RKS BUILDERS PROMOTERS 1189, NEAR AARTI CHOWK, KRISHNA NAGAR, LUDHIANA,PUNJAB V. THE DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-2, LUDHIANA , PUNJAB

ITA 648/CHANDI/2024

AI Insights

The case involves multiple appeals and cross-objections by the revenue and the assessee, M/s RKS Builders and Promoters, concerning the additions made by the AO under section 153C of the Income Tax Act for various Assessment Years (AYs). The primary issue was the legality and validity of the additions made by the AO, which were based on the DVO's valuation following a search operation under section 132. The Tribunal examined whether the AO had the jurisdiction to make these additions without any incriminating material found directly related to the assessee and whether the proper procedural requirements under section 153C were followed.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 397936 (ITAT-CHANDIGARH)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2019-2020
• Other Referred Cases: DCIT vs. U.K.Paints (Overseas) Ltd., Pr. CIT vs. Abhisar Buildwell (P.) Ltd., SSP Aviation Ltd. vs. DCIT, Sargam Cinema vs. CIT, Chouhan Resorts vs. CIT, Nirpal Singh vs. CIT, Freedom Board & Paper Mills vs. CIT, Rajesh Mahajan vs. CIT, Pr. CIT vs. G. Lakshmi Aruna, Pr. CIT vs. Gali Janaradhana Reddy, Rawalpindi Co-op. Cinema Society Ltd. vs. ITA Nos.180/Chd/2024, Singhad Technical Education Society vs. CIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KUSUM BANSAL LD
• Assessee Lawyers: SUDHIR SEH GAL LD
• Keywords: Set aside; Opportunity of being heard; Reassessment proceedings; Unexplained investment; Documents seized
• Section: 143(3); 132; 153A

Judgement Text

"1 IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, CHANDIGARH BEFORE HON’BLE SHRI RAJPAL YADAV, VICE PRESIDENT AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM 1. आयकरअपीलसं./ ITA No.815/CHANDI/2024 (िनधाŊरणवषŊ / Assessment Year: 2016-17) & 2.आयकरअपीलसं./ ITA No.816/CHANDI/2024 (िनधाŊरणवषŊ / Assessment Year: 2017-18) & 3. आयकरअपीलसं./ ITA No.817/CHANDI/2024 (िनधाŊरणवषŊ / Assessment Year: 2018-19) DCIT-Central Circle-2 Ludhiana. बनाम/ Vs. M/s RKS Builders and Promoters #1189, Near Aarti Chowk Krishna Nagar, Ludhiana – 141 001 ̾थायीलेखासं./जीआइआरसं./PAN/GIR No. AATFR-5642-N (अपीलाथŎ/Appellant) : (ŮȑथŎ / Respondent) & 4. आयकरअपीलसं./ CO No.2/CHANDI/2025 (In ITA No.815/CHANDI/2024) (िनधाŊरणवषŊ / Assessment Year: 2016-17) & 5. आयकरअपीलसं./ CO No.3/CHANDI/2025 (In ITA No.816/CHANDI/2024) (िनधाŊरणवषŊ / Assessment Year: 2017-18) & 6. आयकरअपीलसं./ ITA No.649/CHANDI/2024 (िनधाŊरणवषŊ / Assessment Year: 2018-19) & 7. आयकरअपीलसं./ ITA No.648/CHANDI/2024 2 (िनधाŊरणवषŊ / Assessment Year: 2019-20) M/s RKS Builders and Promoters #1189, Near Aarti Chowk Krishna Nagar, Ludhiana – 141 001 बनाम/ Vs. DCIT-Central Circle-2 Ludhiana. ̾थायीलेखासं./जीआइआरसं./PAN/GIR No. AATFR-5642-N (अपीलाथŎ/Appellant) : (ŮȑथŎ / Respondent) Assessee by : Shri Sudhir Sehgal (Advocate) – Ld. AR Revenue by : Smt. Kusum Bansal (CIT) – Ld. DR सुनवाईकीतारीख/Date of Hearing : 08-04-2025 घोषणाकीतारीख /Date of Pronouncement : 02-06-2025 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. The revenue is in further appeal before us for Assessment Years (AY) 2016-17 to 2018-19 whereas the assessee has filed cross- objections for AYs 2016-17 & 2017-18. The assessee has also filed cross-appeal for AY 2018-19 and separate appeal for AY 2019-20. Facts as well as issues are stated to be quite identical in all the years. First, we take up revenue’s appeal and assessee’s cross-objection for AY 2016-17 which arises out of the order of Ld. Commissioner of Income Tax (Appeals)-5. Ludhiana [CIT(A)] dated 01-05-2024 in the matter of an assessment framed by Ld. AO u/s 153C of the Act on 31- 03-2022. The sole grievance of the revenue is deletion of addition of Rs.370 Lacs as made by Ld. AO in the assessment order. The assessee, in its cross-objection, assails jurisdiction of Ld. AO u/s 153C on the ground that no satisfaction note was recorded by AO of searched person as well as the AO of the assessee.In such a case, 3 impugned assessments framed u/s 153C would be liable to be quashed. To support the same, reliance has been placed on various judicial decisions, the copies of which have been placed on record. Having heard rival submissions and upon perusal of case records, the appeal & cross-objection stands disposed-off as under. Assessment Proceedings 2.1 Facts as emanating from the assessment order are that the assessee belongs to Kewal Kishan Chhabra group of cases in whose case search was conducted u/s 132 on 28-11-2018. The case was transferred from ACIT, Central Circle-1, Ludhiana to DCIT, Central Circle-2, Ludhiana vide order u/s 127 dated 27-01-2020. Consequently, Notice u/s 153C was issued to the assessee on 19-09-2021. The assessee filed return of income on 24-09-2021 declaring ‘nil’ income. 