VARIYAN REALTY,,NASHIK vs. DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE -1, NASHIK

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ITSSA 19/PUN/2022Status: DisposedITAT Pune22 May 2023AY 2014-1513 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the Section 153A assessments against M/s. Vichal Enterprises Pvt. Ltd. were not sustainable. Citing PCIT vs. Abhisar Buildwell (P) Ltd., the Tribunal emphasized that Section 153A assessments require incriminating material found during the search. The Revenue failed to produce any evidence showing Vichal Enterprises actually received on-money payments. The Tribunal rejected the Revenue's argument of presumption based on the joint development agreement, stating that Section 292C confers presumption on actual evidence, not inferences. Therefore, the appeals concerning Vichal Enterprises were allowed. Regarding the Section 153C assessments against M/s. Variyan Realty, the Tribunal found the Assessing Officer's satisfaction note to be improper. The satisfaction note used the statutory expressions "belongs/pertains/relates" interchangeably, without specifying which one was applicable. Citing Commissioner of Customs (Imports) Mumbai vs. M/s. Dilip Kumar And Co. & Ors. and Mohd. Farhan A. Shaikh Vs. ACIT, the Tribunal held that search provisions must be strictly construed. The interchangeable use of these terms indicated a non-application of mind by the Assessing Officer, rendering the satisfaction defective. Consequently, the Section 153C assessments were quashed, and the appeals concerning Variyan Realty were allowed.

What were the facts?

The appeals concern M/s. Vichal Enterprises Pvt. Ltd. and M/s. Variyan Realty for assessment years 2013-14 to 2015-16. Both entities entered a joint development agreement on July 10, 2012, for the "M/s. Varian Space" project. Vichal Enterprises contributed land and was to receive 40% of gross revenue, while Variyan Realty acted as the developer and was to receive 60%. All receipts were to be deposited in a joint account. A search action on January 15, 2015, in the Thakkar group of cases, which included Vichal Enterprises, allegedly uncovered documents indicating on-money receipts. Statements were recorded, leading to proceedings under Section 153A against Vichal Enterprises and Section 153C against Variyan Realty. Additions were made for alleged on-money receipts, which the CIT(A) partly restricted. Both assessees are aggrieved.

What were the issues?

1. Whether the Section 153A assessments initiated against M/s. Vichal Enterprises Pvt. Ltd. are valid in the absence of any incriminating material found or seized during the search. (Question of law) 2. Whether the Section 153C assessments initiated against M/s. Variyan Realty are valid, considering the Assessing Officer's satisfaction note which used the interchangeable terms "belongs/pertains/relates" without specifying which limb was attracted. (Question of mixed law and fact) Assessee's Contentions: For issue 1, the assessee argued that Section 153A proceedings are not sustainable without incriminating material, citing PCIT vs. Abhisar Buildwell (P) Ltd. The assessee contended that no evidence was found proving actual receipt of on-money payments by Vichal Enterprises. Revenue's Contentions: For issue 1, the revenue argued that the joint development agreement and alleged incriminating material found in the case of Variyan Realty indicated on-money payments, which should be presumed to have been received by Vichal Enterprises. The revenue relied on Section 292C for presumption of correctness of seized documents. For issue 2, the revenue argued that the satisfaction note was sufficient and that the terms "belongs/pertains/relates" could be used interchangeably. The revenue relied on the amended scheme of Section 153C, as interpreted in Income Tax Officer vs. Vikram Sujitkumar Bhatia.

Which sections of the Income-tax Act were involved?

Section 153A,Section 153C,Section 143(3),Section 132(4),Section 292C,Section 271(1)(c)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, PUNE BENCH “B” : PUNE

