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Income Tax Appellate Tribunal, DELHI BENCH “D”: NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI L.P. SAHU
The aforesaid appeals have been filed by the assessee against consolidated order dated 29.8.2016, passed by Ld. CIT(Appeals) 5 Delhi for the quantum of assessment passed u/s 153C/153A read with section 143(3) for the assessment years 2007-08; 2010-11 and 2011-12. Since common issues are involved in all the appeals arising out of identical set of facts, therefore, same were heard together and have been disposed of by way of this consolidated order. As a lead case we are taking up the case of A.Y. 2007-08 and our finding given therein will mutatis mutandis for the assessment years 2010-11, 2011- 12 also.
The brief facts and background of the case are that, the assessee is private limited company engaged in the business of real estate, consultancy, sale and purchase of property and brokerage. It had filed its regular return of income on 27.10.2007 showing an income of Rs. 57,79,622/-. A search and seizure operation u/s 132 was conducted on M/s. M.P. Bullion Group, M/s. Ravi Bullion Group and other related cases on 25.11.2010 at Indore. As noted by the AO during the course of search at Indore in the case of ‘searched persons’, certain documents belonging to the assessee were seized; and on the basis of such documents said to be belonging to the assessee company, proceedings u/s 153C was initiated. ‘Satisfaction note’ u/s 153C was recorded for taking initiation against two persons, firstly, assessee M/s Lal Sai Estate Pvt. Limited; and secondly, Shri Sunil Keshwani. The relevant satisfaction note dated 13.2.2013 reads as under: - “The DCIT, Cir.4(1), New Delhi has forwarded vide his office letter No. DCIT Circ. 4(1) IND/Misc./2012-13 dated 9.10.2013 certain letters dated 6.9.2012, 7.9.2012 & 13.9.2012, which were received from the O/o ACIT Cir.2(1), Indore. It is noticed from these three letters of ACIT, Cir. 2(1), Indore that a search and seizure operation u/s 132 of the I.T. Act, 1961 was conducted at the various premises of M/s. M.P. Bulion Group and M/s. Ravi Bullion Group on 25.11.2010. During the course of search proceedings on one of the business premises of M/s. M.P. Bullion Group on C-21, Mall Pvt. Ltd. At 263, Orbit Mall, Indore various documents/books of accounts were seized. The ACIT, Cir. 2(1), Indore has forwarded certain information, documents etc. pertaining to M/s. Lal Sai Estate Pvt.
Ltd. Which were seized from the above premises because the case of M/s. LalSai Estate Pvt. Ltd. is assessed in ward-4(3), New Delhi. Accordingly, ACIT Circ-2 (1) Indore has reported his satisfaction for taking action u/s 153C in respect of M/s. LalSai Estate (P) Ltd. After going through the recorded alongwith information, documents received from ACIT, Cir 2(1), Indore in respect of M/s. Lal Sai Estate Pvt. Ltd. I am also satisfied for taking necessary action in the case of M/s. Lal Sai Estate (P) Ltd. u/s 153C of the I.T. Act, 1961 in A.Y. 2005-06 to 2010-11. Issue separate notice u/s 153-C in these six Assessment Years. I.T.O Ward – 4(3)”
3. Similar ‘satisfaction’ has also been noted in the case of the Director of the assessee company, Shri Sunil Keshwani. Thus, based on same document, satisfaction u/s 153C has been recorded in the case of two persons. Ld. AO during the course of the assessment proceedings required the assessee to furnish the source and evidence of investment/ payment amounting to Rs. 1.99 crores to Shri Keshav Nachani / Shri Omprakash Dhanwani in respect of land situted in Khajran Village, Indore. This show-cause notice was based on the documents found during the course of search which was in the form of undated “Ikrarnama” or some kind of settlement deed. In response, the assessee submitted that it had entered into an agreement with Shri Om Prakash Dhanwani for purchase of a land admeasuring 10,135.87 Sq. Mt. against which a down payment of Rs. 51 lacs were made vide cheque No. 580200/- dated 25.8.2006 drawn at Allahabad bank; and cheque No. 366419 dated 7.9.2006 for Rs. 1.99 lacs drawn on Citi bank towards balance payment. Shri Om Prakash Dhanwani had encashed cheque of Rs. 51 lacs and recorded the same in the books of account. Thereafter, it came to the knowledge of the parties that the said land had come under the scheme of Indore Development Authority (IDA) and the land may not be transferable; therefore, there was no further encashment of cheque of Rs. 1.99 crores which was later on returned to the assessee. Thus, the deal could not fructify and the entire agreement was cancelled. The said cheque was reversed in the books of the assessee company and no such investment was made by the assessee. However, the Ld. AO held that as per the settlement deed dated 16.8.2006 between the above-mentioned parties there was a reference to an amount of Rs. 2,50,00,000/- claimed to have been given to the seller by the purchaser on account of purchase of property situated at Khajran village, admeasuring area of 10133.16 Sq. Mt. The said agreement also mentions about three ‘panchas’ (witness) who were appointed for resolving the dispute and it was also stipulated that the first party, i.e., the seller will return the whole amount of Rs. 2,50,00,000/- to the second party, i.e., the assessee; and further compensation/penalty of Rs. 2,50,00,000/- will also be paid by the first party to the second party. Hence, in all sum of Rs. 5 crores were to be given by the first party to the second party. In para 4 of the settlement deed/ arbitration award, there was a schedule of payment decided by the panchas/ arbitrators which was as under: - 1. 11.08.2009 Rs. 1,00,00,000/- 2. 31.01.2010 Rs. 1,00,00,000- 3. 30.04.2010 Rs. 1,50,00,000/- 4. 31.08.2010 Rs. 1,50,00,000/-
