TaxTMI 
TaxTMI 
2022 (6) TMI 831
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....ed in the proceedings and had not challenged issue of notices as decided by Delhi High Court in the case of CIT Vs Safetag International Pvt. Ltd. in 332 ITR 622 and Hon'ble Apex Court in the case of Shri Vijyabhai N Chandrani in 357 ITR 713. 2. Whether on the facts and the circumstances of the case, the Ld. CIT(A) is correct in relying on the case of Singhad Technical Society case as the decision does not restrain the AO from making addition only on the incriminating material and it only refers that seized material should pertain to third person and terms it a condition precedent to initiate proceeding and not for finalization of assessment. 3. Whether on the facts and the circumstances of the case, the Ld. CIT(A) is correct in deleting the protective additions on account of undisclosed investment of Rs.1,10,93,254/- whereas Gujarat High Court in 140 ITR 517 settled that protective assessment should not be decided till substantive assessment reaches finality. 4. Whether on the facts and the circumstances of the case, the Ld. CIT(A) is correct in deleting the unexplained case deposit of Rs.40,12,909/ - whereas it remains unsubstantiated and without sa....
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....e relative of Sh. C.T. Ravi, Sh. H.B. Sudarshan and Smt. Pallavi Ravi (spouse of Sh. C.T. Ravi) are directors in the assessee company M/s Conc Shade Constructions P. Ltd. During search in the case of Sh. H.B. Sudarshan, digital data from his computer was seized (Digital Data of Mac_h.b.sudarshan\Data of Mac_HBSudarshan\present Data\Excel File 1 (Version 1).xls\sheet main A/c) where investment of Rs. 3,26,05,531/- in a house in Basavanahalli was found. Further seized evidence suggested additional expenditure post construction related to house warming, certain other purchases etc. related to the house amounting to Rs.70,13,236/-. The seized evidences are reproduced below : SL NO DETAILS TOTAL AMOUNT 1 GROUND FLORE (OLD) 2,223,395.00 2 STEEL BILL 1,111,312.00 3 CEMENT BILL 772,395.00 4 SAND BILL 397,650.00 5 MATERIAL BILL 370,082.50 6 SHARANAPPA 1,510,169.00 7 LABOURS 414,083.00 8 POP WORK 146,773.00 9 TRUSS WORK-RAJU SINGH 312,737.00 10 STONE WORK-ASHOKE 290,930.00 11 MARBLE FIXING-DEVI SHARMA 811,908.00 12 PLUMBING WORK-MURTHUZA 593,880.00 13 ELECTRIC EXPENCES ....
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....e, the undisclosed investment in the Basavanahalli house amounts to- A.Y UNDISCLOSED INVESTMENT (Rs.) 10-11 1,10,93,254/- 11-12 1,78,28,445/- 12-13 1,06,97,067/- 9. Sh. C.T. Ravi was given an opportunity to provide supporting proofs of the expenses incurred on the construction of his house in Basavanahalli which he did not avail. Thus, Rs. 1,10,93,254/- was added to the total income of Sh. C.T. Ravi for the year as his undisclosed income being in the nature of undisclosed investment. The assessee company was also confronted with the above evidence, however it chose to disown it even though the seized digital data pertaining to investment in the Basavanahalli house is clearly titled as "Concshade Constructions Private Ltd." Hence, Rs. 1,10,93,254/- is protectively added to the total income of the assessee company as the property belongs to Sh. C.T.Ravi, however the construction was done by the assessee company. 10. In response to the notice u/s. 153C of the Act the Assessee Company filed his returns & assessments duly completed thereafter with the following additions being made to the Income Returned for the impugned assessment years: Details 2010....
