A,C.I.T. CENTRAL CIR.- 2(1), NAGPUR vs. SHRI NARESH MASHRAM, CHIMUR

Assessment Of income of & person other than the person in whose case search has been initiated or books of account; other documents or assets have been requisitioned 39.1 Section 153C Of the Income-tax Act relates to assessment of income Of any persan other than the person in whose Case search has been conducted or requisition has been made: The provisions contained in sub-Section (1) of the section '153C, before amendment made by the Act; provided that notwithstanding anything contained in Section 139, section 147, section [48, section 149, section 151 and section 153 of the Income-tax Act where the Assessiig Officer i5 satisfied that any money, buliion, jewellery or other valuable article Or thing or books Of account pr documents seized OF LTA Nos117 to 121/Nag/2016 Asstt Yrs:2007-08 t0 2011-12 requisitioned belong to any person; Other referred to than the in section person 1534 pf the books Income-tax Act; Of then the account Or documents Or assets seizd requisitioned stall be handed over Or to hwving the jurisdiction Assessing Officer over Such other person &nd that Assessing Officer shall proceed against each Such other _ notice and assess Or person and issue reassess income Of such other person in accordance With the provisions of section 153A, 39.2 Disputes have arisen 35 to the "belong interpretation of to the words in respect of a document &S for instance when a given document seized from & person is & COpy of the Original document Accordingly section 153C has been amendedrso to provide that notwithstanding 35 anything contained in Section 139, section 147, section 148, section 149, section 153 section 151 Of the and Income-tax Act; where the Assessing Officer is satisfied that ay money, bullion, valuable articte Or jewellery &r other thing belongs to, Or any books of account or documents seized Or requisitioned pertain to; information contained therein, Or any than the relates to any person other person referred to in section 1534 of the Income-tax Act; then the books Of account or documents or requisitioned shall be handed Or assets seized; over to the Assessing Officer having jurisdiction over Such other persor &nd 5has Officer shall proceed against each such otheas Assessing: notice and assess Or person and issue reassess income Of such other person in accordance with the provisions af section 1534, t9 3sHpplicability: This amendment has taken effect the Ist day of June; from 2015 5.3 In view Qf this, It iS apparent that the amended section 153C are not retrospective and are applicable with effect from 01/06/2015 and not prior to that: In the case of the assessee, search as well as notice U/s 153C has been issued prior to 01/06/2015. Since in the case of the assessee action Ws 153C; Jhas . been taken by issuing the notice dated 16/07/2013 in consequence Of the search carried out On 19/07/2011 therefore, the amended provision of section 153C will not apply. As per the provision of sectian 153C, as was in existence during the impugned period; the 783 I., Nos.117 to 12/N;g/2016 Asstt, Yrs.2003-(8 It} 2Q11-12 condition precedent for issuing notice W/s 153C and assessing Or reassessing the income of such other person' is that the money, bullion, jewellery or other valuable article or thing; books of account or document seized or requisitioned which belong to such person where documents in question recovered duri ring search proceedings did not belong to the assessee; though there was a reference to the assessee therein, issue of notice to the assessee u/s 153C, in our opinion; cannot be held to be valid. Hon'ble Delhi High Court in the case of Pepsi Foods Pvt. Ltd. vs, ACIT 52 Taxman com 220 (Del}, We noted has also categorically held that before a notice U/s 153C can be issued, the Assessing Officer is required to arrive at a conclusive satisfaction that the document belongs a person other than the searched person. Unless until it is established that the documents seized did not belong to the searched person, the provision of section 153C did not get attracted; This is not disputed that the notice in the case of the assessee ufs 153C has been issued in consequence of search & seizure action taken U/s 132 in the Bhangdiya Group from whom premises diaries marked B-l to B-65 were found and seized, These diaries belong to the Bhangdiya Group not to the assessee. Even though the name of the assessee is mentioned in the diary that does not mean that the diary belong to the assessee: It may be said that the diary contains the information regarding the assessee. Learned DR, before US even though vehemently relied On the order of the Assessing Officer but could not adduce any cogent material or evidence which may prove that the diaries fourd and seized during the course of search in Bhangdiya Group belong to the assessee: Since during the course of search in Bhangdiva Group no material relating to the addition made belonging to the assessee was found therefore; the notice Issued 4/s 153C, in our opinion , cannot be regarded to be valid one. Sane_view_has_beentaken by Hon'bble Bombay High Court In the case of Bharti Vidyapeeth in ITA No. 923 of 2012 vide Its order dated ~Gapite LT.. Nos] F7 to 121/N24/2016 Asslt, Yrs:2u07-08 t0 2Q11-12 Shz? #i 11/09/2014, This fact also finds support as the Revenue has made the addition in the hands of the assessee in each of the assessment vear only on protective basis which proves that the Revenue was also not satisfied with the incriminating material in fact belong to the assessee On this basis we set asice the order of CIT(A) ad hold that the notice issued u/s 153C is not valid and in consequence thereupon; the assessment made is aulled. Thus, the ground taken by the assessee under Rule 27 is allowed. 