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AMICUS AI
Citation Codes
Equivalent Citations
citation codes
Case Number
Advocates
  • S. Venkatesan
Judges
  • N.L. KALRAP. MOHANARAJAN
Acts
  • INCOME TAX ACT
  • section 143(3) read with section 153A of the Income-tax Act
  • section 143(3) read with section 153C of the Income-tax Act.
  • INCOME TAX ACT
  • section 153C of the Income-tax Act.5.
  • section 132(1) of the Income-tax Act,
  • WEALTH TAX ACT
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Advocates
  • S. Venkatesan
Judges
  • N.L. KALRAP. MOHANARAJAN
Acts
  • INCOME TAX ACT
  • section 143(3) read with section 153A of the Income-tax Act
  • section 143(3) read with section 153C of the Income-tax Act.
  • INCOME TAX ACT
  • section 153C of the Income-tax Act.5.
  • section 132(1) of the Income-tax Act,
  • WEALTH TAX ACT
See more information ...
Smart Summary

Tribunal Order — Consolidated Summary (per N.L. Kalra, Accountant Member)

Factual and Procedural Background

This is a consolidated appeal by the assessee, P. Srinivas Nayak, against a common order of the learned CIT(A)-VI, Bangalore dated 15-6-2007. A search under section 132 was conducted at the business and residential premises of Shri L. Sambashiva Reddy (managing director of M/s. Saravana Construction (P.) Ltd.). During the search documents were seized showing receipt and repayment of large cash loans and payment of interest to various parties. The assessee (P. Srinivas Nayak) had advanced loans to M/s. Saravana Construction (P.) Ltd. for the period 1-4-1997 to 31-3-2004; the seized material recorded his transactions. The assessee confirmed that he gave cash loans and told the Assistant Commissioner of Income Tax that the loans came from funds of M/s. Pushpa Family Foundation Trust.

The Assessing Officer issued notice under section 153C read with section 153A on 3-11-2005; the assessee did not file a return in response. Notices under section 142(1) were also issued. The assessee filed a return for assessment year 1998-99 declaring income of Rs. 1,14,040. The Assessing Officer completed assessments under section 143(3) read with section 153A for assessment years 1998-99 to 2004-05, making additions based on seized material. The assessee appealed to the CIT(A), who decided the issues on merits and confirmed the Assessing Officer's additions. The assessee then appealed to the Tribunal.

Legal Issues Presented

  1. Whether the assessee could be validly assessed under section 143(3) read with section 153C of the Income-tax Act (i.e., whether proceedings under section 153C could be initiated against the assessee based on documents seized from the premises of another person).
  2. Whether the assessee could challenge the jurisdiction/validity of the search conducted in the case of Shri L. Sambashiva Reddy before the Tribunal.

Arguments of the Parties

Appellant's (Assessee's) Arguments

  • The assessee denied liability to be assessed under section 143(3) read with section 153C, contending that the books of account or documents seized belonged to Shri L. Sambashiva Reddy (the person searched) and not to the assessee.
  • It was submitted before the Assistant Commissioner that the loans were given out of funds belonging to M/s. Pushpa Family Foundation Trust.
  • The assessee raised a ground challenging the jurisdiction/validity of the search in the case of Shri L. Sambashiva Reddy.

Respondent's (Departmental) Arguments

  • The Departmental Representative argued that entries in the seized books of account showed receipt of loans from the assessee; those entries were "valuable entries" and thus belonged to the assessee, justifying initiation of proceedings under section 153A read with section 153C.
  • The Department submitted that the search was valid, that incriminating documents identified names including the assessee and transactions entered in the books of M/s. Saravana Construction (P.) Ltd. which the assessee had not disclosed.
  • The Department noted that the assessee relied on the Supreme Court decision in Union of India v. Ajit Jain [2003] 260 ITR 80 but argued that that decision was not applicable because a valid search had been carried out and undisclosed income of persons (including the assessee) was detected from the seized material.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Union of India v. Ajit Jain [2003] 260 ITR 80 The assessee relied on this Supreme Court decision (as part of submissions regarding search/related procedural aspects). The Department submitted that this decision was not applicable in the present facts because the search in the case of Shri L. Sambashiva Reddy was valid and undisclosed income was detected; the Tribunal's order does not adopt this precedent in favour of the assessee and instead bases its decision on the statutory language of section 153C and facts regarding ownership of seized documents.

