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Facts
M/s Royal Engineering filed appeals against an order related to assessment year 2017-18. The Revenue's appeal challenged the deletion of additions made under Section 68 and the quashing of proceedings under Section 153C. The assessee's appeal was dismissed as infructuous.
Held
The Tribunal held that the notice issued under Section 153C was illegal because there was no incriminating material found during the search relevant to the assessment year in question, contrary to Supreme Court decisions. The assessment order passed under Section 143(3) r.w.s. 153C was therefore void ab initio and liable to be quashed.
Key Issues
Whether proceedings under Section 153C were validly initiated without incriminating material for the relevant assessment year, and if the assessment order based on such proceedings is liable to be quashed.
Sections Cited
68, 153A, 153C, 143(3), 115BBE, 139
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Income Tax Appellate Tribunal, Hyderabad ‘A’ Bench, Hyderabad
Before: Shri Manjunatha G. & Shri K.Narsimha Chary
(Appellant) (Respondent) निर्धाररती द्वधरध/Assessee by: Shri P.Murali Mohan Rao,AR रधजस् व द्वधरध/Revenue by: Shri Srinath Sadanala, DR सुिवधई की तधरीख/Date of Hearing: 18/11/2024 घोर्णध की तधरीख/Date of 13/02/2025 Pronouncement: आदेश / ORDER PER. MANJUNATHA G., A.M: These cross appeals filed by the Revenue and assessee are directed against order dated 14.09.2020 of the Commissioner of Income Tax (Appeals) [“Ld.CIT(A)”]-11, Hyderabad pertaining to A.Y.2017-18.
At the outset, it is observed that the appeal has been filed by the assessee with the delay of 25 days. The assessee filed a petition for condonation of delay and submitted that the order of the Ld.CIT(A) was received on 20.10.2020 and the appeal ought to have been filed before the Tribunal on or before 19.12.2020, but the appeal could be filed on 13.01.2021 with the delay of 25 days, due to the reason that the office of the assessee was closed due to Covid-19 pandemic from 23.03.2020 to 08.05.2020 and the staff were allowed to work only on rotational basis on alternate days for few hours. The office was closed frequently due to detection of new corona positive cases among staff. The assessee, therefore, submitted that the delay in filing of the appeal is due to the reasons beyond the control of the assessee, which are neither intentional nor deliberate. He, therefore, pleaded to condone the delay and admit the appeal for hearing, for which the Ld.DR has not raised any objection.
We have gone through the condonation petition filed by the assessee and find that there is a reasonable cause for the assessee to file the appeal belatedly before the Tribunal. We, therefore, condone the delay and admit the appeal for hearing in the interest of justice.
ITA 44/Hyd/2021 (Revenue’s Appeal)
The Revenue has raised the following grounds of appeal :
1. The Ld.CIT(Appeal) erred both in law and on facts of the case in allowing relief to the assessee.
2. The Ld.CIT(Appeal) erred in deleting the addition of Rs.2,23,11,000/- made u/s 68 without giving any credence to the material seized, post search enquiries made and the enquiries made during the assessment by the assessing officer.
3. The Ld.CIT(Appeal) erred in holding that there is no incriminating material in the assessee’s case for initiation of proceedings u/s 153C.
4. The Ld.CIT(Appeal) erred in holding that the bank accounts found during the search were already declared to the Department though the assessee did not file any return of income for the assessment year 2017-18 till the completion of the search. Even in the above return filed belatedly the only account number declared is 35217483765 of SBI and not 124102000004602 of IDBI, whose cheque book was found and seized during the search.
5. The Ld.CIT(Appeal) erred in ignoring the fact that even the bank account number 124102000004602 of IDBI, in which cash deposits were made, was not declared in the return income filed for the concerned assessment year or in the assessment years for which the returns were filed before the date of search.
6. The Ld.CIT(Appeal) did not even revert back to the assessing officer to check whether the cheque book found during the search was declared in the return but believed in the plain averments of the assessee which are factually incorrect.
The Ld.CIT(Appeals) based on wrong facts held he 153C to be invalid whereas the assessing officer has correctly satisfied himself that the said bank account is not disclosed and accordingly initiated 153C proceedings.
