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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI V. DURGA RAO& SHRI D.S. SUNDER SINGH
आदेश /O R D E R
Per Bench: These appeals are filed by the revenue against the orders of the Commissioner of Income Tax (Appeals) [CIT(A)]-3, Visakhapatnam
in I.T.A.No.228 to 232/2016-17/CIT-(A)-3/VSP/2017-18 dated 30.12.2017 for the Assessment Year (A.Y.) 2010-11 to 2014-15 respectively and the cross objections are filed by the assessee. Since the facts of the case are identical, these appeals are clubbed, heard together and a common order is being passed for the sake of convenience as under.
Brief facts of the case are that the assessee firm is engaged in the business of quarrying and sale of sand and contract works. A survey u/s 133A of the Income Tax Act, 1961 (in short ‘Act’) was conducted in the business premises of the assessee firm at D.No.20-8-5, Nadellavari Street, Tanuku on 22.01.2015 and during the course of survey, certain books of accounts, loose sheets were found and impounded u/s 133A of the Act vide proceedings dated 22.01.2015. Subsequently search u/s 132 was conducted in the residential premises of Sri Kundula Veera Venkata Satyanarayana, the managing Partner of the firm at D.No.33-8-35, Babuvari Street, Tanuku on 22.02.2015 and during the course of search, certain incriminating material in the form of loose sheets, note books were found and seized. The Assessing Officer (AO) issued notice u/s 153C of the Act on 27.04.2016 and made the assessments u/s 143(3) r.w.s. 153C of the Act. The total income assessed by the AO for the A.Ys. 2010-11 to 2014-15 are as under : A.Y. Returned Assessed Income (Rs.) Income (Rs.) 2010-11 9,89,770 2,25,05,245 2011-12 11,55,400 3,54,35,650 2012-13 30,37,980 20,48,41,420 2013-14 13,72,380 4,76,51,275 2014-15 26,95,030 5,68,44,446
Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) quashed the notice issued u/s 153C of the act, observing that there is no incriminating material seized u/s 132 of the act relating to the assessee for the relevant assessment years. The Ld.CIT(A) examined the seized material page-wise and found that material seized was neither pertained to the impugned the assessment years nor has impact on determination of the income the assessee. Thus, the Ld.CIT(A) held that the assessments made u/s 153C r.w.s. 143(3) are void-ab-initio and accordingly, quashed the notice.
Against which the department has filed appeal before the Tribunal and the assessee filed cross objections. During the appeal hearing, the Ld.DR argued that the CIT(A) has not appreciated the material found during the course of search though it has bearing on the determination of income of the assessee. The Ld.DR invited our attention to page No.11 and 12 of the paper book which was seized as pages 84& 85 of annexure A/KVVSN/02 particularly to table in the loose sheet which reads as under :
The following are the revenue to Govt. from the past 5 years in East & West Godavari Districts.
Year E.G.Dist W.G.Dist. Total 2009-10 9.16 8.37 17.53 2010-11 40.16 1.66 41.82 2011-12 30.43 30.94 61.37 2012-13 37.13 2.44 39.57 2013-14 0.00 6.02 6.02 Avg. revenue to the Govt. from the past 5 years 33.26 4.1. The Ld.DR also invited our attention to page No.13 and 14 of the paper book and submitted that the assessee has written a letter dated 20th September, 2012 to the Hon’ble Chief Minister, Government of Andhra Pradesh, stating that he is a sand contractor in various reaches in East Godavari and West Godavari Districts for the past 20 years. Taking the cue from the letter of the assessee dated 20.09.2012, the Ld.DR submitted that as per the submission made by the assessee to the Hon’ble Chief Minister of Andhra Pradesh, he was in sand contract business for the past 20 years and the statistics mentioned in page No.11 related to the revenue of Government for the past 5 years, which includes the revenue paid by the assessee to the government of A.P. Therefore, argued that the calculations mentioned in the page No.11 and 12 are related to the assessee and has bearing on the determination of income of the assessee, hence, argued that the Ld.CIT(A) is not correct in brushing aside the loose sheets found and seized during the course of search as not the incriminating material and has no bearing on the income of the assessee. The Ld.DR further submitted that page No.11 and 12 were the papers seized as page Nos.84 and 85 and 15 to 17 are the loose sheets marked as Sl. 136 to 138 of Annexure A/KVVSN/02. The Ld.DR further argued that it is not necessary to have the material evidencing the undisclosed income at the stage of issue of notice u/s 153C, but, it is sufficient to have material found during the course of search which has bearing on the income of the assessee. The word ‘bearing’ has very wide connotation having long ramification thus, submitted that the seized material need not necessarily indicate the undisclosed income for issue of notice u/s 153C. In the instant case, the material was found and seized during the course of search, it belonged to the assessee and has bearing on the income of the assessee, therefore, argued that the AO rightly initiated the proceedings u/s 153C, hence requested to set aside the order of the Ld.CIT(A) and uphold the notice issued u/s 153C of the Act and remit the matter back to the file of the CIT(A) to decide the issue on merits. The Ld.DR relied on the orders of the ITAT, Ahmedabad Bench in the case of Bharat Ginning & Pressing Factory Vs. Income Tax Officer, Central Ward-1, Baroda (2013) 32 taxmann.com 322, ITAT Kolkata Bench in the case of KPC Medical College & Hospital Vs. Dy.Commissioner of Income Tax (2015) 59 taxmann 393 (Kolkata –Trib).