6_ Now coming to the ground taken by the Revenue: We have heard the rival submissions, carefully considered the same along with the orders of the tax authorities below: We noted that the Assessing Officer has made the addition in each of the assessment year in the case of the assessee on protective basis in respect of the cash being shawn as recelpt in the diary seized during the course of search in Bhangdiya Group: When the matter went before the CIT(A); the CIT(A) deleted the said addition in all the assessment years by observing as under; "9.1 Before adjudicating the issue in hand; it wOuld be relevant to briefly discuss the background of additions made in the case Of Shri Mitesh G Bhangdiya & Group concerns 0n the basis Of seized evidences aS per Annexure-8-1 to B-65, The Ld, AO has made the total addition of Rs.182.52 Ors in the hands Of various concerns of Bhangdiya group in various assessment years falling within the block period on prorata basis for want Of proper correlation between the amounts credited to the seized diaries and the withdrawals made from the bank accounts of the sub-contractors, Out of the total addition of Rs.182.52 crores, a addition Of R5.54.40 Grs. has been made On account of entries of withdrawals from the bank account of sub-contractors recorded in the seized diaries in proportian to the cheque payments made to the sub- contractors by various entities Of the Bhangdiya group. The various concerns Of the Bhangdiya group had made the payments by account payee cheques to the sub-contractors: The Ld AO after analyzing the bank accounts of 21 sub- contractors out of total more than 100 Sub-contractors has Yaopue 385 I.T'A. Nos.[17 to 121 {Nag/2016 ASS61. Yrs:2Oo?-IR tv 2011-12 02 arrived at the conclusion that the cash withdrawn from the accounts of the subcontractors has been found deposited on the credit side of the seized diaries marked a Annexure B-1 to 8-65 seized from the premises af Shri Mitesh G. Bhangdiya, Thus, the Ld, AO had inferred that the Bhangdiya group by adopting such modus-operandi had inflated the expenditure by making cheque payments ad subsequently withdrawing the cash from the bank accounts of the sub- contractors who, according to the AO; are merely name lenders; The contention of Shri Mitesh Bhangdiya was that the cash withdrawn from the account af the subcontractors which is found reflected in the diaries was kept with Late Shri Gotulalji Bhangdiya, father of Shri Mitesh Bhangdiya by such sub-contractors which was being issued to various sites for the use Of subcontractors 35 per the requirements at the site. Further that the money kept by sub-contractors waS returned to them or through any Of the intermediaries in the CoUrse Of handling of cash. The Assessing Officer however, declined to agree with the explanation filed by the appellant and has held that all jhe 21 sub-contractors examined by him are merely name lenders and the amounts paid to them under the head sub-contracts are bogus payments, therefore; the corresponding receipts by way Of withdrawals from the bank accounts Of the subcontractors {5 liable to be added 35 unaccounted income In the hands Of various concerns Of Bhangdiya group in various assessment years Of the block period in proportion to the cheque payments made by such group concerns: Ngpu? 9.2 In the case Of Bhangdiya group, the assessments under section 1534 Of IT Act 1961 have been framed for assessment years 2006-07 to assessment year 2012-13 The nature of activity being execution of government contracts was the same during all the assessment years. In assessment vear 2006-07, the nature Of work executed for Vidarbha Irrigation Development Corporation remains the same a5 in the case Of assessee for subsequent assessment years The Sub contractors who have executed the works are also similar in the various assessment years; 9,3 The A.O. has Observed that the sub conbractors in the case Of Bhangdiya group are name lenders and bogus In this regard, it is significant to mention that the sub contractors E'TA Nos 117 to 121/Nag/2016 Asstt Yrs:2(07-OX to 2011.12 7kt8L including the appellant have been assessed by the ACIT; Central Cirde-? (1), Nagpur Who is also the AO. Of Bhangdiya group. Notices under section 153C of IT. Act 1961 were issued to subcontractors and returns were submitted by such Sub contractors pursuance to receipt of notice under section 153C of IT; Act 1961. The assessments have been framed under Section 153C of LT Act 1961 by the same A.O. wherein the income returned in} respect of business income shown arising to such sub-contractors Out of receipt received from the Bhangdiya 9roup have been accepted Thus, the AO. having accepted the business receipts in the hands of sub- contractors including the appellant for determining the Income in the cases of sub-contractors could not have concluded that the payments made by Bhangdiya group to such sub contractors are bogus. 