4. In the assessment order it has been noted by the AO that in the said settlement deed there was a signature of Keshav Nachani though appearing for the first party but accepts that it does not contain signature of Shri Om Prakash Dhanwani, who was the key person and first party himself/seller. The copy of settlement deed was seized from the business premises of Shri Keshav Nachani. The investigation wing had asked for the justification of the said settlement deed from Shri Om Praksh Dhanwani (seller) who vide his reply dated 16.6.2011, had submitted that the said settlement deed has been neither agreed by or signed by him nor was found from his place. He had further submitted that the said land belongs to him and his maternal uncle Shri Keshav Nachani was looking after this land and they have entered into an agreement with Shri Sunil Keshwani, Director of the assessee company for the sale of land and has received a cheque of Rs. 51 lacs which recorded in his books of accounts. He further clarified that since the said land was notified under the scheme by Indore Development Authority, therefore, no further payment was received or paid nor any financial transaction has taken place in respect of the said land. He denied the knowledge of the settlement deed as it does not contain his signature. Ld. AO after noting down all the above facts, somehow deduced that sum of Rs. 2.5 crores then must have been paid in cash in respect of the above-mentioned property and such an advance is not appearing in the balance sheet of the assessee company. He further deduced that sum of Rs. 1.99 crores which must have been paid in cash was not recorded or accounted for in the books of account. AO further observes that when this fact was confronted to Shri Keshav Nachani, he could not explain as he did not remember anything about this. Shri Keshav Nachani has written a letter to the Department which reads as under: - “In this connection it is humbly submitted that the said agreement was under discussion subject to approval of Shri Omprakash Dhanwani. That Shri Dhanwani is owning the land specified in the unexecuted agreement. That as against sale agreement Shri Omprakash Dhanwani has received Rs. 51,00,000/- from Shri Sunil Keshwani by cheque and who has also agreed to pay Rs.2,00,00,000/- and stated that cheques were given. That due to declaration of the said land under scheme by IDA and being matter under litigation, the said funds were not received/credited in the books of Shri Dhanwani. That due to reason as stated above, the deal could not be materialized and Shri Dhanwani asked him to settle the matter between him and Shri Sunil Keshwani, subject to clearance of land from IDA. It was agreed in principle to refund the amount so received with equivalent amount of compensation. That Shri Keshwani was of the view that the compensation should be equivalent to amount of Rs. 2,00,00,000/- to which Shri Dhanwani was not agreed, in absence of receipts of the same. Thus, Shri Dhanwani did not sign that said agreement and therefore, the said alleged agreement is incomplete, as parties in agreement have not reached to finality on mutually agreed terms. For the sake of information, please note that the said land is still under the scheme and no final transaction related to transfer has been affected.”
Ld. AO despite this information on record and letters written by the parties, held that assessee has taken back the cheques mentioned in the sale agreement and instead must have paid unaccounted cash in view of the sale consideration and accordingly, he held that sum of Rs. 1,99,57,000/- (Rs. 2.5 crore is an unexplained investment u/s 69)
6. In the assessment year 2010-11 and 2011-12, the AO has further added sum of Rs. 2 crores in the assessment year 2010-11 and Rs. 3 crores in the assessment year 2011-12 on the premise that under the said agreement there was a clause that if the deal is not honoured by the first party then first party will pay compensation of Rs. 5 crores to the assessee company as per the settlement deed under terms of the payment schedule as incorporated above.
Before the Ld. CIT (A) the assessee has challenged the validity of initiation of proceedings u/s 153C and in support has heavily relied upon the judgement of Hon’ble Delhi High Court in the case of Pepsico India Holdings Pvt. Ltd. vs. ACIT (2015) 370 ITR 295 and catena of other judgments as noted in the appellate order. Assessee’s submission in this regard has been incorporated in the impugned appellate order from pages 10 to 18. After calling for the remand report from the AO, Ld. CIT (A) held that in the present case neither the AO of the searched person nor the AO of the assessee have categorically held that documents in question belongs to the assessee company and it refers to the settlement deed, wherein there is a consideration for the purchase of property at Rs. 2,50,00,000/-. Whence, there is a document evidencing such particulars which has also been signed by the assessee then the said document belongs to the assessee. After referring to the judgment of the Hon’ble Supreme Court in the case of CIT vs. Calcutta Knitwears (2014) 362 ITR 673, he held that ‘satisfaction’ has rightly been recorded and the proceedings u/s 153C has been legally initiated. She also distinguished the judgment of Hon’ble Delhi High Court in the case of Pepsi Foods Pvt. Ltd. (supra).
In so far as the merits of the addition is concerned, Ld. CIT(A) after capturing the whole facts as discussed in the assessment order as well as the material on record, held that the Ikrarnama (agreement) was signed by Shri Sunil Keshwani (in his capacity as Director) and said deed clearly states that payment has been made to the seller and said document has been duly signed by Shri Sunil Keshwani and also by Shri Keshav Nachani, who was not only one of the ‘panchas’ but also the person who can influence the seller, i.e., Shri Om Prakash Dhanwani. The said seized document was found at the business premises of Shri Keshav Nachani and therefore, presumption that assessee has paid the money gets strengthened. She also rejected the assessee’s contention that if the seller has not signed the document then it is not an agreement and hence it is a dump document. She observed that Shri Keshav Nachani though in his affidavit has denied his role in transaction, but in his earlier letter to investigation wing he has confirmed that all the land transactions were looked after by his uncle Shri Kesh Nachani. She also observed that on perusal of the bank statement it is observed by her that no payments have been made through banking channel and therefore, it can be inferred that payments must have been made in cash. She also inferred that cash must have been drawn and handed over to Shri Keshav Nachani and sum of Rs. 51 lacs which was paid through cheque amount of Rs. 51 lacs is not appearing in the bank statements. Thus, she presumed that all the payments must have been paid in cash including a sum of Rs. 1.99 crores as was mentioned in the ‘Ikrarnama’. After detailed discussion she rejected all the contentions of the assessee.