2.2 It transpired that the assessee was constructing commercial complex in Field Ganj area of Ludhiana. The said plot was owned by Shri Tarlok Singh Chhabra and sold to the assessee. On the basis of incriminating documents as found from the residence of Shri Sumit Jindal (partner of the assessee who had retired from the assessee-firm before the date of search), Ld. AO alleged that the assessee made unaccounted investment in purchase as well as in construction of said commercial project. It was alleged that there was difference in investment shown in the regular books-of accounts vis-à-vis actual investments as made by the assessee. The Ld. AO referred the valuation to DVO and considering the DVO’s valuation, Ld. AO made 4 impugned addition of Rs.370 Lacs as unaccounted investment in the hands of the assessee-firm. Appellate Proceedings 3.1 During appellate proceedings, the assessee assailed the impugned addition on the ground that the same was merely on the basis of third-party evidences. It was also stated that no incriminating material was found during search on assessee-firm or its partners. The assessee also assailed jurisdiction of Ld.AO u/s 153C and challenged impugned addition on merits by way of elaborate written submissions which have already been extracted in the impugned order. Reliance was placed on various judicial decisions to support the contentions. 3.2 The Ld. CIT(A), in para 5.2.3 of the impugned order, concurred that the incriminating document was found from the premises of erstwhile partner of the assessee-firm and not from the premises of the assessee or present partners. Shri Sumit Jindal accepted the papers and identified the names as mentionedin the said documents. The legal presumption u/s 292C would go against Shri Sumit Jindal only. Except for two entries as carried out through banking channels, there was no material to indicate that other entries had also gone for the benefit of the assessee-firm. The document merely proves that certain amount was received by Shri Sumit Jindal / Shri Rohit Singla but it does not prove that except for the amounts of Rs.25 Lacs and Rs.0.25 Lacs as credited in the bank of assessee-firm, the other entries pertained to the assessee-firm. Shri Sumit Jindal was not partner in the firm at the time of search and therefore, any documents as recovered from his 5 possession could not be automatically linked to the assessee-firm. No incriminating material was found during search on assessee. Accordingly, impugned addition was deleted against which the revenue is in further appeal before us. The legal grounds as urged by the assessee were held to be academic in nature against which the assessee has filed corss-objections. Our findings and Adjudication 4. First, we take up the issue of satisfaction note since the same goes to the root of the matter and questions the very jurisdiction of Ld. AO u/s 153C. From the facts, it is quite clear that the assessment has been framed u/s 153C which require recording of objective satisfaction by Assessing Officer of searched person as well as that of assessee.In the present case, the revenue is unable to show any such satisfaction note despite being provided with various opportunities. The same is also not emanating from the assessment order. It also emerges that impugned addition of alleged unexplained investment is not based on any incriminating material as unearthed during the course of search on the assessee. The impugned additions are merely based on incriminating material as stated to be found in another search on erstwhile partner of the assessee-firm and accordingly, notice u/s 153C has been issued to the assessee which mandate recording of due satisfaction by AO of the searched person holding that alleged incriminating material belonged to the assessee. There is also no evidence of seized material having been forwarded to AO of the present assessee and therefore, the question of recording of 6 satisfaction by AO of the present assessee does not arise at all. The Hon’ble Supreme Court in the case of DCIT vs. U.K.Paints (Overseas) Ltd.(150 Taxmann.com 108), concurring with the decision in Pr. CIT vs. Abhisar Buildwell (P.) Ltd. (149 Taxmann.com 399), held that since no incriminating material was found either from the assessee or from the third-party and the assessments were framed u/s 153C of the Act, the High Court has rightly set aside the Assessment Order. 