M/S. JAYAM INFRASTRUCTURE PVT. LTD,CHENNAI vs. DCIT, CENTRAL CIRCLE-3(4), CHENNAI

Aforesaid appeal by assessee for Assessment Year (AY) 2008-09 arises out of an order of learned Commissioner of Income Tax (Appeals)-18, Chennai [CIT(A)] dated 12.10.2022 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 153C r.w.s 153A of the Act dated 27.03.2014. The grounds taken by the assessee read as under:

The order of the Commissioner (Appeals) is erroneous both in law and on facts.

The Commissioner (Appeals) failed to see that mere possession of documents pertaining to the Assessee will not confer automatic juri iction to the Assessing Officer to issue notice under section 153C. The Assessing Officer should verify the seized material / information and satisfy himself that the seized material is incriminating and has bearing on the determination of total income of the Assessee for any particular year.

The Commissioner (Appeals) failed to see that the Assessing Officer must be in possession of incriminating evidence gathered during search in order to invoke the provisions of section 153C. Nothing relating to the addition was seized during search.

The Commissioner (Appeals) erred in ignoring the fact that the Assessing Officer issued notice u/s 153C despite being aware that the documents seized during search had no bearing on the case of the Appellant for the year under consideration. The Assessing Officer, therefore, grossly erred in ignoring the juri ictional condition precedent to the issue of notice u/s 153C that money, bullion, jewellery or other valuable article or thing or any books of account or document relevant for the year must be seized. Consequently, the satisfaction recorded by him for the year is bad in law and the assessment made in pursuance thereof is also bad in law and deserves to be quashed.

The Commissioner (Appeals) erred in not following Circular No.24/2015 dated 31 December 2015 issued by the CBDT which clearly instructs the Officers to record satisfaction note for assumption of juri iction u/s 153C. The Circular is binding on the Assessing Officer. Further, assumption of juri iction u/s 153C is not an empty formality and it can be exercised only on being satisfied that the document seized is incriminating in nature.

The Commissioner (Appeals) failed to see that mere possession of document pertaining to the Assessee will not confer automatic juri iction to the Assessing Officer to issue notice under section 153C. The Assessing Officer should verify the seized material / information and satisfy himself that the seized material is incriminating and has bearing on the determination of total income of the Assessee for any particular year.

The Commissioner (Appeals) erred in ignoring the principle that addition should not be made based on third-party evidence unless corroborative evidence exists. The Appellant has not received any amount impugned as income of the Appellant. The amount was paid by M/s. Om Sakthy Agencies (Madras) Private Limited to one Mr. B. Venkatram Reddy. He received the amount in his capacity as a broker because he was paid along with other brokers. The fact that Mr. B. Venkatram Reddy is an agent/broker of M/s. Om Sakthy Agencies (Madras) Private Limited is established from the books of accounts, submissions made before the Commissioner (Appeals) and Income Tax Appellate Tribunal by them (M/s. Om Sakthy Agencies (Madras) Private Limited). Mr. Venkatram Reddy admitted the amounts paid to him in his deposition before the Investigating Officer. The Assessing Officer cannot use that deposition to make addition in the case of the Appellant. His admission only binds him (Mr. Venkatram Reddy). It cannot bind any other person unless corroborative evidence exists. In the case of the Appellant, there is no corroborative evidence.

The Commissioner (Appeals) erred in confirming a sum of Rs.7,33,944/- as proportionate share in the "on money" of Rs.1,73,00,000/- received by Mr. Venkatram Reddy from M/s. Omshakthi Agencies (Madras) P Ltd., despite acknowledging the fact that Mr. Venktram Reddy has received this money in his individual capacity as broker to M/s. Omshakthi Agencies (Madras) P Ltd. for their land aggregation.

The Commissioner (Appeals) ought not to have made the addition of Rs.7,33,944/-in the hands of the Appellant when the evidence corroborated that Mr. B. Venkatram Reddy was the recipient of the money, merely because that amount was received by Mr. B. Venkatram Reddy in cash.

