DCIT, BANGALORE vs. M/S. BHEEMANENI BUILDERS (I) PVT. LTD.,, BANGALORE

Facts apropos are that there was a search and seizure operation in the premises of a group called Divyashree Group, on 01.03.2007. During the course of search proceedings certain documents were found and seized which as per the AO belonged to the assessee. Said documents as per the assessment order were as under :

CIT (A) was appreciative of these contentions. According to him, pages 124 to 130 of seized record A/D/SCPL/1 was an agreement entered by Shyamaraju & Co with the assessee. As per the CIT (A), page 124 and 125 of this seized document, gave details of projectwise revenue and cost for the year 2004-05 in respect of Divyashree Holdings P. Ltd and in respect of Shyamaraju & Co.P. Ltd. CIT (A) noted that nothing what so ever regarding assessee was mentioned in these pages. CIT (A) noted that pages 126 to 130 of the very same seized material was the work contract agreement between Shyamaraju & Co.P. Ltd, and the assessee. As per the CIT (A) terms of the said agreement gave powers to Shyamaraju & Co., to enforce the conditions mentioned there in. Said agreement, as per the CIT ITA.1362 &1363/Bang/2010 Page - 5 CO.5 &6/Bang/2011 (A) did not belong to the assessee. Further as per the CIT (A), pages 92 & 93 of seized material B/ SCPL/2 was a work order given by M/s. Chathur Realtors (P) Ltd, a company in the group of Divyashree concerns which was searched. As per the CIT (A), work order belonged to M/s. Chathur Realtors P. Ltd and they had kept such work order with them for enforcing the agreement terms. CIT (A) further noted that pages 120 to 128 and 201 to 203 of seized material No.B/SCPL/10, belonged to Rewa Institute for Engineering & Technology Studies for civil work and the said institution was also a part of Divyashree group. Pages 204 to 209 of seized material of B/SCPL/10, as per the CIT (A) was print out of accounts of assessee in the books of Rewa Institute for Engineering & Technology Studies, Bangalore and Bheemaneni’s Educational System Trust. None of these documents, which were relied on by the AO for initiating proceedings u/s.153C of the Act, belonged to the assessee, as per the CIT (A). Ld. CIT (A) also noted that Section 132(4A) r.w.s.292C of the Act, gave rise to an automatic presumption that the seized documents belonged to various companies of Divyashree group. Further as per the CIT (A), Hon’ble Apex Court in the case of CWT v. Biswanath Chatterjee [103 ITR 536] had held that the expression ‘belonged’ meant property of a person which is in his possession as of right. Relying on the judgment of Hon’ble Gujarat High ITA.1362 &1363/Bang/2010 Page - 6 CO.5 &6/Bang/2011 Court in the case of Vijayabai N. Chandrani (supra), coordinate bench in the case of Srinivas Naik (supra) and that of Ahmadabad bench of this Tribunal in the case of Meghmani Organics Ltd v. DCIT [(2010) 36 DTR 0187], he held that none of the documents belonged to the assessees. Thus according to him, the primary condition for issue of notice u/s.153C of the Act was not satisfied. He quashed the assessments. Since he held that jurisdiction of the AO was outsted at threshold, other issues were not considered.

Now before us Ld. DR strongly assailing the order of CIT (A), submitted that the seized records were agreements entered by the assessee with various concerns of Divyashree group. Agreements all related to civil works that were to be done by the assessee for such concerns. Not only the concerns of Divyashree group, but also assessee had certain rights arising out of such agreement. As per the Ld. DR, therefore, agreements also related and belonged to the assessee. Assessee could enforce the conditions mentioned in the agreement just like other party. Hence according to him, CIT (A) erred in holding that the documents belonged to Divyashree group of concerns and not the assessee. Ld. DR submitted that belongingness did not mean physical possession alone. According to him it ITA.1362 &1363/Bang/2010 Page - 7 CO.5 &6/Bang/2011 included a legal right to enforce a condition in a contract. As for the reliance placed by the CIT (A) on the judgment of Hon’ble Gujarat High Court in the case of Vijabhai N. Chandrani (supra), Ld. DR submitted that what was found at the time of search in the said case was only a list containing names which inter alia included the name of the assessee therein. As for the decision of Ahmedabad bench in the case of Meghmani Organics Ltd (supra), Ld. DR submitted that what was seized there was only an estimate for the proposed work and not an agreement. As for the case of coordinate bench in the case of Srinivas Naik (supra), Ld. DR submitted that the decision actually went in favour of the Revenue. According to him the Bench had taken a view that notion of continuity if available in the seized record would establish an intimate connection with the person concerned over a period of time.

Per contra, Ld. AR strongly supporting the order of CIT (A), placed specific reliance on a judgment of Hon’ble Delhi High Court in the case of Pepsico India Holdings P. Ltd v. ACIT [(2015) 370 ITR 295]. According to him, a document which belonged to one person cannot simultaneously belong to another person also. As per the Ld. AR, unless and until it was established that the seized documents did not belong to the searched ITA.1362 &1363/Bang/2010 Page - 8 CO.5 &6/Bang/2011 person, provision of Section 153C of the Act would not get attracted. Ld. AR also pointed out that Section 153C of the Act was substituted through Finance Act, 2015, with effect from 01.04.2015. According to him, the provision as it stood prior to its substitution did not take within its ambit books or documents which pertained to a person other than the searched person for initiating proceedings u/s.153C of the Act. Therefore according to him, prior to 01.04.2015, it was imperative for the Revenue to establish that the seized documents did not belong to the searched person, before proceeding against a party other than the one who was searched.