One very important fact which was brought to the notice of the Ld.CIT(A) was that, in the hands of the seller based on same ‘Ikrarnama’, addition was made for sum amounting to Rs. 5 crores in the assessment years 2010-11 and 2011-12 which has been deleted by the ITAT Indore Bench vide order dated 17.5.2016. On the decision of the Tribunal, Ld. CIT (A) held that, she is unable to follow the said decision on the ground that various facts and issues have not been placed in the proper perspective before the Tribunal and therefore, finding of the ITAT order cannot be relied upon. Thus, she confirmed the addition of Rs.2,50,00,000/- in the A.Y. 2007-08 and also 8 confirmed sum of Rs. 5 crores made in the assessment years 2010-11 and 2011-12, which even exceeded the amount mentioned in the ‘Ikrarnama’.
Before us, Ld. Counsel for the assessee Shri Ved Jain after explaining the entire facts and referring to the material placed on record, first of all, challenged the validity of assumption of jurisdiction u/s 153C and pointed out that this document cannot be said to belonging to the assessee. The main contention raised by him was that, firstly, this document was found from the premises of some other person and it was not the document belonging to the assessee as it was prepared by some other persons i.e., arbitrators/ panchas in connection with the possible settlement if the proposed deal for land could not materialized. In fact, in the course of search proceedings of the persons searched, it has clearly surfaced that the land transaction was cancelled and there was no actual dealing of land; and another important fact is that there is no signature of the seller in the said document and therefore, no inference could have been drawn against the assessee. These documents were prepared by certain witnesses’ /panchas for the proposal of the land and once proposal has not been accepted by the first party, i.e., the seller, then how adverse inference can be drawn against the assessee much less incriminating qua the assessee for initiating the proceedings u/s 153C. Thus, if the document was not prepared by the assessee, then it cannot be held that same belongs to the assessee. In support of his contention that kind of document cannot clothe the AO with the jurisdiction u/s 153C, he relied following judgments: -
Delhi High Court in the case of Pepsi Foods Pvt. Ltd. v. ACIT (a) [2014] 367 ITR 112 -; which has also been affirmed by the Apex Court in SLP No. 4659/2015 dated 04.12.2017.
Delhi High Court in the case of Pr. CIT V. N. S. Software in ITA (b) No. 791/2017 dated 18.04.2018 – (c) Delhi High Court in the case of Pr. CIT V. Nikki Drugs & Chemicals Pvt. Ltd. [2016] 386 ITR 680 – (d) Delhi High Court in the case of Pepsico India Holdings Pvt. Ltd. V. ACIT [2015] 370 ITR 295 – (e) Delhi High Court in the case of Canyon Financial Services Ltd. V. ITO dated 10.7.2017. (f) ITAT Delhi in the case of DCIT vs. Esteem Textiles P. Ltd. In dated 27.4.2018. (g) ITAT Delhi in the case of ACIT vs. Sudhiksha Singh in ITA Nos. 617 and 618/Del/2012 dated 29.11.2016. Lastly, he submitted that based on same document AO has recorded satisfaction u/s 153C on the same date in the case of two persons which goes to show that he too was not sure to whom such document belongs to. For this reason also, the satisfaction of the AO is not sustainable within the ambit and scope of section 153C.
10. On merits, he referred to the decision of the Tribunal in the case of Om Prakash Dhanwani, in ITA 241 to 243/Ind/2015 and 254 to 256/Ind/2015 (order dated 17.5.2016) and pointed out that, based on same document, the Hon’ble Tribunal after detailed discussion has held that only an amount of Rs. 51 lacs was received by Shri Om Prakash Dhanwani and no other amount was paid by the assessee company to him. Apart from that, assessee has also admitted the fact that an amount of Rs. 51 lacs was also returned by the said person to the assessee company and when there is a clear cut finding given by the coordinate bench of the Tribunal, then based on same document it cannot be held that assessee has made any kind of payment outside the books of account (paid or received). He further submitted that it is an undisputed fact that the said agreement could not materialise for the reason that the proposed land had come under the acquisition 10 scheme of Indore Development Authority vide notification dated 1.8.2006 which could not have been transferred. Based on this event only the deal could not go ahead and moreover once the seller himself has not signed the document then there is no question of any actual transaction having being taking place. There is a lot of presumption by the departmental authorities that the cheque amounting to Rs.1.99 crores as mentioned in the said agreement must have been paid in cash. If the deal itself was cancelled, then where is the question of paying any amount? Not only that, there was proposed settlement wherein it was mentioned that if the seller cannot transfer the land then assessee would receive compensation for sums aggregating to Rs. 2.50 crores which too has been added by the AO and confirmed by the Ld. CIT(A) and that to be entire 5 crores over and above sum of Rs.2.50 crores. Such an action is wholly arbitrary, because this settlement itself could not materialise at all. Further, no other incriminating material has been found that assessee has paid or has received any amount in cash. Only one cheque of Rs. 51 lacs which was given and encashed by the other party the same too has been received back by cheque. In support, he also referred to the relevant bank statement to prove that cheque which was given and encashed by the other party has also been received back and all these transactions are duly reflected therein. Thus, he submitted that on merits no addition whatsoever is called for.