The Ld. AR advanced arguments supporting the grounds of appeal and relied on various judicial decisions, the copies of which have been placed on record. The Ld. AR relied on the recent decision of Hon’ble (149 Taxmann.com 399) as well as various other judicial decisions. The Ld. CIT-DR also advanced arguments supporting the case of the revenue. Having heard rival submissions, our adjudication would be as under.

Assessment Proceedings

1 Upon perusal of assessment order, it emerges that the assessee deals in real estate and it is a part of Platinum Group of companies. The group was being managed by Shri M. Sukumar Reddy (MSR) and Shri B. Venkatrama Reddy (BVR) who acted as directors in these companies. The group was primarily financed by Shri Sukumar Reddy. The Group was searched by the department u/s 132 on 21.06.2011. Based on search findings, notice u/s 153C was issued to the assessee on 25.09.2012. The assessee offered original return of income as filed on 27.09.2008. It is quite clear that on the date of issuance of notice u/s 153C, no proceedings for this year were pending against the assessee and this was a case of an unabated year.

2 In the assessment proceedings, Ld. AO referred to another search conducted in the case of Om Sakthy Agencies (Madras) Pvt. Ltd. (OSAPL) on 02.07.2010 wherein it was found that OSAPL inflated expenditure on purchase of land from assessee group. A search was also conducted on the assessee on 21.06.2011 wherein it was found that the assessee company along with its sister concerns made land sales to OSAPL through two brokers in financial years 2006-07 and 2007-08 which were allegedly partly unaccounted. Total land sold by the assessee group was 102.87 acres against sale consideration of Rs.24.01 Crores. Despite search and cross examinations, there was no clarity as to whether the sale figure was correct figures of sales as the books of buyer as well as sellers had been manipulated. Therefore, the assessment was framed based on evidences available on record.

3 It was noted by Ld. AO that OSAPL claimed payment of Rs.24.01 Crores whereas brokers claimed to have received Rs.11.9 Crores for payment to assessee group. Both the brokers as well as BVR were produced on 01.07.2011 as witnesses of OSAPL and statement was recorded from executive director Shri N Manigantan. Shri BVR accepted to have received 4.5 Crores through cheques and Rs.1.73 Crores in cash. The cheque was stated to be paid to BVR in his own account whereas the cash was stated to be paid to 4 companies of the assessee group. The Ld. AO proceeded to add proportionate on-money in the hands of the assessee. The assessee denied having received any such payment and submitted that the same would have been received by BVR in his individual capacity. However, Ld. AO alleged that the assessee could not escape the responsibilities for the action by its directors.

4 The Ld. AO further noted that MSR and BVR were two directors in seven group companies. MSR held 99% of shareholding in these companies whereas BVR was holding remaining 1% share. It was also noted that BVR was cousin of MSR and he had expired in May, 2013. During search proceedings, it was found that over and above the declared sale consideration for land, some on-money was paid by OSAPL to the director for sale of land of the group companies. However, MSR denied receipt of the same.

5 During investigation, two undisclosed bank accounts of BVR were discovered. In sworn statement recorded on 07.12.2011, MSR stated that BVR was a business associates and handled the affairs at Chennai. However, in sworn statement dated 21.06.2011, BVR stated that his role was to take care of construction and purchase and sale of land as directed by Board of directors. On these facts, Ld. AO concluded that BVR merely acted as an executive on behalf of directors and he was more of an employee. The wife and legal heir of BVR also stated that BVR only looked after the affairs of Platinum group companies and he did not carry out any other business activity. It also transpired that BVR resigned from directorship of the companies in December, 2009 but he continued to work for the companies even after he resigned as a director.

6 In the above background, Ld. AO noted that BVR had two undisclosed bank accounts i.e., one with Royal Bank of Scotland and another with State Bank of India wherein certain deposits were made. The wife of BVR, in sworn statement, stated that the monies deposited therein were from land dealings of Platinum group of companies only.

