ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-2(3),, BANGALORE vs. M/S CONC SHADE CONSTRUCTIONS PVT LTD , CHIKKAMANGALUR

The common grounds of appeal by the revenue raised in ITA No.299/Bang/2018 for the AY 2010-11 are as follows, except change in figures:-

The facts of the case are that there was a search u/s 132 of the Income Tax Act, 1961 was carried out in the case of one Sri. H.B.Sudarshan, who is the Managing Director of the Assessee Company, on 08.06.2012. Subsequently the Assessee Company’s case was centralized with the office of the DCIT, Central Circle 2(3), Bangalore vide Centralization notification in F.NO. 52/Tech/CIT/Mys/2012-13 dated 07.12.2012. Consequent to the search in the case of Sri. H B Sudarshan notices u/s 153C r.w.s. 153A were issued on 15.09.2014 requiring the Assessee Company to file its return of income for the A Y 2010-11 to AY 2012-13.

A residential house at Basavanahalli belongs to Sh. C.T. Ravi. As per the statement of affairs of Sh. C.T. Ravi, the construction of the house started in A.Y 2010-11 and construction got completed in A.Y. 2012-13. There was a search u/s 132 conducted in the case of Sh. H.B. Sudarshan who is the relative of Sh. C.T. Ravi, Sh. H.B. Sudarshan and Smt. Pallavi Ravi (spouse of Sh. C.T. Ravi) are directors in the assessee company M/s Conc Shade Constructions P. Ltd. During search in the case of Sh. H.B. Sudarshan, digital

The seized digital data- Digital Data of Mac_h.b.sudarshan\Data of Mac_HBSudarshan\Data\File 1( Version 1).xls contains other excel sheets as well which provide

Sh. H.B. Sudarshan and Sh. C.T. Ravi both have been confronted with the evidences and have disowned the evidences which are elaborate. It is very much clear that Sh. C.T. Ravi has not disclosed the investment in his Basavanahalli house fully. The investment reflected Assessment year wise in the statement of the affairs of Sh. C.T. Ravi is as under :-

The total undisclosed investment as per the seized evidence is Rs. 3,96,18,767/-. Thus, going by the percentage of construction as per the statement of affairs of the assessee year-wise, the undisclosed investment in the Basavanahalli house amounts to-

Sh. C.T. Ravi was given an opportunity to provide supporting proofs of the expenses incurred on the construction of his house in Basavanahalli which he did not avail. Thus, Rs. 1,10,93,254/- was added to the total income of Sh. C.T. Ravi for the year as his undisclosed income being in the nature of undisclosed investment. The assessee company was also confronted with the above evidence, however it chose to disown it even though the seized digital data pertaining to investment in the Basavanahalli house is clearly titled as "Concshade Constructions Private Ltd." Hence, Rs. 1,10,93,254/- is protectively added to the total income of the assessee company as the property belongs to Sh. C.T.Ravi, however the construction was done by the assessee company.

In response to the notice u/s. 153C of the Act the Assessee Company filed his returns & assessments duly completed thereafter with the following additions being made to the Income Returned for the impugned assessment years:

The ld. AR submitted that the satisfaction Recorded, if any, to initiate proceedings u/s 153C in the case of the Assessee Company, is not in conformity with the provisions of the Act and fails the test of law and hence the entire proceeding u/s 153C of the Act is void ab initio.

In the case of CIT vs IBC Knowledge Park (P) Ltd 385 ITR 346, the Jurisdictional Karnataka High Court held as under:-

He submitted that in the instant case, these words are not present in the satisfaction note prepared by the AO of the person searched. Thus, in the absence of a satisfaction that documents found during search are incriminating in nature and prima facie represent Undisclosed Income, no proceeding can be initiated u/s 153C of the Act and the entire proceedings u/s 153C in the case of this assessee company is to be necessarily cancelled for want of requisite jurisdiction, in as much as the same is void ab initio.