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....ting material leading to undisclosed income of another assessee was detected in a search operation, in those cases, reopening of the concluded assessment have taken place. There has been no single decision cited by the learned counsel for the Revenue where the assumption of jurisdiction of the Assessing Officer is in the absence of any incriminating material or undisclosed income having been detected during the course of search leading to reopening of a concluded assessment. In the instant case, though documents belonging to the assessee were seized at the time of search operation, there was no incriminating material found leading to undisclosed income. Therefore, assessment of income of the assessee was unwarranted. Consequently, no satisfaction was recorded in the case of the assessee. We answer substantial question of law No.2 by holding that the Tribunal was not correct in holding that the assessment under Section 153C was valid despite there being no satisfaction recorded to the effect that the documents found during the search on 17/06/2008 were incriminating in nature and prima facie represented undisclosed income." 14. The ld. AR submitted that in view of the ab....
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.... Jurisdictional Karnataka High Court has decided in the case of CIT vs IBC Knowledge Park (P) Ltd 385 ITR 346, a decision which is relied upon by the Assessee Company and which is binding on CIT(A), that it is perforce necessary that a satisfaction to the effect that the seized material is incriminating in nature and represents undisclosed income has to be arrived at by the assessing officer of the person searched, the CIT(A) held that the Satisfaction Note arrived at in the case of the Assessee Company would have to be necessarily treated as one which is not accordance with law. 18. Further, the Hon'ble Karnataka High Court in its decision rendered in the case of IBC Knowledge Park observed that apart from concurring with various decisions of other High Courts and after considering its own decision in other cases, also relied on the circular dated 31.12.2015, No.24/2015 issued by CBDT, which circular clearly spells out the stand of CBDT that, on the issue of satisfaction the provisions of section 158BD and section 153C being largely similar, the decision of the Hon'ble Supreme Court on the issue of Satisfaction u/s 1588D rendered in the case of Calcutta Knitwear case be....
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....51, 152 to 162, 182 c) A1/HBS/2/3.7.2012 - Pages 1 to 149 d) A1/HBS/3/3.7.2012 - Pages 1 to 196 Items listed at Sl No.2,3 & 4 are in the nature of detailed weekly expenditure, invoices. 23. The ld. AR submitted that none of the above material relied upon by the assessing authorities to commence proceedings u/s 153C, are incriminating in nature. They do not constitute any information of incriminating nature and nor do they reveal any undisclosed income. No addition is made in the assessing the income of the Assessee Company u/s 153C based on the said seized materials. To label a seized material as 'incriminating' the material seized must represent undisclosed income which the assessee has no intention of disclosing, which is clearly absent in the present case. 24. He submitted that the above documents relied upon to initiate proceedings u/s 153C are not incriminating in nature in the light of the judgment of the jurisdictional High Court in the case of IBC Knowledge Park 385 ITR 346. 25. Another objection is that addition is not based on a seized material which is relied upon to initiate proceedings u/s 153C in the case of the Assessee Company. An....
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.... proceedings u/s. 153C have not resulted any addition to income in any of the assessment years which have been subjected to proceedings u/s. 153C of the Act. There is no whisper of these documents in any of the assessment years. Accordingly, the CIT A cancelled the assessment on this ground too, that no incriminating material is relied upon to record satisfaction to initiate proceedings u/s. 153C, rendering the very satisfaction to be bad in law. 30. The ld. AR relied on the decision of this Tribunal 'B' Bench in the case of ACIT Central Circle 2(3) vs Smt. Pallavi Ravi & C.T. Ravi in ITA No's 272 to 274 & 282 to 286 / Bang / 2018 by order dated 05/07/2019, wherein, following the decision of the Hon'ble Supreme Court, it was held that an assessment proceeding u/s 153C can be initiated in respect an assessment year only when there is incriminating seized material pertaining to that assessment year and when there is no addition made in the assessment order u/s 153C of the Act, that is relatable to seized material, relied upon to initiate proceedings u/s 153C of the Act, such an assessment order is bad in law & deserves to be cancelled. In the light of this decision, every addition....