9.4 In view &f the huge variance in the income assessed as percentage to receipts by the AO and various infirmities as emanated from the order of the AQ; net profit has been estimated @ 16% Of gross receipts in the hands of various concerns Of the Bhangdiya group in view of the decision of the Hon'ble ITAT, Nagpur Bench; Nagpur in the case Of the Bhangdiva group entities in ITA No.268, 269 & 285/Nag/2012 dated 03/04/2013. 4 survey action waS conducted Qn 17/02/2009 in the Bhangdiya Group of cases; wherein the similar situation as pavments to sub-contractors was disputed and doubted by the AO. The survey action comprises AY 2006-07 to AY 2008-09 which are also forming part of the block periods far the Search action conducted on the assessee group On 19.07,2011. The Hon'ble ITAT, Nagpur Bench, Nagpur after having considered the similar activity Of business and deficiencies in subcontract payments found during the sutvey action conducted On 17.02,2009 has decided the appeals for AY 2006-07 to 2008-09. The Hon'ble ITAT, Nagpur Bench, Nagpur after considering the impounded material has directed the AO to adopt the net profit 129 &5 against net profit adopted by AO @ 14%. 9.5 In view Of the above facts and circumstances and keeping in view of various infirmities and various judicial decisions relied upon by the appellant and to meet ends Of justice; to my considered opinion , it was considered fair and reasonable to adopt the net profit @ 16%k On the gross Gpijr 387 [7'

Mus 117 ro 121/Nag/2016 40 Asstt, Yrs;2007.08 10 2011.12 416 receipts Of Rs.579 Crs:; being the turnover of the various Bhangdiya grOup concerns for the block period from AY 20075 08 to AY 2012-13 In the respective years Of the block and bring the sane t? the taxation On the guidelines determined by the Hon; ITAT, Nagpur Bench, Nagpur in ITA No. 268, 269 & 285/Nag/2012 vide order dated 07/03/2013 On the similar activities Of business under the similat circumstances However; in order to cover Up the undisclosed investment Of Rs; 26 crores in immovable properties ad the undisclosed investment In jewellery to the tune of Rs. 2.37 crores; enhanced net profit @ 16% of total turnover was estimated in the appellate Orders dated 31/12/2015 I7 the Cases Of Bhangdiya group a5 against net profit of 12% estimated by Hon'ble TTAT, as the issue of undisclosed investment in assets Was not there before the Hon'ble ITAT in the Survey appeals, 10 Thus, I have considered the submissions made by the appellant and evidence On record It is seen that the appellant is 3 sub-contractor and executing work for various business entities belonging t0 Shri Mitesh Bhangdiya group. The assessee has been regularly assessed to incame tax much Pro to the date of search on Shri Mitesh Bhangdiya 19/07/2011. group @n In the Case Of assessee notice has been issued ujs 153C of IT Act 1961 after there being Search On Shri Mitesh Bhagdiya group 19/07/2011 and assessments have been framed for assessment years 2006-07 to Z010-11 & A.Y: 2012-13 in the month Of March, 2014. 10,1 It ig seen from the assessment order that the AO. has Feproduced the statement recorded Ujs 132/4) of Shri Mitesh Bhagdiya ad has referred to Seized documents inventorized a5 B-] to 65, In the case of Shri Mitesh Bhagdiya, has the found AQ that the withdrawals made from the bank account of assessee are matching with the credits appearing seized in the documents found at the premises Of Shri Bhagdiya. Mitesh The A,0. has concluded that appellant is only name lender of Shri Mitesh Bhagdiva. The A.O. accordingly observed that Shri Mitesh Bhangdiya is the ultimate beneficiary of the bogus contract payment which laundered through appellant and is disallowed and added in the respective framed in assessments Bhangdiya group: The A.O. further observed that the cash withdrawn from the bank i5 added as income On [.T, Nos. 117 to 121/Nag/2016 Asstt Yrs:2007-08 t 2A11.12 protective basis 3S there was no expenses as no contract work was really executed 10.2 The appellant submitted return declaring income from Sub-contract work in his regular return as well 35 in the return submitted In response to notice issued uls 153C of I.T Act 1961. In the return of income assessee has shown income arising out of receipts being amount received from the various business entities of Shri Mitesh Bhagdiya group: The perusal Of the assessment order does not indicate any adverse observation . with regard to regular books of account on the basis of which income was declared in the return of