The appellant craves leave to amend or alter any ground or add any other grounds which may be necessary. 5. The brief facts of the case are that the assessee, M/s Royal Engineering is engaged in the business of real estate realtors and developers, acting as consultants and advisors in all matters relating to real estate, filed its original return of income for the F.Y.2017-18 on 31.03.2018, admitting total income of Rs.34,28,300/-. A search and seizure operation was conducted in the case of Sri Ajaz Farooqi and his business concerns on 04.07.2017. During the course of search and seizure operation, at the residential premises of Sri Jayanta Kumar Dutta (GM Finance) of M/s KVR Rail Infra Projects Pvt.Ltd. and accounting manager in concerns promoted by Shri Ajaz Farooqi, certain incriminating material was found and seized vide Annexure A/JKD/RES/01, A/JKD/RES/04 and A/JKD/RES/05. During the course of search assessment proceedings, in the case of Sri Jayanta Kumar Datta, seized material was verified and found that the material seized and information contained therein pertains / relates to the assessee firm, M/s Royal Engineering. The Assessing Officer of the searched person has recorded satisfaction as required u/s 153A of the Income Tax Act, 1961 (“the Act”), with reference to seized material and found that certain material found relates to assessee firm and forwarded the same to the Assessing Officer of the assessee on 14.02.2019 along with copies of seized material. The Assessing Officer on the basis of seized material received from the Assessing Officer of the searched person has recorded satisfaction u/s 153C of the Act and found that the material found during the course of search contains cash deposit during the demonetization period and fixed deposit maintained at IDBI Bank, Habsiguda, Hyderabad in the name of the assessee and therefore, issued notice u/s 153C of the Act on 27.02.2019 and called upon the assessee to file return of income. In response, the assessee filed its return of income on 27.03.2019 by admitting total income of Rs.34,28,300/-. The case was selected for scrutiny and during the course of assessment proceedings, the Assessing Officer noticed that the assessee has made cash deposit of Rs.2,23,11,000/- during the demonetisation period from 15.11.2016 to 21.11.2016. It is further noted that assessee firm also made similar cash deposits in its bank account in the earlier financial years. The Assessing Officer called upon the assessee to file relevant evidences and also explain the source for cash deposits, for which the assessee submitted that the source for cash deposit is out of cash in hand available as on 01.04.2016 for Rs.2,32,60,000/-, which was out of cash withdrawal from State Bank of Hyderabad for Rs.1,33,00,000/- and State Bank of India for Rs.99,60,000/- by Shri Amit Bansal out of balances held by him on hand. The Assessing Officer, after considering the relevant submissions of the assessee and also taking note of findings during the search operation, observed that the assessee firm did not file its return of income on or before the due date prescribed u/s 139 of the Act for the year under consideration and the return of income has been filed only after the date of search. Although the firm is having crores of cash deposited in his bank account over a period of several years, did not file its return of income and even it did not submit its PAN to the bank authorities. Further, from the bank account statement, it is seen that the assessee firm is making huge cash deposits over a period of time, from FY 2009- 10 to 2014-15 and all cash deposits were maintained as fixed deposits and bank balances. Therefore, taking note of seized material and also statement of Shri Jayanta Kumar Dutta observed that the assessee could not establish source for cash deposited during the demonetization period, amounting to Rs.2,23,11,000/- and therefore, made addition of Rs.2,23,11,000/- u/s 68 of the Act as unexplained cash credit and brought to tax u/s 115BBE of the Act.
Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the Ld.CIT(A), the assessee challenged the jurisdiction of the Assessing Officer issuing notice u/s 153A of the Act for the assessment year in question, in light of satisfaction note recorded by the Assessing Officer of the searched person and satisfaction note recorded by the Assessing Officer u/s 153C of the Act and argued that there is no incriminating material for the year under consideration as observed by the Assessing Officer in his satisfaction note and therefore notice issued u/s 153C and consequent assessment order passed by the Assessing Officer is bad in law and liable to be quashed. The assessee also challenged the additions made towards cash deposits u/s 68 of the Act on the ground that the assessee has explained the source for cash deposits out of opening cash balance as on 01.04.2016 and further cash received from the partners account by filing return of income, which is supported by necessary books of accounts maintained for the relevant assessment year. The Ld.CIT(A), after considering the relevant submissions of the assessee and also taking note of satisfaction note recorded by the Assessing Officer u/s 153A and satisfaction note of the Assessing Officer u/s 153C, observed that in order to assume jurisdiction u/s 153C, there must be incriminating material found during the course of search relevant to the assessment year under consideration. Proceedings u/s 153C of the Act can be initiated, only in respect of assessment year relatable to incriminating material seized during the course of search. If we go by the satisfaction note recorded by the Assessing Officer of the searched person u/s 153A and satisfaction note recorded by the Assessing Officer of the assessee u/s 153C, both the Assessing Officers referred to incriminating material found during the course of search and seizure in Annexure A/JKD/RES/01, A/JKD/RES/04 and A/JKD/RES/05. If we go by A/JKD/RES/01, it contains cheque books issued by bank to six different account holders. The assessee, M/s Royal Engineering is one of them. On examination of the contents, it is seen that all the cheque books are blank cheque books and the details contained in the record slip pertain to cheques issued from 19.11.2016 to 30.03.2017. The assessee has filed return of income for the A.Y.2017-18 on 31.03.2018 and for the A.Y.2010-11 to 2015-16 on 23.11.2016 / 24.11.2016 and the said bank account is disclosed in the books of accounts / balance sheet filed along with the return of income. Similarly, Annexure A/JKD/RES/04 contains working copies of back up of 4 pen drives, seized during the course of search, which contains details of bank accounts maintained by 5 firms and the transaction in the bank account of the firm during 25.09.2014 to 20.11.2014. These are the bank accounts discussed in relation to the cheque books above and the same are disclosed in the regular books of accounts. Sheets 14 to 23 of Annexure A/JKD/RES/05 pertains to material found in Annexure A/JKD/RES/04 only. The above material cannot be treated as incriminating material pertaining to A.Y.2017-18. Therefore, opined that the Assessing Officer has erred in issuing notice u/s 153C for the assessment year in question, without, there being any incriminating material found during the search, contrary to the decision of Hon'ble Supreme Court in the case of Sinhgad Technical Educational Society Vs. CIT (2017) 397 ITR 344 (SC). Therefore, held that the proceedings initiated u/s 153C and consequent assessment proceedings u/s 143(3) r.w.s. 153C is not valid and cannot survive. Thus, quashed the assessment order passed by the Assessing Officer.
7. Aggrieved by the order of the Ld.CIT(A), assessee as well as Revenue are in appeal before the Tribunal.
8. The Ld.DR, Shri Srinath Sadanala submitted that the Ld.CIT(A) erred both in law and on facts, in quashing the assessment order passed by the Assessing Officer u/s 143(3) r.w.s. 153C of the Act, without appreciating the fact that the Assessing Officer has issued valid notice u/s 153C on the basis of satisfaction recorded by the Assessing Officer of the searched person as required u/s 153A and further satisfaction recorded u/s 153C, which is further supported by the incriminating material found during the course of search. The Ld.DR, further submitted that the Ld.CIT(A) erred in holding that the bank accounts found during the course of search were already declared to the department, though the only account number declared is of SBI and not IDBI, whose cheque books are found and seized during the course of search. The Ld.CIT(A) erred in ignoring the fact that even bank account held with IDBI, in which cash deposits were made were not declared in the return of income. Although the Assessing Officer brought out clear facts that the assessee could not establish source for cash deposit, but the Ld.CIT(A) quashed the assessment order passed by the Assessing Officer on technical ground of invalid satisfaction. Therefore, he submitted that order passed by the Ld.CIT(A) should be set aside and the additions made by the Assessing Officer should be sustained.
The learned counsel for the assessee Shri P.Murali Mohan Rao, CA, on the other hand submitted that the Assessing Officer has initiated proceedings u/s 153C of the Act, without valid satisfaction, which is evident from findings and facts recorded by the Ld.CIT(A), where the Ld.CIT(A) examined all the incriminating material refereed to by the Assessing Officer in the satisfaction note recorded u/s 153A / 153C and found that the said material relates to cheque books and bank statements of the assessee firm and the said bank account was already declared in the return of income for the A.Y.2015-16 and 2017- 18. Since there is no valid satisfaction as required u/s 153C, the Ld.CIT(A) rightly quashed the assessment order passed by the Assessing Officer by following the decision of Sinhgad Technical Educational Society Vs. CIT (supra). Therefore, he submitted that the order of the Ld.CIT(A) should be upheld and the appeal filed by the Revenue should be dismissed. In this regard, he relied on the decision of ITAT Hyderabad, in the assessee group concern case of M/s GVK Enterprises in to 25 and to 49/Hyd/2021. The assessee had also relied upon the decision of ITAT Hyderabad in the case of Nama Chinnamma in ITA No.1690/Hyd/2017.
