BHARGAVILATHA MUNAGALA,HYDERABAD vs. ACIT., CENTRAL CIRCLE-2(1), HYDERABAD

Succinctly stated, the assessee had filed her return of income for AY 2019-20 on 20/08/2019, declaring an income of Rs. 2,12,260/-

Search and seizure operation under Section 132 of the Act was conducted in the case of M/s MSR India Ltd. and Sri M. Srinivassa Reddy, Director of M/s Mirchi Developers Private Limited, on 07.01.2021. During the course of search proceedings, certain material marked as, viz. Annexure A/MSR/OFF/01 was found and seized from the premises of M/s MSR India Ltd. The seized material comprised a register containing details of plots sold in a project in which M/s Mirchi Developers Pvt. Ltd. was stated to be a consenting party.

The AO of the searched person observed that the seized register, viz. Annexure A/MSR/OFF/01 contained details such as plot numbers, extent of plots, rate per square yard, total consideration, and bifurcation of payments allegedly received through banking channels, as well as cash payments. Insofar as the present assessee is concerned, reference was made to Plot No.64, admeasuring 200 square yards, allegedly purchased for a total consideration of Rs. 42,00,000/-, viz. (i) payments through banking channel/RTGS: Rs. 23,00,000/-; and (ii). cash payments: Rs. 19,00,000/-. For the sake of clarity, we deem it apposite to cull out the details of payments recorded in the seized material, as under:

The AO of the searched person, viz. M/s MSR India Ltd. recorded a satisfaction note under Section 153C of the Act, observing that the seized material belonged to the assessee and had bearing on the determination of her income. However, the satisfaction note was prepared as a consolidated note for Assessment Years 2015-16 to 2021-22. 4

Based on the aforesaid “satisfaction note”, proceedings under Section 153C of the Act were initiated in the hands of the assessee, and an assessment was framed by the AO, vide his order passed under Section 153C of the Act, dated 23/02/2024, by making an addition of Rs. 42,00,000/- under Section 69 of the Act as an unexplained investment.

Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals), who confirmed the addition by holding that the entries relating to cheque payments matched with the registered sale deed, and therefore, the corresponding cash payments mentioned in the seized material were also to be accepted as genuine.

The assessee aggrieved with the CIT(Appeals) order has carried the matter in appeal before us.

We have heard the Ld. Authorized Representatives of both parties, perused the orders of the authorities below and the material available on record, as well as considered the judicial pronouncements pressed into service by them to drive home their respective contentions.

Shri. A. Srinivas, the learned Authorized Representative (for short, “AR”) for the assessee, at the threshold of hearing of the appeal, submitted that the very assumption of juri iction under Section 153C was invalid as the “Satisfaction note” was not assessment-year specific

Alternatively, the Ld. AR submitted that the seized material was neither found in the assessee's possession nor bore her signature. It was submitted that the seized document merely mentioned the name of the assessee’s husband, viz. “Sri M. Thirupathi” and not that of the assessee, i.e., Smt. Mungala Bhargava Latha. The Ld. AR further submitted that no opportunity to cross-examine the person from whose

Per contra, the learned Departmental Representative (for short, “DR”) strongly supported the orders of the lower authorities and submitted that the seized material clearly contained plot number, area, payment details, and dates, which duly matched with the registered sale deed. The Ld. DR submitted that the seized material could not be brushed aside as a dumb document. The Ld. DR relied upon the orders of the authorities below.

We have given thoughtful consideration to the contentions advanced by the Ld. Authorized Representatives for both parties in the backdrop of the orders of the authorities below.

We shall first take up the Ld. AR’s contention regarding the validity of the juri iction assumed by the AO under Section 153C of the Act.

We find that Section 153C of the Act mandates that the AO of the searched person must be satisfied that the seized material belongs to or pertains to a person other than the searched person and that such material has a bearing on the determination of the total income of such “other person” for the relevant assessment year.

