M/s Bharat Infraa - tech (P) Ltd., Bangalore V. DCIT, Bangalore

CO 211/BANG/2015

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3390 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 1 month(s) 29 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 19-01-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 31-05-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 20-11-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SHARMA SMT VANDANA
• Keywords: Business expenditure; Search and seizure; Principle of natural justice; Bad and doubtful debts; Validity of assessment; Assessment record; Documents seized
• Section: 40A(3); 143(3); 142(1); 153A; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: BANGALORE BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI LALIT KUMAR, JUDICIAL MEMBER ITA NOS. 1442 & 1443/BANG/2014 ASSESSMENT YEARS: 2007-08 & 2008-09 THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1 (2), BANGALORE. APPELLANT VS. M/S. BHARAT INFRA TECH (P) LTD., NO. 186, 1 ST CROSS, HOSUR ROAD, WILSON GARDEN, BANGALORE. PAN: AACCB 0960F .....RESPONDENT AND C.O. NOS. 211 & 212/BANG/2015 (IN ITA NOS. 1442 & 1443/BANG/2014) ASSESSMENT YEARS: 2007-08 & 2008-09 (BY ASSESSEE) ASSESSEE BY : SHRI NARENDRA SHARMA, ADVOCATE REVENUE BY : SMT. VANDANA SAGAR, CIT (DR) DATE OF HEARING : 15 . 11 .2017 DATE OF PRONOUNCEMENT : 19 . 01 .201 8 O R D E R PER SHRI INTURI RAMA RAO, AM: THESE ARE APPEALS FILED BY THE REVENUE AND CROSS OB JECTIONS BY THE ASSESSEE-COMPANY DIRECTED AGAINST DIFFERENT ORDERS OF LD. CIT(A), MYSORE BOTH DATED 28.08.2014 FOR THE ASSESSMENT YEA RS 2007-08 AND 2008-09. ITA NOS. 1442 & 1443/BANG/2014 & C.O. NOS. 211 & 212/BANG/2015 PAGE 2 OF 12 2. NOW WE TAKE UP THE APPEAL AND CROSS OBJECTION FILED FOR ASSESSMENT YEAR 2007-08. 3. BRIEFLY THE FACTS OF THE CASE ARE AS UNDER. 4. THE RESPONDENT ASSESSEE IS A COMPANY. IT IS ENGAGE D IN THE BUSINESS OF BUILDERS AND DEVELOPERS. THE ORIGINAL RETURN OF INCOME FOR ASSESSMENT YEAR 2007-08 WAS FILED ON 06.10.2008 DISCLOSING A TOTAL INCOME OF RS. 1,92,83,060/-. SUBSEQUENTLY, A SEARCH AND SEIZURE OPERATION U/S. 132 OF THE INCOME TAX ACT WE RE CONDUCTED IN THE RESIDENTIAL PREMISES OF MANAGING DIRECTOR OF TH E ASSESSEE COMPANY VIZ. SHRI B.T. DAYANANDA REDDY ON 28.02.200 8. IT IS STATED THAT THE SEARCH AND SEIZURE ACTION IN THE RE SIDENTIAL PREMISES OF THE MANAGING DIRECTOR OF THE RESPONDENT ASSESSEE COMPANY WAS IN RELATION TO THE SEARCH AND SEIZURE OPERATION IN RES PECT OF M/S. ITTINA PROPERTIES (P) LTD. AND GROUP OF CASES. DURING THE COURSE OF SEARCH AND SEIZURE OPERATIONS, IT WAS STATED THAT CERTAIN INCRIMINATING MATERIAL WAS FOUND RELATING TO THE RESPONDENT ASSES SEE COMPANY AND CONSEQUENTLY NOTICE DATED 23.02.2009 U/S. 153C OF T HE ACT WAS ISSUED TO THE RESPONDENT ASSESSEE REQUIRING IT TO F ILE THE RETURN OF INCOME. IN RESPONSE TO SAID NOTICE, RETURN OF INCO ME SAME AS THE ORIGINAL RETURN OF INCOME WAS FILED ON 08.06.2009. AGAINST SAID RETURN OF INCOME THE ASSESSMENT WAS COMPLETED BY TH E LD. ACIT, CENTRAL CIRCLE (1) (2), BANGALORE VIDE ORDER DATED 31.12.2009 PASSED U/S. 143(3) R.W.S. 153C OF THE IT ACT AT A TOTAL IN COME OF RS. 5,20,37,160/-. WHILE DOING SO, THE LD. ASSESSI NG OFFICER MADE