TaxTMI 
TaxTMI 
2014 (10) TMI 668
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....de were outside the scope of assessment made u/s 143(3) r.w.s. 153C of the Act. 4. The Ld. CIT(A) is not justified in confirming Rs. 1,23,851/- out of the addition of Rs. 2,43,151/- made by the assessing officer towards unexplained agricultural income u/s 68 of the Act. 5. Any other ground that may be urged at the time of appeal hearing." Ground nos.1 and 5 are general, hence need not be adjudicated upon. Ground nos.2 &3 relate to the legal issue of validity of the proceeding initiated u/s 153C of the Income-tax Act and ground no.4 is on merits of addition sustained by CIT(A). Since facts are identical in all these appeals, we will deal with the facts relating to ITA No.299/Vizag/2014 for convenience. 3. Briefly the facts are, the assessee is a company incorporated under the Companies Act, 1956. It is engaged in the business of Real Estates. For the impugned assessment year, it has filed its return in regular course on 30.10.2004 declaring total income of Rs. 5,151/- and agricultural income of Rs. 2,38,600/-. A search and seizure operation was conducted in case of A.T. Rayudu and Vinayagar Group on 4.12.2007. As alleged by the assessing officer, during the course of search & se....
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....sessing officer inferred that the land in question has been purchased for the purpose of industrial and infrastructural activities and further the land is located on the national highway and adjacent to the building and building site. Hence, the land has not been purchased by the assessee for agricultural purposes. Further, the field enquiry conducted through the inspector also revealed, as stated by the AO, no agricultural activities are carried on and the land with the Casurina plantation and Coconut garden in patches are found to be in a neglected condition. It is further found by AO that all the owners are in possession of agricultural land in excess of ceiling provided under the A.P. Land Reforms Act. From the records available in the office, it was found that no permission has been obtained by the companies for possessing the land in excess of the ceiling for the purpose of plantation of crop. He further noted that on scrutiny of the purchase deed of all the Polipalli land purchased by seven companies, it is noticed that a declaration has been given by sellers to the effect that no mango trees/coconut trees, betel leaf gardens/ orange groves or any such other gardens are exis....
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....of proving the genuineness of the agricultural income credited in the books of accounts and treated them as unexplained cash credits u/s 68 of the Act and added it to the income of the impugned assessment year. 4. Being aggrieved of such addition, the assessee preferred appeal before the CIT(A) both on the issue of validity of proceeding u/s 153C of the Act as well as on merits of the addition made u/s 68 of the Act. So far as the validity of the proceeding u/s 153C of the Act are concerned, the CIT(A) negating all the contentions of the assessee held that the proceeding initiated u/s 153C of the Act is valid. So far as merits of the addition made u/s 68 of the Act is concerned, the CIT did not agree with the assessing officer that the assessee has not earned any income from agricultural activity. By relying on the report of the VRO, the CIT(A) held that the assessing officer's view that the assessee has not earned any agricultural income cannot be accepted. Accordingly, he proceeded to estimate the agricultural income at 50% of the income returned. 5. The Ld. A.R. advancing his argument both on the validity of proceeding u/s 153C of the Act as well as the merits of the addit....
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....ubmissions of the parties and perused the materials on record as well as the orders of the revenue authorities. Section 153C of the Act postulates that in course of search and seizure operation conducted in case of an assessee if money, bullion, jewellery, books of accounts and other documents pertaining to another person is found and seized, then proceeding u/s 153C of the Act can be initiated by the assessing officer after recording satisfaction. Therefore, the money, bullion, jewellery, valuable article, things, books of accounts other documents referred to in section 153C of the Act would mean that those articles or things are in nature of incriminating material and indicate concealed/suppressed income of the assessee. On a perusal of the assessment order, it is not forthcoming, what are the seized materials on the basis of which the assessing officer has initiated proceedings u/s 153C of the Act. However, a reference to the order passed by Ld. CIT(A) would reveal that the so called incriminating materials found and seized as belonging to the assessee are as under:-M/s. Avnash Estates & Resorts Pvt. Ltd. S. No. Annexure No. Details Material found in annexure 1 ATR/B/2 Page....
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.... accepted the income declared by the assessee originally except tinkering with the agricultural income shown by treating it as unexplained credit u/s 68 of the Act. In fact no other addition has been made by the AO with relation to any material seized during search. In these circumstances, we fail to understand the purpose of initiating proceeding u/s 153C of the Act. Even in respect of addition made u/s 68 of the Act also the AO subsequently in his remand report has accepted that the income is in nature of agricultural income. When the income has already been reflected in the books of accounts of the assessee and disclosed in the return of income much prior to the initiation of proceedings u/s 153C of the Act, there is no justification on the part of the assessing officer to initiate proceedings u/s 153C of the Act to assess such income as unexplained cash credit u/s 68 of the Act. The assessing officer certainly is not empowered under the Act to consider the issues in a search assessment, which can be considered in regular assessment. The ITAT Vizag Bench in case of Sri Ram Educational Trust (supra) while considering the powers of the assessing officer in initiating proceedings u....
