Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, ‘B’ BENCH, BANGALORE
Before: SHRI VIJAY PAL RAO & SHRI INTURI RAMA RAO
IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, BANGALORE
BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER and SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER
ITA Nos.1475 to 1481/Bang/2013 (Assessment years: 2003-04 to 2009-10)
The Senate, No.73/1, 5th floor, Sheriff Centre, St. Marks Road, Bangalore-560001. … Appellant PAN:AAAFT 4001 A Vs. Deputy Commissioner of Income-tax, Central Circle -1(3), Bangalore. … Respondent
Appellant by : Shri S.Ramasubramanian, CA. Respondent by : Shri T.N.Prakash, Addl.CIT(DR)
Date of hearing : 21/01/2016 Date of pronouncement : 18/03/2016
O R D E R Per BENCH : These are appeals filed by the assessee-firm directed against the common orders of the CIT(A)-VI, Bangalore, dated 23/08/2013 for the assessment years 2003-04 to 2009-10. Since common issues are involved in all these appeals, these are disposed of by this common order for the sake of convenience.
The assessee raised the following common grounds of appeal:
ITA Nos.1475 to 1481/Bang/2013 Page 2 of 23 1. “That the order of the learned CIT(A) in so far it is prejudicial to the interests of the appellant is bad and erroneous in law and against the facts and circumstances of the case.
Validity of assessment u/s 153C 2.1 That the learned CIT(A) erred in law and on facts in holding that the assessment made under 153C of the Act is valid even though the additions made in the aforesaid assessment order are exactly the same as made in the earlier assessment u/s 143(3) of the Act which have been subject to appeal before various appellate forums. 2.2 That the learned CIT(A) erred in law and on facts in holding that the order u/s 153C of the Act is valid even though no incriminating materials were seized from the premises of the searched persons. 2.3 That the learned CIT(A) erred in law and on facts in holding that the seized documents disclose that borrowed capital is not utilized in the business of the appellant and such a finding is perverse as not being supported by any evidences on record and are contrary to the materials on record. 2.4 That the learned CIT(A) erred in law and on facts in holding that the satisfaction recorded by the learned assessing officer to invoke the jurisdiction u/s 153C of the Act is valid. 3. That the learned CIT(A) erred in law and on facts in holding that the interest is not allowable u/s 36 of the Act. 4. That the learned CIT(A) erred in law and on facts in not following the binding decisions of the Hon'ble ITAT for the AY 2001-02 and 2002- 03. 5. That the learned CIT(A) erred in law and on facts in holding that the loan taken has been diverted to sister concerns and such a finding is perverse as being contrary to materials on record and not supported by any evidence.
ITA Nos.1475 to 1481/Bang/2013 Page 3 of 23 6.0 Additional Grounds: 6.1 That the learned CIT(A) erred in law and on facts in holding that the seized documents belonged to the appellant ignoring the fact that these documents were given to Mr. Yunus Zia as a partner of Senate and such documents belonged only to Mr. Yunus Zia and not to the appellant. 6.2 That the learned CIT(A) erred in law and on facts in holding that the assessment u/s 153C r.w.s 153A of the Act is valid even though the documents seized in the premises of Mr. Yunus Zia did not belong to the appellant. Each of the above grounds is without prejudice to one another and the appellant craves leave of the learned Hon'ble Income Tax Appellate Tribunal, Bangalore to add, delete, amend or otherwise modify one or more of the above grounds either before or at the time of hearing of this appeal.”
Facts leading to the present appeals are as follows: The assessee is a firm engaged in real estate business. A search and seizure operationS under the provisions of section 132 of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] were carried out in the case of M/s.India Builders Corporation, S/Shri Ziaulla Sheriff and Yunus Zia on 17/06/2008. During the course of search and seizure operation, certain loose papers were seized. These loose papers are said to be belonging to the assessee-firm. Based on this material, notice u/s 153C of the Act was issued for the above assessment years on 15/06/2009. The assessments were completed after making several disallowances.
