SRI H.NAGARAJU ,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-2(2) , BANGALORE

O R D E R Per Shri A.K. Garodia, Accountant Member All these four appeals are filed by the assessee and these are directed against a combined order of ld. CIT(A)-11, Bangalore dated 29.10.2016 for Assessment Years 2005-06 to 2008-09.

by the assessee for Assessment Year 2005-06 in are as under. “1. Both the authorities below committed an error in holding dummy tally entries seized in the premises of Adlene Kagoo (Mr. Dayanand Pai) shows cash payment made to the assessee and a presumption has to be drawn that the same was received by the assessee as deemed income and has to be brought to tax.

2. Both the authorities below committed an error in failing to take into consideration that Mr. Dayanand Pai had declared the amounts reflected in the dummy tally entries as peak credit / debit in the declaration made before the Settlement Commission (which has been ITA Nos. 89 to 92/Bang/2017 Page 2 of 10 erroneously rejected) and submitted a letter to the department that these amounts have not been paid to the assessee.

3. Both the authorities below committed an error in holding that a sum of Rs.3,97,59,000/- reflected in the dummy tally ledger in the name of Sri. Krishna Properties had been admitted by the assessee and therefore an adverse inference has to be drawn that all the other dummy tally accounts are deemed to have been received by the assessee as deemed income.

4. Both the authorities below committed an error in holding that part of the income which has been accepted in the Settlement Commission reflected in the dummy tally entry by Mr. Dayanand Pai and M/s. Canara Housing Development Company only can be exempted from tax in the hands of the assessee and the rest should be brought to tax in the hands of the assessee.

5. Both the authorities below committed an error in relying on the survey proceedings conducted in the case of M/s. Duo Associates and Sri. Sachin Kamath to hold that dummy tally entries should be treated as deemed income of the assessee without furnishing any copy of these survey proceedings or evidence recovered therein.

6. Both the authorities below committed an error in holding that RS.50,00,000/- received on behalf of M/s. Jewel Associates with respect to Mallasandra properties has been agreed to be disclosed as undisclosed income for A.Y. 2005-06, presumption should be drawn in respect of other entries.

7. Both the authorities below committed an error in failing to appreciate that both the orders is based on presumption, assumptions and innuendos of dummy tally entries without furnishing the entire set of account of dummy tally entries, the settlement worked out by Mr. Dayanand Pai before the Settlement Commission, the corresponding reply given by the revenue which would enable the assessee to give a suitable reply and without any evidence of receipt of the amounts reflected in the dummy tally entries by the assessee.

8. Both the authorities below committed an error in holding that assessment has to be made u/s. 148 of the I T Act and not u/s. 153C of the I T Act.

9. Both the authorities below committed an error in holding that there was reasons recorded for reopening of assessments and requisite approval had been obtained which is incorrect and contrary to law.”

3. The grounds raised

by the assessee for Assessment Year 2006-07 in are as under. “1. Both the authorities below committed an error in holding dummy tally entries seized in the premises of Adlene Kagoo (Mr. Dayanand Pai) shows cash payment made to the assessee and a presumption has to be drawn that the same was received by the assessee as deemed income and has to be brought to tax.

2. Both the authorities below committed an error in failing to take into consideration that Mr. Dayanand Pai had declared the amounts reflected in the dummy tally entries as peak credit / debit in the declaration made before the Settlement Commission (which has been erroneously rejected) to 92/Bang/2017 Page 3 of 10 and submitted a letter to the department that these amounts have not been paid to the assessee.

3. Both the authorities below committed an error in holding that a sum of Rs. 3,97,59,000/- reflected in the dummy tally ledger in the name of Sri. Krishna Properties had been admitted by the assessee and therefore an adverse inference has to be drawn that all the other dummy tally accounts are deemed to have been received by the assessee as deemed income.

4. Both the authorities below committed an error in holding that part of the income which has been accepted in the Settlement Commission reflected in the dummy tally entry by Mr. Dayanand Pai and M/s. Canara Housing Development Company only can be exempted from tax in the hands of the assessee and the rest should be brought to tax in the hands of the assessee.

5. Both the authorities below committed an error in relying on the survey proceedings conducted in the case of M/s. Duo Associates and Sri. Sachin Kamath to hold that dummy tally entries should be treated as deemed income of the assessee without furnishing any copy of these survey proceedings or evidence recovered therein.

6. Both the authorities below committed an error in holding that RS. 50,00,000/- received on behalf of M/s. Jewel Associates with respect to Mallasandra properties has been agreed to be disclosed as undisclosed income for A.Y. 2005-06, presumption should be drawn respect of other entries.