6. Proceeding further, Hon’ble Supreme Court in the case of SSP Aviation Ltd. (20 Taxmann.com 214) held as under: - 13. Sections 153A to 153D are placed in Chapter XIV of the Act, which is titled \"procedure for assessment\". Section 153A provides for the assessment in case of search or requisition. This section applies to a person in whose case a search is initiated under Section 132 or books of account etc. are requisitioned under Section 132A. The procedure prescribed under Section 153A is that the Assessing Officer shall call upon the assessee who is searched to furnish returns of income for six assessment years immediately preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made. The assessee, on receipt of the notice from the Assessing Officer, shall furnish the returns of income and thereafter the Assessing Officer is empowered to assess or re-assess the total income in respect of different assessment year falling within six assessment years. Now, a question may arise as to what would happen to the regular returns, if any, filed by the searched assessee for any of the six assessment years which are pending on the date on which the search was initiated. The answer is given by the second proviso to Section 153A, which says that if any of those returns is or are pending, the assessment or reassessment relating to those returns shall abate. The object obviously is to avoid multiplicity of assessment or reassessment proceedings in respect of the same assessment year or years. Once Section 153A is found to be applicable, there will be only one assessment in respect of each of the six assessment years immediately preceding the assessment year relevant to the previous year in which the search is conducted, in which the \"total income\" of the assessee will be assessed or reassessed. It should be remembered that only the pending assessment or reassessment proceedings in respect of any those six assessment years that will abate; in case the assessment or reassessment for any of those 6 years have already been completed as on the date of search then there is no question of any of them abating for the simple reason that what can abate is only what remains pending. 14. Now there can be a situation when during the search conducted on one person under Section 132, some documents or valuable assets or books of account belonging to some other person, in whose case the search is not conducted, may be found. In such case, the Assessing Officer has to first be satisfied under Section 153C, which provides for the assessment of income of any other person, i.e., any other person who is not covered by the search, that the books of account or other valuable article or document belongs to the other person (person other than the one searched). He shall hand over the valuable article or books of account or document to the 7 Assessing Officer having jurisdiction over the other person. Thereafter, the Assessing Officer having jurisdiction over the other person has to proceed against him and issue notice to that person in order to assess or reassess the income of such other person in the manner contemplated by the provisions of Section 153A. Now a question may arise as to the applicability of the second proviso to Section 153A in the case of the other person, in order to examine the question of pending proceedings which have to abate. In the case of the searched person, the date with reference to which the proceedings for assessment or reassessment of any assessment year within the period of the six assessment years shall abate, is the date of initiation of the search under Section 132 or the requisition under Section 132A. For instance, in the present case, with reference to the Puri Group of Companies, such date will be 5.1.2009. However, in the case of the other person, which in the present case is the petitioner herein, such date will be the date of receiving the books of account or documents or assets seized or requisition by the Assessing Officer having jurisdiction over such other person. In the case of the other person, the question of pendency and abatement of the proceedings of assessment or reassessment to the six assessment years will be examined with reference to such date. 15. It needs to be appreciated that the satisfaction that is required to be reached by the Assessing Officer having jurisdiction over the searched person is that the valuable article or books of account or documents seized during the search belong to a person other than the searched person. There is no requirement in Section 153C(1) that the Assessing Officer should also be satisfied that such valuable articles or books of account or documents belonging to the other person must be shown to show to conclusively reflect or disclose any undisclosed income. 