ITA Nos.1475 to 1481/Bang/2013 Page 4 of 23 4. Being aggrieved, appeals were filed before the CIT(A). It was contended, inter alia, before the CIT(A) that seized documents are not of any incriminating nature and therefore, no addition can be made. It was also contended that the Assessing Officer (AO) is bereft of jurisdiction u/s 153C of the Act as required jurisdiction u/s 153C was not recorded by the AO. It was further contended that additions made are not based on the material seized. The CIT(A) had dismissed the above contentions of the assessee-firm by holding that the AO had recorded satisfaction as required under the provisions of 153C and copies of satisfactory note as recorded by the AO were also forwarded to the assessee-firm. As regards the assessee-firm’s argument that addition has no reference to seized material, the CIT(A) held that once the documents belonging to the assessee are found, it is sufficient to assume jurisdiction u/s 153C. It is not necessary that the additions made should be with reference to seized document. In support of this contention, the CIT(A) placed reliance on the decision of the Hon’ble Delhi High Court in the case of CIT vs. Anil Kumar Bhatia reported in 24 Taxmann.com 98 (Del) and CIT vs. Chetan Das Lachman Das (25 Taxmann.com 27(Del). On merits, the CIT(A) held that since borrowed funds were not utilized for the purpose of acquisition of immovable property in respect of which rental income has been offered to tax, no deduction can be allowed u/s 24. As regards, alternative claim of the assessee-firm of deduction of the same under
ITA Nos.1475 to 1481/Bang/2013 Page 5 of 23 business head, it was held that the decision of the Tribunal in earlier years cannot operate as res judicata as each assessment year is distinct and different. Therefore, he confirmed the addition.
Being aggrieved, assessee-firm is in appeal before us in the present appeals. The assessee-firm had raised the following additional grounds for the assessment year 2003-04 to 2008-09 before us: “The appellant herein seeks the leave of the Hon'ble Tribunal to file the following additional grounds: 1. That the learned CIT(A) erred in law and on facts in holding that the seized documents belonged to the appellant ignoring the fact that these documents were given to Mr. Yunus Zia as a partner of Senate and such documents belonged only to Mr. Yunus Zia and not to the appellant. 2. That the learned CIT(A) erred in law and on facts in holding that the assessment u/s 153C r.w.s 153A of the Act is valid even though the documents seized in the premises of Mr. Yunus Zia did not belong to the appellant. It is prayed that the above additional grounds be admitted as they are purely legal in nature and can be decided on the basis of the existing facts on record. The fact that Mr. Yunus Zia is a partner of the appellant is on record. The appellant was under a bonafide belief that the earlier submissions made before the Commissioner of Income Tax (Appeals) would cover this issue in view of the additional grounds no. I and 2 filed before the CIT(A). The appellant has now been advised that it would be advisable to file a separate additional ground covering the above issue. The appellant submits that the additional grounds may kindly be admitted in view of the decisions of the Hon'ble Supreme Court in:
ITA Nos.1475 to 1481/Bang/2013 Page 6 of 23 a) CIT Vs National Thermal Power Corporation (229 ITR 383) b) Jute Corporation of India Ltd Vs CIT (187 ITR 688)”
It was prayed that since additional grounds go to the root of jurisdiction and purely on point of question of law, can be admitted in view of law laid down by the Hon’ble Apex Court in the case of CIT vs. National Thermal Power Corporation (229 ITR 383). The learned Departmental Representative has no objection for admission of additional ground.
We have considered rival submissions. As the additional grounds raised are purely questions of law and does not require any investigation of facts and go to the root of the very jurisdiction of the matter, we are of the considered opinion that in order to render justice, the additional grounds filed are admitted in light of the ratio laid down by the Hon’ble Apex Court in the case of National Thermal Power Corporation (supra).
Since the additional grounds of appeal raised go to the root of the matter, we shall now deal with the same. Learned AR of the assessee-firm vehemently argued that the AO ought not to have exercised jurisdiction u/s 153C of the Act, inasmuch as there was no satisfaction reached before assuming jurisdiction. He further argued that assumption of jurisdiction also faulty for the reason that the documents seized as a result of search and
ITA Nos.1475 to 1481/Bang/2013 Page 7 of 23 seizure operations which are relied upon for making impugned assessments does not belong to the assessee-firm. He further argued that the seized material does not bear any signature or date and finally, he argued that the satisfaction note recorded is not a satisfaction as required under the provisions of section 153C of the Act inasmuch as the satisfaction note does not indicate that the seized material belongs to the assessee-firm. In support of this proposition, he relied upon the Hon'ble High Court of Delhi in the case of Pepsi Foods Pvt. Ltd. vs. ACIT (367 ITR 112) and the decision of Hon'ble High Court of Allahabad in CIT vs. Classic Enterprises (358 ITR 465). On the merits, learned AR submitted that the very same issue was considered in the regular assessments for the assessment years 2003-04, 2004-05 and 2005-06 and the addition on account of disallowance of interest was deleted by the Hon’ble Tribunal.
