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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGH, HON’BLE & SHRI MANJUNATHA. G, HON’BLE
आदेश /O R D E R
PER MANJUNATHA. G, ACCOUNTANT MEMBER:
This appeal filed by the revenue and cross objection filed by the assessee are directed against common order passed by the learned Commissioner of Income Tax (Appeals)-19, Chennai, dated 20.04.2023 and pertains to assessment year 2016-17. Since, facts are identical and issues are common, for the sake of convenience, the appeal filed by the revenue :-2-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 and cross objection filed by the assessee are being heard together and disposed off, by this consolidated order.
The revenue has raised following grounds of appeal: “1 The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law. 2 The Ld.CIT(A) erred in deleting the addition of Rs.5,25,00,000/- made towards unexplained investment u/s.69B, being the difference in consideration between sale agreement and registered deed in respect of purchase of properties by the assessee. 2.1 The Ld.CIT(A) failed to appreciate that the assessee had not furnished complete details in response to notice u/s.142(1) dated 23/12/2020 and subsequent reminder issued on 03.02.2021 during the course of assessment proceedings. 2.2 The Ld.CIT(A) failed to appreciate that the assessee had not claimed during the assessment proceedings that the entire consideration as per sale agreement was accounted for in the books of accounts. But before the CIT(A), it claimed so and explained the source for consideration as capital contribution from partners, secured loan from bank and machinery creditors. 2.3 The Ld.CIT(A) erred in failing to give opportunity to the assessing officer by calling remand report under Rule 46A. Hence, the assessing officer had lost his opportunity to examine the source for capital contribution of partners and valuation of machineries purchased as per the agreement.
3. The Ld.CIT(A) erred in holding that proceeding u/s.153C initiated on the basis of impounded material during the course of survey is legally invalid. 3.1 The Ld.CIT(A) failed to appreciate that survey in the case of assessee was conducted as a part of search u/s.132 in the case of M/s.Christy Fried Gram and satisfaction was arrived on the basis of documents :-3-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 materials conducted in the survey conducted as part of search operation u/s.132. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored.”
3. The brief facts of the case are that, the assessee M/s. Hill Max Export is a partnership firm, filed its return of income u/s. 139 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) on 13.01.2017, declaring a loss of Rs. 31,313/-. There was a search u/s. 132 of the Act, in the case of M/s. Christy Fried Gram Industry, on 05.07.2018. In connection with the search, there was a survey u/s. 133A of the Act, at the business premises of the assessee. During the course of survey, a sale agreement dated 01.04.2015 entered between M/s. Gulyam Cot Spin, No. 34, Saikripa Apartments, Thadagam Road, R.S. Puram, Coimbatore and the assessee was found and impounded vide ANN/SK/HM/B&D/Imp/Sl.No.11. The department had also found two registered sale deeds vide document no. 11276/2015/SRO, Palladam, dated 25.08.2018 for Rs. 1,77,96,600/- for sale of two acres land and building therein and document no. 10389/2015, SRO Palladam for Rs. :-4-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 42,03,400/- for sale of three acres of land and said documents were impounded vide ANN/SK/HM/B&D/Imp/Sl.No:1&2. Further, Deputy Commissioner of Income-tax, Central Circle 2(1), Chennai has recorded satisfaction note u/s. 153C of the Act, in the case of the assessee on 17.09.2020 and as per said satisfaction note, the Assessing Officer has considered documents found and impounded during the course of survey in the case of assessee on 05.07.2018 and satisfied that this is only a case for issue of notice u/s. 153C of the Act for assessment year 2013-14 to 2018-19. Accordingly, notice u/s. 153C of the Act dated 28.11.2020 was issued for assessment years 2013-14 to 2018-19. The assessee did not respond to notice u/s. 153C of the Act. Therefore, notice u/s. 142(1) of the Act, dated 23.12.2020 was issued calling for the return of income and also to show cause as to why additions towards difference between considerations as per sale agreement dated 01.04.2015 and two sale deeds cannot be assessed as unexplained investment u/s. 69B of the Act. In response, the assessee filed a copy of reconstitution deed of partnership dated 27.02.2018, along with one excel sheet containing a revised statement of income and depreciation schedule for assessment year 2019-20.
:-5-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 4. The Assessing Officer, on the basis of information furnished by the assessee and also coupled with evidences collected during the course of survey completed the assessment u/s. 144 r.w.s. 153C of the Act, on 23.04.2021 and determined total income of Rs. 5,34,00,000/-, by making additions towards difference between sale consideration as per agreement of sale and two registered sale deed u/s. 69B of the Act. The relevant findings of the Assessing Officer are as under: “5. In response, the assessee filed a copy of the 'reconstitution deed of partnership' dated 27.02.2018 wherein the old partners, (i) Mr.M.Karchikumar, (ii) Mr.D.Gopalakrishnan and (iii) Mrs.R.Visalalakshi retired and the following new partners : (i) Mr.Srinivasan Vishnu (ii) M/s.Extreme Commercials LLP and (iii) M/s.Bonsai Commercials LLP) with 50%, 25% and 25% profit sharing ration became the new partners. Apart from this one excel sheet containing a revised statement of income and depreciation schedule for AY:2019-20. No other reply or details were filed. In view of this, the assessment is completed on the following lines based on the materials available on record: 6. As stated, during the course of survey a sale agreement dated 01.04.2015 (ANN/SK/HM/B&D/Imp/SI.No:11), entered between M/s.Gulyam Cot Spin, No:34, Saikripa Apartments, Thadagam Road,, RS Puram, Coimbatore (Seller) and the assessee, M/s.Hill Max Exports respresented by its partner for the sale of 5 acres of land 30,000 sqft ACC sheet building with machineries situated in Malaipalayam village, in SF.No:100 (sub division 100/1A), for a consideration of :-6-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 Rs.7,45,00,000/- was found. As per page 2 of the agreement the first party received Rs.4,00,00,000/- as advance, out of which Rs.3,30,00,000/- was in cash. Rs.70 Lakhs was by 1OB Cheque No:144126 and the balance of Rs.3,45,00,000/- was to be paid within a period of 4 moths. 6.1 Further, during the course of Survey, copies of two registered sale deeds: Dcoument No: 11276/2015/SRO, Palladam, dated 25.08.2015 for Rs.1,77,96,600/- (for the sale of 2.00 acres in SF.No:100/lAl) and Document No:10389/2015, SRO Palladam for Rs.42,03,400/- (for the sale of 3.00 acres in SF.No:100/lAl) were impounded vide ANN/SK/HM/B&D/Imp/SI.No: 1 & 2. From these documents it is found that the total consideration for which the property was purchased (vide two documents) was Rs.2,20,00,000/- (Rs.1,77,96,600/- + Rs.42,03,400/-), whereas the total consideration as per the sale agreement dated 01.04.2015 was Rs.7,45,00,000/-. Hence, the balance consideration of Rs.5,34,00,000/- is the on-money paid by M/s.Hill Max Exports in FY:2015-16, that is AY:2016-17. 6.2 As no sources have been established for the additional consideration of Rs.5,34,00,000/-, the same is brought to tax as the assessee's investment from unexplained sources u/s 69B of the Income Tax Act, 1961 for AY:2016-17.”