THE FOLLOWING ADDITIONS. I) DISALLOWANCE U/S. 40A(3) II) LOSS ON SALE OF LAND MYSORE BRANCH III) M/S. TRINITY SUN RISE IV) BAD DEBTS V) COMPENSATION PAID VI) DISALLOWANCE U/S. 40A(3) ITA NOS. 1442 & 1443/BANG/2014 & C.O. NOS. 211 & 212/BANG/2015 PAGE 3 OF 12 5. BEING AGGRIEVED BY THE ABOVE ADDITIONS, AN APPEAL W AS PREFERRED BEFORE THE LD. CIT(A), MYSORE WHO VIDE IMPUGNED ORD ER GRANTED THE RELIEF AFTER CONSIDERING THE SUBMISSIONS, EVIDENCE FILED BEFORE HIM, GRANTED RELIEF EXCEPT ON THE ITEM OF ADDITION ON AC COUNT OF LOSS ON SALE OF LAND AT MYSORE OF RS. 6,50,500/-. BEING AG GRIEVED, THE REVENUE IS IN APPEAL BEFORE US IN ITA NO. 1442/BANG /2014. THE ASSESSEE HAD FILED C.O. VIDE C.O. NO. 211/BANG/2015 . SINCE THE CO RAISED BY THE ASSESSEE COMPANY GOES TO THE ROOT OF THE MATTER, WE SHALL NOW TAKE UP THE CO. C.O. NO. 211/BANG/2015 IN ITA NO. 1442/BANG/2014:- 6. THE RESPONDENT ASSESSEE COMPANY RAISED THE FOLLOWIN G GROUNDS OF OBJECTIONS. 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME- TAX [APPEALS] IN SO FAR AS IT IS AGAINST THE RESPONDENT / CROSS OBJE CTOR ARE OPPOSED TO LAW, WEIGHT OF EVIDENCE, NATURAL JUSTICE, FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE RESPONDENT / CROSS OBJECTOR DENIES ITSELF LI ABLE TO BE ASSESSED UNDER SECTION 143 [3] R.W.S. 153 C OF THE ACT UNDER THE IMPUGNED ORDER ON THE GROUND THAT:- I. THE SEARCH INITIATED IN THE CASE OF THE SEARCHED PERSON IS ILLEGAL AND ULTRA VIRES THE PROVISIONS OF SECTION 132[1][A], [B ] & [C] OF THE ACT; II. THAT THE SEARCH IS CONDUCTED NOT ON THE BASIS O F ANY PRIOR INFORMATION OR MATERIAL INDUCING ANY BELIEF BUT PUR ELY ON THE SUSPICION AND THEREFORE, THE ACTION UNDER SECTION 1 32[2] IS BAD IN LAW [224 ITR 19 [SC] ] AND CONSEQUENT ASSESSMENT UNDER SECTION 153A IS NULL AND VOID-AB-INITO ON THE PARITY OF THE RATIO O F THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF AJITH JAIN, REPOR TED IN 260 ITR 80 AND CONSEQUENTLY THE ORDER OF ASSESSMENT PASSED UND ER SECTION 153C OF THE ACT IS BAD IN LAW. III. THE LEARNED AUTHORITIES BELOW HAS NOT DISCHARG ED THE BURDEN OF PROVING THAT THERE IS A VALID INITIATION OF SEARCH UNDER SECTION 132[1][A], [B] & [C] OF THE ACT, ITS EXECUTION AND ITS COMPLETION IN ACCORDANCE WITH LAW TO RENDER THE PROCEEDINGS VALID AND TO ASSUME JURISDICTION TO MAKE AN ASSESSMENT UNDER SECTION 15 3A OF THE ACT AND CONSEQUENTLY NO PROCEEDINGS MORESO THE PROCEEDINGS UNDER SECTION 153C OF THE ACT INITIATED ON THE RESPONDENT / CROSS OBJECTOR DO NOT HAVE LEGS TO STAND. ITA NOS. 1442 & 1443/BANG/2014 & C.O. NOS. 211 & 212/BANG/2015 PAGE 4 OF 12 3. THE LEARNED COMMISSIONER OF INCOME-TAX [APPEALS] FAILED TO APPRECIATE THAT THE ORDER OF ASSESSMENT PASSED BY T HE LEARNED ASSESSING OFFICER UNDER SECTION 143 [3] R.W.S. 153C OF THE ACT IS BAD IN LAW AS THE MANDATORY CONDITIONS TO INVOKE THE JURIS DICTION UNDER SECTION 153 C OF THE INCOME-TAX ACT, 1961 DID NOT E XIST OR HAVING NOT BEEN COMPLIED WITH AND CONSEQUENTLY THE ASSESSMENT MADE ON THE RESPONDENT / CROSS OBJECTOR UNDER SECTION 143 [3] R .W.S. 153C IS BAD IN LAW FOR WANT OF REQUISITE JURISDICTION. RELIANCE IS PLACED ON THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF M ANISH MAHESHWARI VS. ACIT & ANOTHER, REPORTED IN 289 ITR 341. 