SRI. M.J. SIWANI,BANGALORE vs. DCIT, BANGALORE

The Assessee M. J. Siwani and H. J. Siwani are brothers and they are partners in a partnership firm M/s. H. M. Constructions. The firm carries on real estate and property development business. For AY 2005-06, both the Assessee’s filed their return of income declaring total income of nil on18.12.2007. An order of assessment u/s.143(3) of the Act dated 28.12.2007 was passed by the AO in the case of both the Assessee’s accepting the total income declared in the return of income.

There was a search and seizure operations conducted by the Revenue u/s.132 of the Act in the residential premises of both the Assessees on 30.6.2011. Documents seized at the time of search marked as A-1/HM/1 MJ Shivani/Scanned/file 1/Doc 2D, 2E, 2C, 1B, 5H, 5G, 541, 551, A-1, revealed that both the Assessees have together paid cash to various persons in respect of purchase of land at Ramagondanahalli village. Based on the material so seized, the AO had reason to believe that income chargeable to tax has , 601/Bang/2015 Page 5 of 22 escaped assessment and he therefore recorded the following reasons for initiating proceedings u/s.147 of the Act (to bring to tax income that escaped assessment) before issue of notice u/s.148 of the Act dated 27.3.2012:

Identical verbatim reasons were recorded in the case of H.J.Siwani also.

The following chart shows the details of the cash transactions entered by the Assessees in respect of acquisition of properties at Ramagondanahalli, as evidenced by the documents seized at the time of search:

In the reassessment proceedings both the Assessees requested the return of income originally filed be treated as a return filed in response to notice u/s.148 of the Act. In the reassessment proceedings, the AO called upon the Assessee to show cause as to why the amount of Rs.90,07,000/- total of the cash transactions in the chart given above, be not assessed at 50% each in the case of both the Assessees at Rs.45,03,500 each. The Assessee’s reply was that the cash payments though stated to have been made on the dates found in the seized documents were in fact paid in the , 601/Bang/2015 Page 9 of 22 year 1995 when agreements were entered into for acquiring the properties in the year 1995. Due to litigation registration of the sale took a long time and was done in the year 2005. At the time of registration, receipts were taken from the Vendors but no actual cash payments were made except payments made in the year 1995 and that consideration as recorded in the registered sale deed along was paid to the vendors and no cash payments were made. It was also submitted that one payment to Narayanappa at sl. No.18 of the chart referred to in the earlier paragraph is undated and therefore cannot be presumed to be in relation to the previous year relevant to AY 2005-06. The further plea of the Assessee was that the AO referred to payment for purchase of lands at Ramagondanahalli village and therefore only payments pertaining to those lands, if at all, can be added and not payments in respect of properties which were not at Ramagondanahalli village. It was also submitted that a sum of Rs.10 crores was offered in the hands of the firm H.M.Constructions for the period 1.4.2010 to 30-1.2011. A sum of Rs.3.75 crores was towards omission and commissions in the accounts of the partners and that declaration would take care of the cash payments, if found to be taxable in the hands of the Assessees.

Grounds No. 2 to 6 challenge the validity of initiation of reassessment proceedings u/s.147 of the Income Tax Act, 1961 (Act) (mentioned wrongly as Sec.148 of the Act in the grounds of appeal).

The learned counsel for the Assessee submitted that the notice issued u/s.148 of the Act, is bad in law on the ground that the notice proposes to assess/reassess the income of the appellant for the assessment

Identical contention on the non striking off the irrelevant words “assessee/reassess” was raised by the Assessee in the case of the very same Assessees in the context of proceedings arising out of the very same search in assessments completed u/s.153A of the Act in to 1939 and ITA No.511 to 512/Bang/2017 and the tribunal by its order dated 26.10.2020 rejected the said arguments, holding as follows:

The Ld D.R, on the contrary, submitted that the provisions of sec.153A itself uses the expression “assess/reassess”, since the assessment of six assessment years are re-opened as per the provisions of sec.153A of the Act. If the assessment of a particular year has not been completed earlier, then the question of reassessment does not arise. However, if the assessment of a particular has already been completed, then the assessment is done second time, it would fall under the category of “reassessment”. Hence the question of application of mind would not arise on this matter. He submitted that the decision in the case of Manjunatha Cotton & Ginning Factory (supra) has been rendered in the context of sec.271(1)(c) of the Act and further the charge referred in sec.271(1)(c) are two different charges. Accordingly the High Court held that the AO should make it clear in the notice that he should specify the particular charge for which the penalty proceedings were initiated by him. The Ld D.R, accordingly, submitted that the assessee cannot take support of the above said decision.