Before: SHRI SATBEER SINGH GODARA & DR. DIPAK P. RIPOTE

Pronounced: 22.05.2023

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “B” : PUNE BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER I.T.(S.S.)A.Nos.15, 16 & 17/PUN./2022 Assessment Years 2013-2014, 2014-2015 and 2015-2016 The DCIT, M/s. Vichal Enterprises Pvt. Central Circle-1, Ltd., 37/39, Kantol Niwas, 3rd Floor, Kendriya Rajswa Modi Street Fort, Mumbai. vs. Bhawan, Gadkari Chowk, Maharashtra. PIN 400 001 Old Agra Road, PAN AAACV3279R Nashik – 422 001. Maharashtra. (Appellant) (Respondent) I.T.(S.S.)A.Nos.18, 19 & 20/PUN./2022 Assessment Years 2013-2014, 2014-2015 and 2015-2016 M/s. Variyan Realty, Tulsi The DCIT, Villa, Near Akashwani Central Circle-1, Tower, B/h Prasad 3rd Floor, Kendriya Rajswa Mangalkaryalay Gangapur vs. Bhawan, Gadkari Chowk, Road, Nashik – 422 005 Old Agra Road, Maharashtra. Nashik – 422 001. PAN AAJFV3936B Maharashtra. (Appellant) (Respondent) For Assessees : Shri Rakesh Joshi, And Shri Neelesh Khandelwal For Revenue : Shri M.G. Jasnani Date of Hearing : 03 & 18.05.2023 Date of Pronouncement : 22.05.2023 ORDER PER SATBEER SINGH GODARA, J.M. :

The instant batch of six appeals pertains to two assessees’ namely M/s. Vichal Enterprises [“a private limited company”] and M/s. Variyan Reality [“a Firm]. Both of them have filed their three appeals each i.e., I.T.(S.S.)A.Nos.15 to

2 I.T.(S.S.)A.Nos.15 to 17 & 18 to 20/PUN./2022 M/s. Vichal Enterprises Pvt. Ltd., & M/s. Variyan Realty, Nashik. 17/PUN./2022 and I.T.(S.S.)A.Nos.18 to 20/PUN./2022, for assessment years 2013-14 to 2015-16 against the CIT(A), Pune- 12, Pune's twin DINS & Orders Nos.ITBA/APL/S/250/2021- 22/1039243014(1), 1039243113(1), 1039243239(1) and Nos. ITBA/APL/S/250/2021-22/1039244771(1), 1039244793(1) and 1039244771(1), 1039244858(1), dated 31.01.2022, in proceedings u/s. 153A r.w.s. 143(3) and u/s. 153C r.w.s.143(3) of the Income Tax Act, 1961 (in short "the Act"), taxpayer-wise respectively,

Heard the assessees as well as department through their learned representatives. Case files perused.

3.

It emerges during the course of hearing at the outset that the first and foremost issue that arises for our apt adjudication in both these sets of cases involving sec.143(3) r.w.s. 153A r.w.s. 143(3) and sec.153C r.w.s. 143(2) assessments is that of validity thereof itself. Learned counsel’s case is that both the lower authorities have erred in law and on facts in initiating the former set of sec.143(3) r.w.s. 153A proceedings without any incriminating material found and seized in search in case of the former assessee and after recording an improper satisfaction in sec.143(3) r.w.s. 153C proceedings; taxpayer-wise, respectively.

It is in this backdrop of facts that we proceed to deal with the instant twin legal issues first.

3 I.T.(S.S.)A.Nos.15 to 17 & 18 to 20/PUN./2022 M/s. Vichal Enterprises Pvt. Ltd., & M/s. Variyan Realty, Nashik. 4. There is hardly any dispute between the parties that the former assessee M/s. Vichal Enterprises is a private limited company and the later taxpayer M/s. Variyan Reality is a Firm. There is further no quarrel that both of them had executed a joint development agreement dated 10.07.2012 [pages 39 to 50] wherein the former assessee contributed the corresponding project land whereas the latter entity M/s. Variyan Reality had to act as the developer. The relevant project’s name was “M/s. Varian Space”. We find from a perusal of the said joint venture agreement that in lieu of the land contribution, the former assessee before us was supposed to receive 40% and balance 60% of the gross revenue receipts would go to M/s. Variyan Reality. And also that both these assessee’s had to deposit all the receipts in a joint account first followed by its distribution @ 40% : 60% hereinabove [clause-7 page-41 in paper book]

4.1. It is in this backdrop of facts that the department had carried-out a search action in M/s. Thakkar group of cases dated 15.01.2015 which included the former assessee M/s. Vichal Enterprises as well. We find from a perusal of the case records that it had allegedly come across various incriminating documents indicating on-money receipts regarding sale of units in the above residential projects. The departmental authorities recorded sec.132(4) statements of S/Shri Chetan G Batavia and Kushal Chetan Batavia [director in M/s. Vichal Enterprises and

4 I.T.(S.S.)A.Nos.15 to 17 & 18 to 20/PUN./2022 M/s. Vichal Enterprises Pvt. Ltd., & M/s. Variyan Realty, Nashik. partner in M/s. Variyan Reality] during the course of search. All this culminated in initiation of sec.153A proceedings against M/s. Vichal Enterprises i.e., the searched assessee and Sec.153C action for the latter taxpayer M/s. Variyan Reality leading to on- money additions of Rs.41,04,600/-, Rs.1,06,38,358/-, Rs.1,96,41,370/- and Rs.52,10,654/-, Rs.52,39,392/- and Rs.27,29,010/-; respectively in their hands. The CIT(A) has partly restricted the same. This leaves both the assessees’ aggrieved.

