ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, MYSORE vs. MR. SHORFF KRISHNARAJASETTY SATHEESHA, KODAGU

O R D E R

Per Laxmi Prasad Sahu, AM :

“1. The order of CIT(A) is opposed to law and facts of the case.

2. The Ld.CIT(A) has erred in not appreciating the fact that the proceedings u/s.153C of the Act in the assessee's case is valid as the seized material are co-related to each other and in fact a continuity of one another in sequence.

3. The Ld.CIT(A) has erred in holding that the assessment order passed u/s.153C rws.143(3) of the Act is unsustainable when incriminating materials were found against the assessee and satisfaction note was recorded.

4. The Ld.CIT(A) has erred in deleting the additions on the ground that there was no incriminating material found and . Sri.Shroff Krishnarajasetty Satheesha. seized whereas during the search proceedings the documents found in possession of searched person clearly shows the transactions done with assessee.

5. The Ld.CIT(A) has erred in not appreciating the fact that the very loose sheet, contained notings of the cheque transaction and cash transaction. Hence accepting the cheque transaction to be genuine while rejecting cash transaction is erroneous.

6. The Ld.CIT (A) has erred in not appreciating the fact that mere non-appearance of the assessee's name on a particular page or sheet of the seized material does not amount to the material being irrelevant and not pertaining to the assessee. For these and such other grounds that may be urged at the time of hearing with the plea that the orders of the CIT(A) may be set aside and that assessment order may be restored.”

On 03.03.2016 Rs.5,00,000 On 04.06.2016 Rs.34,00,000 On 19.11.2016 Rs.10,00,000 Stamp duty paid Rs.3,26,280. The next document marked as A/CPE/17-18/33 page 161. These documents were seized from the business premises of M/s.C.P.Exports at KIADB Industrial Area. The third document marked as A/CPE/17-18/33 page 161 is the ledger copy of the account of sale of land at Manchadevanahalli for 9 acres, in which debit and credit entry hsa been made for cash and cheque and two other transactions interest and commission are appearing . From the above documents, the A.O. inferred that the documents were related and pertains to the assessee and having bearing of the determination of the total income in the hands of the assessee. The AO noted from the sale deed and sale agreement that the assessee has got registered the property at less than the value fixed in the sale agreement, whereas, the assessee had paid on-money of Rs.1,20,57,000 over and above the registered consideration to Sri.E.Jawahar. A statement was also recorded from Sri. E. Jawahar (vendor of the property question answer No.59, 60,61 and 62) on the date of search in which he had accepted that out of Rs.1,69,57,500, an amount of Rs.1,20,57,500 was received in cash and not recorded in the books of account and the balance amount of Rs.49 lakh was received in cheque.

. Sri.Shroff Krishnarajasetty Satheesha.

. Sri.Shroff Krishnarajasetty Satheesha.

. Sri.Shroff Krishnarajasetty Satheesha.

. Sri.Shroff Krishnarajasetty Satheesha. of the property. It was also noted by the Revenue Authorities that Sri.E.Jawahar was maintaining records of his personal transaction in the register which were maintained in the premises of M/s.C.P.Exports, in which he is a partner. The A.O. further noted from the contention of the assessee that the land was full of encumbrances resulting and reduction of the sale price and that the agreement required conveyance within 5 months which did not happen rendering it void and that Sri E.Jawahar could not ensure transfer of other land which is situated between the pucca road and the impugned land and that the selling price was renegotiated is not supported by any evidences and has been denied by Sri.Jawahar. The A.O. further observed that Sri.Jawahar was also denied that there was an arrangement to transfer some other land and stated that one side of the boundary of the impugned land was the land belonging to the assessee and access to the property was easy to the assessee. During the course of assessment proceedings, the assessee also relied on various case laws, which was not accepted by the A.O. He made addition u/s 69B of the I. T. Act. for cash payments observed by him over and above the stamp duty of the property at Rs.1,00,57,500 and determined the income u/s 115JBE of Rs.1,22,57,500.

6. Aggrieved by the order of the A.O., the assessee filed an appeal before the CIT(A). Before the CIT(A), the assessee has filed a detailed written submissions. The learned CIT(A) called for remand report from the A.O. The A.O. submitted his . Sri.Shroff Krishnarajasetty Satheesha. remand report on 22.06.2022 vide letter dated 23.06.2022 and the same was also conveyed to the assessee for filing rejoinder. In response, the assessee filed his rejoinder on 29.06.2022. The learned CIT(A) after considering the detailed submissions and remand report submitted by the A.O, allowed the appeal of the assessee by observing as under:-

. Sri.Shroff Krishnarajasetty Satheesha. . Sri.Shroff Krishnarajasetty Satheesha. . Sri.Shroff Krishnarajasetty Satheesha. . Sri.Shroff Krishnarajasetty Satheesha. . Sri.Shroff Krishnarajasetty Satheesha. . Sri.Shroff Krishnarajasetty Satheesha. . Sri.Shroff Krishnarajasetty Satheesha. . Sri.Shroff Krishnarajasetty Satheesha. . Sri.Shroff Krishnarajasetty Satheesha. . Sri.Shroff Krishnarajasetty Satheesha. . Sri.Shroff Krishnarajasetty Satheesha.

. Sri.Shroff Krishnarajasetty Satheesha. 7. Aggrieved by the order of the CIT(A), the Revenue has filed this appeal before the Tribunal.

“5. In the appellate proceedings, the assessee contended that, none of the above seized material referred to by the AO in his . Sri.Shroff Krishnarajasetty Satheesha. satisfaction note could be said to contain any incriminating material against the assessee which had bearing on his total income and therefore the assessee challenged the assumption of jurisdiction u/s 153C of the Act by the Assessing Officer. The summarized explanation put forth by the assessee [Submissions placed at Page 25 to 46 of PB] is as follows: Document bearing ID Mark A/CPE/17-18/25 Pages 36-39 - – This was a copy of a sale agreement dated 17.03.2016 between Shri E Jawahar and Sri S K. Satheesha which contained alleged cash noting of Rs.20,00,000/- dated 03.03.2016 i.e. relating to AY 2016-17. The said document did not relate to the relevant AY 2017- 18 and therefore it could not have any legal bearing on the total income for AY 2017-18. - Document bearing ID Mark A/CPE/17-18/25 Pages 29-35 – This was the final sale deed dated 09.02.2017 between Shri E Jawahar and Sri S K. Satheesha. It contained the terms and conditions agreed upon sale of land which binded both the parties. The consideration mentioned in the final conveyance was Rs.49,00,000/- which formed part of the regular books of accounts. Although the said document related to AY 2017-18, but it did not contain anything which incriminated the appellant or suggested earning of any undisclosed income to have bearing on the total income of the appellant for AY 2017-18. Instead this conveyance deed recording consideration of Rs.49,00,000/-, which was executed and registered with stamp duty authorities, supported the case of the appellant and substantiated that the appellant, in connection with the sale of land, made no further payments to Mr. E Jwahar. - Document bearing ID Mark A/CPE/17-18/33 Page 161 – According to AO, this page was a part of register found from the office of M/s C P Exports which contained several notings for sale of nine (9) acres of land at Manchadevanahalli. The AO assumed that since two notings against dated 04.03.2016 i.e. Rs.5,00,000/- in cheque and Rs.20,00,000/- in cash correlated with the two payments made by the assessee to Shri E Jawahar on 03.03.2016, all other cash notings on the same page related to or pertained to the assessee. It shall however be noted that, (a) this document did not contain or refer to the name of the assessee, (b) although the name of site was same but the size of land mentioned on this Page was different that the agreement to sell/conveyance deed, (c) although the figures of Rs.5,00,000/- & Rs.20,00,000/- was the same as agreement to sell but the dates were different and therefore it could not be assumed to be the same, (d) the total sum on this Page was Rs.1,02,57,000/- whereas in terms of agreement to sell, the balance sum purportedly payable was Rs.1,44,57,500/- and therefore the amounts also did not correlate. Even if the sale consideration of Rs.49,00,000/- is ignored, the net amount as per . Sri.Shroff Krishnarajasetty Satheesha. agreement to sell worked out to Rs.1,00,57,500/-. Hence this seized document also could not be said to be relating to or pertaining to the assessee so as to invoke the rigors of Section 153C of the Act.

SUBMISSIONS 10. The Ld. DR had contended that the seized material i.e. (i) agreement to sell, (ii) conveyance deed and (iii) page 161 of the register of CP Exports should be read in tandem. According to him, although the name of the assessee is not mentioned in Page 161 in which cash notings were found but if one reads it with the agreement to sell, it shows similarities between these documents and thus alleged that this Page 161 pertained to the assessee. 10.1 The assessee submits that the aforesaid contention of the Ld. DR is factually as well as legally unjustified for the following reasons:  Ordinarily, in terms of Section 132(4A)(i) of the Act, when any document is found in the possession or control of any person in the course of a search, it is presumed that such document belongs to such person i.e. M/s C P Exports. In order to rebut this presumption, it is necessary to come to a conclusion or 'satisfaction' that the document in fact pertains to or relates to somebody else. Both the AO and the Ld. CIT, DR clearly admit to the fact that the document bearing ID Mark A/CPE/17-18/33 Page 161 does not refers to or contains the name the assessee. In that view of the matter, the ordinary presumption is that the document belongs to searched person and also the notings on this Page relates to the searched person i.e. CP Exports and not the assessee. Hence, on this score alone, the Page 161 cannot be said to relate to the assessee.  Coming to the purported correlation between this document bearing ID Mark A/CPE/17-18/33 Page 161 with the Agreement to Sell found at A/CPE/17- 18/25 Page 36-39, the apparent inconsistencies are as follows:

. Sri.Shroff Krishnarajasetty Satheesha.

 The agreement to sell only mentioned payment of cash of Rs.20,00,000/- on 03.03.2016 and it does not refer to any other cash payment. It is to be particularly noted that, the date of payment is 03.03.2016 whereas cash noting on Page 161 is on 04.03.2016. Similarly the agreement states that the cheque of Rs.5,00,000/- was paid on 03.03.2016 whereas Page 161 mentions cheque of Rs.5,00,000/- on 04.03.2016. Hence, these notings does not fully match. The inference of the AO that these notings are the same are based on pure conjecture and is not demonstrated by these documents.  Further, as per the agreement to sell, the balance sum of Rs.1,44,97,500/- was to be paid within five months from the date of agreement viz., 17.03.2016 and even the conveyance was to be executed with the same time frame. The contemporaneous facts on record shows that the terms of the agreement was never acted upon as the conveyance was not executed within five months. This shows that the agreement to sell stood rescinded. Moreover, the purported cash notings on Page 161 bears dates which are beyond the agreed time frame of five months. This fact further proves that the cash notings found on Page 161 does not pertain/relate to the agreement dated 17.03.2016.  Also, the size of land mentioned on top of this Page 161 is 9 acres whereas the size of land transacted by the assessee with Mr. E Jawahar was 8.32 acres. Hence, it is evident that even the subject matter of this Page does not fully correlate.  The above apparent infirmities clearly show that there were no similarities between Page 161 and the agreement to sell as claimed by the Ld. CIT, DR. The aforesaid averments coupled with the material fact that the Page 161 (in which cash notings are found) does not refer to or name the assessee puts it beyond doubt that this seized material did not relate to or pertain to the assessee so as to invoke the rigors of Section 153C of the Act for the relevant AY 2017-18.

11. The Ld. DR also relied on the statement dated 12.03.2021 of Shri E Jawahar to support the satisfaction note which was recorded by the AO prior to issue of notice u/s 153C of the Act. In this regard, at the onset it is submitted the satisfaction note in support of the action initiated u/s 153C of the Act has to be read on stand-alone basis and the contents of this note alone has to establish the link between the seized material found at the premises of the searched person with the assessee which leads an inference of income having escaped assessment so as to initiate proceedings u/s 153C of the Act. It is well settled in law that the contents of the . Sri.Shroff Krishnarajasetty Satheesha. satisfaction note cannot be improved or supplemented with new facts found at a later date which were admittedly lacking at the time of issuance of the impugned notice. The assessee thus submits that the Ld. CIT, DR’s reliance on the subsequent statement dated 12.03.2021, which was not available at the time of recording of satisfaction, to support the basis of initiation of proceedings u/s 153C of the Act is fundamentally flawed and erroneous. 11.1 Even otherwise it is submitted that the assessee has clearly evidenced both before the Ld. CIT(A) and the AO that the statement of Mr. E Jawahar was unreliable and self-serving for the following reasons:  Shri E Jawahar at his Answer to Q No. 5 [Page 8 of asst order] had clearly stated that he had only offered the sale consideration of Rs.49,00,000/- in the return of income filed by him for AY 2017-18 and that the purported cash receipt of Rs.1,20,57,500/- was only offered before the Settlement Commission. It is to be noted that, the return of income for AY 2017- 18 was filed subsequent to the search which was conducted on 09.04.2017. The fact that Shri E Jawahar had only offered the actual sale consideration of Rs.49,00,000/- in his return of income shows that he had originally never admitted to have received on- monies on sale of land and that his subsequent offer before the Settlement Commission was clearly an after-thought.  It is also material to mention that Shri E Jawahar had furnished an affidavit dated 13.03.2020 to the assessee wherein he had clearly stated that he had not received any on-monies from the assessee. The Whatsapp conversation [Page 63 to 64 of PB] shows that he had suo moto furnished this affidavit to the assessee and had advised him to file it with the Assessing Officer. Hence his Answer to Q No. 9 & 13 [Page 10 & 11 of asst order] that he was compelled to give the original affidavit dated 13.03.2020 without reading it for which he had also executed rectification affidavit dated 19.03.2020 is also ex-facie false and misleading.  As far as his offer before Settlement Commission is concerned (based on which the AO has drawn adverse inference against the assessee), it was explained both before the AO & Ld. CIT(A) that, it was an admitted fact that this document was found from the business premises of M/s C P Exports and that too in the office register maintained by the employee, Smt Kalaimathi. Hence, ordinarily it would have been presumed that the cash notings aggregating Rs.1,00,57,500/- belonged to the partnership firm, M/s C P Exports and not to the partner, Shri E Jawahar. Ordinarily therefore, these notings would have been presumed to be the undisclosed income of the partnership firm and taxed u/s 68 read . Sri.Shroff Krishnarajasetty Satheesha. with 115BBE of the Act at the rate of 77.25%. According to the assessee, M/s CP Exports and Mr. E Jawahar ought to have been aware of this position of law. Hence, taking advantage of the fact that this Page did not contain any name, a self-serving theory was narrated by Shri E Jawahar that, this Page 161 belonged to Shri E Jawahar and not M/s CP Exports and the notings therein represented monies received by him on sale of agricultural land. This averment was not backed by any corroborative evidence. However by this, the searched persons were able to mitigate the higher incidence of tax u/s 115BBE by admitting tax liability u/s 112 of the Act. Also, M/s CP Exports was able to avoid the rigors of penalty u/s 269ST for receiving payments in cash in excess of Rs.2 lacs and other implications under indirect tax laws. This theory of the assessee further stands fortified by the copy of the report of Settlement Commission [Para 4.11.2 - Page 91 of PB] which reads as under: “The applicant firm has also shown, on the inflow side, capital contribution from E Jawahar of Rs.1,00,57,000 which is derived out of on money received on sale of land and offered for tax by him in his application before Settlement Commission for AY 2017-18. Further, the firm has also shown inflow of capital contribution from Shri Jawahar of Rs.25,00,000 on 13.11.2016 and Rs.7,74,259 on 15.11.2016. These amounts do not appear in the cash flow statements of Shri Jawahar which have been filed with his Settlement Application.”  From the above it is clear this sum of Rs.1,00,57,500/- was taken as capital contribution by Mr. E Jawahar to M/s CP Exports and thereafter it was further telescoped against other incriminating notings/amounts found in the course of search so as to mitigate further overall tax liability of the Group. It is material to mention that, even the AO in his remand report has taken note of the fact that Shri E Jawahar has conspicuously not named the buyer in his application before Settlement Commission. On overall conspectus of these facts, such self-serving and unreliable statement of Shri E Jawahar cannot be used against the appellant.

