ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, RAJAHMUNDRY vs. L V BEACH CITY PROPERTY PROMOTERS, VIJAYAWADA
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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
PER SHRI S BALAKRISHNAN, ACCOUNTANT MEMBER: This appeal and cross objection are filed by revenue and assessee 1. respectively, against order of Learned Commissioner of Income Tax (Appeals)-3, Visakhapatnam [hereinafter in short “Ld.CIT(A)”] in appeal No. No.CIT(A), Visakhapatnam-3/10385/2017-18 dated 19.04.2024 arising out of the order passed under section 153A of Income Tax Act, 1961 (in short ‘Act’) dated 25.03.2022.
Brief facts of the case are that the assessee is a partnership firm deriving income from real estate business. Assessee firm filed its original return of income for A.Y. 2018-19 on 30.09.2018 admitting total income of Rs. 8,33,91,550/-. Subsequently, a search and seizure operation under section 132 of the Act was conducted in the group case of M/s. Usha Bala Group on 28.01.2021 and simultaneously a survey operation under section 133A was conducted at the business premises of the assessee firm in Chennai. After centralizing the cases under section 127 of the Act by the order passed by the Principal Commissioner of Income Tax, Vijayawada vide order in F.No. 127/Pr.CIT/VJA/2021-22 dated 20.10.2021, a notice under section 153A of the Act dated 15.11.2021 was issued and served electronically to the assessee. In response, assessee filed the return of income on 01.12.2021 admitting same income of Rs. 8,33,91,550/-. Thereafter notice under section 143(2) dated 10.12.2021 and detailed questionnaire under section 142(1) dated 14.02.2022 was issued and served. In response to the notices
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I.T.A. No. 254/VIZ/2024 & 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
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I.T.A. No. 254/VIZ/2024 & C.O. No. 3/VIZ/2024 L.V. Beach City Property Promoters Rs.9,00,90,090/- should not be added to the total income of the assessee for the A.Y. 2018-19.
In response, assessee submitted a reply while forming the sworn statement of Sri V.V. Balakrishan Rao recorded on 29.07.2021 and submitted that the seized material found are rough cash books / diaries and are not authentic and also not dependable and cannot be taken up as basis for arriving at the amount of undisclosed income. The Assessing Officer rejected the objection raised by the assessee and proceeded to make an addition of Rs.9,00,90,090/- on the basis of incriminating material seized towards undisclosed income for the A.Y. 2018-19.
On being aggrieved by the order of the Assessing Officer, assessee filed an appeal before Ld. CIT(A). Before Ld. CIT(A) assessee contested the additions made by the Assessing Officer on the legal issue stating that alleged seized material found in the premise of other persons cannot be a reason for making additions under section 153A of the Act. Ld.AR while making submissions before Ld. CIT(A) stated that Assessing Officer basing on the incriminating material that was found and seized vide Annexure UPF/RP/EX/41, 74, 81, 82, 90 to 155 pertaining to entities of M/s. Usha Bala Group, therefore Ld.AR contended that the Assessing Officer did not make additions based on the material found and seized during the search operations conducted in the premises of the assessee firm. In the Case of the assessee, as per the Mahazarnama only certain books were impounded at the assessee business premises located at Chennai and
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I.T.A. No. 254/VIZ/2024 & C.O. No. 3/VIZ/2024 L.V. Beach City Property Promoters however the Assessing Officer has not made any addition basing on such material found and impounded during the survey operations. Ld.AR relied on various judicial pronouncement wherein it has been held that the incriminating material, if any, found during the course of the search of the assessee can only be utilized and not the material found in the search of any other person for the purpose of framing the assessment under section 153A of the Act. The Ld. CIT(A) relying on various judicial pronouncements relied on by the Ld.AR allowed the appeal of the assessee.
On being aggrieved by the order of the Ld. CIT(A), revenue is in appeal before us by raising the following grounds of appeal: -
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.
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I.T.A. No. 254/VIZ/2024 & 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.”
Ground Nos. 1 and 6 are general in nature and needs no adjudication.
Ground Nos. 2, 3, 4 & 5 relates to sustainability of the assessment order passed under section 153A of the Act, whereas the Ld. CIT(A) held assessment order to be completed under section 153C of the Act.
Ld. Departmental Representative [hereinafter in short “Ld. DR”] heavily relied on the orders of the Ld. Assessing Officer and stated that the partners of the assessee firm have the same address as that of the searched premises of M/s.Usha Bala Group. Ld. DR also submitted that Hon’ble Supreme Court of India admitted the SLP filed by the revenue in the case of Pr. CIT v. Anand Kumar Jain [(2021) 133 taxmann.com 288 (Delhi)] relied on by the Ld. CIT(A) while granting the relief to the assessee. He therefore pleaded that the order of the Assessing Officer be upheld.
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I.T.A. No. 254/VIZ/2024 & 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.
Subsequently another separate panchanama was issued available in page no. 13 of the paper book wherein the M/s. Usha Bala Group was subjected to search which was the basis for the Assessing Officer to make the addition of Rs.9,00,90,090/-. The Ld.AR therefore vehemently argued that since the incriminating material which is forming the basis for the addition made by the Assessing Officer are based on the seized material from a third party premises i.e., warrant issued in the name of M/s. Usha Pictures and Financiers, M/s. Usha Bala Chits Pvt Ltd., M/s. Usha Bala Agro Farms Pvt Ltd and M/s. Usha Bala Real Estate and hence could not be basis for framing the assessment under section 153A of the Act, whereas the Assessing Officer ought to have made assessment under section 153C of the Act by following the procedure as prescribed. Ld.AR relied on the following judgments:
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I.T.A. No. 254/VIZ/2024 & 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, ITA No.978, 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
We have heard rival contentions, and gone through the decisions of the cases relied upon by the Ld.AR and Ld. DR. The main contention of the assessee is with regard to utilisation of the material seized during the search of a party other than the assessee in a different premises which is used for the purpose of making addition in the case of assessee. The Search and seizure operation in the case of assessee was conducted on 28.01.2021 at the premises of L.V Beach City Property Promoters, Vijayawada. Separate, search and seizure operations were also carried in the case of M/s. Usha Bala Group for the entities a) M/s.Usha Pictures and Financiers, b) M/s. Usha Bala Chits Pvt Ltd., c) M/s. Usha Bala Agro Farms Pvt Ltd; and d) M/s. Usha Bala Real Estate; whereas all situated at Raja Rammohan Rai Street, Powerpet Eluru. Various documents were found to be
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I.T.A. No. 254/VIZ/2024 & C.O. No. 3/VIZ/2024 L.V. Beach City Property Promoters seized during the search. The Assessing Officer by relying on the seized materials from other premises at Eluru vide Annexure UPF/RP/EX/41, 74, 81, 82, 90 to 155 made the addition under section 153A of the Act, whereas it is an undisputed fact that those materials were found and seized from third party premises, pursuant to separate warrant of search. There is no dispute that the Ld. Assessing Officer in the instant case has not initiated proceedings under section 153C of the Act. The proceedings u/s 153C of the Ld. Assessing Officer ought to have been initiated in the case of the assessee when satisfaction was arrived at in the assessment proceedings of the M/s. Usha Bala group.
It is now pertinent to refer to section 153C of the Act which is reproduced below:
“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
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I.T.A. No. 254/VIZ/2024 & 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.]”
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I.T.A. No. 254/VIZ/2024 & 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.
This Bench of the Tribunal in the case of Navya Hasini and Harshitha Constructions and Developers v. ACIT in ITA Nos. 12, 13 & 14/Viz/2023 dated 04.05.2023 held as under: -
"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
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I.T.A. No. 254/VIZ/2024 & 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 ITA No. 140/ 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 ITA No.139/Viz/2022 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
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I.T.A. No. 254/VIZ/2024 & 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.
The Ld. Assessing Officer has also not brought on record to prove the nexus between the assessee and the incriminating documents seized to invoke section 153A of the Act. Consistently following the decision of the bench, in the case of Navya Hasini and Harshitha Constructions and Developers v. ACIT (supra) and Goluguri Nagi Reddy v. ACIT (supra), we are of the considered view that the Assessing Officer has erred in framing the assessment based on seized material from third party premises under section 153A of the Act without following the procedure prescribed under section 153C of the Act. Further the admission of SLP as pointed by the Ld. DR is of no help to the revenue as Hon’ble Supreme Court of India has not stayed the decision of the Hon’ble High Court. We are therefore of the considered view that the assessment order framed under section 153A of the Act based on the material seized from the search operation from third party premises is not valid in law and therefore we find that the Ld.CIT(A) has rightly adjudicated the issue while setting aside the assessment under section 153A of the Act, and hence we find no infirmity in the order of the Ld. CIT(A).
In the result, appeal of the revenue is dismissed.
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I.T.A. No. 254/VIZ/2024 & C.O. No. 3/VIZ/2024 L.V. Beach City Property Promoters C.O. No. 03/VIZ/2024
Since the grounds raised in the cross objection are supportive to the order of the Ld. CIT(A) and since the order of the Ld.CIT(A) is confirmed by quashing the assessment, Grounds raised by the assessee in the cross objection becomes infructuous and disposed off accordingly.
In the result, both the appeals filed by the Revenue and the cross objections filed by the assessee is dismissed. Order pronounced in the open court on 25th September, 2024.
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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