7. Both the authorities below committed an error in failing to appreciate that both the orders is based on presumption, assumptions and innuendos of dummy tally entries without furnishing the entire set of account of dummy tally entries, the settlement worked out by Mr. Dayanand Pai before the Settlement Commission, the corresponding reply given by the revenue which would enable the assessee to give a suitable reply and without any evidence of receipt of the amounts reflected in the dummy tally entries by the assessee.

8. Both the authorities below committed an error in holding that assessment has to be made u/s. 148 of the I T Act and not u/s. 153C of the I T Act.

9. Both the authorities below committed an error in holding that there was reasons recorded for reopening of assessments and requisite approval had been obtained which is incorrect and contrary to law.”

4. The grounds raised by the assessee for Assessment Year 2007-08 in are as under. “1. Both the authorities below committed an error in holding dummy tally entries seized in the premises of Adlene Kagoo (Mr. Dayanand Pai) shows cash payment made to the assessee and a presumption has to be drawn that the same was received by the assessee as deemed income and has to be brought to tax.

2. Both the authorities below committed an error in failing to take into consideration that Mr. Dayanand Pai had declared the amounts reflected in the dummy tally entries as peak credit / debit in the declaration made before the Settlement Commission (which has been ITA Nos. 89 to 92/Bang/2017 Page 4 of 10 erroneously rejected) and submitted a letter to the department that these amounts have not been paid to the assessee.

3. Both the authorities below committed an error in holding that a sum of Rs.3,97,59,000/- reflected in the dummy tally ledger in the name of Sri. Krishna Properties had been admitted by the assessee and therefore an adverse inference has to be drawn that all the other dummy tally accounts are deemed to have been received by the assessee as deemed income.

4. Both the authorities below committed an error in holding that part of the income which has been accepted in the Settlement Commission reflected in the dummy tally entry by Mr. Dayanand Pai and M/s. Canara Housing Development Company only can be exempted from tax in the hands of the assessee and the rest should be brought to tax in the hands of the assessee.

5. Both the authorities below committed an error in relying on the survey proceedings conducted in the case of M/s. Duo Associates and Sri. Sachin Kamath to hold that dummy tally entries should be treated as deemed income of the assessee without furnishing any copy of these survey proceedings or evidence recovered therein.

6. Both the authorities below committed an error in holding that RS.50,00,000/-received on behalf of M/s. Jewel Associates with respect to Mallasandra properties has been agreed to be disclosed as undisclosed income for A.Y. 2005-06. presumption should be drawn in respect of other entries.

7. Both the authorities below committed an error in failing to appreciate that both the orders is based on presumption, assumptions and innuendos of dummy tally entries without furnishing the entire set of account of dummy tally entries, the settlement worked out by Mr. Dayanand Pai before the Settlement Commission, the corresponding reply given by the revenue which would enable the assessee to give a suitable reply and without any evidence of receipt of the amounts reflected in the dummy tally entries by the assessee.

8. Both the authorities below committed an error in holding that assessment has to be made u/s. 148 of the I T Act and not u/s. 153C of the I T Act.

9. Both the authorities below committed an error in holding that there was reasons recorded for reopening of assessments and requisite approval had been obtained which is incorrect and contrary to law.”

5. The grounds raised

by the assessee for Assessment Year 2008-09 in are as under. “1. Both the authorities below committed an error in holding dummy tally entries seized in the premises of Adlene Kagoo (Mr. Dayanand Pai) shows cash payment made to the assessee and a presumption has to be drawn that the same was received by the assessee as deemed income and has to be brought to tax.

2. Both the authorities below committed an error in failing to take into consideration that Mr. Dayanand Pai had declared the amounts reflected in the dummy tally entries as peak credit / debit in the declaration made before the Settlement Commission (which has been ITA Nos. 89 to 92/Bang/2017 Page 5 of 10 erroneously rejected) and submitted a letter to the department that these amounts have not been paid to the assessee.

7. Both the authorities below committed an error in failing to appreciate that both the orders is based on presumption, assumptions and innuendos of dummy tally entries without furnishing the entire set of account of dummy tally entries, the settlement worked out by Mr. Dayanand Pai before the Settlement Commission, the corresponding reply given by the revenue which would enable the assessee to give a suitable reply and without any evidence of receipt of the amounts reflected in the dummy tally entries by the assessee.

