ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, RAJAHMUNDRY vs. L V BEACH CITY PROPERTY PROMOTERS, VIJAYAWADA

PER SHRI S BALAKRISHNAN, ACCOUNTANT MEMBER:

Page No. 2 C.O. No. 3/VIZ/2024 L.V. Beach City Property Promoters under section 143(2) and 142(1) of the Act, assessee furnished the information as called for. After considering and examining the various information furnished by the assessee, the Assessing Officer completed the assessment by making an addition of Rs.9,00,90,090/-. The Assessing Officer relied on the search and survey operations in the case of M/s. Usha Bala Group while identifying a separate premises Raja Rammohanrai Street, Powerpet, Eluru, where books containing date wise receipts and payments, locker keys, blank signed cheques, blank signed promissory notes, blank signed stamp papers, original sale deeds and other documents were found and seized vide annexures UPF/RP/EL/1 to 155. Assessing Officer observed that during the course of post search proceedings, on the basis of incriminating material evidencing unaccounted transactions of the firm found and seized, Sri VV Balakrishna Rao, partner of the firm, has voluntarily admitted additional income of Rs.2,48,55,834/- towards unaccounted income for the A.Y. 2018-19 in the case of the assessee. However, Assessing Officer noticed that while filing the return of income under section 153A of the Act the assessee firm has not disclosed the additional income consequent to search. Assessing Officer on verification of incriminating material seized, worked out the unaccounted income of Rs. Rs.9,00,90,090/- and issued a show cause notice dated 11.03.2022 requesting the assessee to show cause why the unaccounted income worked out on the basis of incriminating material seized vide Annexure UPF/RP/EX/ 41, 74, 81, 82, 90 to 155 amounting to Page No. 3

1. The order of the Ld. CIT(A) Is erroneous on grounds of the facts and law.

2. The Ld. CIT(A) ought to have appreciated the fact that, the premises covered u/s. 132 of the Act as belonging to M/s. Usha Pictures & Financiers, Prop. Shri V.V. Balakrishna Rao (HUF) and situated at D.No. 228-14/11, Sonanchivari Street, Powerpet, Eluru, is also the address of two of the partners of the assessee - firm viz. Shri V.V.Balakrishna Rao and Sat. V. Usha Rani, and this is evident from the income-tax returns filed by them. The Ld. CIT(A), therefore ought to have appreciated that the incriminating material seized from the premises of the HUF can very well be taken for the assessment so made in the case of the assessee-firm because the technical existence of the partners of the assessee-firm within the premises of the searched HUF cannot be overlooked.

3. The Ld. CIT(A) ought to have appreciated that the provisions of sec. 153C of the Act operate upon drawing up of satisfaction by the Assessing Officer as enunciated u/s. 153C of the Act so as to proceed against "other person", who incidentally is a person not subjected to search u/s. 132 of the Act and consequently not a person who can be proceeded with sec. 153A of the Act. The Ld. CIT(A) has failed to appreciate the fact that, considering the overwhelming situation as stated in Ground No.2 above, the invocation of proceedings u/s. 153A of the Act was very much an order.

Page No. 5 C.O. No. 3/VIZ/2024 L.V. Beach City Property Promoters 4. The Ld. CIT(A) has nowhere held that the proceedings u/s.153A of the Act were not sustainable and also did not elaborate as to how the proceedings w/s. 1534 of the Act could have been invoked in the assessee's case. The CIT(A) has only deleted the addition made on the ground that the proceedings u/s. 153C of the Act were not invoked, however, he has not expounded on the legal issue as to how both sec. 153A as well as sec. 153C of the Act would operate against the assessee for the same assessment year.

5. The Ld. CIT(A) ought to have called for a remand report/comments of the AO in respect of the legal ground raised

by the assessee in the appeal.

6. In view of the above ground, the Ld. CIT(A) ought to have adjudicated the appeal on merits instead of allowing the legal ground raised by the assessee.