On the other hand, the Ld.AR submitted that the department has seized page Nos.84, 85, 136 to 138 of Annexure A/KVVSN/02.Page No.84, 85 is an estimation with regard to river sand reach in the vicinity of East Godavari and West Godavari Districts for excavating silt sand. The table referred in page No.84 is the information available on public domain with regard to revenue collected by the Government for the past 5 years in East Godavari and West Godavari Districts in sand mining. Nothing mentioned in page No.84, 85 relates to either receipts, expenditure or investment of the assessee. Therefore argued that it has no bearing on the determination on the income of the assessee. Similarly page No.136 to 138 also related the general information and calculations made by the assessee for the cost to be incurred to excavate the silt sand, but none of the papers related to the income or expenditure of the assessee which has bearing on the determination of the income of the assessee. Therefore argued that by any stretch of imagination, the page No.84, 85, 136 to 138 can be called as incriminating material or the information having bearing on the income of the assessee. Since there was no incriminating material which has bearing on the income of the assessee, the Ld.AR argued that the Ld.CIT(A) has rightly quashed the notice issued u/s 153C, therefore requested to uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue. The Ld.AR relied on the orders of this Tribunal in I.T(SS)No.08-10/Viz/2018 in the case of Sri Pattapagalu Venkata Rao, Rajahmundry Vs. ACIT, Rajahmundry dated 17.07.2019, wherein this Tribunal taken a view that the notice issued without having incriminating material is unsustainable.
5.1. Defending the order of the Ld.CIT(A), the Ld.AR also raised another argument stating that the material was found and impounded during the course of survey u/s 133A on 22.01.2015 vide impounding order dated 22.01.2015 which was seized as Annexure A/KVVSN/02. Without releasing the said material, the same was stated to have been shown as seized in Panchnama during the course of search in the residence of the Managing Partner, Shri K.V.V.Satyanarayana on 22.06.2016 which is unlikely and impossible. Therefore, argued that whatever the material stated to be seized was already impounded u/s 131 by an order dated 22.01.2015, hence, there is no case of material seized during the course of search, hence the notices issued u/s 153C is without jurisdiction and required to be declared as invalid.
5.2. The third line of argument taken by the Ld.AR is that the AO of the searched person has not recorded the satisfaction. Though the department has placed the satisfaction note in separate sheet in the case of searched person, there was no order sheet entry having recorded the satisfaction in the hands of searched person while transferring the material, thus argued that there was no satisfaction recorded by the AO. The Ld.AR taken the support of the office manual for assessment procedure in para No.5.1 to 5.3, wherein, it is mentioned that the AO must record satisfaction in the order sheet of both the searched person as well as the other person.
5.3. Further, the Ld.AR also argued that in the assessee’s case all the assessments were completed assessments and there was no pending assessment as on the date of transfer of material to the AO of the assessee. Hence, argued that completed assessments cannot be disturbed without having the incriminating material as per the settled laws. The AR informed that latest assessment year for which the notice u/s 153C issued was 2014- 15 and the date for issue of notice u/s 143(2) got expired on 30.09.2015 before transfer of material to the AO of the assessee.
5.4. The Ld.AR further brought to our notice that the AO has not made any addition with reference to the seized material which establishes the fact that the papers seized as page No.84, 85 and 136 to 138 does not have bearing on the income of the assessee.
Responding to the argument of the Ld.AR, the Ld.DR submitted that with regard to irregular seized material, without having raised this issue at the time of drawing panchnama or subsequently before the income tax authorities, assessee cannot raise the issue on validity of the material seized. It is not permissible to declare whether the material seized is valid or invalid without deciding the validity of search in the case of Sri KVV Satyanarayana, therefore, argued that the argument of the assessee is not maintainable.
