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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVANAND MS. PADMAVATHY S
O R D E R Per Bench: These are appeals by the assessee against six different orders of CIT(A)-11, Bengaluru, all dated 27.01.2020, in relation to Assessment Years 2009-10 to 2014-5. Since the issue involved in these appeals are common, these appeals were heard together and we deem it convenient to pass common order.
Before we proceed to deal with the issues in each Assessment Year, we deem it proper to set out the background facts of the case. The assessee is a company which was incorporated in February, 2008. The business of the assessee is to carry on real estate activities. There was a search action in the case of Embassy Group. Shri. Jithendra Virwani who is the chairman of the Embassy Group, was also searched under section 132 of the Income Tax Act, 1961 (hereinafter called ‘the Act’), on 07.01.2015. The search was carried out in the Farm House at Tarunhunse Village, JalaHobli (next to Stone Hill International School), Bengaluru – 562 157. One of the documents that was found and seized in the course of search and which was marked as page 89 and inventorized as “A/JV/01” did not belong to the searched person i.e., Shri. Jitendra Virwani. It appears that a statement of Shri. Jitendra Virwani was recorded on 13.01.2015 wherein it transpired that the seized documents belonged to the Century Group.
Before initiating proceedings under section 153C of the Act, the AO on 27.10.2016, examined Shri. Ravindra Pai, one of the Directors of the assessee, under section 131(1A) of the Act on 27.10.2016. In the statement recorded by the AO, Mr. Ravindra Pai mentioned that the Century Group is engaged in real estate and construction activities mainly in the city of Bengaluru. It was also stated that the assessee was formed as a Special Purpose Vehicle (SPV) for the purpose of acquisition and development of Bangalore Palace Ground located in Bellary Road / Jayamahal Road. It was further mentioned in the statement that the assessee signed agreements for sale for acquiring property at Palace Grounds, Bengaluru, from its owners viz., Shri. Srikantadatta Narasimharaja Wodeyar (Shri. Wodeyar) the Raja of erstwhile Mysore, and the other members of the royal family.
It was further mentioned in the statement that in April 2008 the assessee signed agreement for sale (8/4/2008) for 112.5 Acres of Bangalore Palace Grounds Property with his highness Shri Srikanta Datta Narasimharaja Wadiyar (page 5-32 of the Paper Book-III). On the same date, a joint development agreement was also entered into with him for joint development of 37.5 Acres of Bangalore Palace Grounds Property (page 57 to 87 of the Paper Book-III).
On 18/04/2008 3 different Joint development agreements were entered into by the assessee with Smt. Kamakshi Devi and others (23 Acres of Bangalore Palace Grounds Property) (page 98 to 127 of the Paper Book-III); with Smt. Meenakshi Devi and others (23 Acres of Bangalore Palace —7 Grounds Property) (page 128 to 156 of the Paper); and with Shri K B Ramachandra Raj Urs and others (23 Acres of Bangalore Palace Grounds Property) (page 187 to 215 of the Paper Book).
On 23/07/2008 another Joint development agreement was entered into with Smt. Vishalakshi Devi for 20 Acres of Bangalore Palace Grounds Property (page 157 to 186 of the Paper)
It was further explained in the statement that the Bangalore Palace Grounds property was a subject matter of suits pending before the Hon’ble Supreme Court of India and the acquisition of the said property by the Government of Karnataka was in challenge before the Hon’ble Supreme Court. The assessee agreed to acquire the property subject to clearance of pending litigation and royal family members acquiring clear and marketable title to the property. The assessee agreed to assist the members of the royal family in the pending litigation relating to the property. Though the agreements were signed in 2008, since the proceedings were still pending, no progress was made whatsoever with reference to plan of the sale of the property. In all there were about 13 agreements entered into with different members of the royal family. It was also mentioned in the statement that the advances paid in the event of the agreement not being performed shall be returned by the vendors without any interest. In so far as the seized document found in the course of search in the case of Shri.Jitendra Virwani is concerned, the first aspect that was clarified by the assessee was that Shri. Jitendra Virwani has nothing to do with the project. With reference to the seized document A/JV/01 page No.89, the assessee submitted that it was a calculation made by the assessee’s office team indicating the advance paid to the members of the royal family and computing notional interest on the advance so paid @ 24% compound interest upto 28.02.2014.