He further submitted that in view of the above submissions, the CIT(A) held that if one were to go by the plain reading of words used in 153C it is necessary for Assessing officer of the person searched to come to a satisfaction that the seized material does not

The ld. AR submitted that in view of the fact that the Jurisdictional Karnataka High Court has decided in the case of CIT vs IBC Knowledge Park (P) Ltd 385 ITR 346, a decision which is relied upon by the Assessee Company and which is binding on CIT(A), that it is perforce necessary that a satisfaction to the effect that the seized material is incriminating in nature and represents undisclosed income has to be arrived at by the assessing officer of the person searched, the CIT(A) held that the Satisfaction Note arrived at in the case of the Assessee Company would have to be necessarily treated as one which is not accordance with law.

Further, the Hon'ble Karnataka High Court in its decision rendered in the case of IBC Knowledge Park observed that apart from concurring with various decisions of other High Courts and after considering its own decision in other cases, also relied on the circular dated 31.12.2015, No.24/2015 issued by CBDT, which

The amended provisions of section 153C of the Income Tax Act, as stands today (effective from 14 October 2014), stipulates two satisfactions. One by the assessing officer of the person searched that the seized material does not belong to the person searched, but to another person AND a Second one by the assessing officer who has jurisdiction on the Other Person to whom the seized material belongs to, to the effect that the seize material has a bearing on the income of that other person.

Prior to 14th October 2014, there being a necessity to record a satisfaction only once and that being of the assessing officer who assessed the person searched, it can be safely concluded that the satisfaction should have contained two parts, the first being that "The seized material does not belong to the person searched, but to another person” and the second being that " the seize material being incriminating in Nature and represents Undisclosed Income of that other Person”.

In the present case the second part of the satisfaction is not recorded in writing and hence in view of the binding decision of the Jurisdictional Karnataka High Court in the case of CIT v. IBC Knowledge Park (P) Limited 385 ITR 346, the CIT(A) held that the satisfaction as recorded by the AO is not in order and renders the

He submitted that the above documents relied upon to initiate proceedings u/s 153C are not incriminating in nature in the light of the judgment of the jurisdictional High Court in the case of IBC Knowledge Park 385 ITR 346.

Another objection is that addition is not based on a seized material which is relied upon to initiate proceedings u/s 153C in the case of the Assessee Company. Any addition made to income u/s 153C ought to be confined to income arising out of material seized and relied upon to initiate proceedings u/s 153C. In this case the additions are not based on the material relied upon to initiate proceedings u/s 153C and hence the additions made is bad in law and needs to be deleted. This proposition is clearly laid down by the Supreme Court in the case of CIT Pune vs Sinhgad Technical Education Society in Civil Appeal No.11080 of 2017, arising out of SLP (C) No.2527 of 2015. The Hon’ble Supreme Court has clearly held that an assessment u/s 153C must be made only in respect of those assessment years for which incriminating seized material is found to be recorded in the Satisfaction Note prepared to initiate proceedings u/s 153C.

In the present case as demonstrated earlier the material relied upon to arrive at the satisfaction to initiate proceedings u/s 153C are not subject matter of addition and the material relied upon to make additions to income are not subject matter of satisfaction.

In view of the above submissions the CIT(A) rightly held that that the above seized materials which are relied upon to initiate proceedings u/s. 153C of the Act in the case of the Assessee Company, have not resulted in any addition being made to the income of the Assessee Company in the assessment proceedings u/s. 153C in any of the assessment years. It is submitted that the materials cannot be termed as incriminating in nature, which is a sine qua non for making an assessment u/s. 153C as held in IBC Knowledge park case (supra).

Further on reading the decision of the Hon’ble Supreme Court in the case of CIT Pune V Singhad Technical Education Society in civil appeal no. 11080 of 2017, arising out of SLP (C) No. 2527 of 201, relied upon by the Assessee Company, it is clear that the Hon’ble Supreme court has also taken the same view on this issue in as much as the Hon’ble Apex Court has approved the decision of the Bombay High Court on the following two issues:

The ld. AR relied on the decision of this Tribunal ‘B’ Bench in the case of ACIT Central Circle 2(3) vs Smt. Pallavi Ravi & C.T. Ravi in ITA No’s 272 to 274 & 282 to 286 / Bang / 2018 by order dated 05/07/2019, wherein, following the decision of the Hon’ble Supreme Court, it was held that an assessment proceeding u/s 153C can be initiated in respect an assessment year only when there is incriminating seized material pertaining to that assessment year and when there is no addition made in the assessment order u/s 153C of the Act, that is relatable to seized material, relied upon to initiate proceedings u/s 153C of the Act, such an assessment order is bad in law & deserves to be cancelled. In the light of this decision, every addition made in the assessment proceedings for each of the assessment years that are subject matter of appeal before this ITAT, deserves to be deleted.

