VENKATESH GANGAKHEDKAR ,HYDERABAD vs. ACIT., CIRCLE-9(1), HYDERABAD

Brief facts of the case are that, the assessee is a doctor by profession and filed his return of income for the assessment years 2014-2015, 2015-2016, 2016-2017 and 2017-2018 under section 139(1) of the Income Tax Act, 1961. A search and seizure operation under section 132 of the Act was conducted in the case of Sri Manohar Rao Warlawar on 09.11.2016 and certain loose sheets page nos.18 to 28 were found and seized vide Annexure- A/VMR/RES/01. The Assessing Officer of the searched person i.e., DCIT, Central Circle 2(3), Hyderabad recorded satisfaction under section 153C of the Act on 19.12.2018 in light of relevant incriminating material found during the course of search in the premises of Sri Manohar Rao Warlawar and observed that, page-19 of the above loose sheet contains payment of Rs1,15,15,000/- for the period from 20.02.2014 to 25.09.2016 and further, from the above payments, a sum of Rs.40 lakhs pertains to financial year 2013-2014 relevant assessment year 2014-2015. Therefore,

The Assessing Officer of the assessee i.e., ACIT, Circle-9(1), Hyderabad, has recorded satisfaction for initiation of proceedings under section 153C of the Act, for the assessment years 2014-2015 to 2017-2018 on the basis of information and satisfaction received from DCIT, Central Circle-2(3), Hyderabad and satisfied that, loose sheet pages 18 to 28 found during the course of search in the case of Sri Manohar Rao Warlawar and more particularly, page-19 of the above loose sheet contains details of total cash payment of Rs.1,15,15,000/- for the period between 20.02.2014 to 25.09.2016 and out of which, cash payment of Rs.40 lakhs pertains to financial year 2013 2014 relevant to assessment year 2014-2015. He further noted that, the above cash payments made by the assessee towards construction of building at Sy.No.11/27, Khanamet Village, Serilingampally

Aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A). Before the learned CIT(A), the assessee has challenged the initiation of proceedings under section 153C of the Act, in light of satisfaction note recorded by the Assessing Officer of the searched person for the assessment year 2014-2015 and the satisfaction recorded by the Assessing Officer of the 7 ITA.Nos.901, 902, 903 & 904/Hyd./2024 assessee for the assessment years 2014-2015 to 2017-2018 and in light of certain judicial precedents and submitted that, the satisfaction note recorded by the Assessing Officer on the basis of loose sheet nos.18 to 28 found during the course of search in the case of Sri Manohar Rao Warlawar does not show any income of the assessee which has a bearing on the determination of the total income for the assessment years 2014-2015 to 2017-2018. The assessee had also challenged the additions made by the Assessing Officer towards unexplained expenditure incurred for construction of building by filing certain evidences including details of construction of building, year of completion of construction and rental income derived from such building for the earlier assessment year and argued that, the building construction was completed in the financial year 2009-2010, whereas the document relied upon by the Assessing Officer i.e., loose sheet containing date i.e., from 20.02.2014 to 25.09.2016 and further, the said details does not even contain name of the assessee and also the nature

During the course of appellate proceedings, the learned CIT(A) forwarded the additional evidences filed by the assessee to the Assessing Officer for his comments in terms of Rule 46A of I.T. Rules, 1962. The Assessing Officer after considering the relevant additional evidences filed by the assessee, submitted his remand report dated 04.07.2024 and stated that, the assessee could not furnish the requisite documents and information called-for by the Department to establish the year of construction of the property in the financial year 2009-2010. The learned IT(A) after considering the relevant submissions of the assessee and also taking note of the loose sheets found during the course of search in the case of Sri Manohar Rao Warlawar held that, the documents found during the course of search shows certain expenditure incurred by the assessee towards construction of house property or building. This fact has been admitted by Sri Manohar Rao Warlawar in his statement recorded under section 132(4) of the Act. The 9 ITA.Nos.901, 902, 903 & 904/Hyd./2024 assessee could not establish the payments referred to in the incriminating document with any evidence including source for the said payment. Although, the assessee claims that, the document found during the course of search, does not pertains to the building construction and further, the building construction was completed in the financial year 2009-2010, but, the assessee failed to file any evidence including occupancy certificate etc., to prove his claim that, building construction was completed in the financial year 2009-2010. Further, the document furnished by the assessee including valuation report dated 21.01.2020, copy of lease agreement dated 19.06.2011 and affidavit from Sri Manohar Rao Warlawar denying that, he has never given any statement that, expenditure relates to assessee viz., Sri Venkatesh Gangakhedkar is only a self-serving document, which does not have any evidentiary value. Therefore, the learned CIT(A) rejected the explanation of assessee and sustained the addition made by the Assessing Officer towards the unexplained expenditure under section 69C of the Income Tax Act, 1961 towards payments made on the 10 ITA.Nos.901, 902, 903 & 904/Hyd./2024 basis of loose sheet page-19 found to during the course of search in the case of Sri Manohar Rao Warlawar.

