A,C.I.T. CENTRAL CIR.- 2(1), NAGPUR vs. SHRI SANJAY RAMESH MALANI, AMARAVATI

Assessment of income Of & persan other than the person in whose case search has been initiated or books of accouat; other documents or assets have been requisitioned 39.1 Section 153C Of the Incame-tax Act relates to assessment Of income Of any person 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 sedtion 153C before amendment made by the Act provided that notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153 Of the Income-tax Act; where the Assessing Officer is satisfied that any money, bullion, jewellery or cther Valuable Qojni Hae LTA Nos.1zz to 125/Nag/2016 Asstt: Yrs:2007-Q8 to 2010-11 artice or thing 0r bonks of account Or doruments seized Or requisitioned belong ta any person; other than the person referred to in section 1534 af the Income-tax Act; then the books pf account Or documents Qr assets szized Or requisitioned shall be handed over tp the Assessing Officer having jurisdiction over such other person ad that Assessing Officer shall proceed against each such other person and issue notice and asse55 0r reassess Income Of such other person in accordance with the provisions of section 153A, 39.2 Disputes have arisen as to the interpretation Of the words "belong to in respect Of a document as for instance when a given document seized from & person is a copy of the original document: Accardingly , section 153C has been amended 50 a5 to provide that notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153 of the Income-tax Act; where the Assessing Officer is satisfied that ay money; bullion jewellery &r other valuable article or thing belongs to, Or any books of account &r documents seized Or requisitioned pertain to; Or any information contained therein, relates to, any person; other than the person referred to in section 1534 of the Income-tax Act; then the books Of account or documents or assets seized Or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person &d that Assessing Officer shall proceed against each such other person and issue notice and assess Or reassess income Of such other person in accordance with the provisions of section 153A, 0 39.3 Applicability: This amendment has taken effect from the Ist day of June; 2015. 5.3 In view af 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 a5 well as notice W/s 153C has been issued prior to 01/06/2015, Since in the case of the assessee action u/s 153C has been taken by Issuing the otice dated 16/07/2013 in corsequence of the search carried qut on 19/07/2011 therefore; the amended provision of section 153C will not apply: As per the provision of Hai 1T.A. Nos.122 to 125/NaB/Z01g nsste Yrs.2007-08lO 2010-11 section 153C, as was in existence during the impugned period, the condition precedent for issuing notice uys 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 during 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 & 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 selzed 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 Uls 153C has been Issued in consequence af search R seizure action taken u/s 132 in the Bhangdiya Group from whom premises diaries marked B-l to B-65 were found an 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 found and seized during the course of search in Bhangdiya Group belong to the assessee. Since during the course of search in Bhangdiya Group no material 1 elating to the addition made belonging to the assessee was found therefore, the notice issued U/s 153C, In our opinion, cannot be regarded to be valid one Same_view_bas_been_taken by Honble Bombay High Court in PEL Kax 1Tj_ Nos 1zZ10 125/Nap/2016 Asstt Yrs.2007-08 lo} ZII0}-11 the case of Bharti Vidyapeeth in ITA No. 923 of 2012 vide its arder dated 11/09/2014,_ This fact also finds support a5 the Revenue has made the addition in the hands of the assessee In each of the assessment year only on protective basis which proves that the Revenue was also not satisfied with the Incriminating material in fact belong ta the assessee. On this basis we set aside the order of CIT(A) and hold that the notice Issued uJs 153C is not valid and in consequence thereupon, the assessment made is anulled. 