M/s E.City Developers Pvt. Ltd., Bangalore V. DCIT, Bangalore

CO 100/BANG/2012

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 5017 (ITAT-BANGALORE)
• Duration Of Justice: 9 year(s) 2 month(s) 29 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 10-03-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 11-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Document seized; Peak credit; Source of fund; Additional evidence; Documents seized
• Section: 154; 142(1); 13; 158BD; 22; 153C

Judgement Text

ITA No.408/Bang/2012 C.O. No.100/Bang/2012 Page 11 of 23 3 11/25/2006D K Sharma 3,600,000Ch No.006653 being amount received from D K Sharma and paid to Padmavathi Krishna. Entered in Ind-sing books on 01/04/2007 4 12/29/2006- D K Sharma 2,500,000Being amount paid to Rasika Garments on behalf of Ind- sing. Entered in Ind-sing books on 01/04/2007 5 12/29/2006D K Sharma - 24,400,000Being amount paid to Mr D K Sharma from Shobha Developers on behalf of Ind- sing through E-City Entered in Ind-sing books on 02/04/2007 6,100,00084,400,000 Difference78,300,000 Balance as on 31.03.2007 as per E-City 167,971,000 Less entries to be made as above78,300,000 89,671,000 ITA No.408/Bang/2012 C.O. No.100/Bang/2012 Page 12 of 23 Balance as on 31.10.2007 as per Ind-sing89,671,000 Balance as on 31.3.2008 as per E-City 9,54,72,000 Balance as on 31.3.2008 as per Ind-sing 9,54,72,000 Th e A.O.h e ld t ha t no evidence was produced for passing such entries and the A.O. concluded that it was only an after thought and not based on facts and concluded that the Assessee had no explanation or sources for assets to the tune of 7,83,00,000/-. It was concluded that the investments were made from unexplained sources. The A.O. also observed that their accounts were audited by C.A's and the explanation of the difference being on account of some journal entries is only an after thought and concluded that the Assessee had claimed bogus liability to the extent of Rs.7,83,00,000/- and added the same as income. 11. Before CIT(A), the assessee submitted that the account copies of both the entities were filed during the assessment proceedings which showed that certain journal entries missed out in M/s Ind-sing's books. The mistake was rectified in April 2007 and the details were furnished to the A.O. vide their letter dated 16.12.2010 and 20.12.2010 explaining the exact difference. The balances in both the books were reconciled as on 31.03.2008 and the balance was Rs. 9,54,72,000/-as both the ledger account copies of M/s Ind-sing and that of the assessee were filed before the A.O. It is also argued that the A.O. in page 15, para 10.1 of Assessment Order has admitted that the assessee had furnished reconciliation statement but in page 16, para 10.3. has mentioned that no evidence for passing entries was furnished by the assessee. ITA No.408/Bang/2012 C.O. No.100/Bang/2012 Page 13 of 23 It was further argued that the Assessee had filed a rectification petition on 03.01.2011 and the A.O. rejected the Assessee's request on 07.01.2011 without even giving any reasons for such rejection. The copies of the letter submitted before the A.O. dated 03.01.2011 is also furnished for records. 12. The CIT(A) after considering the assessee's submissions and the details furnished, condensed the assessee's arguments as under. (i) Certain journal entries made by the assessee in their books pertaining to M/s Ind-sing were not entered in M/s Ind-sing's books for the year ending 31.03.2007 and the account copies of both the entities were filed for records. (ii) M/s Ind-sing had inadvertently missed out entering certain transactions while finalizing their books which were rectified by them and entries were incorporated in their books in April 2007 after the close of the accounting year ending on 31.03.2007. (iii) The difference was explained vide their letters dated 16.12.2010 and 20.12.2010 submitted to the A.O. (iv) While arriving at the balance of 9,54,72,000/-, as on 31.03.2008, the missing entries were made for the year ending 31.03.2008. (v) The journal entries have no impact on the cash flow or fund flow. (vi) It is mentioned by the Assessee that in page 15, para 10.1, of the Assessment Order, the A.O. has admitted that they had ITA No.408/Bang/2012 C.O. No.100/Bang/2012 Page 14 of 23 furnished reconciliation statement explaining the difference and on page 16, para 10.3, the same A.O. has mentioned that no evidence for passing entries is furnished by them. (vii) Both the companies have