6. At the very outset, it was submitted by ld. AR of assessee that in the case of the wife of the assessee also, the assessment was reopened by the AO by recording identical reasons and in her case, the issue has been decided by the Tribunal in to 96/Bang/2017 dated 25.10.2017. He submitted a copy of this Tribunal order and drawn our attention to the relevant para on page nos. 12 and 13 of this Tribunal order and pointed out that in that case, the Tribunal has held that reopening u/s. 147 is not valid. He submitted that on pages 136 to 139 of paper book are the reasons to 92/Bang/2017 Page 6 of 10 recorded by the AO for reopening in the present case and on pages 140 to 143 of paper book are the reasons recorded by the AO in the case of the wife of the assessee i.e. Smt. Bhagya Nagaraj. He pointed out that the reasons recorded by the AO in both the cases are identical and therefore, when in the case of the wife of the assessee Smt. Bhagya Nagaraj, it is already held by the Tribunal that the reopening is not valid, in the present case also, it should be held that the reopening is not valid. The bench wanted to see the copy of assessment order and the order of ld. CIT(A) in the case of the wife of the Smt. Bhagya Nagaraj. The ld. AR of assessee submitted the same and pointed out that there is no difference in facts in the present case and in the case of the wife of the assessee Smt. Bhagya Nagaraj.

8. We have considered the rival submissions. First of all, we reproduce Para no. 7.2 from the impugned order of CIT (A) as per which he has decided the issue regarding the validity of reopening in the case of the present assessee. The same is as under. “7.2 ALTERNATIVE SUBMISSIONS (REGARDING REOPENING OF imp ASSESSMENTS) The appellant has questioned whether requisite conditions has been satisfied before issue of notice u/s 148? He has also stated that as his assessments has been completed u/s 143(3) rws 153A, the same can’t be reopened u/s 148. He has also stated that the documents found in the premise only indicates some receipt to the appellant by Mr. Dayanand Pai, but each payment can’t be construed as income. The AO has dealt with the above objection in the assessment order itself as under: "The assessee in para 1 of his reply has given details of assessment orders passed consequent to search in his own case. The assessee has challenged the assumption of jurisdiction u/s. 147, taking a claim that the assessment u/s. 153A r. w. s. 143(3) are concluded in his case relying upon the judgment of Hon'ble High Court of to 92/Bang/2017 Page 7 of 10 Karnataka in the case of Sri Rinku Chakravarthy. It is clarified that re-opening has been done in the assessments based upon fresh material un-earthed during search proceedings in the case of Mr. P. Dayananda Pai & others. The case law of the Hon'ble High Court of Karnataka has laid down that 147 proceedings can also be initiated in block assessments, but this decision of Hon'ble Court doesn't bar the assessing officer from re-opening assessments concluded u/s. 1534 r.w.s 143(3) of IT Act, The assesses has also objected regarding the recording of reasons and also regarding the bearing of payments Mr. P. Dayananda Pai has made on the income of the assessee. It is clarified that the reasons are recorded on order sheet and approval of appropriate authority for issue of notice has been taken and notice duly served within statutory time limits. Further, the assessee has not reflected the payments received from Mr. P. Dayananda Pai and there is escapement of income consequent to this because of the assessee's non disclosure of this receipt during 153A proceedings. While going through the reply it is very clear that the assessee is raising issues which are inconsequential and trying to object the proceedings which are as per law. The proceedings initiated are valid as per IT Act and also as per guidelines set by Hon'ble Courts w. r. t this issue. The reasons are recorded on the order sheet are already given to the assessee and approval of appropriate authority is taken and the notice is duly served the initiation of the proceedings are in order. This is a new fact brought on record to the assessing officer (consequent to search proceedings) who has issued a notice u/s. 148 after recording reasons and taking approval of appropriate authority for assessment year 2005-06 and 2006-07. As, the income has escaped assessment because of the reason that the assessee failed to disclose fully and truly all mater/al facts necessary for the assessment for A. Y. 2005-06 the proceedings were initiated. The assessee is required to comply with assessment proceedings and file the details. As the proceedings were initiated as per law, and speaking order was passed as per low stating that assumption of jurisdiction was correct." Therefore, it is clear that the objections of the appellant has already been dealt with by the AO. The appellant has not brought anything on record to the contrary of the arguments made by the AO nor has given any written arguments finding fault with the reasoning of the AO. In these circumstances, I agree with the arguments of the AO and this ground of appeal is REJECTED.”

