SHRI ANAND NADIG ,BANGALORE vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-7(2)(1), BANGALORE

Now the contention of the ld. AR is that the assessments made for these years consequent to search action in the case of Dayanand Pai group cases should have been made u/s. 153C instead of 148 of the Act. According to the ld. AR, the material on the basis of which addition was made were all unearthed during the course of search action u/s. 132, as such assessment to be framed u/s. 153C of the Act. He relied on the following judgments:-

We have heard both the parties and perused the material on record. In the present case, there was a search in the case of Shri Dayanand Pai group cases on 12.4.2011. During the course of search proceedings, certain CDs were found and seized vide Annexure AK/PDP/06 dated 12.4.2011. These CDs contained data pertaining to unaccounted receipts and payment made by Shri Dayanand Pai’s group for the period 1.4.2002 to 14.6.2008. The data is in Tally application under the caption ‘Dummy (Tally Training Environment)’ [DTTE]. The ledger extract pertaining to the present assessee, Shri Anand Nadig for the period 1.4.2005 to 2.5.2008 was also found in the DTTE. According to this ledger extract, Shri P Dayanand Pai has made cash payment to Shri Anand Nadig in respect of Mallasandra property at Sy. No.26/1, 10/1, 9/2A, 9/2B, 8, 3/3 & 7, 9, Raghuvanapalya property Sy.No.8, 8/3, 9/2A, 7 & 8 and Kothnur property Sy.No.169/4 & 170. The total cash payment made by Dayanand Pai was Rs.16,11,774 on various dates for AY 2006-07.

Further, there was a survey conducted in the premises of D N Associates on 26.3.2011 and statement was recorded from Shri Purushothamma Adiga, CEO of Damanagiri Properties & Developers. In Q.No.10 put to Purushothamma Adiga, the transaction with Dayananda Pai was questioned and he replied the amount of Rs.6 crores has been paid on different dates by Dayananda Pai towards advance for property at Devanahalli and also that out of Rs.6 crores paid, Rs.86 lakhs is by cheque and Rs.5.14 crores by cash. He also confirmed that at the time of earlier survey conducted in the case of D N Associates, additional income of Rs.6 crores has been declared in AY 2007-08 and Rs.50 lakhs in AY 2008-09, totalling to Rs.4.14 crores admitted in the hands of D N Associates on this count. There were also various transactions with Anand Nadig and Dayananda Pai. Statement from Ananda Nadig u/s. 131 was recorded on 26.3.2011 in the course of the statement Ananda Nadig has confirmed the transaction reflected in DTTE. One such transaction confirmed is to the tune of Rs.16,11,774 received in FY 2005-06 towards meeting day to day expenditure. It was also brought on record that the following transactions were routed through between Ananda Nadig and Dayananda Pai :-

On the basis of above facts, notice u/s. 148 was issued to the assessee and the above amounts were brought to tax in the AY as discussed earlier.

Now the question before us is whether the details of seized material found during the course of search were belonging to assessee so as to issue notice u/s. 153C of the Act. Section 153C gives jurisdiction to the AO once the documents pertaining to the assessee are found in whose case search has taken place u/s. 132 of the Act. Being so, u/s. 153C of the Act, where the AO of the searched person is satisfied that any books of account or documents seized or requisitioned ”belong to” any person other than the person searched referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the AO having jurisdiction over such other person for such jurisdictional AO to complete the assessment. Thus, the expression “belong to” is very important issue. In the present case, the documents unearthed in the course of search action of Dayananda Pai group are not belonging to assessee, though they pertain to or having information relating to undisclosed income of the assessee and there is difference between the expression “belong to” and “pertains to” or any information contained therein relates to other person and it cannot be said that the documents unearthed in the course of search action belonged to present assessee. In the present case, DTTE did not belong to the assessee, though it contains information pertaining to the assessee. As such, the provisions of section 153C cannot be applied to the facts of the assessee’s case. Being so, in the present case, it is not possible for the AO to assume jurisdiction u/s. 153C of the Act since the pre-requisite is that any money, bullion, jewellery or other valuable article or things or books of account or documents seized or requisitioned belong or belongs to a person other than the person in whose case search is conducted u/s. 132 of the Act. Therefore, initiation of section 153 of the Act for framing assessment u/s. 153C r.w.s. 143(3) of the Act is not satisfied. The only way to frame assessment is by way of issue of notice u/s. 148 invoking the provisions of section 147 of the Act which was rightly exercised by the present AO. Accordingly, we do not find any infirmity in the action of the AO for issuing notice u/s. 148 of the Act. This view is supported by the decision of the Ahmedabad Bench of ITAT in Shailesh S. Patel v. ITO, 97 taxmann.com 570 (Ahd. Trib.) wherein it was held as under:-