7 The Ld. AO held alleged that on-money of Rs.623.10 Lacs was received during FY 2007-08 thorough cheques and in cash for sale of land. The cheques were deposited in the above-mentioned undisclosed bank accounts. Therefore, there could be no different source of money. MSR, post-search cross-examination, had accepted the fact of accepting on-

8 Based on these findings, Ld. AO alleged that all such deposits were to be considered as unaccounted money of the assessee group. In this year, the amount of Rs.623.10 Lacs was directly attributable to four companies including the assessee company. The proportionate share of the assessee company worked out to be Rs.26.17 Lacs which was added back to the income of the assessee. Appellate Proceedings

1 The assessee raised pertinent legal issue assailing the assumption of juri iction u/s 153C. It was submitted that to assume such a juri iction, AO must be in possession of incriminating evidences gathered in the course of search. Nothing relating to the addition was seized in the course of search. The impugned addition was based on some alleged evidence found during earlier search on OSAPL. No fresh incriminating material / evidence connected to the assessee were found during search on assessee group. The assessee, relying on CBDT Circular No.24/2015 dated 31.12.2015, submitted that AO was bound to record satisfaction note for assumption of juri iction u/s 153C. Mere

2 The assessee also submitted that alleged amount was never received by the assessee. The addition made merely on third-party evidences would not be sustainable. The assessee, inter-alia, submitted that impugned amounts may have been received by Shri BVR as agent / broker of OSAPL. It was pointed out that during search on assessee group, no evidence was found suggesting receipt of impugned amounts. The assessee also submitted that the account held with SBI by BVR was opened in the year 1999. The assessee company was incorporated on 24.04.2006 and Shri BVR was inducted as director only on 16.11.2006. The same would show that BVR had its own business much before his induction as director in the assessee company. Therefore, all the credit entries appearing in the bank accounts would be the receipts from personal ventures. The assessee also drew attention to subsequent civil and criminal action initiated against BVR to support the submissions.

3 The Ld. CIT(A), following first appellate order in the case of assessee’s sister concern by name M/s Platinum Holdings Private Ltd. for AY 2008-09, held that only proportionate cash component could be added in the hands of the assessee. Accordingly, the impugned addition was restricted to Rs.7.33 Lacs.

4 On the issue of assumption of juri iction u/s 153C, the Ld. CIT(A) held that there was a search in case of Platinum Group and during the course of search, it was found that the assessee had affected sale of lands to OSAPL and there was on-money paid on such transactions. The proceedings were thus initiated u/s.153C based on the incriminating materials found from the searched person as belonging / pertaining to the assessee. The AO duly recorded satisfaction note before issuance of notice u/s 153C which was sufficient enough to assume such a juri iction. Therefore, the proceedings were held to be valid.

5 Aggrieved as aforesaid, the assessee is in further appeal before us.

From the facts, it is quite clear that the impugned addition of on- money is not based on any incriminating material as unearthed during the course of search proceedings in the case of the assessee group. In para-5 of assessment order, the Ld. AO has referred to documents / information as unearthed during earlier search conducted in the case of OSAPL on 02.07.2010 which has led to impugned addition in the hands of the assessee. The impugned additions are thus based on incriminating material found in another search which has already concluded much before the date of search on the assessee. The search in assessee’s case has happened on 21.06.2011. As noted in preceding para 3.1, the assessee had filed its return of income for this year on 27.09.2008 declaring income of Rs.22.56 Lacs. Notice u/s 153C was issued the assessee on 25.09.2012 against which the assessee offered original return of income as filed on 27.09.2008. It is quite clear that on the date of issuance of notice u/s 153C, no proceedings for this year were pending against the assessee and this was a case of an unabated year. The Hon’ble Supreme Court in the case of DCIT vs. U.K.Paints

The appeal stands partly allowed in terms of our above order. Order pronounced on 17th May, 2024 (V. DURGA RAO) (MANOJ KUMAR AGGARWAL) "ाियक सद!/JUDICIAL MEMBER लेखासद! / ACCOUNTANT MEMBER चे7ई Chennai; िदनांक Dated : 17-05-2024 DS