On the other hand, learned Departmental Representative contended that for assuming jurisdiction u/s 153C, it is not necessary that the documents seized should contain incriminating information. It is sufficient compliance if the documents belong to the person other than searched person. It was submitted that the seized documents belong to the assessee-firm. Therefore he argued that assumption of jurisdiction by the AO u/s 153C is valid in law. He submitted that the seized documents which is marked as A/YZS/10 page 25 is a profit & loss account of Tricolor Hotel, which is part of the assessee-firm clearly shows various income
ITA Nos.1475 to 1481/Bang/2013 Page 8 of 23 and expenses as well as the operating profit for the months from April to Feb. 2007. He further submitted that the seized documents marked as A/YZS/15 pages 71 to 72 are the P&L A/c of The Tri Colour Hotel and the above two seized documents will have a bearing on the determination of total income of the assessee-firm as the Tri Colour Hotel is a part of group of the assessee-firm. The seized document marked as A/YZS/15 Page 69 is a statement of total income, operational expenses, gross profit etc. of the assessee firm. Similarly, the seized document A/YZS/15 Page 74 shows an analysis of the profit & loss A/c. of the assessee for the period Feb.2008. This and all the other material seized as per the above table relate to financial transactions of the assessee and have a direct bearing on the determination of total income of the assessee for the respective Assessment years. In view of the aforementioned documents/loose sheets seized belong to the assessee-firm, other than the persons searched, the AO was satisfied that the documents seized have a bearing on the determination of the total income of the assessee for the relevant Asst. Years and as such it was a fit case for issue of notices u/s.153C of the Act.
We heard the rival submissions and perused the material on record. The primary issue to be adjudicated in these appeals is whether the action of the AO in assuming jurisdiction u/s 153C of the Act is valid in law or not? Therefore, it is necessary to refer
ITA Nos.1475 to 1481/Bang/2013 Page 9 of 23 to the provisions of sections 153A, 153B and 153C of the Act which are reproduced hereunder:
‘153A. Assessment in case of search or requisition.— Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall— (a ) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b ) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made : Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years: Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate. Explanation.—For the removal of doubts, it is hereby declared that,— (i ) save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to the assessment made under this section; (ii ) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year.
153B. Time-limit for completion of assessment under section 153A.—
ITA Nos.1475 to 1481/Bang/2013 Page 10 of 23 (1) Notwithstanding anything contained in section 153, the Assessing Officer shall make an order of assessment or reassessment,— (a ) in respect of each assessment year falling within six assessment years referred to in clause (b) of section 153A, within a period of two years from the end of the financial year in which the last of the authorisations for search under section 132 or for requisition under section 132A was executed; (b ) in respect of the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A, within a period of two years from the end of the financial year in which the last of the authorisations for search under section 132 or for requisition under section 132A was executed.
Provided that in case of other person referred to in section 153C, the period of limitation for making the assessment or reassessment shall be the period as referred to in clause (a) or clause (b) of this sub-section or one year from the end of the financial year in which books of account or documents or assets seized or requisitioned are handed over under section 153C to the Assessing Officer having jurisdiction over such other person, whichever is later.