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....other person in accordance with the provisions of Section 153A". 34. The Assessments in the present case relate to the period prior to the amendment referred to above. The aforesaid amendment has been held to be clarificatory in nature and therefore has to be held as applicable retrospectively from the inception of Sec.153C of the Act in the statue, by the ITAT Kolkata Bench in the case of Trishul Hi-Tech Industries Vs. DCIT IT(SS)A.Nos.84-86/Kol/2011 (AY 04-05, 05-06 & 06-07) order dated 24.9.2014. In the aforesaid decision the Hon'ble Kolkata Bench of ITAT, after considering the amended provisions of Sec.153C of the Act by the Finance Act, 2014, held that the provisions of Sec.153C of the Act as amended by Finance (No.2) Act, 2014 though is made applicable on and from 1.10.2014, is also relevant for earlier assessment years as it cures the infirmities of the previous legislation and also makes the provisions workable by avoiding absurd consequences. Accordingly, such provision is to be given retrospective operation and is also applicable to pending proceedings. In proceedings u/s.153C of the Act, the Assessee would not be a person who was subjected to a search u/s.132 of the A....
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....earing on determination of the total income of the other person i.e., it should be incriminating in nature. 36. We are in respectful agreement with the view expressed by the ITAT Kolkata Bench in the case of Trishul Hi-Tech (supra). We may also add that it is settled rule of construction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have retrospective operation. Ordinarily the Courts are required to gather the intention of the legislature from the overt language of the provision as to whether it has been made prospective or retrospective, and if retrospective, then from which date. What happens sometimes is that the substantive provision, as originally enacted or later amended, fails to clarify the intention of the legislature. In such a situation, if subsequently some amendment is carried out to clarify the real intent, such amendment happens to be retrospective from the date the earlier provision was made effective. Such clarificatory or explanatory amendment is declaratory. As the later amendment clarifies the real intent and declares the position as was originally intended, it takes retroactive effect from the date t....
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....cation of section 153C of the Act". The Hon'ble Court came to the above conclusion after considering the decision of the Hon'ble Apex Court in the cases of Manish Maheshwari Vs. ACIT (289 ITR 341) and CIT Vs. Calcutta Knitwears (2014) 362 ITR 673 and other judgments of the Hon'ble Apex Court and other Hon'ble High Courts and CBDT, Circular No.24/2015 dated 31.12.2015. The Hon'ble High Court also took the view that the AO is expected to spell out as to how the documents were incriminating in nature and prima facie represent undisclosed income. In this regard, we also find that in the order of assessment, the AO has not proceeded to make any assessment on the basis of material referred to in the satisfaction note. On the other hand, he has made additions which are not based on any seized material which pertains to assessee. Such a course is not permissible u/s. 153C of the Act as laid down by the Hon'ble High Court of Karnataka in the case of IBC Knowledge Park (supra). The decision of the Hon'ble Supreme Court in the case of Sinhgad Technical Education Society (supra) also supports the plea of the assessee that additions made cannot be sustained in the absence of any incriminating m....
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....ing material so as to frame assessment for these three assessment years u/s. 153C of the Act. Since the assessment framed u/s. 153C of the Act is based on material found during the course of search which relate to or belong to the assessee and since we have held that there are seized material for addition made by the AO, we inclined to reject the arguments made by the ld. AR for the assessee that the condition precedent for initiating the proceedings u/s. 153C of the Act having not been satisfied in the present case. Accordingly, we hold that the addition made by the AO is based on seized material found in the course of search and therefore the framing of assessment u/s 153C of the Act is justified. 41. In view of the above, we are inclined to hold that framing of assessment u/s. 143(3) r.w.s. 153C of the Act is valid. On merits 42. On the issue of undisclosed investment in residential house, the AO held that the Assessee Company has made an undisclosed investment in a residential house property situated at Basavanahalli and the said investment is spread over three financial years i.e. 2009-10, 2010-11 & 2011-12, in the manner as given below:- 43. The ld. DR submitted t....
