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

Assessment of income Of a person other than the person in whose case search has been initiated 0r books of account; other documents or assets have been requisitioned 39.1 Section 153C or the Income-tax Act relates to assessment of income of any person other than the person in whose Case search has been conducted Or requisition ha5 been made; The provisions contained in sub-section (1) of the sectian 153C, before amendment made by the Act; provided that notwithstanding aything contained in section 139, section 147, section 148, section 149, section 151 and section 153 of the Income-tax Act; where the Assessing Officer {5 Moja HHo IT.ANos.l26 to 129/Nag/2016 Asstt Yrs:2007-08,08-09, 10-11 & 11-12 satisfied that ay maney; bullion; jewellery or other valuable artide or thing Or bOOks Of account or documents seized or requisitioned belong to any person; other than the person referred to in section 153A 0f the Income-tax Act; then the bpoks Of account Or documents Or assets seized Or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice ad assess or reassess income of such other person in accordance with the provisions of section 1534. 39.2 Disputes have arisen &s to the interpretation of the words "belong to" in respect of a document a5 for instance when & given document seized from 3 person Is a copy of the original document Accardingly, section 153C has been amended 50 as 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 any money; bullion, jewellery Or other valuable article or thing belongs to, or any books Of account Or documents seized Or requisitioned pertain to; Or any information contained therein; relates to, any person; other than the person referred to in section 153A 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 and that Assessing Officer shall proceed against each such other person and issue notice ad assess or reassess income af such other person In accordance with the provisions of section 1534. P ELt # 39.3 Applicability: This amendment has taken effect from the Ist day of June; 2015. 5.3 In view of 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 uls 153C has been taken by issuing the notice dated 16/07/2013 in consequence of the search carried out On 19/07/2011 therefore; the 3 1 ETANos.126 to 129/Nag/2016 Asstt; Yrs.2007-08,08-09, 10-11 & 11-12 amerided provision of section 153C wIll not apply: As per the provision of section 153C, as Was in existence during the impugned period, the condition precedent for issuing notice u/s 153C and assessing Or reassessing the income of 'such other person' is that the money, bull lion, jewellery or other valuable article or thing, books of account or document seized or requisitioned which belong t0 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 ujs 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 Ws 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 u/s 153C has been issued in consequence of search seizure action taken Us 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 0f the assessee is mentioned in the diary that does not mean that te diary belong to the assessee. It may be said that the diary contains the information regarding the assessee_ In our opi nion; even the amended provision supports the case of the assessee The Legislation has amended section 153C with effect from 01/06/2015 and widened the scope ujs 153C by substituting in place of word 'belongs or belong' to word 'pertain Or pertaln to or any information contained therein'. Now under the amended provision, even If the material selzed does not belong to the assessee but it contains the information relating to the assessee; the proceedings initiated FLLA O31i 1T.A Nos.126 to 129/Nag/2016 Asstt, Yrs;2007-08,08-09, 10-11 &11-12 13 uls 153C will be valid. But this amended provision; as is apparent, Is applicable from 01/06/2015. Learned DR. befote VS even though vehemently relied on the order of the Assessing Officer but could not adduce ay cogent material or evidence which may prove that the diaries fourid and seized during the course of search in Bhangdivya Group belong to the assessee_ Since during the course of search in Bhangdiya Group no material relating to the addition made belonging to the assessee was found therefore, the notice issued ufs 153C, in our opinion; cannot be regarded to be valid one Same_view has been taken by Hon'ble Bombay High Court in the case of Bharti Vidyapeeth in ITA No: 923 of 2012 vide its order dated 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 praves that the Revenue was also not satisfied with the incriminating material in fact belong to the assessee: On this basis APPELLA we set aside the order of CIT(A) ad hold that the notice issued u/s 153C is 2 not valid and in consequence thereupon; the assessment made is annulled. 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 vear 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 issve 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 IT.ANos.126 to 129/Nag/2016 Asstt; Yrs.2007-08,08-09, 10-11 & 11-12 basis of seized evidences a5 per Annexure-B-1 to B-65, The Ld AO has made the total addition Of Rs.182.52 Crs 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 ad the withdrawals made from the bank accounts Of the sub-contractors; Out of the total addition of Rs.182.52 crores, 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 t0 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 I00 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 a5 Annexure B-1 to B-65 seized from the premises of 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 AQ, are merely name lenders: The contention of Shri Mitesh Bhangdiya was that the cash withdrawn from the account Of 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 ay 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 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, therefore, the corresponding receipts by way of withdrawals from the bank accounts of the subcontractors is liable to be added 35 unaccounted income in the hands Of various concerns Of Bhangdiya group in various assessment vears 0f the block ELL, Iro5a XHH_ [T,A Nos,126 to 129/Nag/2016 Asstt: Yrs:2007-08, 08-09, 10-11 & 11-12 15 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 af 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 as 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 contractors in the case Of Bhangdiya group are name lenders and bogus In this regard;, it is 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 ad returns Were submitted by such sub contractors pursuance to receipt of notice under section 153C of LT 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 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 contractors are bogus 9.4 In View of the huge variance in the incame assessed a5 percentage to receipts by the AO and various infirmities as emanated from the order of the AO; net prorit 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 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 a5 payments to sub-contractors was disputed LTA Nos126 to 129/Nag/2016 Asstt Yrs.2007-08,08-09, 10-11& 11-12 Tb 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 for the search action conducted 0n the assessee group On 19.07,2011. The Hon'ble ITAT, Nagpur Bench, Nagpur after having considered the similar activity of business ad deficiencies in subcontract payments found during the survey action conducted On 17.02.2009 has decided the appeals for AY 2006-07 to 20O8-09. The Hon 'ble ITAT, Nagpur Bench; Nagpur after considering the impounded material has directed the AQ to adopt the net profit @ 1Z%h a5 against net profit adopted by AO @ 14%. 