Explanation.—In computing the period of limitation for the purposes of this section,— (i ) the period during which the assessment proceeding is stayed by an order or injunction of any court; or (ii ) the period commencing from the day on which the Assessing Officer directs the assessee to get his accounts audited under sub-section (2A) of section 142 and ending on the day on which the assessee is required to furnish a report of such audit under that sub-section; or (iii ) the time taken in reopening the whole or any part of the proceeding or in giving an opportunity to the assessee of being re-heard under the proviso to section 129; or (iv ) in a case where an application made before the Settle- ment Commission under section 245C is rejected by it or is not allowed to be proceeded with by it, the period commencing from the date on which such application is made and ending with the date on which the order under sub-section (1) of section 245D is received by the Commissioner under sub-section (2) of that section,
ITA Nos.1475 to 1481/Bang/2013 Page 11 of 23 shall be excluded:
Provided that where immediately after the exclusion of the aforesaid period, the period of limitation referred to in clause (a) or clause (b) of this section available to the Assessing Officer for making an order of assessment or reassessment, as the case may be, is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to be extended accordingly. (2) The authorisation referred to in clause (a) and clause (b) of sub-section (1) shall be deemed to have been executed,— (a ) in the case of search, on the conclusion of search as recorded in the last panchnama drawn in relation to any person in whose case the warrant of authorisation has been issued; (b ) in the case of requisition under section 132A, on the actual receipt of the books of account or other documents or assets by the Authorised Officer.
Assessment of income of any other person. 153C. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A, 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 and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to in sub-section (1) of section 153A :
Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to 5[sub-section (1) of] section 153A shall be construed as reference to the date of receiving the books of
ITA Nos.1475 to 1481/Bang/2013 Page 12 of 23 account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person:
(2) Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other person after the due date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year— (a) no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or (b) a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub-section (2) of section 143 has expired, or (c) assessment or reassessment, if any, has been made, before the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person, such Assessing Officer shall issue the notice and assess or reassess total income of such other person of such assessment year in the manner provided in section 153A.
The controversy in the present appeals relates to interpretation of the provisions of sec.153C of the Act. On plain reading of the above provision, it is clear that the provisions of sections153A, 153B and 153C lay down scheme of assessment in the case of search and requisition u/ss.132 and 132A of the Act. The provisions of sec.153A deal with the procedure for issue of notice in the case of a person where search u/s 132 or books of account or other documents or assets are requisitioned u/s 132A of the Act after 31st May 2003. The provisions of section 153B lay down the time limit for completion of assessment u/s 153A. The
ITA Nos.1475 to 1481/Bang/2013 Page 13 of 23 provisions of sec.153C provide that where AO is satisfied that any money, bullion, jewellery or other valuable or article or thing or books of account or documents seized are requisitioned belong to or belonged to person other than the person searched, the AO shall proceed against such other person by issuing notice and assess or re-assess the income of such other person.
9.1 From bare reading of the provisions of sec.153C it is crystal clear that the condition precedent for issue of notice u/s 153C is that money, bullion, jewellery or other valuable article or thing or books of account or document seized or requisitioned should belong to such person. If this requirement is not satisfied, recourse cannot be had to the provisions of sec.153C. The very same provisions had come for interpretation before the Hon’ble Delhi High Court in the case of Pepsi Foods P. Ltd. vs. Asst.CIT (367 ITR 112) wherein the Hon’ble Delhi High Court observed at page 117 as follows:
“On a plain reading of Section 153C, it is evident that the Assessing Officer of the searched person must be “satisfied” that inter alia any document seized or requisitioned “belongs to” a person other than the searched person. It is only then that the Assessing Officer of the searched person can handover such document to the Assessing Officer having jurisdiction over such other person (other than the searched person). Furthermore, it is only after such handing over that the Assessing Officer of such other person can issue a notice to that person and assess or re- assess his income in accordance with the provisions of Section 153A. Therefore, before a notice under Section 153C can be issued two steps have to be taken. The first step is that the Assessing Officer of the person who is searched must arrive at a clear satisfaction that a document seized from him does
ITA Nos.1475 to 1481/Bang/2013 Page 14 of 23 not belong to him but to some other person. The second step is – after such satisfaction is arrived at – that the document is handed over to the Assessing Officer of the person to whom the said document “belongs”. In the present cases it has been urged on behalf of the petitioner that the first step itself has not been fulfilled. For this purpose it would be necessary to examine the provisions of presumptions as indicated above. Section 132(4A)(i) clearly stipulates that when inter alia any document is found in the possession or control of any person in the course of a search it may be presumed that such document belongs to such person. It is similarly provided in Section 292C(1)(i). In other words, whenever a document is found from a person who is being searched the normal presumption is that the said document belongs to that person. It is for the Assessing Officer to rebut that presumption and come to a conclusion or “satisfaction” that the document in fact belongs to somebody else. There must be some cogent material available with the Assessing Officer before he/she arrives at the satisfaction that the seized document does not belong to the searched person but to somebody else. Surmise and conjecture cannot take the place of “satisfaction” . . . ‘It is evident from the above satisfaction note that apart from saying that the documents belonged to the petitioner and that the Assessing Officer is satisfied that it is a fit case for issuance of a notice under Section 153C, there is nothing which would indicate as to how the presumptions which are to be normally raised as indicated above, have been rebutted by the Assessing Officer. Mere use or mention of the word “satisfaction” or the words “I am satisfied” in the order or the note would not meet the requirement of the concept of satisfaction as used in Section 153C of the said Act. The satisfaction note itself must display the reasons or basis for the conclusion that the Assessing Officer of the searched person is satisfied that the seized documents belong to a person other than the searched person. We are afraid, that going through the contents of the satisfaction note, we are unable to discern any “satisfaction” of the kind required under Section 153C of the said Act.”
