2020 (1) TMI 1033 - AT - Income Tax

Validity of issue of notice u/s 153C - Mandation to record satisfaction in the case of searched person to assume the jurisdiction for initiating proceedings u/s 153C in the case of such other person - HELD THAT - Department could not establish that the reasons were recorded in the case of searched person respectfully following the view taken in M/S. SHETTYS PHARMACEUTICALS AND BIOLOGICALS LTD. 2014 (12) TMI 1067 - ANDHRA PRADESH HIGH COURT SRI RAO SUBBA RAO (HUF) 2014 (4) TMI 1109 - ANDHRA PRADESH HIGH COURT and M/S SRI PADMAVATHI VENKATESWARA CONSTRUCTIONS NELLORE 2019 (6) TMI 1429 - ITAT VISAKHAPATNAM we hold that the assumption of jurisdiction without recording the reasons in the case of searched person is invalid. Accordingly uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue. Addition in respect of Blue Marino project from sale of 40 villas - unaccounted receipts - AO has taken reference to seized material found during the course of search - HELD THAT - In the instant case the searched person was Sri Lanka Anil Kumar whereas Navaratna Estates is the assessee a different partnership firm. Therefore the material found during the course of search from the residence of Sri Lanka Anil Kumar cannot be attached with the assessee without having sufficient evidence. Though Sri Lanka Anil Kumar had stated that the material found during the course of search was relatable to the assessee he has not furnished the complete details with date of receipt whether it was over and above the registered price or not or whether the receipts mentioned on the reverse side of page No.6 was part of total sale consideration registered consideration or over and above the registered sale consideration etc. In any case the AO cannot solely depend on the material found from the residence of Sri Lanka Anil Kumar and loose sheets to make the addition of undisclosed income. In the instant case the searched person was Sri Lanka Anil Kumar whereas Navaratna Estates is the assessee a different partnership firm. Therefore the material found during the course of search from the residence of Sri Lanka Anil Kumar cannot be attached with the assessee without having sufficient evidence. Though Sri Lanka Anil Kumar had stated that the material found during the course of search was relatable to the assessee he has not furnished the complete details with date of receipt whether it was over and above the registered price or not or whether the receipts mentioned on the reverse side of page No.6 was part of total sale consideration registered consideration or over and above the registered sale consideration etc. In any case the AO cannot solely depend on the material found from the residence of Sri Lanka Anil Kumar and loose sheets to make the addition of undisclosed income. Unaccounted sale price of plots in Sea Pearl Project - AO made the addition on the basis of sale price of plots to 61 to 64 which were adjacent to Sea Pearl Project and has no connection with the project Sea Pearl - HELD THAT - The plot No.61 to 64 and the Sea Pearl projects were completely different and not inter linked. As explained by the assessee it has sold the bulk of plots to M/s Kranthi Properties @4000/- per sq.yd and any amount received over and above the agreed rate would accrue to Kranthi Properties but not to the assessee. The assessee placed copy of MoU reached between the assessee and the Kranthi Properties in page No.190 to 192 of the paper book. No other evidence was brought on record by the department to controvert the finding of the Ld.CIT(A) or to controvert the contents of MoU between the assessee and the Kranthi properties dated 25.07.2013. Therefore we do not find any infirmity in the order of the Ld.CIT(A) and the same is upheld. The appeal of the revenue is dismissed and the cross objections filed by the assessee becomes infructuos on this issue hence dismissed. Unaccounted cash - deficit cash treated as income u/s 68 - HELD THAT - In the instant case there was a deficit cash but not excess cash.. Therefore the deficit cash cannot be treated as income u/s 68 as rightly observed by the Ld.CIT(A). Further in the instant case Managing partner of the assessee firm had stated that he had withdrawn the amount. In reply to the show cause notice also the assessee had explained that on updating the cash book there was no deficit cash and also furnished the extract of updated cash book before the AO. From the explanation of the assessee there was no deficit cash and the AO rejected the explanation of the assessee without going into further details. Since the assessee had explained the deficit cash found during the survey we do not see any reason to interfere with the order of the Ld.CIT(A) and the same is upheld. The appeal of the revenue is dismissed. Addition towards unaccounted sale of land - loose sheets found during the course of search in the residence of Shri Shyam - HELD THAT - Documents are to be taken as a dumb documents which cannot be inferred against the assessee firm. With regard to the assessee firm the assessee had explained that the transaction was related to the sale of land to Nageswara Rao and explained in the statement recorded on 13.01.2016 by Manchukonda Shyam that no excess money was received. No other evidence was brought on record by the AO to controvert the statement given by Shri Manchukonda Shyam. Since the document was found in the residence of Manchukonda Shyam presumption is available to the department to hold that the contents of the document are related to Sri Manchukonda Shyam. The AO did not make any cross verification or enquiry to establish that Navaratna Estates had received on money. The voucher is generally used for payment but not for receipt. The voucher does not contain the details of date name and signature and the AO did not cross verify the transaction with the books of the assessee and Sri Nageswara Rao Hence as observed by the Ld.CIT(A) the AO did not effectively contradict the submissions of the assessee. Therefore we do not see any reason to interfere with the order of the Ld.CIT(A) and the same is upheld. The appeal of the revenue is dismissed.

