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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAMIT KOCHAR
Date of Hearing – 18.04.2016 Date of Order – 29.06.2016
O R D E R PER SAKTIJIT DEY, J.M.
Instant appeal of the assessee is directed against the order dated 26th March 2012, passed by the learned Commissioner (Appeals)-37, Mumbai, for the assessment year 2006–07.
Following grounds have been raised by the assessee:–
“1. On the facts & circumstances of the case the appellant prays that notice issued u/s 148 of Income Tax Act, 1961 is bad in law as the basic conditions of Section 147 of Income Tax Act, 1961 are not satisfied. The appellant prays that the notice issued u/s 148 may be treated as bad in law and may be cancelled.
2 Rehab Housing Pvt. Ltd.
2. On the facts & circumstances of the case the appellant prays that there is no direct evidence available with the Learned Commr. Of Income Tax (A) and the Learned Assessing Officer for establishing that there is escapement of income for A.Y. 2006-07. In the absence of any direct evidence the issue of notice u/s 148 may be treated as bad in law and may be cancelled.
3. On the facts & circumstances of the case the Learned Assessing Officer did not had with him and did not produce any papers & documents seized and statements recorded on which reliance is placed in the reasons recorded for issue of notice u/s 148. The appellant prays that in the absence of any paper document and statements recorded in the possession of Learned Assessing Officer, the issue of notice may be treated as bad in law and may be cancelled. 4. On the facts & circumstances of the case the Learned Assessing Officer had mechanically issued the notice u/s 148 only on the basis of direction of the Investigation Wing ADIT(lnv)Unit 11I-(2), Mumbai dated 13/7/2009. The Learned Assessing Officer has not independently applied his mind before issue of notice u/s 148 as the paper, documents and statements on the basis on which the notice u/s 148 was issued was not available with the Learned Assessing Officer. The Learned Commr. Of Income Tax (A) has erred in rejecting this claim of the appellant. The appellant prays that issue of notice may be treated as bad in law and may be cancelled. 5. On the facts & circumstances of the case the appellant prays that the issue of notice u/s 148 is bad in law as the original assessments were completed u/s 143(3) after survey u/s 131 on 1/2/2006 and subsequently the re-assessments were made by invoking the provision of Section 153A of Income Tax Act, 1961 after search and seizure action u/s 132 on 4-5/10/2006 where under nothing was found or assessed pertaining to any cash consideration on sale of TDR. The appellant prays the issue of notice may be treated as bad in law and may be cancelled. 6. On the facts & circumstances of the case the Learned Commr. Of Income Tax (A) has erred in confirming the addition made by the Learned Assessing Officer of Rs.31,58,826/- on the unilateral statement made for some self-serving purpose during the course of action u/s 132 on Hicons group that the appellant has received cash consideration for transfer of Transferrable Development Rights. The appellant denies having received any consideration in cash as alleged to the extent of Rs.31,58,826/-. The appellant prays that the addition made may be deleted.
3 Rehab Housing Pvt. Ltd. 7. On the facts & circumstances of the case the appellant prays that there is no iota of evidence in the possession of both the authorities to prove / establish that the appellant has received the cash consideration of Rs.31,58,826/-. In the absence of any direct or material proof or evidence the appellant prays that the addition made of Rs.31,58,826/- may be deleted.”
2. As could be seen in grounds no.1 to 5, the assessee has challenged the validity of proceeding under section 147 of the Income Tax Act, 1961 (for short "the Act") on various counts.
3. In grounds no.6 and 7, the assessee has challenged the merits of addition made of ` 31,58,826.
At the first instance, we propose to deal with the legal issue of validity of proceedings under section 147 as it affects the jurisdiction of the Assessing Officer, hence, goes to the root of the matter.
Brief facts are, the assessee a company is engaged in the business of development and construction of commercial and residential buildings. As noted by the Assessing Officer in the assessment order, the assessment in the case of assessee was originally completed under section 143(3) r/w 153A of the Act on 30th December 2008, against which an appeal was preferred before the learned Commissioner (Appeals) and after the order of the learned Commissioner (Appeals) the total income of the assessee was determined at ` 2,82,51,660. Subsequently, a search and seizure
4 Rehab Housing Pvt. Ltd. operation under section 132 of the Act was conducted in the case of M/s Hicons Constructions & Others on 24th February 2009. As alleged by the Department in course of said search and seizure operation incriminating documents seized revealed that a sum of ` 31,58,826 was paid in cash to the assessee towards purchase of TDR. On the basis of such information, the Assessing Officer re–opened the assessment for the impugned assessment year under section 147 by issuing a notice under section 148. The assessee after complying to the notice issued under section 148, requested the Assessing Officer to communicate the reasons for re–opening the assessment. After receiving the reasons recorded for re–opening the assessment, the assessee objected to the initiation of proceedings under section 147 on various issues. The Assessing Officer, however, did not find merit in the objection of the assessee and was of the view that re–opening of assessment under section 147 was valid. Having held so, the Assessing Officer proceeded to complete the assessment under section 143(3) r/w section 147 vide order dated 24th May 2010, adding back the amount of ` 31,58,826, alleged to have been received from Hicons Construction towards sale of TDR. Being aggrieved of the assessment order so passed, assessee preferred appeal before the learned Commissioner (Appeals), inter–alia, on the ground that proceedings initiated under section 147 is invalid. In this context, a specific
5 Rehab Housing Pvt. Ltd. contention was raised by the assessee that, though, the Assessing Officer in the reasons recorded has relied upon a specific seized material, copy of the same has not been provided to the assessee. Learned Commissioner (Appeals), however, did not find merit in the aforesaid contention of the assessee. He observed that as the seized material being Page–48 and 76 speaks of the same transaction, it hardly makes any difference if one of the document is not provided to the assessee. Other issues raised in connection with validity of proceedings under section 147 were also rejected by the learned Commissioner (Appeals).