9. Now we also reproduce para 7.2 from the order of CIT(A) in the case of the wife of the assessee Smt. Bhagya Nagaraj which is available on pages 80 and 81 of paper book. “7.2 ALTERNATIVE SUBMISSIONS (REGARDING REOPENING OF ASSESSMENTS) The appellant has questioned whether requisite conditions has been satisfied before issue of notice u/s 148? She has also stated that as his assessments has been completed u/s 143(3) rws 153A, the same can’t be reopened u/s 148. She has also stated that the documents found in the premise only indicates some receipt to the appellant by Mr. Dayanand Pai, but each payment can’t be construed as income. The AO has dealt with the above objection in the assessment order itself as under: "The assessee in para 1 of his reply has given details of assessment orders passed consequent to search in his own case. The assessee has challenged the assumption of jurisdiction u/s. 147, taking a claim that the assessment u/s. 153A r. w.s. 143(3) are concluded in his case relying upon the judgment of Hon'ble High Court of Karnataka in the case of Sri Rinku Chakravarthy. It is clarified that re-opening has been done in the assessments based upon fresh material un-earthed during search proceedings in the case of Mr. P. Dayananda Pai & others. The case law of the Hon'ble High Court of Karnataka has laid down that 147 proceedings can also be initiated in block assessments, but this decision of Hon'ble Court doesn't bar the assessing officer from re-opening assessments concluded u/s. 1534 r. w.s 143(3) of IT Act, The assesses has also objected regarding the recording of reasons and also regarding the bearing of payments Mr. P. Dayananda Pai has made on the income of the assessee. It is clarified that the reasons are recorded on order sheet and approval of appropriate authority for issue of notice has been taken and notice duly served within statutory time limits. Further, the assessee has not reflected the payments received from Mr. P. Dayananda Pai and there is escapement of income consequent to this because of the assessee's non disclosure of this receipt during 153A proceedings. While going through the reply it is very clear that the assessee is raising issues which are inconsequential and trying to object the proceedings which are as per law. The proceedings initiated are valid as per IT Act and also as per guidelines set by Hon'ble Courts w. r. t this issue. The reasons are recorded on the order sheet are already given to the assessee and approval of appropriate authority is taken and the notice is duly served the initiation of the proceedings are in order.

ITA Nos. 89 to 92/Bang/2017 Page 9 of 10 This is a new fact brought on record to the assessing officer (consequent to search proceedings) who has issued a notice u/s. 148 after recording reasons and taking approval of appropriate authority for assessment year 2005-06 and 2006-07. As, the income has escaped assessment because of the reason that the assessee failed to disclose fully and truly all material facts necessary for the assessment for A. Y. 2005-06 the proceedings were initiated. The assessee is required to comply with assessment proceedings and file the details. As the proceedings were initiated as per law, and speaking order was passed as per low stating that assumption of jurisdiction was correct." Therefore, it is clear that the objections of the appellant has already been dealt with by the AO. The appellant has not brought anything on record to the contrary of the arguments made by the AO nor has given any written arguments finding fault with the reasoning of the AO. In these circumstances, I agree with the arguments of the. AO and this ground of appeal is REJECTED.”

10. From these two paras reproduced from the order of CIT(A) in the present case and in the case of wife of the assessee Smt. Bhagya Nagaraj, it is seen that there is no difference in the decision of CIT(A) in both these cases.

11. Now we also reproduce the relevant para of the Tribunal order in the case of the wife of the assessee Smt. Bhagya Nagaraj in to 96/Bang/2017 dated 25.10.2017. The same is reproduced hereinbelow from pages 12 and 13 of this Tribunal order. “Even otherwise, from perusal of reasons recorded, it cannot be inferred that there is income in the hands of the appellant, even if there is payment to appellant, but there is nothing on record suggesting that it constitutes income in the hands of the appellant. Even assuming for a moment that the contention of the AO that payments were made towards consideration for cancellation of Joint Development Agreement (JDA) which the assessee had entered with in respect of property at survey Nos.3/3, 7, 8, 9/2A, 9/213, Mallasandra. In the absence of evidence that the appellant is the owner, had interest of any nature in the said property, it cannot be said that the payments constituted taxable income in the hands of the appellant. One cannot come to conclusion that the payments constituted taxable income in the hands of the assessee. Furthermore, even assuming that these payments were made towards consideration of cancellation of JDA, same does not represent taxable income for period under consideration. It is only after insertion of clause (ix) to section 56(2) to 92/Bang/2017 Page 10 of 10 by Finance (No.2) Act 2014 w.e.f. 01/04/2015 that provisions of the Act have been amended to tax any consideration received on cancellation of any agreement to sell or JDA. Therefore, viewed from any angle, we cannot uphold the validity of assumption of jurisdiction u/s 147 and therefore, we hereby quash the impugned assessment orders as bad in law.”

12. From the above Para reproduced from the Tribunal order, it is seen that it was held in this case that viewed from any angle, the Tribunal cannot uphold the validity of assumption of jurisdiction u/s. 147 and assessment orders in that case were quashed as bad in law. Since no difference in facts could be pointed out by ld. DR of revenue in the present case and in that case i.e. in the case of wife of the assessee Smt. Bhagya Nagaraj, we find no reason to take a contrary view in the present case and hence, by respectfully following this Tribunal order, we hold that in the present case also, we cannot uphold the validity of assumption of jurisdiction u/s. 147 and therefore, we hereby quash the impugned assessment orders as bad in law. In view of this decision, remaining grounds raised by assessee require no separate adjudication.