9.2 Further, the term ‘belonging to’ has been interpreted by the Hon’ble Supreme Court in the case of CWT vs. Bishwanath
ITA Nos.1475 to 1481/Bang/2013 Page 15 of 23 Chatterjee (103 ITR 536) and late Nawab Sir Mir Osman Ali Khan (162 ITR 888) wherein the Hon’ble Supreme Court held as under: “The apex court in the case of Bishwanath Chattejee [1976] 103 ITR 536 (page 539): "The expression 'belong' has been defined as follows in the Oxford English Dictionary :—'To be the property or rightful possession of.' So it is the property of a person, or that which is in his possession as of right, which is liable to wealth-tax. In other words, the liability to wealth- tax arises out of ownership of the asset, and not otherwise. Mere possession, or joint possession, unaccompanied by the right to, or ownership of property would therefore not bring the property within the definition of 'net wealth' for it would not then be an asset 'belonging' to the assessee." The apex court in the case of (Late) Nawab Sir Mir Osman All Khan [1986] 162 ITR 888 has observed (page 899): "In all these cases, as was reiterated by the Calcutta High Court in S. B. (House and Land) P. Ltd. v. CIT [1979] 119 ITR 785 the question of ownership had to be considered only in the light of the particular facts of a case. The Patna High Court in Addl. CIT v. Sahay Properties and Investment Co. P. Ltd. [1983] 144 JTR 357 was concerned with the construction of the expression 'owner' in section 22 of the Income-tax Act, 1961. There, the assessee had paid the consideration in full and had been in exclusive and absolute possession of the property, and had been empowered to dispose of or even alienate the property. The assessee had the right to get the conveyance duly registered and executed in its favour, but had not exercised that option. The assessee was not entitled to say that because of its own default in having a deed registered in its name, the assessee was not the owner of the property. In the circumstances, it was held that the assessee must be deemed to be the owner of the property within the meaning of section 22 of the Income-tax Act, 1961, and was assessable as such on the income from the property."
ITA Nos.1475 to 1481/Bang/2013 Page 16 of 23 9.3 Again, the Hon’ble Delhi High Court in the case of Pepsico India Holdings P. Ltd. vs. ACIT (370 ITR 295) following its earlier decision in the case of Pepsi Foods P. Ltd (supra) held that unless it is established that the documents in question do not belong to the searched person, the question of invoking the provisions of sec.153C of the Act does not arise. It was also held that unless searched person disclaims the documents as belonging to him, provisions of sec.153C do not get attracted. It is also further laid down that in the satisfaction note there should be something to indicate that the seized document do not belong to the searched person. The Hon’ble Delhi High Court held as follows:
“Having set out the position in law in the decision of this Court in the case of Pepsi Foods Pvt. Ltd. (supra), it must be seen as to whether the Assessing Officer of the searched person (the Jaipuria Group) could be said to have arrived at a satisfaction that the documents mentioned above belonged to the petitioners.