With regard to the question posed as to why these seized documents were shared with Shri. Jitendra Virwani, the assessee stated that the Assessee discusses several things and the seized paper may have been given to him to share the investment made by the assessee in the palace property. With regard to the question whether this information was shared for any business purpose existing or future, the assessee stated that the assessee has regular transaction business with Mr.Jitendra Virwani, but there was no understanding or proposal regrading Bangalore Palace land.
In the seized document, there was a mention in serial No.9 of the list of names to whom advances are paid under the heading “others” of a sum of Rs.4 Crores. With regard to the question as to whom this “others” represents, the assessee submitted that he would furnish the details of the parties by 10.12.2016.
Based on the statement recorded as above, the AO of the assessee recorded satisfaction note for initiating proceedings under section 153C of the Act on 02.12.2016 and issued a notice under section 153C of the Act to the assessee dated 02.12.2016 for Assessment Years 2009-10 to 2014-15.
The assessee filed return of income in response to the aforesaid notices. In so far as Assessment Year 2009-10 is concerned, the first issue that needs to be decided is with regard to correctness of assessing a sum of Rs.7,79,79,170/- as accrued interest income in the hands of the assessee. In so far as this addition is concerned, it does not emanate from the material seized from Shri. Jitendra Virwani, but is based on financial statements of the assessee for Assessment Year 2009-10 wherein advance of Rs.46,72,92,500/- was shown towards palace property. As per the seized documents, the total of the advance paid to the various members of the royal family for acquiring palace property was a sum of Rs.59,07,14,587/-. The enquiry by the AO started with reconciliation of these figures and while examining the reconciliation, the AO found that Rs.9,57,77,087/- was appearing as interest accrued on SB account of Shri. Wodeyar on a fixed deposit of Rs.98.50 Crores. It was the plea of the assessee that the aforesaid interest income was income of Shri. Wodeyar and not that of the assessee. In this regard, the assessee pointed out that as per the agreement dated 08.04.2008, for acquiring 112.5 acres of palace property, the assessee paid a sum of Rs.9.5Crores. Over and above a sum of Rs.9.5Crores, the assessee deposited a sum of Rs.98.50 Crores in an Escrow account and this sum was also to be treated as an advance paid under the agreement for sale referred to above. assessee further pointed out that as per the terms of agreement [clause 23(b)], the interest on the advance kept in Escrow account should be paid to Shri. Wodeyar and the assessee has no rights whatsoever on the said sum. The relevant clause and the agreement reads as follows:
“2) Within 20 days (or such further period as the parties may agree), the Vendee shall deposit a sum of Rs. 98,50,00,000 (Rupees Ninety Eight Crores and Fifty Lakhs only) (Escrow Amount), with the Escrow Agent under the terms of the Escrow Agreement (the Escrow Agreement) to be entered into between the Parties hereto and a mutually. 3) The Escrow Amount will be kept with the Escrow Agent with specific instructions that during the tenure of the Escrow Agreement, the interest accrued on this Escrow Amount for the entire duration of the Escrow (net of all taxes and fees) is to be deposited into the Vendor's account at State Bank of India, Specialized personal banking Branch, St Marks Road, Bangalore on or before 10th of every month.”
The assessee also filed a copy of Form 26AS wherein no tax was deducted whatsoever against the name of the assessee for the reason that the interest amount was paid to the beneficiary of the Escrow account Shri. Wodeyar. The assessee also filed copy of the Escrow agreement dated 06.05.2008. It is pertinent to refer to the clause in the Escrow agreement dated 06.05.2008 between the assessee, Shri Wodeyar and State Bank of India, St. Marks Road Branch regarding the payment of interest to Shri. Wodeyar.
”9. OPENING OF ESCROW ACCOUNT AND DEPOSIT OF ESCROW AMOUNT Simultaneously with the execution of this Agreement, the Purchaser shall deposit the Escrow Amount in the Escrow Account. Upon such deposit, the Escrow Agent shall confirm the same, in writing, to the Appointers.