In the present case before us, the “Satisfaction note” placed before us reveals that the AO of the searched person had prepared a consolidated satisfaction note for Assessment Years 2015-16 to 2021-

Although the seized material specifically referred to transactions dated 28.06.2018, 23.07.2018, 09.08.2018, and 30.08.2018, which are relevant only to Assessment Year 2019-20, but no separate satisfaction has been recorded qua the specific assessment year under consideration. We find that, as stated by the Ld. AR, and rightly so, the Hon’ble High Court of Karnataka in Deputy Commissioner of Income Tax v. Sunil Kumar Sharma [2024] 159 taxmann.com 179 (Karnataka), has held that recording of consolidated satisfaction note for multiple assessment years vitiates proceedings under Section 153C of the Act. The Hon’ble High Court specifically observed that satisfaction is required to be recorded for each assessment year

Apropos the merits of the case, we find substantial force in the contentions advanced by the Ld. AR. Admittedly, the seized material was not found in the possession or premises of the assessee. In fact, the searched person, viz. M/s MSR India Ltd. had itself categorically stated that the seized material did not belong to it. Apart from that, we find that the subject seized document neither bears the assessee's signature nor contains any acknowledgment by her. Also, we find that though the seized material makes a mention of Sri M. Thirupathi, i.e., the assessee’s husband, there is no reference to the name of the assessee, viz. Smt. Mungala Bhargava Latha in the seized document. Further, we find that no material has been brought on record by the Revenue to establish the authorship of the document or to conclusively connect the assessee with the alleged cash payments recorded in the seized document, viz., Annexure A/MSR/OFF/01. 9

We find on a perusal of the record that the AO has proceeded entirely on presumptions without conducting any meaningful inquiry. In fact, the AO had neither recorded the statement of the seller nor carried out any verification of the seller’s bank account. Further, we find that neither any evidence of actual cash movement was brought on record nor any incriminating asset, cash, or investment corresponding to the alleged on-money payment was unearthed in the course of the search proceedings.

Also, we find substance in the Ld. AR’s contention that as the AO had summarily relied upon third-party material without granting an effective opportunity to the assessee to rebut the same by not affording an opportunity to cross-examine the person from whose custody the document was seized, therefore, he has acted in violation of the basic principles of natural justice. The Ld. AR, in support of his contention, had relied upon the judgment of the Hon’ble Supreme Court in Andaman Timber Industries v. Commissioner of Central Excise [2015] 62 taxmann.com 3 (SC), wherein it is held that denial of cross- examination where statements/documents are relied upon constitutes a violation of principles of natural justice and renders the order unsustainable.

We have given thoughtful consideration to the observation of the CIT(Appeals), who had proceeded on the reasoning that since cheque

Coming to the cheque/RTGS payments aggregating to Rs. 23,00,000/-, we find that the position qua the said addition stands on a different footing. As is discernible from the record, the assessee has admittedly purchased the subject property. We find that payments through banking channels are reflected in both the seized material and the registered sale deed no. 11586 of 2018, dated 30/08/2018. Thus,

Ostensibly, the assessee claimed that the payments through the banking channel were sourced from earlier sale proceeds and loans/advances obtained from various parties. However, despite sufficient opportunity, the assessee failed to furnish bank statements, confirmations, identity and creditworthiness of lenders, or supporting documentary evidence substantiating the source of investment to the extent made through the banking channel. In our view, once the investment itself stands admitted, the burden squarely lies upon the assessee under Section 69 to satisfactorily explain the source thereof.

In the backdrop of the aforesaid facts, we are of the view that as the assessee had failed to discharge the primary onus cast upon her for proving the source of the investment of Rs. 23,00,000/- made in the subject property, the authorities below were justified in treating the same as an unexplained investment.

Although we concur with the view taken by the authorities below, who have, in the absence of discharge of the onus by the assessee, regarding the source of investment of Rs. 23 lac (supra) in the subject property under consideration held the same as an unexplained investment under Section 69 of the Act, but in the backdrop of the fact

Resultantly, the assessment framed by the AO, vide his order passed under Section 153C of the Act, 23/02/2024, is quashed for want of a valid assumption of juri iction.

In the result, the appeal filed by the assessee is allowed in terms of our aforesaid observations.

The Principal Commissioner of Income Tax, Hyderabad.

"वभागीय""त"न"ध, आयकरअपील"यअ"धकरण /DR,ITAT, Hyderabad.

The Commissioner of Income Tax 6. गाड"फ़ाईल / Guard file