SRI PANATI VIDYANATH REDDY,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2(4), BANGALORE

It has been submitted that, assessee stays in residential premises with other family members, and is a common residence for 19 members of the same family. During the course of search, cash amounting to Rs.14,80,000/- and 1970.39gm of gold jewellary were seized as unaccounted from assessee’s residence.

After completion of search the case was centralised and Ld.AO issued notice under section 153C of the act on 05/10/2016 calling upon assessee to file return of income for assessment years under consideration.

Assessee raised objection on issuance of notice under section 153C of the act on the premise that provisions of section 153C are applicable only when there is a search in of premises and during the course of search certain papers/documents are found that belong to other person, and that AO of searched person is satisfied that such papers etc., belongs to a person, other than searched person. Ld.AO rejected the contentions of assessee’s and passed assessment order by holding that jurisdiction under section 153C of the act has been resumed correctly. Ld.AO passed assessment order on 13/11/2016 in respect of all assessment years under consideration by estimating

For assessment year 2015-16, there were 2 more additions made by Ld.AO in respect of 1/3rd cash seized from the premises, amounting to Rs.4,93,000/- and addition of Rs.16,42,900/- in respect of 1/3rd gold seized at the time of search.

Aggrieved by additions made by Ld.AO, in all the assessment years under consideration appeal was filed before Ld.CIT(A) wherein assessee challenged assumption of jurisdiction by Ld.AO under section 153C of the Act, along with additions made in respective years. Ld.CIT(A) after perusal submissions advanced and document placed on record, called for records of searched person Sh.P.Gopinath Reddy. Ld.CIT(A) found that, Ld.AO of Sh.P.Gopinath Reddy recorded satisfaction that there was seized cash and jewellery belonging to assessee before us that was found and seized at the time of search which has been handed over to assessing officer of assessee subsequently. Ld.CIT(A) observed in para 5.2 of his order that, assessing officer of assessee recorded satisfaction for initiating proceedings under section 153C of the Act, and assessment records and thus Ld.AO in the present case has followed the procedure for initiating proceedings under section 153C of the Act, and that there has been material found and seized that belong to assessee in the course of search conducted. Ld.CIT(A) upheld additions made by Ld.AO for all assessment years under consideration.

Aggrieved by order passed by Ld.CIT (A) assessee is in appeal before us now. Validity of assessment u/s.153C: 9. Ld. A.R. submitted that this issue is common for assessment year 2013-14 and 2014-15 only. 10. Ground 2A,2B for assessment year 2013-14 and 2014-15 are raised, challenging validity of assessment order passed under section 153C of the Act. 11. At the outset, Ld.AR submitted that, this Tribunal in case of Sh.P.Vithalnath Reddy, in 1770/Bang/2017, for assessment years 2013-14 to 2015- 16, vide order date 26/02/2020 considered similar additions and issues raised by assessee therein. 12. For sake of convenience Ld.AR filed synopsis of issues involved and findings of this Tribunal in case of Sh.P.Vittalnath Reddy (supra) which is as under:

Both sides submitted that the issues may be sent back to Ld.AO to verify issues raised in present appeals in light of observations of this Tribunal in case of Sh.P.Vittalnath Reddy (supra).

We have perused submissions advanced by both sides in light of records placed before us. 15. We note that ground No. 2A, 2B raised for assessment year 2013-14 and assessment year 2014-15 is in respect of Page 6 of 13 1772 & 1773/Bang/2017 validity of assessment under section 153C of the Act, alleging that no incriminating material has been found belonging to assessee and no satisfaction note has been recorded and furnished to assessee.

This issue has been decided by this Tribunal in case of Sh.P. Vittalnath Ready (supra) upholding the validity of proceedings under section 153C of the Act by observing as under: “10. We have heard the rival submissions and perused the relevant material on record. The section 153C of the Act reads as under:- "153C [(1)] Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153. where the Assessing Officer is satisfied that any money, bullion, jewel/cry or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or 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 in sub-section (1) of section 153A. Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to 5 [subsection (1) of section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing - Officer having jurisdiction over such other person" ii. Considering the above provision of the Act and findings of C I TI (A) who has held once the some material found belonging to the appellant having bearing on the assessment of income, the AO has no choice but duty bound to issue notice under section 153C of the Act. The case laws relied by the counsel are distinguishable on facts as in the case of the assessee there was no seizure of assets in the form of valuables cash and jewellery was found. Therefore, same is upheld.”

As facts and circumstances in both these cases are identical arising out of the same search conducted on the group, we do not find any reason to deviate from the above findings. We also note that Ld.CIT(A) held that materials found belonging to assessee was found during course of search, from searched premises, and therefore, notice issued under section 153C of the Act is valid. Accordingly these grounds raised

In present facts of the case Ld.AR submitted that issue is identical. It is also been alleged by Ld. ar that no incriminating material was found during search relating to assessment year 2013-14.

We therefore direct Ld.AO to verify the same and consider the claim of assessee. In the event it is found that time period for issuance of notice under section 143 (2) stood expired, and that no incriminating materials were found, no addition could be made under section 153C. Accordingly, this ground for assessment year 2013-14 stands allowed for statistical purposes. AY:2014-15 & 2015-16 23. In respect of assessment year 2014-15 and 2015-16, Ld.AR submitted that, this Tribunal partly allowed by limiting the estimation to 8% of gross receipts, by observing as under: 30. We have heard the rival submissions and perused the relevant material on record. We find that the assessee could not produce books of accounts and supporting vouchers of expenses and there was huge expenses debited in Profit & Loss Account. Hence, we are of the considered opinion that the AO has rightly rejected book result under the provisions of section 145 of the Act. Hence, same is upheld. However, so far the estimation of percentage at 8.5% is concerned, we find that the rate of gross profit is disclosed at 8.94% in A.Y. 2011-12, 8.98% in A.Y. 2012-13 , 7.43% in A.Y. 2013-14, 7.12% in A.Y. 2014-15 and 7.12% in A.Y. 2015-16 of which average comes to 7.918%. Hence, the CIT(A) was not justified adopting rate at 8.5% of gross receipts by upholding the addition on this account. Since, the average gives a rate of 7.918%, which is almost equal presumptive rate of 8% under section 44AD in the case of non-maintenance of books of accounts. Therefore, on careful consideration of facts and taking a reasonable approach, it would be met end of justice, if the profit rate were applied to 8% being equal to presumptive rate under section 44AD of gross

We note that, above observation has been applied mutatis mutandis for assessment year 2015- 16 in para 39 at page 195 of paper book.

Both sides has admittedly submitted that facts and circumstances based upon which petitions have been made in case of present assessee are similar to the facts in case of Sh. P Vittalnath Reddy, (supra) considered by this Tribunal, vide order dated 26/02/2020.

Ld. senior DR submitted that the issue may be set aside to learnt AO for verification.

We have perused submissions advanced by both sides in light of records placed before us. 31. We note that in case of Sh. P Vittalnath Reddy, (supra) this Tribunal considered this issue by observing as under: “45. We have heard the rival submissions and perused the relevant material on record. We find that the assessee has withdrawn cash of Rs. 7 Lakh on O1.10.2014, hence, this cash might be available with the assessee on the date of search. As against this, the addition made by the AO is Rs.4.93 lakhs only. We further note that the assessee has been showing substantial income over the years and ate of business requires holding cash in hand for making weekly payments to pourakarmikas, diesel etc. Considering these facts, it can be assumed that cash of Rs.4.93 Lakh was available out of known sources, which can be considered as explainable out of cash withdrawals made prior a week of search date. Therefore, we are of the view the AO was not justified in making this addition, hence, the addition of Rs.4.93 lakh is directed to be deleted. This ground of appeal is, therefore, allowed.”

Ld.Sr.DR submitted that the issue may be set aside to learnt AO for verification.

We have perused submissions advanced by both sides in light of records placed before us. 37. We note that in case of Sh. P Vittalnath Reddy, (supra) this Tribunal considered this issue by observing as under:

We direct Ld.AO to verify the facts for year under consideration and to consider the claim in light of observations of this Tribunal in case of Sh.P.Vittalnath Reddy, (supra).