9.5 In view Qf the above facts and circumstances and keeping in view af various infirmities and various judicial decisions relied upon bv the appellant ad to meet ends of justice; to my considered opinion; it was considered fair and reasonable to adopt the net profit 169 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 201Z-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/Nag/2012 vide order dated 07/03/2013 on the similar activities of business under the similar circumstances; However; in order to cover up the undisclased investment Of Rs 26 crores in immovable properties ad the undisclosed investment in jewellery ta the tune Of Rs: 2.37 crores; enhanced net profit @ 16% of total turnover was estimated in the appellate orders dated 31/12/2015 in the cases Of Bhangdiya group a against net profit of 124 estimated by Hon'ble ITAT; a5 the issue of undisclosed investment in assets was not there before the Hon'ble ITAT in the survey appeals. ReLLn 10. Thus, I have considered the submissions made by the appellant ad evidence on record It is Seen that the appellant is a sub-contractor & 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 on Shri Mitesh Bhangdiya group on 19/07/2011. In the case of assessee notice has been issued us 153C of IT Act 1961 after there being search on Shri Mitesh Bhagdiya group 19/07/2011 and assessments have Jwo3a XH6 I.T.A Nos.126 to 129/Nag/2016 Asstt; Yrs;2007-08,08-09, 10-11 & 11-12 17 been framed for assessment years 2006-07 to 2010-If & AY 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 recarded us 132(4) 0f Shri Mitesh Bhagdiya and has referred to seized documents inventorized as B-1 ta 65. In the case of Shri Mitesh Bhagdiya, the AO 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 of 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 Is the ultimate beneficiary of the bogus contract payment which laundered through appellant and Is disallowed &d added in the respective assessments framed in Bhangdiya group: The AO. further observed that the cash withdrawn from the bank is added a5 income on protective basis as 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 &S well a5 in the return submitted In response t notice issued ujs 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 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 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 Of the appellant The AO. in fact has assessed income returned without inviting any adverse observation a5 to income declared from sub-contract work: 4 eLLate 2 4 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 appellant as shown In the return cannot separately constitute income liable to be [LTANos.126 to 129/Nag/2016 Asstt Yrs,2007-08,08-09, 10-11 & 11-12 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 to the effect that in the case of Shri Mitesh Bhagdiya group disallpwance 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 af the appellant The AO. has made disallowance Qf 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 far income shown in the return &d assessed &5 business receipt in the hands of the appellant; Addition of such amount again 0n protective basis defies logic: I do not find any rationale to make Such protective assessment of the withdrawals made from bank account of assessee in the hands of assessee himself The income assessed on protective basis therefore ; is held to be unjustified and unsustainable on this count a5 well 10.5 The gross receipts in the case of the appellant a5 weli 35 returned income along with the percentage of income has been tabulated by the appellant for various assessment years and the same is reproduced herein under: Shri Ramesh D Tumpaliiwar Turnover, returned income and assessed Income Assessment year:2007-08 to 2010-11 ASSESSMENT YEAR 2007-08 2008-09 2010-11 2011-12 GROSS RECEIPTS 51/46,514 78,90,625 1,22,12,844 68,10,377 RETURNED INCOME 1,03,406 1,51,980 5,63,520 5,42,390 % OF GROSS RECEIFTS 2.0196 1.939 4.619 7.969 ADDITTONS UNDER SECTTON 153C 32,50,000 90,50,0Q0 83,41,000 77,00,O00 Rvelm Wojr HHe IT.ANos,126 t0 129/Nag/2016 19 Asstt Yrs:2007-08, 08-09, 10-11 & 11-12 AASSESSED INCOME 37,67,490 92,01,980 89,04,520 80,85,240 %6 QF GROSS RECEIPTS 73.2096 116,6296 72.9196 118.7296 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 ad 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. AOv, while determining the income In the hands of assessee The addition made bY Id. AO. thus, is unsustainable for the aforesaid reason alsa. Therefore; the protective addition made in the hands of the appellant Is directed to be deleted in al ihe years of the block period 6.1 We noted that the CITIA) 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 income received by the assessee as sub-contractor in each fopet_ 3 of the assessment year. The withdrawal made by the assessee from his 3 6 bank account in which the deposit of the sub-contract receipts has been VmOS 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 cf the Bhangdiva Group made the disallawance of sub-contract expenses being the amount paid to the assessee but these payments were already considered in ircome shown in the return ad receipt as business receipt in the hands of the assessee: Additiori 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 of the CIT(A) which warrants our interference_ The CIT(A) has rightly deleted te addition in each of the ET.A Nos.126 to 129/Nag/2016 Asstt, Yrs:2007-08, 08-09, 10-11 & 11-12 2V assessment vear, We accordingly confirm the order of CIT(A) Thus, the appeal filed by the Revenue in each of the assessment year stand dismissed; 7 In the result; all the appeals of the Revenue stand dismissed. (Order pronounced in the open court on 23/06/2017 Sd] _ _ P.K BANSAL ) Vice President (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) 5 DR,, G4at 4 Fle S4 73;; MextbEA NAGr'Ur 8 EnL/1_ ~A_PUn "cAGiU Registrar: ; BE28UYAL aLLAn6 Nojwi