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TMI Blog2022 (6) TMI 482X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel for the respondents, we find that the following substantial questions of law would now arise: 1. Whether the Tribunal was correct in holding that reasons recorded by the Assessing Officer of an assessee u/s. 153C of the It Act, was sufficient and that of transferring Assessing Officer u/s. 153A of the IT Act was not required to record satisfaction? 2. Whether the Tribunal was correct in holding that the words " I am satisfied that the books of accounts belonging to the assessee has been seized" is a note showing satisfaction about documents/ assets found in the course of search showing undisclosed income to acquire jurisdiction? 3. Whether the Tribunal was correct in holding that the documents discovered in the course of search i.e., jewellery bills was brought to tax in the hands of Sri Soma Shekar Reddy, is sufficient material to acquire jurisdiction u/s 153 of the IT Act even though no material relating to the assessee was seized? 6. In the circumstances, the aforesaid substantial questions of law substitute the earlier substantial questions of law which were raised by this Court while admitting the appeals on 07.07.2015. 7. Having regard to the aforesaid di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ph. The assessment for assessment year 200809 was completed by the A.O. u/s 143(3) of the Act. 4. We shall first take up the appeal filed for assessment year 2007-08. The Ld. A.R. submitted that the A.O. has initiated the assessment proceedings u/s 153C of the Act on the reasoning that certain documents belonging to the assessee were seized during the course of search conducted in the hands of Shri Somashekar Reddy and they have been transferred to him. He submitted that the A.O. has not referred to the nature of documents in the assessment order, but the Ld. CIT(A) has referred the same as under:- "Documents: i) A1-page 43-84 of seized from residence of Somashekhar Reddy ii) iii) In view of the above, I am satisfied that books of accounts belonging to the assessee has been seized." The Ld. A.R. submitted that these documents are in the nature of 'bills and estimates' for purchase of jewellery. The above bills are in the name of Smt. G. Vijaya, the assessee herein. He submitted that, as per the provisions of sec.153C of the Act, the assessing officer of searched person should record satisfaction that the documents seized during the course of search belong to/pertai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re liable to be quashed. In this regard, he placed reliance on the decision rendered by coordinate bench in the case of Shri T.H. Suresh Babu (ITA No.1890/Bang/2018 dated 6.4.2022). 5. On the contrary, the Ld. D.R. submitted that the documents referred to above were found from the residence of Shri Somashekhar Reddy, who was the searched person. In those documents, the name of the assessee was mentioned and hence the A.O. of the searched person has treated these documents as belonging to the assessee herein and accordingly transferred them to the AO of the assessee herein. Accordingly, he submitted that the A.O. was justified in initiating proceedings u/s 153C of the Act. 6. We heard the rival contentions on this legal issue and perused the record. The parties submitted that the documents referred to in "A1-page 43-84" are in the nature of bills/estimate for purchase of jewellery. Admittedly those documents are in the name of the assessee herein. It was further admitted by both the parties that the investment found in the above said document has been assessed in the hands of Shri Somashekhar Reddy, from whose hands these documents were seized. As rightly pointed out by Ld. A.R., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nobody's case that the Jaipuria Group had disclaimed these documents as belonging to them. Unless and until it is established that the documents do not belong to the searched person, the provisions of Section 153C of the said Act do not get attracted because the very expression used in Section 153C of the said Act is that "where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A ...." In view of this phrase, it is necessary that before the provisions of Section 153C of the said Act can be invoked, the Assessing Officer of the searched person must be satisfied that the seized material (which includes documents) does not belong to the person referred to in Section 153A (i.e., the searched person). In the Satisfaction Note, which is the subject matter of these writ petitions, there is nothing therein to indicate that the seized documents do not belong to the Jaipuria Group. This is even apart from the fact that, as we have noted above, there is no disclaimer on the part of the Jaipuria Group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - "Thus a condition precedent for issuing notice under s. 153C and assessing or reassessing income of such other person, is that the money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned should belong to such person. If the said requirement is not satisfied, resort cannot be had to the provisions of s. 153C of the Act. Examining the facts 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... President of assessee, an educational institution, indicating capitation fees received by various institutions run by assessee did not establish corelation document-wise with assessment years in question notice issued under section 153C had rightly been quashed and set aside by the Hon'ble Supreme Court." 