First of all we may point out, once again, that it is nobody’s case that the Jaipuria Group had disclaimed these documents as belonging to them. Unless and until it is established that the documents do not belong to the searched person, the provisions of Section 153C of the said Act do not get attracted because the very expression used in Section 153C of the said Act is that “where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A ....” In view of this phrase, it is necessary that before the provisions of Section 153C of the said Act can be invoked, the Assessing Officer of the searched person must be satisfied that the seized material (which includes documents) does not belong to the person referred
ITA Nos.1475 to 1481/Bang/2013 Page 17 of 23 to in Section 153A (i.e., the searched person). In the Satisfaction Note, which is the subject matter of these writ petitions, there is nothing therein to indicate that the seized documents do not belong to the Jaipuria Group. This is even apart from the fact that, as we have noted above, there is no disclaimer on the part of the Jaipuria Group insofar as these documents are concerned.
Secondly, we may also observe that the finding of photocopies in the possession of a searched person does not necessarily mean and imply that they „belong‟ to the person who holds the originals. Possession of documents and possession of photocopies of documents are two separate things. While the Jaipuria Group may be the owner of the photocopies of the documents it is quite possible that the originals may be owned by some other person. Unless it is established that the documents in question, whether they be photocopies or originals, do not belong to the searched person, the question of invoking Section 153C of the said Act does not arise.
Thirdly, we would also like to make it clear that the assessing officers should not confuse the expression “belongs to‟ with the expressions “relates to‟ or “refers to‟. A registered sale deed, for example, “belongs to‟ the purchaser of the property although it obviously “relates to‟ or “refers to‟ the vendor. In this example if the purchasers premises are searched and the registered sale deed is seized, it cannot be said that it “belongs to‟ the vendor just because his name is mentioned in the document. In the converse case if the vendor’s premises are searched and a copy of the sale deed is seized, it cannot be said that the said copy “belongs to‟ the purchaser just because it refers to him and he (the purchaser) holds the original sale deed. In this light, it is obvious that none of the three sets of documents – copies of preference shares, unsigned leaves of cheque books and the copy of the supply and loan agreement – can be said to “belong to‟ the petitioner.
In view of the foregoing discussion, we do not find that the ingredients of Section 153C of the said Act have been satisfied in this case. Consequently the notices dated 02.08.2013 issued under Section
ITA Nos.1475 to 1481/Bang/2013 Page 18 of 23 153C of the said Act are quashed. Accordingly all proceedings pursuant thereto stand quashed.”
9.4 Similarly, the Hon’ble Gujarat High Court in the case of Vijaybhai N.Chandrani vs. ACIT (333 ITR 436) held that even if there is a reference to the assessee in the seized documents, it does not mean that the assessee is the owner of those documents unless the revenue proves conclusively that the assessee is the owner of those documents. The Hon’ble Gujarat High Court held as follows:
“Thus a condition precedent for issuing notice under s. 153C and assessing or reassessing income of such other person, is that the money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned should belong to such person. If the said requirement is not satisfied, resort cannot be had to the provisions of s. 153C of the Act.
Examining the facts of the present case in the light of the aforesaid statutory scheme, it is an admitted position as emerging from the record of the case, that the documents in question, namely the three loose papers recovered during the search proceedings do not belong to the petitioner. It may be that there is a reference to the petitioner in as much as his name is reflected in the list under the heading 'Samutkarsh Members Details' and certain details are given under different columns against the name of the petitioner along with other members, however, it is nobody's case that the said documents belong to the petitioner. It is not even the case of Revenue that the said three documents are in the handwriting of the petitioner. In the circumstances, when the condition precedent for issuance of notice is not fulfilled any action taken under s. 153C of the Act stands vitiated. ”
ITA Nos.1475 to 1481/Bang/2013 Page 19 of 23 9.5 The ratio that can be culled out from the above decisions is that unless revenue establishes that the assessee is the owner of the seized documents, provisions of sec.153C cannot be invoked. Even the Hon’ble Delhi High Court as well as the Hon’ble Gujarat High Courts held that merely because there is a reference to the name of the assessee in the seized documents, it does not mean that the assessee is the owner of those documents. In the satisfactory note recorded by the AO there should be something to indicate that the searched person had disclaimed those documents and therefore, AO of the searched person reached a conclusion or satisfaction that the documents do not belong to the searched person but other third person. The High Courts, even went to the extent of holding that possession of documents and possession of photo copies of documents are two separate things. It may be quite possible that photo copies may be belonging to the searched person and whereas the original may be owned by some other person.