Reliance is also placed upon the decision of this Tribunal in the case of Sri. Devaraj Urs Educational Trust vs ACIT Central Circle Bangalore in ITA NO’s. 500 to 506 by order dated 16/08/2021, wherein it is held that additions cannot be made merely based on data found at the time of search in the absence of corroborative evidence. In the case on hand there is no single evidence in support of any of the additions made in each of the assessment years.

We have heard both the parties and carefully perused the material on record including the various judicial decisions cited by the parties. The provisions of section 153C of the Act are as follows:-

The Assessments in the present case relate to the period prior to the amendment referred to above. The aforesaid amendment has been held to be clarificatory in nature and therefore has to be held as applicable retrospectively from the inception of Sec.153C of the Act in the statue, by the ITAT Kolkata Bench in the case of Trishul Hi-Tech Industries Vs. DCIT IT(SS)A.Nos.84-86/Kol/2011 (AY 04-05, 05-06 & 06-07) order dated 24.9.2014. In the aforesaid decision the

We are in respectful agreement with the view expressed by the ITAT Kolkata Bench in the case of Trishul Hi-Tech (supra). We may also add that it is settled rule of construction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have retrospective operation. Ordinarily the Courts are required to gather the intention of the legislature from the overt language of the provision as to whether it has been made prospective or retrospective, and if retrospective, then from which date. What happens sometimes is that the substantive provision, as originally enacted or later amended, fails to clarify the intention of

A plain reading of the amended provisions of section 153C(1) of the Act, would show that the AO is required to arrive at a satisfaction that the seized assets, books of account or documents belongs to or relates to a person other than the person was subjected to search. 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 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. In this regard, we also find that in the order of assessment, the AO has not proceeded to make any assessment on the basis of material referred to in the satisfaction note. On the other hand, he has made additions which are not based on any

In the present case, the proceedings of these assessments were not pending and did not get abated by virtue of 2nd proviso to section 153A(1) of the Act, which provides that in assessment proceedings for any of these assessment years set out in section 153A(1) of the Act, which is pending as on the date of initiation of search action u/s. 132 of the Act, such assessment proceedings would abate and AO will make assessment after considering the original return of income as well as material found in the course of search. The assessment proceedings which have been completed as on the date of search u/s. 132 however will continue to remain valid. Thus, the former proceedings are referred to as “abated assessment proceedings” and latter proceedings are referred to as “unabated assessment proceedings”. Therefore the scope of making assessment on total income u/s. 153C in an unabated assessment proceedings is limited and can be only of assessing income that is not disclosed which is detected or which emanates from material found in the course of search of some other person and which relate to the assessee.

In the present case, the impugned addition made by AO is based on incriminating material found during the course of search. The addition can stand since there is seized material in support of

As per the provisions of section 153C of the Act, incriminating material which was seized had to pertain to the assessment year under consideration. It is an undisputed fact that documents which are seized referred to in para 4 of this order do establish co- relation with the additions made in these assessment years. The requirement u/s. 153C of the Act was satisfied which is essential under the provisions of section 153C which is a jurisdictional fact as held by the Supreme Court in Sinhgad Technical Edn. Society (supra). After taking note of the material as recorded in para 4 of this order, there was seized incriminating material so as to frame assessment for these three assessment years u/s. 153C of the Act. Since the assessment framed u/s. 153C of the Act is based on material found during the course of search which relate to or belong to the assessee and since we have held that there are seized material for addition made by the AO, we inclined to reject the arguments made by the ld. AR for the assessee that the condition precedent for initiating the proceedings u/s. 153C of the Act having not been satisfied in the present case. Accordingly, we hold that the addition made by the AO is based on seized material found in the course of search and therefore the framing of assessment u/s 153C of the Act is justified.

