DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-2 LUDHIANA, LUDHIANA vs. AMARJIT SINGH , BATHINDA

Ground No. 2 and 4 are inter-connected with each other. In these grounds, assessee has challenged the very jurisdiction of the AO for passing an assessment order under Section 153A read with Section 143(3) of the Income Tax Act. & C.O. 07/CHD/2024 A.Y.2019-20 4

In brief, facts of the case are, a search & seizure operation was carried out upon the premises of the assessee on 26.02.2020. According to the AO, assessee belongs to Home Line Group of Cases, Mohali. A simultaneous search was conducted on the premises of one Shri Kapil Romana on whose premises a document heading “BTD 2011” was found and seized. According to the AO, this document exhibits an outstanding loan taken from one Shri “Happy Jee” at Rs.11,45,78,645/- is available. The AO was of the view that assessee must have advanced this loan to Shri Kapil Romana which is recorded in said ledger. Therefore, on the basis of this document, the AO confronted the assessee to explain the source of such loans advanced by him to Shri Kapil Romana. The assessee has submitted that this document was not in his handwriting. It was not found from his possession. It is in the handwriting of some other person, it was found from the possession of third person. He has no connection with any such transaction. We will be dealing with this issue on merit while taking up the appeal of the revenue but for & C.O. 07/CHD/2024 A.Y.2019-20 5 a limited purpose, its reference is being mentioned here because according to the assessee, the assessment has been framed under Section 153A and documents found during the search of a third person is being used by the ld. AO for making an addition on the basis of a document seized from third person, an assessment ought to have been passed under Section 153C of the Income Tax Act. In other words, AO ought to have followed the procedure contemplated in Section 153C of the Income Tax Act. The ld. Counsel for the assessee drew our attention towards Section 153C and thereafter submitted that since AO failed to adhere this procedure, hence his assessment

6.2 The ld. CIT DR, on the other hand contended that since notice under Section 153A was served upon the assessee as the assessee was also covered under the search action, therefore, it was open for the AO to look into all the relevant material.

We have duly considered the rival contentions and have perused the record carefully. Section 153C has a direct bearing on the controversy. Therefore, we deem it appropriate to take note of the relevant part of this Section which read as under :

A bare perusal of this Section would reveal that if during the course of a search, any money, bullion, jewellery or books of account pertains to any person other than the searched person, then AO of the searched person would record his satisfaction exhibiting the fact that income pertaining to other assessee has escaped assessment. Thereafter, he would transmit that seized material alongwith his satisfaction note to the AO having territorial jurisdiction over such other person, the AO of the other person would also record his satisfaction and issue notice under Section 153C of the Income Tax Act. In the present case, the AO of Shri Kapil Romana has not & C.O. 07/CHD/2024 A.Y.2019-20 8 recorded any satisfaction that document ‘BTD-2011’ pertains to the assessee. It is a ledger account of Shri Kapil Romana. At the most, information contained in this document partially be pertaining to the assessee. But in both the courses, he has to first record his satisfaction that income pertaining to the assessee Shri Amarjit Singh has escaped assessment and therefore, he is transmitting these seized materials to the AO of the assessee but no such procedure has been followed. A similar situation has been dealt with by Hon'ble Karnataka High Court in the case of CIT Vs IBC Knowledge Park. The relevant observations contained in paragraph No. 49 to 51 are worth to be noted which read as under : “49. On a conjoint reading of the aforesaid provisions, it becomes clear that a search can take place only when a concerned officer has information and reason to believe that any person is in possession of any valuable assets, which has not been or would not be disclosed under the Act. In such a case, a search can take place. Following the search, if any books of account, other documents, any valuable assets is or are found in the possession or control of any person in the course of a search, then the books of account or other documents or valuable assets could be seized. Under Section 153A, the satisfaction regarding an inference of liability must be recorded. The Assessing Officer has to issue notice to the assessee i.e., the person searched for the purpose of assessment or reassessment of the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted. Section 153C as already noted, deals with assessment of income of any other person, when the Assessing Officer is satisfied that the books of account or documents or valuable assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to under sub-section(l) of Section 153A of the Act. In such a & C.O. 07/CHD/2024 A.Y.2019-20 9 case, the Assessing Officer has to issue notice to assess or reassess income of other person under Section 153A of the Act. Thus, the fact that search has been conducted would not justify issuance of notice under Section 153A. If it is only during a valid search when certain incriminating materials are detected, notice could be issued.

