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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
आदेश / ORDER
PER SUSHMA CHOWLA, JM:
The appeal filed by assessee is against order of CIT(A), Pune-11, dated 26.05.2016 relating to assessment year 2006-07 against order passed under section 143(3) r.w.s. 153C of the Income-tax Act, 1961 (in short ‘the Act’).
The assessee has raised the following grounds of appeal:- The following grounds are taken without prejudice to each other –
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On facts and in law, 1] The learned CIT(A) erred in holding that the notice issued u/s 153C was valid and thereby, the asst. completed was justified in law. 1.1] The learned CIT(A) erred in not appreciating that the notice issued u/s 153C was invalid in law and the consequential asst. completed was also null and void. 2] The assessee further submits that the asst. completed is without jurisdiction and therefore, the said asst. order be declared null and void. 3] The learned CIT(A) erred in confirming the addition of Rs.57,25,000/- on the basis of the seized paper found with Shri Mohan Patel without appreciating that no such addition was warranted on the facts of the case. 4] The learned CIT(A) failed to appreciate that the noting was a dumb noting and it did not indicate that the assessee had received extra consideration on account of sale of fixed assets and hence the addition made on the basis of the dumb noting was not justified at all and the same should be deleted. 5] Without prejudice to the above grounds, assuming without admitting that the assessee had received Rs.57,25,000/- on sale of fixed assets the assessee had accounted for Rs.31,40,000/- in its books of accounts and therefore, the addition if at all to be made should be restricted to the difference between the said amounts i.e. Rs.25,85,000/-.
The issue raised in the present appeal is against proceedings initiated under section 153C of the Act on the basis of seized papers found from one Shri Mohan Patel.
Briefly, in the facts of the case, the assessee was a private limited company and had furnished return of income declaring total income of ₹ 21,69,048/-. Search and seizure action under section 132 of the Act was conducted on the business and residential premises of Patel group, Kolhapur on 23.08.2006. During the course of search in Patel group, certain incriminating documents were seized. Sr. No.1 contains loose papers and Sr.No.05 to 10 were note books containing unaccounted transactions. After scrutiny of the said seized documents, it was noted that Patel group sold machinery of the company i.e. assessee before us during financial year 2005-
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Shri Patel had not stated to whom the said machinery was sold. As per page No.64 of loose paper bundle No.1, Patel group had realized unaccounted cash of ₹ 57,25,000/- from sale of machinery to Crystal Plywood Pvt. Ltd. In view thereof, the Assessing Officer incharge of assessee company issued notice under section 153C of the Act. In response to the same, the assessee pointed out that return of income filed under section 139(1) of the Act may be considered as return filed in pursuance to the said notice. Consequent thereto, assessment proceedings were taken up which resulted in adopting sale consideration by making addition of ₹ 57,25,000/- over and above ₹ 31,41,000/- shown by the assessee.
The CIT(A) upheld the addition made in the hands of assessee, against which the assessee is in appeal.
The first issue which has been raised by assessee is the jurisdictional issue against proceedings initiated under section 153C of the Act. The learned Authorized Representative for the assessee in this regard pointed out that during the course of search on 23.08.2006, various papers were found and seized, statement of Shri Mohan Patel was recorded. He in his statement, when confronted with the note books seized had mentioned that it contained consolidated receipts and payments of their business concerns with Vilson Particle Board Industries Pvt. Ltd. and Pragati Plywood Industries Ltd. and the said entries in the note books were both accounted as well as unaccounted transactions of their businesses. The learned Authorized Representative for the assessee pointed out that note book in which entries were there and papers which were found does not belong to the assessee. It was pointed out that it
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may relate to the assessee but it does not belong to the assessee. Our attention was drawn to document at page No.3, wherein it was pointed out that there were other entries on the said document also, which were taxed in the hands of Vilson Particle Board Industries Pvt. Ltd. The learned Authorized Representative for the assessee pointed out that the issue stands covered by the ratio laid down by Pune Bench of Tribunal in Rajendra Motmal Shah Vs. ACIT in ITA No.1877/PUN/2013, relating to assessment year 2009-10, order dated 31.05.2017.
