 2014-15 & 2016-17
Sadayandi Murugesh v. The DCIT,
No. 3, North Car Street, Tirunelveli Central Circle-1(3),
Town, Tirunelveli - 627 006 Chennai.
[PAN: ACVPM 6963 D]
(अपीलाथ /Appellant) ( थ /Respondent)
आयकर अपील सं ./ITA No. 1076 & 992/Chny/2023
िनधारण वष/Assessment Years: 2014-15 & 2016-17
Sadayandi Ashok v. The DCIT,
28 B Casunna Drive, Central Circle-1(3),
Kabaleeshwar Nagar, Chennai.
Neelankarai,
Injampakkam,
Kancheepuram - 600 115.
[PAN: ABTPA 7033 M]
(अपीलाथ /Appellant) ( थ /Respondent)
आयकर अपील सं ./ITA No. 1075 & 993/Chny/2023
िनधारण वष/Assessment Years: 2014-15 & 2016-17
Sadayandi Ramesh v. The DCIT,
No. 3, North Car Street, Tirunelveli Central Circle-1(3),
Town, Tirunelveli - 627 006 Chennai.
[PAN: ABOPR 8449 M]
(अपीलाथ /Appellant) ( थ /Respondent)
Assessee by : Shri Y.Sridhar, FCA
Department by : Shri V. Nandakumar, CIT
सुनवाईक तारीख/Date of Hearing : 04.07.2024
घोषणाक तारीख /Date of Pronouncement : 27.09.2024
ITA No.989-993/Chny/2023 (AY 2016-17)
ITA No.1075-1080/Chny/2023 (AY 2014-15)
Sadayandi Pothiraj & Others
:: 3 ::
आदेश / O R D E R
PER ABY T. VARKEY, JM:
These present appeals have been filed by the captioned assesses against the orders of the Learned Commissioner of Income Tax (Appeals)
-18, Chennai [in short 'Ld. CIT(A)'] dated 31.07.2023 & 20.07.2023 for AYs 2014-15 & 2016-17 respectively. Combined perusal of the orders of the above assessees' revealed that, there was a common issue emanating from the same set of facts across all these cases and therefore all the appeals for both the assessment years were heard together. Both the parties also argued them together raising similar arguments on this issue. Accordingly, for the sake of convenience and brevity, we dispose all the appeals by this consolidated order.
2. Before we advert to the grounds taken in these appeals, it would first be relevant to cull out the basic facts of the case. The appellants before us are noted to be the directors of M/s Pothys Pvt. Ltd., which is engaged in textile business. According to the AO, during the course of search in the premises of M/s Pothys Pvt. Ltd., certain cash ledgers were found in a pen drive which was printed and seized vide annexure ANN/SP/PPL/LS/S-2. According to AO, the data in this Annexure contained information that these directors had spent unaccounted monies in cash for on-money payments towards acquisition of certain immovable ITA No.989-993/Chny/2023 (AY 2016-17) ITA No.1075-1080/Chny/2023 (AY 2014-15) Sadayandi Pothiraj & Others :: 4 ::
properties. The AO noted that Shri S.Pothiraj, in his statement recorded u/s.132(4) of the Act, had admitted that, the unaccounted income was inter alia represented in the form of unaccounted investments made in properties. The AO of the searched person (M/s.Pothys Pvt. Ltd.) accordingly recorded his satisfaction on 10-09-2018 that the aforementioned seized material containing the details of on-monies paid on acquisition of properties had a bearing on the total income of the directors (appellants, in the present case). Pursuant thereto, the AO of the appellants is noted to have recorded satisfaction on 19-09-2018 i.e, AY 2019-20; and thereafter issued notices u/s.153C of the Act dated 19- 09-2018 for the impugned AYs 2014-15 & 2016-17.