Therefore, while exercise of overriding power under S. 153C will render S. 147 otiose, the converse case of clipping the powers available under S. 147 in search cases per se is not found to be reconcilable to the scheme of the Act. In the light of scheme of the Act narrated above, we are of the view that the AO of the assessee (person other than searched person) cannot be compelled to pursue remedy necessarily under s.153C of the Act in exclusion to remedy available to the AO under s.147 of the Act. Thus, on this count also, the action of the AO under s.147 of the Act is within the four corners of law and not be faulted. 14.5 The decisions cited on behalf of the assessee are clearly distinguishable and do not raise any conflict with position of law narrated above. The decision rendered by the Gujarat High Court in the case of Cargo Clearing Agency v. Jt. CIT [2008] 307 ITR 1 has been rendered under a different scheme for assessment of search cases i.e. with reference to block period regime. The Hon'ble Gujarat High Court also echoes that in case of conflict between the operation of erstwhile Section 158BC of the Act (pertaining to erstwhile assessment procedure in the case of third person under old scheme) and Section 147/148 of the Act under normal provisions, provisions of erstwhile Section 158BC will prevail. The Hon'ble Gujarat High Court has also opined that proceedings under s.147/148 of the Act will not lie where it is repugnant to the procedure laid down under erstwhile Chapter XIV-B relating to search cases. In the instant case, where the onerous proceedings under s. 153C of the Act has not been invoked and could not possibly be invoked, there was no impediment for initiating proceedings under s.147 of the Act by the AO as discussed in elaboration above. Therefore, in Cargo Clearing Agency and other decisions of the co-ordinate bench cited on behalf of the assessee rendered on similar lines do not give rise to any conflict and are of no assistance to the assessee. 14.6 Consequently, the second additional ground is also dismissed.”

Accordingly, this ground of the assessee is dismissed and the reopening of assessment is confirmed.

Now we proceed to adjudicate the appeals on merits.

Before we deal with the merits of the additions made in the various AYs which are challenged in these appeals, a background of the case needs to be taken note. There was Search and Seizure proceedings carried out by the competent authority under Sec.132 of the Act, in the residence of Smt. Adlene Kagoo, who is stated to be a trusted employee of Shri P. Dayananda Pai (PDP) on 12.4.2011. PDP was also searched on 12.4.2011. PDP was a partner in a firm called Canara Housing Development Company (CHDC). There was also a company by name Century Real Estate Holdings Pvt. Ltd.(Century), which was also controlled by PDP. CHDC and Century and other entities of the group belonging to PDP was also searched on 12.4.2011. In the course of search of PDP certain Compact Discs(CD) were found and seized vide Annexure AK/PDP/06 dated 12.4.2011. The CD contained data pertaining to unaccounted receipts and payments by PDP and Group for the period from 1.4.2002 to 14.6.2008. The data was found with the caption “Dummy(Tally training Environment)” (DTTE). The data contained (i) day to day transactions-cash, bank and journal entries, (ii) Ledger accounts related to transactions in (i) above, (iii) profit and loss accounts for the year ended 31.3.2006 to 31.3.2009 as also the Balance Sheets as at 31.3.2006 to 31.3.2009. PDP and CHDC filed application u/s.245C of the Act on 12.5.2014 before the Hon’ble Settlement Commission, Additional Bench, Chennai (SC) both in the case of PDP and CHDC. PDP owned up the entries in seized document AK/PDP/06 DTTE and offered income from the said document in the hands of CHDC. Income was computed on the basis of DTTE also but ultimately income was offered on the basis of peak credit method after taking note of entries in DTTE. The SC in its order dated 21.05.2015 accepted the peak credit method working as given by the Principal CIT (PCIT) at Rs.171,33,35,769/- less Rs.13,82,48,882/- as expenses i.e., net sum of Rs.157,50,86,914/-. 75% of Rs.1,57,50,86,914 i.e., a sum of Rs.118,13,15,186 was offered as additional income before the SC by CHDC. The remaining sum of Rs.39,37,71,729 was owned up by PDP who was also an applicant before the SC and accepted in the order of SC dated 19.10.2015.