Applying the above legal position to the facts of the present case, satisfaction note recorded by the AO reads as under:
“Satisfaction Note for initiating action u/s 153C Action u/s 132 was conducted in the case of India Builders Corporation and its Group based on the authorization issued by the Addl.CIT (Inv)-I, Bangalore vide warrant No.1017 dated 17.06.2008.
ITA Nos.1475 to 1481/Bang/2013 Page 20 of 23 During the course of search in the case of Indian Builders Corporation the following book/documents were found and seized u/s 132
Exhibit I.D
A/YZS 10 A/YZS/15
On a scrutiny of the above documents seized it is seen that the above materials belong to M/s.The Senate. I am satisfied that action U/s 153C has to be initiated in the case.
Notice u/s 153C issued calling for return of income within 20 days.”
The satisfaction note recorded by the AO is identical for all the years except for difference in the assessment year. From the material seized, though there was a reference to the name of the assessee-firm, equally there are some documents which do not even contain name of the assessee-firm but there is nothing to indicate that these documents were disclaimed by Indian Builders Corporation in whose case search was conducted. The AO has not referred to any material to indicate that the assessee is the owner of those seized documents. Therefore, the presumption cast under provisions of section 132(4A) of the Act, comes into play. The said provision stipulates that where any document is found in the possession or control of any person in the course of search it may be presumed that such document belongs to such person. Further, even the provisions of section 292C(1) also
ITA Nos.1475 to 1481/Bang/2013 Page 21 of 23 provide the same. This presumption was not rebutted by the AO of the searched person. Therefore, it cannot be said that assessee-firm is the owner of the seized material based on which the impugned additions were made. Furthermore, even in terms of law laid down by the Hon’ble Supreme Court in the cases of Bishwanath Chatterjee and late Nawab Sir Mir Osman Ali Khan cited supra, assessee-firm cannot be said to be the owner of the document seized. Therefore, it cannot be said that the requirements of sec.153C are fulfilled in the present case in terms of law laid down by the Hon’ble Delhi High Court in the cases cited supra as well as by the Hon’ble Gujarat High Court in the case cited supra. Therefore, we hold that the AO was not justified in exercising jurisdiction u/s 153C of the Act. Hence, the assessments made pursuant to issue of notice u/s 153C are hereby cancelled for the assessment years 2003-04 to 2008-09.
Since we have held that the assessments are bad in law, we do not find it necessary to adjudicate other grounds of appeals on the merits of the additions for the assessment years 2003-04 to 2008-09.
For the assessment year 2009-10 (ITA No.1481/Bang/2013), the only issue involved is disallowance of interest on loans borrowed from Amarnath Co-op. Bank and Jammu-Kashmir Bank. The admitted facts on the issue are that this loan proceeds were utilized only for the purpose of repaying
ITA Nos.1475 to 1481/Bang/2013 Page 22 of 23 the earlier loans borrowed from Indian Bank etc., in the earlier assessment proceedings, interest on such loans was disallowed by AO on the ground that the loans were not utilized for business purpose. On further appeal before the ld.CIT(A), the same was confirmed. However, the Hon’ble Tribunal for the assessment year 2001-02 and 2002-03 in ITA Nos.1202 & 1203/Bang/2007 dated 29/8/2008, ITA Nos.538/Bang/2011 for assessment year 2002-03 and ITA No.587/Bang/2011 for assessment year 2005- 06 dated 10/1/2014 held that the loan funds were utilized only for business purpose and therefore, directed the AO to allow interest. Since during the previous year relevant to assessment year under consideration, fresh loans were only utilized for the purpose of repaying old loans, the interest on new loans should be allowed as deduction as used only for business purpose following the earlier orders of the co-ordinate bench of the Tribunal. Hence, grounds of appeal filed for assessment year 2009-10 are allowed.
In the result, the appeals of the assessee are allowed.
Order pronounced in the open court on this 18 th day of March, 2016
sd/- sd/- (VIJAY PAL RAO) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER Place : Bangalore D a t e d : 18/03/2016 eksrinivasulu,sps
ITA Nos.1475 to 1481/Bang/2013 Page 23 of 23 Copy to : 1 Appellant 2 Respondent 3 CIT(A)-II Bangalore 4 CIT 5 DR, ITAT, Bangalore. 6 Guard file By order Assistant Registrar Income-tax Appellate Tribunal Bangalore