On the other hand, Ld. CIT DR after referring to the various observations made by the Ld. CIT (A), submitted that there is a categorical observation and finding by the Ld. CIT (A) as to how based on the said seized documents there is strong inference that assessee has not only paid the amount to the seller outside the books but has also received the money on account of compensation. He filed a written submission which is by and large based on the observations 11 given in the CIT’s order. For the sake of completeness, his written submissions the relevant portion of which is reproduced hereunder:- “d) As regards agreement dated 11.08.2009 (PB page 3-5), it provided for compensation payable to Seller by assessee as the Seller could not honour agreement dated 16.08.2006, which lies in AY 10-11 and 11-12. The order of Hon'ble ITAT Indore in IT(SS) 241 to 243/Ind/2015 dated 17th May 2016, placed from page 163 to 324 of assessee's PH, deals with the taxability of the said aforesaid compensation falling in AY 2010-11 and 2011-12. The issue of payment by assessee in AY2007-08 did not arise directly in those appeals and general reference/ discussion of this issue is not ratio decidendi. Reliance is also placed on the decisions in the case of Vinay Extarction (P) Ltd (271 ITR 450) and Blue Star Ltd (217 ITR 514), which deal with the issue of binding nature of decisions. The Revenue also relies on following observations of Hon'ble ITAT, Ahmedabad, in the decision dated 30.11.2017 in the case of Mayurbhai Mangaldas Patel- Ahd/2014, later confirmed by Hon'ble Gujarat High Court, wherein the Hon'ble ITAT has re interpreted the concept of binding nature of judicial orders i.e. the concept of judicial precedent. In the words of the Hon'ble ITAT, it observed as under, "9. As we part with the matter, we must that we have taken note of the fact that as reassessments after reassessments are being quashed by the judicial authorities, on the ground as raised before us in this case, the income tax authorities have not taken pains either to follows the standard operating procedure or to demonstrate to us that this standard operating procedure was followed, and there cannot, thus, be a case in which approval of the Commissioner was obtained without the satisfaction of the Range Head (i.e. concerned Joint/ Additional Commissioner of Income Tax) qua the reasons recorded by the Assessing Officer for reopening the assessment, Commissioner could have granted the approval for reopening. It is for the income tax authorities to present to the judicial forums the actual facts, with supporting evidences, to the judicial forums and thus properly assist these forums in dispensing justice to the parties. It is extremely painful to us to depart from the views that the coordinate benches have taken in the earlier cases, or to distinguish the judgments of Hon'ble Courts above, but then, as complete facts having come to light, and duly evidenced, before us, we cannot knowingly perpetuate the errors in the name of reverence to binding judicial precedents. In the case of Mumbai Kamgar Sabha vs. Abdulbahi Faizullbhai AIR 1976 SC 1455 Their Lordships have, in their inimitable and felicitous words observed thus, "It is trite, going by anglophonic principles that a ruling of a superior Court is binding law. It is not of scriptural sanctity but of ratiowise luminosity within the edifice of facts where the judicial lamp plays the legal flame. Beyond those walls and de hors the milieu we cannot impart eternal vernal value to the decisions, exalting the precedents into a prison house of bigotry, regardless of the varying circumstances and myriad developments. Realism dictates that a judgment has to be read, subject to the facts directly presented for consideration and not affecting the matters which may lurk in the dark". Lest we may be blamed for departing from, in the name of reverence to the judicial precedents, a judicial forum's unflinching commitment for the cause of justice, once the factual matrix has admittedly shown a different shade of truth, we must not remain constrained by the judicial precedents which were given oblivious of the facts now glaring at us.” It may not be out of place to mention that in the case of M/s. Inter Globe Aviation Ltd., Appeal No.: 119/15-16, AY-2012-13, order dated 22.3.2017, the CIT(A) had not followed the decision of ITAT dated 18.07.2016, on the same issue in AY 2005-06, as certain facts remained to be considered by ITAT or were not brought to the notice of ITAT. To the best of my knowledge, in assessee's appeal against the said order for AY 2012-13, the Hon’ble ITAT referred the matter to Special Bench (ITA 3224/D/2017), rather than following its order of AY 2005-06. In the present appeal also the Revenue submits that the order of Hon'ble ITAT Indore is sub-silentio the facts and reasoning of CIT (A) in present case. e) In IT(SS) 242 to 243/Ind/2015, the corresponding grounds of Arbitration Award are ground no 5 and 4 respectively. The issue starts from Page 225 of assessee's PB. The only argument of the Revenue, considered in that order is para 42 (page 231 of PB), is the reliance on the orders of lower authorities, while assessee's arguments have been mentioned in detail. However, the Revenue in the present appeal is placing its detailed arguments on record apart from reliance on the orders of lower authorities. Moreover, the CIT (A), in the order under appeal, has also discussed several facts not considered in the above order. One of the findings of fact in the said order is the following sentence in para 43 (page 231 of PB) of the order " ....It is also a fact that the assessee received Rs. 51 lacs as advance through banking channel .........•. However, complete facts were not brought to the notice of Hon'ble ITAT. As discussed by the CIT(A) in in para 6.2.1 (page 33 of order), the said payment was apparently made in cash and for that reason the Arbitration Award does not mention cheque numbers. She has mentioned one cash payment of 51 lakhs to Keshav Kumar on 18.8.2006, withdrawn vide bearer cheque no 580186. As mentioned on page 34 para 6.2.2 of the order of CIT (A), the assessee did not explain this transaction. So assessee's cash book is also required to be examined for this purpose. One of the most important facts mentioned in para 6.2.4 of the order of CIT(A) is that on 14.8.2007, the Hon'ble M.P. High Court quashed the notification/scheme of Indore Development Authority and Arbitration award was signed two years after that. The para 6.2.4 further mentions close association of buyer and seller. The corresponding printouts from MCA website are attached. The above facts were not brought to the notice of Hon'ble Indore ITAT. So the affidavits of business associates in a collusive transaction are even otherwise not reliable. f) As per assessee two cheques were claimed to have been given. One of Rs. 51lakhs (cheque no 580200 dt 25.8.2006 of Allahabad Bank) and another of Rs. 199 lakhs (cheque no 366419 dt 7.9.2006 of CITI Bank). Reference is page 68 of PB. It is claimed that this amount of 51 lakhs was repaid on 16.7.2011 and 15.12.2011(Reference page 69 of PB). Both these dates are approximately one year after the date of search on 25.11.2010 and two years after the date of Arbitration Award dated 11.8.2009. The assessee has enclosed bank statement of Allahabad Bank on page 19 & 20 of PB but not the bank statement of Citi Bank (Relevant as it was claimed that cheque was issued before and after this cheques were encashed-Reference pane 70 of PB- and dates of issue of those cheques are relevant) in the PB. Therefore, the Revenue would like to get that bank statement from lower authorities, if the same cannot be furnished by the assessee. Moreover, the repaid amount of 51lakhs has been immediately withdrawn. g) The other reason for relief in that case was affidavits of arbitrators that no damages were paid by the Seller due to Force Majure clause. However, that issue may arise in the appeals nos. 5485, 5486/DEL/2016 for AY 10-11 and 11012 and not in AY 2007-08. In A.Y. 2007-08, the Arbitration Award mentions amount of Rs. 2.5 crores as paid and it has signatures of payer i.e. assessee. The issue involved is source of corresponding payment. h) On the issue of 153C, the satisfaction was recorded in the case of Shri Sunil Keshwani, Director of assessee company by ACIT 32(1), New Delhi and in the case of assessee by ITO Ward 4(3) on the basis of information received from ACIT, Cir 2(1), Indore, the AO of the searched person. Para 5.2 (page 18) onwards of the order of CIT(A) deals with this issue. Search took place on 25.11.2010. The AO of searched person recorded satisfaction on 6.9.2012. AO of the assessee received letter dated 9.10.2012 (inadvertently typed as 9.10.2013 – Reference page 18 of the order of CIT-A) from him. After that satisfaction was recorded by the AO of the assessee. Subsequent paras of the order of CIT(A) decide the issue and are relied upon. Revenue also relies on the decision of jurisdictional High Court in the case of Ganpati Fincap Services Pvt. Ltd. vs Commissioner of Income Tax dated 25 May, 2017.”