10. The Escrow Amount shall be kept as short term fixed deposits and rolled over renewed from time to time as per the terms of this Agreement, at all times ensuring that the maturity date of such deposits is not beyond the Termination Date and any interest on the Escrow Amount shall, until the date of release of the Escrow Amount or termination of this Escrow Agreement under the terms hereof, be paid to the Vendor or as agreed by the Escrow Agent and the Vendor. Such interest shall be paid as per the prevailing rate paid for similar deposits. The accrued interest on the Escrow Amount will be deposited by Ake Escrow Agent into the Vendor's bank account number 30328304743 with State- Bank of India, SPB Branch. # 65, St. Marks' Road, Bangalore on or before 10th of every month. It is clarified that the interest shall be subject to deduction of withholding tax at the applicable rate. Withdrawal of the Escrow Amount from short term fixed deposit if withdrawn prior to the maturity date shall be subject to reasonable break costs to be borne solely by the Vendor.
The assessee therefore submitted that the sum of Rs.7,79,79,170/- which is the interest that accrued in the Escrow Account and which is lawfully not due to the assessee cannot be brought to tax in the hands of the assessee.
The AO did not dispute any of the facts as stated by the assessee before him but went on to hold that though no interest has been paid or TDS has been done for and on behalf of the assessee, yet in the assessee’s bank account, the interest is credited initially and thereafter it is transferred to the account of Shri. Wodeyar and therefore interest income has accrued to the assessee and the assesse is liable to be taxed on the said income. The AO also made a reference to the fact that even the interest that accrued in the bank account of the assessee was treated as part of the advance by the assessee and therefore interest income had to be considered as having accrued in the hands of the assessee. For the above reason, the AO brought to tax a sum of Rs.7,79,79,170/- as interest income in the hands of the assessee.
On appeal by the assessee, the CIT(A) confirmed the order of the AO. The following were the relevant observations of the CIT(A):
16 Addition of Interest amounting to Rs. 6,18,73,737/- and Rs. 7,79.79.170/- :- Perusal of assessment order shows that the addition was made based on a seized material which was admittedly prepared by the Director of the appellant company. The appellant had to make advance payments to various land lords These advance amounts were kept in Escrow in its bank account by the appellant The interest accruing on these Fixed Deposits were due to be paid to the land lords by way of advance In other words, the appellant receives interest and was due to pay the same to the land lords The interest amount was paid to the land lords not as a result of Diversion By overriding Title" but as a mere application of income received by the appellant The additions made by the AO in the impugned assessment year on this count is therefore seen to be in order & hence sustained. The additions are sustained.”
Aggrieved by the order of the CIT(A), the assessee has raised ground No.2 in the revised grounds of appeal before the Tribunal in AY 2009-10.
We have heard the submissions of the learned Counsel for the assessee who reiterated the stand of the assessee as was put forth before the lower authorities. Learned DR on the other hand submitted that though as per the terms of the agreement, assessee was not entitled to the interest income in question but one has to consider all the circumstances especially the circumstances that the interest accrued on advance paid was also treated as advance by the assessee and in the background and the fact that the assessee had control over the interest income in the sense that it could proceed legally against the owner of the property for damages and other reliefs.
We have carefully considered the rival submissions. The material on record viz., the agreement for sale dated 08.04.2008 and the terms of the Escrow agreement clearly indicates that the assessee has no legal right whatsoever on the interest that accrues on the sum of Rs.98.50 Crores deposited in the Escrow account, as advance paid to Shri. Wodeyar. We also find that as per clause 23(b) of the Act, it is only the vendor of the palace property i.e., Shri. Wodeyar who is entitled to the interest on the sum deposited in Escrow account and the assessee has no right whatsoever. Clause 23(b) of theagreement dated 08.04.2008 reads as follows:
“(b) The Vendor shall return the First, Second and Third Advance without any interest to the Vendee in the event of termination of the agreement on account of an Event of Default.” The AO in assessing the said income as income of the assessee has placed reliance on the circumstances that the interest accrued on the advance paid was also treated as advance in the books of accounts. In our view, this fact may not be relevant in coming to the conclusion whether income accrued to the assessee or not. The fact that the sum was initially credited in the assessee’s account and thereafter it went to the bank account of Shri. Wodeyar is also not relevant because it is only a book entry followed as a procedure by the bank which will have no impact on accrual of the income for the purpose of the Act. In the light of clause 23(b) of the Agreement for sale dated 8.4.2008 by which it is only Mr. Wodeyar, who has right over the interest on the amount deposited in the escrow account, it cannot be treated as income of the assessee by any stretch of imagination. Even if there is default in performing the terms of the Agreement, the assessee can never claim right, title or interest whatsoever over the interest that accrues on the money deposited in the escrow account and this is clear from a reading of clause 23(b) of the Agreement for sale dated 8.4.2008. For the above reasons, we are, therefore, of the view that the aforesaid addition cannot be sustained and the same is directed to be deleted.