The learned Departmental Representative for the Revenue on the other hand, placed reliance on the order of CIT(A).
We have heard the rival contentions and perused the record. The issue which arises in the present appeal is in relation to the entries found in seized documents / note books found from the possession of person searched i.e. Shri Mohan Patel. Various documents were found including note books and in the statement recorded under section 132(4) of the Act, Shri Mohan Patel stated that these relate to the two entities i.e. Vilson Particle Board Industries Pvt. Ltd. and Pragati Plywood Industries Ltd. and also admitted that there were both accounted and unaccounted entries relating to the said concerns. One of the seized documents, copy of which is placed at page 3 of Paper Book also shows the entries in the name of assessee i.e. on sale of machinery, wherein there is cash transaction of ₹ 57,25,000/-. The said document was found from the possession of Shri Mohan Patel. The perusal of seized paper reflects that besides name of assessee, there were various other names mentioned in the said document itself. The plea of learned Authorized Representative for the
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assessee before us is that the said document does not belong to the assessee and if it does not belong to the assessee, then provisions of section 153C of the Act are not attracted.
The issue which arises is whether under the pre-amended provisions of section 153C of the Act, where the word was is ‘belonging to’ and where the transaction recorded on the seized document ‘related to’ person searched i.e. Vilson Particle Board Industries Pvt. Ltd. and even if the name of assessee was written on such document, can it be said that the document belongs to assessee and proceedings under section 153C of the Act could be initiated against the assessee.
We find that similar issue arose before the Tribunal in Rajendra Motmal Shah Vs. ACIT (supra) and it was held as under:- “9. The issue which arises by way of additional grounds of appeal before the Tribunal is whether in view of pre-amended provisions of section 153C of the Act, where the word was used “belonging” and where the transaction recorded on seized document related between the firm and Mr. Vijay Rajaram Shah and where the Assessing Officer also says that the document belongs to Mr. Vijay Shah, then no proceedings under section 153C of the Act could be initiated against the assessee, who is not related to the firm or Mr. Vijay Shah. 10. The Hon‟ble High Court of Delhi in Pr. CIT & Ors. Vs. Nikki Drugs & Chemicals Pvt. Ltd. & Ors. (2016) 129 DTR 393 (Del) while interpreting the provisions of section 153C of the Act observed that in case any loose documents were found during the course of search, which belong to a person other than the searched person, then the first step for initiation of proceedings under section 153C of the Act was for the Assessing Officer of the searched person to be satisfied that the assets or documents seized did not belong to the searched person, but to the assessee sought to be assessed under section 153C of the Act. Once the Assessing Officer of the searched person was so satisfied, he was required to transfer the assets or documents, which he believes belongs to the assessee to the Assessing Officer having jurisdiction over that assessee, who in turn, would commence the proceedings under section 153C of the Act. In the facts of the case before the Hon‟ble High Court of Delhi, the Assessing Officer of the searched person had not recorded satisfaction note on the ground that the Assessing Officer of the searched person and the assessee to be assessed under section 153C of the Act were being assessed by the same officer. The Hon‟ble High Court in such circumstances had held that the Assessing Officer having jurisdiction would form an independent view before issuing notice to the other person under his
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jurisdiction on the basis of his own enquiry. The Hon‟ble High Court held as under:- “16. It is apparent from the above that the first step for initiation of proceedings under Section 153C of the Act is for the assessing officer of the searched person to be satisfied that the assets or documents seized do not belong to the searched person but to the assessee sought to be assessed under Section 153C of the Act. Once the assessing officer of the searched person is so satisfied, he is required to transfer the assets or documents, which he believes belongs to the assessee, to the assessing officer having jurisdiction over that assessee. The assessing