4. WITHOUT PREJUDICE THE RESPONDENT / CROSS OBJECTO R DENIES ITSELF LIABLE TO BE ASSESSED OVER AND ABOVE THE TOTAL INCO ME RETURNED BY THE RESPONDENT / CROSS OBJECTOR OF RS. 1,92,83,060/- UN DER THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. WITHOUT PREJUDICE TO THE RIGHT TO SEEK WAIVER AS PER THE PARITY OF REASONING OF THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF KARANVIR SINGH 349 ITR 692, THE RESPONDENT / CROSS OBJECTOR DENIES ITSELF LIABLE TO BE CHARGED TO INTEREST UNDER SECTI ON 234 A, 234 B AND 234 C OF THE INCOME TAX ACT UNDER THE FACTS AND CIR CUMSTANCES OF THE CASE. FURTHER THE LEVY OF INTEREST UNDER SECTION 23 4 A, 234 B AND 234 C OF THE ACT IS ALSO BAD IN LAW AS THE PERIOD, RATE , QUANTUM AND METHOD OF CALCULATION ADOPTED ON WHICH INTEREST IS LEVIED ARE ALL NOT DISCERNABLE AND ARE WRONG ON THE FACTS OF THE CASE. 6. THE RESPONDENT / CROSS OBJECTOR CRAVES LEAVE OF THIS HON'BLE TRIBUNAL TO ADD, ALTER, DELETE OR SUBSTITUTE ANY OF THE GROUNDS URGED ABOVE. 7. IN VIEW OF THE ABOVE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE CROSS OBJECTION, YOUR RESPON DENT / CROSS OBJECTOR HUMBLY PRAY THAT THE CROSS OBJECTION MAY B E ALLOWED IN THE INTEREST OF EQUITY AND JUSTICE. 7. THE MAIN ISSUE RAISED IN THE CROSS OBJECTION IS REG ARDING THE VALIDITY AND CHALLENGING THE JURISDICTION OF THE ASSESSING O FFICER U/S. 153C OF THE ACT. IT IS A CONTENTION OF THE ASSESSEE COMPAN Y THAT THERE IS NO NEXUS BETWEEN THE SEIZED MATERIAL AND THE ADDITIONS MADE AND THEREFORE THE ASSESSMENT MADE IS BAD IN LAW. EVEN THE LD. CIT COULD NOT CONTROVERT THIS SUBMISSION DESPITE AN OPPORTUNI TY GIVEN TO HER TO VERIFY THE ASSESSMENT RECORDS. ITA NOS. 1442 & 1443/BANG/2014 & C.O. NOS. 211 & 212/BANG/2015 PAGE 5 OF 12 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. 9. ON THE MERE PERUSAL OF THE ASSESSMENT ORDER, IT IS CLEAR THAT THE ADDITIONS WERE NOT MADE WITH REFERENCE TO ANY SEIZE D MATERIAL FOUND IN CASE OF SEARCHED PERSON VIZ., SHRI B.T. DAYANAND A REDDY. THERE IS NO WHISPER OR REFERENCE TO ANY SEIZED MATERIAL I N THE ASSESSMENT ORDER. THE ADDITIONS WERE MADE BASED ON THE REAPPR ECIATION OF THE MATERIAL AND DOCUMENTS THAT WERE PART OF THE RECORD FILED BY THE ASSESSEE ALONG WITH THE ORIGINAL RETURN OF INCOME. THE ASSESSING OFFICER HAD PLACED RELIANCE UPON THE EXISTING DOCUM ENTS THAT WERE DISCLOSED BY THE ASSESSEE ALONG WITH THE ORIGINAL R ETURN OF INCOME. IT IS NOT THE CASE OF THE REVENUE THAT THERE IS ABA TEMENT OF ASSESSMENT PROCEEDINGS UNDER THE PROVISIONS OF SECT ION 153C OF THE ACT. THE SEIZED MATERIAL SHOULD BE INCRIMINATING I N NATURE AND IT SHOULD BE IN RELATION TO THE ASSESSEE OF THE ASSESS MENT YEAR UNDER CONSIDERATION. THIS IS A CONDITION WHICH IS A SINQUAN FOR VALID EXERCISE OF JURISDICTION U/S. 153C OF THE ACT, FAIL URE TO SATISFY THIS CONDITION RENDERS THE ASSESSMENT TO BE NULL AND VOI D. RELIANCE IN THIS REGARD CAN BE PLACED ON THE RECENT DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. SINHGAD TECHNICAL EDUC ATION SOCIETY AS REPORTED IN 397 ITR 344, WHEREIN, THE HONBLE APEX COURT HELD THAT IN THE ABSENCE OF NEXUS BETWEEN THE SEIZED MATERIAL AND THE ADDITIONS MADE, THE NECESSARY CONDITION PRECEDENT F OR VALID JURISDICTION UNDER SECTION 153C IS NOT SATISFIED. THE RELEVANT PORTION OF THIS JUDGEMENT IS AS UNDER. 16. IN THESE APPEALS, QUA THE AFORESAID FOUR ASSESS MENT YEARS, THE ASSESSMENT IS QUASHED BY THE ITAT (WHICH ORDER IS U PHELD BY THE HIGH COURT) ON THE SOLE GROUND THAT NOTICE UNDER SECTION 153C OF THE ACT WAS LEGALLY UNSUSTAINABLE. THE EVENTS RECORDED ABOV E FURTHER DISCLOSE THAT THE ISSUE PERTAINING TO VALIDITY OF NOTICE UND ER SECTION 153C OF THE ACT WAS RAISED FOR THE FIRST TIME BEFORE THE TR IBUNAL AND THE TRIBUNAL PERMITTED THE ASSESSEE TO RAISE THIS ADDIT IONAL GROUND AND WHILE DEALING WITH THE SAME ON MERITS, ACCEPTED THE CONTENTION OF THE ASSESSEE. 17. FIRST OBJECTION OF THE LEARNED SOLICITOR GENERA L WAS THAT IT WAS IMPROPER ON THE PART OF THE ITAT TO ALLOW THIS GROU ND TO BE RAISED, ITA NOS. 1442 & 1443/BANG/2014 & C.O. NOS. 211 & 212/BANG/2015 PAGE 6 OF 12 WHEN THE ASSESSEE HAD NOT OBJECTED TO THE JURISDICT ION UNDER SECTION 153C OF THE ACT BEFORE THE AO. THEREFORE, IN THE FI RST INSTANCE, IT NEEDS TO BE DETERMINED AS TO WHETHER ITAT WAS RIGHT IN PE RMITTING THE ASSESSEE TO RAISE THIS GROUND FOR THE FIRST TIME BE FORE IT, AS AN ADDITIONAL GROUND. 18. THE ITAT PERMITTED THIS ADDITIONAL GROUND BY GI VING A REASON THAT IT WAS A JURISDICTIONAL ISSUE TAKEN UP ON THE BASIS OF FACTS ALREADY ON THE RECORD AND, THEREFORE, COULD BE RAISED. IN THIS BEHALF, IT WAS NOTED BY THE ITAT THAT AS PER THE PROVISIONS OF SECTION 1 53C OF THE ACT, INCRIMINATING MATERIAL WHICH WAS SEIZED HAD TO PERT AIN TO THE ASSESSMENT YEARS IN QUESTION AND IT IS AN UNDISPUTE D FACT THAT THE DOCUMENTS WHICH WERE SEIZED DID NOT ESTABLISH ANY C O-RELATION, DOCUMENT-WISE, WITH THESE FOUR ASSESSMENT YEARS. SI NCE THIS REQUIREMENT UNDER SECTION 153C OF THE ACT IS ESSENT IAL FOR ASSESSMENT UNDER THAT PROVISION, IT BECOMES A JURISDICTIONAL F ACT. WE FIND THIS REASONING TO BE LOGICAL AND VALID, HAVING REGARD TO THE PROVISIONS OF SECTION 153C OF THE ACT. PARA 9 OF THE ORDER OF THE ITAT REVEALS THAT THE ITAT HAD SCANNED THROUGH THE SATISFACTION NOTE AND THE MATERIAL WHICH WAS DISCLOSED THEREIN WAS CULLED OUT AND IT S HOWED THAT THE SAME BELONGS TO ASSESSMENT YEAR 2004-05 OR THEREAFT ER. AFTER TAKING NOTE OF THE MATERIAL IN PARA 9 OF THE ORDER, THE PO SITION THAT EMERGES THEREFROM IS DISCUSSED IN PARA 10. IT WAS S PECIFICALLY RECORDED THAT THE COUNSEL FOR THE DEPARTMENT COULD NOT POINT OUT TO THE CONTRARY. IT IS FOR THIS REASON THE HIGH COURT HAS ALSO GIVEN ITS IMPRIMATUR TO THE AFORESAID APPROACH OF THE TRIBUNA L. THAT APART, LEARNED SENIOR COUNSEL APPEARING FOR THE RESPONDENT , ARGUED THAT NOTICE IN RESPECT OF ASSESSMENT YEARS 2000-01 AND 2 001-02 WAS EVEN TIME BARRED. 19. WE, THUS, FIND THAT THE ITAT RIGHTLY PERMITTED THIS ADDITIONAL GROUND TO BE RAISED AND CORRECTLY DEALT WITH THE SA ME GROUND ON MERITS AS WELL. ORDER OF THE HIGH COURT AFFIRMING T HIS VIEW OF THE TRIBUNAL IS, THEREFORE, WITHOUT ANY BLEMISH. BEFORE US, IT WAS ARGUED BY THE RESPONDENT THAT NOTICE IN RESPECT OF THE ASS ESSMENT YEARS 2000- 01 AND 2001-02 WAS TIME BARRED. HOWEVER, IN VIEW OF OUR AFOREMENTIONED FINDINGS, IT IS NOT NECESSARY TO ENT ER INTO THIS CONTROVERSY. 