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....ation was conducted in pursuance of such warrant, notices u/s 153A of the Act had to be mandatorily issued to the assessee. If that is the conclusion of the CIT(A), then the very edifice of the assessment order u/s 153C of the Act would collapse, because once the warrant is in the name of the assessee, then it is to be presumed that search and seizure operation u/s 132 of the Act was initiated in case of the assessee and as a natural corollary, assessing officer should have proceeded u/s 153A of the Act and not 153C of the Act as has been done in the present case. Hence, in this premises alone, the assessment order passed u/s 153C of the Act cannot survive. Be that as it may, it is very much clear from the assessment order that the assessing officer has proceeded u/s 153C of the Act primarily relying upon two seized materials i.e. the registered sale deed copy dated 14.11.2007 and the computation of income in the hand writing of Sri Gadiraju Ramakrishnam Raju. So far as registered sale deed is concerned, it cannot be considered to be an incriminating material belonging to the assessee. Similarly, the computation of income in the hand writing of Sri Gadiraju Ramakrishnam Raju also c....
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....Thus, the primary condition for assumption of jurisdiction under section 153C of the Act is the seized materials must belong to the person against whom proceedings under section 153C is sought to be initiated. As would be evident from the assessment order, the AO has referred to pages 31, 32 & 61 of the seized document with identification mark TH/HNR/2. On going through the said seized materials, copies of which are placed before us, it is to be noted that the seized materials at page 31 is a receipt of M/s. HNR Constructions acknowledging the receipt of Rs. 1,50,000/-from one Shri K. Bangarraju . Similarly, page 32 is also relating to HNR Constructions mentioning certain disbursement schedule given by Shri R.Krishna Mohan, Licensed Engineer totaling to Rs. 20 lakhs. Page 61 also mentions certain figures in handwriting. In none of the documents, there is any reference to the assessee. Therefore, it cannot be said that these documents belong to the assessee. In the Remand Report, submitted before the CIT(A), in the course of appeal proceedings, the AO however has taken a different stand by stating that the initiation of proceedings under section 153C as per the noting in the apprais....
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....tters that would be stretching the law a bit too far. If that is the intention of the law-makers then 153C proceedings can be initiated against all assesses whose letter heads/visiting cards are found during the search. To illustrate the matter, if some person is searched and during the search proceedings, if bank statements, LIC policy certificates or share certificates etc are found, it does not mean that 153C proceedings can be initiated 'against those banks/LIC/ companies to which the shares belong. Similarly from any person searched many purchase bills would be found. All those bills will be on letter heads of those concerns and would be signed and stamped. This would not entail the AO to proceed against all such concerns u/s.153C, simply because these are also the documents on the letter head of those concerns and are signed by the persons therein. This in my opinion would be ridiculous interpretation of the word "any documents" as found in sec. 153C. This definitely does not seem to be the intention of the law-makers in drafting the said section." 11. As can be seen from the aforesaid extracted portion of the order of the CIT(A), the CIT(A) after examining the seized ma....
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....acts of the present case in the light of the aforesaid statutory scheme, it is an admitted position as emerging from the record of the case, that the documents in question, namely the three loose papers recovered during the search proceedings do not belong to the petitioner. It may be that there is a reference to the petitioner in as much as his name is reflected in the list under the heading 'Samutkarsh members details' and certain details are given under different columns against the name of the petitioner along with other members, however, it is nobody's case that the said documents belong to the petitioner. It is not even the case of Revenue that the said three documents are in the handwriting of the petitioner. In the circumstances, when the condition precedent for issuance of notice is not fulfilled any action taken under s. 153C of the Act stands vitiated." 13. The ITAT Hyderabad Benches in the case of M/s. Shouri Construction (supra), following the aforesaid decision of Hon'ble Gujarat High Court held that unless there is material belong to the assessee, initiation of proceedings under section 153C is invalid. 14. In the case of DCIT v. ASP Software Soluti....
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.... in a judgement dated 12.7.2003 in ITA No.266 of 2013 in case of M/s. Hyderabad House Pvt. Ltd. Upheld the decision of the ITAT Hyderabad bench, wherein it is held that computation of undisclosed income u/s 153A/153C of the Act must be in reference to the incriminating material found as a result of search.' 10. The same view was again reiterated in case of Sri Lalitha Construction (supra). Therefore, considering the fact that the assessment made by the assessing officer is on the basis of the entries made in the books of accounts and income disclosed in the return of income much prior to search and which has no reference to any incriminating material found as a result of search and seizure operation, we are of the view that the proceeding initiated u/s 153C of the Act is invalid in law. The matter can also be looked into from another angle. As rightly been stated by the Ld. A.R., on the date notice was issued u/s 153C of the Act, there is no assessment proceeding pending before the assessing officer for the aforesaid assessment year. Therefore, in absence of any incriminating material showing concealed/undisclosed income of the assessee, the assessing officer could not have pr....