officer of the assessee on receipt of such asset or document seized would have jurisdiction to commence proceedings under Section 153C of the Act. The assessing officer has, thereafter, to apply his mind as to whether the assets and documents received have a bearing on the determination of the total income of the Assessee and if he is so satisfied that the same have a bearing on the determination of the income of the assessee, he has to issue notice and assess or reassess the income of the assessee in accordance with the provisions of Section 153A of the Act. Section 153A of the Act requires that a notice be issued to the person sought to be assessed, calling upon the said assessee to file his return of income in respect of each year falling within the specified six AYs. It is further specified that the provisions of the Act shall, so far as may be, applied as if such returns were returns required to be furnished under Section 139 of the Act. Thus, the assessing officer has to, thereafter, proceed with the assessment/reassessment in accordance with the provisions of the Act; that is, accept the return with or without such adjustments as permissible under Section 143(1) of the Act or if the claims made by the assessee are considered as inadmissible and/or it is considered necessary and expedient to subject the returns to further scrutiny, issue the requisite notice under Section 143(2) of the Act and frame the assessment in accordance with the Act. 17. In the present case, the ITAT specifically recorded that, admittedly, a satisfaction note had not been recorded by the assessing officer of the searched person. It was contended by the Revenue before the ITAT that the assessing officer of the searched i.e. SVP Group was not required to record such satisfaction as both the Assessee and the SVP Group were being assessed by the same officer. This contention was rejected by the ITAT by following the decision of this Court in Pepsi Foods (P.) Ltd v. Asstt CIT [2014] 367 ITR 112/52 taxmann.com 220/[2015] 231 Taxman 58. The Allahabad High Court in the case of CIT v. Gopi Apartments [2014] 365 ITR 411/46 taxmann.com 280 has also held that even in cases where the assessing officer of the person searched and the assessee who is sought to be assessed under Section 153C is the same, the assessing officer is required to record his satisfaction that the assets/ documents seized belong to a person (the assessee) other than the searched person. In CIT v. Mechmen 11-C [2015] 60 taxmann.com 484 (MP) a Division Bench of the Madhya Pradesh High Court had expressed the above view in the following manner" 11. Another aspect which was noted by the Hon‟ble High Court was the difference between expression „belongs to‟ and „relates to‟ and it was observed as under:-
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“20. The Assessee disputed that the said documents could be stated to be belonging to the Assessee. Insofar as the resolutions, affidavits, counter foils of the income tax returns, copies of the incorporation certificate, Memorandum of Association, resolutions, affidavits, and share application forms are concerned, the Assessee explained that these documents were handed over to the SVP Builders India Ltd. in connection with the investment made by the Assessee. Although these documents pertains to and emanate from the Assessee, these documents could not be stated to belong to the Assessee as they had been handed over to SVP Builders India Ltd. and now formed a part of their records and not that of the Assessee's. It was contended that, therefore, these documents did not belong to the Assessee. Insofar as the counter foils of the share certificates are concerned, it cannot be disputed that the said documents never belonged to the Assessee but were a part of the records of the company issuing certificates, i.e., SVP Builders India Ltd. As far as the share certificates of the SVP Builders India Ltd. is concerned, it was submitted that the same pertains to the shares that had already been sold and the endorsement made on the rear of the share certificates clearly indicated that the Assessee was no longer the holder of the said shares and the same stood registered in the name of one Satpal on 26th March, 2004. 21. The ITAT considered the above contentions and following the decision of this Court in Pepsico India Holdings (P.) Ltd. v. Asstt.CIT [2015] 370 ITR 295/ 228 Taxman 116 (Mag.)/[2014] 50 taxmann.com 299 held that the documents in question could not be said to belonging to the Assessee. In Pepsico India Holdings (P.) Ltd's case. (supra), this Court has explained that the expression 'belongs to' must not be confused with the expression 'relates to'. As an illustration, this Court has referred to a registered sale deed which, although, registered by the vendor would belong to the purchaser of the property and could not be considered to be belonging to the vendor only because the vendor's name was mentioned in the documents. In the present case, although the photocopies of the documents handed over to SVP Builders India Ltd. may be copies of the original documents that belong to the assessee, the said photocopies would belong to SVP Builders India Ltd. as the same were handed over to it in connection with the investment made by the Assessee. Similarly, a certified copy of the Assessee's resolution signed by its Directors, would also belong to the SVP Builders India Ltd. even though the minutes of the Board meeting form a part of the record of the Assessee. We find no infirmity with the view taken by the ITAT in this regard. Thus, notwithstanding the controversy whether the assessing officer of the searched persons had recorded his satisfaction that the specified seized documents belonged to the Assessee, the initiation of proceedings under section 153C of the Act, in respect of the Assessee would be without jurisdiction.” 12. In the facts of the present case, search at the residence of Mr. Vijay Shah was conducted on 15.06.2010 and loose paper at serial Nos.18 and 21 of the bundle No.II were seized. The scanned copy of both the documents are placed at pages 6 and 7 of the assessment order. On perusal of the details received from Investigation Wing, the Assessing Officer noted that (1) Mr. Bharatkumar Kundanlal Jain, (2) Mr. Bharat Chandrakant Mehata and (3) Mr. Rajendra Motmal Shah, partner of M/s. India Global Agro & Realty, Kolhapur had also purchased another agricultural land situated at Kasba Karveer Rankala, Kolhapur on 10.11.2008, admeasuring 38.5 guntas from Shri Shivaji Pandurang Mane for sale consideration of Rs.35 lakhs. Shri Vijay Shah was
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confronted with the seized paper No.18, who in reply mentioned that there is mention of said land; similarly on paper No.21 i.e. land situated at Rankala, Kolhapur. However, no other details were given and also denied having given any amount in cash. The Assessing Officer obtained the copies of sale deed from the Sub-Registrar‟s office. The loose paper 18 found was not in connection with the assessee. However, loose paper 21 Bundle No.II was found in connection with the assessee. The Assessing Officer vide para 9.3 of assessment order analyzed that Shri Shivaji Pandurang Mane sold the agricultural land admeasuring 38.05 guntas for sale consideration of Rs.35 lakhs to three persons including the assessee who was partner of M/s. India Global Agro & Realty, Kolhapur. The Assessing Officer on the basis of information and details received from Investigation Wing calculated the unexplained investments being unaccounted investment in acquisition of agricultural land at Rankala, Kolhapur of 38.5 guntas. As per loose paper 21 for purchase of 13.5 guntas in the name of Rajendra Motmal Shah, proportionate amount of investment was Rs.1,62,60,100/38.5 = 422340x9.5 = 40,12,230/-. The assessee had shown sale consideration of Rs.6 lakhs in the sale deed dated 01.10.2008 and the amount of unexplained investment was worked out at Rs.34,12,230/-. The Assessing Officer noted that the assessee was one of purchasers of agricultural land and his statement was recorded in which he specifically denied to have given any excess amount in cash over and above the sale consideration. The relevant portion of the statement recorded of the assessee is reproduced at pages 11 to 13 of the assessment order. The assessee during the course of assessment proceedings vehemently stated that the total investment in the said land was only Rs.6 lakhs. The Assessing Officer collected information from various departments and applied the same and held that as per seized papers, the value of transaction was shown as Rs.1.62 crores, which was decoded from the fact that the value of stamp paper was Rs.1,75,000/-, which was noted as 1750=00 in the said seized paper. The Assessing Officer thus, added on-money of Rs.34,12,230/- in the hands of assessee. 