KK LEISURE & TOURISM INTERNATIONAL (P) LTD,KANNUR vs. THE DCIT CENTRAL CIRCLE 2, KOZHIKODE

Appellant by: Shri Paven Ved, Advocate Respondent by: Smt. J.M. Jamuna Devi, Sr. D.R. Date of Hearing: 25.01.2024 Date of Pronouncement: 13.02.2024 O R D E R Per Bench This is a set of three Appeals by the Assessee agitating the dismissal of it’s appeals contesting it’s assessments under section 153A read with section 153C of the Income Tax Act, 1961 (the Act) dated 31.03.2015 for three consecutive years, being Assessment Years (AYs.) 2008-09 to 2010-11, by the Commissioner of Income Tax (Appeals)-3, Kochi [(CITA] vide his separate orders of even date, i.e., 16.06.2023. The assessee has also filed stay applications qua it’s captioned appeals.

3.1 Before us, Shri Ved, the learned counsel for the assessee, would assail the assessments, each of which stands completed by making an addition for unexplained expenditure on construction of the assessee’s two hotel buildings, i.e., at Chakkarackal and Kakkayangad, u/s. 69C of the Act, to it’s returned income at nil, on the basis of the validity of the satisfaction note prepared u/s. 153C of the Act. Towards this, he would take us through the satisfaction notes (PB pgs. 167-169), which, again, identically worded, read as under, each bearing reference to the relevant year: ‘ORDER SHEET PAN: AADCK3339E A.Y. 2008-09/2009-10/2010-11 (*) M/s. K.K. Leisures and Tourism International Pvt. Ltd. Room No. PP-V528 C K.K. Plaza, Peravoor, Kannur A search u/s.132 of the I.T. Act 1961 was conducted at the business premises of M/s. K.K. Builders on 26-09-2012 on the strength of warrant of authorization issued by the Director of Income Tax(Inv.), Cochin on 19-09-2012. M/s. K.K. Leisures and Tourism International Pvt. Ltd., is a Company engaged in the business of Bar Hotel. Shri K.K. Mohandas is the Managing Director of the Company. The incriminating documents seized from the business premises of the assessee reveal that they have suppressed the sales turnover. Therefore the income of the assessee is to be assessed u/s.153A(a) r.w.s. 153C of the 1.T. Act for the A.Ys. 2007-08 to 2012-13, after obtaining the approval from the JCIT, Central Range, Ernakulam. Approval received for the issue of Notice u/s.153A r.w.s.153C vide F.No.JCIT/CR- EKM/Exam Note/CIT(A)/2013-14 dated 21-05-2013. Notice u/s.153A r/w s. 153C of the I.T. Act, 1961 for the A.Y.2008-09/2009-10/2010-11’ (*)put up.’ [(*) separately] (emphasis, ours) There is no reference therein, he would continue, to the document/s seized. There is further no reference to the ‘suppressed turnover’, as referred to in the 2 to 510/Coch/2023 & SA Nos. 138 to 140/Coch/2023 (AYs: 2008-09 to 2010-11) K.K. Leisure Tourism International (P.) Ltd. v. Dy. CIT satisfaction note, in the only document referred to in the assessment order/s (reproduced as under/marked as CHN-12-13/AJ/B-4(8) – refer para 9 of the impugned order), common for all the years under reference; the figures mentioned therein being clearly in respect of construction of the two hotel buildings, qua which accordingly addition u/s. 69C stands made in assessment/s: EXPENSES SHOWN FOR THE CONSTRUCTION OF BUILDINGS BROAD BEAN BROAD BEAN BROAD BEAN BROAD BEAN KAKAYANGAD KAKAYANGAD CHAKKARAKL CHAKKARAKL