DECISION
We have heard the rival submissions and perused the relevant finding given in the impugned orders as well as material referred to before us. The sole issue involves one seized document found during the course of search conducted at Indore in the case of M/s. M.P. Bullion Group and other related case on 25.11.2010. This document is in the form of Settlement deed/Ikrarnama found from the business premises of one, Shri Om Prakash Dhanwani. Based on this document, proceedings u/s 153C have been initiated after recording ‘satisfaction’ not only in the case of the assessee company but also in the case of Shri Sunil Keshwani, Director of the assessee company. The relevant ‘satisfaction note’ has already been incorporated above. Based on the contents mentioned in the said Ikrarnama/settlement deed, addition of Rs. 2,50,00,000/- has been made in the assessment year 2007-08; Rs. 2 crores in the assessment year 2010-11; and Rs. 3 crores in the assessment year 2011-12. The English version of the relevant document (which has been incorporated in the impugned order reads as under): - AGREEMENT “The Executant of this agreement is Omprakash s/0 Sh. Raghamai Ji Dhanwani R/o 229, Gumasta Nagar, Indore, M.P. who is a Seller, who has been referred as First Party in this document. The Person who has wrote this agreement is Sh. Sushil Keshwani, Director of M/s. Lal Sai Estate Pvt. Ltd. Registered office at GF- S, Chiranjeev Tower, Nehru Place, New Delhi- 110019, who is a purchaser who has been referred as Second party in this document. 1. That an agreement was executed between the First Party and Second Party on dated 16.5.2006, the said agreement is executed by the First Party with the Second Party for the amount of Rs.2,50,00,000/- (Rupees Two Crores Fifty Lakhs only). According to the agreement First Party is the absolute Owner and in possession of Khasra No. 92 " Part), 92/1, 92/2, 92/3, 92/24, 92/2S and 92/6 having total area 101.33.16 sq. mtr. According to the above agreement the above land has not mortgaged with any organization or person. In brief the above property is free from all sorts of encumbrances and nor there is any kind of dispute with the govt. and other organizations. This has also been declared in the above agreement that the above property is having clear marketable title. 2. That according to the terms of this agreement it had been settled that the First party will give possession of the above land to the second party within 90 days of the execution of this agreement. The First Party failed to fulfill the terms and conditions of the agreement.
That due to this reason, difference, arguments and dispute happened between both the parties. According to the above agreement dated 16.08.2006 Three Persons (Panchs) are appointed with the consent of both the parties. Today on dated 11.08.2009, the three panchs i.e. first Panch Sh. Gurjeet Singh Chhabra @ Pinto Chabra @ Pinto Chhabra s/o Bhagwandas Chhabra, R/o 1 A. D. Scheme No.74C, Indore, M. P., Second Panch Sh. Tejinder Singh S/o Suchcha Singh, R/o 233, Vishnupuri, Annex, Indore, M.P., third Panch Sh. Kamal Nachani S/o Sh. Keshav achani S/o Sh. Bhagwandas R/o 614, Usha Nagar, Indore, M. P the above panchs have heard both the parties in detail and keeping in mind the agreement and after thinking have given this decision that according to the Property Market, first party who failed to fulfill the terms and conditions of the previous agreement, it has been settled that the First Party will give the principal amount Rs.2,50,00,000/- (Two crore Fifty lakhs) given by the Second party alongwith penalty of Rs.2,50,00,000/- (Two crore Fifty lakhs) means total amount of Rs.5,00,00,000/- Five crore only) to the Second Party.