8. In the instant case, we noticed that there is merit in the contention of Ld A.R that the A.O. of the searched person Shri Somashekhar Reddy has not come to an objective satisfaction that the impugned documents belong to the assessee herein. This is evident from the fact that the AO of Shri Somashekara Reddy has assessed the investments found in those documents in the hands of Shri Somashekara Reddy. The Ld A.R submitted that the searched person, Shri Somashekara Reddy has settled the additions under VSV Act. We also noticed that the action of the AO of the searched person is in accordance with the presumption enshrined in sec.132(4A) and sec. 292C of the Act. If the AO of searched person had arrived an objective satisfaction that these documents belong to the searched person, then he would not have relied upon the very same document for making addition in the hands of the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icating undisclosed income and not any material which was not incriminating. 4. The CIT(A) ought to have appreciated that the purported seized material marked document A 1 pages 43-84 is not even referred or used for the purpose of assessment in case of the appellant assessee and therefore, no valid assessment under the law could have been made u/s153C of the Act. 5. The CIT(A) ought to have appreciated that trade liability of Rs 6,26,74,760 could not have been disallowed as they are genuine and made in the normal course of the business. 6. The CIT(A) also failed to appreciate that the provisions of section 40A(3) and 40(a)(ia) do not apply to the payment made to sundry creditors. 7. The CIT(A) ought to have appreciated that it is not permissible to disallow the trade liability on estimate basis without recording a finding with respect to each credit, in the facts and circumstances of the case. 11. The ground Nos.1 to 4 relates to validity of proceedings- initiated u/s 153C of the Act. However, a perusal of the assessment order would show that the A.O. has passed the assessment order u/s 143(3) of the Act only and he has not invoked the provisions of section 153C of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the outstanding amount pertaining to January 2008 and earlier months cannot be accepted as outstanding liability. Accordingly, he computed proportionate amount of 10 months, which worked out to Rs.4,43,59,293/-. Since the assessee had surrendered Rs.1.00 crore in her return of income, the AO assessed the difference amount of Rs.3,43,59,293/-. 14. The Ld. A.R. submitted that the A.O. has made the above said addition merely on presumptions, surmises and conjectures. He submitted that the balance sheet of the assessee has disclosed the outstanding balance of trading liability as on 31.3.2008 at Rs.11,04,45,695/-. There is no information/material available with the A.O. to show that the above said liability has ceased to exist to the tune of Rs.6,26,74,760/-, i.e., the amount assessed by the A.O. as unproved liabilities. He submitted that these liabilities very much exist in the books of accounts. The Ld. A.R. further submitted that the assessee and his family members were subjected to search by various authorities and they have seized books of accounts and other documents. Hence, the assessee could not effectively furnish the details to prove the trading liabilities. 15. He submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the liability of Rs.11.04 crores is shown in the books of accounts. It has arisen out of trading activities carried on by the assessee. Hence it cannot be treated as unproved liability. The apprehension entertained by the AO is that the liabilities could not have existed as shown by the assessee. However, it is a fact that the AO has not brought any material on record in support of his apprehension. It is well settled proposition of law that the apprehension, howsoever strong, cannot substitute material evidences. In so far as the trading liabilities are concerned, it could be assessed only u/s 41(1) of the Act, when it ceases to exist. In our considered view, the inference drawn by the AO was that the suppliers of services are not having enough means to provide credit to the assessee. However, the AO himself was not aware of the details about the suppliers of the services. Without those details, we are unable to understand as to how the AO could have entertained such kind of views. We also notice that the A.O. has not established that the liability has ceased to exist, which would warrant invoking of provisions of section 41(1) of the Act. Accordingly, in our view, the A.O. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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