3. The AO in the course of assessment is noted to have identified properties which were acquired for a consideration lower than their assessable value for stamp duty purposes. All these properties were stated to be in the joint names of the above named appellants. The AO is accordingly noted to have referred the valuation of these properties to the valuation cell of the department on 21-12-2018. Since the fair market value determined by the DVO was higher than the actual purchase consideration, the AO invoked Section 56(2)(vii)(b) of the Act. The difference between the actual cost and the FMV was apportioned amongst the appellant directors and accordingly added to their respective income ITA No.989-993/Chny/2023 (AY 2016-17) ITA No.1075-1080/Chny/2023 (AY 2014-15) Sadayandi Pothiraj & Others :: 5 ::
u/s.56(2)(vii)(b) of the Act. The summary of additions made by the AO is as follows:-
Addition made u/s.56(2)(vii)(b) of the Act Name of appellant AY 2014-15 AY 2016-17 Sadayandi Pothiraj Rs.19,82,500/- Rs.2,45,98,205/-
K.V.P. Sadayandi Rs.19,82,500/- - Sadayandi Magesh Rs.19,82,500/- Rs.2,45,98,205/- Sadayandi Murgesh Rs.19,82,500/- Rs.2,45,98,205/- Sadayandi Ashok Rs.19,82,500/- Rs.2,45,98,205/- Sadayandi Ramesh Rs.19,82,500/- Rs.2,45,98,205/-
4. On appeal, the Ld. CIT(A) sustained the above additions made by the AO. Being aggrieved by the Ld. CIT(A)'s action, the appellants are in appeal before us.
5. Assailing the action of the lower authorities, the Ld. AR of the assessee contended that, the satisfaction recorded by the AO of the searched person as well as the appellants was based on mistaken assumption of fact in as much as the seized material did not relate to or pertain to the individual-assessees. The Ld. AR showed us that, the notings found in the seized material marked as annexure ANN/SP/PPL/LS/S-2 pertained to the immovable properties which were acquired by the partnership-firm [hereinafter M/s Pothys], whose business was subsequently taken over by M/s Pothys Pvt. Ltd. The Ld. AR placed before us, the contemporaneous details of the immovable ITA No.989-993/Chny/2023 (AY 2016-17) ITA No.1075-1080/Chny/2023 (AY 2014-15) Sadayandi Pothiraj & Others :: 6 ::
properties set out in the relevant audited statements of M/s Pothys/M/s Pothys Pvt. Ltd. and correlated the details of the properties found in the relevant seized material. The Ld. AR pointed out that, since the partnership firm is not a juridical person, the immovable properties owned and belonging to the partnership firm, M/s Pothy's was held in the joint names of the partners. The Ld. AR thus vehemently contended that, the notings in question pertained to the partnership firm and not the individual appellants.
6. To further corroborate his contention, the Ld. AR placed before us copy of the order passed by the Settlement Commission at Chennai in the matters of M/s Pothys and M/s Pothys Pvt. Ltd. dated 09-11-2020. He showed us that, these entities had offered substantial undisclosed income which was telescoped against the unaccounted cash investments in immovable properties and unaccounted expenditure found in the relevant seized material including Annexure ANN/SP/PPL/LS/S-2. The Ld. AR thus argued that the satisfaction recorded by the AO was unjustified as the immovable properties in question belonged/pertained to M/s Pothys/M/s Pothys Pvt Ltd and that the unaccounted investment made in these properties had already been offered & taxed in their hands before the Settlement Commission. The Ld. AR thus urged that the initiation of ITA No.989-993/Chny/2023 (AY 2016-17) ITA No.1075-1080/Chny/2023 (AY 2014-15) Sadayandi Pothiraj & Others :: 7 ::
proceedings u/s.153C of the Act and the consequent impugned orders were bad in law.
7. The Ld. AR further contended that, having regard to the first proviso to Section 153C of the Act, the deemed date of search was 10-09-2018 i.e., AY 2019-20, and on the said date, the income-tax assessments for both AYs 2014-15 & 2016-17 were not pending before AO and therefore assessments for both years were unabated. Taking us through the assessment orders, the Ld. AR showed that, there was no whisper of any incriminating material found in the course of search, in the impugned assessment orders, on the basis of which notional addition was made u/s.56(2)(vii)(b) of the Act. The Ld. AR pointed out that, the fact that the addition was made u/s 56(2)(vii)(b) of the Act showed that, the AO had tacitly acknowledged that, the cash notings found in seized material, did not relate to the appellant and, for that reason, no addition by way of unaccounted investment was made in the impugned assessment order.
Relying on the decisions of the Hon'ble Supreme Court in the case of Abhisar Buildwell (P.) Ltd. (149 taxmann.com 399) & DCIT vs U.K. Paints (Overseas) Limited (454 ITR 441), the Ld. AR accordingly contended that since the impugned additions in these unabated AYs were not based on any incriminating material, the same ought to be deleted.
