DEPUTY COMMISSIONER OF INCOME-TAX, CHENNAI vs. M/S. EMRALD REALTY PVT LTD, HYDERABAD

4.0 Before proceeding further, we deem it necessary to briefly recapitulate the facts of the case as discerned from the order of lower authorities. M/s Emerald Realty Ltd, assessee company is engaged in real estate business. The assessee company had filed its return of income for the year on 11.10.2007 declaring income of Rs.6,46,900/-. The assessee company is part of ‘Platinum Group’ which consists of Page - 3 - of 13 other companies namely Platinum Holdings Ltd, Ruby Realty Pvt. Ltd. and Jayam Infrastrucure Pvt. Ltd. In the present case, search was conducted on 21-06-2011 along with other Platinum Group companies and key persons of assessee group Sri M/Sukumar Reddy and Sri B. Venkatarama Reddy. Sri M. Sukumar Reddy and Sri B. Venkatarama Reddy are two directors in platinum Group including that of assessee company. Search proceeding u/s. 132 in case of assessee group was conducted, based on findings during the course of search in another case namely M/s Om Shakthi Agencies (Madras) Pvt Ltd. During investigation, it was found that M/s Om Shakthi Agencies (Madras) Pvt Ltd aggregated land for one Delhi Based company M/s Unitech Pvt Ltd as a part of which it has acquired 102.87 Acres of land from Platinum Holdings Ltd, M/s Emarald Realty Pvt Ltd., Ruby Realty Pvt. Ltd. and Jayam Infrastrucure Pvt. Ltd during assessment years 2007-08 and 2008-09 through two brokers for consideration of Rs 24.01 Crores, inflated purchase expenses of land in its books. During search stamped receipts showing payment of Rs 24.01 Crores were found and seized. Consequently, search proceedings u/s 132 were conducted in case of assessee company along with Group concerns on 21-06-2011. Based on the admission of M/s Om Shakthy Agencies( Madras) Pvt. Ltd., the total consideration for 102.087 acres of land is Rs.8,33,85,250/-. The Proportionate cost of 15.255 acres of land comes to Rs.1,23,65,519/-. The assessee company Page - 4 - of 13 had shown sales of 13.705 acres of land for consideration of Rs.37,42,500/- . The Ld.AO based on finding that documents seized during course of search in case of M/s Platinum Holdings Pvt Ltd pertain to appellant company has recorded satisfaction u/s 153C on 25-09-2012, issued notice u/s 153C for assessment years 2007-08 and 2008-09. The assessee replied that original return filed on 27.09.2008 for the year may be treated as return filed in response to notice u/s 153C. During course of assessment proceedings for AY-2007-08, the Ld.AO noticed that the assessee company had shown sales of only 13.705 acres of land for the consideration of Rs.37,42,500/- instead of proportionate cost of 15.255 acres of land for consideration of Rs.1,23,65,519/-. The Assessing Officer therefore proceeded to add difference of Rs.86,23,019/- (Rs.1,23,65,519/- minus Rs.37,42,500/-) as undisclosed income of assessee. Aggrieved with the order u/s 153C r.w.s. 153A dt 28.03.2014, the assessee preferred an appeal before the Ld.CIT(A) who deleted the addition made by the Ld.AO. The Revenue is in appeal against the impugned relief given by the Ld.CIT(A).

5.0 It is the case of the appellant Revenue that the relief accorded by the Ld.CIT(A) is erroneous and excessive and that the same is not supported by facts on records. The Revenue has argued in favour of the order of the Ld.AO holding that incriminating seized material qua the Page - 5 - of 13 assessee was available before the Ld.AO necessitating the impugned addition of undisclosed income the hands of the assessee. It has been contended that the Ld.CIT(A) has wrongly held that the Ld.AO did not had sufficient jurisdiction u/s. 153C and that the addition was not based on any incriminating material unearthed during the course of search proceedings in the case of the assessee group. The Ld. DR has also filed its return submissions for consideration. Through clause-1.2 it has been submitted that “…..even though the seized materials originate from another search, the same has to be considered as seized material in this search as it has been made a part of evidence and corroborated in the search conducted in the Platinum Group of companies….” . It is the case of the Revenue that prior to the amendment brought u/s 153C by the Finance Act 2015 mere presence of seized material belonging to such other person is sufficient to record satisfaction by the Ld.AO to invoke his jurisdiction and that the concept of bearing has been incorporated subsequently. As regards reliance by the Ld.CIT(A) upon the case laws while according relief to the assessee, the appellant Revenue has contended that, as the referred decisions of this tribunal have not been accepted and Revenue is in appeal before the Hon’ble High Court, the same cannot be taken as covered matters.

Page - 6 - of 13 6.0 The Ld. Counsel for the assessee has made detailed arguments including filing of written submissions by relying upon the Rule-27 of the ITAT rules. Supporting the order of the Ld.CIT(A) the Ld.AR has argued that the decision is based upon correct understanding of the facts vis-à- vis contemporaneous statutory provisions covering the case. The Ld.Counsel has argued that availability of incriminating seized material concerning the assessee for the impugned years was a prerequisite condition for the Ld.AO to invoke his jurisdiction u/s. 153C. It has been argued that the entire addition has been made upon the material pertaining to some other person. The Ld.Counsel argued that the Ld.AO did not have any jurisdiction to pass order u/s 153C r.w.s. 153A for AY- 2007-08 and 2008-09 and that the decision of Ld.CIT(A) to that extent is correct. Assailing the Ld.AO’s order the Ld.Counsel placed reliance upon the decision of Hon’ble Delhi ITAT in the case of Atul Kumar Gupta as at 152 taxmann.com 99 holding that assessments on account of third party documents can only be made u/s 153C. The Ld. Counsel further placed reliance upon the decision of this tribunal in assessee’s group cases passed in the case of Jayam Infrastructure Pvt Ltd vide Ruby Realty Pvt Ltd 966 & 967 / Chny/ 2022 and Platinum Holding Pvt Ltd 3436 / Chny / 2018. The Counsel also made reference to a remand report of investigation wing dated 05.06.2015 to the DCIT, Central Circule-3(4), Chennai that all the amounts were Page - 7 - of 13 received in the bank account of Shri B.V. Reddy and did not have any connection to the Platinum Group of cases and / or the assessee company.

7.0 We have heard rival submissions in the light of material available on records. We have noted that the principal controversy seminal to the challenge raised by the Revenue is as to whether, in the absence of any incriminating material seized by the Revenue in respect of assessee for the impugned assessment years, the Ld.AO was right in invoking his jurisdiction u/s. 153C of the Act. Facts on records indicate that the impugned assessment falling in the category of an unabated assessment and therefore within the meanings of decision of Hon’ble Apex Court in the case of Abhisar Buildwell and Singad Educational Trust it is now a settled proposition of law that to invoke jurisdiction u/s 153C against an assessee the Ld.AO ought to have in his possession incriminating seized material of that assessee, for the year for which the addition is proposed to be made. We have noted that the Ld.CIT(A) in his impugned appellate order vividly brought on record that the Ld.AO did not have any incriminating material in respect of the assessee concerned and was merely making addition by relying upon third party seized material. For the purpose of total clarity on the subject, the relevant part of the order of the Ld.CIT(A) is extracted hereunder:- Page - 8 - of 13 “…..7.3 I have carefully examined contentions of appellant in the light of facts of case, remand report, rejoinder to remand report, decision of Hon’ble Chennai tribunal in group cases who are simultaneously searched and involved with sale transaction of 102.87 Acres of land to M/s Om Shakthi Agencies (Madras) Pvt Ltd along with appellant company. It is noticed that search was conducted in case of M/s Platinum Holdings Pvt Ltd and Sri M. Sukumar Reddy on 21-06-2011 during course of which documents pertaining to appellant are Found. The AO has recorded satisfaction note for the year under consideration as under. 7.4 Coming to contention of appellant that documents seized do not belong to appellant, Remand report was called from AO. The AO in the remand report submitted that 10 documents seized vide ANN/AH/B&D/S-1 represent part sale documents entered into by appellant company during assessment years 2007-08 and 2008-09 through which lands located at Sirukalathur, Nandambakkam, Pazhathandalam are sold to M/s Om Shakthi Agencies (Madras) Pvt Ltd, hence documents pertain to transaction basing on which addition is made. It is stated that addition is also based on sworn statements Sri M.Sukumar Reddy, Late Sri B.V.Reddy. 7.5 As per provisions of section 153C, the AO gets jurisdiction to issue notice u/s 153C upon satisfaction of two conditions 1. Any books of account or documents, seized pertain to, or any information contained therein, relates to a person other than the person referred to in section 153A 2. Books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person. In the present case, it is noticed that first condition is satisfied since Sale documents seized vide ANN/AH/B&D/S-1 from business premises of M/s Platinum Holdings Pvt Ltd are sale deeds entered By Appellant company in connection with sale of lands to M/s Om Shakthi Agencies (Madras) Pvt Ltd as per own admission of appellant during assessment proceedings vide its submissions dated 3-03-2014. Therefore, documents found during course of search in M/s Platinum Holdings Pvt Ltd pertain to appellant company. Second condition that requires to be satisfied is that seized documents should have bearing on total income of assessee for the year. In the present case, value of sale consideration mentioned in seized documents i.e sale deeds is already recorded in books of accounts of appellant company. It is on money that is received attributable to sale transactions done by appellant to M/s Om Shakthi Agencies (Madras) Pvt Ltd to the extent of Rs. 1,23,65,519/- is what has not been disclosed completely as appellant has disclosed only Rs.37,42,500/- , in the return filed wrt above sale transactions under consideration. But sale deeds (seized material found in case of M/s Platinum Holdings) do not mention/ indicate any thing wrt receipt of on money. It is only stamped receipts that are found during course of search in M/s Om Shakthi Agencies (Madras) Pvt Ltd along with sworn statements u/s 131 of two brokers Sri G.Senthil Nathan and Sri Senthamarai Kannan, director of appellant company Sri B.V Reddy recorded on 29-06-2011 and 3-07-2011 during post search in case of Platinum group that indicate receipt of on money of Rs 6.23 Crores and proportionate receipt of Rs.1.23 Crores for the year by appellant company. Therefore, it can’t be stated that Sale documents seized vide ANN/AH/B&D/S-1 from business premises of M/s Platinum Holdings Pvt Ltd which considered in isolation has bearing on taxable income of appellant company for the year under consideration. Hence,

Page - 9 - of 13 second condition which gives jurisdiction to assess income u/s 153C is not satisfied in the present case. 7.6 Contention of appellant that seized material referred to in satisfaction should be of incriminating nature and in absence of incriminating material mentioned in satisfaction note, assessment u/s 153C can’t be made is examined. An 'incriminating material' can be a document, content of any document, an entry in books of account, an asset in any form, a statement given on oath, absence of any fact claimed earlier but coming to notice during search, absence of books being found during search, absence of the office/business premises as claimed during returns filed or any other documents. In short, any fact/evidence which could suggest that the documents/transactions claimed or submitted in any earlier proceedings were not genuine, being only a device/make belief based on non-existent facts or suppressed/misrepresented facts, fulfilling the ingredients of undisclosed income, would constitute an 'incriminating material' sufficient to make assessment for the purposes of the Act. A mere statement U/s 132(4) is an evidence for making an assessment as held by Apex Court in B. Kishore Kumar v.Dy. CIT [2015] 62 taxmann.com 215/234 Taxman 771 and even a statement U/s 132(4) shall also constitute incriminating material to dislodge any earlier finding. 7.7 In the present case, Sale documents seized vide ANN/AH/B&D/S-1 from business premises of M/s Platinum Holdings Pvt Ltd alone do not constitute incriminating material unless they are examined in conjunction with 1. Stamped receipts that are found during course of search in M/s Om Shakthi Agencies (Madras) Pvt Ltd and 2. along with sworn statements u/s 131 of two brokers Sri G.Senthil Nathan and Sri Senthamarai Kannan, director of appellant company Sri B.V Reddy recorded on 29- 06-2011 and 3-07-2011 during post search in case of Platinum group. But AO omitted to mention above stamped receipts found during search in M/s Om Shakthi Agencies (Madras) Pvt Ltd and statements of brokers and director of company in satisfaction note recorded. Satisfaction regarding material seized in case of M/s Platinum Holdings Pvt Ltd has bearing on total income of appellant for the year is also omitted to be recorded making satisfaction recorded defective. Hon’ble Delhi High Court in Canyon Financial Services Ltd vs ITO held that if satisfaction note recorded does not meet jurisdictional requirement u/s 153C, consequent proceedings can’t be upheld. This decision was affirmed by Hon’ble Supreme Court in ITO vs Canyon Financial Services Ltd. 7.8 Next question needs examination is whether seized material found during course of search in case of i.e. M/s Om Shakthy Agencies (Madras) Pvt. Ltd. Third party other than searched person u/s 153A can be used for initiating proceedings u/s 153C in case of appellant. This issue has already been considered & decided by jurisdictional tribunal. Further, Hon’ble Chennai Further, Hon’ble Chennai tribunal in M/s Jayam Infrastructure Pvt Ltd Vs DCIT for Assessment year 2008-09, dt 17-05-2024 which is a group company, most importantly one of sellers of land to M/s Om Shakthi Agencies (Madras) Pvt Ltd along with appellant company has adjudicated validity of assumption of jurisdiction u/s 153C by AO and held that assumption of jurisdiction is bad in law. Hon’ble tribunal opined that addition has been made solely based on incriminating evidence found during course of search in case of M/s Om Shakthi Agencies (Madras) Pvt Ltd which was already concluded by the date of search on assessee. The year under consideration is a completed assessment. If at all satisfaction is recorded, it should have been recorded basing on Page - 10 - of 13 material found M/s Om Shakthi Agencies (Madras) Pvt Ltd which is not the case. Hence, assumption of jurisdiction u/s 153C is considered bad in law. Relevant portion of ITAT order i.e para 5 is reproduced as under. “5. From the facts, it is quite clear that the impugned addition of on money is not based on any incriminating material as unearthed during the course of search proceedings in the case of the assessee group. In para-5 of assessment order, the Ld. AO has referred to documents / information as unearthed during earlier search conducted in the case of OSAPL on 02.07.2010 which has led to impugned addition in the hands of the assessee. The impugned additions are thus based on incriminating material found in another search which has already concluded much before the date of search on the assessee. The search in assessee’s case has happened on 21.06.2011. As noted in preceding para 3.1, the assessee had filed its return of income for this year on 27.09.2008 declaring income of Rs.22.56 Lacs. Notice u/s 153C was issued the assessee on 25.09.2012 against which the assessee offered original return of income as filed on 27.09.2008. It is quite clear that on the date of issuance of notice u/s 153C, no proceedings for this year were pending against the assessee and this was a case of an unabated year. The Hon’ble Supreme Court in the case of DCIT vs. U.K.Paints (Overseas) Ltd.(150 Taxmann.com 108), concurring with the decision in Pr. CIT vs. Abhisar Buildwell (P.) Ltd. (149 Taxmann.com 399), held that since no incriminating material was found in case of any of the assessees either from the assessee or from the third-party and the assessments were u/s 153C of the Act, the High Court has rightly set aside the Assessment Order. In the present case, Ld. AO has relied on information obtained in earlier search on OSAPL on 02.07.2010 wherein undisclosed bank accounts were discovered and the said information was utilized in the case of the assessee while making assessment u/s 153C consequent to search u/s 132 conducted in case of assessee group on 21.06.2011. The information obtained in an earlier search was a third-party information for which require recording of separate satisfaction note. No such satisfaction note has been shown to us. Therefore, the said information could not be utilized in proceedings u/s 153C issued on the basis of search initiated in Platinum group of cases. Respectfully following the same, we would hold that the assumption of jurisdiction was bad-in-law and accordingly, assessment is liable to be quashed. We order so. Delving into the merits of the case has been rendered infructuous and we see no reason to go into the same. 7.9 It is noticed that similar view has been taken by Hon’ble tribunal in case of other group companies M/s Platinum Holdings Pvt Ltd , (assessment completed u/s 153A) and also M/s Ruby Realty Pvt Ltd & 967/Chny/2018(assessment completed u/s 153C). In M/s Platinum Holdings Pvt Ltd. Hon’ble ITAT following decision of Hon’ble Supreme Court in PCIT vs Abhisar Buildwell held that seized material found during search in case of M/s Om Sakthy Agencies (Madras) Pvt Ltd can’t be basis for addition in hands of M/s Platinum Holdings subjected to independent search. 7.10 In view of detailed discussion made above, I am of considered view that AO has wrongly assumed jurisdiction u/s 153C. Consequently, Additional Grounds of appeal 1-6 are Allowed….”

Page - 11 - of 13 8.0 We have also noted that the Ld.AO has in para-5 of his order for AY-2007-08 not made any reference to any seized material qua the assessee which was seized for the assessment year under consideration. We have noted that the Ld.DR in its written submissions at para 1.2 as also indicated that no seized material was available in the case of the assessee for the year under consideration while observing that “…Even though the seized materials originate from another search, the same has to be considered as seized material in this search as it has been made a part of evidence and corroborated in the search conducted in the Platinum Group of Companies…” . Thus , the Revenue is fully conscious of the fact that no seized material qua the assessee for relevant assessment year was in possession of the department. We have also noted that the Hon’ble Coordinate Benches of this tribunal in the case of Group companies have passed favorable orders which have been relied upon by the Ld.CIT(A) in para 7.9 her order. Accordingly, we are of the considered view that no interference is required to be made to the order of the Ld.CIT(A) at this stage. The same is therefore confirmed and all the grounds of appeal raised by the Revenue are dismissed.

9.0 As the facts of the case for AY-2008-09 are identical, the decision AY-2007-08 shall apply mutatis mutandis in Revenue’s appeal vide as well. Page - 12 - of 13 & 2957/Chny/2024 10.0 In the result, the appeals of the Revenue are decided as under:-

ITA Nos Assessment Result Year / Chny / 2024 2007-08 Dismissed / Chny / 2024 2008-09 Dismissed

Order pronounced on 4th , June -2025 at Chennai. Sd/- Sd/- (एबी टी. वर्की) (अधमताभ शुक्ला) (ABY T VARKEY) (AMITABH SHUKLA) न्याधयक सदस्य / Judicial Member लेखा सदस्य /Accountant Member चेन्नई/Chennai, धदनांक/Dated: 4th , June -2025. KB/- आदेश की प्रतितिति अग्रेतिि/Copy to: 1. अिीिार्थी/Appellant 2. प्रत्यर्थी/Respondent 3. आयकर आयुक्त/CIT - Chennai 4. तिभागीय प्रतितिति/DR 5. गार्ड फाईि/GF

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