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TMI Blog2022 (6) TMI 831X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings which have been completed as on the date of search u/s. 132 however will continue to remain valid. Thus, the former proceedings are referred to as abated assessment proceedings and latter proceedings are referred to as unabated assessment proceedings . Therefore the scope of making assessment on total income u/s. 153C in an unabated assessment proceedings is limited and can be only of assessing income that is not disclosed which is detected or which emanates from material found in the course of search of some other person and which relate to the assessee. In the present case, the impugned addition made by AO is based on incriminating material found during the course of search. The addition can stand since there is seized material in support of the addition made by the AO. The assessee in the return of income disclosed certain transactions as discussed in the assessment order which is reproduced in earlier part of this order and that can be the basis to make addition while framing assessment u/s. 143(3) r.w.s. 153C of the Act. There is seized material found in the course of search which forms the basis for assessing income in the hands of the assessee for these three A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO has made a protective addition, which itself demonstrates that there is no satisfaction that the income belongs 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. 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 [ 2022 (6) TMI 769 - ITAT BANGALORE] 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. Additional profit from contract - I n the present case as demonstrated earlier the material relied upon to arrive at the satisfaction to initiate proceedings u/s 153C are not subject matter of addition and the material relied upon to make additions to income are not subject matter of satisfaction. In view of the above, it was submitted that the CIT(A) upheld the submissions of the Assessee company that the AO is not correct in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate For the Respondent : Shri Sankar Ganesh K., Jt.CIT(DR)(ITAT), Bengaluru ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER These three appeals are by the revenue against the separate orders dated 24.11.2017 of the CIT(Appeals)-11, Bangalore for the assessment years 2010-11 to 2012-13. All these appeals involve common issues, they were heard together and disposed of by this common order. 2. The common grounds of appeal by the revenue raised in ITA No.299/Bang/2018 for the AY 2010-11 are as follows, except change in figures:- 1. Whether on the facts and the circumstances of the case, the Ld. CIT(A) is correct in relying on the order of Karnataka High Court in the case of IBC Knowledge Park Pvt. Ltd. when the assessee has participated 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee Company, on 08.06.2012. Subsequently the Assessee Company s case was centralized with the office of the DCIT, Central Circle 2(3), Bangalore vide Centralization notification in F.NO. 52/Tech/CIT/Mys/2012-13 dated 07.12.2012. Consequent to the search in the case of Sri. H B Sudarshan notices u/s 153C r.w.s. 153A were issued on 15.09.2014 requiring the Assessee Company to file its return of income for the A Y 2010-11 to AY 2012-13. 5. A residential house at Basavanahalli belongs to Sh. C.T. Ravi. As per the statement of affairs of Sh. C.T. Ravi, the construction of the house started in A.Y 2010-11 and construction got completed in A.Y. 2012-13. There was a search u/s 132 conducted in the case of Sh. H.B. Sudarshan who is the 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. Furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rshan\Data of Mac_HBSudarshan\Data\File 1( Version 1).xls contains other excel sheets as well which provide details of the various expenses like steel, cement, labour etc mentioned in the main sheet. This proves that detailed recording of investment in the Basavanahalli house is there in the computer of Sh.H.B.Sudarshan. The main sheet is titled as- Conc Shade Construction Pvt. Ltd. which means the construction has been carried out by M/s Conc Shade Constructions P.Ltd only. As per the digital data- Digital Data of Mac_h.b.sudarshan\Data of Mac_HBSudarshan\present Data\Excel, several files are available having complete description of the items, the architectural specifications, photos and bills of accessories, details of items procured from abroad etc. In fact the quotations are in the name of Sh.C.T. Ravi and Sh. H.B.Sudarshan. Various details also point to purchase of materials from Dubai for the construction of the house. It is very much clear that the funds of Conc Shade Construction Pvt. Ltd. has been used for the construction of the house for the benefit of the assessee. 7. Sh. H.B. Sudarshan and Sh. C.T. Ravi both have been confronted with the evidences and have disowne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ential 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 Prathisthana 54,66,483/- 54,66,483/- - Additional profit from contract 9,68,072/- 16,54,287/- 12,65,930/- The assessing officer made various additions in these assessment years, which are deleted by Ld. CIT(A) and also he quashed the assessments framed u/s 153C of the Act. Against this the revenue is in appeal before us. SATISFACTION RECORDED FOR THE IMPUGNED ASSESSMENT YEARS IS NOT IN ACCORDANCE WITH LAW AND IS NO SATISFACTION AT ALL: 11. The ld. DR submitted that the assessment records are transferred from the AO of the searched person to the AO of the present assessee after duly recording satisfaction that there are certain u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 satisfaction arrived at to the effect that Documents found during Search are Incriminating in Nature and Prima Facie represent Undisclosed Income . In other words, the satisfaction Note, prepared to initiate proceedings must necessarily contain these most essential words Documents found during Search are Incriminating in Nature and Prima Facie represent Undisclosed Income. 