A,C.I.T. CENTRAL CIR.- 2(1), NAGPUR vs. SHRI VISHAL R. RACHALWAR, CHIMUR

Assessment of income of a person other than the person in whose case search has been initiated or bpoks of account other documents or assets have been recjuisitioned 39,1 Section 153C of the Income-tax Act relates to assessment of income of any person other than the person in whose Case search has been canducted Or requisition has been made: The provisions contained in sub-section (4) 0f the section 153C, bfore 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 i5 satisfiedd that any money , bullion, jewellery or other valuable article pr thing Or books Of account or documents seized or requisitioned belong to any person; other than the person referred to in section 1534 &f the Income-tax Act;, then the books af account Or documents Dr asset5 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 ad assess 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 < given document seized from & person is & copy Of the original document Accordingly, 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 salisfied that any money; bullion jewellery Or other valuable article or thing belongs t0, 0r any books of account or 1,T'.A. Nus.11S & 116/Nag/2016 Asstt, Yi200g-10 & 20 I1-12 ax documents Selzed Or requisitioned pertain to; Or any information contained therzin, relates to; any person Other than te person referred to in section 153A af the Income-tax Act; then the books Of account or documents Or assets seized Qr requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person ard that Assessing Officer shall proceed against each such other person and issue notice and 355255 or reassess income Of such pther person In accordance with the provisians Of section 1534. 39.3 Applicability: This amendment has taken efrect from the Ist day of June; 2015, 5.3 In view of this; it is apparent that thie amended section 153C are not retrospective and are applicable with effect from 01/06/2015 and not prior to that; In the case of Lhe 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 amended provision of section 153C will not apply: As per the provision of section 153C, a5 Was in existence during the impugned period, the condition precedent for issuing notice ufs 153C and assessing Qf 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 t0 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 coriclusive satisfaction that the document belongs a person other than the searched person; Unless until it is established that the documents 1... No.[15& 116/Nag/2016 Asstt. Yrs;:20(.[0) & 20 11-12 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 us 153C has been issued in consequence of search & seizure action taken u/s 132 in the Bhangdiya Group from whom premises diaries marked B-1 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 djary that does not mean that the diary belong to the assessee_ It may be said that the diary contains the information regarding the assessee: 7" cpir;io;' 'en the &mended provision SUfpOrts thie Case cf the Z5*S56= 0 The !eqisation has amended section 153C with efiect froin (J1/06/2015 and widened chc scope u}s 153C by substizutirg in Nace Qf word belorgs OT Ijelong' to word 'pertain Or perta:!i to Q any infrmation Contaircyl therein' . Now unrler the amended provision, Cva if tie material scizcd loes D0l bclonc 10 thee assessee but it cor!lains thie inforiation relating t0 ih? azsessee; &ic proceedings iriitiated U/s 153 Mif Ive valich. Fut tiis amriedl [tvision; as is ppparent; is applicable :tom} 01j06/2015. Learned DR. before u5 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 relating to 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_vielhas_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 year 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 2H L."A Nus.115 & 116/Nag/2016 Axstt Yrs:2o0g-10 & 20 ]1-12 2HL we set aside the order of CIT(A) ad hold that the notice issued U/s 153C is not valid and in consequence thereupon; the assessment made i5 annulled. Thus, the ground taken by the assessee under Rule 27 Is allowed: 6, ground taken by the Revenue We have heard Now coming to the 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 the CIT(A) deleted the said addition in all the went before the CIT(A) assessment years by observing as under: Before adjudicating the issve in hand, it would be "9,1 relevant to briefly discuss the background of additions made in the case of Shri Mitesh G. Bhangdiya & Group concerns on the basis of seized evidences a5 per Annexure-B-1 to B-65. The Ld AQ has made the total addition of Rs.182.52 Crs in the f various concerns of Bhangdiya group in various hands assessment years falling within the block period on prorata for want of proper correlation between the amounts basis 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 af R5.54.40 Crs; has on account of entries Of withdrawals from the been made bank account Of sub-contractors recorded in the Seized diaries to the cheque payments made to the sub- in proportion contractors by various entities of the Bhangdiya group: The of the Bhangdiya group had made the various concerns payments by account payee cheques to_ the sub-contractors; The Ld. AQ after analyzing the bank accounts of 21 sub- contractors out of total more than 100 sub-contractors has arrived at the concusion that the cash Withdrawn from the accounts of the Subcontractors has been found deposited o the credit side of the Seized diaries marked as Annexure -1 to B-65 seized from the premises of Shri Mitesh G. Bhangdiya Thus; the Ld AO had inferred that the Bhangdiya group by 47 a47 ILA. Nos.115 & 1l6/Nag/2016 #14; Asstt. Yrs:Z({C-] & ZO 11-12 adopting such modus-operandi had inflated the expenditure by making cheque payments and subsequentiy 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 of the subcontractors which i5 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 85 per the requirements at the site. Further that the money kept by sub-contractors was retured 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 al the Z1 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 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 153A 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 2006-07, the nature Of work executed for Vidarbha year Irrigation Development Corporation remains the same a5 in the case af 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.0. has observed 