Chapter XIV-B which deals with special procedure for assessment of search cases deals with undisclosed income as a result of search, the computation thereof and such other provisions. Undisclosed income is defined in Clause (b) of Section 153B. Undisclosed income includes money, bullion or other valuable assets. It is only when the concerned officer has information about the same and has reason to believe that the said valuable assets has not been or would not be disclosed would give jurisdiction to the officer authorized to conduct a search operation. Therefore, the object and purpose of a search is to detect undisclosed income. As defined under Clause (b) of Section 158B of the Act, it is only when the undisclosed income is detected in a search operation that there would be assessment or reassessment, under the provisions of Chapter XIV-B of the Act, of the person who is presumed to be in possession of the undisclosed income. If during the course of search, any valuable assets belongs to or any books of account or document seized or requisitioned pertains to or any information contained therein relates to a person other than the persons searched, then the Assessing Officer, on recording satisfaction, can also assess and reassess the income of any other person. Thus, what emerges is that the sine qua non for the purpose of assessment or reassessment pursuant to a search operation is detection of undisclosed income. In fact, the initiation of search proceeding is also based on possession of information and reason to believe that a person is in possession of certain valuable assets, which has not been or would not be disclosed under the Act. The same is nothing but 'undisclosed income' as defined in Clause (b) of Section 158B(b) of the Act. This becomes even more clear on a comparison of section 132(l)(c) with Section 158B(b) of the Act. It is for the above reason that Sections 153A and 153C begin with a non-obstante clause in order to make these provisions exclusive of Sections 139, 147, 148, 149, 151 and 153 of the Act. If a search operation does not lead to detection of undisclosed income as defined in Chapter XIV-B of the Act, then no purpose would be served in reopening the assessment already completed. Also, if there is no detection of any undisclosed income, then there would be no need for pending assessment to abate. Thus, when particulars of income declared in the return is already available with the Assessing Officer, such income cannot form part of undisclosed income even if such return is filed beyond the time-limit, but before search, as long as they relate to any year covered in the block. Thus, a block assessment is justified only on the basis of evidence found during search and the materials or information relatable thereto. Section 153C is in pari materia with Section 158BD conferring jurisdiction over third parties to a search providing certain conditions before the Assessing Officer having jurisdiction over a third party can assume jurisdiction. Materials such as books of account, documents or valuable assets found during a search should belong to a third party which would lead to an inference of undisclosed income of such third party. Such an inference & C.O. 07/CHD/2024 A.Y.2019-20 10 should be recorded by the Assessing Officer having jurisdiction over the searched persons and communicated to the Assessing Officer having jurisdiction over such third party along with the seized documents and other incriminating materials on the basis of which the Assessing Officer having jurisdiction over such third party would issue notice under Section 153C. On receipt of the aforesaid material, the Assessing Officer having jurisdiction over such third party would proceed against the said third party. Thus, where no material belonging to a third party is found during a search, but only an inference of an undisclosed income is drawn during the course of enquiry, during search or during post-search enquiry, Section 153C* would have no application. Thus, the detection of incriminating material leading to an inference of undisclosed income is a sine qua non for invocation of Section f 53C of the Act.

Before considering the decisions cited at the Bar, it is necessary to refer to a decision of the Hon'ble Supreme Court in Manish Maheshwah v. Asst. CIT [2007] 289 ITR 341/158 Taxman 258. In that case, search was conducted on one of the directors of the assessee-company M/s. Indore Construction (Pvt.) Ltd. When the search was conducted in the premises of the director Sri. Manish Maheshwari and his wife several incriminating documents relating to the company were seized. While dealing with Section 158BD of the Act, the Hon'ble Supreme Court has observed as under: "Condition precedent for invoking a block assessment is that a search has been conducted under Section 132, or documents or assets have been requisitioned under Section 132A. The said provision would apply in the case of any person in respect of whom search has been carried out under Section 132A or documents or assets have been requisitioned under Section 132A. Section 158BD, however, provides for taking recourse to a block assessment in terms of Section 158BC in respect of any other person, the conditions precedents wherefor are : (i) Satisfaction must be recorded by the Assessing Officer that any undisclosed income belongs to any person, other ,than the person with respect to whom search was made under Section 132 of the Act; (ii) The books of account or other documents or assets seized or requisitioned had been handed over to the Assessing Officer having jurisdiction over such other person; and (iii) The Assessing Officer has proceeded under Section 158BC against such other person. The conditions precedent for invoking the provisions of Section 158BD, thus, are required to be satisfied before the provisions of the said chapter are applied in relation to any person other than the person whose premises had been searched or whose documents and other assets had been requisitioned under Section 132A of the Act." 8.1 The other orders relied upon by the assessee of ITAT Chandigarh Bench are on the same line. & C.O. 07/CHD/2024 A.Y.2019-20 11

It is further observed that Section 158BD is pari materia to Section 153C and judgement of Hon'ble Supreme Court in the case of CIT Vs Calcutta Knitwears reported in 362 ITR 673 also laid down the conditions when 158BD could be invoked.

At the time of hearing, ld. CIT DR has expressed his apprehension as to how income pertains to an assessee unearthed during the course of search carried upon third person is to be taken into consideration when assessment proceedings of the assessee under Section 153A are open.