Being aggrieved by the assessment order, the assessee preferred an appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee has taken a legal ground challenging jurisdiction of the Assessing Officer and invalid proceedings initiated u/s. 153C of the Act. The assessee had also :-7-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 contested additions made by the Assessing Officer towards purported on-money payments for purchase of property u/s. 69B of the Act. The assessee has filed a detailed written submissions on the issue, which has been reproduced at Para 10 of Pages 9 to 16 of ld. CIT(A) order. The sum and substances of arguments of the assessee before the ld. CIT(A) are in two fold. The first and foremost argument of the assessee is on invalid proceedings initiated u/s. 153C of the Act, in light of survey conducted u/s. 133A of the Act. The assessee submitted that proceedings initiated u/s. 153C of the Act, is invalid and consequent assessment order passed by the Assessing Officer u/s. 144 r.w.s. 153C of the Act is void ab initio, because proceedings u/s. 153C of the Act can be initiated only when some materials of other person found during the course of searched person. Since, the Assessing Officer has recorded satisfaction note u/s. 153C of the Act, on the basis of material found during the course of survey u/s. 133A of the Act in the case of the assessee, notice issued u/s 153C and consequent assessment order passed by the Assessing Officer u/s. 144, and r.w.s.153C of the Act is invalid. The assessee had also explained additions made by the Assessing Officer towards purported on-money payment for :-8-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 purchase of property u/s. 69B of the Act and argued that the assessee has agreed to purchase land, building and plant & machinery, which is evident from sale agreement dated 01.04.2015 entered into between M/s. Gulyam Cot Spin and the assesse. The assessee had also accounted entire consideration amount of Rs. 7,45,00,000/- agreed to be paid as per sale agreement and the same has been reported to the Department in the return of income filed for the assessment year 2016-17 u/s. 139 of the Act.
The ld. CIT(A), after considering relevant submissions of the assessee and also by relying upon certain judicial precedents held that, proceedings initiated u/s. 153C of the Act, in the case of the assessee without fulfillment of the mandatory conditions cannot be treated as lawfully initiated proceedings and consequently, assessment order passed u/s. 144 r.w.s. 153C is invalid. The ld. CIT(A), had also deleted additions made by the Assessing Officer towards purported on- money payment for purchase of property amounting to Rs. 5,34,00,000/-, u/s. 69B of the Act by holding that the assessee has filed necessary evidences to prove that entire consideration of Rs. 7,45,00,000/- has been accounted in the :-9-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 books of accounts of the assessee for the relevant assessment years and also explained the source for purchase of property including plant and machinery. The relevant findings of the ld. CIT(A) are as under: “LEGAL VALIDITY OF ASSUMPTION OF JURISDICTION VIS 153C AND CONSEQUENT ASSESSMENT PROCEEDINGS 14. In Ground Nos.2 to 7 and 10 of appeal, the appellant challenged the legal validity of assumption of jurisdiction by the AO u/s 153C and the legal sustainability of the consequent assessment order passed u/s 144 r.w.s 153C. 15. In the ground of appeal and the written submission, the appellant advanced the following contentions with regard to the issue under consideration: The provisions of section l 53C are triggered only when the assets seized during the course of search belong to a person other than the searched person or when the books of account /document seized during the course of the search pertain to or information contained therein relates to a person other than the searched person. None of the said conditions for invoking the provisions of section 153C are satisfied in the appellant's case in relation to the search carried out in Christy group of cases. It is clear from the satisfaction note drawn by the AO that the AO has relied on the documents impounded from the business premises of the appellant during the course of the survey at the appellant's premises for the purpose of invoking the provisions of sec 153C. Since the notice u/s 153C was issued based on the material impounded during the course of the survey in the appellant's own business premises and not based on books of account/documents seized in the case of the searched person ( Christy group of cases), such issue of notice is without jurisdiction and the consequential assessment order passed u/s 144 r.w.s 153C is unsustainable in law. On careful examination, the contentions of the appellant are found to be tenable and acceptable in facts of the case. In this connection, it would be appropriate to peruse the satisfaction :-10-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 note recorded by the AO to enable him to assume jurisdiction u/s l 53C. The satisfaction note recorded by the AO is reproduced as under: During the course of survey at the premises of M/s.Hill Max Exports, a Partnership firm of Shri.Vishnu. in connection with the search in the case of M/s Christy Friedgram Industry (Prop: Shri.T.S.Kumarasamy) group of cases, a sale agreement dated 01.04.2015 (ANNISK/HlYI/B&Dllmp/SI.No:11), entered between Gulyam Cot Spin, No:34, Saikripa Apartments, Thadagam Road, RS Puram, Coimbatore (Seller) and M/s.Hill Max Exports represented by its partner for the sale of 5 acres of land 30,000 sqft4CC sheet building with machineries situated in Malaipalayam village, in SF.No:100 (sub division 100/JA), for a consideration of Rs. 7,45,00,000/- was found and impounded. As per page 2 of the agreement the first party received Rs.4,00,00,000- as advance, out of which Rs3,30,00,000/- was in cash. Rs.70 Lakhs was by IOB Cheque No:144126 and the balance of Rs.3,45,00,000/- was to be paid within a period of 4 moths. During the course of survey, copies of two registered sale deeds: Document No: 11276/2015/SRO, Palladam, dated 25.08.2015 for Rs.1,77,96,600(for the sale of 2.00 acres in SF.No:100/1A1) and Document No:10389/2015, SRO Palladamfor Rs.42.03.400/- (for the sale of 3.00 acres in SF.1\fo: 10011 A 1) were impounded vide ANNISKIHMIB&Dl/mp/Sl.No: 1 & 2. From these documents it is found that the total consideration for which the property was purchased (vide two documents) was Rs.2,20,00,000- (Rs. 1,77,96,600/-+Rs. 42,03,400/-), whereas the total consideration sale agreement dated 01.04.2015 (ANN/SKIHMIB&D/lmp/Sl.No:10 was Rs.7,45,00,000/-. Hence, the balance consideration of Rs.5,34,00,000/- is the on money paid by M/s.Hill Max Exports in FY:2015-16, that is AY:2015-16. This is to be assessed in the hands of M/s.Hill Max Exports. Hence, I am satisfied that this is a fit case for issue of notice u/s 153C of the Act for AYs: 2013-14 to 2018-19.
17. It is clearly evident from the perusal of the contents of the satisfaction note recorded by the AO to enable him to issue of notice u/s 153C that the material based on which he recorded the said satisfaction is the material impounded during the course of survey conducted in the premises of the appellant. It is evident that the said satisfaction is not based on any books :-11-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 of account/documents seized during the course of search in Christy group of cases.
18. As per the provisions of sec. 153C, it is a mandatory condition that either the assets seized during the course of search in the case of the searched person should belong to the person in respect of whom the proceedings u/s 153C are sought to be invoked or books of account /documents seized during the course of search in the case of the searched person should pertain to or information contained therein should relate to the person in respect of whom the proceedings u/s 153C are sought to be invoked. The proceedings initiated u/s 153C without fulfilment of the said mandatory condition cannot be treated as lawfully initiated proceedings.
19. As already mentioned above based on the perusal of the satisfaction note recorded by the AO, there is no finding therein that any seized books of account/documents in the case of Christy group of cases pertain to or the information contained therein relate to the appellant. The satisfaction note drawn by the AO is based on the documents impounded during the course of survey conducted in the appellant's own business premises. Though the said survey was conducted in connection with the search in Christy group of cases, the material impounded during the course of such a survey does not meet the essential requirement that the books of account/documents seized during the course of search of the searched person should pertain to or they contain information relating to the appellant (the other person). In the said facts and circumstances, it cannot be considered that the AO has validly initiated the proceedings u/s l 53C in accordance with the provisions of the said section. In the absence of satisfaction of the condition precedent for invoking the provisions of section 153C, it is held that the assumption of jurisdiction by the AO u/s 153C is unsustainable in law. Consequently, it is held that the assessment order passed u/s 144 r.w.s 153C is legally invalid. The Ground Nos. 2 to 7 and 10 are accordingly allowed. Without prejudice to this finding rendered on legal grounds, the sustainability of the addition made in the assessment order on merits is adjudicated in the following paragraphs. ADDITION U/S 69B TOW ARDS INVESTMENT NOT FULLY DISCLOSED IN BOOKS OF ACCOUNT :-12-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 20. In Ground No.11 of appeal, the appellant has disputed the addition of Rs.5,34,00,000/- made u/s 69B towards the investment not fully disclosed in the books of account represented by the on-money payment made to M/s Gulyam Cot Spin in pursuance of the agreement of sale dated 01.04.2015.
The AO made the said addition having regard to the fact that the sale consideration as per the agreement of sale dated 01.04.2015 amounted to Rs.7,45,00,000/- whereas the aggregate sale consideration shown in the two registered sale deeds dated 25.08.2015 amounted to Rs.2,20,00,000/- only. The relevant agreement of sale and the two registered sale deeds formed part of the material impounded during the course of the survey at the business premises of the appellant.
Before proceeding further, it is relevant to point out that though the difference between the sale consideration as per the agreement of sale and aggregate sale consideration as per the two registered sale deeds amounted to Rs. 5,25,00,000/- only, the AO erroneously computed the same at Rs.5,34,00,000/while making addition u/s 69B. The said difference is required to be adopted correctly at Rs.5,25,00,000/-.
As regards the merits of the addition made u/s 69B, the appellant contented that the addition made u/s 69B is not warranted as the entire investment made in purchase of land, building and machineries as per the agreement of sale has been duly recorded in the books of account. The appellant has drawn attention to the following facts available in the agreement of sale, registered sale deeds, the return of income filed for A Y 20 I 6-17 u/s 13 9( I) and the audited balance sheet as on 31.03.2016 uploaded along with the tax audit report, in support of its contention: As per the sale agreement dated 01.04.2015, the appellant agreed to purchase Land to the extent of 5 acres, 30000 sq.ft Building and Machineries for aggregate sale consideration of Rs.7,45,00,000/-. Subsequently, the appellant purchased Land to the extent of 3 acres vide registered sale deed No. 10389/2015 dated 24.08.2015 for a consideration of Rs,42,03,400/-. The appellant purchased Land to the extent of 2 acres as well as Building vide registered sale deed No.11276/2015 dated 24.08.2015 for an aggregate :-13-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 consideration of Rs. 1,77,96,600/-. Out of the said aggregate consideration, the consideration for Land of 2 acres amounted to Rs.28,02,195/- and the consideration for the Building amounted to Rs. 1,49,94,300/-. The balance sale consideration of Rs.5,25,00,000/- as per the sale agreement is towards the purchase of machineries. The said purchase of Land, Building and Machineries has been duly accounted in the books of account and the same has been shown in the return of income filed u/s 139 for A Y 2016-17 on 13.01.2017.