11.2 In addition to the above, it is also submitted that the assessee was never afforded opportunity to cross examine Shri E Jawahar and therefore his statement cannot be treated as an admissible evidence. The averment of the AO that opportunity of cross examination was given is factually misleading. At the material time when the AO issued summons u/s 131 of the Act to the assessee on 02.03.2021 to be present on 12.03.2021, it is to be noted that neither the AO was in possession of any adverse statement of Shri E Jawahar nor did he provide any such statement . Sri.Shroff Krishnarajasetty Satheesha. of Shri E Jawahar to which cross examination was required to be undertaken by the assessee. Instead at that material time, the only statement on record was the affidavit dated 13.03.2020 wherein Shri E Jawahar had affirmed that he had not received any on monies from the assessee. The assessment order clearly shows that Mr.E.Jawahar, for the first time, was examined by the AO himself only on 12.03.2021 and his statement was forwarded to the assessee only on 13.03.2021. Hence, the so-called opportunity to cross examine given to the A/R of the assessee on 02.03.2021 was an empty formality in as much as no cogent opportunity was afforded to the assessee. For this, reliance is placed on the following decisions: - Prakash Chand Nahta vs Union of India (247 ITR 274) (SC) - Dhakeswari Cotton Mills Ltd Vs CIT (26 ITR 775) - CIT v. Odeon Builders (P.) Ltd. (418 ITR 315) (SC) - Andaman Timber Industries Ltd. v. CCE (62 taxmann.com 3) (SC) - CIT v. Reliance Industries Ltd. (421 ITR 686) (Bom HC) 12. For the reasons set out above therefore, it is thus submitted that the contentions put forth by the Ld. CIT, DR deserves to be rejected. The facts on record clearly show that the seized material did not relate/pertain to the assessee and therefore the assumption of jurisdiction u/s 153C of the Act was invalid. In that view of the matter, the order of the Ld. CIT(A) may kindly be upheld.

13. Gainful reference in this regard is made to the decision of the Hon’ble Supreme Court in the case of CIT vs Singhad Technical Education Society (84 taxmann.com 290) which involved similar facts and circumstances as involved in the present case. In the decided case, search operations were conducted on one Mr. N, who was the president of the assessee society. From the documents seized in the course of search, the revenue found certain cash notings which according to them pertained to the capitation fees received by the assessee society. Referring to these documents a satisfaction note was recorded and proceedings u/s 153C was initiated against the assessee. On appeal, the assessee challenged the validity of the proceedings u/s 153C in as much as none of the seized documents established any correlation with the assessee society. The Hon’ble Supreme Court found merit in the case of the assessee and held that when the loose papers found in the course of the search of the president of the assessee society did not in any manner denote or suggest any correlation with the assessee society, the revenue could not have inferred that such notings constituted incriminating material relating to the assessee society. Accordingly since the condition precedent for invocation of Section 153C was not met, the Hon’ble Supreme Court upheld the orders of the lower appellate authorities, quashing the notice issued u/s 153C of the Act.”

. Sri.Shroff Krishnarajasetty Satheesha.

The AR of the assessee further submitted that the retraction filed by Sri.E.Jawahar is not correct and his action seems to be directed towards saving his own skin from further harassment from the Revenue and instead passing on the blame on to the assessee. He also submitted that the documents were found from the business premises of M/s.C.P.Exports and the same was maintained by the employee of the firm, Smt.Kalaimathi, hence, the basic presumption u/s 132(4A)(i) of the Act, which would have been drawn by the Revenue Authorities is that the notings belonged to the firm and not to Sri. E Jawahar in his personal capacity and Sri Jawahar was well aware that the cash notings found on the firms cash register and it should be taxed in the hands of the partnership firm. The statement is also unreliable.

. Sri.Shroff Krishnarajasetty Satheesha.

[Presumption as to assets, books of account, etc. 292C. 99[(1)] Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search under section 132 1[or survey under section 133A], it may, in any proceeding under this Act, be presumed— (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person; (ii) that the contents of such books of account and other documents are true; and (iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person’s handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested.] 2[(2) Where any books of account, other documents or assets have been delivered to the requisitioning officer in accordance with the provisions of section 132A, then, the provisions of sub-section (1) shall apply as if such books of account, other documents or assets which had been taken into custody from the person referred to in clause (a) or clause (b) or clause (c), as the case may be, of sub- section (1) of section 132A, had been found in the possession or control of that person in the course of a search under section 132.]

. Sri.Shroff Krishnarajasetty Satheesha.

Order pronounced on this 16th day of December, 2022.