Aggrieved by the Order of the learned CIT(A), the assessee is now, appeal before the Tribunal .

CA, C. Maheshwar Reddy, Learned Counsel for the Assessee, referring to the satisfaction note recorded by the Assessing Officer of the searched person for the assessment year 2014-2015 submitted that, as per the satisfaction note of the Assessing Officer recorded under section 153C of the Act dated 19.12.2018, the Assessing Officer refers to loose sheet page nos.18 to 28 vide Annexure-A/VMR/RES./01 found during the course of search in the case of Sri Manohar Rao Warlawar and arrived at a satisfaction that, the payments referred to in the said documents had a bearing on the determination of the total income of the assessee for the assessment year 2014-2015. Further, the Assessing Officer of the assessee, has recorded satisfaction for the assessment years 2014-2015 to 2017- 2018 on the basis of information and satisfaction received 11 ITA.Nos.901, 902, 903 & 904/Hyd./2024 from the Assessing Officer of the searched person and satisfied that, said information including page-19 of the above loose sheet contains cash payments towards construction of building at Sy.No.11/27, Khanamet Village Serilingampally Mandal and it has a bearing on the determination of the total income of the assessee for the assessment years 2014-2015 to 2017-2018. If we go through the relevant loose sheets, including page-19, it is a plain sheet under the Head “Dr.DM Rao Garu” with date and certain amount without any reference to the name of the assessee and the person to whom the said payment was made and also the nature and purpose of the payment. Therefore, the satisfaction arrived by the Assessing Officer on the basis of loose sheet no.19 that, the said document is having a bearing on the total income of the assessee for the above assessment year is illegal and notice issued by the Assessing Officer on the basis of the said illegal satisfaction note renders the entire assessment proceeding void abinitio and liable to be quashed.

We have heard both the parties, perused the material on record and gone through the orders of the authorities below. The Assessing Officer initiated proceeding under section 153C of the Income Tax Act, 1961 and completed the assessment under section 153C r.w.s.147 of the of the Income Tax Act, 1961 and made addition towards unexplained expenditure towards construction expenditure on the basis of loose sheets found during the course of search, in the case of Dr. VM Rao. The Assessing Officer of 17 ITA.Nos.901, 902, 903 & 904/Hyd./2024 the searched person recorded satisfaction under section 153C of the Act dated 19.12.2018 and satisfied that, loose sheet nos.18 to 28 seized vide Annexure-A/VMR/RES/01 contains cash payments towards construction of building by the assessee for the assessment years 2014-2015 to 2017- 2018, which has a bearing on the determination of the total income of the assessee for the above assessment years. The Assessing Officer recorded satisfaction note on the basis of page no.19 of the loose sheet coupled with statement recorded from Dr. VM Rao under section 132(4) of the Act, where he has stated that, page no.19 contains expenditure incurred by his son- in-law for construction of building at Sy.No.11/27 Khanamet Village Serilingampally Mandal. The Assessing Officer of the assessee extended the satisfaction from assessment years 2014-2015 to assessment year 2017-2018 on the basis of information and satisfaction note received from the Assessing Officer of the searched person and satisfied that, loose sheets nos.18 to 28 and more particularly, page-19 of the above loose sheet contains details of cash payments to the tune of Rs.1,15,15,000/- for 18 ITA.Nos.901, 902, 903 & 904/Hyd./2024 the period between 20.02.2014 to 25.09.2016 and further, it has a bearing on the determination of the total income of the assessee for the assessment years 2014-2015 to 2017- 2018. Therefore, the Assessing Officer issued notice under section 153C of the Act and completed the assessment by making addition towards unexplained expenditure under section 69C of the Income Tax Act, 1961 for all four assessment years.