On careful examination of the agreement of sale, registered sale deeds, return of income filed for A Y 2016-17 u/s 139( 1) and the audited balance sheet as on 31.03.2016 uploaded along with the tax audit report, it is found that the contention of the appellant is factually correct and acceptable. On perusal of the sale agreement dated O 1.04.2015 entered between the appellant and M/s Gulyam Cot Spin, it is noticed that the appellant agreed to purchase the following immovable and movable properties from MisGulyam Cot Spin for an aggregate sale consideration ofRs.7,45,00,000; 1) Land having an extent of 5. 00 acres 2) Building having an extent of 30000 sq.ft 3) Machineries thereon 25. Thus, it is evident from the list of properties agreed to be purchased by the appellant as per the agreement of sale that the said properties comprised of both movable and immovable properties. Since the transfer of immovable properties is required to be given effect through registered sale deeds, M/s Gulyam Cot Spin (the seller) has executed two sale deeds in respect of the Land and Building and the same were registered on 24.08.2015. The details of the immovable properties transferred to the appellant through the said registered sale deeds, as noticed from the perusal of the said documents, are as under: Registered Particulars of Sale Sale Page sale deed immovable considerati consideratio number property on for the n as per reference specific registered in property sale deed registered (Rs) sale deed 10389/2015 Land of 3 acres 42,03,400 42,03,400 10 and 11 :-14-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 11276/2015 Land of 2 acres 28,02,300 1,77,96,600 12 and 13 Building 1,49,94,300 Total 2,20,00,000
Since the movable properties agreed to be purchased by the appellant as per the agreement of sale represented by 'Machineries' do not require conveyance through a registered sale deed, the seller did not execute any sale deed in respect of machineries. However, the AO has erroneously compared the sale consideration as per the agreement of sale with the aggregate sale consideration as per the two registered sale deeds for arriving at his inference that the balance amount has been paid as on-money outside the books of account. While coming to such erroneous conclusion, the AO has omitted to consider that the sale agreement provided for sale of movable property also represented by 'machineries' and that the same do not require execution of a sale deed for conveyance of the title to the buyer. In this connection, it is also pertinent to point out that the AO has erroneously observed that the two registered sale deeds dealt only with the transfer of Land of 5 acres, whereas they actually dealt with transfer of Land as well as Building (being immovable properties), the details of which have been shown in the table above. The fact that Building has also been transferred through registered sale deed is clearly evident from Page Nos. 12 and 13 of the registered sale deed No.11276/2015, which contain the 'schedule of the property'.
As can be seen from the discussion in the preceding paragraphs, the inference drawn by the AO that the appellant has paid on-money of Rs.5,25,00,000/(erroneously mentioned as Rs.5,34,00,000/- in the assessment order) is based solely on the misconception that a part of the sale consideration mentioned in the agreement of sale is not reflected in the registered sale deeds. While arriving at such a wrong conclusion, the AO has completely omitted to take into consideration the fact that the sale agreement included transfer of machineries also and transfer of such movable properties is not required to be effected through a registered sale deed. It is therefore evident that the addition made by the AO based on the said misconception is not tenable on facts. Further, it needs to be considered based on the facts stated above that the difference amount of Rs.5,25,00,000/represents the sale consideration in respect of 'machineries' as per the sale agreement. It is therefore required to examine whether :-15-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 such sale consideration of Rs.5,25,00,000/- in respect of machineries is recorded in the books of account of the appellant.
In this regard, it is significant to note that the appellant filed its return of income for A Y 2016-17 u/s 13 9 of the Act on 13.01.2017, much before the date of carrying out survey in its business premises on 05.07.2018. The said return of income has been filed electronically. The Tax audit report along with audited P&L account and Balance sheet has also been uploaded by the appellant on 10.01.2017 prior toe-filing the return of income. The same were duly available to the AO at the time of passing the assessment order u/s 144 r.w.s 153C. On perusal of the said return of income and the audited Balance sheet as on 31.03.2016, it is noticed that all the immovable and movable properties purchased by the appellant in pursuance of the agreement of sale dated 0 1.04.2015 have been duly recorded in the books of account and reflected in the depreciation schedule in the return of income and the Balance sheet of the appellant. The details of the purchase of Building and Machineries recorded in the books of account of the appellant during the assessment year under consideration as noticed from the depreciation schedule furnished in the return of income are as follows: Asset Opening Additions Deletions Depreciati Closing WDV as on descriptio WDV as during the during the on 31.03.2016 n in on year year claimed depreciati 01.04.20 on 15 schedule in the return of income Plant and 45,231 5,80,59,450 6,21,000 58,27,280 5,16,56,401 Machinery Building 2,63,993 1,75,43,040 Nil 9,03,551 1,69,03,482