Learned Authorised Representative drawing our attention to the reasons recorded as communicated to the assessee, a copy of which is at Page–106 of the paper book, submitted as per the reasons recorded on the basis of seized material being Page–48 of loose paper file Annexure–A/15 inventorised and seized from the residence of Nadeem Lakdawala, the assessee was paid an amount of ` 31,58,826 in cash during the financial year 2005–06 towards sale of TDRs. Learned Authorised Representative submitted, there is no such Page–48 existing either in the seized material file nor in the records of the Department. He, therefore, submitted that there is no live link / nexus between the material available on record and formation of belief.
6 Rehab Housing Pvt. Ltd. Therefore, the initiation of proceedings under section 147 is bad–in– law. He further submitted, earlier assessment of the assessee was completed under section 143(3) / 153A and no incriminating material was found, therefore, the first appellate authority deleted the additions made by the Assessing Officer. He submitted, therefore, in the absence of any tangible material re–opening of assessment under section 147, is bad–in–law.
Learned Departmental Representative on the other hand relying upon the observations of the learned Commissioner (Appeals), submitted, as the incriminating material found in the course of search operations in the case of Hicons Construction revealed payment of cash to the assessee which was not offered as income, the re–opening of assessment on the basis of such material is valid. Of=course, he admitted the fact that in the reasons recorded, the Assessing Officer relied upon Page–48 of the loose paper file in Annexure–A/15 which is not immediately available as the relevant records have been centralized to DCIT, Central Circle–36, Mumbai. In this context, he placed on record letter dated 13th April 2016, received from DCIT, Central Circle–2(3), Mumbai. He, therefore, submitted the re–opening of assessment being on the basis of tangible material, the validity of the same cannot be questioned.
7 Rehab Housing Pvt. Ltd.
We have considered the submissions of the parties and perused the material available on record. Reasons recorded for re–opening of assessment under section 147 of the Act by the Assessing Officer is as under:–
“It is noticed from the report of ADIT (Inv.) Unit-III(2), Mumbai dated 13/07/2009 that a search action was carried out on Hicons & Pranay group of companies on 24.02.2009 which are actively engaged in the realty market carrying on the business of development & construction of commercial & residential premises. As a result of the search action carried out in the above group, several incrimination documents revealing cash receipts & cash expenditure incurred by the entities of Hicons & Pranay group were recovered and seized under a panchnam.a duly drawn on the date of search. Among the seized documents, the documents seized from the residence of Shri Nadeem Lakdawala, a close confident of the Hicons group of companies, were found to contain overbearing information relating to the involvement of entities of the Hicons group in transaction of cash receipts on sale of flats and cash expenses incurred for the construction & development work of the projects. As far as the involvement of M/s. Rehab Housing Pvt. Ltd. is concerned, it so transpired upon the analysis of the documents in question that M/s. Rehab Housing Pvt. Ltd. Which mainly is in the business of selling TDRs to the interested parties in the market have sold certain constructible area by way of TDRs to Ms/ Hicons Constructions during the F.Yr.2005-06, for which it received Rs.31,58,826/- in cash apart from the amount of Rs.67,81,320/- received by way of cheuqe. The relevant document which reveals the cash expenditure incurred by MIs. Hicons Construction is Page No. 48 of loose paper file Annexure A-15 inventorised & seized from the residence of Shri Nadeem Lakdawala. The payments are in the order of Rs. 1,00,000/- as on 01.07.2005 per voucher no. 27, Rs.13,08,826/- on 11.08.2005 as per voucher no. 14 & 15 Rsi. 17,50,000/- on 25.11.2005 as per voucher no. 37 appearing in the said documents totaling in the sum of Rs.3 1,58,826/-. It is also noticed from the Records that M/s. Rehab Housing Pvt. Ltd. has not shown any cash receipt on account of TDRs sale to M/s Hicons & Pranay Group in F.Y. relevant to the A.Y.2006-07.
8 Rehab Housing Pvt. Ltd. In view of the above facts I have reason to believe that the income of Rs.31,58,826/- has escaped assessment for A.Y. 2006-07 therefore. action u/s 147 is necessary.”