That the first party and second party without any pressure and in full conscious showed their consent on the decision given by Panchs and the First Party assuring the Second Party has promised to give total Rs.5,00,00, 000/- (Rs. Five Crore only) in the following manner: 1. 11.08.2009 Rs. 1,00,00,000/- (One crore) 2. 31.01.2010 Rs. 1,00,00,000/- (One crore) 3. 30.04.2010 Rs. 1,50,00,000/- (One crore fifty lakhs) 4. 31.08.2010 Rs. 1,50,00,000/- (One crore fifty lakhs)
5. That if the payment of the above amount has not been made by the first party to the second party as per above rule then the Second Party will have the right file civil and criminal case against the First Party. The jurisdiction of which will be Delhi. That, the First Party assures and promised the Second party that if he will execute any agreement of registry of the above land with any person or organization then the First Party shall make the full payment prior to that agreement.” 13. The said document is between two parties namely, Shri Om Prakash who is the seller and referred to ‘first party’; and Shri Sunil 17 Keshwani in the capacity of Director of the assessee company who is the purchaser and referred to as ‘second party’. The said document admittedly has not been signed by seller but by three panchas and the director of the assessee company, Shri Sunil Keshwani. From the reading of the said settlement agreement it transpires that there was an agreement dated 16.5.2006 wherein it was agreed by the parties that the part of land admeasuring 101,33.16 Sq. Mt. which was in possession of the ‘first party’, i.e., the seller had agreed to sold the said piece of land to the ‘second party’ for a consideration of Rs. 2,50,00,000/-. The possession of the land was to be given to the second party within 90 days. Thereafter, it appears that some dispute has arisen between both the parties due to land being notified to be taken over by Indore Development Authority; and in terms of the earlier agreement three panchas were appointed namely, Sh. Gurjeet Singh Chhabra, Shri Tejinder Singh and Shri Kamal Nachani. These three panchas took a decision that the ‘first party’ has failed to fulfil the terms and conditions of the previous agreement and proposed that ‘first party’ will give principal amount of Rs. 2,50,00,000/- alongwith penalty of Rs. 2,50,00,000/-, that is, sum of Rs. 5 crores was to be given by the first party to the second party and in case such payment is not made then second party will have the right to file civil and criminal case against the first party. Though this document / agreement was found during the course of search in the case of first party, i.e., Shri OmPrakash Dhanwani, but he has neither signed the document nor has acknowledged to be part of any of such settlement. Thus, settlement deed/ agreement was reduced as piece of paper as the main party has neither acted upon nor has acknowledge the terms given therein and could not have been enforced. Further, in terms of initial agreement the assessee company had paid an amount of Rs. 51 lacs through cheque no. 580200 dated 25.8.2006 drawn on Allahabad Bank and another balance amount of Rs. 1.99 crores being cheque No. 366419 dated 7.9.2006 drawn on Citi bank was issued to the first party, i.e., seller. It is also admitted fact that neither the terms of settlement nor the agreement could materialise because the land in question had come under the acquisition of Indore Development Authority vide notification dated 1.8.2006 and thus, the said land could not have been transferred by first party in the favour of the second party, i.e., the assessee company. Because of such turn of event dispute has arisen between the parties and amount of Rs. 51 lacs was returned back by the seller in two instalments, that is, Rs. 30 lacs on 15.7.2011 and Rs.21 lacs on 16.12.2011. All the entries of issue of cheque of Rs. 51 lacs and refund are duly reflected in the bank statement of the assessee company placed in the paper book at pages 19 and 20. The cheque of Rs. 1,99,00,000/- was never encashed by the seller and the same entry has been reversed by the assessee company in its books of accounts as it has become antedated. During the course of search no other material was found that either the said land was transferred to the assessee company or the deal got fructified whereby assessee company has paid money either in cheque or in cash. Neither there is any material on record to show that any other settlement by the seller or arbitrators have agreed or decided that amount of penalty/compensation of Rs. 2,50,00,000/- was paid back to the assessee company. Once it is an undisputed fact that the amount of Rs. 51 lacs cheque which was encashed later on was refunded back and duly reflected in the bank account of the assessee company, then to presume that assessee must have paid Rs. 51 lacs in cash to the seller is too implausible. If the land which was subject matter of sale and purchase agreement itself was cancelled or abrogated, then there could not be any occasion as to why assessee company will still pay any amount of Rs. 2,50,00,000/- either in cheque or in cash to the seller. The authorities below without any material on record have fallen into realm of conjecture and surmises that, since amount has been mentioned in the settlement agreement, therefore, the same must have been paid in cash. Such a premise does not have any substance for the reason that; firstly, there is no acknowledgement by the seller to this agreement, because he has not signed it; secondly, the land in question was never transferred in the favour of the assessee company and therefore, there was no occasion or reason to pay any sum to the seller; and lastly, there is no other material or evidence to indicate remotely that assessee has paid any cash or any amount without getting the possession of the land at all. Thus, such a hypothesis is purely without any basis. Another instance of arbitrariness of the AO and Ld.CIT(A) is that in the settlement deed the amount of compensation was mentioned at Rs. 2,50,00,000/- which was equal to the amount of principal amount agreed by the parties earlier for sale consideration of land, additions have been made and confirmed for a sum of Rs. 5 crores over and above the principal amount. Once the first party itself has denied any payment, then to presume that assessee must has received the said amount that to be in cash is implausible and unthinkable possibility. The terms mentioned in the aforesaid settlement deed / agreement had not materialised at all which has been duly confirmed by the panchas / witnesses in their affidavit filed before the department. The copies of which are appearing in the paper book at pages 37 to 57. These persons have neither been cross examined by the department nor enquired upon, once they have affirmed on oath that the transactions and terms mentioned in the deed has not been executed at all. Apart from that, the seller Shri Om Prakash Dhanwani in his letter directly sent to the AO as categorically denied receiving any amount from the assessee company except for the sum of Rs. 51 lacs which too has been refunded back by him. Then without any contrary material or evidence rebutting the averment of sellers and the panchas any presumption can be drawn that assessee has paid or received any money.
This precise matter based on the same document had come up for consideration before ITAT Indore Bench in the case of seller, i.e., Shri Om Prakash Dhanwani. The relevant facts and arguments made by the parties and the findings of the Tribunal for the sake of ready reference is reproduced hereunder: - “38. In ground No. 5 in IT(SS) A No. 242/Ind/2015 and ground nos. 6 and 7 in IT(SS) A No. 255/Ind/2015 relate to arbitration award.
The facts of the case are that during the course of search at the premises of Shri Keshav Nachani, one loose paper page 53 LPS- 1/7 was found and seized. It was an arbitration award. As per this award, the assessee has entered into an agreement for sale of property owned by him at Khajrana Village and received Rs. 2,50,00,000/-. For some reason there was a dispute between both the parties. Three arbitrators were appointed. In this award it has been stated that because of non-performance of agreement and non- registration of documents, the assessee would pay sum of Rs. 5 crores as under :- (i) 11.8.2009 Rs. 1,00,00,000/- (ii) 31.01.2010 Rs. 1,00,00,000/- (iii) 30.4.2010 Rs. 1,50,00,000/- (iv) 31.8.2010 Rs. 1,50,00,000/- The Assessing Officer in his order for the assessment year 2010-11 observed that the assessee has paid Rs. 2 crores which was from his undisclosed income. He accordingly made the addition.