18. The next addition which is common in all the Assessment Years 2009- 10 to 2014-15 that is challenged by the assessee before the Tribunal in No.3 in revised grounds of appeal and ground No.2 in appeals being to 357/Bang/2020, is with regard to interest income as found the seized document. It will be useful to reproduce the contents of the seized document to appreciate the issue in question and the same is as follows:
(Amount in rupees) SUMMARY OF AMOUNT PAID AND INTEREST THEREON TILL 28TH FEBRUARY 2014 Sl. Name Amount Paid Interest Total due No. 42,92,77,087 94,15,49,15 1,37,08,26,24 1 Sri. Srikantadatta Narasimharaja 5 2 Wodeyar 3,13,37,500 5,68,50,034 2 Smt. Vishalakshi Devi - 8,81,87,534 3,07,00,000 5,53,18,509 3 Smt. Kamakshi Devi - 8,60,18,509 5,53,18,509 8,60,18,509 4 Smt. Meenakshi Devi - 3,07,00,000 1,31,00,000 2,66,85,503 5 Sri. K.B. Ramachandre Raj Urs 3,97,85,503 6 Smt. Tripura Sundari Devi 20,00,000 60,66,483 80,66,483 20,00,000 60,66,483 7 Smt. Kirti Malini Devi 80,66,483 1,16,00,000 1,02,58,231 8 Sri. Chaduranga Kanthiraj Urs 2,18,58,231 4,00,00,000 2,04,01,765 6,04,01,765 9 Others 59,07,14,587 1,17,85,14,6 1,76,92,29,25 Total 72 9 59.07 (Amount Rupees in Crores) 117.85 176.92 24% Interest considered @ 19. It can be seen from the aforesaid seized document that there is a reference to the names of 8 individuals in Sl.No.1 to 8 of column 1 of the seized document. In column No.2 the names of the members of the royal family and the Advance paid to them are listed. There is a 9th serial No. In column No.1 of the seized document with a caption “others” against which in column No.2 there is a reference to a sum of Rs.4 Crores. In respect of the advances paid reflected in column No.2, from the date of payment of the advance amount till 28.02.2014, interest has been calculated at 24% on compounding basis and that totals a sum of Rs.117,85,14,672/- and this is reflected in column No.3 of the seized document. The case of the Revenue is that the assessee has earned interest income as reflected in the seized document and has assessed the same by bifurcating the total interest to the various Assessment Years 2009-10 to 2014-15. The case of the assessee is that the figures reflected in the seized document are notional figures and to share the value of the investments upto 28.2.2014 made by the assessee in the Palace ground property, these figures were noted in the seized document and that the seized document did not evidence record of any real transaction and it could not be said that the assessee earned interest income to the extent mentioned in the seized documents.
On this aspect, the plea of the assessee and the conclusions of the AO as found in the order of Assessment for AY 2009-10, were as follows:
"12.3. The Assessee vide its letter dated 30.12.2016 furnished a detailed submission, Mr. Jeetu Virwani of Embassy Group is our business associate with whom we .have property transactions for over two decades. Seized material is nothing but excel sheet prepared by one of the Directors to have discussion with Mr. Virwani to negotiate for assigning Agreement of Sale and Joint Development Agreement.