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....case based on very same material relied alleged to have been found during search, the very same income is assessed to tax substantively in the hands of C.T.Ravi and protectively in the hands of H.B.Sudarshan and also this Assessee Company. In such an event can it be said that the concerned AO has arrived at a proper satisfaction. The Concerned AO, in this case, is not sure as the who is the person who has actually made the alleged undisclosed investment. 49. Thus, there is no satisfaction arrived at to initiate proceedings u/s 153 C in the case of this Assessee Company, based on this impugned seized material, in as much as the addition made is protective in nature. 50. It is the stand of this Assessee Company that NO PROTECTIVE ADDITION CAN BE MADE U/S 153 C in as much as the same violates the concept of arriving at a satisfaction that the undisclosed income belongs to the person who is protectively assessed for the same. A Protective addition only means that there is no satisfaction that the income belongs to the person who is assessed protectively in respect of the same. Further it is not the case of the AO that the impugned expenditure incurred in relation to the Basavanah....
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.... to the other person, who is to be assessed u/s. 153C. In the absence of this mandatory satisfaction no addition can be made in the assessment u/s. 153C. 54. We have heard both the parties and perused the material on record. Since the issue relating to this addition was remitted in the case of H B Sudarshan in ITA No. 309 to313 & 1494 to1497Bang/18 vide order dated 20.4.2022, where the addition is made substantively, accordingly this issue is also remitted to the Assessing Officer to examine the issue afresh in the light of incriminating material found during the course of search including the CD retrieved from the computer of the searched person. Ordered accordingly. Unexplained cash deposits 55. The AO brought to tax the alleged unexplained Cash deposits mentioned below u/s. 68 of the Act:- FY AY Cash Deposits 2009-10 2010-11 40,12,909 2010-11 2011-12 2,23,23,900 2011-12 2012-13 81,65,000 Total 3,45,01,809 56. During the above mentioned financial years the assessee maintained the books of account as are statutorily mandatory and got them duly audited as per the requirement of the Companies Act 1956 and a separate tax audit und....
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....n to initiate proceedings u/s 153 C. In this case the material relied upon to make the addition is not part of the Satisfaction Note prepared to initiate proceedings u/s 153C and hence the addition made on this count is bad in law and needs to be deleted. This proposition is clearly laid down by the Supreme Court in the case of CIT Pune vs Sinhgad Technical Education Society in Civil Appeal No.11080 of 2017, arising out of SLP (C) No.2527 of 2015. The Hon'ble Supreme Court has clearly held that an assessment u/s 153C must be made only in respect of those assessment years for which incriminating seized material is found to be recorded in the Satisfaction Note prepared to initiate proceedings u/s 153C. 60. In the present case as demonstrated earlier the material relied upon to arrive at the satisfaction to initiate proceedings u/s 153 C are not subject matter of addition and the material relied upon to make additions to income are not subject matter of satisfaction. 61. We have heard both the parties and perused the material on record. As discussed by this Tribunal in the case of H B Sudarshan in ITA No. 309 to313 & 1494 to1497Bang/18 vide order dated 20.4.2022, the issue is re....
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....out from 27/08/2009 to 01/09/2009, which amounts to Rs.83,546/-. Therefore, it is apparent that the AO is not justified in holding that the Assessee Company has invested a sum of Rs. 54,66,483/- towards the Trust/BJP office building. The impugned addition is based on surmise conjecture and hypothesis which is against the principles of natural justice, equity, good conscience and fair play of law. 67. One another important objection is that the Addition is not based on a seized material which is relied upon to initiate proceedings u/s 153C in the case of the Assessee Company. Any addition made to income u/s 153C ought to be confined to income arising out of material seized and relied upon to initiate proceedings u/s 153 C. In this case the material relied upon to make the addition does not form part of the satisfaction note prepared to initiate proceedings u/s 153 C and hence the addition made on this count is bad in law and needs to be deleted. This proposition is clearly laid down by the Supreme Court in the case of CIT Pune vs Sinhgad Technical Education Society in Civil Appeal No.11080 of 2017, arising out of SLP (C) No.2527 of 2015. The Hon'ble Supreme Court has clearly held....