appellant It i5 seen that the profit ad loSs account ad balance sheet submitted along with the return af income have not been discredited in the assessment framed In the Case of the appellant The AQ. in Fact has assessed income returned without inviting any adverse observation 5 to income declared from sub-contract work 1033 It is seen that the withdrawals from the bank account are reflected in the books of account On the basis of which income has been returned The withdrawals from the bank having already been considered for the purpose Of determining income at the hands of appellant as Shown In the return cannot separately constitute income liable to be assessed in the hands of appellant The addition made by A.0. is thus unjustified and unsustainable 10.4 It is further seen that the A.O. has made observation in the assessment order to the effect that in the case of Shri Mitesh Bhagdiya group disallowance has been made for various expenses claimed On account of sub-contract expenses which includes payment to appellant It is settled proposition of Iaw that the substantive assessment must precede framing Of protective assessment; In the Facts and circumstances of the case, it is difficult to rationalize how withdrawals from the bank account can constitute assessable income much le5s on protective basis in the case of the appellant: The Ao has made disallowance of sub-contract expenses being amount paid to appellant while determining the income of business entities of Shri Mitesh Bhagdiya group: Such payments are already considered for income Shown in the return and assessed as business receipt in the hands of Agpur I,T.A, Nos,]17 tc 121 /Nag/2016 Tinen Asstt_ Yrs:2007-08 to 2011-12 38 the appellant Addition of such amount basis defies logic: again on protectivve [ do not find protective ay rationale to make such assessrent %f the withdrawals made from bank account Of assessee I7 the hands of income assessed on assessee himself The protective basis unjustified therefore; i5 held to be and unsustainable on this count aS well 10.5 The gross receipts in the case of the a5 returned income appellant a5 well along with the percentage Of income has been tabulated by the appellant for Various assessment years and the same i5 reproduced herein under: Naresh Masram Turnover returned income and assessed income Assessment year:2007-08 to 2011-12 ASSESSMENT YEAR 2007-08 '2008-0g 20n9-10 Z010-I 2011-12 'GROSS RECEIPTS 50,00,223 41,36,537 39,07,514 37,40,796 57,13,415 RETURNED TNCOME 1,25,550 1,03,960 3,38,150 3,14,420 5,06,280 % OF GROSS RECEIPTS 2.5196 12.519q '8.6544 8,41% 8,860 ISDCTTOo SSCDER 37,65,00Q 153C 39,85,000 19,88,000 27 50,000 38, QO,C QQO ASSESSED INCOME 38,90,550 40, 88,960 23,26,I5Q 30,64,420 43,C 06,280 9o OF GROSS RECEIPTS 77.8106 98.8590 59.530 81.929 75.3796 10.6 It i5 seen from the above that the been accepted in the case of income returned has adverse inference and appellant without inviting ay hands considering the addition made in the of assessee; the income assessed a5 percentage Of Aross receipt clearly reflected absurdity in the action Of A,0, while determining the income in the the Id The addition made by Id. hands Of assessee Ao aforesaid thus, I5 unsustainable for the reason also. Therefore; the in the hands of protective addition the made appellant is directed the years of the block to be deleted in ali period, 6.1 We noted that the CIT(A) has given the finding of fact; This is a fact that the substantive addition has been made in the hands of the assessee in respect of the incomie received by the assessee as sub-contractor in each 364 L"T.A. Nos.117 to IZ1/Nag/2016 Asstt; Yrs:2007-08 to 2O]1-12 of the assessment year. The withdrawal made by the assessee from his bank account in which the deposit of the sub-contract receipts has been accepted arises out of the said deposit: Such withdrawal; in Qur opinion, by no stretch of imagination can constitute assessable Income in the hands of the assessee, The Assessing Officer while determining income the taxable of the business entities of the Bhangdiya Group made disallowance the of sub-contract expenses being the amount paid to the assessee but these payments Were already considered in income shown in the return ad receipt 35 business receipt in the hands of the Addition assessee; of such amount again on protective basis in the hands of the assessee does have ay leg to stand. We, therefore; do not find illegality Or infirmity any in the order of the CIT(A) which interference. warrants our The CIT(A) has rightly deleted the addition in each of the assessment year. We accordingly confirm the order of CIT(A} Thus; Ppeal filed the by the Revenue in each of the assessment Ismissed, year stand 7 In the result; all the appeals of the Revenue stand dismissed,. (Order pronounced in the open court on 23/06/2017 Sd] _ (AMARJIT SINGH) Judicial Member Dated;23/06/2017 #Singh Copy_of_the_order forwarded_to 1. The Appellant 2. The Respondent 3, Concerned CIT 4. The CIT(A)

D.R, Uucetl Ale Sd] = P. K BANSAL ) vice President ~'Asstt; 'Reqistrar ',8- .1 44 4_ Ln_