6.1. Similarly, the Ld.DR submitted with regard to satisfaction note that though the department has laid down the guidelines for writing the order sheet, since, the satisfaction was recorded in the case of searched person in a separate note merely because no entry was made in the order sheet, the same cannot be made invalid. The Ld.DR relied on the decision of Hon’ble Gujarat High Court in the case of Principal Commissioner of Income Tax Vs. Dilip Avtar Construction Pvt Ltd 2019 (2) TMI 1471, the decision of ITAT Ahmedabad Bench in the case of Deputy Commissioner of Income Tax, Central Circle-2(2), Ahmedabad Vs. Sandip M.Patel (2012) 22 taxmann.com 288 (Ahd.) and the decision of ITAT Delhi Bench in the case of DCIT Vs. Apoorva Extrusion Pvt. Ltd., New Delhi in dated 09.10.2014.
We have heard both the parties and perused the material placed on record. In the instant case, search u/s 132 was conducted in the premises of Sri KVV Satyanarayana and during the course of search, the department has seized certain loose sheets marked as Annexure-A/KVVSN/02 as page Nos.84, 85 and 136 to 138 which is the foundation for taking action u/s 153C of the Act. On the basis of the loose sheets marked as page No.84, 85 and page No.136 to 138 of Annexure-A/KVVSN/02, the AO came to conclusion that the loose sheets have bearing on the determination of the total income of the assessee, therefore, issued notice u/s 153C after recording the satisfaction note. The Ld.CIT(A) placing reliance on the decision of Hon’ble Supreme Court in the case of Commissioner of Income Tax Vs. Sinhgad Technical Education Society, held that there is no incriminating material, hence quashed the notice u/s 153C and made the assessments void-ab-initio. The said page No.84, 85 and 136 to 138 were placed in paper book page No.11 and 12 and 15 to 18. We have gone through the page No.11, it relates to the detailed estimation of expenditure to be incurred for river sand usage in the districts of West and East Godavari and to excavate the silt sand but not actuals. The table given in page No.11 was the revenue collected by the Government in the past 5 years in West and East Godavari districts. Page No.11 and 12, 15 to 18 of paper book does not indicate any sales, expenditure incurred or the investments made by the assessee etc. which has bearing on the determination of income. Though the Ld.DR argued that the assessee was in the sand contract for the last so many years and the papers seized has bearing on the determination of income, from plain reading of loose sheet No.84 and 85, 136 to 138 there is no indication of income received or expenditure incurred by the assessee or investment made by the assessee etc. As argued by the Ld.AR, there was no addition made by the AO on the basis of loose sheets found in the residence of the assessee. Therefore, we are unable to accept the contention of the Ld.DR that the loose sheets found during the course of search has bearing on the income of the assessee. The Ld.CIT(A) has examined the loose sheets and analysed the same as under :
“a) Page no.84 and 85 of Annexure A/KVVSN/02: These sheets consist of certain calculations made on estimate basis with regard to the River Sand usage in the districts of West and East Godavari and the cost to be incurred to excavate silt sand. The calculations were made to depict the Incremental Revenue to the State Government as per the estimated calculation. A proposal was made to the State Government to stop mining from the downstream area and to excavate sand from the upstream of barrage area. b) Page no.136 to 138 of Annexure A/KVVSN/02: These sheets also contain similar calculations on estimate basis prepared for the purpose of proposal sent to the State Government. On a careful perusal of the aforesaid material I find that all the aforesaid documents which are referred to in the satisfaction note are some estimated calculations prepared for the purpose of proposal sent to the State Government of Andhra Pradesh with regard to the additional revenues that may accrue to the Government in case upstream excavation of sand is substituted for downstream excavation. They do not contain details of any transaction which has already taken place during the course of business carried out by the appellant firm By any stretch of imagination, these documents can be said to be relating to any particular year. Further, there is nothing, incriminating in these documents. Prima fade, there is no approval from Government for the said proposals. Applying the ratio laid down by the Hon'ble Supreme Court in the case of Sinhgad Educational Society (supra) it has to be held that the notice issued uls.153C when there is no material whatsoever that was seized which pertains to the Assessment Year 2010-I1 is invalid. More so, when there is nothing incriminating in these documents. Therefore, the notice issued u/s.153C is quashed and consequently the entire assessment proceedings based on such invalid notice are also quashed as void-ab- initio. This ground of appeal is allowed.”