Thus the SC has considered the seized document AK/PDP/06 and DTTE which was owned up by PDP and CHDC and determined income arising out of the same and taxed the same.

As far as the Assessee in this appeal is concerned, he is basically a real estate broker and commission agent. He does the job of liaison for various organizations like identifying negotiating and concluding transactions relating to purchase of properties including obtaining NOC approvals etc., from Government Agencies/Authorities. He used to receive funds towards expenses of client/principal and also payments of advances to sellers of properties for and on behalf of the client. The Assessee receives commission for rendering services. With this background, let us analyze the additions made by the revenue authorities in each AY. (AY 2006-07)

As far as the addition made in AY 2006-07 is concerned, it is a sum of Rs.16,11,774/- u/s.69A of the Act. As we have already observed, there was a Search and Seizure carried out by the competent authority under Sec.132 of the Act, in the residence of Smt. Adlene Kagoo, who is stated to be a trusted employee of Shri P. Dayananda Pai (PDP) on 12.4.2011. PDP was also searched on 12.4.2011. In the course of search of PDP certain Compact Discs(CD) were found and seized vide Annexure AK/PDP/06 dated 12.4.2011. The CD contained data pertaining to unaccounted receipts and payments by PDP and Group for the period from 1.4.2002 to 14.6.2008. The data was found with the caption “Dummy(Tally training Environment)” (DTTE).

For AY 2006-07, the Assessee had already filed his return of income on 31.10.2006 declaring total income of Rs.9,83,780/-. In response to the notice u/s.148 of the Act dated 28.3.2013, the Assessee filed copies of the earlier return of income already filed.

The AO confronted the Assessee with copy of ledger account of the Assessee which was found in the DTTE. The ledger account copy found was for the period from 7.4.2205 to 7.5.2008 (copy of the same is at page 111 to 114 of the paper book). As far as AY 2006-07 is concerned, the entries showed that the Assessee received a total sum of Rs.16,11,774 on various dates. It was the plea of the Assessee before the AO that he had declared gross receipts in business of Rs.48,83,405 in the return of income and the sum of Rs.16,11,774 is included in the gross receipts. In a statement of the Assessee recorded by the Deputy Director of Income Tax (Inv.), Unit-II (I), Bangalore on 23.6.2011 as part of the post search enquiries, the Assessee stated that the payments reflected in the ledger in his name which is part of the DTTE, the same are payments made for meeting day to day expenditure such as registration of GPA etc., and that the same pertains to PDP. The AO wanted to verify from the Assessing Officer (AO) of PDP and was informed by the AO of PDP that in respect of entries found in the DTTE, PDP has filed petition before the SC for AY 2006-2011-12. The AO thereafter proceeded to hold that the transactions recorded in the DTTE are real transactions and since the Assessee has not recorded the receipt of Rs.16,11,774/-, the same has to be brought to tax as unexplained money u/s.69-A of the Act and accordingly brought to tax the sum of Rs.16,11,774/-.

On appeal by the Assessee, the CIT(A) confirmed the action of the AO. In the proceedings before the CIT(A), the Assessee filed a letter dated 5.2.2016 of PDP wherein PDP confirmed that as far as the Assessee is concerned the payments made to him as reflected in the ledger account which is part of DTTE, were nor for any services rendered by him but was only an imprest amount, for advancing money to land lords or reimbursement of expenses incurred on behalf of the Assessee and CHDC. It was also confirmed that the amounts reflected in the ledger have been accepted by PDP and CHDC in the SC and the SC while determining the additional income based on peak credit at the final stage before SC U/S.145D(4) considered and included in the working of peak credit amounts found in the various ledger accounts of DTTE. The Assessee had originally offered peak debit before DDIT and in SC application at the initial stage. The CIT(A) firstly held that the Assessee was giving different version regarding entries found in the ledger account which was part of DTTE by saying that in one AY the money is included in the receipts declared in the return of income and in another AY stating that no money was received by the Assessee from PDP. Secondly the CIT(A) held that what was offered as income before the SC was unexplained expenditure of PDP whereas the expenditure of PDP would be income in the hands of the Assessee and taxing the same in the hands of the Assessee would not amount to double taxation. He also held that nothing has been brought on record to show that the sum taxed by the AO was part of the unexplained expenses offered to tax before the SC. He also held that the letter of PDP filed before him was a self-serving document without any substance.