This excel sheet only shows the initial investments made in respect of Palace property in various names and interest calculation was worked out on the value of the property advance to arrive at the likely Return on Investment (ROI) by way of interest at the rate of 24% per annum. In any way the seized material shows that notional interest calculation blocked in the advance of the assessee company. This material cannot be treated as incriminating Material and draw inference that there is escapement of income by way of interest by the assessee. this evidence cannot be considered for reopening assessment under 153C r.w.s. 153A to determine any concealed income. In the commercial business transactions in respect of property advance, no interest is payable on property advance and more particularly in the case of the assessee. The agreement for sale dated 08.04.2008 point no. 23(b), page no. 20 clearly says that advance and deposits are interest free and the assessee cannot claim any interest. Further we would like to reiterate that the assessee is in the business of real estate and all the above transactions are done in the course and for the purpose of the business of the assessee. It is not aloan transaction in the nature of financial loans and advances to receive interest to account on accrual basis. The above facts brings out the fact that both your proposal to tax the interest on Escrow account to the tune of Rs. 7, 79, 79,170/- as well as the notional interest of Rs. 6,18,73,737/ - calculated on the basis of the content of the seized material in the form of excel sheet is illegal against the fact of the case of the assessee company. The excel sheet seized at the premises of Mr. Virwani is neither books of accounts nor receipt given by the ussessee nor any valuable document registered or otherwise to construe as incriminating material evidence to initiate proceedings u/s 153C r.w.s. 153A and therefore the issue of notice u/s 153C r. w..s. 153A and subsequent proceedings u/s 143(2) and 142(1) is illegal and bad in law to make any assessment that too high pitched assessment against the assessee. We would like to reiterate once again that the notice issued u/s 153C r. w.s. 153A dated 02.12.2016 and subsequent proceedings by 143(2) and 142(1) are bad in law and illegal consequently any assessment made in response to this notice is void ab initito. Hence based on the above facts and materials on record, we once again request you to drop the assessment proceedings initiated against us." 12.4. The assessee's reply has been perused. The gist of the assessee's objections are summarized as below: In respect of interest accrued as per. seized, document Seized material is nothing but excel sheet prepared by one of the Directors to have discussion with Mr. Virwani to negotiate for assigning Agreement of Sale and Joint Development Agreement. In any way the seized material shows that notional interest calculation blocked in the advance of the assessee company. This material cannot be treated as incriminating material and draw inference that there is escapement of income by way of interest by the assessee. The agreement for sale dated 08.04.2008 point no. 23(b), page no. 20 clearly says that advance and deposits are interest free and the assessee cannot claim any interest. The notice issued u/s 153C r.w.s. 153A dated 02.12.2016 and subsequent proceedings by 143(2) and 142(1) are bad in law and illegal. Consequently any assessment made in response to this notice is void ab initito. 12.5. However the assessee's objections are not acceptable.As per section 292C of the Income Tax Act, 1961 there is a presumption to that the contents of a document found in the possession or control of any person at the time of search u/s 132 shall be presumed to be true. Relevant extracts of the section is presented below "Presumption as to assets, books of account, etc. 292C. (1) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing ure or is found in the possession or control of any person in the course of a search under section 132 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; that the contents of such books of account and other (ii) documents are true; and that the signature and every other part of such books of (iii) accountand other documents which purport to he in the handwriting of arty 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) 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. 12.6. It is not in doubt that the document was prepared by the assessee company and handed over in person by the Director Shri. RavindraPai to Shri. Jitendra Virwani (the searched person). Therefore, the presumption that the contents of books of accounts and other documents are true as per Section 292C stand invoked. The document under consideration clearly quantifies the interest accrued on the land advances till 28.12.2014_ as Rs.117.85 crores. In light of the above discussion, Rs.6,18,73,737/- being interest accrued in the assessee's Bank account No. 30380926646 is hereby charged to income tax under the head Income from Other sources. (Addition:Rs.6,18,73,737)”
Similar orders were passed in AY 2010-11-2014-15 by the AO. It has to be clarified here that the AO has mentioned in the order of assessment for all the AYs that the interest accrued in the assessee’s Bank Account, which is factually incorrect. There is no such accrual in any bank account and except the interest income figures mentioned in the Seized document, there is no other evidence to show that the interest income in question accrued to the Assessee in any of the AYs 2009-10 to 2014-15.
The CIT(A) confirmed the action of the AO. Even CIT(A) in the impugned orders has made reference to accrual of interest in escrow account which is not relevant for the addition of interest income as found in the seized document. The findings of the CIT(A) in this regard are factually incorrect.