Summary

Issues Involved:
1. Validity of notice issued under Section 153C of the Income Tax Act, 1961.
2. Addition of unaccounted sales for the A.Y. 2015-16 in respect of plots sold in ‘Sea Pearl’ project.
3. Addition on account of sale of Villas in ‘Blue Marino’ Project.
4. Addition of unaccounted expenditure paid to M/s Dinakar Sai Constructions.
5. Addition of unaccounted cash.
6. Addition towards unaccounted sale of land.

Detailed Analysis:

1. Validity of Notice Issued under Section 153C:
The primary issue was the validity of the notice issued under Section 153C. The Tribunal observed that the Assessing Officer (AO) of the searched person, Sri Manchukonda Shyam, did not record the required satisfaction that the documents found during the search pertained to the assessee, Navaratna Estates. This lack of recorded satisfaction rendered the issuance of the notice under Section 153C invalid. The Tribunal relied on various judicial precedents, including the Hon’ble Supreme Court decision in CIT vs. Sinhgad Technical Educational Society and the CBDT Circular No. 24/2015, which mandates recording satisfaction even if the AO of the searched person and the other person is the same. Consequently, the notice issued under Section 153C was quashed, and the entire proceedings were held void ab initio.

2. Addition of Unaccounted Sales for A.Y. 2015-16 in Respect of Plots Sold in ‘Sea Pearl’ Project:
The AO made an addition of Rs. 24,80,88,660/- for the A.Y. 2015-16, based on the assumption that the plots in the Sea Pearl project were sold at Rs. 13,000/- per sq. yd instead of Rs. 4,000/- per sq. yd as recorded in the books. This assumption was based on the sale price of adjacent plots (61 to 64) sold at Rs. 13,000/- per sq. yd. However, the Tribunal found that there was no direct evidence to support the receipt of on-money for the Sea Pearl project plots. The Tribunal upheld the CIT(A)’s decision to delete the addition, noting that the entire Sea Pearl project was sold through Kranthi Properties as per a Memorandum of Understanding (MoU), and any amount received over and above Rs. 4,000/- per sq. yd would accrue to Kranthi Properties, not the assessee.

3. Addition on Account of Sale of Villas in ‘Blue Marino’ Project:
The AO made an addition of Rs. 5,00,37,000/- for the A.Y. 2016-17, based on seized documents indicating on-money receipts for the sale of villas in the Blue Marino project. The Tribunal noted that the primary evidence relied upon by the AO was the loose sheets found during the search of Sri Lanka Anil Kumar, a key employee of the assessee firm. These loose sheets contained details of villa numbers, sale amounts, and amounts paid. However, the Tribunal found that the AO did not provide corroborative evidence to support the claim of on-money receipts. The Tribunal upheld the CIT(A)’s decision to delete the addition, except for the confirmed on-money receipts for villa Nos. 122 and 139, amounting to Rs. 16.25 lakhs and Rs. 8 lakhs, respectively.

4. Addition of Unaccounted Expenditure Paid to M/s Dinakar Sai Constructions:
The AO made an addition of Rs. 8,99,900/- for unaccounted expenditure paid to M/s Dinakar Sai Constructions. The Tribunal did not specifically address this issue in the detailed analysis, implying that it was not contested separately or was subsumed under the broader issues of unaccounted income and invalid notice under Section 153C.

5. Addition of Unaccounted Cash:
The AO made an addition of Rs. 2,69,314/- for unaccounted cash found during the survey. The CIT(A) deleted this addition, noting that the deficit cash found during the survey could not be treated as income under Section 68 of the Act. The Tribunal upheld this decision, agreeing that the deficit cash could not be considered unaccounted income.

6. Addition Towards Unaccounted Sale of Land:
The AO made an addition of Rs. 51,75,650/- based on vouchers found during the search, indicating unaccounted sale of land. The Tribunal found that the vouchers were incomplete, unsigned, and did not conclusively link to the assessee firm. The Tribunal upheld the CIT(A)’s decision to delete the addition, noting that the AO did not effectively contradict the assessee’s explanation that the vouchers related to the sale of land to Sri Nageswara Rao, with no unaccounted money involved.

Conclusion:
The Tribunal quashed the notices issued under Section 153C due to the lack of recorded satisfaction by the AO of the searched person. Consequently, the additions made by the AO were deleted, except for the confirmed on-money receipts for specific villas in the Blue Marino project. The Tribunal upheld the CIT(A)’s decisions, dismissing the appeals of the revenue and partly allowing the cross objections of the assessee.