We have given our thoughtful consideration to the satisfaction note recorded by the Assessing Officer of the searched person for the assessment year 2014-2015 and satisfaction note recorded by the Assessing Officer of the assessee for the assessment years 2014-2015 to 2017-2018, in light of relevant loose sheet nos.18 to 28 and more particularly, page-19 in light of arguments of the Counsel for the Assessee and upon consideration of the relevant documents, we ourselves do not subscribe to the reasons given by the learned CIT(A) to uphold the initiation of proceedings under section 153C of the Act, for the simple reason that, the loose sheet page no.19 contains certain 19 ITA.Nos.901, 902, 903 & 904/Hyd./2024 jottings in the name of Dr. VM Rao Garu. Further, in the said loose sheet, date and amount is mentioned. However, there is no reference of name of the assessee in the above loose sheet and further, the said loose sheet does not even contain the basic requirement of charging Section-4 of the Income Tax Act, 1961, i.e., certainty of taxable event, party to the transaction and year to which it pertains. We further note that, it is only a plain paper contains certain date and amount without any narration as to the nature of payment, parties to the transaction and purpose of payments. Since, there is no reference of name of the assessee in the seized document and further, the purpose of payment and parties to the transaction is missing, in our considered view, on the basis of said loose sheet, the satisfaction note recorded by the Assessing Officer that, the said document is having a bearing on the determination of the total income of the assessee for the assessment years 2014-2015 to 2017-2018 is illegal and illogical and cannot be accepted. Although, the Assessing Officer refers to statement recorded from Dr. VM Rao Garu, but, the fact remains that, the person who gave 20 ITA.Nos.901, 902, 903 & 904/Hyd./2024 the statement has been subsequently filed an affidavit and stated that, he never admitted that the said document belongs to the assessee and contents therein are pertains to the assessee and towards amount incurred for construction of building. Assuming for a moment, the affidavit filed by the person who gave the statement is an after-thought going by the date of satisfaction note recorded by the Assessing Officer and the date of affidavit filed by Dr. VM Rao, but, the fact remains that, once the document is silent of the particulars of the assessee and it’s transactions or activities, in our considered view, unless the Assessing Officer cross- examine with the assessee, with reference to the statement of the third party and ascertain that, whether said transactions are pertains to the assessee or not, he cannot simply proceed on the assumption that, the said document belongs or relates to the assessee and is having a bearing on the determination of the total income of the assessee for the relevant assessment year. Since, the document is silent about the name of the assessee and the parties to the transaction and purpose of payment, in our considered 21 ITA.Nos.901, 902, 903 & 904/Hyd./2024 view, on the basis of said document, the satisfaction note recorded by the Assessing Officer for issuance of notice is illegal and thus, the assessment order passed by the Assessing Officer on the basis of illegal or incorrect satisfaction note becomes void abinitio and liable to be quashed. This legal principle is supported by the decision of Hon’ble Supreme Court in the case of DCIT vs., M/s. U.K. Paints (Overseas Ltd.) in Civil Appeal No.6634 of 2021, wherein it was held that, “as no incriminating material found in the case of any of the assessee either from the assessee or from the third party and the assessments were made under section 153 of the Act, the High Court has rightly set-aside the assessment orders. Therefore, the impugned Judgment and the Orders passed by the High Court do not require any interference from this Court.”

In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that, initiation of proceedings under section 153C of the Income Tax Act, 1961 by the Assessing Officer on the basis of satisfaction note recorded for initiation of 22 ITA.Nos.901, 902, 903 & 904/Hyd./2024 proceedings in light of loose sheets found during the course of search in the case of Dr. VM Rao does not have any bearing on the determination of the total income of the assessee for the above assessment years. Therefore, in our considered view, the notice issued under section 153C of the Act and consequent assessment order passed by the Assessing Officer under section 153C r.w.s.147 of the Income Tax Act, 1961 are void abinitio and liable to be quashed. Thus, we quash the assessment order passed by the Assessing Officer for the assessment years 2014-2015 to 2017-2018.

The assessee has raised grounds challenging additions made by the Assessing Officer towards unexplained expenditure under section 69C of the Income Tax Act, 1961 for the assessment years 2014-2015 to 2017- 2018 and further, addition made by the Assessing Officer towards rental income for the assessment year 2016- 2017. The Counsel for the Assessee CA, C. Maheshwar Reddy and Sri Gurpreet Singh, learned Sr. AR for the Revenue, has argued the issue in light of relevant evidences.

In the result, the appeals of the assessee for all the four assessment years are allowed. A copy of this common order be placed in the respective case files.