Income Tax Appellate Tribunal - Hyderabad
L V K K Chaitanya, Hyd, Hyderabad vs Dcit, Central Circle-7, (Presently ... on 22 September, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "B", HYDERABAD
BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER
AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER
ITA No. 623/Hyd/2016
Assessment Year: 2008-09
LVKK Chaitanya, Hyderabad. Vs. Dy. Commissioner of Income-
tax, Circle - 7 (Presently
PAN - ACPPL 1921 L Central Circle - 2(4),
Hyderabad.
(Appellant) (Respondent)
Assessee by : Shri V. Raghavendra Rao
Revenue by : Shri L. Ramji Rao
Date of hearing : 30-08-2017
Date of pronouncement : 22-09-2017
ORDER
PER S. RIFAUR RAHMAN, A.M.:
This appeal filed by the assessee is directed against the order of the learned Commissioner of Income-tax(A) - 12, Hyderabad, dated 25-02-2016 for AY 2008-09.
2. Briefly the facts of the case are that a search and seizure operation was conducted in the residential premises of M/s Sri Sai Kamal Constructions & Developers, Hyderabad u/s 132 of the Income-tax Act, 1961 ( in short 'the Act') on 09/12/2010. During the course of search, in the premises of partners of the firm, certain material/document showing investments made by the assessee in the lands were found and seized. In view of the same, the cases were centralized with DCIT, Central Circle - 7, Hyderabad. Accordingly, notices u/s 153C were issued to the assessee for the AY 2010-11 on 16/04/2012. In response to the notice u/s 153C, the assessee filed 2 ITA No. 623/H/16 LVKK Chaitanya, Hyd.
his return of income for the AY 2008-09 on 15/03/2013 declaring a total income of Rs. 1,24,210/-. Other notices u/s 143(2) and 142(1) were issued and served on the assessee.
2.1 Based on the material found in the residence of Shri K. Subba Rao, partner of Sri Sai Kamla Constructions and Developers at page 97 of the seized material, which indicate that assessee invested in purchase of one acre land at Kothur by making payment of Rs. 25 lakhs as under:
Date of receipt Amount
17/03/2008 17,00,000
01/04/2008 5,00,000
02/04/2008 3,00,000
Total 25,00,000
The payment of Rs. 17 lakhs made by the assessee on 17/03/2008 relating to this AY under consideration, based on the submissions of the assessee and bank statement, AO accepted for payment of Rs. 5 lakhs and balance made addition as unexplained investment in lands.
3. Aggrieved with the above order, assessee preferred an appeal before the CIT(A).
4. Before the CIT(A), the assessee has raised various grounds of appeal by questioning the validity of the proceedings u/s 153C of the Act since no satisfaction was recorded by the AO before initiating proceedings and other grounds relating to validity of making addition of Rs. 12 lakhs even though required information was submitted before the AO.
5. Ld. CIT(A) declined to entertain the submissions of the assessee relating to proceedings u/s 153C by making following observations:
3 ITA No. 623/H/16LVKK Chaitanya, Hyd.
6.1 The arguments of the appellant are perused. In this regard, it may be pertinent to mention here that based on the information traced at the residential premises of Mrs K.Usha and Sri K.Subba Rao, during the search proceedings on 09-12- 2010, stated to be indicating the investments made in landed properties, notices u/s.153C were issued to the assessee, in response to the same the return of income was furnished for the year under reference, apart from furnishing returns for other years. As could be seen from the facts of the case, the appellant not only complied with the notices u/s.153C, the returned incomes were also revised for some of the assessment years, which were covered by such notices. There is no indication as to the questioning of these proceedings during the course of the assessment proceedings and objections are raised only during the appellate proceedings. Having complied with the proceedings at the stage of assessment proceedings, I am of the considered opinion that there is no illegality to the proceedings u/s.153C, as claimed by the appellant in the additional grounds of appeal. Further, the appellant has been very much part of the associates of M/s. Sai Kamal Constructions & Developers and the findings of the proceedings conducted at the group entities were clearly indicating the unaccounted activities/transactions of the assessee which involve the investments in immovable properties, which were unaccounted either fully or partially, were brought on record, by the AO in issuing the notice u/s.153C. Further the information traced during the search proceedings was clearly indicating the name of the assessee and the details of the investments made by him, while specifying the details of properties end amounts, there in. With so much of specifics, the information will certainly qualify to be treated as relevant information vis-a-vis with the assessee. Under the circumstances, I am of the considered opinion that the case laws relied upon by the assessee, are distinguishable on facts. Thus, based on the facts of the case, I am of the considered opinion that the notices issued u/s.153C for the year under reference was valid and as such the ground raised by the assessee on this issue, is treated as dismissed. Accordingly, I proceed to decide the appeal on merits."
6. Aggrieved with the above order, assessee preferred an appeal before us by raising following the grounds of appeal:
"1. The Learned Commissioner of Income Tax (Appeals)-12, Hyderabad [CIT(A)] has erred on facts and in law.
2. The Learned CIT(A) has erred in holding that the notice issued u/s. 153C is valid. The Learned CIT (A) has failed to apply the Circular No. 24/2015, dated 31.12.2015 of the CBDT.4 ITA No. 623/H/16
LVKK Chaitanya, Hyd.
3. The A.O did not show that the satisfaction u/s. 153C as required was reached or recorded by the Assessing Officer having jurisdiction over the searched person in whose case any items belonging to the assessee were seized. Learned CIT(A) failed to notice this absence of the basic legal requirement ~/s. 153C of the I.T. Act.
4. The Learned CIT(A) has erred in holding that compliance with notice u/s. 153C confers or ratifies the illegal jurisdiction assumed by the A.O u/s. 153C of the LT. Act.
5. The Learned CIT(A), having noticed that information pertaining to the acquisition of properties was noticed in the course of search proceedings in another case, ought to have appreciated that no papers or documents seized actually belonged to the assessee.
Without prejudices to the above grounds
6. The Learned CIT(A) is not justified in not giving credit to the withdrawals made from the bank account of the assessee through Sri. N. Srinivasa Rao on 28.06.2007. Sri. N. Srinivasa Rao drew the money and gave it to the assessee.
7. The Learned CIT(A) and A.O ought to have appreciated that the assessee is in the habit of operating his bank account usually through others and withdrawing cash through others.
8. For these and any other grounds that may be raised at or before the date of hearing, it is prayed that the proceedings u/s 153C be held invalid in law or alternatively the addition be deleted.
7. Ld. AR pressed mainly ground Nos. 2 to 5 of grounds of appeal, which relate to validity of proceedings u/s 153C. He submitted that there is no satisfaction recorded by the AO to initiate proceedings u/s 153C. He accordingly prayed that notice issued u/s 153C is invalid.
8. Ld. DR, on the other hand, supported the orders of revenue authorities.
5 ITA No. 623/H/16LVKK Chaitanya, Hyd.
9. Considered the rival submissions and perused the material facts on record. During the proceedings before us, the Bench asked the ld. DR to submit the order sheet notings of AO before initiating proceedings and issue of notice u/s 153C and also the material seized during search i.e. page 97, which was duly submitted by the ld. DR, which is placed on record. From the record, it clearly shows that AO has not recorded any satisfaction before initiating proceedings u/s 153C. As per the provisions of the Act and also the ratios laid down in various decisions, it is the duty of AO of the person searched to record satisfaction, that the document or material found belongs to the person searched or belongs to a person other than a person referred to in section 153A of the Act. Thereafter, AO having jurisdiction over third party, on receipt of the seized material being handed over to him, shall record his own satisfaction after examining the same independently without being influenced by the satisfaction of the other officer. As held in various decisions, it is not a mere formality because recording of satisfaction postulates of application of mind consciously or the document seized must be belonged to the person on whom proceedings are likely to be initiated. In the present case, AO has not applied his mind in recording satisfaction before initiating proceedings and issue of notice u/s 153C. To come to this conclusion, we rely on the following decisions, on which, reliance is also placed by the ld. AR of the assessee:
9.1 In the case of CIT Vs. Shettys Pharmaceuticals & Biologicals Ltd., 57 taxmann.com 282 (AP), the Hon'ble High Court of AP has held as under:
Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, 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, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing 6 ITA No. 623/H/16 LVKK Chaitanya, Hyd.
Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to in sub-section (1) of section 153A. (emphasis supplied) It is therefore clear that firstly satisfaction has to be recorded by the Assessing Officer who conducted search, 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 of the Act. Thereafter, the Assessing Officer having jurisdiction over third party on receipt of the seized material or books of accounts or document being handed over to him shall record his own satisfaction after examining the same independently without being influenced by the satisfaction of the Seizing Officer. In other words it is not an automatic action. We find satisfaction of two officers is missing. In this connection we set out the text of the order of the Assessing Officer which is as follows.
The aforesaid Section mandates recording of satisfaction of the Assessing Officer(s) is a pre-condition for invoking jurisdiction and it is not a mere formality because recording of satisfaction postulates application of mind consciously as the documents seized must be belonging to the any other person other than the person referred to in Section 153-A of the Act. It is contended that the same Assessing Officer is involved in the matter. This fact does not dispense with above requirement. It is settled position of law that when a thing is to be done in one particular manner under law this has to be done in that manner alone and not other way (See Nazir Ahmed v. King Emperor ). We think the learned Tribunal has correctly followed the principle. We do not find any element of law to be decided."
9.2 In the case of Manish Maheswari Vs. ACIT, [2007] 289 ITR 341, the Hon'ble Supreme Court has held as under:
"Sec. 158BD provides for taking recourse to a block assessment in terms of s. 158BC in respect of any other person, the conditions precedent wherefor are : (i) satisfaction must be recorded by the AO that any undisclosed income belongs to any person, other than the person with respect to whom search was made under s. 132;
(ii) the books of account or other documents or assets seized or requisitioned had been handed over to the AO having jurisdiction over such other person; and (iii) the AO has proceeded under s.
158BC against such other person. The conditions precedent for invoking the provisions of s. 158BD, thus, are required to be satisfied before the provisions of Chapter XIV-B are applied in relation to any person other than the person whose premises had been searched or whose documents and other assets had been requisitioned under s. 132A.
The impugned notice does not record any satisfaction on the part of the AO. Documents and other assets recovered during search had not been handed over to the AO having jurisdiction in the matter. No proceeding under s. 158BC had been initiated. There is, thus, a patent non-application of mind. A prescribed form had 7 ITA No. 623/H/16 LVKK Chaitanya, Hyd.
been utilized. Even the status of the assessee had not been specified. It had only been mentioned that the search was conducted in the month of November, 1995. No other information had been furnished. The provisions contained in Chapter XIV-B are drastic in nature. It has draconian consequences. Such a proceeding can be initiated, it would bear repetition to state, only if a raid is conducted. When the provisions are attracted, legal presumptions are raised against the assessee. The burden shifts on the assessee. Audited accounts for a period of ten years may have to be reopened. As the AO has not recorded his satisfaction, which is mandatory; nor has he transferred the case to the AO having jurisdiction over the matter, the impugned judgments of the High Court cannot be sustained.-- Manish Maheshwari vs. ITAT (2005) 196 CTR (MP) 293 and CIT vs. Indore Constructions (P) Ltd. (2005) 195 CTR (MP) 217 :
(2005) 279 ITR 545 (MP) set aside; CIT vs. Pushpa Rani (2005) 193 CTR (Del) 256 distinguished."
9.3 In the case of Pepsico India Holdings (P.) Ltd. Vs. ACIT, [2015] 370 ITR 295, the Hon'ble Delhi High Court has held as under:
"On going through the Satisfaction Note it is evident that there are three kinds of documents which are mentioned therein. First, are the photocopies of Cumulative Redeemable Preference Shares purchased by PepsiCo India Holdings Private Limited from M/s. Tripty Drinks Limited and M/s. SMV Beverages Limited. The second set of documents are cheques found in the cheque books of the Jaipuria Group companies. These cheques are unsigned and they are the original leaves in the cheque books themselves which belonged to the Jaipuria Group of companies. Though, it must be pointed out that the cheques had been written in favour of PepsiCo India Holdings Private Limited. The third document is a photocopy of a Supply and Loan Agreement made on 01.10.2010 between Pearl Drinks Limited and PepsiCo India Holdings Private Limited.