16. It will be appreciated from the above that the procedure envisaged by Section 153C, which is applicable to the petitioner herein, does not in any way infringe any rights of the petitioner or curtail or curb his right to be heard by the Assessing Officer or to file appeals and question the assessments made pursuant to the notice under Section 153A. There is no ground for any apprehension that the petitioner will not be heard before the assessments or reassessments for the six assessment years are completed. In fact, in the case of the petitioner itself the Assessing Officer has not made any addition in the assessments completed under Section 153A read with Section 153C for the assessment years 2003-04 to 2006-07 and 2008-09. He has made the addition of Rs.86 crores only in the assessment year 2007-08 against which an appeal has already been filed, as stated by the ld. senior standing counsel. This also finds mention in para VI of the counter affidavit filed by the respondent. Thus, full opportunity of being heard is available, and in fact was made available to the petitioner herein to represent against the proposed assessments or reassessments. The apprehension expressed by Mr. Bajpai, ld. senior counsel for the petitioner seems to be futile and spartan in the present case, as no adverse order/ addition has been made except in one year, i.e. 2007-08 in respect of which documents were found. This addition is also pending in appeal. It has clearly been held by Hon’ble Court that when during the course of search conducted on one person u/s 132, some documents or valuable assets or books of account belonging to some other person, in whose case the search is not conducted, are found than in such case, the Assessing Officer has to first be satisfied u/s 153C, which provides for the assessment of income of any other person, i.e., any other 8 person who is not covered by the search, that the books of account or other valuable article or document belongs to the other person (person other than the one searched). Thereafter, he shall hand over the valuable article or books of account or document to the Assessing Officer having jurisdiction over the other person. Thereafter, the Assessing Officer having jurisdiction over the other person has to proceed against him and issue notice to that person in order to assess or reassess the income of such other person in the manner contemplated by the provisions of Section 153A.Similar is the view in Pr. CIT vs. G. Lakshmi Aruna (159 Taxmann.com 183) as followed in Pr. CIT vs. Gali Janaradhana Reddy (157 Taxmann.com 392) and various other decisions as placed on record by Ld. AR. These decisions have been followed by this Tribunal in Rawalpindi Co-op. Cinema Society Ltd. (ITA Nos.180/Chd/2024 &ors. common order dated 15-01-2025). In the case of Singhad Technical Education Society (84 Taxmann.com 290), Hon’ble Apex Court confirmed the finding that for the purpose of attracting Sec.153C, the document must not only be a speaking one but also prima facie incriminating one. The document cannot be said to be incriminating one merely because it contains the notings of the entries which are already recorded in the books of accounts or is subjected to scrutiny of AO in the past in regular assessment u/s 143(3). We find that in the present case, the jurisdictional requirement of recording of requisite satisfaction is not shown to have been fulfilled by the revenue and accordingly, the 9 assessment is liable to be quashed on this foremost legal ground only. We order so. The assessee succeeds in its cross-objections. 7. We find ourselves in agreement with the findings of Ld. CIT(A) even on merits also. Quite clearly, the so-called incriminating document has been found from the premises of erstwhile partner of the assessee- firm and not from the assessee or present partners. Shri Sumit Jindal accepted the papers and identified the names as mentioned in the said documents. The legal presumption u/s 292C would go against Shri Sumit Jindal only. Except for two entries as carried out through banking channels, there was no material to indicate that other entries had also gone for the benefit of the assessee. The document does not prove that except for two amounts of Rs.25 Lacs and Rs.0.25 Lacs as credited in the bank of assessee-firm, the other entries also pertained to the assessee-firm. Shri Sumit Jindal was not partner in the firm at the time of search and therefore, any documents as recovered from his possession could not be automatically linked to the assessee-firm. No incriminating material was found during search on assessee. Accordingly, the impugned addition has rightly been deleted even on merits. In the result, the revenue’s appeal stands dismissed. Assessment Years 2017-18& 2018-19 8. It is admitted position that the facts as well as issues in revenue’s appeal as well as in assessee’s cross-objection for AY 2017-18 are quite identical as in AY 2016-17. Similar are the facts as well as issues in revenue’s appeal as well as in assessee’s cross-appeal for AY 2018- 19 as in AY 2016-17.Accordingly, our adjudication as for AY 2016-17 10 shall mutatis mutandis apply to both these years. The assessee succeeds in its cross-objection / cross-appeal. The twin appeals of the revenue stand dismissed. Assessment Year 2019-20 9.1 In this year, the assessee has been assessed u/s 143(3) vide order dated 31-03-2022. The assessee reflected investment of Rs.145.33 Lacs