LATE VANAJA DARUMAGARI L/R RAM MOHAN RAO DARUMAGARI,HYDERABAD vs. INCOME TAX OFFICER, WARD-15(1), HYDERABAD

On appeal, the learned CIT (A) has restricted the addition on account of unexplained investment in purchase of land to Rs.4,76,50,000/- by enhanced the assessment by a sum of Rs.10.00 Lakhs on account of investment made by the assessee towards the capital in the partnership firm apart from the addition sustained on account of unexplained investment in purchase of land.

Aggrieved by the impugned order of the learned CIT (A), the assessee filed the present appeal and raised the following grounds: “

The learned Commissioner of Income Tax (Appeals) ought to have accepted explanation offered by the assessee that he made investment of Rs.20,00,000 in the firm of M/s. Raja Rani Developers towards his share and the share of his wife Smt.D.Vanaja and ought to have directed deletion of the addition of Rs.9,53,00,000 made by the Assessing Officer u/s.69 of the Act.

The learned AR has also referred to the judgment of the Hon'ble Supreme Court in the case of Income Tax Officer vs. Vikram Sujitkumar Bhatia reported in (2022) 453 ITR 417, dated 6/4/2023 and submitted that, the Hon'ble Supreme Court has held that, the amendment in the provisions of section 153C vide Finance Act, 20215 would be applicable to the searches conducted before 1/6/2015 i.e. the date of amendment. Therefore, once the seized material pertains to or any information

On the other hand, the learned DR has submitted that the assessee has not filed his return of income for the A.Y under consideration, therefore, the information received by the Assessing Officer assessee from the Dy. CIT, Central Circle-1, Aurangabad is a tangible material to form the belief that the income assessable to tax on account of unexplained investment in the name of partnership firm M/s. Raja Rani Developers has escaped the assessment. He has further submitted that the initiation of proceedings u/s 153C are not mandatory as it depends on the satisfaction of the Assessing Officer on examination of the seized material pertains to the assessee or the information pertaining to the assessee in respect of undisclosed income of the assessee. Since it is not a case of remittance of the seized material by the Assessing Officer of searched persons to the Page 7 of 24 Assessing Officer of the assessee and further there is no satisfaction recorded either by the Assessing Officer of the searched person or by the Assessing Officer of the assessee that it is a fit case for initiation of proceedings u/s 153C of the Act, therefore, the initiation of proceedings u/s 147 and 148 of the I.T. Act, 1961 is well within the jurisdiction of the Assessing Officer and are valid. He has further submitted that once of the Partners Shri BB Patil has admitted before the Settlement Commission that the total cost of land measuring 3 acres 9 guntas + 538 sq. yard was Rs.15.45 crores and he invested an amount of Rs.5.92 crores for purchase of the said land. This figure is also matching with the seized document giving the details of cost of purchase and share of Shri BB Patil. Further, in the assessement proceedings u/s 153C of the Act in case of Shri Vinod Sriramwar, it has been held that, out of the total cost of 15.45 crores, Shri B.B Patil invested Rs.5.92 crores through his front man Shri S. Vinod Sriramwar and the balance amount was invested by the assessee Shri D. Ram Mohan Rao. Thus, he has submitted that in the sale deed dated 10/10/2007 the assessee along with 2 other persons have stated these facts about the partnership firm and therefore, the investment was made by these 3 persons out of which 1/3rd was made by Shri BB Patil and remaining was made by the assessee. Even if 1/3rd share of the assessee is taken into account, then the learned CIT (A) has rightly confirmed the addition to the extent of Rs.4,76,50,000/- as unexplained investment in the land. He has relied upon the impugned order of the learned CIT (A).

We have considered the rival submissions as well as relevant material available on record. The assessee has not filed any return of income for the year under consideration and the Assessing Officer has received information from the Dy. CIT, Central Circle-1, Aurangabad revealing the fact that the assessee along with 2 other persons namely Shri S. Vinod Kumar representing Shri BB Patil and Shri Bhimrao Patil, purchased the land, in question, vide sale deed dated 10/10/2007 for a consideration of Rs.3,35,00,000/- as stated in the sale deed. However, during the search & seizure operation in the case of MB Patil Group and M/s. Raja Rani Developers the partnership firm, it was found that the total consideration for the land, in question, was Rs.15,45,00,000/-. Based on the said information, the Assessing Officer reopened the assessment by issuing a notice u/s 148 of the Act on 05/03/2017 after recording the reasons. The said reasons recorded by the Assessing Officer for reopening of the assessment were supplied to the assessee vide letter dated 8/2/2016 and the same are reproduced by the learned CIT (A) in Para 4.2.of his order as under: “Information was received from DCIT, Central Circle-l, Aurangabad vide letter dated 16.2. 15 regarding search and seizure operations Conducted in MB Patil group of Aurangabad/Pune. During the search operations, certain documents relating to M/s. Raja Rani Developers, Hyderabad were found and seized in which you were one of the partners of the partnership firm. The DCIT, Central Circle- I, Aurangabad informed that during the course of search and subsequent asst, proceedings in the case of Raja Rani developers, it was noticed that substantial amounts were .received by you and your wife, Smt. D. Vanaja, as well as Sri K. Ravi Kumar from the above partnership firm.