The kind of revenue involved in this appeal of the Department indicates that dispute will be carried on before the higher appellant authorities. Therefore, we deem it appropriate to adjudicate the issue on merits also.

Dissatisfied with the above, assessee carried the matter in appeal before the CIT(A). Ld. First Appellate Authority has appreciated the issue in detail and recorded the finding from page No. 18 to 31 of the impugned order.

The ld. CIT DR relied upon the order of AO and submitted that since assessee is known as ‘Happy Ji’ his ledger account was found during the search upon one Shri Kapil Romana, therefore, it is the duty of the assessee to explain the source of opening balance in the books of Shri Kapil Romana.

On the other hand ld. Counsel for the assessee has raised multiple contentions. In his first fold of arguments, he submitted that this document was found from the premises of a third person. Assessee has no control over writing this document. A third person could write anything, how assessee would be responsible to explain those entries. There is no other corroborative evidence possessed by the Revenue. He relied upon judgement of Hon'ble Supreme Court in the case of CBI Vs V.C.Shukla and others (1998) 3 SCC page 410. In this judgement, Hon'ble Supreme Court has considered whether contents of Diary impounded from third party could lead to prove charges against the accused under the & C.O. 07/CHD/2024 A.Y.2019-20 18 Prevention of Corruption Act, 1988. It is a famous case of ‘Jain Hawala’. In his second fold of contentions, he submitted that it is not ascertainable who has written this ledger. It is not discernible whether statement of Shri Kapil Romana was recorded under Section 132(4) of the Income Tax Act or not. It is also not on the record whether he was confronted with this ledger or not. Apart from above, he emphasized that the presumption of truth attached to discovery of an evidence and the statement recorded under Section 132(4) is confined to the person from whose possession such document was found and who has made the declaration. In a statement under Section 132(4), the document as well as the statement cannot bind a third person namely in the present case, the assessee.

The ld. Counsel for the assessee further contended that document is to be read as a whole. He took us through the document which is being reproduced by the CIT(A) at page 20 of the impugned order. He & C.O. 07/CHD/2024 A.Y.2019-20 20 pointed out that after the first entry exhibiting opening balance, next entry is APEX HDFC Bank ‘Receipt’. The AO failed to establish any relationship of the assessee with this entry. Similarly, third entry is not related to the assessee. The assessee does not know any Malhotra Group etc. and as to why these entries of third person are being appearing in a ledger account alleged to be relating to the business of the assessee in Shri Kapil Romana’s books. He further contended that a reference was made by the AO regarding ASC Builders Pvt. Ltd. Assessment proceedings were initiated for assessment year 2020-21 but no action was taken by the AO. The CIT(A) has reproduced the assessment order on page No. 22 and 23. Similarly CIT(A) has reproduced assessment order of Shri Jagjeet Singh on page No.

The CIT(A) has observed that AO has made a mention of one Shri Jagjeet Singh Chawla but no addition was made in the name of Shri Jagjeet Singh Chawla. In other words, according to the ld. Counsel for the assessee, except the addition of alleged & C.O. 07/CHD/2024 A.Y.2019-20 21 opening balance, AO has not made any addition out of this paper.

We have duly considered the rival contentions and gone through the record carefully. We find that document was not found from the premises of the assessee. An addition under Section 153A could not be made in the income of the assessee unless incriminating material was found during the course of search carried out upon the premises of the assessee. We rely upon the judgement of Hon'ble Supreme Court in the case of Abhisar Buildwell Pvt. Ltd. 454 ITR 212. The conclusion of the Hon'ble Court in paragraph No. 12 read as under :

The authenticity of the document has not been proved by the AO because assumption of truth contemplated under Section 132(4) is confined qua the person who has confessed a document. In other words, this document was from the books of Shri Kapil Romana and if he admits these entries pertaining to him can be construed as true qua him and he can be bound for the liabilities, but not a third person. We rely upon the judgement of Hon'ble Supreme Court in the case of CBI Vs V.C.Shukla (supra).

It is pertinent to note that when an explanation or defence by an assessee based on number of facts established by evidence and circumstances required consideration, whether it is sound or not, must be determined not by considering the weight to be attached to each single fact in isolation but by assessing the cumulative effect of all the facts as a whole. Thus, this cumulative setting of all these folds of contentions raised by the assessee do indicate that evidence possessed by the Revenue is not worthy of credence and on this basis, no addition could be made in the hands of the assessee. We find that ld. First Appellate Authority has considered all these aspects elaborately in a well reasoned order wherein & C.O. 07/CHD/2024 A.Y.2019-20 24 ld. First Appellate Authority had taken into consideration various propositions propounded by the Hon'ble Supreme Court as well as Hon'ble High Courts. We do not find any error in the finding of the CIT(A) and we concur with it.

In the result, Cross Objections of the assessee are partly allowed. The ld. CIT(A) has rightly deleted the additions. The appeal of the Revenue is dismissed on merit.