Being aggrieved by the addition so made by the Assessing Officer, the assessee preferred appeal before the learned CIT(A). The learned CIT(A) after considering the facts of the case and arguments of the learned counsel for the assessee, confirmed the addition made by the Assessing Officer. Now the assessee is in appeal before the Tribunal.
Before us, the Learned counsel for the assessee contended that Khajrana land belongs to the assessee and his maternal uncle, Shri Keshav Nachani, who was looking after this land. This land was notified for acquisition by Indore Development Authority. He submitted that as such the said land could not be transferred to anybody. The agreement was entered into and the payment of Rs. 51 lacs was received which was duly entered in the books of accounts. Since the agreement could not be acted upon because of the scheme announced by the IDA, the matter was referred for arbitration by the buyer by appointing three arbitrators. Thereafter the award was made which was signed by two arbitrators only and the third arbitrator Shri Tejender Singh Suchasingh did not sign the same. The learned counsel for the assessee, therefore, submitted in the absence of signatures of all the arbitrators on the award, it cannot be said to be an award in the eyes of law. He further submitted that this agreement also provided that in case the assessee enters into an agreement with third party for sale of the land, he will have to make the payment to the purchaser. It was also pleaded that this establishes that the assessee has neither made any payment for non-performance of the agreement nor received any amount except Rs. 51 lacs. It was also claimed that when the Assessing Officer asked to produce the arbitrators, the assessee arranged their appearance on the appointed date but the Assessing Officer was not present on the appointed date. Therefore, the Assessing Officer’s observation that the assessee failed to produce the arbitrators is factually incorrect. It was also pointed out that all the three arbitrators filed affidavits on 08.08.2014, duly notarized which were submitted at page nos. 17 to 28 of paper book – II. Shri Kamal Kishore Nachani, one of the arbitrators, appeared before the Assessing Officer in response to summons u/s 131 of the Act. His statement was recorded by the Assessing Officer which was never confronted to the assessee. It was also pleaded that this addition has been made by referring to section 292-C of the Act but these documents were not found from the premises of the assessee. Thus, the basic presumption as provided in section 292-C of the Act, is missing. The learned counsel for the assessee submitted that this agreement, if at all relied upon, should be read as a whole. There is no document or evidence that the assessee has made any payment in compliance with this award. Complete details were filed before the learned CIT(A) which include affidavits of all the arbitrators. The learned counsel for the assessee submitted that the buyer under the agreement, M/s. Lal Sai Estate Private Limited issued a cheque of Rs. 1.99 crore but it was not encashed as the scheme was pronounced by Indore Development Authority, hence cheque was returned back and cancelled. The assessment order of M/s. Lal Sai Estate Private Limited was also filed before the authorities below. He submitted that these facts also find mention in the assessment order of M/s. Lal Sai Estate Private Limited, the party with whom said agreement was executed. It was claimed that possession of the land was not given and land was shown in fixed assets in the balance sheet in all these years. He submitted that the said land could not be transferred even today because of the scheme of IDA. He also submitted that this document only mentions that the assessee would make payment but he assessee has not done so. It is also claimed that the assessee has neither received any payment of Rs. 2,50,00,000/- as mentioned in the arbitration award not has executed any registry till date.
On the other hand, the learned DR relied upon the orders of the authorities below and submitted that the assessee has no case.
We have heard both the sides. We find that the so called award was not complete as one of the arbitrators did not sign arbitration award. We further find that the addition has been made only on the basis of presumption that the assessee might have received the amount as per the award but no positive evidence has been brought on record to suggest that such amount was received by the assessee in terms of the agreement/award. It is also a fact that the assessee received Rs. 51 lacs as advance through banking channel which was returned back to the intending buyer. The assessee continued to show this plot of land in the fixed assets in his balance sheet. It is also a fact that Indore Development Authority declared scheme no. 131 on this land. Therefore, the above agreement could not be materialized and as such the land could not be transferred. It was informed that this land is even today under the scheme and not transferable. All the three arbitrators filed affidavits which contain the entire details with the assertion that no damages were paid by the assessee because of non-performance of the agreement due to force majeure. In view of these facts and circumstances, we set aside the orders of the authorities below and hold that the addition Rs. 2 crores made by the Assessing Officer for A.Y. 2010-11 is not sustainable. We, therefore, direct to delete the same.”
Thus there is a categorical concurrent finding of the Tribunal that, firstly, the so called award was not complete as one of the party to the arbitration deed did not signed the arbitration award; secondly, the addition has been made only on the basis of presumption that the assessee might have received the amount as per award despite no positive evidence has been brought on record to suggest such amount was received by the assessee in terms of the agreement / award; thirdly, advance of Rs. 51 lacs has been returned back; fourthly, the land in question still appearing as a fixed assets of the seller, i.e., it has not been transferred; and lastly, all the arbitrators have filed their affidavits stating that no damages were paid by the assessee on account of non performance of the agreement and based on these findings addition has been deleted. Thus, when the same document which has been dealt extensively by the coordinate bench of the Tribunal to conclude that no such transaction has actually taken place in terms of the clauses given in the agreement, then in the case of the assessee no addition whatsoever either on account of principal amount or receiving of any compensation or penalty does not arise. Accordingly, the addition made by the AO and confirmed by the Ld. CIT(A) for sum of Rs. 2,50,00,000/- for the assessment year 2007-08 and another Rs. 5 crores in the assessment year 2010-11 and 2011- 12 is hereby deleted.