Thus, it is a matter of record that the reasons were supplied to the assessee. Further, as it is manifest from the reasons recorded by the Assessing Officer that only an information was received from the Dy. CIT Central Circle-1, Aurangabad and not any remittance of seized material with the satisfaction recorded by the Assessing Officer of the searched person. The said information reveals the fact about the purchase of the land by the assessee along with other persons in the name of M/s. Raja Rani Developers, vide sale deed dated 10/10/2007, prior to the alleged partnership firm came into existence vide partnership deed dated 26/10/2007. Thus, the said transaction of purchase of land was entered into between the seller and the individual buyers and at the most, an Association of the Persons comprising 3 persons which was subsequently converted into the partnership firm. At the time of formation of the partnership firm, several other partners were also admitted and the total number of partners goes to 8. Therefore, at the time of purchase of the land,

The assessee has raised an objection that the proceedings initiated u/s 148 is invalid when specific provisions u/s 153C is provided in case of reopening of the assessment pursuant to the search and seizure action and material found during the search and seizure pertains to the assessee. We do not agree with this contention of the assessee because the provisions

Thus, even in case of no incriminating material is unearthed, the Assessing Officer can reopen the assessment in exercise of powers u/s 147 & 148 of the I.T. Act, 1961 subject to fulfilment of the condition as envisaged u/s 147 & 148 of the Act and those powers have been saved. The said judgment of the Hon'ble Supreme Court was passed in case of searched persons and therefore, there is no embargo to the powers of the Assessing Officer for initiating proceedings u/s 147 & 148 based on the information received in pursuant to the search & seizure of a 3rd person subject to the satisfaction of the condition as provided u/s 147 & 148 of the I.T. Act, 1961. Accordingly, we do not find any errors or illegality in the impugned order of the learned CIT (A) qua this issue.

On merits, the learned CIT (A) restricted the addition after considering the remand report in Para 5.3 of the impugned order as under:

The assessee is one of the 3 persons who were party to the sale deed for purchase of the land, in question, and accordingly, the learned CIT (A) restricted the addition in the hand of the assessee to 1/3rd of the total purchase consideration as found during the course of search and seizure action.

We have heard the learned AR and the learned DR and carefully perused the relevant records. It is a case of an addition made by the Assessing Officer based on undisclosed investment of purchase of land. However, the seized material revealing the Page 19 of 24 purchase consideration of the land, in question, at Rs.15.45 crores as against the recorded consideration in the sale deed at Rs.3.35 crores + registration charges of Rs.31,82,600/-. One of the partners Shri BB Patil has approached the settlement commission and declared the income on account of unexplained investment in land in question. The order of the Settlement Commission on this issue is placed at page No 1 to 8 of the paper book and the relevant findings of the Settlement Commission in para 26 of the order reads as under:

Thus, the Settlement Commission has also accepted the share of investment of Shri BB Patil as revealed by the seized document and therefore, if the same logic is applied in the case of the assessee, then 1/3rd share in the said investment is contributed by the assessee. Accordingly, we do not find any error or illegality in the impugned order of the learned CIT (A) qua this issue.

Ground Nos. 9 and 10 are regarding the enhancement of assessment by a sum of Rs.10.00 lakhs as capital contribution to the partnership firm.

We have heard the learned AR and the learned DR and considered the relevant material available on record. The learned CIT (A) has made the enhancement of assessment in Para 6.1 of the impugned order as under:

Thus, the enhancement is made by the learned CIT (A) only on the basis of the contention of the assessee in denying any investment made for purchase of land except Rs.20.00 lakhs as an introduction of capital in the partnership firm on behalf of the assessee and his wife of Rs.10.00 lakhs each. Once the 1/3rd investment on the purchase of land and that too as per the seized document and not as per the purchase consideration recorded in sale deed is added to the income of the assessee on account of unexplained investment, then the said amount of Rs.20.00 lakhs cannot be separately considered as capital introduced by the Page 22 of 24 assessee in the partnership firm along with the share of his wife. The investment made in purchase of land which was subsequently transferred to the partnership firm itself is contribution on behalf of the partners who were party to the transaction of purchase of land. Therefore, in the absence of any fact or any material to show that apart from investment in land, the assessee has further contributed any amount towards the introduction of capital in the partnership firm, the addition/enhancement made by the learned CIT (A) is not justified, hence the same is deleted.

In the result, appeal filed by the assessee is partly allowed.

As regards Ground No.5 regarding the addition of Rs.10 lakhs on account of capital introduced in the partnership firm, the Assessing Officer has made this addition on the basis of the contention of the husband of the assessee that only a sum of Rs.20.00 lakhs was invested by him on behalf of himself and his wife. Therefore, it is only on the basis of the said contention of the Page 23 of 24 husband of the assessee, the addition was made by the Assessing Officer without having any material or facts brought on record to show that the assessee has actually made any investment on herself in respect of the contribution or introduction of capital in the partnership firm. Thus, in view of our findings on this issue in case of Shri Ram Monah Rao Darumagari, the husband of the assessee in para 18 & 19 of this order, the addition made by the Assessing Officer and sustained by the learned CIT (A) is deleted.

In the result, appeal filed by the assessee is partly allowed.