Ad libitum reply of the DR was that the substitution of Section 153C of Finance Act, 2015 relied on by the Ld. AR was explanatory and clarificatory in nature and therefore applied retrospectively.

We have perused the orders and heard the rival contentions. Description of various documents which were seized as it appear in the assessment order and as it appear in CIT (A)’s order, has been described by us at para five above. What we find is that these documents were either contracts or agreements entered by the assessee with various concerns, which were part of Divyashree Group who were subjected to the search. CIT (A) held that such documents gave rights to the concerns of ITA.1362 &1363/Bang/2010 Page - 9 CO.5 &6/Bang/2011 Divyashree Group for getting the work done by the assessee and hence belonged to such concerns and not to the assessee. As against this, argument taken by the Ld. DR before us is that these documents gave certain rights to the assessee also whereby it could legally enforce the obligations of the other party viz., concerns belonging to Divyashree Group. Therefore according to the Ld. DR the documents belonged to the assessee as well. In our opinion Ld. DR is right in his argument that the agreements and work orders would have given certain legally enforceable rights to the assessee also. However the question is whether by virtue of such right ensuing to the assessee, these agreements, which were found and seized during the course of search of Divyashree Group, could be considered as belonging to the assessee. Meaning of the term ‘belong’ as it appears in Section 153C of the Act, was the subject matter before the Hon’ble Delhi High Court in the case of Pepsico India Holdings P. Ltd (supra). In the said case there was a search and seizure operation in Jaipuria group. Seized material which was considered as belonging to the assessee therein, namely, Pepsico India Holdings P. Ltd (supra) were as under :

Their Lordship held that none of these documents were disclaimed by Jaipuria group. It was held that unless and until the documents were established as not belonging to the searched person, Section 153C of the Act did not get attracted. Relevant paras 14 & 15 of the judgment is reproduced hereunder :

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.”

In the case before us it is an admitted position that the documents which were seized atleast partly belonged to various concerns of ITA.1362 &1363/Bang/2010 Page - 13 CO.5 &6/Bang/2011 Divyashree Group. Section 153C of the Act as it stood prior to the substitution of Finance Act, 2015, w.e.f.01.04.2015, read as under :

The section would clearly require the satisfaction of the AO that the seized or requisitioned documents belonged to a person other than the person referred in Section 153A of the Act. Thus a situation where a particular document could belong to two persons of which one alone is the searched person was not clearly addressed. The legislature had indeed considered this aspect and in order to address this difficulty substituted the section w.e.f.01.04.2015. Substituted section 153C(1) is reproduced here under :

Whether the above substituted section was only to give clarity to the section or to address a situation where a document which gives certain rights to a party apart from the searched party is not our concern right now, since the substituted provision came into effect only from 01.04.2015. However crux of the judgment of Hon’ble Delhi High Court in Pepsico India Holdings P. Ltd (supra) is that unless the searched party disowns the ITA.1362 &1363/Bang/2010 Page - 15 CO.5 &6/Bang/2011 seized record, it cannot belong to another. It does not mean that rights and obligations arising to all parties of a contract and where parties can seek enforcement of their respective rights through a competent legal proceedings, has to be ignored and considered as belonging exclusively to the searched person from whose premises it was found. The question whether the searched party had owned up a document is a pure question of fact. No doubt by virtue of section 132(4A) and 292C of the Act, a presumption has to be taken that documents seized are that of the searched party. However this is a rebuttable one. There is nothing on record to show whether the Divyashree group had disowned the documents mentioned at para three and how Revenue had dealt with these documents in their hand. Ld. CIT (A) had gone by the judgment of Hon’ble Gujarat High Court in the case of Vijaybhai N. Chandrani (supra) and that of coordinate bench in the case of P. Srinivasa Naik (supra) and that of Ahmedabad Bench in the case of Meghmani Organics Ltd (supra). However as pointed out by Ld. DR, the documents seized in all these cases were not of a type which gave rise to rights and obligations to the searched party as well as the party against whom proceedings u/s.153C of the Act were initiated. We are of the opinion that this particular aspect which can have a strong bearing on the issue requires a fresh look by the CIT (A), for ITA.1362 &1363/Bang/2010 Page - 16 CO.5 &6/Bang/2011 which he might require inputs from the AO and verification of assessment and appeal records relating to Divyashree group. We therefore set aside the order of the CIT (A) and remit the issue of validity of proceedings u/s.153C of the Act, back to his file for consideration afresh in accordance with law.

Assessee in its cross objections is aggrieved that grounds apart from those assailing the jurisdictional issue was not adjudicated by the CIT (A).

In the result, both appeals of the Revenue as well as cross objections of the assessee are allowed, for statistical purpose.