20. INSOFAR AS THE JUDGMENT OF THE GUJARAT HIGH COU RT RELIED UPON BY THE LEARNED SOLICITOR GENERAL IS CONCERNED, WE FIND THAT THE HIGH COURT IN THAT CASE HAS CATEGORICALLY HELD THAT IT I S AN ESSENTIAL CONDITION PRECEDENT THAT ANY MONEY, BULLION OR JEWE LLERY OR OTHER VALUABLE ARTICLES OR THING OR BOOKS OF ACCOUNTS OR DOCUMENTS SEIZED OR REQUISITIONED SHOULD BELONG TO A PERSON OTHER TH AN THE PERSON REFERRED TO IN SECTION 153A OF THE ACT. THIS PROPOS ITION OF LAW LAID DOWN BY THE HIGH COURT IS CORRECT, WHICH IS STATED BY THE BOMBAY HIGH COURT IN THE IMPUGNED JUDGMENT AS WELL. THE JU DGMENT OF THE GUJARAT HIGH COURT IN THE SAID CASE WENT IN FAVOUR OF THE REVENUE ITA NOS. 1442 & 1443/BANG/2014 & C.O. NOS. 211 & 212/BANG/2015 PAGE 7 OF 12 WHEN IT WAS FOUND ON FACTS THAT THE DOCUMENTS SEIZE D, IN FACT, PERTAIN TO THIRD PARTY, I.E. THE ASSESSEE, AND, THEREFORE, THE SAID CONDITION PRECEDENT FOR TAKING ACTION UNDER SECTION 153C OF T HE ACT HAD BEEN SATISFIED. 21. LIKEWISE, THE DELHI HIGH COURT ALSO DECIDED TH E CASE ON ALTOGETHER DIFFERENT FACTS WHICH WILL HAVE NO BEARING ONCE THE MATTER IS EXAMINED IN THE AFORESAID HUE ON THE FACTS OF THIS CASE. THE BOMBAY HIGH COURT HAS RIGHTLY DISTINGUISHED THE SAID JUDGMENT AS NOT APPLICABLE GIVING THE FOLLOWING REASONS: 8. RELIANCE ON THE JUDGMENT OF THE DIVISION BENCH OF THE HIGH COURT OF DELHI REPORTED IN CASE OF SSP AVIATION LTD . VS. DEPUTY COMMISSIONER OF INCOME TAX (2012) 346 ITR 177 IS MI SPLACED. THERE, SEARCH WAS CARRIED OUT IN THE CASE OF P GR OUP OF COMPANIES. IT WAS FOUND THAT THE ASSESSEE BEFORE TH E HONBLE DELHI HIGH COURT HAD ACQUIRED CERTAIN DEVELOPMENT R IGHTS FROM P GROUP OF COMPANIES. BASED THEREON, THE SATISFAC TION WAS RECORDED BY THE ASSESSING OFFICER AND HE ISSUED NOT ICE IN TERMS OF SECTION 153C. THEREUPON THE PROCEEDINGS WERE INI TIATED UNDER SECTION 153A AND THE ASSESSEE WAS DIRECTED TO FILE RETURNS FOR THE SIX ASSESSMENT YEARS COMMENCING FROM 2003-0 4 ONWARDS. THE ASSESSEES FILED RETURNS FOR THOSE YEAR S BUT DISCLOSED NIL TAXABLE INCOME. THESE RETURNS WERE AC CEPTED BY THE ASSESSING OFFICER, HOWEVER, IN RESPECT OF THE A SSESSMENT YEAR 2007-08 THERE WAS A SIGNIFICANT DIFFERENCE IN THE P ATTERN OF ASSESSMENT FOR THIS YEAR ALSO, THE RETURN WAS FILED FOR NIL INCOME BUT THERE WERE CERTAIN DOCUMENTS AND WHICH SHOWED T HAT THERE WERE TRANSACTIONS OF SALE OF DEVELOPMENT RIGHTS AND FROM WHICH PROFITS WERE GENERATED AND TAXABLE FOR THE ASSESSME NT YEAR 2007-08. THUS, THE RECEIPT OF RS.44 CRORES AS DEPOS IT IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2008- 09 AND LATER ON BECAME SUBJECT MATTER OF THE WRIT PETITION BEFOR E THE DELHI HIGH COURT. THAT WAS CHALLENGING THE VALIDITY OF NO TICE UNDER SECTION 153C READ WITH SECTION 153A. IN DEALING WIT H SUCH SITUATION AND THE PECULIAR FACTS THAT THE DELHI HIG H COURT UPHELD THE SATISFACTION AND THE DELHI HIGH COURT FO UND THAT THE MACHINERY PROVIDED UNDER SECTION 153C READ WITH SEC TION 153A EQUALLY FACILITATES INQUIRY REGARDING EXISTENCE OF UNDISCLOSED INCOME IN THE HANDS OF A PERSON OTHER THAN SEARCHED PERSON. THE PROVISIONS HAVE BEEN REFERRED TO IN DETAILS IN DEALING WITH A CHALLENGE TO THE LEGALITY AND VALIDITY OF THE SEIZU RE AND ACTION FOUNDED THEREON. WE DO NOT FIND ANYTHING IN THIS JU DGMENT WHICH WOULD ENABLE US TO HOLD THAT THE TRIBUNALS UNDERST ANDING OF THE SAID LEGAL PROVISION SUFFERS FROM ANY ERROR APPAREN T ON THE FACE OF THE RECORD. THE DELHI HIGH COURT JUDGMENT, THERE FORE, WILL NOT CARRY THE CASE OF THE REVENUE ANY FURTHER. WE, THUS, DO NOT FIND ANY MERIT IN THESE APPEALS. ITA NOS. 1442 & 1443/BANG/2014 & C.O. NOS. 211 & 212/BANG/2015 PAGE 8 OF 12 10. IN THE LIGHT OF THIS LEGAL POSITION SINCE IN THE PR ESENT CASE THERE WAS NO REFERENCE TO THE SEIZED MATERIAL AND NEXUS B ETWEEN THE SEIZED MATERIAL AND THE ADDITION MADE, THE ADDITION CANNOT BE SUSTAINED AND THERE IS NO VALID EXERCISE OF JURISDI CTION U/S. 153C. AS A CONSEQUENCE OF WHICH THE ASSESSMENT ORDER DATED 3 1.12.2009 IS NOT VALID UNDER LAW. 11. THE CROSS OBJECTION FILED BY THE ASSESSEE COMPANY I S ALLOWED. REVENUE APPEAL ITA NO. 1442/BANG/2014 IN ASSESSMENT YEAR 2008-09:- 12. SINCE IN THE CROSS OBJECTION FILED BY THE ASSESSEE COMPANY WHO HELD THAT ASSESSMENT ORDER IS NOT VALID IN LAW, APP EAL FILED BY THE REVENUE IN ITA NO. 1442/BANG/2014 IS DISMISSED. ITA NO. 1443/BANG/2014 IN ASSESSMENT YEAR 2008-09:- 13. THE ASSESSEE COMPANY HAD NOT FILED THE RETURN OF IN COME VOLUNTARILY U/S. 139(1) EVEN THERE WAS FAILURE ON P ART OF THE ASSESSEE IN RESPOND TO NOTICE U/S. 142(1) ISSUED ON 24.02.20 09. SUBSEQUENTLY THE ASSESSING OFFICER ISSUED NOTICE U/ S. 142(1) OF THE ACT REQUIRING THE ASSESSEE TO PRODUCE THE BOOKS OF ACCOUNT AND OTHER DOCUMENTS. SUBSEQUENTLY, THE RETURN OF INCOME WAS FILED ON 21.10.2009 DECLARING INCOME OF RS. 1,89,149/- AND T HE ASSESSMENT WAS COMPLETED BY THE ACIT, CENTRAL CIRCLE 1(2), B ANGALORE VIDE ORDER DATED 31.12.2009 PASSED U/S. 143(3) OF IT ACT AT A TOTAL INCOME OF RS. 1,14,82,150/-. WHILE DOING SO THE AS SESSING OFFICER DISALLOWED A SUM OF RS. 27,25,725/- BY HOLDING AS U NDER AND ALSO DISALLOWED THE BAD DEBTS OF RS. 5,68,497/- IN RESPE CT OF ST. MARYS EDUCATIONAL TRUST AND RS. 79,98,779/- AND IN RESPEC T OF SRI BALAJI BUILDERS AND DEVELOPERS ON THE GROUND THAT THE DEBT S HAVE NOT BECOME BAD. THE RELEVANT FINDINGS OF THE AO ARE AS UNDER. 7. THE ASSESSEE HAS SHOWN UNDER PROJECT ADVANCES, M /S.GANCON PROJECT AT RS.2 CRORES AS ON 31.3.2005. AS PER THE BANK ACCOUNT THE ITA NOS. 1442 & 1443/BANG/2014 & C.O. NOS. 211 & 212/BANG/2015 PAGE 9 OF 12 ASSESSEE HAS ISSUOD TWO CHEQUES OF RS.ONE CRORE EAC H DURING THE F.Y.2004-05 AND THE CHEQUES WERE REALIZED ON 4.4.05 . THE TOTAL AMOUNT RECEIVED AS ON 31.3.08 IS RS.2,59,28,314/-. THE ASSESSEE HAS SHOWN RS.32,02,589/- AS INCOME FROM THIS. IT IS STA TED THAT THE ASSESSEE HA PAID INTEREST. THE ASSESSEE HAS NOT PRO DUCED ANY DOCUMENTARY EVIDENCE AND THE PURPOSE AND THE NATURE OF LOAN AND THE DETAILS OF INTEREST PAID. IN THE ABSENCE OF ANY DET AILS, THE DIFFERENCE OF RS.27,25,725/- IS ADDED TO THE INCOME. ADDITIONS : RS.27,25,725/- BEING AGGRIEVED, AN APPEAL WAS PREFERRED BEFORE CIT (A). THE CIT(A) AFTER CALLING FOR THE REMAND REPORT HAD DELETED THE ADDITION ON ACCOUNT OF INTEREST OF RS. 27,25,725/- BASED ON THE REMAND REPORT OF THE ASSESSING OFFICER WHEREIN THE ASSESSING OFFICER HAD ADMITTED THAT THE SAID AMOUNT IS NOT IN THE NATURE OF INTERE ST, BUT THE BANK CHARGES. AS REGARDS, THE BAD DEBTS WRITTEN OF IN T HE SUM OF RS. 5,68,497/-, THE SAME WAS CONFIRMED AS THE AMOUN T WRITTEN OFF WAS NOT IN THE NATURE OF DEBTS. AS REGARDS THE AMO UNT OF WRITTEN OFF OF BAD DEBTS OF SRI BALAJI BUILDERS AND DEVELOPERS, THE CIT(A) AFTER CONSIDERING THE REMAND REPORT AND THE SUBMISSION OF THE ASSESSEE COMPANY ALLOWED / GRANTED RELIEF BY HOLDING AS UNDE R. 10.