We heard the parties on this issue and perused the record. We find merit in the contentions of the Ld D.R. The provisions of sec.153A of the Act states that the assessment of six assessment years preceding the year of search would get reopened. Out of the six assessment years, assessment of some of the years would have been completed, while some of the years might not. Hence the provisions of sec.153A uses the expression ‘assess/reassess” and the very same expression has been used in the notice issued u/s 153A of the Act. In both the cases, the total income shall be determined by the assessing officer. Hence the assessee would be knowing that the assessment of a particular year is a case of new assessment or reassessment, as it depends upon facts of each assessment year.

The facts available in Manjunatha Cotton & Ginning Factory (supra) are different. It related to the penalty levied u/s 271(1)(c) of the Act. Penalty u/s 271(1)(c) of the Act may be levied either for “concealment of particulars of income” or for “furnishing of inaccurate particulars of income”. Since two distinct charges are specified in the provisions of sec.271(1)(c) of the Act, the Hon’ble , 601/Bang/2015 Page 13 of 22 jurisdictional Karnataka High Court held that AO should clearly specify the charge under which the penalty proceedings were initiated. In the notice issued for initiating penalty proceedings u/s 271(1)(c) of the Act, the AO should clearly specify the charge. If both the charges are mentioned in the notice, the AO should strike off inapplicable portion. Otherwise, it is quite possible that the assessee does not know the charge under which the penalty proceedings were initiated. Accordingly, it was held that non-striking of inapplicable portion would result in non-application of mind by the AO and since it goes to the root of the matter, the penalty proceedings would get vitiated. In our view, the assessee cannot take support of this decision and hence the contention of the assessee that non-striking of inapplicable portion in the expression “assess/reassess” would vitiate the assessment proceedings is liable to be rejected, as it does not go to the root of the matter.”

In view of the aforesaid decision of the Tribunal on identical facts, we are of the view that the plea of the Assessee is liable to be rejected.

The next argument of the learned counsel for the Assessee was that no action can be taken as per first proviso to section 147 of the Act after expiry of four years, where an assessment under sub-section (3) of Section 143 has already been made for the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of failure on the part of the assessee to make return under section 139 or in response to a notice issued under section 142(1) or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. It was submitted that an order of assessment u/s.143(3) of the Act dated 28.12.2007 was passed by the AO in the case of both the Assessees. It was submitted that in the original assessment proceedings the Assessee produced copy of the statement of affairs as on , 601/Bang/2015 Page 14 of 22 31.03.2005 wherein the property at Ramagondahalli village was disclosed and the amount paid is also mentioned in the balance sheet. The Assessing officer considered the same and passed the original assessment order under section 143(3) of the Act by accepting the return of income. It was submitted that the Assessee had disclosed fully and truly all material facts necessary for the assessment. There was no failure or omission on the part of the Assessee in this regard and therefore the proceedings u/s.147 of the Act are not valid. Reliance is placed on the decision of the Hon’ble Gujarat High Court in the case of VikasPrinteryVs. ADIT (2004) 270 ITR 68 (Guj).

Regarding the argument that proviso to Sec.147 will apply and therefore the proceedings can be initiated only when there is failure on the part of the Assessee to fully and truly disclose material facts, we are of the view that the same is without any merit. The Search u/s.132 carried out after the conclusion of the assessment proceedings in the case of both the Assessees revealed cash transactions not disclosed and hence there was a failure on the part of the Assessee to fully and truly disclose material facts. The arguments in this regard are therefore devoid of any merit.

The next argument of the learned counsel for the Assessee was that in the original assessment proceedings the Assessee produced the copy of the statement of affairs as on 31.03.2005 wherein the property at Ramagondahalli village was disclosed and the amount paid is also mentioned in the balance sheet. The Assessing officer considered the same and passed the original assessment order under section 143(3) of the Act by accepting the return of income. It was submitted that the issuance of notice u/s. 148 on the basis of the reasons recorded was nothing but a mere change of opinion, which was not permissible under law. Reliance is placed on the , 601/Bang/2015 Page 15 of 22 decision of the Supreme Court in the case of CIT v. Kelvinator of India Ltd. (SC), 320 ITR 561. Reliance was also placed on the decision of Hon’ble Delhi High Court in the case of M/s. Haryana Acrylic Manufacturing Co. Vs. CIT, reported in 308 ITR 38. It was submitted that the assessing officer who passed the order under section 143(3) has examined all and passed the assessment order. Hence, the present Assessing officer has no jurisdiction to reopen the assessment and the notice issued u/s. 148 to the assessee is invalid and void-ab-intio. Reliance is placed on the decision in the case of Hindustan Lever Ltd. Vs. ACIT and Others, reported in 268 ITR 332.