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 shown as receipt 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 On the basis 0f seized evidences as per Annexure-B-1 to B-65, The Ld AO has made the total addition af R5.182.52 Crs in the hands Of various concerns of Bhangdiya group in various 6 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 crares; an addition of Rs.54.40 Crs. has been made On account of entries of withdrawals from the bank account of sub-contractors recorded in the seized diaries in proportion 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 ApP E 1 3 Y [.T.A. Nos.lZZ tu 125/Nag/2016 Asstt. Yrs:2O07-OR fn Zof0-11 4x3 The Ld AQ after analyzing the bank accounts Of 21 sub- contractors Out Of total more than 100 Sub-contractors has 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 as Annexure 8-1 to B-65 seized from the premises 0f 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 and subsequently withdrawing the cash from the bank accounts Of the sub- contractots 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 i5 found reflected I} te 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 wa5 returned to them or through ay of the intermediaries in the course Of handiing of cash. The Assessing Officer however; declined to agree with the explanation filed by the appellant and has held that all the 21 sub-contractors examined by him are merely name lenders and the amounts paid to them under the head sub-contracts are bogus payments, therefare, the corresponding receipts by way of withdrawals from the bank accounts of the subcontractors is liable to be added a5 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 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 year 2006-07, the nature Of work executed for Vidarbha Irrigation Development Corparation remains the same 35 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: 4 HJ} 9 LT.A Nos IZ2to 125/Nag/z016 Asstt Yrs:ZO07-{J8 to ZO1O-11 9.3 The A.O. has bserved that the sub contractors in the case Of Bhangdiya group are name lenders and bogus. In this regard, it i5 significant to mention that the sub contractors including the appellant have been assessed by the ACIT, Central Circle-2 (1), Nagpur who is also the A.O. 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 AO. wherein the income returned in respect of business income shown arising to such sub-contractors out of receipt received from the Bhangdiya group 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 contractars are bogus. 9,4 In view Of the huge variance in the income assessed as percentage to receipts by the AO and various infirmities 35 emanated from the order Of the AO; net profit has been estimated @ 16% of gross receipts in the hands af various concerns of the Bhangdiya group in view of the decision of the Hon'bie ITAT; Nagpur Bench; Nagpur in the case of the Bhangdiya group entities In ITA No.268, 269 & 285/Nag/2012 dated 03/04/2013. A Survey action was conducted on 17/02/2009 in the Bhangdiya Group of cases; wherein the similar situation & payments to Sub-contractors was disputed and doubted by the AO The sunvey action comprises AY 2006-07 to AY 2008-0g which are also forming part of the block periods for 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 survey 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 @ 12% a5 against net profit adopted by AO @ 14%, 4 4 4 9.5 In view of the above facts and circumstances and keeping in view Of various infirmities and various judicial Ha5 " LT.A. Nos: 122 l0 125/Na5/2016 Asstt, Yr5.2007-08la 2I}IC}-11 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 1696 On the gross receipts of Rs.579 Crs ; being the turnover of the various Bhangdiya group concerns for the block period from AY 2007 08 to AY 2012-13 in the respective years of the block and bring the same to the taxation on the guidelines determined by the Hon. ITAT, Nagpur Bench , Nagpur in ITA No 268, 269 285/N2g/2012 vide order dated 07/03/2013 on the similar activities Of business under the similar circumstances: However; in order to cover up the undisclosed investment of Rs: 26 crores in immovable properties and the undisclosed investment in jewellery to the tune of Rs: 2,37 crores; enhanced net profit @ 16%6 of total turnover was estimated in the appellate Orders dated 31/12/2015 in the cases pf Bhangdiya group as against net profit of 12% estimated by Hon'ble ITAT; 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 ad evidence On record. It is seen that the appellant 15 2 sub-contractor &nd executing work for various business entities belonging to Shri Mitesh Bhangdiya group. The assessee has been regularly assessed to income tax much prior to the date Of search 0n Shri Mitesh Bhangdiya group on 19/07/2011. In the case of assessee notice has been issued u/s 153C of IT Act 1961 after there being search on Shri Mitesh Bhagdiya group 19/07/2011 and assessments have been framed for assessment vears 2006-07 to 201D-11 & A.Y. 2012-13 in the month of March, 2014 10,1 It is seen from the assessment order that the A,O. has reproduced the statement recorded ufs 132(4) of Shri Mitesh Bhagdiya and has referred to seized documents inventorized 35 B-1 to 65. In the case of Shri Mitesh Bhagdiya, the AQ has found that the withdrawals made from the bank account of assessee are matching with the credits appearing in the seized documents found at the premises Qf Shri Mitesh Bhagdiya The A.O. has concluded that appellant is only name lender of Shri Mitesh Bhagdiya. The A.O. accordingly observed that Shri Mitesh Bhangdiya i5 the ultimate beneficiary of the bogus contract payment which laundered through appellant and Is disallowed and added