5.

We have given our thoughtful consideration to the vehement rival stands regarding legality of sec.153A assessments framed in case M/s. Vichal Enterprises Pvt. Ltd. There would be hardly any dispute that hon’ble apex court’s recent landmark decision in PCIT vs. Abhisar Buildwell (P) Ltd., [2023] 149 taxmann.com 399 (SC) has settled the law that an assessment u/sec.153A is not liable to be sustained in absence of any incriminating material found or seized during the course of search. Mr. Jasnani vehemently argued in light of the alleged incriminating material referred to in case of the latter assessee M/s. Variyan Realty that it is a clear-cut case of on-money payment receipts which has been rightly assessed in both these assessees’ hands at 40%-60% in light of the above joint development agreement’s terms. We find that Revenue has not filed even a single piece of such incriminating evidence that the former assessee M/s. Vichal Enterprises Pvt. Ltd., had, in any

5 I.T.(S.S.)A.Nos.15 to 17 & 18 to 20/PUN./2022 M/s. Vichal Enterprises Pvt. Ltd., & M/s. Variyan Realty, Nashik. way, actually received the on-money payments. Mr. Jasnani at this stage sought to buttress the point that once it had executed the revenue sharing agreement in lieu of the land contribution to the project, the necessary presumption which arises is that of actual receipt of the on-money payments only.

5.1. We find no merit in the Revenue’s former arguments once sec.292C of the Act confers presumption of correctness to contents of the actual evidence found during the course of a search or survey than mere inference drawn from the facts on record. We make it clear that there is not even an entry in any joint account which could support the impugned addition. This is indeed coupled with the fact that the latter assessee herein M/s. Variyan Realty had duly declared all the on-money payments for assessment in it’s post-search returns in sec.153C @ 8% thereof. Faced with the situation and in light of the clinching fact that there is no evidence at all to proceed against M/s. Vichal Enterprises Pvt. Ltd., i.e., the former assessee herein which could pinpoint or prove the actual receipt of on-money, we conclude that the impugned sec.153A assessments deserves to be quashed for this precise reason alone. These former assessee’s three appeals I.T.(S.S.)A.Nos.15 to 17/PUN./2022 involving sec.153A assessments succeed in very terms therefore.

5.2. The outcome would be hardly different in the latter assessee’s as many appeals I.T.(S.S.)A.Nos.18 to 20/PUN./2022

6 I.T.(S.S.)A.Nos.15 to 17 & 18 to 20/PUN./2022 M/s. Vichal Enterprises Pvt. Ltd., & M/s. Variyan Realty, Nashik. since we are dealing with validity of sec.153C assessments. Learned counsel has filed before us copy of the Assessing Officer’s relevant satisfaction note dated 29.08.2016 that the seized documents during the course of search hereinabove “belongs/pertains/ relates to M/s. Variyan Realty” as under :

“On perusal of above discussion, facts and circumstances of case and settled position of law, it can be conclusively held that said seized documents belongs/pertains/ relates to M/s Varian realty and transaction mentioned in such documents have clear bearing on the determination of total income of assessee for various AYs 2009-10 to AY 2015-16. Hence, I am satisfied that it is a fit case for issuing notice within the meaning of section 153C for AY 2009-10 to AY 2015-16 and hence, notice u/s 153C for AY 2009-10 to AY 2015-16 is hereby issued.” 5.3. We invite Mr. Jasnani’s attention to the Assessing Officer’s above reproduced satisfaction that he had used the three clinching statutory expressions “belongs/pertains/relates”, simultaneously than specifying as to which one of them got attracted in fact the instant cases. We make it clear that we are dealing a search assessment wherein the relevant provisions have to be strictly construed in light of Commissioner of Customs (Imports) Mumbai vs. M/s. Dilip Kumar And Co. & Ors. [2018] 9 SCC 1 (SC) (FB). Mr. Jasnani thereafter has filed his detailed written submissions at the Revenue’s behest reading as under :

