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2020 (10) TMI 789
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....collectively refer to these appeals as the first set of Appeals. Similarly, ITA Nos. 1813 to 1815/Bang/2017 are appeals by the assessee relating to assessment years 2008-09 to 2010-11, while ITA No.1791/Bang/2017 is a cross appeal by the revenue relating to assessment year 2010-11. All these appeals are directed against the 3 orders, all dated 27.6.2017 of the CIT(Appeals)-XI, Bengaluru. These appeals relate to the Assessee M/S.Sree Lakshmi Venkateswara Transports. We shall collectively refer to these appeals as the second set of Appeals. 2. Common issues are involved in all these appeals and arises out of identical facts and circumstances. We therefore deem it fit and convenient to pass a common order. ITA Nos.1816 to 1818 and 1789 & 1790/Bang/2017 3. We shall first take up for consideration the first set of appeals pertaining to assessee Sri Lakshmi Venkateshwara Minerals, Hospet. The assessee is a partnership firm. The business of the firm was trading in iron ore. The partners of the partnership firm were Mr. K. Mahesh Kumar, Mr. K. Kumar, Mr. K. Sadashiva & Mr. I. Yerriswamy. 4. There was a search & seizure action conducted on 25.11.2010 u/s. 132 of the Income Ta....
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....ioned assessee firm were seized. A/KM/Vidyanagar/3 - Pages: 1 to 93 A/KM/Vidyanagar/4 - Pages: 1 to 90 A/KM/Vidyanagar/5 - Pages: 1 to 27 and 28 to 29 A/KM/Vidyanagar/6 - Pages: 1 to 97 A/KM/Vidyanagar/7 - Pages: 1 to 97 A/KM/Vidyanagar/9 - Pages: 1 to 98 A/KM/Vidyanagar/10 - Pages: 1 to 58 A/KM/Vidyanagar/11 - Pages: 1 to 42 A/KM/Vidyanagar/12 - Pages: 2 to 101 A/KM/Vidyanagar/13 - Pages: 1 to 94 I am satisfied that the proceedings u/s 153C required to be initiated in this case. Hence, the notice u/s. 153C of the IT Act 1961 dated 18-11- 2011 is issued calling for return of income for the above Asst. year. Sd/- DCIT-CC-2(2)" 7. The assessee filed return of income in response to the notice issued u/s. 153C dated 18.11.2011. In the course of assessment proceedings the assessee could not participate in the proceedings and therefore the AO proceeded to frame the assessment in the absence of proper details from the assessee. The AO made a disallowance of 20% of the expenses claimed in the P&L account. The gross receipts and expenses claimed in the P&L account for AYs 2008-09 to 2010-11 were as follows:- AY....
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....dded in the hands of Mr Mahesh for Asst.Year 2008-09" 11. Similar additions were made in AYs 2009-10 and 2010-11 also and the quantum of addition made in the AY 2009-10 and the reason for doing so were as follows:- "5. However, considering a sum of Rs. 7,26,95,976 which has been shown as gross receipts by the assessee in the return, the remaining amount of (Rs. 17,03,42,265 - Rs. 7,26,95,976) = Rs. 9,76,46,289 is treated as Undisclosed Business receipts and the same is added to the returned income of the assessee M/s Venkateshwara Minerals is a partnership firm in which Mr Karapudi Mahesh is a key person. During the course of search action in the case of Mr-Mahesh on 25-10-2010, Mr Mahesh had admitted vide letter dated 28-03-2011 total turn over of Rs. 204 crores in his hands, which is not disclosed to tax. The undisclosed business receipts for A.Y 2009-10 in the case of M/s Venkateshwara minerals of Rs. 9,76,46,289/- shall be protectively added in the case of M/s lakshmi Venkateshwara minerals. 6. The same amount shall be substantively added in the hands of Mr Mahesh. The digital data seized during the course of search in the case of Mr Mahesh, Annexed as '....