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AS WELL AS THE COMMENTS OF THE A.O. IN THE REMAND R EPORT. THE APPELLANT HAD ENTERED INTO A MEMORANDUM OF AGREEMEN T WITH SRI. BALAJI BUILDERS & DEVELOPERS FOR THE DEVELOPME NT OF A PROJECT CALLED GOLD VIEW APARTMENTS VIDE A MEMORANDUM OF AG REEMENT DATED 02.04.2005 PURSUANT TO THE AGREEMENT CERTAIN ADVANCES TO SRI. BALAJI BUILDERS & DEVELOPERS ON VARIOUS DATES TOWAR DS THE DEVELOPMENT OF PROJECT (A COPY OF THE MOA WAS MADE PART OF THE WRITTEN SUBMISSIONS BY THE APPELLANT). BILLS WERE R AISED ON THE APPELLANT AND THE SAME WAS PAID BY THE APPELLANT. T HE COSTS INCURRED TOWARDS DEVELOPMENT OF THE PROJECT WERE SHOWN UNDER THE HEAD ADVANCES IN THE BOOKS OF THE APPELLANT. AS SEEN FRO M THE LEDGER COPIES FURNISHED BY THE APPELLANT, THE APPELLANT HAD A RUN NING ACCOUNT OF PAYMENTS TO THE PARTY. AS AND WHEN BILLS ARE SUBMIT TED, THE SAME WERE ALSO RECORDED. THE BILLS WERE SUBMITTED BY THE SAID PARTY TILL 25.04.2006. THE APPELLANT SUBSEQUENTLY MADE A PAYME NT OF RS.25,00,000/- ON 07.02.2007 AND ANOTHER RS.25,00,0 00/- ON 29.05.2007 WHICH TOGETHER WITH THE EARLIER BALANCE CONSTITUTED THIS OUTSTANDING FIGURE. THE BILLS FOR THESE ADVANCES AR E NOT REFLECTED IN THE LEDGER ACCOUNT. HOWEVER, CONSIDERING THE FACT T HAT THE APPELLANT HAS SOLD SUBSTANTIAL FLATS AND HELD THE BALANCE, TH E WORKS APPARENTLY ARE EXECUTED. HENCE, THIS IS DEFINITELY A BUSINESS EXPENDITURE WHICH SHOULD BE TAKEN AS PROJECT COST. ITA NOS. 1442 & 1443/BANG/2014 & C.O. NOS. 211 & 212/BANG/2015 PAGE 10 OF 12 10.4 I HAVE CONSIDERED THE CONTENTIONS AND EXPLANAT IONS OF THE APPELLANT AND THE MATERIAL AVAILABLE ON RECORD. THE AMOUNT WRITTEN OFF BY THE APPELLANT OF RS. 79,98,779/- IS TOWARDS THE PROJECT UNDERTAKEN BY THE APPELLANT AND THE SAID AMOUNT WHI CH IS WRITTEN OFF AS BAD DEBT THOUGH TECHNICALLY IS NOT CORRECT DEFIN ITELY IS IN THE NATURE OF BUSINESS EXPENDITURE. HENCE, I FIND SUBSTANCE IN THE CLAIM OF THE APPELLANT IN THE WRITTEN SUBMISSION THAT THE SAID A MOUNT OF RS. 79,98,779/- IS TO BE APPROPRIATED TOWARDS THE COST OF THE PROJECT. ACCORDINGLY, AO IS DIRECTED TO TREAT THIS AS PROJEC T COST. IN EFFECT, THIS GROUND IS ALLOWED. 14. BEING AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US. THE GROUNDS OF APPEAL FILED BY THE REVENUE CHALLENGES T HE RELIEF GRANTED BY CIT(A) ON THE BAD DEBTS WRITTEN OFF. THE LD. CI T(DR) ARGUED THAT THE CIT(A) OUGHT NOT TO HAVE GRANTED THE RELIEF. O N THE OTHER HAND, THE LD. COUNSEL SUPPORTED THE ORDER OF CIT(A). 