during AYs 2018-19 & 2019-20 in Field Ganj property and LWS property, Ludhiana. The same was referred for valuation of DVO who valued the cost of Rs.297.10 Lacs. For this year, the assessee reflected investment of Rs.112.38 Lacs as against DVO estimation of Rs.228.76 Lacs and accordingly, Ld. AO proposed addition of Rs.116.38 Lacs in this year. The assessee opposed the valuation on the ground the local PWD rates were to be applied as against CPWD rates. The difference in the two rates was at least to the extent of 25%. The Ld. AO though rejected the same, allowed 10% benefit for self-supervision and computed the differential as under: - AY Cost Declared by the Assessee (A) Cost estimated by Valuation Cell (B) Difference (C=B-A) 10% Benefit of Self Supervision 2018-19 32,94,500/- 68,33,337/- 35,38,837/- 3,53,883/- 2019-20 1,12,38,712/- 2,28,76,823/- 1,16,38,111/- 11,63,811/- Total 1,45,33,212/- 2,97,10,160/- 1,51,76,948/- Accordingly, impugned addition of Rs.104.74 Lacs was made u/s 69B for this year and the assessment was framed. Aggrieved, the assessee preferred further appeal against the same. 9.2 The Ld. CIT(A) concurred that the benefit of 10% was to be granted on the gross valuation as made by Ld. DVO and not on the differential value. Further, the assessee demanded 25% rebate for 11 difference in CPWD rates and PWD rates which was allowed to the extent of 15%. Accordingly, the impugned addition was re-computed as under: - Particulars Amount (In Rs.) Value Adopted by DVO 2,28,76,823 Value as Declared by the Assessee 1,12,38,712 15% reduction in value as per the decision of Hon’ble Supreme Court in the case of Sunita Mansingha -34,31,523 Benefit of Self supervision @10% of DVO Valuation -22,87,682 Balance Difference 59,18,906/- The impugned addition as made by Ld. AO was thus restricted to the extent of Rs.59.19 Lacs. Aggrieved, the assessee is in further appeal before us. 9.3 From the facts, it clearly emerges that the assessee’s case was scrutinized on the basis of search action on the other group. It was alleged that the assessee made higher investment in cash in construction of stated project. However, there is no concrete material as found during the course of search which has been referred to by Ld. AO in the assessment order to support the said allegation. The whole basis of impugned addition is DVO valuation which is always subjective valuation. There is no finding that the assessee actually made cash investment in the construction of the aforesaid property. 9.4 Proceeding further, it could be seen that for this year, the assessee has made investment of Rs.112.38 Lacs whereas Ld. DVO has arrived at valuation of Rs.228.76 Lacs. The Ld. AO has concurred that benefit of self-supervision was to be allowed to the extent of 10% 12 on the differential amount only. The Ld. CIT(A) allowed the same on the gross valuation as made by DVO. 9.5 The Ld. AR has urged that the books of the assessee have not been rejected and therefore, no such reference could have been made to DVO to make impugned addition in the hands of the assessee. We find that the assessee is engaged in real estate and the said investment form part of assessee’s books of accounts. The proposition as urged by Ld. AR has been laid down by Hon’ble Supreme Court in the case of Sargam Cinema vs. CIT (197 Taxman 203) holding that AO could not refer any matter to DVO without rejecting assessee’s books of accounts. This decision has subsequently been followed by jurisdictional High Court in various decisions viz. Chouhan Resorts (33 Taxmann.com 644); Nirpal Singh vs. CIT (41 Taxmann.com23); Freedom Board & Paper Mills (57 Taxmann.com 383). Further, the Hon’ble Court in Rajesh Mahajan (50 Taxmann.com 206) confirmed the finding of Tribunal that CPWD rates were 30% higher than the market value and 15% allowance was provided for self-supervision. The Ld. ARhas amply demonstrated that if the concession of self- supervision as well as concession for differential in CPWD rates and PWD rates is allowed to the extent of 15% and 25% respectively, nothing would remain to be added as unexplained investment. In the background of all these facts and respectfully following the binding judicial precedents, we delete the impugned addition in toto. The assessee succeeds in its appeal. The assessee’s appeal stand allowed accordingly. 13 Conclusion 10. The revenue’s appeal ITA Nos. 815 to 817/Chandi/2024 stand dismissed. The assessee’s CO. Nos.2 & 3 /Chandi/2025 as well as ITA Nos.648 & 649/Chandi/2024 stand allowed to the extent as indicated in the order. Order pronounced on 02-06-2025. Sd/- Sd/- (RAJPAL YADAV) (MANOJ KUMAR AGGARWAL) VICE PRESIDENT ACCOUNTANT MEMBER Dated: 02-06-2025. आदेश की Ůितिलिप अŤेिषत /Copy of the Order forwarded to : 1. अपीलाथŎ/Appellant 2. ŮȑथŎ/Respondent 3. आयकरआयुƅ/CIT 4. िवभागीयŮितिनिध/DR 5. गाडŊफाईल/GF ASSISTANT REGISTRAR ITAT CHANDIGARH "