20. Aggrieved by the orders of the CIT(A), the assessee is in appeal before the Tribunal. The learned Counsel for the assessee submitted that Shri. Jitendra Virwani of Embassy Group was a business associate with whom the assessee’s group had transactions for 2 decades. The seized paper was prepared for the purpose of discussion with Shri. Jitendra Virwani to negotiate for assigning agreement of sale and joint development agreement. The calculation was made on the basis of value of the property, advance paid and likely return on investments by way of interest @ 24% per annum. It was submitted that in the commercial world, no interest is paid on advances for purchase of property. Learned Counsel for the assessee also brought to our notice that in the agreements entered into by the assessee with the various members of the royal family, the advances paid are interest free and the assessee has no claimed whatsoever on the advances paid on the various agreements. In particular our attention was drawn to answer to question No.14 of the statement of Ravindra Pai director of the assessee recorded on 27.10.2016 u/s.131(1A) of the Act by the AO before initiating proceedings against the assessee u/s.153C of the Act, wherein the Director of the assessee has clearly mentioned that the calculation of interest is notional computed @ 24% compound interest. It was therefore submitted by him that the document by itself cannot be the basis to hold that the assessee earned interest income as mentioned in the seized document. He also submitted that no other circumstances exist indicating that the assessee earned interest income as reflected in the seized document. The learned Counsel therefore prayed that the addition made by the Revenue authorities in all these Assessment Years is without any basis and deserves to be quashed.
Learned DR, on the other hand, submitted that the agreement was not followed in spirit by either of the parties to the agreement. Therefore, though the agreement mentions that the advances are interest free yet in reality the assessee has a right to enforce payment of interest by seeking to enforce the other terms of the agreement. Learned DR in particular pointed out that in answer to question No.19, the assessee admitted that the interest accrued in the Escrow account is also treated as our investment.
We have given a careful consideration to the rival submissions. The sequence of events goes to show that the palace property had several legal disputes and the assessee bargained to purchase the property subject to clearance of title and settling all the disputes over the property. The bargaining between the assessee and the owner of the property was that the advance paid will not carry any interest whatsoever. Therefore, the best thing that the assessee can get from the land owners is refund of the advance and this is a legal position and the fact that the assessee made a calculation of interest on the advances given to the members of the royal family cannot be the basis to conclude that the assessee earned interest income as reflected in the assessee’s document. In this regard, it is very pertinent to note that the seized document was found in the course of search in the premises of Shri. Jitendra Virwani who had nothing to do with the Palace Grounds property. It is the case of the assessee that the calculations made in the loose documents were a record of the investments that it had made and it had calculated notional interest loss and arrived at a total investment in the project. It was also the plea of the assessee that it was meant to negotiate for assigning the agreement of sale and JDA to Shri. Jitendra Virwani. In fact, in answer to question No.15 as to the reason why the seized document was given to Shri. Jitendra Virwani, the Director of the assessee replied that it was given to share the investment made by us. Thus, it is clear that the seized document computing interest was only a notional figure and, on that basis, one cannot conclude that the assessee earned interest to the extent mentioned in the seized document or was entitled to the interest income as mentioned in the seized document. There is no other material brought on record by the Revenue authorities to substantiate the case that the sum in question assessed as interest income in the hands of the assessee for various Assessment Year was in fact interest income that accrued and arose to the assessee or was received by the Assessee. In these circumstances, we are of the view that the addition made cannot be sustained and the same is directed to be deleted.