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....m, yet he says erroneously in his impugned order that the Assessee Company did not provide the books of Account maintained. However, the facts borne on the records of the Income Tax Department prove that the Assessee Company has voluntarily produced the audited cash book, bank book, bank statement etc., during the impugned assessment proceedings. 74. In view of the above therefore it is submitted that the AO is not justified in ignoring the taxable income offered to tax of Rs. 5,04,958/- and instead to estimate the income of the Assessee Company from the contract receipts of Rs. 1,84,96,700/- at 8% thereof u/s. 44AD despite the presence of duly audited books of account. 75. It is trite law that no estimation of income can be made without rejection of books u/s 145 (3) of the Act. Further the reasons for rejection of books must be cogent and clear and must be of a nature that necessitates rejection of books u/s 145(3). The AO has not rejected the books u/s 145(3) of the Act. The ld. AR relied upon the decision of the Jurisdictional Karnataka High Court in the case of Karnataka State Forest Corporation Ltd vs CIT 201 ITR 694 in support of its contention that since there is no r....
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....3,56,959 and why the same should not be treated as undisclosed income for AYs 2009-10 to 2012-13. The assessee in reply stated that it had received cash advances from customers and some deposits were on account of withdrawals. In the absence of confirmations for cash advances received from customers and details of withdrawals for the cash deposits, the AO treated it as unexplained in the hands of the assessee and made addition. The CIT(A) placing reliance on the judgment of Supreme Court in the case of V.C. Shukla and other cases relied upon by the assessee deleted the addition. Against this, the revenue is in appeal before us. 81. The ld. DR submitted that the Ld. CIT(A) was not justified in accepting the ground of validity of digital evidence based on VC Shukla case rendered in 1998, which has been overridden by provisions of Information Technology Act 2000 and Section 2(22AA) of the I.T. Act and Section 292C of the IT Act. 82. On the other hand, the ld. AR submitted that the Digital Data allegedly found in the residence of the person searched cannot be relied upon solely to make an addition to the income of the Assessee Company and that it is absolutely necessary to have c....
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....inent factor to be considered. In order to charge any person with liability it is not enough merely to prove that the books have been regularly kept in the course of business and the entries therein are correct. It is also necessary for the person relying upon those entries to prove that they were in accordance with facts. In other words, even correct and authentic entries in books of account cannot without independent evidence of their trustworthiness fix a liability upon a person. (C.B.I. v. V.C. Shukla 1998 3 Scc 410 at 425). Entries in books of account are not by themselves sufficient to charge any person with liability, the reason being that a man cannot be allowed to make evidence for himself by what he chooses to write in his own books behind the back of the parties. There must be independent evidence of the transaction to which the entries relate and in absence of such evidence no relief can be given to the party who relies upon such entries to support his claim against another. The Supreme court laid down the following principles. (i) Entries in loose papers/sheets are irrelevant and not admissible under Section 34 of the Evidence Act. It is only....
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....the transactions pertaining to the Assessee Company much less undisclosed income of the Assessee Company and no addition can be made based on the same. 84. He submitted that the Assessee Company has been maintaining regular books of accounts and all transactions have been duly incorporated therein. How entries in a CD which do not relate to its transactions at all can be the basis for making an addition to the income of the Assessee Company. It is for the reason that when there is no corroborative evidence to substantiate the authenticity of the data which is contained in the CD, that the same cannot be accepted as incriminating in nature, representing undisclosed income. 85. In view of the above, he submitted that the CIT(A) has deleted the additions, which are made in absence of independent corroborative evidence. 86. We have heard both the parties and perused the material on record. With regard to the evidentiary value of date recovered from computer in the form of digital data and other documents listed in earlier part of this order is concerned, section 132(4) of the Incometax Act, permits the authorised officer to seize books of accounts and other documents. The judg....