In view of the above, we are inclined to hold that framing of assessment u/s. 143(3) r.w.s. 153C of the Act is valid.

On the issue of undisclosed investment in residential house, the AO held that the Assessee Company has made an undisclosed investment in a residential house property situated at Basavanahalli and the said investment is spread over three financial years i.e. 2009-10, 2010-11 & 2011-12, in the manner as given below:-

The ld. DR submitted that the CIT(Appeals) should not have deleted the addition made on protective basis unless substantive assessment reached finality.

The ld. AR submitted that It is an undisputed fact that the impugned House property is not owned by the Assessee Company but is owned by one Shri. C.T. Ravi. The AO has assessed the investment in house property in question in Shri. C.T.Ravi’s hands. However, he has proceeded to assess the same protectively in the hand of the Assessee Company as well as in the hands of Sri H.B.Sudarshan, the Managing Director of the Assessee Company.

As far as this Assessee Company is concerned, the so called incriminating material is not found with the Assessee Company. The contents could also be some estimates prepared and need not necessarily be expenditure incurred on construction of the property. Since this Assessee Company has nothing to do with the preparation of the same, it would be wholly unjust and unfair to conclude that this Assessee Company has actually incurred this expenditure out of its own funds and add the same as undisclosed income of the Assessee Company.

The fact that the AO has also protectively assessed this impugned undisclosed investment also in the hands of Shri. H.B.Sudarshan, makes it is evident that the AO himself is not convinced of the fact that the impugned investment, alleged to have been made, actually represents the undisclosed Income of the Assessee Company.

It is of paramount importance that the assessing officer of the person searched should be satisfied that a particular material seized, during the course of search, does not belong to the person searched, but instead belongs to a person other than the person searched. If he is satisfied that the material represents the undisclosed income of that other person, he will form a satisfaction to the said effect and transfer the material to the assessing officer having jurisdiction over that other person. In other words, the satisfaction arrived at must be decisive and should not leave any doubt as to the person in whose hands the income needs to be taxed.

In the instant case based on very same material relied alleged to have been found during search, the very same income is assessed to tax substantively in the hands of C.T.Ravi and protectively in the hands of H.B.Sudarshan and also this Assessee Company. In such an event can it be said that the concerned AO has arrived at a proper satisfaction. The Concerned AO, in this case, is not sure as the who is the person who has actually made the alleged undisclosed investment.

Thus, there is no satisfaction arrived at to initiate proceedings u/s 153 C in the case of this Assessee Company, based on this impugned seized material, in as much as the addition made is protective in nature.

It is the stand of this Assessee Company that NO PROTECTIVE ADDITION CAN BE MADE U/S 153 C in as much as the same violates the concept of arriving at a satisfaction that the undisclosed income belongs to the person who is protectively assessed for the same. A Protective addition only means that there is no satisfaction that the income belongs to the person who is assessed protectively in respect of the same. Further it is not the case of the AO that the impugned expenditure incurred in relation to the Basavanahalli House, have gone from out of the funds belonging to the Assessee Company. Therefore, it is apparent from the above that the AO has no basis for the impugned additions made in respect of Basavanahalli House allegedly invested by the Assessee Company. The AO has passed his impugned order merely on the basis of hypothesis, surmise and conjecture.

One another important objection is that the Addition is not based on a seized material which is relied upon to initiate proceedings u/s 153C in the case of the Assessee Company. Any addition made to income u/s 153C ought to be confined to income arising out of material seized and relied upon to initiate proceedings u/s 153 C. In this case the material relied upon to initiate proceedings u/s 153 C is not incriminating in nature in as much as no addition is made based on the same and hence the addition made on this count is bad in law and needs to be deleted. This proposition is clearly laid down by the Supreme Court in the case of CIT Pune vs Sinhgad Technical Education Society in Civil Appeal No.11080 of 2017, arising out of SLP (C) No.2527 of 2015. The Hon’ble Supreme Court has clearly held that an assessment u/s 153 C must be made only in respect of those assessment years for which incriminating seized material is found to be recorded in the Satisfaction Note prepared to initiate proceedings u/s 153 C.