13. The limited issue which has been raised before us is that in proceedings under section 153C of the Act, the addition if any, in the hands of person other than searched person can be made on the basis of document found and seized during the course of search, which belongs to such person i.e. the person other than person searched, as referred to in section 153A of the Act. 14. The Hon‟ble Bombay High Court in CIT Vs. M/s. Arpit Land Pvt. Ltd. in Income Tax Appeal No.83 of 2014 and 150 of 2014, judgment dated 07.02.2017 took note of position of law under section 153C of the Act w.e.f. 01.06.2015 and observed as under:- “6. We note that in terms of Section 153C of the Act at the relevant time i.e. prior to 1st June, 2015 the proceedings under Section 153C of the Act could only be initiated/proceeded against a party - assessee if the document seized during the search and seizure proceedings of another person belonged to the party - assessee concerned. The impugned order records a finding of fact that the seized documents which formed the basis of initiation of proceedings against the respondent assessees do not belong to it. This finding of fact has not been shown to us to be incorrect. Further, the impugned order placed reliance upon a decision of Gujarat High Court in Vijaybhai Chandrani vs. ACIT 333 ITR Page 436 which records that the condition precedent for issuing notice under Section 153C of the Act is that the document found during search proceedings should belong to assessee to whom notice is issued under Section 153C of the Act. It was fairly pointed out to us by Mr.Mistry, the
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learned Senior Counsel for the respondent – assessee that the above decision was reversed by the Supreme Court in CIT vs. Vijaybhai N. Chandrani (2013) 357 ITR 713. However, we find that the Apex Court reversed the view of Gujarat High Court on the ground that efficacious alternative remedy was available to the petitioner to raise its objections before the authorities under the Act. Therefore, the Gujarat High Court should not have exercised its extra ordinary writ jurisdiction to entertain the petition. However, the Apex Court also clarified that it was not expressing any opinion of the correctness or otherwise of construction placed by the High Court on Section 153C of the Act. The Revenue has not pointed out any reason why the construction put on Section 153C of the Act by Gujarat High Court is not correct/appropriate. We find that in any case our Court has also taken a similar view in CIT vs. Sinhgad Technical Education Society (2015) 378 ITR 84 and refused to entertain Revenue's appeal. 7. The grievance of the Revenue as submitted by Mr.Kotangale is a submission made on the basis of suspicion and not on the basis of any evidence on record which would indicate that the respondent – assessee and persons searched were all part of the same group. Be that as it may, the requirement of Section 153C of the Act cannot be ignored at the alter of suspicion. The Revenue has to strictly comply with Section 153C of the Act. We are of the view that non satisfaction of the condition precedent viz. the seized document must belong to the respondent – assessee is a jurisdictional issue and non satisfaction thereof would make the entire proceedings taken thereunder null and void. The issue of Section 69C of the Act can only arise for consideration if the proceedings under Section 153C of the Act are upheld. Therefore, in the present facts, the issue of Section 69C of the Act is academic.” 15. In order to invoke the provisions of section 153C of the Act in respect of position of law prior to 01.06.2015, the said proceedings under section 153C of the Act could only be initiated / proceeded against a person, other than the person searched, if the document seized during the course of proceedings, belonged to such person concerned. The assessee has filed on record the copy of seized document which is placed at pages 5 and 6 of the Paper Book, under which the document at page 5 is in Marathi in the handwriting of the searched person with typed copy in Marathi which is placed at page 6. The English translation of the said document is placed at page 7 of the Paper Book. 16. Now, we shall take note of the notings on document seized during the course of search. As per the Assessing Officer, the document which relates to the assessee is page 21 of bundle No.II seized from Shri Rahul Mane, the searched person of 38.5 Guntas. The land in question was at Rankala and the seller was Shri Rahul Mane. The total landholding was 38.5 guntas. Undoubtedly, the next noting on the said seized document is 15.5 guntas purchased for firm. The total cost of 38.5 guntas including the cost of stamp paper, registration is mentioned in coded form and other expenses and the total is mentioned as 162601-00, which the Assessing Officer interprets as the total cost of sale of land at Rs.1,62,60,100/-. Thereafter, the consideration in respect of 15.5 guntas and the share of Mr. Vijay Shah @ 4.44% is mentioned and the details of cash receipt have been worked out. The said document was seized from Mr. Vijay Shah who is in between person and the said seized paper belongs to Mr. Vijay Shah. The Assessing Officer also admits that the said document belongs to Mr. Vijay Shah. Where the document belongs to the searched person, then it cannot be held that the same document belongs to a