2009-10 2010-11 2009-10 2010-11 PURCHASES 725044 4807898 1271069 634139 LABOUR 1534858 1896150 3338876 1263349 LOADING & UNLOADING 26940 15905 21298 15425 MAINTENANCE 2920 298790 84987 39020 MISCELLANEOUS 14128 6150 9172 596 TRANSPORTING 17250 15835 15190 3495 HIRE 19680 8630 TRAVELLING 20417 9649 BANK INTEREST 2341557 7060408 4795241 1964654 16161860 TOTAL TO BE BILLED IN K.K. BUILDERS 16161860 Expenditure shown in K.K. Leisures & Tourism International Pvt. Ltd. Upto 31.03.2011 Kakkayangad Chakkarakkal Interest Share 9942220 13690485 1764480 2417311 TOTAL 11706680 16107796 27814476 TOTAL BUILDING COST 43976336 Broad Bean, Kakayangad - 101,50,000/- (written by hand) Broad Bean, Chakkarakl - 73,00,000/- (written by hand)

What, then, he would question, is the incriminating material on the basis of which the satisfaction note stands recorded, and jurisdiction for assessment/s u/s. 153A r/ws. 153C of the Act assumed? Upon being questioned in this respect, he would explain that the assessee, a part of the K.K. Builder’s group, had, for the purpose of it’s hotel 3 to 510/Coch/2023 & SA Nos. 138 to 140/Coch/2023 (AYs: 2008-09 to 2010-11) K.K. Leisure Tourism International (P.) Ltd. v. Dy. CIT business, given the contract for construction of it’s two hotel buildings to M/s. K.K. Builders, in civil construction business, and which were under construction during the relevant years. The document found, admittedly in its respect, represents though a loose working. The construction, even as per the Revenue, he would continue, adverting to Tables 1 &2 (in the assessment order) indicating expenditure thereon as per the valuation report and as recorded in the books of K.K. Builders, continued up to f.y. 2012-13 (i.e., AY 2013-14), with the business commencing only thereafter. There was accordingly no question of any turnover, much less suppressed, for the relevant years. The same also explains the assessee returning nil income for the said years in response to notices u/s. 153A(a). There is thus a complete mismatch between the document found in search, being admittedly the only document found in search for the relevant years, and the satisfaction note/s, i.e., assuming it as based thereon.

3.2 Smt. Devi, the ld. Sr. D.R., upon being questioned in this respect, could not tell us of any document seized in search for the relevant years, i.e., other than that referred to in the assessment order, or even of any reference to suppressed turnover therein, i.e., as stated in the satisfaction note/s.