Aggrieved by the order of the AO, the Assessee is in appeal before the Tribunal. The learned counsel for the Assessee reiterated his stand that the Assessee was only acting as liaison and the ledger was an imprest account where sums were spent on behalf of PDP and CHDC and Assessee has no interest whatsoever except as agent of PDP. He reiterated his stand that since the sum was already taxed in the hands of PDP the same cannot be taxed again in the hands of the Assessee. The learned DR relied on the order of the CIT(A).

We have carefully considered the rival submissions. It is clear from the order of the SC in the case of CHDC that the entries arising from DTTE were offered to tax by the peak credit method. This has been accepted by the CIT(A). The CIT(A) has however gone on the premise that expenditure of PDP or CHDC would be income in the hands of the Assessee. This is contrary to the claim of PDP that the Assessee was acting as liaison for and on behalf of the Assessee that the ledger account was imprest account meaning thereby that whatever is found in the ledger is entries of PDP and CHDC and the Assessee has no interest whatsoever in respect of the sums reflected in the ledger account. It is undisputed that the entire entries in DTTE were considered in the proceedings before SC in determining the income of PDP and CHDC. Therefore the claim of the Assessee ought to have been accepted by the CIT(A). Even before the AO the Assessee has taken a stand regarding the entries in the ledger account being subject matter of proceedings before SC by PDP and CHDC. The fact that the Assessee disowned the entries in one AY and claimed that it is part of receipts disclosed in another AY cannot be the basis to reject the claim of the Assessee. Admissions are good piece of evidence but are not conclusive. The person making the admission is entitled to show that admission is incorrect or was made under erroneous belief or owing to other circumstances. The circumstances of the present case clearly demonstrate the correctness of the plea raised by the Assessee. We therefore direct that the addition made in this regard deserves to be deleted and is hereby deleted.

As far as AY 2007-08 is concerned, the Assessee filed return of income on 13.12.2007 declaring income of Rs.5,06,595/-. A notice u/s.148 of the Act dated 28.3.2014 was issued. The Assessee in response thereto filed the same return of income which he had filed earlier. As part of the DTTE there was another ledger account found of one M/s. D.N. Associates. The Assessee and one Sri Babu Dhammanagi were partners of M/S.D.N. Associates. A copy of this ledger account is at page 115 of the paper book. In this ledger there were entries totalling Rs.4.5 Crores between 5.8.2006 till 19.12.2008. As a consequence to the search in the case of PDP, a survey u/s.133 of the Act was conducted by the revenue in the premises of D.N. Associates on 23.6.2011. Statement of K. Purushothama Adiga, CEO of M/s. Dhammanagi Property Developers was recorded in the course of survey and in reply to question No.10 regarding transactions with PDP as found in the DTTE, he replied that a sum of Rs.6 crores had been paid on different dates by PDP towards advance for property at Devanahalli. Out of Rs.6 Crores, Rs.86 lacs was paid by cheque and the remaining sum of Rs.5.14 crores was paid by cash. D.N. Associates had declared additional income of Rs.3.64 Crores in AY 2007-08 and Rs.50 lacs in AY 2008-09 thus total sum of Rs.4.14 crores were offered in the return of income of D.N. Associates. A sum of Rs.1 Crore was paid by M/s. Dhammanagi Property Developers. In the copy of this ledger account is at page 115 of the paper book, there was entries dated 12.8.2006, 2.11.2006, 18.11.2006 and 23.11.2006 wherein there is a description of cash received of Rs.36,00,000, Rs.25,00,000, Rs.19.50,000 and Rs.5,50,000 (total of the above sum is a sum of Rs.86 lacs) respectively towards Devanahalli Dhaba property by the Assessee by cash. With regard to the sum of Rs.86 lacs, the Assessee was called upon to explain cash of Rs.86 lacs. The Assessee in his reply to the AO dated 9.12.2014 denied the transaction.