Further, it is noticed on perusal of the audited Balance sheet as on 31.03.2016 that the closing WDV of the Plant & Machinery and Building as shown in the table above are duly reflected therein in the following manner: Particulars Asset shown in WDV shown Closing WDV of of the balance sheet in balance the asset in asset as on sheet as on depreciation :-16-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 31.03.2016 31.03.2016 schedule in the return of income Computer 1,424 Plant and Machinery 5,09,35,319 5,16,56,401 machinery Vehicle 7,19,658 Total 5,16,56,401 Building 6,01,107 Building 1,69,03,482 Factory Building 1,63,02,375 Total 1,69,03,482 30. A comparison of the additions made to Building and Plant & Machinery as shown in the tables above with the purchase of the said assets as per the agreement of sale dated 0 1.04.2015 is furnished in the table below: Particular Purchase Additions to the assets s of the consideration as per in the books of asset agreement of sale account Plant and 5,25,00,000 5,80,59,450 Machinery Building 1,49,94,300 1,75,43,040 31. As can be seen from the above, the Building and Machineries purchased through the agreement of sale dated 01.04.2015 have been duly recorded in the books of account, as the additions to the said assets shown in the books of account are higher than and inclusive of the purchase consideration of the said assets as per the agreement of sale. Hence, it is evident that the investment made towards to the said assets (Plant & Machinery and Building) in pursuance of the agreement of sale dated 01.04.2015 is fully disclosed in the books of account within the meaning of section 69B of the Act. 32. With regard to Land, it is noticed that the book value of the same is shown at Rs. 74,58,919/- in the audited Balance sheet as on 31.03.2016. The same is comprised of 'Land' of Rs. 45,49,963/- and 'Factory Land' of Rs. 29,08,956/-. On perusal of the return of income filed by the appellant u/s 139 for A Y 2015-16 on 29.10.2015, it is noticed that the 'Net Block' of Fixed assets is shown at Rs.3,21,027/-. Further, it is noticed from the Schedule of depreciation furnished in the said return of income that the closing WDV of various depreciable assets shown therein aggregated to Rs.3,21,027/-, which is the same amount as shown under Net Block of fixed assets in the balance sheet. It is therefore evident that the entire 'Net Block' :-17-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 of fixed assets shown in the Balance sheet consisted of depreciable assets only and there was no Land in the fixed assets as on 31.03.2015. In view of this, it can be inferred that the entire book value of Land of Rs.74,58,919/- shown as on 31.03.2016 represents the Land purchased during the year. Since the sale consideration of Land purchased through the two registered sale deeds in pursuance of agreement of sale dated 01.04.2015 is Rs.70,05,700/(Rs.42,03,400 + Rs.28,02,300) as against the book value of land Rs.74,58,919/ shown as on 31.03.2016, it is evident that the investment made towards purchase of Land as per the agreement of sale dated 01.04.2015 has been fully disclosed in the books of account within the meaning of section 69B of the Act.
In view of the aforesaid discussion, it is held that the facts of the case do not warrant any addition u/s 69B towards the investment not fully disclosed. in the books of account. Hence, the AO is directed to delete the addition of Rs.5,34,00,000/- made u/s 69B in the assessment order. Ground No.11 of appeal is accordingly allowed.”
The ld. DR, Shri. V. Nandakumar, CIT submitted that, the ld. CIT(A) erred in deleting addition of Rs. 5,25,00,000/- made towards unexplained investment u/s. 69B of the Act, being difference between consideration as per sale agreement and registered deed in respect of purchase of properties by the assessee. The CIT-DR, further submitted that the ld. CIT(A) failed to appreciate that the assessee neither furnished complete details in response to notice u/s. 142(1) of the Act, dated 23.12.2020 nor responded to reminder dated 03.02.2021. The ld. DR further submitted that, the Assessing Officer has passed ex-parte assessment order u/s. 144 of the :-18-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 Act, when the assessee has not filed any details and as per details available with the Assessing Officer, the assessee has paid on-money for purchase of property, which is clearly evident from satisfaction note recorded by the Assessing Officer, wherein, as per agreement of sale dated 01.04.2015, the assessee has paid consideration for purchase of property at Rs. 7,45,00,000/-, whereas as per two registered sale deed found during the course of survey, total consideration for purchase of property was at Rs. 2,20,00,000/-. Although, the Assessing Officer has made additions u/s. 69B of the Act, towards unexplained investment for purchase of property, but the ld. CIT(A) deleted addition by admitting certain additional evidences filed by the assessee without giving an opportunity to the Assessing Officer by calling remand report in violation of Rule 46A of I.T. Rules, 1962.
The ld. DR further submitted that, the ld. CIT(A) erred in holding that the proceedings initiated u/s. 153C of the Act, on the basis of impounded material found during the course of survey is legally invalid, without appreciating fact that the survey in the case of the assessee was conducted as a part of search u/s. 132 of the Act, in the case of M/s. Christy Fried :-19-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 Gram Industry and satisfaction so arrived on the basis of documents found in the survey conducted as a part of search operations can be used to frame assessment u/s. 153C of the Act.
The Ld. Counsel for the assessee, Shri. M.V. Prasad, FCA, supporting the order of the ld. CIT(A) submitted that, there is no dispute with regard to the fact that the assessee case was subjected to survey u/s. 133A of the Act, but not search and seizure action u/s. 132 of the Act, which is clearly evident from the satisfaction note recorded by the Assessing Officer. It is also admitted fact that, documents relied upon by the Assessing Officer to make additions u/s. 69B of the Act, were found and impounded during the course of survey at the business premises of the assessee. Therefore, initiation of proceedings u/s. 153C of the Act, is totally incorrect and against law. The ld. CIT(A), after considering relevant facts has rightly held that the Assessing Officer has wrongly assumed jurisdiction u/s. 153C of the Act, because the satisfaction note recorded by the Assessing Officer is based on the documents found during the course of survey in the appellant’s own business premises and not on the basis of :-20-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 books of accounts/documents seized during the course of search in the case of M/s. Christy group of cases.