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....enses claimed by the assessee in the P&L account. It was the plea of assessee that in an assessment u/s. 153C of the Act, incriminating material having not been found in the course of search, no addition can be made. It was also submitted that disallowance of expenses @ 20% was without any basis and cannot be sustained. 14. The CIT(Appeals), however, upheld the addition made by the AO. The CIT(A) did not address the issue as to whether, addition can be made in an assessment u/s. 153C of the Act in the absence of any incriminating material pertaining to the said addition. 15. As far as protective addition made in the hands of assessee and substantive addition in the hands of K. Mahesh Kumar are concerned, the CIT(Appeals) deleted the addition made by the AO by observing that addition made protectively in the hands of assessee and substantively in the hands of K. Mahesh Kumar was confirmed in the hands of K. Mahesh Kumar on substantive basis. The CIT(Appeals) therefore deleted the addition on protective basis in the hands of assessee. 16. Aggrieved by the order of the CIT(Appeals) in sustaining the disallowance of expenses made by the AO the assessee has preferred the app....
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....s upheld. He, however, pointed out that the satisfaction recorded by the AO in that case was as follows:- "Name and address of the assessee : M/s. Super Malls (P.) Ltd. Sector 12, HUDA, Karnal Regd. Office at 51, Transport Centre Punjabi Bagh, New Delhi. PAN : AAICS2163F Status : Company Reasons/Satisfaction note for taking up the case of M/s. Super Malls (P.) Ltd. Sector-12, HUDA, Karnal Regd. Office at 51, Transport Centre, Punjabi Bagh, New Delhi under section 153C of the Income-tax Act, 1961. The jurisdiction of this case has been assigned to this Office u/s 127 of the Income-tax Act, 1961 by the worthy Commissioner of Income Tax-III New Delhi vide order F. No. CITIII/Delhi/Centralization/1012-1312455 dated 15-1-2013. By virtue of the authorization of the Director of Income-tax (Investigation), Chandigarh, a search & seizure operation u/s 132(1) of the Act was carried out on 8/9-4-2010 at the residential/business premises of Sh. Tejwant Singh & Sh. Ved Parkash Bharti Group of cases, Karnal, Panipat & Delhi and a survey u/s 133A of the IT Act, 1961 was also carried out at the business premises of....
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.... incriminating in nature. His submission was that the satisfaction note must speak on how such a satisfaction was arrived at by the AO. According to him, in the present case, the satisfaction recorded by the AO does not confirm to the requirements of a valid satisfaction for invoking the provisions of section 153C of the Act. He then drew our attention to a decision of the Hon'ble Supreme Court in the case of CIT v. Sinhgad Technical Education Society, 397 ITR 344 (SC) wherein the principle for proceedings u/s. 153C of the Act were laid down as follows:- " The Income-tax Appellate Tribunal permitted this additional ground by giving a reason that it was a jurisdictional issue taken up on the basis of facts already on the record and, therefore, could be raised. In this behalf, it was noted by the ITAT that as per the provisions of Section 153C of the Act, incriminating material which was seized had to pertain to the Assessment Years in question and it is an undisputed fact that the documents which were seized did not establish any corelation, document-wise, with these four Assessment Years. Since this requirement under Section 153C of the Act is essential for assess....
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....alysis of the legal position come to the conclusion that an addition u/s. 153A of the Act cannot be made de hors incriminating material found in the course of search. According to him, the above observations made in the context of section 153A will apply with greater force in assessment u/s. 153C of the Act, which is the relevant provision under which assessment was made from which assessment the present appeal arises. 23. In this regard, the learned counsel for the Assessee brought to our notice that assessments were for AYs 2008-09 to 2010-11 were already completed prior to the search and therefore the AO cannot make an assessment or addition without any incriminating material. In this regard it was clarified that as per the proviso to section 153C(1) of the Act, the date of search in the case of the Assessee will be the date on which the AO of the searched person hands over the seized material to the AO of the other person. It is undisputed that it was only on 18.11.2011 such handing over took place and therefore that dated i.e., 18.11.2011 has to be regarded as the date of search in terms of 1st proviso of section 153C(1) of the Act. The relevant dates with regard to the ....