15. He submitted that in the instant case, these words are not present in the satisfaction note prepared by the AO of the person searched. Thus, in the absence of a satisfaction that documents found during search are incriminating in nature and prima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessing officer who has jurisdiction on the Other Person to whom the seized material belongs to, to the effect that the seize material has a bearing on the income of that other person. 20. Prior to 14th October 2014, there being a necessity to record a satisfaction only once and that being of the assessing officer who assessed the person searched, it can be safely concluded that the satisfaction should have contained two parts, the first being that The seized material does not belong to the person searched, but to another person and the second being that the seize material being incriminating in Na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nowledge 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 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. 26. In the present case as demonstrated earlier the material relied upon to arrive at the satisfaction to initiate proceedings u/s 153C are not subject matter of addition and the material relied upon to make additions to income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... table 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 absence of corroborative evidence. In the case on hand there is no single evidence in support of any of the additions made in each of the assessment years. 32. We have heard both the parties and carefully perused the material on record including the various judicial decisions cited by the parties. The provisions of section 153C of the Act are as follows:- 153C. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that,- (a) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etrospective 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. Take for instance in the course of search of a person a copy of sale deed of some other person is found which does not per se indicate any undisclosed income and based on which on adverse inference can be drawn, the AO, however, has to make an assessment in the case of the other person u/s.153C of the Act for the six assessment years referred to in Sec.153A of the Act, even if no incriminating material was found in the course of search. This created hardship and this was the reason why the provisions of Sec.153C of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplanatory 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 authorities, on a challenge made to it, can justifiably hold such amendment to be retrospective. The justification behind giving retrospective effect to such amendment is to apply the real intention of the legislature from the date such provision was initially introduced. The intention of the legislature while introducing the provision is gathered, inter alia, from the Finance Bill, Memorandum Explaining the Provision of the Finance Bill. Any amendment to the substantive provision which is aimed at clarifying the existing posit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 as material found in the course of search. The assessment proceedings which have been completed as on the date of search u/s. 132 however will continue to remain valid. Thus, the former proceedings are referred to as abated assessment proceedings and latter proceedings are referred to as unabated assessment proceedings . Therefore the scope of making assessment on total income u/s. 153C in an unabated assessment proceedings is limited and can be only of assessing income that is not disclosed which is detected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 H.B.Sudarshan, the Managing Director of the Assessee Company. Sl No. Financial Year Assessment Year Amount of Investment in Rupees. 1 2009-10 2010-11 1,1 1,10,93,254/- 2 2010-11 2011-12 1,78,28,445/- 3 2011-12 2012-13 1,06,97,067 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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/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 ini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rought 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, accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 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 satisf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 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 ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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, entri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions 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 judgement relied upon by learned Counsel for petitioner in the case of V.C. Shukla case (supra), and others reported in 1998 (3) SCC 410, has no bearing for the case on hand, as that case was dealing with a criminal proceeding involving criminal conspiracy under section 120-B of IPC and further, it was dealing with books of accounts . Whereas, in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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