submitted their account copies and are only journal entries and both are assessed by the same A.O. 13. The CIT(A) found from the reconciliation statement that five journal entries which were missed out on 31.03.2007 were passed by M/s Ind-sing on 01.04.2007 and 02.04.2007. The rectification was carried out after the end of the year on 01.04.2007 and on 02.04.2007. In view of the above, it is a clear case of mistake in Passing the journal entries before 31.03.2007 which has done in subsequent year. After carrying out the rectification, the books of accounts of both the concerns tally for ear ending 31.03.2007 as also 31.03.2008. Accordingly, it that it was a case of simple mistake which has been rectified later and hence, he held that the addition is not sustainable and the same was deleted. 14. Aggrieved by the order of CIT(A), the revenue is in appeal before the Tribunal. In Grd.No.11 raised by the revenue in this regard, the revenue does not dispute the correctness of the finding of the CIT(A) but only projects its grievance that the assessee did not file the reconciliation before the AO and that CIT(A) accepted reconciliation as additional evidence and did not afford opportunity to the AO before accepting the reconciliation of the assessee. Learned DR submitted that the reconciliation was considered ITA No.408/Bang/2012 C.O. No.100/Bang/2012 Page 15 of 23 by the CIT(A) without opportunity to the AO. In this regard, we have perused the Order of Assessment and we find that the AO has duly taken cognizance of this reconciliation in the Order of Assessment. In para 10.3, the AO has made the following observations in this regard : “Even if the claim of the assessee that the difference is due to certain journal entries and the balance outstanding as at 31/3/2007 is taken at the amount shown in the books of M/s Ind-sing Developers Private Limited, the assessee will have no explanation for sources of assets to the tune of Rs 7,83,00,000/-. From the discussion above, it is clear that the assessee has met its investments in assets to the tune of Rs 7,83,00,000/- from unexplained source. It may also be stated here that the accounts of the both the assessee company and the creditor company are audited by a Chartered Accountant. Hence, merely by claiming that the difference is due to some journal entries and filing ledger accounts which are nothing but prepared by the assessee as an afterthought, the assessee cannot absolve from paying tax from its investments from unexplained sources.” 15. In this regard, we also find that the assessee in an application filed under section 154 of the Act on 03.01.2011, has specifically pointed out to the AO that it had already filed rectification and the same should have been taken cognizance and the addition should not have been made. Even in the Order of Assessment, there is a reference to the assessee’s letter dated 20.12.2010 which reads as follows: “The assessee filed one more letter on this issue on 20/12/2010. The relevant portion of the same is reproduced below: "In response to your letter cited above we have filed our replies on 16.12.2010 where in it was stated that the ledger account balance of indsing developers Pvt Ltd in the books of E city developers pvt ltd has been reconciled with ledger account balance of E city developers pvt Ltd account in the books of Indsing developers pvt ltd., we have also state that ledger accounts of both the companies are enclosed. ITA No.408/Bang/2012 C.O. No.100/Bang/2012 Page 16 of 23 We are not sure as to whether these account copies were enclosed or not with our letter dated 16.10.2010. To be of safer side we are enclosing a copy of the ledger account of Ecity developers pvt ltd in the books of Indsing Developers Pvt Ltd for the period from 01.04.2004 to 31.03.2009. similarly we are enclosing the ledger account of Indsing developers Pvt Ltd., for the period from 01.04.2004 to 31.03.2009 in the books of Ecity Developers Pvt Ltd., It may be noted that the balance in both the accounts as on 31.03.2009 is same Rs. 8,18,92,942.00. The difference in each year is due to certain journal entries which has been rectified as on 31.03.2009. we wish to place on record these details called for and explain the various issues hereunder.” 