We have heard both the parties, perused the material on record and gone through the orders of the authorities below. The Assessing Officer issued notice u/s 153C of the Act on the basis of satisfaction recorded, as per which, incriminating material found during the course of search in the case of Shri Jayanta Kumar Dutta vide Annexure A/JKD/RES/04 and A/JKD/RES/05 pertains / relates to the assessee firm, M/s Royal Engineering and arrived at a satisfaction that the said seized material pertains to the assessee firm for the A.Y.2017- 18, which has a bearing on the total income of the assessee. We have gone through the satisfaction note recorded by the Assessing Officer of the searched person u/s 153A and the Assessing Officer of the assessee u/s 153C of the Act and both the Assessing Officers referred to Annexure A/JKD/RES/01, A/JKD/RES/04 and A/JKD/RES/05. The Ld.CIT(A) examined Annexure A/JKD/RES/01 and found that they relate to cheque books of assessee firm and blank cheques issued from 19.11.2016 to 30.03.2017 and the said bank account has been disclosed in the regular return of income filed by the assessee for the A.Y.2015-16 and also for the A.Y.2017-18 on 31.03.2018. The Ld.CIT(A) had also examined incriminating material vide Annexure A/JKD/RES/04, which contains working copies of back up of 4 pen drives seized during the course of search. Sheet 14 to 23 of Annexure A/JKD/RES/05 contains details of bank accounts maintained by 5 firms and the transaction in the bank accounts of the firm during the period from 25.09.2014 to 20.11.2014. These bank accounts are disclosed in the regular return of income filed by the assessee for the A.Y.2015-16 and 2017-18. Annexure A/JKD/RES/04 contains only information contained in Annexure A/JKD/RES/05 and not any new material. Having gone through the relevant seized material referred in Annexure A/JKD/RES/01, A/JKD/RES/04 and A/JKD/RES/05, we find that the said documents relate to the bank account statements and the cheque books of bank accounts disclosed in the regular return of income filed by the assessee for the assessment year in question and also for the earlier assessment years. Therefore, the said material cannot be considered as incriminating material for the purpose of recording satisfaction and initiation of proceedings u/s 153C of the Act. In order to initiate proceedings u/s 153C of the Act, as held by the Hon'ble Supreme Court in the case of Sinhgad Technical Educational Society Vs. CIT (supra), there should be incriminating material qua each assessment year. Similar view has been taken by the Hon'ble Supreme Court in the case of U.K.Paints (Overseas) Ltd. Vs. CIT reported in 150 taxmann.com 441, where, it has been clearly held that where no incriminating material was found in case of any of assessee either from assessee or from third party, High Court rightly set aside assessment order passed u/s 153C of the Act.
In the present case, going by the satisfaction note of the Assessing Officer of the searched person u/s 153A and satisfaction note recorded by the Assessing Officer of the assessee u/s 153C, both the Assessing Officers referred to Annexure A/JKD/RES/01, A/JKD/RES/04 and A/JKD/RES/05, which contains details of bank accounts of the assessee firm and also other group concerns and the bank account of the assessee firm is already disclosed in the books of accounts and balance sheet filed along with return of income for the A.Y.2015-16 and A.Y.2017-18. Therefore, in our considered view, on the basis of said documents, satisfaction note recorded by the Assessing Officer, for initiation of proceedings u/s 153C of the Act is invalid. Therefore, we are of the considered view that the satisfaction note recorded by the Assessing Officer u/s 153C is invalid and consequently, the assessment order passed by the Assessing Officer u/s 143(3) r.w.s. 153C is illegal, void ab-initio and liable to be quashed.
The assessee relied upon the decision of M/s GVK Enterprises (supra). The coordinate bench of ITAT has considered identical issue and after considering relevant facts held as under :
“6. We find no merit in the Revenue’s instant argument since not only hon’ble apex court’s recent decision in CIT Vs. Sinhghad Technical Educational Society (supra) but also various decisions of hon’ble high courts i.e. CIT vs. Kabul Chawla (2016) 360 ITR 573 (Del), CIT Vs. Salasar Stock Broking Limited (Calcutta high court) in G.A.No.1929 of 2016 dt.24.08.2016 and CIT Vs. Continental Warehousing Corporation (2015) 374 ITR 64 (Bom) to name a few, indeed support the assessee’s case that the impugned proceedings could be taken recourse to only in case of incriminating material to have been found or seized during the course of search. Hon’ble jurisdictional high court’s judgment (supra) quoted at Revenue’s behest also nowhere holds that such an assessment is valid even in absence of the foregoing incriminating material. Their lordships rather observe that whilst framing an assessment u/s 153A / 153C, the Assessing Officer is nowhere barred from taking cognizance of any other material as well 7. Now comes the equally important question as to whether the assessee’s return(s) in issue would be treated as invalid being belated ones or not. Our reply is negative in assessee’s favour and against the department. This is because of the fact that the assessee had filed its return(s) under the Income Declaration Scheme, 2016 on 04.08.2016 followed by the search in issue dt.04.07.2017. The Revenue’s argument that it had not filed any return in the corresponding assessment year u/s 139(1) of the Act, we are of the opinion that the decision as to whether the income sought to be added as under the head “undisclosed income” has to be seen on the date of search only which purely stands satisfied in the facts of instant appeal. We further wish to observe here that the assessee’s returns filed under 2016 scheme stands stood duly accepted as there is no ground in Revenue’s pleadings to the contrary.”
The assessee had also relied upon the decision of Nama Chinnamma (supra), where the Tribunal on identical set of facts has held as under :
“6. We have heard the rival submissions through video conference and carefully perused the material on record. From the facts of the case, it is apparent that there was no satisfaction recorded by the AO in case of the assessee for initiating proceedings u/s.153C of the Act. Therefore the Ld.CIT(A) has allowed the appeal of the assessee. The relevant portion of the order is reproduced herein for reference: “5.0 I have carefully considered the submissions made by the appellant as well as the observations of the AO in the Impugned order. The reasons for issue of 153C notice in the preceding six years have been obtained from the AO, and placed on record. As per the AO's letter dated 29-12- 2016 "no satisfaction was recorded by the A.O. of M/s.Madhucon Projects Limited, who was searched party and assessed u/s.153A, since the A.O. of both the persons was same." 5.1 Thus, as can been seen from the above, there is no recording of satisfaction by the AO of M/s. Madhucon Projects Limited who was the searched party u/s.153A, that the said documents belong to the other assessee under reference i.e., Nama Chinnamma. 5.2 In its decision in the case of M/s.Madhucon Infra Ltd, reproduced in Para 4.3 above, the ITAT, Hyderabad, has quashed the order u/s. 143(3) rws 153C, on similar set of facts. In light of the said order of ITAT, on similar set of facts, I am of the considered opinion that the order under reference does not survive with no valid satisfaction/reasons recorded by the Assessing Officer of the searched party. As such, the proceedings u/s.153C are held to be annulled, on the ratio and the similar facts of the decisions by the jurisdictional High Court and the jurisdictional ITAT, as referred to in this order. Since the very foundation of initiation of proceedings u/s.153C is wrong, the proceedings u/s.143(3) are held to have no legs to stand and are held to be. annulled. Since the order under reference is held to be nonexistent, the other grounds of appeal
, do not require separate adjudication. On these lines, the appeal of the assessee against the order u/s.143(3), is treated as allowed, subject to the condition that the assessed income will not go below the returned/admitted income shown in return of income filed by the assessee”.
14. In view of this matter, considering the facts and circumstances of the case and also by following the decision of Hon'ble Supreme Court in the case of Sinhgad Technical Educational Society Vs. CIT (supra), we are of the considered view that notice issued u/s 153C by the Assessing Officer on the basis of satisfaction note recorded in terms of section 153C is illegal and consequently, assessment order passed by the Assessing Officer u/s 143(3) r.w.s.153C is void ab-initio and liable to be quashed. The Ld.CIT(A), after considering the relevant facts and circumstances of the case has rightly quashed the assessment order passed by the Assessing Officer. Thus, we are inclined to uphold the order of the Ld.CIT(A) and dismiss the appeal filed by the Revenue.
In the result, appeal filed by the Revenue is dismissed.
, A.Y.2017-18 (Assessee’s appeal)
The assessee has filed various grounds and challenged the additions made by the Assessing Officer towards cash deposits in the bank account u/s 68 of the Act and argued that the assessee has explained the source for cash deposit out of opening cash in hand as on 01.04.2016 and further amount received from the partner. Although the assessee argued the issue at length in light of relevant material to prove source for cash deposited into bank account, in our considered view, the issue raised by the assessee in their appeal becomes infructuous since, we have upheld the order passed by the Ld.CIT(A), where he has quashed the assessment order passed by the Assessing Officer u/s 143(3) 153C of the Act. Since the issue raised by the assessee is academic in nature and becomes infructuous, the appeal filed by the assessee is dismissed as infructuous.
In the result, appeal filed by the assessee is also dismissed.
As a result, appeal filed by the assessee and Revenue are dismissed.