AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (6) TMI 831
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....f 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 satisfactory explanation. Also, the case law Singhad Technical Education So....
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....rs 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 1,289,040.00 14 CENTRING KUMARA 149,424.00 15 OTHER PAYMENTS 169,400.00 16 CARPENTARY & PLANING MACHINE 1,898,747.00 17 SS METALS & CARPENTARY MATERIALS 6,827,956.00 18 ASHR....
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.... 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 2010-11 2011-12 2012-13 Undisclosed Investment in Residential House belonging to one C.T. Ravi 1,10,93,254/- 1,78,28,445/- 1,06,97,067/ Unexplained cash deposits 40,12,909/- 2,23,23,900/- 81,65,000/- Undisclosed investment in construction of an office belonging to a Trust called Bharathiya Jagruthi P....
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....r 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 above binding decision of the Jurisdictional Karnataka High Court, there is no proper satisfaction and thus the entire proceedings initiated u/s 153C is void ab initio. It is clear from the above judgment that the satisfaction recorded is no satisfaction at all to initiate proceedings u/s 153C of the Act. The term 'satisfaction' clearly connotes that there must be satisf....
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....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 accepted as applicable to the satisfaction u/s 153C of the Act. 19. The amended provisions of section 153C of the Income Tax Act, as stands today (effective from 14 October 2014), stipulates two satisfactions. One by the assessing officer of the person searched that the seized material does not belong to the person searched, but to another person AND a Second one by the asse....
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....nating 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. 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 153C. In this case the additions are not based on the material relied upon to initiate proceedings u/s 153C and hence the additions made 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....
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....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 made in the assessment proceedings for each of the assessment years that are subject matter of appeal before this ITAT, deserves to be deleted. 31. Reliance is also placed upon the decision of this Tribunal in the case of Sri. Devaraj Urs Educational Trust vs ACIT Central Circle Bangalore in ITA NO's. 500 to 506 by order dated 16/08/2021, wherein it is held that additions cannot be made merely based on data found at the time of search in the absenc....
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....) 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 Act and therefore proceedings u/s.153A of the Act could not be initiated against the Assessee. Even if no incriminating material whatsoever are found in the course of a search relating to some other person, in terms of Sec.153-C of the Act, prior to its amendment by the Finance Act, 2014 w.e.f. 1-10- 2014, the AO has to proceed to issue notice u/s.153C of the Act for making an assessment of income for the periods referred to in Sec.153A of the Act. This would cause undue hardship....
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....egislature 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 the original provision was made effective. Normally such clarificatory amendment is made retrospectively effective from the earlier date. It may so happen that sometimes the clarificatory or explanatory provision introduced later to depict the real intention of the legislature is not specifically made retrospective by the statute. Notwithstanding the fact that such amendment to the substantive provision has been given prospective effect, nonetheless the judicial or quasi-judicial authoritie....
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....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 material. 38. In the present case, the proceedings of these assessments were not pending and did not get abated by virtue of 2nd proviso to section 153A(1) of the Act, which provides that in assessment proceedings for any of these assessment years set out in section 153A(1) of the Act, which is pending as on the date of initiation of search action u/s. 132 of the Act, such assessment proceedings would abate and AO will make assessment after considering the original return of income as well a....
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....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 that the CIT(Appeals) should not have deleted the addition made on protective basis unless substantive assessment reached finality. 44. The ld. AR submitted that It is an undisputed fact that the impugned House property is not owned by the Assessee Company but is owned by one Shri. C.T. Ravi. The AO has assessed the investment in house property in question in Shri. C.T.Ravi's hands. However, he has proceeded to assess the same protectively in the hand of the Assessee Company as well as in the hands of Sri....
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....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 Basavanahalli House, have gone from out of the funds belonging to the Assessee Company. Therefore, it is apparent from the above that the AO has no basis for the impugned additions made in respect of Basavanahalli House allegedly invested by the Assessee Company. The AO has passed his impugned order merely on the basis of hypothesis, surmise and conjecture. 51. 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/....
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.... 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 under the provisions of Income tax Act, 1961. During the Assessment proceedings consequent to the notice u/s. 153C, the Assessee Company furnished the audited cash book and bank book along with the bank statement concerned and also submitted that the impugned cash deposits as stated above, made in the bank was made out of the cash received on account of contract works carried by the Assessee Company and the cash withdrawals made from the bank during impugned financial years. However, according to the assessee, the AO ignored the evidence produced in the form of audited cash book, Bank book etc., and ....
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....aterial 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 remitted to the file of AO to consider the cash flow/fund flow statement for the relevant assessment year and decided the issue afresh. Undisclosed investment in construction of an office premises belonging to a Trust called Bharathiya Jagruthi Prathisthana Trust of Rs. 54,66,483/- for AY 2010-11 & Rs. 54,66,483/- for AY 2011-12. 62. The AO held that the Assessee Company has invested a sum of Rs. 54,66,483/- for AY 2010-11 & Rs. 54,66,483/- for AY 2011- 12 in order to build the Trust/BJP office and brought the same to tax. The CIT(Appeals) deleted the additions. 63. The ld. DR submitted that this addition ....
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....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 that an assessment u/s 153 C 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. 68. 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. According to the AO, Bharati Jagruthi Pratishtan is a Registered Body, but there are no proceedings initiated against it. The CIT(A) has give....
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....d 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 rejection of books u/s 145(3) the AO is not justified in estimating the income of the Assessee Company. 76. 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 153 C ought to be confined to income arising out of material seized and relied upon to initiate proceedings u/s 153C. In this case the material does not does not form 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 clearl....
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....IT(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 corroborative evidence in order to make an addition. He relied on the the Landmark Decision of Supreme Court on admissibility of evidence in the case of CBI vs V.C.Shukla (1998) 3 SCC wherein it was observed as under:- "According to Section 34 of the Indian Evidence Act, 1872, entries in books of account regularly kept in the course of business, are relevant whenever they refer to a matter into which the court has to enquire but such statements shall not alone be sufficient evidence to charge any person with liability. From a plain reading of Section 34 it is manifest that to make an enquiry relevant thereunder it must be shown: That it has been made in a book; Tha....
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....s 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 where the entries are in the books of account regularly kept, depending on the nature of occupation, that those are admissible; (ii) As to the value of entries in the books of account, such statement shall not alone be sufficient evidence to charge any person with liability, even if they are relevant and admissible, and that they are only corroborative evidence. Even then independent evidence is necessary as to trustworthiness of those entries which is a requirement to fasten the liability; (iii) The meaning of account book would be spiral note book/pad but not loose sheets; (iv) 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 himse....