7. Any other ground that may be urged at the time of hearing.”

Page No. 6 C.O. No. 3/VIZ/2024 L.V. Beach City Property Promoters 9. Per contra, Ld. Authorised Representative [hereinafter “Ld.AR”] countering the arguments of the Ld. DR, Ld.AR submitted that the Hon’ble Supreme Court of India has only admitted the SLP and has not stayed the proceedings. Further, Ld.AR referred to page no. 2 of the paper book wherein the Panchanama dated.29.01.2021 was issued to search the following assessee’s:- a. M/s. UBK Chits Private Limited b. M/s. LV Beach City Properties promoters c. M/s. LS Property Promoters.

Page No. 7 C.O. No. 3/VIZ/2024 L.V. Beach City Property Promoters i. Case of Hon'ble Delhi High Court, PCIT VS Anand Kumar Jain (HUF), Anand Kumar Jain, Satish Dev Jain And Sajan Kumar Jain [2021] 432 ITR 384 (Del). ii. Case of Hon'ble Delhi High Court, PCIT Vs Subhash Khattar ITA 60/2017. iii. Case of Hon'ble ITAT Kolkata, Krishna Kumar Singhania Vs DCIT, [2018] 168 ITD 271 [Kolk]. iv. Case of Hon'ble ITAT Bangalore, P.Shyamaraju & Co. India Private Limited Vs DCIT, 979, 980, 982 & 984/Bang/2014. v. Case of Hon'ble ITAT Visakhapatnam, Navya Hasini and Harshitha Constructions and Developers Vs ACIT, ITA No: 12, 13 & 14/VIZ//2023. vi. Case of Hon'ble ITAT Visakhapatnam, Goluguri Nagireddy Vs ACIT, ITA No. 139/VIZ/2022. vii. Case of Hon'ble ITAT Chennai, M/s BSR Builders Engineers Vs DCIT, ITA 34, 35 & 36/CHNY/2023

“153C. Assessment of income of any other person. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that,— (a)any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b)any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted

Page No. 9 C.O. No. 3/VIZ/2024 L.V. Beach City Property Promoters or requisition is made and for the relevant assessment year or years referred to in sub-section (1) of section 153A : Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to sub-section (1) of section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person Provided further that the Central Government may by rules30 made by it and published in the Official Gazette, specify the class or classes of cases in respect of such other person, in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years as referred to in sub-section (1) of section 153A except in cases where any assessment or reassessment has abated. (2) Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other person after the due date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year— (a)no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or (b)a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub-section (2) of section 143 has expired, or (c)assessment or reassessment, if any, has been made, before the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person, such Assessing Officer shall issue the notice and assess or reassess total income of such other person of such assessment year in the manner provided in section 153A. [(3) Nothing contained in this section shall apply in relation to a search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A on or after the 1st day of April, 2021.]”

Page No. 10 C.O. No. 3/VIZ/2024 L.V. Beach City Property Promoters 13. From the plain reading of section 153C of the Act, detailed procedure has been laid down which has to be followed in the case of material found and seized belonging to another person other than the person being searched. In the instant case, it is an undisputed fact that incriminating material have been seized from the premises at Eluru marked as Annexure UPF/RP/EL/1 to 155. The Assessing Officer solely relying the on the seized material from the third-party premises made the addition under section 153A of the Act without following the procedure stipulated under section 153C of the Act.

"We have heard both the sides and perused the material available on record and the orders of the Ld. Revenue Authorities. Admittedly, the Ld.AO has invoked section 153A of the Act instead of invoking section 153C in the instant case. Section 153C of the Act is reproduced herein below for ready reference: "153C.[(1)] [Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that,— any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, sewed or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person] [and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned

Page No. 11 C.O. No. 3/VIZ/2024 L.V. Beach City Property Promoters have a bearing on the determination of the total income of such other person [for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and] for the relevant assessment year or years referred to in subsection (1) of section 153A] 8. From plain reading of the above section it is intended by the Legislature that section 153C can be invoked by the Revenue and can utilize incriminating material found in the search of any other person different to the assessee. In the instant case, such incriminating material was found in the premises of the Managing Partner of the assessee firm Mr. Ch. Muralidhar which was used against the assessee while framing the assessment. Various judicial pronouncements have held that during the course of the assessment U/ s. 153A of the Act, the incriminating material, if any, found during the course of the search of the assessee can only be utilized and not material found in the search of any other person. We found from the order of the Ld. AO that in the instant case the Ld. AO has used the loose sheet in page No. 41 of the Annexure A/ CM/RES/ 04 to arrive at the consideration for the sale of flats. A similar corroborating evidence was not found in the premises of the assessee during the search operations in the assessee's premises. In the absence of any evidence either incriminating or any corroborative evidence found in the premises of the assessee, the issuance of notice U/ s. 153A could not be made and the assessment could not be framed U/ s. 153A of the Act. In the case relied on by the assessee in Viz/ 2022 (supra) this Bench has held that the assessment made by the Ld. Revenue Authorities U/ s. 153A of the Act is not valid in law and therefore considered as void ab initio. Respectfully following the above decision, we are of the considered view that in the instant case, the assessment made U/ s. 153A is not valid in law and void ab initio and thereby allow the legal ground raised by the assessee.”

15. Further this Bench of the Tribunal in the case of Goluguri Nagi Reddy v. ACIT in dated 28.02.2023 held as under:

"We have heard both the parties and perused the material available on record and the orders of the Ld. Revenue Authorities. Admittedly the affidavit was found in the premises of Nexus Group when it was subjected to search during January, 2017. No such corroborative evidence was found during the search operations carried out in the assessee's premises. The LdAO has also not discussed about any corroborative/ incriminating evidence and its seizure in the premises of the assessee. We find merit in the argument of the Ld. AR that in the absence of any incriminating material found in the premises of the assessee, notice U/ s. 153A of the Act cannot be issued. In the instant case, the affidavit was found in the premises of Nexus Group vide Annexure-A/NFL/SN/ 77, page 151 to 153, but any corresponding corroborative evidence was not found in the premises of the assessee. In the absence of any evidence or incriminating material found in Page No. 12 C.O. No. 3/VIZ/2024 L.V. Beach City Property Promoters the premises of the assessee, issuance of notice U/ s. 153A could not be made and the assessment could not be framed U/ s. 153A of the Act. The case law relied on by the Ld. AR in Mr. THIok Chand Chaudhary vs. ACTT (supra) by the Coordinate Bench of the Delhi, wherein it was held that separate search warrant has been issued in the case of the assessee as well as in the case of other party and where the Assessing Officer has used the material found in the case of the other party in the assessment made U/ s. 153A of the Act is not permitted in view of the express provision of the law.

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Sd/- Sd/- (दुव्वूरु आरएल रेड्डी) (एस बालाकृष्णन) (DUVVURU RL REDDY) (S. BALAKRISHNAN) न्याधयक सदस्य/JUDICIAL MEMBER लेखा सदस्य /ACCOUNTANT MEMBER Dated : 25.09.2024 Giridhar, Sr.PS आदेशकीप्रनतनलनपअग्रेनर्त/ Copy of the order forwarded to:- 1. निर्धाररती/ The Assessee : Asst. CIT – Central Circle – 2 5th Floor, Shiva Towers Danavaipeta, Rajahmundry-533103 Andhra Pradesh 2. रधजस्व / The Revenue : L.V. Beach City Property Promoters 40-25-19/A, Balaji Towers Kogantivari Street, Patamatalanka Vijayawada – 520010 Andhra Pradesh 3. The Principal Commissioner of Income Tax 4. नवभधगीय प्रनतनिनर्, आयकर अपीलीय अनर्करण, नवशधखधपटणम /DR,ITAT, Visakhapatnam 5. The Commissioner of Income Tax 6. गधर्ा फ़धईल / Guard file //True Copy// आदेशधिुसधर / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam

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