On a careful reading of the reasons recorded it is evident that the basis of formation of belief by the Assessing Officer that the assessee has received cash payment of ` 31,58,826 during the financial year 2005–06 from M/s. Hicons Constructions, towards sale of TDR is at Page–48 of the loose paper file Annexure–A/15 inventorised and seized from resident of Nadeem Lakdawala. From the assessment stage itself, the assessee has asked for supply of said seized material to him to rebut the allegation brought against him with regard to receipt of ` 31,58,826 . However, as is evident, the Department has not supplied the assessee copy of Page–48 of loose paper file Annexure–A/15. It is the pleading of the learned Authorised Representative before us that no such seized material being Page–48 of loose paper file Annexure–A/15 is existing in the record of the Department. Considering the aforesaid pleading of the assessee, the Bench on 23rd December 2015, had directed the Department as under:–
“23/12/15 – At the time of hearing L'd. counsel for the assessee while challenging the issue of reopening u/s. 147, stated that in the "reasons recorded" certain material, and annexures have been referred on the basis of which 'reason to believe' has been entertained by the A.O. However, despite assessee's request these materiel have not been made available or produced before the 9 Rehab Housing Pvt. Ltd. court. After considering the prima facie facts, We felt that these documents / materials as referred to in the "reasons recorded" are vital and may have a relevant bearing on the issue of jurisdiction of reopening U/S.
Accordingly, we direct the Ld. DR. to produce these material or annexeres as have been reffered to in the “reasons recorded" on the next date of hearing or else the case would be decided on the presumption that such documents are not on record. After discussion with the parties in the open court, the case is adjourned for 18/04/2016. sd/– sd/– RJK AS”
Thus, as could be seen, it was made clear by the Bench that unless the seized to Page–48 of loose paper file Annexure–A/15 referred to in the reasons recorded is produced, the case would be decided on the presumption that such documents are not on record. In the course of hearing of appeal on 18th April 2016, the learned Departmental Representative produced the letter dated 13th April 2016 of DCIT, Central Circle–2(3), Mumbai, the contents of which are as under:– “Kindly refer to the above.
The facts of the case is that a search action was carried out on Hicons & Pranay Group of companies on 24.02.2009 by ADIT(Inv)/ unit-111(2), Mumbai. The premises belonging to Shri Nadeem Lakdawala, who handles the financial dealing of Hicons group, was also covered in the search. The relevant documents i.e. page no.48 of loose paper file Annexure A-15 which reveals the cash expenditure incurred by M/s Hicons Constructions was inventorised and seized from the residence of Shri Nadeem Lakdawala. M/s Hicons & Pranay Group was centralized to the DCIT, Central Circle- 36, Mumbai along with the seized material. The relevant documents i.e. page no.48 of loose paper file Annexure A-15 has also been 10 Rehab Housing Pvt. Ltd. centralized to the DCIT, Central Circle- 36, Mumbai vide order No.ADIT(Inv)/LJ-III(2)/S&S/Handing over of seized material /Hicoris Group/2009-10 dated 17.07.2009. A letter is being written to the DCIT, Central Circle-36, Mumbai for providing the relevant documents i.e. page no.48 of loose paper file Annexure A-15.
Information was received from ADIT(Inv)/unit-III(2), Mumbai on 30.07.2009 that M/s Rehab Housing Pvt. Ltd. which is mainly in the business of selling TDR to the interested parties in the market, have sold constructible area by way of TDRs to M/s Hicons construction during F.Y.2005-06, for which it received Rs.31,58,826/- in cash apart from the amount of Rs.67,81,320/- received by way of cheque. On the basis of the said information, the case was reopened by the then A.O. after recording the reason. Copy of the information received from the ADIT(Inv)/unit-II1(2), Mumbai is enclosed for your kind perusal.”
On a perusal of the letter as aforesaid, it is evident that the Department has not been able to produce the seized material being Page–48 of loose paper file Annexure–A/15 which, according to the Assessing Officer reveals cash payment made to the assessee. Thus, prima–facie, it appears that there is no such seized paper existing or available in the records of the Department, as, till the date of finalisation of this order, the Department has failed to produce the seized document. In the aforesaid view of the matter, it is proved that there is neither any nexus or live link between the material available on record and formation of belief by the Assessing Officer which is mandatory requirement for initiating action under section 147. The belief to be formed by the Assessing Officer cannot be in vacuum but must be on the basis of some tangible material which prima–facie
11 Rehab Housing Pvt. Ltd. reveals escapement of income. In the present case, since the very material on the basis of which the Assessing Officer has formed the belief for re–opening of assessment as per the reasons recorded is not available the initiation of proceeding under section 147 has to be declared as invalid. That being the case, all consequential action subsequent thereto including the assessment order passed under section 143(3) r/w section 147, have to be declared as invalid. In the aforesaid view of the matter, we quash the assessment order passed by the Assessing Officer under section 143(3) r/w section 147.
In view of our aforesaid findings, the other issues raised by the assessee with regard to validity of proceedings under section 147 as well as on the merits of the addition, being merely of academic interest are not required to be adjudicated upon.
In the result, assessee’s appeal is allowed.
Order pronounced in the open Court on 29.06.2016