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....sitioned 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 or requisition is made and for the relevant assessment year or years referred to in sub-section (1) of section 153A :" The provisions of Sec.153C of the Act, shown in bold letter and underlined as given above were substituted by the Finance (No.2) Act, 2014 w.e.f 1.10.2014 for the following words "and that Assessing Officer shall proceed against each of such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of Section 153A" 27. The Assessments in the present case relate to the period prior....
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.... person. This is clear from the amended provisions of the law which reads thus: "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 or requisition is made and for the relevant assessment year or years referred to in sub-section (1) of section 153A :" The Kolkatta Bench of the ITAT in the case of Trishul Hi-Tech Industries (supra) dealt with the purpose behind the aforesaid amendment and as to why it should held to be retrospective. The condition precedent for assessing or reassessing income u/s.153C is that the AO has to be satisfied that the seized material in the course of search has a bearing on determination of the total income of the other person i.e., it should be incriminating in nature. 28. We are in respectf....
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....only one conclusion that the said amendment is clarificatory and therefore should be held to be retrospective in operation. 29. A plain reading of the amended provisions of section 153C(1) of the Act, would show that the AO is required to arrive at a satisfaction that the seized assets, books of account or documents belongs to or relates to a person other than the person was subjected to search. For arriving at such a satisfaction, it is necessary for the AO to prima facie spell out the nature of seized documents and how it belongs to or relates to the assessee. Before the Hon'ble High Court of Karnataka in the case of IBC Knowledge Park, 385 ITR 346 [Kar] the issue for consideration and adjudication was whether the Tribunal was right in holding that it was not necessary to record a satisfaction to the effect that seized material shows undisclosed income. While deciding this issue, the High Court came to the conclusion at para 50 thereof, that "the detection of seized material leading to an inference of undisclosed income is a sine qua non for invocation of section 153C of the Act". The Honble Court came to the above conclusion after considering the decision of the Hon'ble Ap....
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....tes from material found in the course of search of some other person and which relate to the Assessee. Since the impugned addition of disallowance of expenses are not based on any incriminating material found during the course of search, the additions are liable to be deleted. As far as the addition made on protective basis for AY 2008-09 to 2010-11 are concerned, the said addition was made not on the basis of any incriminating material found in the search of K.Mahesh Kumar which relate to the Assessee and therefore the said addition can also not be sustained as it is contrary to the provisions of Sec.153C of the Act. There is no basis for protectively assessing the income in the hands of the Assessee and substantively in the hands of K.Mahesh Kumar. There is no material to show that the income declared by K.Mahesh Kumar is either his income or that of the Assessee. From the fact that K.Mahesh Kumar was a Partner in the Assessee firm it cannot be concluded that the income declared by K.Mahesh Kumar in his hands was either his income or the income of the partnership firm in which he was a partner. The declaration of income by K.Mahesh Kumar is in his hands and not in the hands of....
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....ll the three AY 2008-09 to 2010-11 and it reads thus: "Name of the Assessee : M/s. Lakshmi Venkateshwara Transport Address : 21st Ward, Bellary Road Circle, Opp: Lucky Tyres Hospet Pin: 583 201 P.A.N : ABHF58469H Asst. Year : 2008-09 18-11-2011: A Search u/s. 132 was initiated on 25-10-2010 in the case of Sri. K. Mahesh at Vidyanagar, Bellary Road Circle, Hospet. The case has since then been centralized with this Circle Vide order of the CIT(C) vide F. No.24/CIT-(C)/2011-12 dated 22-07- 2011. "During the course of search operations the following incriminating documents which belong to the above mentioned assessee firm were seized. 1.A/DP/10 - Pages 34, 35 and 36 I am satisfied that the proceedings u/s 153C required to be initiated in this case. Hence, the notice u/s. 153C of the IT Act 1961 dated 18-11-2011 is issued calling for return of income for the above Asst. year. DCIT-CC-2(2)" 35. It is further seen from the satisfaction note filed before us that the reference is to a search in the case of one Dada Peer. The date of handing over of the seized mate....