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ONLY ISSUE IN THIS GROUNDS OF APPEA L IS WHETHER THE CIT(A) WAS JUSTIFIED IN GRANTING RELIEF ON THE ADDI TION MADE IN RESPECT OF BAD DEBTS WRITTEN OFF. THE ONLY GROUNDS ON WHIC H THE AO HAS MADE ADDITION IS THAT THE ASSESSEE HAS FAILED TO PR OVE THAT DEBT HAS BECOME BAD. AFTER CONSIDERING THE SUBMISSION THAT THE AMOUNT ADVANCED TO SRI BALAJI BUILDERS AND DEVELOPERS WAS FOR THE DEVELOPMENT OF PROJECT CALLED GOLD VIEW APARTMENTS IN TERMS OF MEMORANDUM OF AGREEMENT DATED 02.04.2005 AND THESE AMOUNTS WERE SHOWN AS COST BY DEVELOPER OF THE PROJECT AND FINALLY THIS PROJECT COULD NOT BE COMPLETED BY THEM AND THE SAME WAS WRITTEN OFF IN THE BOOKS OF ACCOUNTS AS BAD DEBTS. IT IS T HE CONTENTION OF THE ASSESSEE-COMPANY THAT IF NOT AS A BAD DEBT THE SAME SHOULD BE ALLOWED AS A BUSINESS LOSS, ONCE THE AMOUNTS WRITTE N OFF IN THE BOOKS OF ACCOUNT IS BAD DEBT, THE SAME SHOULD BE ALLOWED AS A BAD DEBT AND IS NO LONGER REQUIREMENT OF LAW TO PROVE THAT T HE DEBT HAS BECOME REALLY BAD. IN THIS REGARD THE RELIANCE WAS PLACED BY THE ASSESSEE-COMPANY ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF T.R.F. LTD. VS. CIT AS REPORTED IN 323 ITR 397. THE ASSESSEE-COMPANY ALSO MADE ALTERNATIVE TO SUBMISSIO N THAT IF NOT AS ITA NOS. 1442 & 1443/BANG/2014 & C.O. NOS. 211 & 212/BANG/2015 PAGE 11 OF 12 A BAD DEBT THE SAME SHOULD BE ALLOWED AS A BUSINESS LOSS AFTER PLACING RELIANCE ON THE FOLLOWING DECISIONS. A. HARSHAD J CHOKSI VS. CIT, 80 DTR 20 [BORN]; WHER EIN THE HON'BLE COURT HAS HELD THAT 'IF A DEDUCTION IS NOT ALLOWABL E AS BAD DEBT, THERE IS NO BAR IN CLAIMING THE LOSS AS A BUSINESS LOSS, IF THE SAME IS INCIDENTAL TO CARRYING ON OF BUSINESS. B. CIT, MYSORE VS. Y. V.SREENIVAS MURTHY, 63 ITR 306 [ MYSORE HIGH COURT] C. CIT VS. ABDUL RAZAK & CO., 136 ITR 825 [GUJ] D. TAR & BITUMEN PRODUCTS LTD., VS. CIT, 136 ITR 833 [ CAL], E. CIT VS. SRI. VINAYAGA PICTURES, 161 ITR 65 [MAD], F. CIT VS. K.M.MODY, 141 ITR 903 [BORN], G. BILASRAI JUHARMAL VS. CIT, 141 ITR 915 [BORN], H. CIT VS. CRESENT FILMS (P) LTD., 248 ITR 670 [MAD], I. CIT VS. ESSEN (P) LTD., 49 ITR 109 [MAD] 16. THE LD. CIT(A), AFTER CONSIDERING THE ABOVE SUBMISS IONS HAD ALLOWED THE RELIEF. THE LD. CIT(DR) HAS NOT PLACED ANY MATERIAL ON RECORD CONTROVERTING THE FINDINGS OF CIT(A) AND SIN CE THE ORDER OF CIT(A) IS INCONSONANCE WITH WELL SETTLED POSITION O F LAW ON THE ISSUE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORD ER OF CIT(A). HENCE THE APPEAL FILED BY THE REVENUE IS DISMISSED. C.O. NO. 212/BANG/2015 IN ITA NO. 1443/BANG/2014:- 17. THE CROSS OBJECTION FILED BY THE ASSESSEE-COMPANY C HALLENGING THE VERY VALIDITY OF ASSESSMENT ORDER PASSED AS THE RE WAS NO INCRIMINATING MATERIAL FOUND AS A RESULT OF SEARCH ACTION IN THE PREMISES OF THE MANAGING DIRECTOR OF THE ASSESSEE-C OMPANY. MERE PERUSAL OF THE ASSESSMENT ORDER WOULD SHOW THAT THE ASSESSMENT ORDER WAS NOT FRAMED AS A CONSEQUENCE OF THE INCRIM INATING MATERIAL. THERE IS A ABATEMENT OF ASSESSMENT PROCE EDINGS. IN THE REVENUE APPEAL WE HAD CONFIRMED THE ORDER OF LD. CI T(A) GRANTING RELIEF. 18. IN THE RESULT, THE ISSUES IN THE CROSS OBJECTIONS R AISED HAVE BECOME INFRUCTUOUS AND DISMISSED AS SUCH. ITA NOS. 1442 & 1443/BANG/2014 & C.O. NOS. 211 & 212/BANG/2015 PAGE 12 OF 12 19. IN THE RESULT BOTH THE APPEALS FILED BY THE REVENUE AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSE D. PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF JANUARY, 2018. SD/- SD/- ( LALIT KUMAR ) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 19 TH JANUARY, 2018. / MS/ COPY TO: 1. APP ELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.