In the present case as demonstrated earlier the material relied upon to arrive at the satisfaction to initiate proceedings u/s 153 C are not subject matter of addition and the material relied upon to make additions to income are not subject matter of satisfaction.

In view of the above submissions every addition made in an assessment u/s 153C must be necessarily based on incriminating seized material pertaining to that assessment year as held the Hon'ble Supreme Court in the case of CIT Pune vs Sinhgad Technical Education Society (supra). In the present case, the addition made is not based on any incriminating seized material relied upon to initiate proceeding u/s 153C and, the seized material

We have heard both the parties and perused the material on record. Since the issue relating to this addition was remitted in the case of H B Sudarshan in ITA No. 309 to313 & 1494 to1497Bang/18 vide order dated 20.4.2022, where the addition is made substantively, accordingly this issue is also remitted to the Assessing Officer to examine the issue afresh in the light of incriminating material found during the course of search including the CD retrieved from the computer of the searched person. Ordered accordingly.

The AO brought to tax the alleged unexplained Cash deposits mentioned below u/s. 68 of the Act:-

During the above mentioned financial years the assessee maintained the books of account as are statutorily mandatory and got them duly audited as per the requirement of the Companies Act 1956 and a separate tax audit under the provisions of Income tax Act, 1961. During the Assessment proceedings consequent to the notice u/s. 153C, the Assessee Company furnished the audited cash book and bank book along with the bank statement concerned and also submitted that the impugned cash deposits as stated above, made in the bank was made out of the cash received on account of contract works carried by the Assessee Company and the cash withdrawals made from the bank during impugned financial years. However, according to the assessee, the AO ignored the evidence produced in the form of audited cash book, Bank book etc., and proceeded to tax the impugned cash deposits by way of unexplained credits.

The ld. DR submitted that the CIT(Appeals) was not justified in deleting the addition holding that there is no seized material cash deposits remain unsubstantiated without satisfactory explanation of the assessee and without examining the cash flow/fund flow statement. He submitted that the case law relied on by the assessee in the case of Sinhgad Technical Education (supra) is distinguishable.

The ld. AR submitted that no addition can be made on this count by the AO in as much as the deposits of cash into bank account of the Assessee Company is accounted for and recorded in the books of Assessee Company. By no stretch of imagination it can be termed as unexplained cash deposits. Only such of those

One another important objection is that the Addition is not based on a seized material which is relied upon to initiate proceedings u/s 153C in the case of the Assessee Company. Any addition made to income u/s 153C ought to be confined to income arising out of material seized and relied upon to initiate proceedings u/s 153 C. In this case the material relied upon to make the addition is not part of the Satisfaction Note prepared to initiate proceedings u/s 153C and hence the addition made on this count is bad in law and needs to be deleted. This proposition is clearly laid down by the Supreme Court in the case of CIT Pune vs Sinhgad Technical Education Society in Civil Appeal No.11080 of 2017, arising out of SLP (C) No.2527 of 2015. The Hon’ble Supreme Court has clearly held that an assessment u/s 153C must be made only in respect of those assessment years for which incriminating seized material is found to be recorded in the Satisfaction Note prepared to initiate proceedings u/s 153C.

In the present case as demonstrated earlier the material relied upon to arrive at the satisfaction to initiate proceedings u/s 153 C are not subject matter of addition and the material relied upon to make additions to income are not subject matter of satisfaction.

We have heard both the parties and perused the material on record. As discussed by this Tribunal in the case of H B Sudarshan in ITA No. 309 to313 & 1494 to1497Bang/18 vide order dated 20.4.2022, the issue is remitted to the file of AO to consider the cash flow/fund flow statement for the relevant assessment year and decided the issue afresh.

The ld. DR submitted that this addition made on protective assessment should not have been deleted by the CIT(A) unless the conclusion of the substantive assessment in the case of H B Sudarshan.