ITA No.989-993/Chny/2023 (AY 2016-17) ITA No.1075-1080/Chny/2023 (AY 2014-15) Sadayandi Pothiraj & Others :: 8 ::
The Ld. AR also raised series of objections to the merits of the addition made u/s.56(2)(vii)(b) of the Act.
8. Per contra, the Ld. CIT, DR supported the order of the lower authorities. He relied on the decision passed by this Tribunal in appellant's own case for AY 2017-18 wherein similar addition was upheld.
9. We have heard both the parties and perused the material placed before us. It is noted that the facts are analogous across all the matters of the six (6) appellants. With the consent of both parties, the matters of S. Pothiraj in ITA Nos.1080 & 989/Chny/2023 is being taken up as the lead case, whose result shall apply mutatis mutandis to appeals of other five (5) appellants as well. We are inclined to first adjudicate the legal issues raised by the appellant, which if found valid, goes to the root of the matter [since it challenges the jurisdiction exercised by the AO u/s.153C of the Act].
10. The first challenge is noted to be against the action of the AO inter-
alia to validly usurp jurisdiction u/s. 153C of the Act without satisfying the mandatory condition precedent prescribed by Section 153C of the Act i.e. the AO has not recorded a valid satisfaction note before assumption of jurisdiction u/s 153C of the Act. In order to adjudicate this legal ITA No.989-993/Chny/2023 (AY 2016-17) ITA No.1075-1080/Chny/2023 (AY 2014-15) Sadayandi Pothiraj & Others :: 9 ::
challenge, let us first have a look at the schematic framework of Section 153C of the Act.
11. We note that Section 153A of the Act is a special provision for assessment of an assessee in case of search or requisition in accordance to section 132 or 132A of the Act after the 31st day of May, 2003; and section 153C of the Act is a special provision for assessment of income of 'any other person' means a third party who is not searched by the department will be assessed u/s. 153A of the Act, provided the AO is satisfied that --
(a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or
(b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to a person other than the person referred to in section 153A.
12. So, from a co-joint reading of section 153A with 153C of the Act we note that, if during the search u/s. 132 of the Act, if it is found that any money, bullion, jewellery or other valuable articles or things seized or requisitioned belongs to or any books of account or documents seized or requisitioned pertains to or any information contained therein relates to "other than the person" searched u/s. 153A of the Act, then the AO of the ITA No.989-993/Chny/2023 (AY 2016-17) ITA No.1075-1080/Chny/2023 (AY 2014-15) Sadayandi Pothiraj & Others :: 10 ::
searched person (Pothys Pvt Ltd, in this case) has to record his satisfaction that the money, bullion, jewellery or other valuable articles or things seized or requisitioned belongs to the other person (appellant, in this case); or any books of account or documents seized or requisitioned pertains to the other persons (appellant, in this case); or any information contained therein relates to the other person (appellant, in this case). And, for recording such a satisfaction note, the AO of the searched person has to segregate the seized material of the other person (appellant, in this case) from that of the searched person (M/sPothys Pvt Ltd, in this case); and then, the AO of the searched person should examine the seized material and should be able to satisfy himself that the segregated seized books/documents/information, pertains or relates to the third party (appellant, in this case) and thereafter prepare the "Satisfaction Note"
and then, he has to hand over the seized materials, which belongs/pertains/relates to the third party to the AO having jurisdiction over such other person (appellant, in this case), then only the AO of such other person (appellant, in this case) gets jurisdiction u/s. 153C of the Act to assess the income of other person (appellant, in this case) as per section 153A of the Act. The Parliament has stipulated another condition- precedent before the Assessing Officer of the third party (appellant, in this case) that, he can resort to issue notice u/s 153C read with 153A of ITA No.989-993/Chny/2023 (AY 2016-17) ITA No.1075-1080/Chny/2023 (AY 2014-15) Sadayandi Pothiraj & Others :: 11 ::
the Act only when he is satisfied from a perusal of the books of account or documents or assets seized or requisitioned have a bearing in the determination of the total income of the such other person (appellant, in this case) then he should proceed as per sec. 153C(2) of the Act and assess or reassess the total income of such other person, (the appellant, in this case)in the manner provided in section 153A of the Act. Since Section 153C is a special provision against an assessee who has not been searched by the department, the safe-guard stipulated by the Parliament has to be scrupulously followed or it will be fatal.
13. The rationale behind the above discussed exercise is because, the special provision for persons who are subjected to search u/s. 132 of the Act, would be triggered only against the searched party u/s. 153A of the Act; and if any valuables of a third party is found in the searched premises which belongs, or books/documents pertain/relate to a third party is found, then third party's assessment for six years would be subject to assessment/re-assessment as per section 153C/153A of the Act, so the safeguards prescribed by the statute has to be scrupulously followed. Therefore, it has to be kept in mind that satisfaction of AO before proceeding against a person which has not been searched cannot be done in a casual manner. The satisfaction of Assessing Officer should be based upon cogent material. The reason for it is that section ITA No.989-993/Chny/2023 (AY 2016-17) ITA No.1075-1080/Chny/2023 (AY 2014-15) Sadayandi Pothiraj & Others :: 12 ::
132(4A)(i) of the Act clearly stipulates that when inter alia any document is found in the possession or control of any person in the course of a search, it may be presumed that such document belongs to such person (the searched person). The presumption as to asset, books of accounts, etc. is governed by section 292C(1)(i) of the Act which presumes that the same belong or belongs to the person from whom the said assets/documents were found during the course of search u/s. 132 or survey u/s. 133A of the Act. In other words, whenever an asset/document is found from a person who is being searched, the normal presumption is that the said asset/document belongs to that person. In order to deviate from such a statutory presumption, it is for the Assessing Officer to rebut that presumption, and come to a conclusion or 'satisfaction' that the asset/document in fact belongs/pertains/relates to somebody else (third party like appellant in this case). There must be some cogent material available which was unearthed during search with the Assessing Officer before he/she arrives at the satisfaction that the seized asset/document does not belong to the searched person but to somebody else. Surmise and conjecture cannot take the place of 'satisfaction' and the same interpretation has been given by various courts in this regard.
14. In the light of the above legal position, we now revert back to the facts of the present case. In order to test the validity of the jurisdiction of ITA No.989-993/Chny/2023 (AY 2016-17) ITA No.1075-1080/Chny/2023 (AY 2014-15) Sadayandi Pothiraj & Others :: 13 ::
AO to legally usurp the jurisdiction u/s. 153C against a third party (like appellant in this case) who has not been searched as well as to test whether Assessing Officer satisfied the condition-precedent before issue of notice u/s. 153A read with Section 153C of the Act, we need to examine the contents of the satisfaction note.
15. It is noted that the foundational premise of the satisfaction note was the printouts of cash ledger seized vide Annexure ANN/SP/PPL/LS/S-
2. The AO of the searched person as well as the appellant had recorded satisfaction that the contents of this seized material contained information relating to the appellant, viz., the appellant had spent unaccounted monies in cash for making investments in properties. Having perused the contents of the cash ledger, it is noted that there are notings setting out the address/location of the immovable properties along with the cash payments made in relation thereto. It is these notings which are being stated to be relating to the appellant since the name of the appellant and/or other directors are also mentioned in the corresponding column. The Ld. AR showed us that the specific details of the properties mentioned therein are the immovable properties acquired by and reflected in the regular books of accounts of the partnership firm, M/s Pothys. For instance, he brought to our notice that Property No. 37 - Paramankeni mentioned in the cash ledger correlates with the details of properties set ITA No.989-993/Chny/2023 (AY 2016-17) ITA No.1075-1080/Chny/2023 (AY 2014-15) Sadayandi Pothiraj & Others :: 14 ::
out in the Schedule to Balance Sheet as on 31.03.2016 of M/s Pothys. Likewise, the Ld. AR correlated and matched the details of all other immovable properties found mentioned in the seized material with the details of immovable properties set out in the regular books of accounts of M/s Pothys. The Ld. AR also pointed out that the cheque component in relation to these properties was paid out of the monies belonging to the partnership firm. It was also brought to our notice that, these immovable properties were acquired in the names of the partners of the partnership firm for the reason that, the partnership firm is not recognized as a separate legal entity or a juridical person in the eyes of law and therefore the conveyances for these properties were executed in the names of the partners for and on behalf of the partnership firm. Our attention in this regard was invited to Section 14 of the Partnership Act, 1932 which states that any property or interest therein acquired with the money belonging to the firm shall be deemed to have been acquired by the firm. Having regard to the foregoing facts and position of law, we find force in the contention of the Ld. AR that, these notings regarding the acquisition of immovable properties and cash monies paid in relation thereto, found in Annexure - ANN/SP/PPL/LS/S-2 pertained to the partnership firm, M/s Pothys and not the appellants before us. This fact is noted to have been admitted by Shri Balasubramaniam, key employee in his sworn statement ITA No.989-993/Chny/2023 (AY 2016-17) ITA No.1075-1080/Chny/2023 (AY 2014-15) Sadayandi Pothiraj & Others :: 15 ::
recorded u/s 132(4) of the Act and also stood corroborated by the statement of Shri S Ramesh, Director of M/s Pothys Private Limited.
16. We also find that the searched persons, the partnership firm M/s.Pothys and the company M/s.Pothys Private Limited (which took over the business of the firm) had approached the Settlement Commission and offered their unaccounted income in AYs 2011-12 to 2017-18 which aggregated to Rs.224.17 crores (approx.), out of which, the undisclosed investment/expenses found noted in the cash ledgers had been telescoped. It was brought to our notice that the entire unaccounted investments in properties found noted in the seized cash ledgers had already been considered while finalizing the assessable income of M/s.Pothys / M/s Pothys Private Limited. Having perused the order of the Settlement Commission in light of the notings in the seized material Annexure ANN/SP/PPL/LS/S-2, it is noted that, not only did the notings relate/pertain to the searched persons (M/s.Pothys / M/s.Pothys Private Limited), but the searched persons had also considered and offered the same to tax before the Settlement Commission.
17. The Ld. AR also pointed out that even the AO ultimately didn't make any addition by way of unaccounted investment in the hands of the appellant with reference to the abovementioned seized material and rather notional addition was made by virtue of the deeming fiction set out ITA No.989-993/Chny/2023 (AY 2016-17) ITA No.1075-1080/Chny/2023 (AY 2014-15) Sadayandi Pothiraj & Others :: 16 ::
in Section 56(2)(vii)(b) of the Act, by relying upon the report of the DVO. This material fact, according to the Ld. AR further lent credence to the assessee's contention that the seized material in question did not relate/ pertain to him.
18. The above facts considered cumulatively, in our considered view, shows that, the satisfaction recorded by the AO of searched person (M/s.Pothys/M/s.Pothys Pvt Ltd) as well as the AO of the appellant viz., third party was based on incorrect assumption of fact that, the purported seized material related to the appellant, which as noted in the foregoing, is factually erroneous. Hence, the assertion of the AO in the satisfaction note that these are incriminating material qua the assessee doesn't have any basis whatsoever, so the finding of fact by AO in this respect in the satisfaction note is held to be factually perverse.
19. We find that this issue has been dealt with by the Hon'ble Apex Court in the case of CIT Vs Singhad Technical Education Society (397 ITR 344), and while doing so their Lordship has upheld the decision of the Hon'ble Bombay High Court reported in 378 ITR 84 by observing that, unless and until the AO can establish document-wise (or asset wise) correlation between what has been seized from the 'Searched person' - and - how the same is incriminating in nature qua each of the assessment years in question for which jurisdiction u/s. 153C is sought to ITA No.989-993/Chny/2023 (AY 2016-17) ITA No.1075-1080/Chny/2023 (AY 2014-15) Sadayandi Pothiraj & Others :: 17 ::
be invoked for the 'other Person' - then the notice issued under section 153C to the assessee qua the said assessment year would be without satisfying the jurisdictional fact required to invoke section 153C of the Act. We draw the attention in this regard to the following excerpts of the decision of the Hon'ble Supreme court in Sinhgad Technical Education Society's case (supra), wherein their Lordship took note of the Hon'ble High Court's findings while confirming Tribunal's view, which is as under:--
"6. The tribunal has found that incriminating material seized and stated to be pertaining to all six assessment years did not establish any co-relation document-wise with the assessment year in question. In other words, the tribunal concluded that the present matter indicates that the issue of notice could be on the basis that there is specific incriminating information in possession of the Assessing Officer. It is in these circumstances that the tribunal found and as indicated in paragraph 8 of the impugned order that the revenue's assertion that the Assessing Officer is empowered under the statute to assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted and therefore the satisfaction which is recorded in the satisfaction note is enough, is erroneous. Therefore, the notice cannot be upheld and such stand of the revenue cannot be accepted. The reasons, therefor are to be found in paragraph 9 and 10 of the impugned order. If certain items pertain to assessment year 2004-05 or thereafter then it cannot be assumed, that the documents seized or incriminating material giving information are specific and to all assessment years. The tribunal found that they were concluded assessments.
They could not have been disturbed. The documents in question are neither incriminating ones nor unaccounted transactions of the assessee. They also did not relate to the four assessment years. It is in these circumstances that the tribunal found that it will not be possible to uphold the stand of the revenue that overall approach in matters of concealment by the group assessee and all the discoveries of the search on Shri Navale and it concerns, will have to be taken into account while forming the satisfaction. The satisfaction note was very closely examined and the reasons assigned by the Assessing Officer were found to be silent about the assessment year in which specific incriminating information or unaccounted or undisclosed hidden information was discovered or seized by the revenue from the assessee. In the circumstances, the general satisfaction and as recorded in the note is not enough. The tribunal has found that with regard to cash and jewellery, the explanation of the assessee was that ITA No.989-993/Chny/2023 (AY 2016-17) ITA No.1075-1080/Chny/2023 (AY 2014-15) Sadayandi Pothiraj & Others :: 18 ::
he had agricultural properties and derived agricultural income. That income was utilised to acquire jewellery that was belonging to him and his family. With regard to cash and stated to be recovered from the students for granting admissions, we do not find that any inquiries were made. There is absolutely nothing to indicate as to in which educational courses, the education is imparted and institution-wise. Whether the admissions are granted to the technical courses merit-wise or on the basis of marks obtained in XIIth standard HSC exam. If any fee structure is approved and cash component is therefore collected over and above the sanctioned fees are matters which ought to have been gone into and there cannot be a general or vague satisfaction as is relied upon.
9. We are of the opinion that the tribunal's conclusion cannot be termed as perverse and given the above-noted factual background. None of these appeals raises any substantial question of law. They are accordingly dismissed. No costs."
20. And the aforesaid finding of Hon'ble High Court has been affirmed by the Hon'ble Supreme Court (supra) by observing as under:-
18. The ITAT permitted this additional ground by giving a reason that it was a jurisdictional issue taken up on the basis of facts already on the record and, therefore, could be raised. In this behalf, it was noted by the ITAT that as per the provisions of Section 153C of the Act, incriminating material which was seized had to pertain to the Assessment Years in question and it is an undisputed fact that the documents which were seized did not establish any co-
relation, document-wise, with these four Assessment Years. Since this requirement under section 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of Section 153C of the Act. Para 9 of the order of the ITAT reveals that the ITAT had scanned through the Satisfaction Note and the material which was disclosed therein was culled out and it showed that the same belongs to Assessment Year 2004-05 or thereafter. After taking note of the material in para 9 of the order, the position that emerges therefrom is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the respondent, argued that notice in respect of Assessment Years 2000-01 and 2001-02 was even time barred.
19. We, thus, find that the ITAT rightly permitted this additional ground to be raised and correctly dealt with the same ground on merits as well. Order of the High Court affirming this view of the Tribunal is, therefore, without any blemish. Before us, it was argued by the respondent that notice in respect of the Assessment Years 2000-01 and 2001-02 was time barred. However, in view of ITA No.989-993/Chny/2023 (AY 2016-17) ITA No.1075-1080/Chny/2023 (AY 2014-15) Sadayandi Pothiraj & Others :: 19 ::
our aforementioned findings, it is not necessary to enter into this controversy." (Emphasis supplied)
21. For the above discussed reasons and in light of the decision of Hon'ble Apex Court (supra), we hold that the satisfaction note prepared by the AO does not satisfy the requirement of law as stipulated u/s.153C of the Act, as the relevant seized material did not pertain to the appellant nor did it contain anything incriminating against the appellant.
Accordingly, the notice issued under section 153C of the Act without satisfying the condition precedent as discussed (supra), is legally unsustainable, and therefore, the very assumption of jurisdiction under section 153C of the Act, in these AYs 2014-15 & 2016-17 are held to be bad in law and hence the consequent impugned assessment orders are null in the eyes of law.
22. The next legal challenge raised by the assessee is that, the addition/s impugned in unabated AYs 2014-15 & 2016-17 were not based on any incriminating material found in the course of search and therefore has urged that the same be deleted. In order to adjudicate the same, we first recapitulate the facts as already noted by us earlier.
23. In the present case, search had been conducted upon the Pothys Group (searched person) on 18-10-2016 i.e., in AY 2017-18. The satisfaction note was however drawn out by the AO satisfying himself that ITA No.989-993/Chny/2023 (AY 2016-17) ITA No.1075-1080/Chny/2023 (AY 2014-15) Sadayandi Pothiraj & Others :: 20 ::
the assets/documents found in the course of search belongs/pertains to "the other person" (third party i.e. the assessee/appellent in this case) only on 10-09-2018 i.e, AY 2019-20. Hence, by virtue of first proviso to section 153C of the Act, the said date i.e. 10-09-2018 had to be reckoned as the date of search for the purpose of the first proviso to Section 153C(1) of the Act for ascertaining the abatement of pending assessment or reassessment proceedings, which is mentioned in Section 153A(1) of the Act. Having regard to the said date, assessments of both AYs 2014-15 & 2016-17 were not pending before AO on date of search, so it were both unabated. By virtue of the second proviso to section 153A(1) of the Act, the assessments u/s. 153A/153C of the unabated AYs has to be essentially based on the documents unearthed during the course of search and seizure operations.
24. It is by now well settled position in law that, in unabated assessments u/s 153C of the Act, the AO is empowered to only make those additions which are based on incriminating material found/unearthed during search. In support of this proposition, we gainfully refer to the decision of the Hon'ble Supreme Court in the case of Pr. CIT v. Abhisar Buildwell (P.) Ltd. (supra) wherein it was held as under:-
ITA No.989-993/Chny/2023 (AY 2016-17) ITA No.1075-1080/Chny/2023 (AY 2014-15) Sadayandi Pothiraj & Others :: 21 ::
"In case where no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessment, no addition can be made by the AO in absence of any incriminating material found during the course of search u/s 132 or requisition u/s 132A of the Act, 1961."
25. Following the above judgement (supra), it is noted that the Hon'ble Supreme Court in the case of DCIT vs U.K. Paints (Overseas) Limited (454 ITR 441) has held that, in absence of any incriminating material which was found from the premise of the Searched party (i.e., searched person), no addition/s is permissible in an unabated assessment u/s 153C of the Act of the assessee (other person). The relevant findings taken note of by us are as follows:
"1. In this batch of appeals, the assessments in case of each assessee were under section 153-C of the Income-tax Act, 1961 (for short, `the Act'). As found by the High Court in none of the cases any incriminating material was found during the search either from the Assessee or from third party. In that view of the matter, as such, the assessments under section 153-C of the Act are rightly set aside by the High Court. However, Shri N Venkataraman, learned ASG appearing on behalf of the Revenue, taking the clue from some of the observations made by this Court in the recent decision in the case of Pr. CIT v. Abhisar Buildwell (P.) Ltd.[2023] 149 taxmann.com 399 (SC), more particularly, paragraphs 11 and 13, has prayed to observe that the Revenue may be permitted to initiate re-assessment proceedings under section 147/148 of the Act as in the aforesaid decision, the powers of the re-assessment of the Revenue even in case of the block assessment under section 153-A of the Act have been saved.
2. As observed hereinabove, as no incriminating material was found in case of any of the Assessees either from the Assessee or from the third party and the assessments were under section 153-C of the Act, the High Court has rightly set aside the Assessment Order(s). Therefore, the impugned judgment and order(s) passed by the High Court do not require any interference by this Court. Hence, all these appeals deserve to the dismissed and are accordingly dismissed."
26. In light of the above judicial precedents, we hold that in the case of unabated assessments of an assessee, no addition is permissible in the ITA No.989-993/Chny/2023 (AY 2016-17) ITA No.1075-1080/Chny/2023 (AY 2014-15) Sadayandi Pothiraj & Others :: 22 ::
order u/s 153C of the Act unless it is based on any incriminating material found during the course of search. Having regard to this legal position, we now revert back to the facts of the present case to ascertain whether the addition/s made u/s 56(2)(vii)(b) in the orders impugned in this appeal was based on or made with reference to any incriminating document found in the course of search.
27. Having perused the assessment orders, we note that there is no whisper/mention of any material leave alone any incriminating material seized during search to justify the addition in these unabated assessments, other than the valuation report of DVO, which evidently was obtained in the course of assessment and cannot be said to constitute incriminating material unearthed in the course of search. It is also not the case that the valuation exercise was undertaken as a consequence of any incriminating material found in course of search. As already discussed above, neither did the purported seized material marked as Annexure - ANN/SP/PPL/LS/S-2 relate to the assessee nor did the information contained therein pertain to the assessee and, no addition by way of unaccounted investment u/s 69 of the Act was made by the AO by relying upon the aforesaid seized material. Rather, as noted earlier, the cash notings found in the seized material related to the unaccounted details concerning the partnership firm/company, which, as noted above, had ITA No.989-993/Chny/2023 (AY 2016-17) ITA No.1075-1080/Chny/2023 (AY 2014-15) Sadayandi Pothiraj & Others :: 23 ::
been admitted and considered by the searched persons in their hands before the Settlement Commission. The Ld. AR further pointed out that, there was no incriminating statement given by any of the appellants admitting to any unaccounted investment made by them in their proprietary capacity in any of their personal properties, as wrongly averred by the AO in the impugned order.