We have considered the above arguments and we find that a Search u/s.132 of the Act was carried out after the conclusion of the assessment proceedings in the case of both the Assessees revealed cash transactions not disclosed and hence there was a failure on the part of the Assessee to fully and truly disclose material facts. The reassessment proceedings were initiated pursuant to materials found in search showing unexplained investments in purchase of property. It is only when there is no new material and based on material already available at the time of conclusion of original assessment proceedings assessment is sought to be reopened can there be a argument that reopening was on change of opinion. In the present case there was fresh material showing income that escaped assessment and therefore resort to provisions of Sec.147 was appropriate. In this regard, we have already reproduced the reasons recorded before issue of notice u/s.148 of Act that shows presence of fresh material after conclusion of the original assessment proceedings.

It was next contended that the mandatory condition to assume jurisdiction under section 148 of the Act does not exist and the reasons , 601/Bang/2015 Page 16 of 22 recorded does not amount to reason to believe. Drawing our attention to the reasons recorded u/s.147 of the Act, before issue of notice u/s.148 of the Act, it was submitted that the Assessing officer in the reasons recorded has clearly stated that the cash payments were made during 1995 and also subsequent to the payments agreements were also made. However there was a delay in the registration. The Assessing Officer himself in the reasons recorded has stated that at the time of registration, as a measure of caution, the assessee took the receipt from the land owners and these receipts were dated around the registration date. It was submitted that in the reasons recorded it has been mentioned that the payments were made in the period of search and therefore notice under section 153A ought to have been issued by the Assessing officer and the proceedings initiated under section 148 of the Act is bad in law. It was submitted that in the reasons recorded the Assessing Officer did not have any reason to believe and only reason to suspect. Consequently based on these reasons the notice issued under section 148 of the Act is bad in law. It is only assumption of the learned Assessing officer that the actual payments have been made in F.Y.2004-05. The learned counsel for the Assessee placed reliance on the following decisions of the various High Courts in this regard: i) Unreported decision of the Hon’ble Jurisdictional High Court in W.P.No.11573/1989 (Judgment dated 11.01.1991) in the case of A.Nagappa Vs. The Assistant Commissioner of Income-tax, Investigation circle, Mangalore and the Appellate Judgment passed by the Division Bench in W.A.No.928/1991 (Judgment dated 19.03.1992) in the case of the Assistant Commissioner of Income-tax, Investigation circle, Mangalore Vs. A.Nagappa. ii) Decision of the Hon’ble Bombay High Court in the case of M/s. Hindustan Lever Ltd., Vs. ACIT & Others, reported in 268 ITR 332.

The arguments advanced as above are devoid of any merit because, the seized document clearly showed payments of cash in the previous year relevant to AY 2005-06. Therefore there was reason to believe that income chargeable to tax escaped assessment. On the argument that only proceedings u/s.153A of the Act ought to have been initiated and not proceedings u/s.148 of the Act, we do not find any merit in the said arguments. As per Sec.153A of the Act, the Assessing Officer is bound to issue notice to the assessee to furnish returns for each assessment year falling within the six assessment years immediately preceding the assessment year relevant to the previous year in which the search or requisition was made. Search in this case was conducted on 30.6.2011. The previous year in which the search was made is AY 2012-13. Six Assessment years preceeding AY 2012-13 would be AY 2006-07 to , 601/Bang/2015 Page 18 of 22 2011- 12. Therefore, for material found in the search that pertains to AY 2005-06, proceedings u/s.148 is the appropriate remedy for the revenue. The grounds raised in this regard are devoid of any merit and hence dismissed.