4.4 Coming to the facts of the instant case, the satisfaction note/s, to begin with, even as pointed out by Shri Ved, does not specify the seized material leading to, and on the basis of which the satisfaction stands drawn by the AO. This specification eliminates any ambiguity in the matter, even as, without doubt, the satisfaction is to be preliminary, which may, upon subsequent enquiry, stand either fortified and clarified further, leading to the assessment of the hitherto undisclosed income, or neutralized on being satisfactorily explained, so as to cause no adjustment to the returned income in its respect in assessment, or partly one and partly another. Further, a look at the document/s seized noted in the assessment order/s (see para 3.1 above), which we were given to understand as being the only material pertaining to the assessee for the relevant years, and which is also the understanding one gets on reading the assessment orders inasmuch as there is no reference to any other material therein, it discloses no turnover, raising a serious doubt as to if the satisfaction is drawn on the basis thereof, emphasizing once again the need to specify it in the SN. That is, being the only seized material in relation to the relevant years, on the basis of which therefore the satisfaction is drawn, it bears no reference to turnover, much less suppressed, for it to lead to any satisfaction in its respect, validating it. No wonder there is no discussion thereon nor any explanation by the assessee in its respect, much less any adjustment to income with regard thereto, in the assessment order/s. to 510/Coch/2023 & SA Nos. 138 to 140/Coch/2023 (AYs: 2008-09 to 2010-11) K.K. Leisure Tourism International (P.) Ltd. v. Dy. CIT We are alive to the aspect that the ‘satisfaction note’ is not to be elevated to the status of a ‘reason recorded’ u/s. 148, and where the document/s seized reflects any information which has a bearing on the assessee’s total income, the requirement of law is satisfied, i.e., for the purpose of assumption of jurisdiction. But, then, this is precisely what the satisfaction note, a mandatory requirement of law, is to state, w.r.t. the material seized, exhibiting thus the nature of the document and the resultant satisfaction. Is it then, that the AO deliberately did not refer to the seized material in the SN? We may not go thus far, and suffice to state that the satisfaction/s under reference neither stands the test of scrutiny nor otherwise meets the requirement of law. When we speak of scrutiny, we may again clarify that we are not in any manner suggesting the satisfaction to be justiciable, which even the reason recorded u/s. 148(2) is not, but only that it must bear information signifying a relevance, with reference to the material on which it is based, on the determination of the total income for the relevant year/s. This is as otherwise the jurisdictional fact would not be established. In the instant case, for example, it would be a different matter, even as observed by the Bench during hearing, where the satisfaction note/s stated, instead, of (unaccounted) investment/expenditure on the construction of a hotel building/s. True, the seized material reflecting expenditure at variance with that accounted for, demonstrates this fact. So, however, we cannot read the words ‘(undisclosed) investment/expenditure’, instead of the words ‘suppressed turnover’, in the satisfaction note, ascribing it to a ‘mistake’, as that would change the very nature of the satisfaction recorded, clearly impermissible. That is, to read either the satisfaction note or the material on which it is stated as based any differently than what it actually states where it has the effect of changing it’s character. An appellate court sitting in review cannot read a document establishing jurisdiction other than as by what it expressly states or by necessary implication, retaining its essential character. It would again be a different matter if the said satisfaction, which is the basis of the to 510/Coch/2023 & SA Nos. 138 to 140/Coch/2023 (AYs: 2008-09 to 2010-11) K.K. Leisure Tourism International (P.) Ltd. v. Dy. CIT jurisdiction, is not required to be in writing; the sole purpose of which is to transfer the relevant material, but inferable/discernable there-from. This is as, without doubt, we clarify, the seized document by itself satisfies the mandate of law inasmuch as it reflects expenditure on construction, which is apparently not in agreement with the accounts. However, reducing it in writing is not merely preferable, but a mandatory requirement of law, in which case the reviewing authority has to necessarily confine itself thereto. If anything, the satisfaction note/s in the instant case reflects a complete non-application of mind, both by the AO recording it in the manner done, as well as by the competent authority approving it, as indeed the draft assessment order/s, u/s. 153D of the Act. How could there be suppressed turnover, when there is nothing to suggest commencement of business? The said approval, also challenged by the assessee per it’s Gd. 2 before us on non-application of mind, was not pressed. That, however, would not detain us inasmuch as our finding in its respect, i.e., non- satisfaction of the condition of s. 153D, also flows from the same set of arguments and facts. There is accordingly no deficiency in procedure. It is, after all, the correct legal position that is relevant, and not the view that the parties may take of their rights in the matter (CIT v. C. Parakh & Co. (India) Ltd. [1956] 29 ITR 661 (SC); Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC)). The Tribunal, as explained in CIT v. Walchand & Co. (P.) Ltd. [1967] 65 ITR 381 (SC), is to deal with and determine all questions which arise out of the subject-matter of an appeal in the light of evidence, and consistently with the justice of the case. We are, in this context, conscious that it could be argued that an invalid approval may not fail an assessment per se, but render it liable to be set aside for curing the defect; the satisfaction being, as afore-noted, immanent from the material seized. Whatever be the merits of the argument, the same shall not apply in the instant case inasmuch as our finding qua non-application of mind only endorses our finding of want of jurisdiction in the absence of a valid SN/s. to 510/Coch/2023 & SA Nos. 138 to 140/Coch/2023 (AYs: 2008-09 to 2010-11) K.K. Leisure Tourism International (P.) Ltd. v. Dy. CIT 4.5 Coming to the impugned order, the first plea, i.e., on the basis of a clear dichotomy between the satisfaction recorded, and the seized material on which it is ostensibly based, was assumed before us for the first time and, being legal, on the basis of admitted facts, allowed to be raised. The same, thus, does not form part of the adjudication by the ld. CIT(A). As regards the approval u/s. 153D, the same, though raised and argued before him, was on non-application of mind qua a different basis (refer para 10/pgs. 6-7 of his order), with which we are therefore not concerned. As afore-noted, our finding/s in its respect flow from the same set of pleadings and admitted facts. This explains our non-reference to the impugned order.