16. This letter also proves that reconciliation based on which the CIT(A) gave relief to the assessee has been filed before the AO. In our view, the reconciliation clearly proves the case of the assessee that it was only a question of reconciliation. The difference is only because of payments made to Shri. D. K. Sharma which has been recorded in the books of the assessee but not recorded in the books of ISDPL. Admittedly, Shri. D. K. Sharma was the owner of 30 acres of land out of 56 acres of land that was acquired by SDPL. The amounts paid by the assessee to Shri. D. K. Sharma which was not accounted had to be reconciled. Apart from the above, there has been reconciliation entries passed by ISDPL and in such circumstances, we are of the view that relief allowed by the CIT(A) was just and proper and calls for no interference. 17. As far as the third issue regarding source of funds deposited in cash in bank accounts is concerned, we find the facts are that the A.O. issued notice u/s 142(1) on 06.09.2010 to furnish bank statements or bank ITA No.408/Bang/2012 C.O. No.100/Bang/2012 Page 17 of 23 accounts maintained by the assessee and to explain the sources of the major deposits appearing in the bank accounts. Vide notice dated 06.09.2010 and the Order Sheet noting dated 17.09.2010, the A.O. had requested for details, but the assessee did not file the bank statements nor any explanation for the sources for making deposits in the bank. In response to the show cause notice dated 08.12.2010, the assessee had filed a letter on 16.12.2010 stating that the details of bank accounts along with explanation for the sources of income is filed, no such annexure or details were enclosed and the assessee was informed of the same by the A.O. vide his letter dated 20.12.2010.The A.O. noticed that there were cash deposits in assessee's bank account No.227010200007115 with Axis Bank to the extent of 10,86,500/- and treated the same as undisclosed income and added the same. 18. Before CIT(A), the assessee submitted that the A.O. was not justified in making this addition and without prejudice, it was claimed that the peak credit has not been worked out. The assessee claimed that they have maintained their regular books of accounts and all the entries in the bank account are explainable and the same are recorded in the books of the assessee. It was also claimed that cash deposits are out of the withdrawals made on various dates and the A.O. has not provided the working of the peak credits. 19. The CIT(A) called upon the assessee to submit t h e st a t em e nt of ac c oun t s o f t he ba nk a s a lso t h e c op y of t he ledger account and the ITA No.408/Bang/2012 C.O. No.100/Bang/2012 Page 18 of 23 same was furnished by the assessee. From the bank statement, the CIT(A) found that there were three credits in the bank account and the details were as under :- Date Mode Amount (Rs.) 28.08.2006 Cash 1,50,000 05.01.2007 Cash 50,000 18.01.2007 Cash 8,86,500 Total 10,86,500 He found from the cash book extracts for the period from 01.04.2006 to 31.03.2007 advance for land purchase of 3,50,000/- on 30.06.2006, as also cash withdrawals of 2,00,000/- on 31.08.2006, 10,000/- on 07.10.2006 and 5,00,000/- on 10.01.2007. However, from the bank extracts, he found that withdrawals made was of 2,00,000/- on 31.08.2006 and 10,000/- made on 07.10.2006 which were shown as self withdrawals and the withdrawal claimed to have been made on 10.01.2007 is actually a cheque given to Mr Nagesh Shettigar of Rs.5,00,000/-. He held that there was no proof available for advance received for purchase of land amounting to 3,50,000/. In the absence of the details regarding receipt of advance for land purchase of Rs.3,50,000/- as also since Rs. 5,00,000/- is withdrawn by Mr Nagesh Shettigar, the CIT(A) found that the assessee was left with only two amounts being Rs.2,00,000/- withdrawn on 31.08.2006 and 10,000/- withdrawn on 07.10.2006 which at best could be given credit for having deposited Rs.8,86,500/-. The CIT(A) held that though the onus was on the assessee to prove that the withdrawn amount had not been spent elsewhere still, giving the benefit of doubt, at best credit could be given only to the extent of 2,10,000/-, 2,00,000/- ITA No.408/Bang/2012 C.O. No.100/Bang/2012 Page 19 of 23 withdrawn on 31.08.2006 and 10,000/- withdrawn on 07.10.2006. In their letter dated 16.12.2011 the assessee clarified that Mr. Nagesh Shettigar was an erstwhile employee and it was stated that he was assisting in handling the day today activities of the appellant and hence, the cash was withdrawn by issuing a bearer cheque in his name. It was also stated that, at that time most of the correspondence from the bank was being addressed to Mr. Nagesh and a sample copy of one such correspondence issued by HSBC Bank dated on 18.10.2010, wherein Mr Nagesh's attention was drawn regarding the KYC (know your customer) norms. Considering t he sa me , t he CI T (A) ga ve be ne f it t o th e asse sse e f or t he a m oun t of Rs.5,00,000/- withdrawn on 10.01.2007 against the cash deposit of Rs.8,86,500/- deposited on 18.01.2007. Hence, the A.O.'s addition was confirmed to the extent of Rs.3,76,500/- (10,86,500/- minus Rs.2,00,000/- minus Rs.10,000/- minus 5,00,000/-) giving the assessee the benefit of withdrawals of 2,00,000/- withdrawn on 31.08.2006 and 10,000/- withdrawn on 07.10.2006 and Rs.5,00,000/- withdrawn on 10.01.2007. 