The ld. AR submitted that the Assessee Company in no way is connected with the affairs of either Bharathiya Jagruthi Prathisthana Trust as made out by the AO. Moreover Shri. H.B. Sudarshan, one of the Directors of the Assessee Company has clearly stated before the Income Tax authorities during the course

It is submitted that the AO has clearly stated in page 7 of the assessment order that Bharathi Jagruthi Pratishtan is a Trust formed on 25th October 2006 and that the Trust Deed is available from the records seized from the office premises of Bhargava Associates. In this background, it is clear that it was the Bharathi Jagruthi Pratishtan which had to give details of how much it has spent on constructing its office building and also explain the sources of funds to meet the same.

It is further submitted that the satisfaction to initiate proceedings u/s 153C on this issue ought to have been on Bharathi Jagruthi Pratishtan, in as much as, incriminating material, if any, would only belong or pertain to it. Despite the fact Sri.Sudarshan, the Director of this Assessee Company stating that it was the Trust which spent monies on the construction of its office, the AO has chosen to add the same in the hands of this Assessee Company, which is a mere contractor. Further the seized material relied upon by the AO and brought out as part of the assessment order clearly proves that it a weekly bill raised by the Assessee Company on the Trust for the work carried out from 27/08/2009 to 01/09/2009, which amounts to Rs.83,546/-. Therefore, it is apparent that the AO is not justified in holding that the Assessee Company has invested a sum of Rs. 54,66,483/- towards the Trust/BJP office building. The impugned addition is based on surmise conjecture and hypothesis which is against the principles of natural justice, equity, good conscience and fair play of law.

One another important objection is that the Addition is not based on a seized material which is relied upon to initiate proceedings u/s 153C in the case of the Assessee Company. Any addition made to income u/s 153C ought to be confined to income arising out of material seized and relied upon to initiate proceedings u/s 153 C. In this case the material relied upon to make the addition does not form part of the satisfaction note prepared to initiate proceedings u/s 153 C and hence the addition made on this count is bad in law and needs to be deleted. This proposition is clearly laid down by the Supreme Court in the case of CIT Pune vs Sinhgad Technical Education Society in Civil Appeal No.11080 of 2017, arising out of SLP (C) No.2527 of 2015. The Hon’ble Supreme Court has clearly held that an assessment u/s 153 C must be made only in respect of those assessment years for which incriminating seized material is found to be recorded in the Satisfaction Note prepared to initiate proceedings u/s 153C.

In the present case as demonstrated earlier the material relied upon to arrive at the satisfaction to initiate proceedings u/s 153 C are not subject matter of addition and the material relied upon to make additions to income are not subject matter of satisfaction. According to the AO, Bharati Jagruthi Pratishtan is a Registered Body, but there are no proceedings initiated against it. The CIT(A) has given a finding that the assessing officer has not brought any concrete/substantial evidence on record to conclude a conclusion that the Assessee Company has spent its money to put up the Construction free of cost, to justify the addition in the hands of the Assessee Company. He, therefore, rightly deleted this addition for want of proper evidence.

We have heard both the parties and perused the material on record. Since we have remitted the issue in the substantive assessment in the case of H B Sudarshan cited (supra) to the file of AO for fresh consideration to compute income as per the incriminating material found during the course of search, this issue is also remitted to the AO with similar directions.

The ld. DR submitted that the CIT(Appeals) is not justified in deleting the addition without appreciating the fact that the books of account are not produced by the assessee.

The ld. AR submitted that The Assessee Company has maintained the books of account and other documents as mandated by the provisions of the Income Tax Act & the Companies Act during above mentioned Assessment Years. Further these books of accounts are duly audited by the statutory auditor appointed by the Assessee Company and the tax audit under the Act has also been carried out, further these Audit Reports have not been rejected by the Income Tax Department.

It is submitted the that the Assessee Company was never required by the AO to produce its Books of Accounts before him, yet he says erroneously in his impugned order that the Assessee Company did not provide the books of Account maintained. However, the facts borne on the records of the Income Tax Department prove that the Assessee Company has voluntarily produced the audited cash book, bank book, bank statement etc., during the impugned assessment proceedings.

In view of the above therefore it is submitted that the AO is not justified in ignoring the taxable income offered to tax of Rs. 5,04,958/- and instead to estimate the income of the Assessee Company from the contract receipts of Rs. 1,84,96,700/- at 8% thereof u/s. 44AD despite the presence of duly audited books of account.

It is trite law that no estimation of income can be made without rejection of books u/s 145 (3) of the Act. Further the reasons for rejection of books must be cogent and clear and must be of a nature that necessitates rejection of books u/s 145(3). The AO has not rejected the books u/s 145(3) of the Act. The ld. AR relied upon the decision of the Jurisdictional Karnataka High Court in the case of Karnataka State Forest Corporation Ltd vs CIT 201 ITR 694 in support of its contention that since there is no rejection of books u/s 145(3) the AO is not justified in estimating the income of the Assessee Company.

One another important objection is that the Addition is not based on a seized material which is relied upon to initiate proceedings u/s 153C in the case of the Assessee Company. Any

In the present case as demonstrated earlier the material relied upon to arrive at the satisfaction to initiate proceedings u/s 153C are not subject matter of addition and the material relied upon to make additions to income are not subject matter of satisfaction.

In view of the above, it was submitted that the CIT(A) upheld the submissions of the Assessee company that the AO is not correct in estimating the income without proper rejection of books u/s. 145(3) of the Act, which clearly falls out of the Judgement of the jurisdictional High Court in the case of Karnataka State Forest Corporation Limited v. CIT 201 ITR 694 relied upon by the Assessee Company and accordingly, he deleted the addition on this count.

After hearing both the parties, we are of the opinion that the issue is to be considered by the AO afresh. We direct the assessee

The ld. DR submitted that the Ld. CIT(A) was not justified in accepting the ground of validity of digital evidence based on VC Shukla case rendered in 1998, which has been overridden by provisions of Information Technology Act 2000 and Section 2(22AA) of the I.T. Act and Section 292C of the IT Act.

On the other hand, the ld. AR submitted that the Digital Data allegedly found in the residence of the person searched cannot be relied upon solely to make an addition to the income of the Assessee Company and that it is absolutely necessary to have

He submitted that the Assessee Company has been maintaining regular books of accounts and all transactions have been duly incorporated therein. How entries in a CD which do not relate to its transactions at all can be the basis for making an addition to the income of the Assessee Company. It is for the reason that when there is no corroborative evidence to substantiate the authenticity of the data which is contained in the CD, that the same cannot be accepted as incriminating in nature, representing undisclosed income.

In view of the above, he submitted that the CIT(A) has deleted the additions, which are made in absence of independent corroborative evidence.

We have heard both the parties and perused the material on record. With regard to the evidentiary value of date recovered from computer in the form of digital data and other documents listed in earlier part of this order is concerned, section 132(4) of the Income- tax Act, permits the authorised officer to seize books of accounts and other documents. The judgement relied upon by learned Counsel for petitioner in the case of V.C. Shukla case (supra), and others reported in 1998 (3) SCC 410, has no bearing for the case on hand, as that case was dealing with a criminal proceeding involving criminal conspiracy under section 120-B of IPC and further, it was dealing with “books of accounts”. Whereas, in the case on hand, it is an income tax proceeding before a quasi judicial authority. A Division Bench of the Madras High Court, in the case of Rangroopchand Chardia (241Taxman 221) and in the case of M.Vivek Vs. DCIT (121 Taxmann.com 366), relied upon by the ld. DR, while dealing with section 132 of the Income-tax of the Income- tax, similar to the case on hand, has held that loose sheets picked up during search under section 132 of the Income-tax Act, falls within the definition of “document”, mentioned in section 132(4) of the Income Tax and therefore, it had got evidentiary value. Therefore, the contention raised by the learned Counsel for the assessee that digital evidence seized during the search under section 132 of the Income-tax Act does not have any evidentiary value, is rejected. This issue is remitted to the AO in all assessment years for consideration along with the incriminating material found during the course of search and for fresh decision.

In the result, all the appeals by the assessee are partly allowed for statistical purposes.

Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order