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 Bhangdlya 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 123 3H8 LT.A. Nos.1S & 116/Nag/2016 Astt Yrs:2OOC.10 & 20 11-12 {LT 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 group have been accepted Thus, the A.O, 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 ar2 bogus: 9.4 In view Of the huge variance in the income assessed a5 percentage to receipts by the AO and various intirmities 35 emanated from the order of the AO, net profit has been estimated @ 16%k of gross receipts in the hands of various concerns Of the Bhangdiya group in view of the decision of the Honble 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 wa5 conducted on 17/02/2009 in the Bhangdiya Group of cases, wherein the similar situation a5 payments 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 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 sunvey action conducted On 17.02,2009 has decided the appeals For A 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% as against net profit adopted by AQ 149. 9.5 In vizw 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 ad reasonable to adopt the net profit @ 16% 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 vears Of the block ad bring the same to the taxation on the guidelines determined by the Hon. ITAT, Nagpur Bench , Nagpur in ITA No. 268, 269 249 4 [T.A NosT1S & 116/Na;/2016 Asstt Yrs:2009-10 & Z0) 11-12 285/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 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% of total turnover was estimated in the appellate orders dated 31/12/2015 in the cases Of Bhangdiya group a5 against net profit of 12%k 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, have considered the submissions made by the appellant ad evidence On record. It is seen that the appellant 15 a sub-contractor and executing work for various business entities belonging to Shri Mitesh Bhangdiya group. The 2ssess2e has been regularly assessed to income tax much prior o the date of search on Shri Mitesh Bhangdiya group on 19/07/2011. In the case of assessee notice has been issued ujs 153C Of IT, Act 1961 after there being search n Shri Mitesh Bhagdiya group 19/07/2011 and assessments have been framed for assessment years 2006-07 to 2010-11 & A.Y. 2012-13 in the month of March, 2014. 10,1 It is seen from the assessment order that the AO. has reproduced the statement recorded ujs 132(4) f Shri Mitesh Bhagdiya ad has referred to seized documents inventorized a5 B-1 to 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,0. 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 A.O. further observed that the cash withdrawn from the bank Is added &S income On protective basis a5 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 a5 well 35 in the return submitted in response to notice issued ujs 153C of IT Act I;,4, Nos.145 & 116/Nag/2ul6 Asstt. Yrs:20Q9-1) & 20} 11-12 35 # 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 dpes not indicate any adverse observation with regard to regular books of account on the basis af which income was declared in the retutn of appellant It i5 seen that the profit and loss account ad 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 15 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 appellant as shown in the return cannot separately constitute income liable to be assessed in the hands of appellant: The addition made by AO. Is thus unjustified and unsustainable; 10.4 It i5 further seen that the A0. 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 I5 settled proposition of law that the substantive assessment must precede framing Of protective assessment: In the facts and circumstances of the case; it Is dimcult 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: Such payments are already considered far income shown in the return ad assessed s business receipt in the hands of the appellant; Addition of such amount again on protective basis defies logic: [ do not find any rationale to make such protective assessment of the withdrawals made from bank account of assessee In the hands of assessee himselt The income assessed on protective basis therefore; is held to be unjustified and unsustainable on this count a5 well LT.A Ncs.1I5 & 116/N3g/2016 Asstt; Yrs:ZO0g-In & 20 11-12 10.5 Tha 9ross receipts In the case of the appellant 35 returned income along with the 35 well percentage of income has been tabulated by the appellant for various assessment years ad the same is reproduced herein under: Shri Vishal V. Rachalwar TURNOVER RETURNED INCOME AND ASSESSED INCOME A.Y. 200g-10 & 20I1-LZ: Assessment Ycar 2009-10 2011-12 GROSS RECEIPTS 12,52,230 3,16,44,107 RETURNED INCOME 2,76,460 15,71,120 % OF GROSS RECEIPTS 22.OAca 4,9690 ADDITION U/S I53C 45,46,0W0 1,27,11,30Q ASSESSED INCOME 48,22,460 1,42,82,420 % OF GROSS RECEIPTS 385.119 45.13%0 10.6 It is seen from the above that the income been accepted in returned has the case of appellant without adverse inference and inviting any hands considering the addition made In the Of assessee the income assessed 35 gross receipt clearly reflected absurdity in the percentage Of A.O, while determining action of the Id the income in the hands of assessee The addition made by Id, A.o. thus, is unsustainable aforesaid reason also. Therefare; for the the in the hands af the protective addition made the appellant is directed to be deleted in all years Of the block 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 income received by the assessee as sub-contractor in each of the assessment vear, 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; IT.A, Nos.115 & 116/Nag/2016 Asstt, Yrs:ZOOJ9-IO} R 20 11-12 352 by no stretch of imagination can constitute assessable income in the hands of the assessee_ The Assessing Officer white 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 ad 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 of 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 fiied by the Revenue in both the assessment vears stand dismissed 7 In the result; both the appeals of the Revenue stand dismissed. (Order pronounced in the open court on 22/06/2017 Sd]_ Sd] , (AMARJIT SINGH) Judicial Member P. K. BANSAL ) Vice President Dated:22/06/2017 #Singh CQpx of the grder forwarded to 1 1 2. 3. 4, 5. The Appellant The Respondent Concerned CIT The CIT(A) D AR; G4044 Gl. Icdaih ea0ii555 Toiduwnl NAGFUA bElncri 44,, JLdt, J