The Ld. Counsel for the assessee further submitted that, the ld. CIT(A) rightly deleted additions made by the Assessing Officer towards unexplained investment u/s. 69B of the Act, by appraising relevant facts including return of income filed by the assessee u/s. 139(1) of the Act for assessment year 2016- 17, where the assessee has accounted consideration paid for purchase of land, building and plant & machinery as per agreement of sale dated 01.04.2015 amounting to Rs. 7,45,00,000/- and the same has been reflected in the return of income filed by the assesse, which is much before the date of survey u/s. 133 of the Act. The assessee had also explained source for purchase of property out of capital consideration from partners. Therefore, arguments of the ld. DR present for the revenue that, the ld. CIT(A) has admitted certain additional evidences in violation of Rule 46A of IT Rules, 1962, is devoid of merits because, the assessee neither filed any additional evidences nor the ld. CIT(A) has considered fresh evidences to arrive at a conclusion.
:-21-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 Therefore, he submitted that there is no merit in appeal filed by the revenue and the same should be dismissed.
We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We have also carefully considered satisfaction note recorded by the Assessing Officer u/s. 153C of the Act dated 17.09.2020. Admittedly, the assessee’s case was subjected to survey u/s. 133A of the Act, in consequent to search u/s. 132 of the Act conducted in the case of M/s. Christy Fried Gram Industries on 05.07.2018. It is an admitted fact that during the course of search u/s. 132 of the Act, in the case of M/s. Christy Fried Gram Industry and Shri. T.S. Kumarasamy, no incriminating material which pertains and relates to assessee was found. It is also an admitted fact that the Assessing Officer has considered agreement of sale dated 01.04.2015 and two registered sale deeds dated 25.08.2015 for the purpose of arriving at the satisfaction that any money, bullion, jewellery or other valuable articles or things or any books of accounts or documents seized or requisitioned pertains or pertain to or relates to a person other than the person referred to in section 153A of the Act which were found during the :-22-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 course of survey on 5-7-2018. In other words, the Assessing Officer assumed jurisdiction u/s. 153C of the Act, on the basis of sale agreement and sale deeds found and impounded during the course of survey in the case of the assessee, but not books of accounts or any other evidences found during the course of search in the case of person referred to u/s. 153A of the Act. Therefore, it is necessary to examine the correctness of jurisdiction assumed by the Assessing Officer u/s. 153C of the Act, in light of satisfaction note recorded dated 17.09.2020.
The provisions of section 153C of the Act are triggered only when the assets or any other books of accounts found and seized during the course of search of a person referred to u/s. 153A of the Act belongs to a person other than the searched person. In other words, during the course of a searched person, any money or other assets including books of accounts and documents found relates to a person other than the searched person. Therefore, in order to invoke jurisdiction u/s. 153C of the Act, it is a mandatory condition that either the assets seized during the course of search in the case of the searched person should belong to the person in respect of whom the proceedings u/s. 153C of the Act are sought to be :-23-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 invoked or books of accounts/documents seized during the course of search in the case of searched person should pertain to or information contained therein should relate to the person in respect of whom the proceedings u/s. 153C of the Act are sought to be invoked. In the present case, as per satisfaction note dated 17.09.2020 recorded by the Assessing Officer [DCIT, Central Circle 2(1)], Chennai, it is clearly evident that the Assessing Officer has recorded satisfaction u/s. 153C of the Act, on the basis of sale agreement dated 01.04.2015 and two registered sale deeds dated 25.08.2015 which were found and impounded during the course of search in appellant’s own case on 05.07.2018. Therefore, we are of the considered view that the satisfaction note recorded by the Assessing Officer u/s. 153C of the Act to assume jurisdiction to assess income of person other than the searched person based on material found during the course of survey in appellant’s own case is invalid and unsustainable in law. In so far as arguments of the ld. DR that, the survey u/s. 133A of the Act in the case of the assessee is triggered in pursuant to search action u/s. 132 of the Act conducted in the case of M/s. Christy Fried Gram Industry does not alter the legal position that, proceedings u/s. 153C of the Act can be initiated only when the Assessing :-24-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 Officer of the searched person records a satisfaction that any money, bullion or other valuable article or thing seized or requisitioned, belongs to or any books of accounts or documents seized or requisitioned pertains to or any information contain therein relates to a person other than the person referred to in section 153A of the Act. Therefore, in our considered view mandatory condition to invoke jurisdiction u/s. 153C of the Act is not satisfied and thus, notice issued by the Assessing Officer u/s. 153C of the Act and consequent assessment order passed u/s. 144 r.w.s. 153C of the Act is illegal and unsustainable in law.
In this regard, it is pertinent to refer to the decision of the ITAT Mumbai Benches in the case of Sai Shraddha Enterprises vs ACIT in 1804, 1805 & 1807/Mum/2020 vide order dated 29.12.2022, where the Tribunal held that merely because search and survey are carried out simultaneously at several places, material found during the course of survey does not authorize the Assessing Officer to make assessment u/s. 153C of the Act. The relevant findings of the Tribunal are reproduced as under:
:-25-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 “12. We have carefully considered the rival contentions and perusedthe orders of the lower authorities. The fact clearly shows that asearch under Section 132(1) as well as survey under Section 133Aof the Income-tax Act, 1961 (the Act) was carried out at variouspremises of Ameya Group, Virar, Mumbai. During the course ofsurvey under Section 133A of the Act at ground and 1st floor,NarsinhSmruti Building, Gaothan, Virar (W), Mumbai on 31stJuly, 2014, the documents were impounded as bundle no. 2 ofparty A-29. Based on this material, the addition under Section69C of the Act is made in the hands of the assessee by invokingthe provisions of section 153C of the Act. On careful reading ofthe assessment orders at page no.1 and 2 in Para no.1 and atpage no.4 in Para no.7.1, the learned Assessing Officer specifically referred to the survey action at the above addressand impounded incriminating document found during the courseof survey which is the basis of addition under Section 69C of theAct. It is also admitted fact that no search under Section 132 ofthe Act was carried out at the premises i.e. ground floor andfirst floor of NarsinhSmrutiBuilding, Gaothan, Virar (W),Mumbai, where the evidences were found, based on which theaddition under Section 69C of the Act is made for all these fouryears u/s 153C of the Act. satisfaction note dated 30thSeptember, 2015, recorded under Section 153C of the Act is alsoproduced before us which is placed at page no.152 and 153 ofthe Paper Book which clearly shows that the evidences anddocuments based on which the addition is made wereimpounded from the place where survey action took place.Further, order under Section 133A (3)(ia) of the Act dated 31stJuly, 2014 was also passed by the learned Assessing Officer on2nd August, 2014, which clearly shows that the documents wereimpounded during the course of survey. There is no orderrequired to be passed under Section 133A of the Act if thedocuments are found and seized during the course of search.Thus, apparently, the addition has :-26-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 been made in the hands oftheassessee on the basis of material found during the course ofsurvey and not search. The factual report submitted by thelearned Assessing Officer on 27th October, 2022 which also say so. Performa for recording satisfaction note under Section 153Cof the Act dated 30th September, 2015 in column no.5 (b) of theAct which shows description of the seized material also says thatthe material is impounded during the course of survey. Inproforma, relevant details in Panchanama in column no. 5(d),the details of impounding order dated 2nd August, 2014 ismentioned. Further also it is clear that all the additions made inthe hands of the assessee were arising out of the documentsimpounded during the course of survey under Section 133A of the Act on 31st July, 2014. Thus, no material was found duringthe course of search based on which addition u/s 153C of theAct is made. Merely because search and survey are carried outsimultaneously at several places, material found during thecourse of survey does not authorize the LD AO to makeassessment u/s 153C of the Act.”
In this view of the matter and considering facts and circumstances of the case and also by following the decision of ITAT Mumbai Benches in the case of Sai Shraddha Enterprises vs ACIT (Supra), we are of the considered view that there is no error in the reasons given by the ld. CIT(A) to annul the assessment order passed by the Assessing Officer u/s. 144 r.w.s. 153C of the Act and thus, we are inclined to uphold the findings of the ld. CIT(A) and reject grounds taken by the revenue.
:-27-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 15. Coming back to the issue on merit. The Assessing Officer has made an addition of Rs. 5,34,00,000/- being difference between consideration agreed to be paid as per agreement of sale dated 01.04.2015 and consideration as per two registered sale deeds dated 25.08.2015. According to the Assessing Officer, the assessee has paid on-money of Rs. 5,34,00,000/- towards purchase of property and the same has not been explained with known source of income and thus, made additions u/s. 69B of the Act as unexplained investment. The ld. CIT(A), has deleted additions made by the Assessing Officer u/s. 69B of the Act, by holding that the assessee has fully accounted consideration paid as per agreement of sale dated 01.04.2015 and also explained source for said investment, which is evident from return of income filed by the assessee for assessment year 2016-17 u/s. 139(1) of the Act on 13.01.2017, which is much before the date of survey in the business premises of the assessee on 05.07.2018. We have gone through the reasons given by the ld. CIT(A) to delete additions made u/s. 69B of the Act, in light of various averments of the ld. DR present for the revenue and we ourselves in agreement with reasons given by the ld. CIT(A) for the simple reason that, as per the sale agreement dated :-28-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 01.04.2015, the appellant agreed to purchase land to the extent of 5 acres along with 30,000 sq.ft. building and machineries for aggregate sale consideration of Rs. 7,45,00,000/-. Subsequently, the appellant purchased two acres of land and building thereon vide sale deed no. 11276/2015, dated 24.08.2015 for aggregate consideration of Rs. 1,77,96,600/-. Out of said aggregate consideration, the consideration for 2 acres of land was at Rs. 28,02,195/- and the balance consideration of Rs. 1,49,94,300/- is for building. Similarly, the assessee has purchased three acres of land vide registered sale deed no.10389/2015, dated 24.08.2015 for a consideration of Rs. 42,03,400/-. Thus, the total consideration paid for purchase of 5 acres of land and building annexed thereon was at Rs. 2,20,00,000/- as per two registered sale deeds found during the course of survey. The balance sale consideration of Rs. 5,25,00,000/- as per the sale agreement is towards purchase of plant and machinery. The assessee has accounted land and building and also plant and machinery in the books of accounts, which is evident from schedule of depreciation filed for the year ended 31.03.2016, where the assessee has clearly bifurcated consideration paid for land, building and plant & machinery. Therefore, from the above it :-29-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 is evident that the entire consideration as per agreement of sale dated 01.04.2015 amounting to Rs. 7,45,00,000/- has been accounted in the books of accounts, which is evident from the return of income filed for the assessment year 2016- 17 u/s. 139 of the Act dated 13.01.2017, which is much before the date of carrying out survey in the business premises of the assessee on 05.07.2018. The relevant return of income filed by the assessee u/s. 139(1) of the Act, was very much available with the Assessing Officer when he has completed the assessment u/s. 144 r.w.s. 153C of the Act. Therefore, we are of the considered view that the arguments of the revenue that the assessee has not furnished any details explaining source for purchase of property before the Assessing Officer is devoid of merits and untenable. Similarly, the ground taken by the revenue that the ld. CIT(A) has admitted additional evidences in violation Rule 46A of IT Rules, 1962 is also untenable, because on perusal of the order of the ld. CIT(A), we find that the assessee neither submitted any additional evidences nor the ld. CIT(A) has admitted any additional evidences contrary to Rule 46A of IT Rules, 1962 to give an opportunity to the Assessing Officer to submit his remand report. In our considered view, the question of providing an :-30-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 opportunity to the Assessing Officer as per Rule 46A of IT Rules, 1962 comes into play only when the ld. CIT(A) has admitted additional evidences to decide the issue. In the present case, on perusal of the findings of the ld. CIT(A) on this issue, we noticed that the ld. CIT(A) has passed his decision on the basis of return of income filed by the assessee coupled with financial statements and tax audit report filed u/s. 44AB of the Act and said return has been filed on 13.01.2017 much before the date of survey and such evidences were available before the Assessing Officer. Thus, the allegation of the ld. DR that, there was violation of Rule 46A of IT Rules, 1962 is devoid of merits and rejected.
Having said so, let us come back whether the assessee is able to explain source for purchase of property and is there any unexplained investment in respect of agreement of sale dated 01.04.2015 as alleged by the Assessing Officer. As we have already stated in earlier part of this order, the assessee has agreed to purchase land along with building and plant & machinery, which is evident from agreement of sale dated 01.04.2015. The assessee has purchased immovable property by way of registered sale deeds, because immovable property :-31-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 is required to be transferred through registered sale deed only. In so far movable property like plant and machinery, there is no requirement of registered sale deeds and accordingly, the assessee has paid consideration for purchase of property as per agreement of sale dated 01.04.2015 and also accounted purchase of plant and machinery in the books of accounts, which is evident from financial statement filed along with return of income filed for the assessment year 2016-17. The assessee had also explained source for purchase of property out of capital contribution from the partners, which is evident from financial statement filed along with return of income filed for the assessment year 2016-17 on 13.01.2017. The ld. CIT(A), based on return of income filed by the assessee u/s. 139 of the Act, dated 13.01.2017 has come to the conclusion that the assessee has accounted total consideration paid for purchase of property including land, building and plant & machinery as per agreement of sale dated 01.04.2015 amounting to Rs. 7,45,00,000/- and is also able to explain source for said purchase and thus, additions made by the Assessing Officer towards purported on-money payment for purchase of property being difference between consideration as per agreement of sale dated 01.04.2015 and registered :-32-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 sale deed dated 24.08.2015 is unsustainable in law. Therefore, we are of the considered view that the ground taken by the revenue vide ground no 2.1 to 2.3 is devoid of merits, because though the assessee has disclosed purchase of properties as per agreement of sale dated 01.04.2015 and filed return of income u/s. 139 of the Act, the Assessing Officer completed the assessment without examining the said documents on the allegation that the assessee had not furnished any information in response to notices issued u/s. 142(1) of the Act. In our considered view, in a case of best judgment assessment u/s. 144 of the Act, the Assessing Officer is required to apply his mind to the material already available on record such as return of income, tax audit report, financial statements etc., to the extent of which they are relevant to the issue under consideration. However, Assessing Officer did not make any attempt to verify documents before arriving at the conclusion that the assessee has paid on-money for purchase of property. From the above, it is undoubtedly clear that the Assessing Officer has passed the assessment order without application of mind and thus, when the CIT(A) after considering return of income and financial statements :-33-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 allowed relief, it cannot be said that there is a violation of rule 46A of the Income tax Rules, 1962.
We, further noted that the argument of the ld. DR that the assessee did not make a claim during the assessment proceedings that the entire consideration as per the sale agreement is duly accounted in the books of accounts and that such claim was made only before the ld. CIT(A) and the source for the same were explained to be capital contribution from partners etc, because as explained in earlier part of this order, while making assessment u/s. 144 of the Act due to lack of response from the appellant, the Assessing Officer required to apply his mind to the material already available on record. Do the Assessing Officer made such basic verification of the material available on record, he would have been found that the properties purchased in pursuant to sale agreement dated 01.04.2015 are duly reflected in the balance sheet to the extent of consideration mentioned in the agreement and no addition is warranted towards unexplained investment u/s. 69B of the Act. The Assessing Officer has failed to carry out basic verification of material available on record. In our considered view, he went on to make addition u/s. 69B of the :-34-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 Act only on the basis of agreement of sale and two registered sale deeds even though the assessee has duly accounted amount consideration paid for purchase of plant and machinery in the books of accounts and also explained source for the same. Since, the documents relied upon by the ld. CIT(A) were already before the Assessing Officer, in our considered view the question of providing an opportunity to the Assessing Officer by way of remand report as required under Rule 46A of IT Rules, 1962 does not arise and thus, we reject the ground taken by the revenue.
We further noted that, there is no merit in the contention of the revenue that the Assessing Officer lost an opportunity of examining the source of capital contribution of the partners and valuation of machineries as per sale agreement due to the omission to call for a remand report is not tenable. Since, the scope of the assessment u/s. 153C of the Act is strictly limited to the seized material in the case of the searched person, because the assessment for the instant assessment year 2016- 17 is unabated assessment. This fact has been reiterated by the Hon’ble Supreme Court in the case of DCIT vs U.K paints (Overseas) Ltd [2023] 150 taxman.com 108 SC. In the :-35-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 present case, the department did not unearth any seized material which pertains, or contains any information relating to the appellant and thus, it is legally not permissible for the Assessing Officer to examine the source of capital contribution from partners and valuation of machinery for the purpose of making additions. Therefore, we are of the considered view that there is no merit in arguments of the ld. DR present for the revenue and thus, rejected.
In this view of the matter and considering facts and circumstances of the case, we are of the considered view that the Assessing Officer is erred in making additions towards purported on-money payment for purchase of properties as per agreement of sale dated 01.04.2015 and two registered sale deed dated 24.08.2015 u/s. 69B of the Act. The ld. CIT(A), after considering relevant facts and evidences has rightly deleted additions made by the Assessing Officer. Thus, we are inclined to uphold the findings of the ld. CIT(A) and reject ground taken by the revenue.
In the result, appeal filed by the revenue is dismissed.
:-36-: ITA. No: 742/Chny/2023 & CO No: 39/Chny/2023 21. The assessee has filed cross objection in support of findings of the ld. CIT(A) on the issue of assumption of jurisdiction and invalid proceedings initiated u/s. 153C of the Act and also deletion of additions made u/s. 69B of the Act. Since, we have dismissed appeal filed by the revenue on both grounds, the grounds of cross objection filed by the assessee becomes infructuous. Thus, cross objection filed by the assessee is dismissed as infructuous.