Now we shall take up ground No. 8 to 11 which relates to the addition of Rs.45,03,500 each in the case of both the Assessees and ground No.12 and 13 which relates to addition of Rs.32 lacs. On the issue of cash payments for purchase of property at Ramagondanahalli Village the submissions made before the AO were reiterated i.e., the payments were in fact made in the year 1995 and not on the dates as reflected in the seized document. On the issue of cash payment for purchase of Gadhinagar property, it was submitted that the impugned addition made of Rs.16 lakhs each with regard to purchase of property at Gandhinagar, the Assessing officer has gone by the agreement executed with A.krishnappa. The agreement dated 9.8.2004 executed with A.Krishnappa was for Rs.1,85,89,500/- which is an unregistered document. On the date of agreement, the payment made by the Assessee and his brother was Rs.15 lakhs. The receipt for the same is also found as the part of the agreement. Ultimately the sale deed was executed on 5.5.2005 for Rs.1,53,81,900/-. The assessing authority is under the presumption that the balance amount of Rs.32 lakhs had been paid in cash and consequently the impugned addition of Rs.16 lakhs was added in the hands of the appellant. The Assessee submitted that sale was only for the consideration of Rs.1,53,81,900/- which had been duly recorded. There was no evidence to suggest that the Assessee and his brother had made additional consideration of Rs.32 lakhs. No evidence in this regard is forthcoming in the hands of the revenue or the , 601/Bang/2015 Page 19 of 22 Assessee had been confronted with such evidence for his rebuttal. In these circumstances, the impugned addition as made is totally uncalled for and is liable to be deleted.

Before dealing with the submissions, let us look at the evidence in the form of seized document. The first document is a receipt dated 20.11.2004. The parties to this receipt are Anjinamma, Govinda, Krishnappa, Parvathamma and Sanjeev Raj, who are listed at sl.No.1,3,4, 10 and 11 of the chart reproduced in the earlier part of this order. Anjinamma has not signed the receipt nor is there any recital for having paid cash to Anjinamma in the receipt dated 20.11.2004. The receipt dated 20.11.2004 does not make any reference to any agreement for sale dated 20.11.2004 between the same parties and the Assessees. In the assessments completed u/s.153A of the Act in to 1939 and ITA No.511 to 512/Bang/2017 the tribunal by its order dated 26.10.2020 deleted addition because in those years, the receipt itself mentioned that the payment was towards sale agreements of the year 1995. Such recitals are absent in the receipt dated 20.11.2004. There is no other material shown by the Assessee that these payments were payments made in the year 1995. Therefore, addition in respect of the aforesaid receipt except the addition pertaining to Anjinamma is confirmed. As far as Anjinamma is concerned, the receipt at page 41 of the paper book dated 20.11.2004 shows that she received a sum of Rs.8 lacs in cash and this receipt also does not make any reference to agreement of the year 1995 and hence this addition is also confirmed. , 601/Bang/2015 Page 20 of 22 24. Payment to Narayanappa (Sl.No.18 of the chart reproduce in the earlier part of this order) is undated and therefore the addition cannot be made in AY 2005-06 and hence the said addition is deleted.

As far as payment of cash to Yellamma (Sl.No.15 of the chart given earlier), the receipt filed by the revenue which is dated 18.1.2005 shows that she received a sum of Rs.2.50 lacs in cash and this receipt also does not make any reference to agreement of the year 1995 and hence this addition is also confirmed.

As far as payment of cash to Pappanna (Sl.No.9 of the chart given earlier), the receipt filed by the revenue which is dated 5.9.2004 shows that he received a sum of Rs.11.50 lacs in cash and this receipt also does not make any reference to agreement of the year 1995 and hence this addition is also confirmed.

As far as payment of cash to Mariappa (Sl.No.8 of the chart given earlier), the receipt filed by the revenue which is dated 25.1.2005 shows that he received a sum of Rs.1.00 lacs in cash and this receipt makes reference to agreement of the year 1995 and hence this addition is deleted as it proves the plea of the Assessee.

As far as payment of cash to Zacharia (Sl.No.6 of the chart given earlier), the agreement dated 4.10.2004 filed by the revenue shows that he received a sum of Rs.10 lacs in cash and this agreement also does not make any reference to agreement of the year 1995 and hence this addition is also confirmed.

As far as payment of cash to Atul Kapur (Sl.No.2 of the chart given earlier), the receipt filed by the revenue which is dated 12.1.2005 shows that she received a sum of Rs.15 lacs in cash and this receipt also does not make any reference to agreement of the year 1995 and hence this addition is also confirmed.

We did not have the benefit of looking into the other receipts in respect of cash payments referred to in the chart given earlier. From the dates given in these charts and in the absence of evidence to show that these cash payments were made in relation to agreements of the year 1995, we confirm the order of the AO/CIT(A) in respect of these additions.

The next addition that requires adjudication is the addition of Rs.32 lacs. As far as this addition is concerned, the Agreement and the sale deed showed that a sum of Rs.32 lacs was paid over and above the sale consideration as reflected in the registered sale deed. There is no explanation from the Assessee for the difference except a bald statement that they did not pay anything over and above what is reflected in the registered sale deed. Hence, this addition is confirmed. , 601/Bang/2015 Page 22 of 22 32. In the result, the appeals of the Assessees are partly allowed to the extent indicated.