1.6 In so far as various observations made by the Ld. CIT(A) in the impugned order, we find that the Ld. CIT(A) has disagreed with the finding of the Tribunal and has gone mainly by the premise that if no actual payment has been made through banking channel then same must have been made in cash. All the findings are de hors any material or evidence to prove that either the deal of purchase of land had fructified or was transferred in favour of the assessee company at any point of time subsequently; or the payment must have been paid or received for some other performances. Without any material on record, disregarding the finding of fact recorded by the Tribunal in the 25 case of the seller is not at all sustainable. At least there has to some positive material to indicate that the transaction had actually taken place and money has been paid or received when admittedly the said transaction itself stood vitiated and the settlement /arbitration award by the panchas has not been implemented at all. Thus, the entire findings given by the Ld. CIT (A) and arguments placed by the Ld. CIT DR lacks substance so as to warrant any kind of addition. Accordingly, the grounds raised on merits by the assessee in all the years are allowed.
17. Now coming to the issue of validity of initiation of proceedings u/s 153C. From the perusal of the ‘satisfaction note’, it is seen that the same has been made on the basis of certain information /document pertaining to the assessee company seized from the search and seizure action from the various premises of M/s. M.P. Bullion Group, M/s. Ravi Bullion Group on 25.11.2010 at Indore. The only document which was found is the “Ikrarnama” as discussed here in above in detail. This “Ikrarnama” / arbitration award has been treated to be belonging to the assessee company. Nowhere in the ‘satisfaction’ recorded by the AO or by the AO of the searched person it has been held that this document belongs to the assessee or in any manner belongs to the assessee company. Another very important fact is that two satisfactions have been recorded on the same material, one in the case of the assessee company and another in the case of Shri Sunil Keshwani. This only goes to show that AO himself was not sure to whom this document belongs to. Mere mentioning of the word ‘satisfaction’ or ‘I am satisfied’, does not mean that the requirement of the law as laid down in section 153C stands satisfied. Hon’ble Delhi High Court in the case of Pepsi Food vs. ACIT (2014) 367 ITR 112 (Delhi) precise on this point has observed and held as under:-
“ On a plain reading of Section 153C, it is evident that the Assessing Officer of the searched person must be “satisfied” that inter alia any document seized or requisitioned “belongs t” a person other than the searched person. It is only then that the Assessing Officer of the searched person can handover such document to the Assessing Officer having jurisdiction over such other person (other than the searched person). Furthermore, it is only after such handling over that the Assessing Officer of such other person can issue a notice to that person and assess or re- assess his income in accordance with the provisions of Section 153A. Therefore, before a notice under Section 153C can be issued two steps have to be taken. The first step is that the Assessing Officer of the person who is searched must arrive at a clear satisfaction that a document seized from him does not belong to him but to some other person. The second step is - after such satisfaction is arrived at - that the document is handed over to the Assessing Officer of the person to whom the said document "belongs". In the present cases it has been urged on behalf of the petitioner that the first step itself has not been fulfilled. For this purpose, it would be necessary to examine the provisions of presumptions as indicated above. Section 132(4A)(i) clearly stipulates that when inter alia any document is found in the possession or control of any person in the course of a search it may be presumed that such document belongs to such person. It is similarly provided in Section 292C(1)(i). In other words, whenever a document is found from a person who is being searched the normal presumption is that the said document belongs to that person. It is for the Assessing Officer to rebut that presumption and come to a conclusion or "satisfaction" that the document in fact belongs to somebody else. There must be some
cogent material available with the Assessing Officer before he/she arrives at the satisfaction that the seized document does not belong to the searched person but to somebody else. Surmise and conjecture cannot take the place of "satisfaction”.
In another case of Pepsico India Holdings Pvt. Ltd. Vs. ACIT (2015) 370 ITR 295 the Hon’ble Delhi High Court has defined the meaning and scope of the term “belong” in section 153C in the following manner: - “14. In view of this phrase, it is necessary that before the provisions of Section 153C of the said Act can be invoked, the Assessing Officer of the searched person must be satisfied that the seized material (which includes documents) does not belong to the person referred to in Section 153A (i.e., the searched person). In the Satisfaction Note, which is- the subject matter of these writ petitions, there is nothing therein to indicate that the seized documents do not belong to the Jaipuria Group. This is even apart from the fact that have noted above, there is no disclaimer on the part of the Jaipuria Group insofar as these documents are concerned. 15. Secondly, we may also observe that the finding of photocopies in the possession of a searched person does not necessarily mean and imply that they "belong" to the person who holds the originals. Possession of documents and possession of photocopies of documents are two separate things. While the Jaipuria Group may be the owner of the photocopies of the documents it is quite possible that the originals may be owned by some other person. Unless it is established that the documents in question, whether they be photocopies or originals, do not belong to the searched person, the question of invoking Section 153C of the said Act does not arise.
Thirdly, we would also like to _make it clear that the assessing officers should not confuse the expression "belongs to" with the expressions "relates to" or "refers to". A registered sale deed, for example, "belongs to" the purchaser of the property although it obviously "relates to" or "refers to" the vendor. In this example if the purchasers premises are searched and the registered sale deed is seized, it cannot be said that it “”belongs to” the vendor just because his name is mentioned in the document. In the converse case if the vendor’s premises are searched and a copy of the sale deed is seized, it cannot be said that the said copy “belongs to” the purchaser just because it refers to him and he (the purchaser) holds the original sale deed. In this light, it is obvious that none of the three sets of documents – copies of preference shares, unsigned leaves of cheque books and the copy of the supply and loan agreement – can be said to “belong to” the petitioner.”
Further in latest judgment, Hon’ble Delhi High Court in the case of PCIT vs. N.S. Software vide judgment and order dated 18th April, 2018 in after discussing all the judgments rendered by Hon’ble High Court have held that the material seized from the persons searched has to have nexus with the assessee to whom the notice u/s 153C is addressed and AO has to record the specific reason in this aspect. If AO fails to record satisfaction as to how the relevant material belong to assessee in the satisfaction note then the entire assessment or proceedings u/s 153C gets vitiated.