The other surviving ground that remains for consideration is the addition of a sum of Rs.4 Crores made in Assessment Year 2012-13. We have already seen while discussing the taxability of interest income in the various Assessment Years based on seized document at page 86 A/JV/0-1. In the said seized document in serial No.9, there is a reference to “others” and a sum of Rs.4 Crores reflected as amount paid against the column “others”. We have also seen that in the course of recording the statement of the assessee, a specific question was put to the assessee with regard to the sum of Rs.4 Crores as reflected in the seized documents and the assessee submitted that it will be furnishing the details by 10.11.2016. In the course of assessment proceedings for Assessment Year 2012-13, the AO called upon the assessee to furnish the names of the parties to whom Rs.4 Crores was paid as advance. In reply, the assessee submitted that the sum of Rs.4 Crores was the value of efforts put in by it on the project to purchase Palace grounds property. The said reply of the Assessee is as follows:
"We have valued the effort put by our office in this project at Rs. 4 crores. This amount is not paid to anyone and is not payable to anyone. This is the intangible value made on the efforts put by our office in this transaction which we have considered as our investment in this project,"
The AO did not accept the plea of the assessee. He held that it was clear from the seized document that a sum of Rs. 4 crores is appearing as amount paid as advance. Therefore, it is self-evident that the item "Others' implies payment to certain other parties by the assessee in connection with the Palace Property. The AO also made a reference to the title of the seized document which read "Summary of amount Paid and Interest Thereon". Therefore, there is no ambiguity as to what the "Others" means. According to the AO if Rs. 4 crores was the value of efforts put by the assessee's office or is an intangible value, it is inexplicable as to why a phrase suggesting either of "value of efforts" or "intangible value" is not appearing in the seized document. The AO held that the assessee's explanation is merely an afterthought, which cannot be accepted as a satisfactory explanation. The AO also held that the presumption u/s 292 C of the Act that the contents of such books of account and other documents found in possession or control of any person during course of search is presumed to be true is squarely applicable to the situation at hand. He held that in the absence of any data or material furnished by the assessee, the date of the said advance requires be arrived based on reverse working on estimate basis. After trial and error, the AO found that if the date of payment of land advance is adopted as 30.03.2012, then the compound interest calculated at the rate of 24% on the same would be Rs.2,04,01,.343.39 as on 28th, February, 2014. This is the nearest approximate to the interest working as appearing in the seized documents viz. Rs.2,04,01,765. Therefore, the AO adopted the date of the land advance to others on an estimate to be 30th March, 2012 falling within the previous year relevant to AY 2012-13. He held that the sum of Rs.4 crores was unexplained investments by the assessee which is not supported by any documentary evidence. The sources of the investments are also not explained. Therefore, Rs.4,00,00,000 was added as unexplained investments u/s 69 of the Act, by the AO.
The CIT(A) confirmed the order of the AO. This addition has been challenged by the assessee in ground Nos.3 and 4 of the revised grounds of appeal in the appeal for AY 2012-13 i.e., ITA No. 356/Bang/2020. Learned Counsel for the assessee submitted that the contents of the seized documents contain not only the real investments in the form of advance given to the members of the royal family by the assessee but also contains notional cost which the assessee has incurred in the course of carrying out the said transactions. It was submitted that the documents have been prepared for the purpose of knowing the investments of the assessee and for a probable assignment of the rights of the assessee under the agreement for sale of the Palace Ground property. It was submitted that there was no material whatsoever to show that the assessee paid a sum of Rs.4 Crores to any person. It was submitted that the presumption under section 292C of the Act is applicable only to the person who is searched and it cannot be extended to the assessee. Learned DR, on the other hand, reiterated the stand of the AO as reflected in the order of the assessment.
26. We have given a careful consideration to the rival submissions. The first aspect which we have noticed is that except the persons listed in Sl.No.1 to 8 there are no other members of the royal family who has any interest whatsoever over the palace property. In the statement of Mr. Ravindra Paid, director of the assessee recorded on 27.10.2016, with reference to the sum of Rs.4 crores shown as advance paid to others as found in the seized document, he stated that he would furnish the details of the parties pertaining to the 4 crores by 10.11.2016. That cannot be the basis to hold that a sum of Rs.4 crores was in fact an advance paid by the assessee to “others”. The seized document refers to only the palace road property and no others. To whom this advance was paid is not reflected in the document. One thing is clear from the seized document, that none of the owners of the palace property received advance of Rs.4 crores. The question is would the assessee pay the sum of Rs.4 Crores to a person in connection with purchase of palace property, other than the owners of the palace property. The answer would be in the negative. In the circumstances, the plea of the assessee that the sum of Rs.4 Crores represents its value of time and efforts put in acquiring the palace property has some force. In this regard, one has to keep in mind the purpose behind preparing the seized document was to negotiate for assigning its rights under the agreement for sale and therefore the probability of the sum of Rs.4 crores being the estimate of efforts and time spent on acquiring the palace property as claimed by the assessee is highly probable. In this regard, we also take note of the fact that the figures given in the seized document are notional figures as stated by the assessee’s director in the statement recorded on 27.10.2016 and therefore the claim of the assessee being true is on the basis of probability has to be accepted. In this regard, there is no other evidence or material available on record or brought in by the revenue or circumstance to show that the assessee paid a sum of Rs.4 Crores as advance for acquiring rights over the palace property. Keeping in mind all the above circumstances, we are of the view that the addition of Rs.4 crores is also without any basis and the same deserves to be deleted and is hereby deleted.