20. The limited prayer of the learned DR was that the CIT(A) gave relief to the assessee without affording an opportunity of rebuttal by the AO. We agree with the submission of the learned Counsel for the assessee and are of the view that this issue should be remanded to the AO for fresh consideration in the light of the additional evidence that wase filed by the assessee before the CIT(A). We hold and direct accordingly. 21. Appeal of the Revenue is accordingly treated as partly allowed for statistical purpose. ITA No.408/Bang/2012 C.O. No.100/Bang/2012 Page 20 of 23 C.O. No.100/Bang/2012 22. As far as the Cross Objection is concerned, there is a delay of 74 days in filing the C.O. which has been explained as owning to mistake and belief that no C.O. need to be filed for raising legal issue. We are of the view that the delay in filing the appeal for the reasons stated in the application for condonation of delay are valid and acceptable and accordingly the delay in filing the appeal is condoned. 23. As far as the grounds raised in the C.O. are concerned, the only ground that was urged at the time of hearing was that the AO did not arrive at a satisfaction before proceeding against the assessee under section 153C of the Act. As far as this objection raised by the assessee is concerned, we find that the Order of Assessment clearly refers to the fact that there was a seized document found in the course of search of ISDPL belonged to the assessee and that was the reason why the proceeding was initiated against the assessee under section 153C of the Act. It is also fact that the AO of the search person and the AO of the assessee are one and the same. In these circumstances, we are of the view that there was a valid satisfaction for proceeding against the assessee under section 153C of the Act. 24. In this regard, the Learned DR also brought to our notice the decision of the Hon’ble Supreme Court in the case of Super Malls Pvt. Ltd., Vs. CIT Civil Appeal Nos.2006 and 2007/2020, judgment dated 05.03.2020 in which the Hon’ble Supreme Court, after referring to the decision of the ITA No.408/Bang/2012 C.O. No.100/Bang/2012 Page 21 of 23 Hon’ble Supreme Court in the case of Calcutta Knitwears (supra) observed as follows: “6. This Court had an occasion to consider the scheme of Section 153C of the Act and the condition precedent to be fulfilled/complied with before issuing notice under Section 153C of the Act in the case of Calcutta Knitwears (supra) as well as by the Delhi High Court in the case of Pepsi Food Pvt. Ltd.(supra). As held, before issuing notice under Section I53C of the Act, the Assessing Officer of the searched person must be "satisfied" that, inter alia, any document seized or requisitioned "belongs to" a person other than the searched person. That thereafter, after recording such satisfaction by the Assessing Officer of the searched person, he may transmit the records/documents/things/papers etc. to the Assessing Officer having jurisdiction over such other person. After receipt of the aforesaid satisfaction and upon examination of such other documents relating to such other person, the jurisdictional Assessing Officer may proceed to issue a notice for the purpose of completion of the assessment under Section 158BD of the Act and the other provisions of Chapter XIV-B shall apply. 