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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI V. DURGA RAO& SHRI D.S. SUNDER SINGH
आदेश /O R D E R
Per Shri D.S.Sunder Singh, Accountant Member : This appeal is filed by the revenue against the order of the Commissioner of Income Tax [CIT(A)]-3, Visakhapatnam vide ITA No.88/2017-18/CIT(A)-3/VSP/2018-19 dated 29.06.2018 and Cross Objections are filed by the assessee in support of the order of the Ld.CIT(A) for the Assessment Year (A.Y.)2014-15.
Brief facts of the case are that a search and seizure operation u/s 132 was conducted in the case of Shri Alla Siva Reddy on 21.12.2015 who is the father of the assessee. During the course of search, incriminating material relating to the assessee was found and seized as Annexure A/ASR/RES/LS/02, wherein it is evidenced that the assessee had purchased gold ornaments worth Rs.1,83,375/- from M/s Mine Diamonds Limited on 22.08.2013. Some other material was also found indicating the unexplained investments made by the assessee. Hence, the Assessing Officer (AO) issued the notice u/s 153C on 28.02.2017 calling for the return of income for the A.Y.2014-15. In response to the notice issued, the assessee has filed the return of income for the assessment year under
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consideration on 27.03.2017. The assessee has also filed the original return of income for the A.Y. 2014-15 on 28.01.2015. Subsequently, the AO completed the assessment u/s 143(3) r.w.s.153C of the Act on total income of Rs.1,31,41,791/- and made the additions representing the unexplained cash credits amounting to Rs.1,07,55,000/- and further addition of Rs.15,001/-on account of suppression of rental income.
Against the order of the AO, the assessee went on appeal before the CIT(A) and challenged the validity of issue of notice u/s 153C and the additions made without having seized material. The Ld.CIT(A) though, upheld the a invocation of provisions of section 153C of the Act, deleted the addition on a finding that the source of gifts representing the unexplained cash credits was duly accounted in the books of accounts and the addition was not made on the basis of incriminating material. The CIT(A) also held that the assessee had established the identity of the donor, credit worthiness and genuineness of the gifts received, hence deleted the addition.
Against the order of the Ld.CIT(A), the revenue has filed appeal challenging the deletion of addition made by the CIT(A) and the assessee
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filed cross objection challenging the validity of issue of notice u/s 153C and supporting the order of the Ld.CIT(A) in deleting the additions. Since the validity of issue of notice u/s 153C is a legal issue and goes to the root of the assessment, we take up first the ground raised by the assessee in cross objection with regard to the validity of issue of notice u/s 153C of the Act.
4.1. During the appeal hearing, the Ld.AR submitted that the assessee has filed the return of income for the A.Y.2014-15 on 28.01.2015 and the search was conducted on 21.12.2015. By the time, the search was conducted; the time limit for issue of notice u/s 143(2) got expired, hence, invoking the provision of Seciton 153 is not permissible in this case. The Ld.AR further submitted that during the course of search, no incriminating material relating to the escapement of income was found, therefore, the notice u/s 153C is invalid, hence required to be quashed.
On the other hand, the Ld.DR relied on the grounds of appeal and supported the orders of the lower authorities.
We have heard both the parties and perused the material placed on record. In this case, as observed from the assessment order, the assessee has filed the return of income for the assessment year under consideration
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i.e. 2014-15 on 28.01.2015 declaring total income of Rs.7,00,910/-. A search u/s 132 was conducted in the case of Alla Siva Reddy on 21.12.2015 and the time limit for issue of notice u/s 143(2) got expired on 30.09.2015. Therefore, the assessment for the A.Y.2014-15 is held to be completed assessment and no notice is permissible to be issued in the case of completed assessments without having incriminating material found and seized during the course of search. It is clear from the language used in section 153C that the assessing officer should satisfy that the seized material has bearing on determination of income of the relevant assessment year. As observed from the assessment order as well as the CIT(A) order, the gifts received by the assessee were already accounted in the books of accounts of the assessee. The AO made the addition after scrutinizing the capital account which is available in the books of accounts as well as the return of income, but not based on any seized/incriminating material found at the time of search. Therefore in completed assessments, without having seized material, the AO is not permitted to invoke the jurisdiction u/s 153C and make the consequent additions. On identical facts, this Tribunal in the case of Lalitha Devi, Kakinada. v. ACIT, Central Circle, Rajahmundry in I.T.A.Nos.111& 112/Vizag/2017 for the Assessment
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Years: 2007-08 &2008-09 dated 04.04.2018 has quashed the notice u/s 153C. For the sake of convenience we, extract the relevant part of the order of this Tribunal which reads asunder: “8. As per the provisions of section 153C of the Act also, the A.O. required to issue the notice only on the basis of money, bullion, jewellery, other article or thing seized or requisitioned belonged to or any books of accounts or documents seized or requisitioned pertains to or pertain to the assessee. For ready reference we extract section 153C of the Act, which reads as under; “153C(1) Not withstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong 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 (10 of section 153A].” 9. In view of the above factual and legal position and law, respectfully following the view taken by the coordinate bench of this Tribunal, we hold that invoking provisions of section 153C of the Act without having incriminating material is bad in law and accordingly we set aside the orders of the lower authorities and allow the appeal of the assessee.” 6.1. Similarly the coordinate bench of ITAT, Delhi in the case of Assistant Commissioner of Income-tax, Central Circle-09.v.Anush Finlease & Construction (P.) Ltd., [2019] 104 taxmann.com 295 (Delhi - Trib.) has taken the similar view following the order of Hon’ble Delhi High court in the
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case of Index Securities (P.) Ltd. . For the sake of clarity we, extract the relevant part of the decision of coordinate bench which reads as under:
“6. Thus, it is not in dispute that the only material on the basis of which proceedings u/s. 153C were initiated was the audited balance sheet and financial statements of the assessee for the year ended on 31st March, 2009. That Hon'ble Jurisdictional High Court has considered identical issue in the case of Index Securities (P.) Ltd. (supra) and held as under :- "30. In the present case, the documents seized were the trial balance and balance sheets of the two Assessees for the period 1st April to 13th September 2010 (for ISRPL) and 1st April to 4th September 2010 (for VSIPL). Both sets of documents were seized not from the respective Assessees but from the searched person i.e. Jagat Agro Commodities (P) Ltd. In other words, although the said documents might 'pertain' to the Assessees, they did not belong to them. Therefore, one essential jurisdictional requirement to justify the assumption of jurisdiction under Section 153 C of the Act was not met in the case of the two Assessees. 31. As regards the second jurisdictional requirement viz., that the seized documents must be incriminating and must relate to the AYs whose assessments are sought to be reopened, the decision of the Supreme Court in Commissioner of Income Tax-III, Pune v. Sinhgad Technical Education Society (supra) settles the issue and holds this to be an essential requirement. The decisions of this Court in CIT-7 v. RRJ Securities (2016) 380 ITR 612 (Del)and ARN Infrastructure India Limited v. ACIT [2017] 394 ITR 569 (Delhi) also hold that in order to justify the assumption of jurisdiction under Section 153 C of the Act the documents seized must be incriminating and must relate to each of the AYs whose assessments are sought to be reopened. Since the satisfaction note forms the basis for initiating the proceedings under Section 153 C of the Act, it is futile for Mr Manchanda to contend that this requirement need not be met for initiation of the proceedings but only during the subsequent assessment." 7. That in paragraph 31 above, their Lordships have pointed out the document must be incriminating and it must relate to the assessment year whose assessments are sought to be reopened. In this case, admittedly, the document was relating to assessment year 2009-10 while the assessment reopened is for 2010-11. Therefore, the requirement that the document should relate to the assessment year sought to be reopened is not fulfilled. Moreover, how the audited balance sheet and financial statements of the assessee are incriminating material has also not been proved. In view of the above, we are of the opinion that on the facts of the assessee's case, the above decision of Hon'ble
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Jurisdictional High Court would be squarely applicable. Respectfully following the same, we quash the initiation of proceedings u/s. 153C and consequentially, the impugned assessment order is also quashed. Once the assessment order itself has been quashed, the Revenue's appeal does not survive for adjudication.”
6.2. Hon’ble apex court has considered the similar issue in Commissioner of Income-tax-III, Pune. v.Sinhgad Technical Education Society, [2017] 84 taxmann.com 290 (SC) held that as per provisions of section 153C, incriminating material which was seized had to pertain to assessment years in question for issue of notice u/s 153C. For the sake of clarity we, also extract the relevant part of the decision of Hon’ble Supreme court which reads as under:
“18. The ITAT permitted this additional ground by giving a reason that it was a jurisdictional issue taken up on the basis of facts already on the record and, therefore, could be raised. In this behalf, it was noted by the ITAT that as per the provisions of Section 153C of the Act, incriminating material which was seized had to pertain to the Assessment Years in question and it is an undisputed fact that the documents which were seized did not establish any co- relation, document-wise, with these four Assessment Years. Since this requirement under Section 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of Section 153C of the Act. Para 9 of the order of the ITAT reveals that the ITAT had scanned through the Satisfaction Note and the material which was disclosed therein was culled out and it showed that the same belongs to Assessment Year 2004-05 or thereafter. After taking note of the material in para 9 of the order, the position that emerges there from is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the respondent, argued that notice in respect of Assessment Years 2000-01 and 2001-02 was even time barred.
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We, thus, find that the ITAT rightly permitted this additional ground to be raised and correctly dealt with the same ground on merits as well. Order of the High Court affirming this view of the Tribunal is, therefore, without any blemish.” 6.3. There is no dispute that in this case, by the time the search was conducted, the assessment was unabated and no incriminating material was found and seized from the premises of the person searched. The department has not placed any evidence to show that the incriminating material was available for the impugned assessment year. The only issue in this case is with regard to the addition of Rs.1,07,55,000/- for which the Ld.CIT(A)has given a finding that the said amount was already admitted in the books of accounts and the assessee filed the return of income. The AO made the addition on the basis of the capital account which was filed in the original return of income. No incriminating material was made available during the course of search. Therefore the facts are identical to the case laws discussed above and respectfully following the decision cited (supra) we hold that the notice issued u/s 153C is invalid and accordingly, we quash the notice issued u/s 153C and annul the assessment made u/s 143(3) r.w.s.153C. Since we, have quashed the notice u/s 153C, we consider it is not necessary to adjudicate the grounds raised by the
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revenue. Accordingly we, dismiss the appeal of the revenue and allow ground No.1 of the assessee in cross objection.
In the result, appeal of the revenue is dismissed and the cross objections filed by the assessee in ground No.1 is allowed and the remaining grounds raised in the cross objection becomes infructuous, hence dismissed.
Order pronounced in the open court on 14th August, 2019.
Sd/- Sd/- (िी.दुगाा राि) (धड.एस. सुन्दर धसंह) (V. DURGA RAO) (D.S. SUNDER SINGH) न्याधयक सदस्य/JUDICIAL MEMBERलेखा सदस्य/ACCOUNTANT MEMBER नवशधखधपटणम /Visakhapatnam नििधंक /Dated : 14.08.2019 L.Rama, SPS
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आदेश की प्रतितिति अग्रेतिि/Copy of the order forwarded to:- 1. निर्धाऩरती/ The Assessee- Sri Alla Venkata Nagarjuna Reddy, D.No.4-5-8/12 First Lane, Navabharath Nagar, Ring Road, Guntur 2. रधजस्व/The Revenue - Deputy Commissioner of Income Tax, Central Circle- 2, Guntur 3. The Pr.Commissioner of Income Tax (Central), Visakhapatnam 4. The Commissioner of Income Tax (Appeals)-3, Visakhapatnam 5. तिभागीय प्रतितिति, आयकर अिीिीय अतिकरण, तिशाखािटणम/DR, ITAT, Visakhapatnam 6.गार्डफ़ाईि / Guard file आदेशािुसार / BY ORDER // True Copy // Sr. Private Secretary ITAT, Visakhapatnam