7 I.T.(S.S.)A.Nos.15 to 17 & 18 to 20/PUN./2022 M/s. Vichal Enterprises Pvt. Ltd., & M/s. Variyan Realty, Nashik.

8 I.T.(S.S.)A.Nos.15 to 17 & 18 to 20/PUN./2022 M/s. Vichal Enterprises Pvt. Ltd., & M/s. Variyan Realty, Nashik.

9 I.T.(S.S.)A.Nos.15 to 17 & 18 to 20/PUN./2022 M/s. Vichal Enterprises Pvt. Ltd., & M/s. Variyan Realty, Nashik.

10 I.T.(S.S.)A.Nos.15 to 17 & 18 to 20/PUN./2022 M/s. Vichal Enterprises Pvt. Ltd., & M/s. Variyan Realty, Nashik.

11 I.T.(S.S.)A.Nos.15 to 17 & 18 to 20/PUN./2022 M/s. Vichal Enterprises Pvt. Ltd., & M/s. Variyan Realty, Nashik. 5.4. We find no merit in Revenue’s foregoing stand. It is made clear that scheme of the relevant provision i.e., sec.153C; amended vide Finance Act, 2015 w.e.f. 01.06.2015 has already been held as having retrospective effect in hon’ble apex court’s yet another landmark decision in Income Tax Officer vs., Vikram Sujitkumar Bhatia [2023] 149 taxmann.com 125 (SC). Clauses 153C(1)(a) and (b) thereof sufficiently indicate that it is only the former category of “any money, bullion, jewellery or other valuable article or thing, seized or requisitioned” which could be held as “belongs to” any third person other than the searched assessee as against clause (b) stipulating “any books of account or documents, seized or requisitioned, pertain or pertains to, or any information contained therein, relates to the said other person”; as the case may be. Meaning thereby, that the legislature has nowhere prescribed that all these three expressions of “belongs to”, “pertains or pertain to” or “relates to” could be invoked in an interchangeable manner as it has been done at the Assessing Officer’s behest in the impugned satisfaction. We wish to observe that although not strictly relevant; but, somewhat similar issue had arisen before hon’ble jurisdictional high court in Mohd. Farhan A. Shaikh Vs. ACIT [2021] 434 ITR 1 (Bom.) (FB) in case of sec.271(1)(c) penalty proceedings wherein their lordships’ have rejected the Revenue’s arguments by holding that the corresponding limbs i.e., concealment or furnishing of inaccurate particulars of the taxable income have to be specifically

12 I.T.(S.S.)A.Nos.15 to 17 & 18 to 20/PUN./2022 M/s. Vichal Enterprises Pvt. Ltd., & M/s. Variyan Realty, Nashik. incorporated before any assessee is proceeded against there under. And that such a failure on the Assessing Officer part is a clear-cut case of non-application of mind not sustainable in law. The very same analogy would apply in the instant case as well once the learned Assessing Officer has simply treated all these three expressions interchangeable/at par. We take into consideration the foregoing principles of stricter interpretation to hold that the learned lower authorities have erred in law and on facts in recording an improper satisfaction for the purpose of framing these three sec.153C assessments. The same stand quashed as such an inherent defect in sec.153C satisfaction could not be rectified in second appellate proceedings. These latter assessee’s three appeals I.T.(S.S.)A.Nos.18 to 20/PUN./ 2022 are allowed in very terms. Ordered accordingly.

6.

All other pleadings on merits in both these assessees’ respective cases stand rendered academic.

7.

These twin assessees’ three appeals each i.e., I.T.(S.S.)A.Nos.15 to 17/PUN./2022 and I.T.(S.S.)A.Nos.18 to 20/PUN./2022 are allowed in above terms. A copy of this common order be placed in the respective case files.

Order pronounced in the open Court on 22.05.2023.

Sd/- Sd/- [DR. DIPAK P. RIPOTE] [SATBEER SINGH GODARA] ACCOUNTANT MEMBER JUDICIAL MEMBER Pune, Dated 22nd May, 2023 VBP/-

13 I.T.(S.S.)A.Nos.15 to 17 & 18 to 20/PUN./2022 M/s. Vichal Enterprises Pvt. Ltd., & M/s. Variyan Realty, Nashik.

Copy to 1. The appellants concerned 2. The respondent 3. The Ld. CIT(A), Pune-12, Pune 4. The DGIT (Inv.) Pune. 5. D.R. ITAT, Pune “B” Bench, Pune 6. Guard File. //By Order//

Assistant Registrar, ITAT, Pune Benches Pune.

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