SRI BALAJI CONSTRUCTIONS ,,SECUNDERABAD vs. THE ACIT,, RAJAHMUNDRY

आदेश / O R D E R

PER Bench:

This appeal filed by the assessee is directed against order of the

Commissioner of Income Tax (Appeals) {CIT(A)}, Guntur vide ITA

No.447/CIT(A)/GNT/10-11 dated 24.2.2014 for the assessment year

2008-09.

ITA No.387/Vizag/2014 M/s. Sri Balaji Constructions, Kakinada 2. The assessee filed return of income declaring income of ` 63,920/-

on 29.7.2008. A search and seizure operation was conducted in the

group cases of the assessee on 3.2.2009. Subsequently, the A.O. has

issued a notice u/s 153C of the Income Tax Act, 1961 (hereinafter called

as 'the Act') on 3.3.2010 calling for the return of income and the

assessee has filed the return of income on 23.4.2010 admitting total

income of ` 63,920/-. Thereafter, the A.O. conducted the enquiries and

completed the assessment u/s 143(3) r.w.s. 153C of the Act on total

income of ` 11,69,338/-. During the assessment proceedings, the A.O.

made addition of ` 11,05,418/- on estimation basis. During the search

proceedings, the assessee has admitted additional income of ` 20 lakhs

for the assessment year 2009-10 and accordingly, filed the return of

income. The assessing officer has recorded a statement u/s 131 of the

Act on 2.3.2009 from Shri Kotta Srinivas, wherein, the flat buyer

admitted that he had agreed to pay ` 11,75,000/- and paid ` 11 lakhs

for purchase of flat No.S-5 (1075 Sft) as per which the sale price worked

out to Rs.1,093/- per Sft. The A.O. collected the information from the

flat buyers and also market information regarding the cost of

construction and the sale price of the flats and also recorded the

statements from the land owners and determined the sale price at an

average rate of ` 989/- and the cost of construction at ` 650/- and 2

ITA No.387/Vizag/2014 M/s. Sri Balaji Constructions, Kakinada accordingly estimated the undisclosed income at ` 11,05,500/- and

brought to tax.

before the CIT(A) and the Ld. CIT(A) allowed the assessee’s appeal

partly. Against the order of the CIT(A), the assessee is in appeal before

this Tribunal.

argued that for the assessment year 2008-09, there was no

incriminating material available with the A.O. to invoke the provisions

u/s 153C of the Act. The entire assessment was made on market

information collected by the A.O. without any basis of incriminating

material. Therefore, The ld. A.R. argued that the notice issued u/s 153C

of the Act is bad in law and consequent assessment made by the A.O.

required to be quashed.

authorities and argued that the DDIT has recorded the statement u/s

132(4) of the Act wherein the assessee has admitted the additional

income of Rs.20 lakhs u/s 132(4) of the Act and hence the assessing

officer has rightly issued the notice u/s 153C of the Act for the

assessment year 2008-09 it require to be upheld.

ITA No.387/Vizag/2014 M/s. Sri Balaji Constructions, Kakinada 6. We have heard both the parties, perused the materials available

on record and gone through the orders of the authorities below. A

search and seizure operation was conducted in the group cases of the

assessee on 3.2.2009 and during the course of search, the assessee has

admitted additional income of Rs.20 lakhs for the assessment year

2009-10. There was no search carried out by Income Tax Department

in the case of the assessee and there was no material found in the

premises of the searched person relating to the assessee evidencing the

undisclosed income for the assessment year 2008-09. As per the

provisions of section 153C of the Act, the A.O. is permitted to invoke the

provisions of section 153C of the Act by issuing notice u/s 153C of the

Act, when there is an incriminating material available with the searched

person and the satisfaction not recorded by the A.O. In the assessee’s

case as per the assessment order, the entire assessment order made on

estimation basis but not on the basis of any incriminating material. The

A.O. has invoked the provisions of section 153C of the Act since the

books of accounts were not produced by him during the search

proceedings and held that the assessee has not maintained the books of

accounts. However, on verification of paper book filed by the assessee

it is observed that the assessee is maintaining the books of accounts,

compiled profit and loss account and balance sheet as per the books of 4

ITA No.387/Vizag/2014 M/s. Sri Balaji Constructions, Kakinada

accounts and filed the return of income on 29.7.2008. The assessee’s

case is also covered by section 44AB of the Act for tax audit. Therefore,

merely because the books of accounts could not be produced on the

date of search or could not be traced it cannot be presumed that the

assessee has not maintained the books of accounts. Further, the search

was conducted in the residence of Sri Subba Rao but not in the business

premises. The Ld. CIT(A) has accepted in the order that the assessee

had maintained the books of accounts in paragraph No.4.3.7 which is

extracted as under:

“4.3.7 In the appellant’s case, the A.O. has recorded that books of accounts were not available at the time of search. On the other hand, the appellant himself has stated that the books of accounts were presented during the course of assessment proceedings. What is relevant however is that the appellant prepared his books of accounts on percentage completion method and had them audited on 25.9.2008. The profit and loss account has been prepared on the basis of the same percentage completion method. This method is regularly employed by real estate developers and is in fact the preferred method of accounting as opposed to other methods, such as project completion method. The advantage of the percentage completion method employed by the appellant firm is that revenue cannot be postponed and it is recognised the moment it is received. The assessing officer has given no finding as to why he has rejected the method of accounting followed by the appellant except to say that books of accounts were not available at the time of search. The Assessing Officer was bound to explain why the method of accounting followed by the appellant in preparing its final accounts submitted along with the return of income did not, in his opinion, reveal the true and correct income of the appellant firm. Having failed to do so, I find no basis in the Assessing Officer’s rejection of the method of accounting followed by the appellant firm. 4.3.8 Secondly, as discussed above, books of accounts can be rejected even where the method of accounting is acceptable but the books are found to be false or fabricated. The Assessing Officer has referred to statements of certain flat owners, where the amount claimed to have been paid by them has been found to be in excess of what is recorded in 5

ITA No.387/Vizag/2014 M/s. Sri Balaji Constructions, Kakinada the books of accounts. Further, the Assessing Officer has mentioned that the appellant firm could not submit supporting bills and vouchers for various expenses claimed. These are valid grounds for rejection of books of accounts. Thus, regarding grounds of appeal No.1 & 2 the Assessing Officer’s action in rejecting the method of accounting is held as incorrect while his rejection of books of accounts based on incorrect entries recorded therein is upheld.” 7. From the order of the Ld. CIT(A), it is evident that the assessee

has maintained the books of accounts and followed the consistent

method of project completion method. The CIT(A) also found that there

is no basis for rejection of the method of account followed by the

assessee. There is no incriminating material available to the revenue in

the premises of the searched person relating to the assessee. The

statement recorded u/s 132(4) of the Act related to the A.Y. 2009-10

but not related to the assessment year 2008-09. During the appeal

hearing, the ld. D.R. did not place any evidence with regard to the

incriminating material found in the premises of the searched person

relating to the assessee. Now it is settled issue that for initiating the

proceedings u/s 153C of the Act, it is incumbent upon the A.O. to have

the incriminating material evidencing the undisclosed income. In the

assessee’s case no such evidence was found during the course of search

in the group cases. As per the provisions of section 153C of the Act, it is

mandatory to have the satisfaction of the A.O. that money, bullion,

jewellery or other valuable article or thing or any books of accounts,

documents seized or requisitioned pertains to or relates to the assessee, 6

ITA No.387/Vizag/2014 M/s. Sri Balaji Constructions, Kakinada which means that unless there is an incriminating material belonging to

the assessee is found, the action u/s 153C of the Act is not permissible.

In the assessee’s case there was no incriminating material found and

seized from the premises of the group cases. Therefore, we hold that

the notice issued u/s 153C of the Act is not sustainable and accordingly

quashed. This view is upheld by the Hon’ble Supreme Court in the case

of CIT Vs. Sinhagad Technical Education Society (2017) 84

Taxmann.com 290 (SC). Respectfully following the judgement of the

Hon’ble Supreme Court, we hold that the notice issued u/s 153C of the

Act is unsustainable and accordingly quashed.

The above order was pronounced in the open court on 10th Jan’18.

Sd/- Sd/- (वी. दुगा�राव) ( ड.एस. सु�दर "संह) (V. DURGA RAO) (D.S. SUNDER SINGH) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER #वशाखापटणम /Visakhapatnam: 'दनांक /Dated : 10.01.2018 VG/SPS आदेश क� ��त)ल#प अ*े#षत/Copy of the order forwarded to:-

ITA No.387/Vizag/2014 M/s. Sri Balaji Constructions, Kakinada

Sr. Private Secretary ITAT, VISAKHAPATNAM