It is nobody's case that the Jaipuria Group had disclaimed these documents as belonging to them. Unless and until it is established that the documents do not belong to the searched person, the provisions of Section 153C of the said Act do not get attracted because the very expression used in Section 153C of the said Act is 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 ....' In view of this phrase, it is necessary that before the provisions of Section 153C of the said Act can be invoked, the Assessing Officer of the searched person must be satisfied that the seized material (which includes documents) does not belong to the person referred to in Section 153A (i.e., the searched person). In the Satisfaction Note, which is the subject matter of these writ petitions, there is nothing therein to indicate that the seized documents do not belong to the Jaipuria Group. This is even apart from the fact that there is no disclaimer on the part of the Jaipuria Group insofar as these documents are concerned.
Secondly, the finding of photocopies in the possession of a searched person does not necessarily mean and imply that they "belong' to the person who 8 ITA No. 623/H/16 LVKK Chaitanya, Hyd.
holds the originals. Possession of documents and possession of photocopies of documents are two separate things. While the Jaipuria Group may be the owner of the photocopies of the documents it is quite possible that the originals may be owned by some other person. Unless it is established that the documents in question, whether they be photocopies or originals, do not belong to the searched person, the question of invoking Section 153C of the said Act does not arise.
Thirdly, the assessing officers should not confuse the expression "belongs to' with the expressions "relates to' or "refers to'. A registered sale deed, for example, "belongs to' the purchaser of the property although it obviously "relates to' or "refers to' the vendor. In this example if the purchasers premises are searched and the registered sale deed is seized, it cannot be said that it "belongs to' the vendor just because his name is mentioned in the document. In the converse case if the vendor's premises are searched and a copy of the sale deed is seized, it cannot be said that the said copy "belongs to' the purchaser just because it refers to him and he (the purchaser) holds the original sale deed. In this light, it is obvious that none of the three sets of documents - copies of preference shares, unsigned leaves of cheque books and the copy of the supply and loan agreement - can be said to "belong to' the petitioner."
9.4 In the case of P. Srinivas Naik Vs. ACIT, 114 TTJ 856 (ITAT Bang.), the Tribunal has held as under:
"The books of account or document do not belong to the assessee, as these were seized from the premises of R. 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 R. 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 R. It records the transaction carried out by that group. It does not record the transaction carried out by the assessee. 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 s. 153C is materially different from the language used under s. 158BD. As per s. 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, s. 153C says that if valuable or books of account or documents belonging to other persons are seized then action under s. 153C can be taken against that person. In the instant case, books of account or documents do not belong to the assessee and, therefore, the AO was not justified in initiating action under s. 153A r/w s. 153C."9 ITA No. 623/H/16
LVKK Chaitanya, Hyd.
9.5 Respectfully following the ratios laid down in the aforesaid cases, we set aside the order of the CIT(A) and quash the order passed by the AO u/s 143(3) r.w.s. 153C of the Act and allow the grounds raised by the assessee in this regard.
10. In the result, appeal of the assessee is allowed.
Pronounced in the open court on 22 nd September, 2017.
Sd/- Sd/-
(P. MADHAVI DEVI) (S. RIFAUR RAHMAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated: 22 nd September, 2017.
Kv
Copy to:-
1) LVKK Chaitanya,Flat No. 202, Dist. Judges Quarters, Road No. 10, Banjara Hills, Hyderabad.
2) DCIT, Central Circle - 2(4), Posnett Bhavan, Basheerbagh, Hyderabad.
3) CIT(A) - 12, Hyderabad 4 Pr. CIT (Central), Hyderabad
5) The Departmental Representative, I.T.A.T., Hyderabad.
6) Guard File