The only other issue that remains for consideration in all the Appeals for AY 2009-10 to 2014-15 is the issue whether proceedings u/s.153C of the Act, were validly initiated. The relevant statutory provisions of Sec.153C of the Act, reads thus:
Assessment of income of any other person. 153C. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that,— (a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates 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 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] :] Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to sub-section (1) of section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person: Provided further that the Central Government may by rules made by it and published in the Official Gazette, specify the class or classes of cases in respect of such other person, in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made except in cases where any assessment or reassessment has abated. (2) Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other person after the due date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year— (a) no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or (b) a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub-section (2) of section 143 has expired, or (c) assessment or reassessment, if any, has been made, before the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person, such Assessing Officer shall issue the notice and assess or reassess total income of such other person of such assessment year in the manner provided in section 153A. The date of receiving the documents by the AO of the other person from the AO of the searched person would be the date of search as per the first proviso to Sec.153C (1) of the Act, which has to be construed as 2.12.2016, the date of recording of satisfaction to proceed against the assessee u/s.153C of the Act by the AO of the assessee. Though the AO of the searched person and the assessee is one and the same, for the purpose of ascertaining the date of search, the date of recording satisfaction is the point of time when he can be said to have been satisfied that the seized document pertains to the assessee and that would be the date of initiation of search as far as the assessee is concerned.
A reading of the aforesaid provisions of Sec.153C of the Act would show that for proceeding against a person other person, i.e., other than the person searched, the conditions to be satisfied are that the Assessing Officer should be satisfied that the document, seized during the course of search of a search, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A. The Assessing Officer of the searched person should thereafter hand over to the Assessing Officer having jurisdiction over the other person, the documents seized. Thereafter the Assessing officer of the other person shall proceed against 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 Officer is satisfied that documents seized has 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.
As submitted by the learned DR, in the present case, the AO of the searched person and the assessee (other person) is one and the same. Mr.Jitender Virwani in his statement accepted that the seized document was given to him by the director of the assessee. Therefore the condition that the seized document pertained to the assessee is satisfied in the present case. The AO of the assessee before recording satisfaction u/s.153C of the Act examined the director of the assesee, who admitted that the seized document pertained to the assessee. The satisfaction note recorded by the AO of the assessee before issue of notice u/s.153C of the Act refers to his satisfaction that the seized document has a bearing on the determination of total income of the assessee. The submission of the learned counsel for the assessee was that the seized material was not incriminating in nature and therefore the AO could not have proceeded to initiate proceedings u/s.153C of the Act, against the assessee. There was difference in the advance paid for palace property by the assessee as per the seized document and the advance paid for purchase of palace property as per the Balance Sheet of the assessee. This was sufficient for the AO to initiate proceedings u/s.153C of the Act. For arriving at such a satisfaction, it is necessary for the AO to prima facie spell out the nature of seized documents and how it pertains, belongs to or relates to the assessee. Before the Hon’ble High Court of Karnataka in the case of IBC Knowledge Park, 385 ITR 346 [Kar] the issue for consideration and adjudication was whether the Tribunal was right in holding that it was not necessary to record a satisfaction to the effect that seized material shows undisclosed income. While deciding this issue, the High Court came to the conclusion at para 50 thereof, that “the detection of seized material leading to an inference of undisclosed income is a sine qua non for invocation of section 153C of the Act”. The Hon’ble Court came to the above conclusion after considering the decision of the Hon’ble Apex Court in the cases of Manish Maheshwari Vs. ACIT (289 ITR 341) and CIT Vs. Calcutta Knitwears (2014) 362 ITR 673 and other judgments of the Hon’ble Apex Court and other Hon’ble High Courts and CBDT, Circular No.24/2015 dated 31.12.2015. The Hon’ble High Court also took the view that the AO is expected to spell out as to how the documents were incriminating in nature and prima facie represent undisclosed income. We are satisfied that the initiation of proceedings u/s.153C of the Act, in the facts and circumstances of the present case, was valid and the reasons recorded by the AO in this regard, a copy of which is at pages 332-333 of assessee’s paper book No.III, are sufficient to validly proceed against the assessee u/s.153C of the Act. This ground of appeal raised by the assessee is accordingly dismissed in all the appeals.
In the result, the appeals of the assessee are partly allowed.
Pronounced in the open court on the date mentioned on the caption page.