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person other than the person searched, in order to invoke the provisions of section 153C of the Act. The pre-amended provisions of section 153C of the Act could be triggered off where during the course of search of searched person, document belonging to a person other than searched person is found and the same is to be handed over, after recording satisfaction to the Assessing Officer Incharge of the person, other than the person searched. However, in the present case, the conditions laid down in section 153C of the Act are not fulfilled. Where the document has been seized from the person searched, which in turn, belongs to the person searched and has been so held by the Assessing Officer, then the notings on the said document itself cannot be held to belong to the assessee, who is a person other than the person searched. In the absence of fulfillment of basic conditions of section 153C of the Act and applying the ratio laid down by the Hon‟ble High Court of Delhi in Pr. CIT & Ors. Vs. Nikki Drugs & Chemicals Pvt. Ltd. & Ors. (supra) and the Hon‟ble Bombay High Court in CIT Vs. M/s. Arpit Land Pvt. Ltd. (supra), we hold that there is no merit in the initiation of proceedings under section 153C of the Act in the case of assessee. In the absence of any incriminating material found during the course of search of the person, who is covered under section 153A of the Act, which in turn, belongs to the person, other than the searched person i.e. assessee before us, then the proceedings under section 153C of the Act cannot be triggered. Accordingly, we hold so. Accordingly, the proceedings completed thereafter i.e. the order passed under section 143(3) r.w.s. 153C of the Act is invalid and without any jurisdiction and the same is cancelled. Consequently, the additional ground of appeal raised by the assessee is allowed and the assessment order passed in the case is held to be nullity. The grounds of appeal raised on merits thus, become academic in nature.
The issue arising in the present appeal before us is similar to the issue before the Tribunal, which in turn, had relied on the decision of the Hon’ble High Court of Delhi in Pr. CIT & Ors. Vs. Nikki Drugs & Chemicals Pvt. Ltd. & Ors. (2016) 129 DTR 393 (Del) and the Hon’ble Bombay High Court in CIT Vs. M/s. Arpit Land Pvt. Ltd. in Income Tax Appeal No.83 of 2014 and 150 of 2014, judgment dated 07.02.2017 and held that in the absence of incriminating material found during the course of search of the person, who is covered under section 153A of the Act, which in turn, does not belong to other person than the searched person, then proceedings under section 153C of the Act cannot be triggered. Following and applying the same ratio, we hold that in the instant case where the documents found from the possession of Shri Mohan Patel does not belong to the assessee though it may relate to the assessee, but in view of pre-amended provisions of section 153C of the Act and in line with the
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ratio laid down by the Hon’ble High Court of Delhi in Pr. CIT & Ors. Vs. Nikki Drugs & Chemicals Pvt. Ltd. & Ors. (supra) and the Hon’ble Bombay High Court in CIT Vs. M/s. Arpit Land Pvt. Ltd. (supra), we hold that there is no merit in initiating proceedings under section 153C of the Act. Accordingly, we quash the order passed under section 153C of the Act. Since initiation of assessment proceedings have been quashed, the issue on merits become academic, hence the grounds of appeal are allowed.
In the result, the appeal of assessee is allowed.
Order pronounced on this 14th day of November, 2018.
Sd/- Sd/- (ANIL CHATURVEDI) (SUSHMA CHOWLA) ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER ऩुणे / Pune; ददनाांक Dated : 14th November, 2018. GCVSR आदेश की प्रयतलऱपप अग्रेपषत/Copy of the Order is forwarded to : 1. अऩीऱाथी / The Appellant; प्रत्यथी / The Respondent; 2. आयकर आयुक्त(अऩीऱ) / The CIT(A), Pune-11; 3. 4. The Pr.CIT(Central), Pune; ववबागीय प्रतततनधध, आयकर अऩीऱीय अधधकरण, ऩुणे “फी” / DR 5. ‘B’, ITAT, Pune; 6. गार्ड पाईऱ / Guard file. आदेशािुसार/ BY ORDER, सत्यावऩत प्रतत //True Copy// वररष्ठ तनजी सधिव / Sr. Private Secretary आयकर अऩीऱीय अधधकरण ,ऩुणे / ITAT, Pune