Aggrieved by the aforesaid addition the Assessee filed appeal before CIT(A) and reiterated contentions that were identical to the contention set forth in AY 2006-07 apart from contenting that the entries relate to the firm and not to him in his individual capacity. The CIT(A) for the very same reasons given for rejecting the plea of the Assessee in AY 2006-07, rejected the plea of the Assessee in this year i.e., AY 2007-08 also. Aggrieved by the order of the CIT(A), the Assessee is in appeal before the Tribunal. He did not deal with the ground of appeal that addition ought not to have been made in Assessee’s individual capacity.

The Assessee filed return of income for AY 2008-09 declaring total income of RS.21,76,520/-. A notice u/s.148 of the Act dated 28.10.2014 was issued to the Assessee and in response to the same the Assessee filed copies of returns which he had originally filed. As far as this AY is concerned, the same ledger account in the name of the Assessee being part of DTTE was the basis of one of the addition of a sum of Rs. 1,75,10,000/-. The entries in the ledger for the period from 6.10.2007 to 17.1.2008 showed payments of Rs.1,75,10,000/- to different persons and authorities.

As part of the DTTE there was another ledger account found of one M/s. D.N. Associates. The Assessee and one Sri Babu Dhammanagi were partners of M/s. D.N. Associates. A copy of this ledger account is at page 115 of the paper book. In this ledger there was an entry dated 6.4.2007 with description received towards Devanahalli property Rs.50 lacs through Anand Nadig i.e., the Assessee towards Devanahalli Dhaba property through the Assessee.

The Assessee reiterated his stand as in AY 2006-07 that he was doing liaison work for PDP and CHDC and that whatever was found in the ledger account is imprest account and monies spent on behalf of PDP or CHDC and since the sums have been offered to tax by PDP and CHDC in the proceedings before SC, the same cannot be regarded as income of the Assessee. As far as entry found in the ledger account of M/S.D.N. Associates is concerned, the Assessee disowned the transaction.

The AO however for identical reasons given for making addition in AY 2006-07 & 2007-08 added a sum of Rs.2,25,10,000/- (Rs.1,75,10,000 + Rs.50,00,000). The CIT(A) confirmed the action of the AO, hence appeal by the Assessee before the Tribunal.

We have heard the rival submissions, which were identical to the submissions made in AY 2006-07 & 2007-08. We have while deciding the issue with regard to entry in the ledger account in the name of the Assessee (to the extent of Rs.1,75,10,000/- in AY 2008-09) already held that the sums were offered to tax by PDP and CHDC before the SC and that the Assessee was only agent spending money for those parties in the form of an imprest account and therefore the addition in the hands of the Assessee was deleted. Similarly with regard to the sum of Rs.50 lacs which is found in the ledger account of D.N. Associates, we have already held that the sums found in those ledgers cannot be added in the hands of the Assessee in his individual capacity. For the reasons given therein, we direct that the additions made be deleted.

As far as AY 2009-10 is concerned, the Assessee filed return of income on 29.9.2008 for the relevant AY declaring income of Rs.5,27,267/-. A Notice dated 28.10.2014 u/s.148 of the Act was issued calling for a return of income in response to which the Assessee filed the return originally filed as a return in response to the notice u/s.148 of the Act.

In the ledger account in the name of the Assessee which was part of the DTTE, a sum of Rs.11 lacs was shown as having been received on 7.5.2008 by the Assessee from PDP towards Thallaghapura S.No.30 Katha Expenses. This addition is made on the basis of the same ledger extract which is subject matter of addition in AY 2006-07. The facts and circumstances are identical to the addition made in AY 2006-07. We have already deleted similar addition in AY 2006-07 for the reason that the sum in question cannot be taxed in the hands of the Assessee as it was imprest account and records money received and spent on behalf of PDP. For the reasons stated therein, we direct that the addition made be deleted.

In the result, the appeals are partly allowed.