28. In the above background, the Ld. CIT, DR was also required to call for the relevant assessment records from the AO, more particularly the sworn statement/s of the Directors and the relevant seized incriminating material relating to the appellant. At the time of hearing, the Ld. CIT, DR placed before us the email received from the AO along with the relevant sworn statements and the seized material. Having examined the same carefully, it is noted that the seized material also did not contain anything which incriminated the appellant or suggested that he had made unaccounted investment in immovable properties on his own account. It is also noted that, when confronted with the document marked as Annexure ANN/SP/PPL/LS/S-2, Mr. Balasubramanium, key employee of the searched person had specifically stated that, the cash payments found mentioned therein were towards the property purchased for M/s Pothys (partnership firm). As far as the statement of Mr. S Ramesh, Director of M/s Pothys Pvt. Ltd. is concerned, it is noted that he had only stated that ITA No.989-993/Chny/2023 (AY 2016-17) ITA No.1075-1080/Chny/2023 (AY 2014-15) Sadayandi Pothiraj & Others :: 24 ::
the notings include cash paid for purchase of properties. Since he had nowhere stated that these notings pertained to him, the presumption was that it related to the searched person i.e. M/s Pothys/Pothys Pvt. Ltd.
29. As far as the reliance placed by the Ld. CIT, DR on the decision rendered by this Tribunal in appellant's own case for AY 2017-18 is concerned, it is found to be distinguishable as the said AY was an abated assessment year and the decision was rendered by this Tribunal on merits. Further, the above legal challenges were not raised before the Tribunal in that year and accordingly these legal aspects were never adjudicated upon. Hence, the said order does not have any binding precedence in the present case before us.
30. For the reasons set out in the preceding paragraphs and the judicial precedents discussed above, we are therefore of the considered view that there was no incriminating material/statement found in the course of search on the basis of which additions u/s 56(2)(vii)(b) of the Act could have been legally made in the unabated AYs 2014-15 and AY 2016-17. We accordingly direct the AO to delete the impugned addition/s made u/s.56(2)(vii)(b) of the Act in the unabated AYs 2014-15 & 2016-17.
31. Since the facts and circumstances in the lead case of Shri S Pothiraj for AYs 2014-15 & 2016-17 are identical to the facts involved in the ITA No.989-993/Chny/2023 (AY 2016-17) ITA No.1075-1080/Chny/2023 (AY 2014-15) Sadayandi Pothiraj & Others :: 25 ::
captioned appeals other five (5) appellants as well, the above detailed reasoning mutatis mutandis to delete the identical additions made in the respective unabated assessments of the other five (5) appellants viz., K.V.P. Sadayandi in ITA No. 1078/Chny/2023 for AY 2014-15, Sadayandi Magesh in ITA Nos. 1079 & 990/Chny/2023, Sadayandi Murgesh in ITA Nos 1077 & 991/Chny/2023, Sadayandi Ashok in ITA Nos. 1076 & 992/Chny/2023 and Sadayandi Ramesh in ITA Nos.1075 & 993/Chny/2023 for both AYs 2014-15 & 2016-17 respectively.
32. All these assessees' appeal(s) are allowed in above terms. A copy of this common order be placed in the respective case file(s).
Order pronounced on the 27th day of September, 2024, in Chennai.
Sd/- Sd/-
(एस.आर. राघु नाथ) (एबी टी. वक )
(S.R. RAGHUNATHA) (ABY T. VARKEY)
लेखा सद य/ACCOUNTANT MEMBER याियक सद य/JUDICIAL MEMBER
चे ई/Chennai,
दनांक/Dated: 27th September, 2024.
TLN, Sr.PS
आदेश क ितिलिप अ"ेिषत/Copy to:
1. अपीलाथ /Appellant
2. थ /Respondent
3. आयकरआयु /CIT, Chennai / Madurai / Salem / Coimbatore.
4. िवभागीय ितिनिध/DR
5. गाडफाईल/GF