6.1 It cannot be disputed that the aforesaid requirements are held to be mandatorily complied with. There can be two eventualities. It may so happen that the Assessing Officer of the searched person is different from the Assessing Officer of the other person and in the second eventuality, the Assessing Officer of the searched person and the other person is the same. Where the Assessing Officer of the searched person is different from the Assessing Officer of the other person, there shall be a satisfaction note by the Assessing Officer of the searched person and as observed hereinabove that thereafter the Assessing Officer of the searched person is required to transmit the documents so seized to the Assessing Officer of the other person. The Assessing Officer of the searched person simultaneously while transmitting the documents shall forward his satisfaction note to the Assessing Officer of the other person and is also required to make a note in the file of a searched person that he has done so. However, as rightly observed and held by the Delhi High Court in the case of Ganpati Fincap (supra), the same is for the administrative convenience and the failure by the Assessing Officer of the searched person, after preparing and dispatching the satisfaction note and the documents to the Assessing Officer of the other person, to make a note in the file of a searched person, will not vitiate the entire proceedings under Section 153C of the Act against the other person. At the same time, the satisfaction note by the Assessing Officer of the searched person that the documents etc. so seized during the search and seizure from the searched person belonged to the other person and transmitting such material to the Assessing Officer of the other person is mandatory. However, in the case where the ITA No.408/Bang/2012 C.O. No.100/Bang/2012 Page 22 of 23 Assessing Officer of the searched person and the other person is the same, it is sufficient by the Assessing Officer to note in the satisfaction note that the documents seized from the searched person belonged to the other person. Once the note says so, then the requirement of Section 153C of the Act is fulfilled. In case, where the Assessing Officer of the searched person and the other person is the same, there can be one satisfaction note prepared by the Assessing Officer, as he himself is the Assessing Officer of the searched person and also the Assessing Officer of the other person. However, as observed hereinabove, he must be conscious and satisfied that the documents seized/recovered from the searched person belonged to the other person. In such a situation, the satisfaction note would be qua the other person. The second requirement of transmitting the documents so seized from the searched person would not be there as he himself will be the Assessing Officer of the searched person and the other person and therefore there is no question of transmitting such seized documents to himself.” 25. In the present case, the AO of the searched person and the AO of the other person i.e., person other than the searched person i.e., the assessee being one and the same, the satisfaction recorded by AO under section 153C of the Act to the effect that documents seized in the search belong to the assessee is sufficient compliance to the requirement of initiating proceedings under section 153C of the Act in the case of the assessee. From a perusal of the order of Assessment, we find that the AO has recorded that the seized documents in the course of search belonged to the assessee. The assessee has not denied this fact at any point of time. As we have already seen the decision of the Hon’ble Supreme Court rendered in the case of Supermall Pvt. Ltd., (supra), settles the issue with regard to initiation of proceedings under section 153C of the Act. The aforesaid decision considers the earlier decision of the Supreme Court in the case of Calcutta Knit Wears (supra). The decision rendered by the Hon’ble Supreme Court therefore clarifies the legal position with regard to the initiation of proceedings under section 153C of the Act. It is seen from the ITA No.408/Bang/2012 C.O. No.100/Bang/2012 Page 23 of 23 judgment of the Hon’ble Supreme Court in the case of Super Mall Pvt. Ltd.,(supra) that if in case the AO of the searched person and the other person is the same, it is sufficient if the AO notes that the documents seized from the searched person belonged to the other person, then the requirement of section 153C of the Act is fulfilled. For the reasons given above, we are of the view that the issue with regard to validity of initiation of proceedings under section 153C of the Act has to be held in favour of the Revenue. The CO is accordingly dismissed. 26. In the result, appeal of the Revenue is partly allowed for statistical purpose and the C.O. is dismissed. Sd/- Sd/- (B. R. BASKARAN)(N. V. VASUDEVAN) ACCOUNTANT MEMBERVICE PRESIDENT Bangalore, Dated : 11.03.2022. /NS/* Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore.