ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE3-(4), HYDERABAD vs. ACE CONSTRUCTIONS, HYDERABAD

ITA 31/Hyd/2021 (Revenue’s Appeal)

1. The Ld.CIT(A) erred in no adjudicating the grounds urged by the assessee on correctness of additions / disallowance on merits.

2. The Ld.CIT(A) erred in adding an amount of Rs.2,35,67,000/- u/s 68 of the I.T.Act as unexplained deposits in the assessment order made u/s 153C of the I.T.Act, without fairly appreciating the explanations / clarifications submitted by the appellant.

3. The Ld.CIT(A) ought to have appreciated the fact that the assessee has discharged its primary onus by providing required documents, clearly establishing the source of deposit in bank.

4. The Ld.CIT(A) failed to appreciate tha the A.O.erred in passing the order u/s 143(3) r.w.s. 153C of the Act dated 28.12.2019 without properly analyzing and appreciating the bank deposits, withdrawals and redeposit made.

5. The Ld.CIT(A) ought to have appreciated the fact that cash deposits for the Assessment year under consideration represents only the amounts relating to earlier years as can be seen from the financial statements showing it as opening balances.

6. The Ld.CIT(A) failed to appreciate the fact that the deposits for the assessment year under consideration are nothing but the balances pertaining to the earlier years and it represents closing balances of earlier year and brought forward to this year as opening balance.

7. The Ld.CIT(A) ought to have appreciated the fact that the amount as credited in bank accounts represents the amounts of earlier years and such deposits doesn’t come under the purview of income of assessee for this assessment year.

10. The Ld.CIT(A) erred in initiating the penalty proceedings u/s 271AAB and 271AAC against undisclosed income without appreciating the facts.

11. The Ld.CIT(A) has erred in charging interest u/s 234A, 234B and 234C of the Act basing on the income determined in the assessment proceedings and charged at higher rate.

12. The assessee may add, alter or modify or substitute any other points to the grounds of appeal

at any time before or at the time of hearing of the appeal.

5. The brief facts of the case are that the assessee, M/s Ace Constructions 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.36,83,730/-. 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 Ace Constructions. 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 14.02.2021 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 State Bank of Hyderabad, Tarnaka branch 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.36,83,730/-. 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.2,35,67,000/- 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.1,80,00,000/- and further cash withdrawal from State Bank of Hyderabad for Rs.55,67,000/- 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.2,35,67,000/- and therefore, made addition of Rs.2,35,67,000/- u/s 68 of the Act as unexplained cash credit and brought to tax u/s 115BBE of the Act.

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.

9. 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.

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.”

“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.

ITA 31/Hyd/2021, A.Y.2017-18 (Assessee’s appeal)

Order pronounced in the Open Court on 13th February, 2025.