in the respective assessments APPE{ 9 236 "HeZ I,T,A, Nos.122to 125/N:g/ZOI6 Asstt. Yrs.2O07-08 tu 2U10-11 framed in Bhangdiya group. The A.O: further observved that the cash withdrawn from the bank is added a5 income On protective basis a5 there was no expenses a5 no contract work was really executed, 10.2 The appellant submitted return declaring income from sub-contract work In his regular return aS well a5 in the return submitted in response to notice issued us 153C of IT 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 Qf the assessnent 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 is seen that the profit and loss account and balance sheet submitted along with the return of income have not been discredited in the assessment framed in the case af the appellant: The A,0. In fact has assessed income returned without inviting any adverse observation 35 to income declared from sub-contract work. 10.3 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 appeltant a5 shown in the return cannot separately constitute income liable to be assessed in the hands of appellant The addition made by AO. i5 thus unjustified and unsustainable; 10.4 It is further seen that the A.O, has made observation in the assessment order ta 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 law 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 less On protective basis in the case of the appellant; The A.0. has made disallowance Of sub-contract expenses being amount paid to appellant while determining the income of business entities of Shri Mitesh Bhagdiya group: L"4.A, Nos.122 lo 1Z5/Na8/2016 Asstt Yrs.2007-08 to 2Q10-11 Such payments are already considered for income shown in the return &d assessed &5 business receipt In the hands of the appellant: Addition of such amount again On pratective basis defies logic: 1 do not find any rationale to make such protective a5sessment Of the withdrawals made from bank account Qf assessee in the hands of assessee hirself The income assessed 0n protective basis therefore; is held to be unjustified and unsustainable on this count 35 well: 10.5 The gross receipts in the case Of the appellant a5 well 25 returned income along with the percentage of income has been tabulated by the appellant for various assessment vears and the same is reproduced herein under: Shri Sanjay Ramesh Malani Turnover, returned Income and assessed income Assessment year:2007-08 to 2010-11 ASSESSMENT YEAR 2007-Q 2008-03 2009-10 2010-11 GROSS RECEIPTS 1, 68, 68,273 1, 68, 97,213 1, 53, 01,640 2, 94,78,39} RETURNED INCOME 2,02,242 2, 91, 865 7,22,760 12,52,493 %6 QF GROSS RECEIPTS 1,2QW4 1,7300 4.72W6 4,2596 ADDITTONS UNDER 45,46,0Q SECTION 153C 1, 64,40,0n0 67, 63, DJQ B4,78,500 ASSESSED FNCOME 51,35,720 1,70, 11, 610 74,85,760 97,30,993 5o CF GROSS RECEIPTS 30.4500 100.6806 48.3200 33.0196 10.6 It is seen from the above that the income returned has been accepted in the case Of appellant without inviting ay adverse inference and considering the addition made in the hands of assessee; the income assessed a5 percentage of gross receipt clearly reflected absurdity in the action of the Id., A.O, while determining the Income in the hands of assessee The addition made by Id. A,0. thus, is unsustainable for the aforesaid reason also. Therefore, the protective addition made in the hands of the appellant is directed to be deleted in all the years Of the block period. Hat Ha8 I'T.A. Nos.[22 to 125/N:g/2016 Asstr Yrs:2007-08to Z010}-11 6.1 We noted that the CIT(A) has given the finding of fact; This i5 a fact that the substantive addition has been made In the hands of the assessee in respect of the income received by the assessee as sub-contractor in each 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 our opinion, by no stretch of imagination can constitute assessable income in the hands of the assessee- The Assessing Officer while determining the taxable income of the business entities of the Bhangdiya Group made the disallowance of sub-contract expenses being the amount paid to the assessee but these payments were already considered in income shown in the return and receipt as business receipt in the hands of the assessee. Addition of such amount again on protective basis in the hands of the assessee does have any leg to stand, We, therefore, do not find any illegality or infirmity in the order pf the CIT(A) which warrants our interference: The CIT(A) has rightly deleted the addition in each of the assessment year, We accordingly confirm the order of CIT(A): Thus; the appeal filed by the Revenue in each of the assessment year stand dismissed. 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 PK: BANSAL ) vice President Dated:23/06/2017 #Singh 3 No 1.7'.

Nos,122 tc 125/Nap/2016 Asstt Yrs;2007-08 lu 2010-]1 Copy_of the order forwarded_to 1 2 . 3. 4. 5. 6 . The Appellant The Respondent Concerned CIT The CIT(A) D,R buu4 Hl € IassrRaistaren 5 To MEMBER [RIBVYX N4jpUn EEll'x Na.U H3g 3