7.1. Careful verification of the loose sheets found during the course of search clearly indicate that it is the estimate and proposal sent to the state government to stop mining from the downstream area and to excavate the sand from the upstream of barrage area with the benefits to increase the storage of water in the rivers. Similarly page No.136 to 138 also contain similar calculations of estimation prepared for the purpose of proposal sent to the state government. No evidence was placed by the department to show that the said proposal is approved by the Government or contract is awarded to the assessee. For the sake of better understanding, we reproduce the contents of page No.84 of the seized material which reads as under :
“Details of River Sand Usage in the Districts of West and East Godavari Lorries per day consumed (Approximately) 2000 @ 200 sft Sft. per day 2000 x 200 400000 Sft. per year 400000 x 365 days 146000000 Hence, nearly 14.60 crores sft of silt sand removal from the river per year. In turn on the available space i.e., nearly 14.60 crore sft, that much of water will store and automatically increases the water storage capacity of 14.60 crore sft. DETAILS OF COST TO BE INCURRED TO EXCAVATE SILT SAND IN THIS METHOD Total Sft per year 146000000 i.e. 1460000 units Govt. Recommended sale price Rs.1000 per unit Total Expected Sales (14,60,000 x 1,000) 1460000000 i.e. 146.00 crores
Expenses : Removal, stocking, loading charges and other expenses (including normal profit) per unit is Rs.500 Total Expenses (Inc. Normal Profit) for 14,60,000 units 730000000 i.e. 73.00 crores Total Revenue to Govt. for 1 year 73.00 crores The estimated revenue to the Govt. is too higher as compared to the past 5 years. The following are the revenue to Govt. from the past 5 years in East & West Godavari Districts. “ Year E.G.Dist W.G.Dist. Total 2009-10 9.16 8.37 17.53 2010-11 40.16 1.66 41.82 2011-12 30.43 30.94 61.37 2012-13 37.13 2.44 39.57 2013-14 0.00 6.02 6.02 Avg. revenue to the Govt. from the past 5 years 33.26 7.2. The above contents of the seized material shows that the Ld.CIT(A) rightly observed that the information in the seized material was estimations and information in the table was the revenue received by the Government of Andhra Pradesh in respect of sand mining. The estimations were also general estimations but not specific to the assessee’s business. Similar estimations were made in the remaining loose sheets of page No.85,136 to 138 also. None of the loose sheets seized contain the details of sales, income earned, expenditure incurred or the investments made by the assessee having impact on determination of income of the assessee. The AO also did not make any direct addition on the basis of the loose sheet. Therefore we hold that the loose sheets found and seized during the course of search were neither incriminating nor having bearing on the income of the assessee.. This Tribunal in the case of Sri Pattapagalu Venkata Rao Vs. Asst.Commissioner of Income Tax (supra) relied upon by the assessee following the decision of Hon’ble Supreme Court in the case of Sinhagad Technical Education Society (supra) held that it is not permissible to initiate action u/s 153C without having the incriminating material belonging to the assessee. For the sake of clarity and convenience, we extract para No.5.2 of the order of this Tribunal which reads as under :
“5.2. We have carefully considered the submission and 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 case of G.S.L.Educational Society. 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, 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 searched person. As discussed earlier the material found during the course of search was related to the A.Y.2014-15. Therefore, we hold that the notices issued u/s 153C of the Act, for the impugned assessment years are unsustainable. This view is upheld by the decision of Hon’ble Supreme Court in the case of CIT Vs. Sinhagad Technical Education Society (2017) 84 Taxmann.com 290 (SC). This tribunal also considered the identical issue in the case of M/s. Sri Balaji Constructions,
Kakinada in dated 10/01/2018 and decided the issue in favour of the assessee. Respectfully following the decision of Hon’ble apex court and the view taken by this tribunal we hold that notice issued u/s 153C without having incriminating material cannot survive, accordingly quashed.” 7.3. In the instant case, as discussed earlier, the papers found and seized relates to the estimations, but not related to any income or expenditure of the assessee or investment made by the assessee which has bearing on the income. The AO did not make any addition on the basis of the loose sheets found during the course of search. The Ld.DR also did not bring any decision of the Hon’ble Jurisdictional High court reversing the order of this Tribunal. Therefore, respectfully following the view taken by this Tribunal in the case of Sri Pattapagalu Venkata Rao, Rajahmundry Vs. ACIT (supra), we hold that the AO issued notice u/s 153C without having incriminating material or the material having impact on determination of income which is bad in law and hence, we do not see any reason to interfere with the order of the Ld.CIT(A) and the same is upheld. The appeals of the revenue for the A.Ys 2010-11 to 2014-15 are dismissed.
7.4. Since we have dismissed the appeals of the revenue, holding that there was no incriminating material found during the course of search which has bearing on the income, we consider it is not necessary to adjudicate the remaining issues raised by the assessee with regard to irregularities in the seized material and satisfaction note in the cross objections. Accordingly, the appeals of the revenue as well as the cross objections of the assessee are dismissed.
In the result, appeals of the revenue as well as the cross objections of the assessee are dismissed.
Order pronounced in the open court on 28th February, 2020.