Court's Reasoning and Analysis

The Tribunal accepted as undisputed that the books of account and documents were seized from the premises of Shri L. Sambashiva Reddy and did not belong to the assessee. The Tribunal examined the statutory language and the factual matrix and proceeded in the following analytical steps:

  1. The Tribunal analysed the meaning of the term "belonging" (as used in section 153C) — observing that "belonging" implies more than a casual association; it implies continuity and an intimate connection with the person over a period of time.
  2. It observed that the seized books of account/documents had a close association with the group concerns of Shri Reddy and recorded transactions carried out by that group; they did not record transactions carried out by the assessee as owner of those books.
  3. The Tribunal referred to the concept under the Wealth-tax Act (as authority for the meaning of "belonging") — noting that "belonging" may connote complete or limited ownership or interest, and that for an asset or document to "belong" to a person there must be some limited ownership interest in it. The Tribunal found no indication of any limited ownership interest of the assessee in the seized books/documents.
  4. The Tribunal contrasted the language of section 153C with section 158BD: under section 158BD, action may be taken against another person if undisclosed income is referable to documents seized; under section 153C the requirement is that valuable articles or books/documents "belonging" to other persons are seized. The Tribunal emphasised the material difference in language and focus between the two provisions.
  5. Applying the statutory language to the facts, the Tribunal concluded that the seized books/documents could not be said to "belong" to the assessee; consequently, initiation of proceedings under section 153A read with section 153C against the assessee was not justified.

The Tribunal also dealt with the assessee's challenge to the search itself, but observed that the Tribunal has no jurisdiction to adjudicate on the legality of the search conducted in the case of another person; additionally, since the search did not take place at the assessee's premises, the assessee had no right to challenge that search before the Tribunal. That ground was dismissed.

Holding and Implications

Core Ruling: Assessing Officer lacked jurisdiction to assess under section 153A read with section 153C of the Income-tax Act in respect of the assessee on the basis of the seized books/documents in this case.

Consequences and implications drawn in the order:

  • The appeals filed by the assessee are allowed on the ground of want of jurisdiction of the Assessing Officer under section 153A read with section 153C.
  • Because the Tribunal held that the Assessing Officer lacked jurisdiction under those provisions, it expressly refrained from deciding the issues on merits so as not to pre-empt any findings that the Assessing Officer might take if he pursues any remedial measures under law.
  • The Tribunal noted that the Assessing Officer is free to take appropriate remedial measures as permitted by law (subject to applicable jurisdictional and procedural limits).
  • The Tribunal dismissed the assessee's challenge to the search in Shri Reddy's case on the stated basis that the Tribunal lacks jurisdiction to determine the legality of that search and that the search was not on the assessee's premises.

The order does not decide the substantive merits of the additions made by the Assessing Officer; it is decided solely on the question of jurisdiction under sections 153A and 153C as applied to the seized books/documents.

Show full summary ...

    P. Srinivas Naik v. Assistant Commissioner of Income-tax, Central Circle-1(2), Bangalore

    ORDER

    Per N.L. Kalra, Accountant Member. - The assessee has filed the appeals against the common order of learned CIT(A)-VI, Bangalore, dated 15-6-2007. Since, the grounds of appeal are the same, therefore, these appeals are being disposed of by a single consolidated order.

    2. A search under section 132 was conducted on the business/ residential premises of Shri L. Sambashiva Reddy, who is the managing director of M/s. Saravana Construction (P.) Ltd., Bangalore. During the course of search, certain documents showing receipt of huge cash loans, repayment of cash loans and payment of interest on these loans to various parties were found and seized. Shri P. Srinivas Nayak, the assessee also advanced loan to M/s. Saravana Construction (P.) Ltd. during the period 1-4-1997 to 31-3-2004. The Assessing Officer has referred to the seized material which indicated the names of the persons who has given cash loan with dates on right hand side, repayment of cash loan by way of instalment on the left hand side and interest paid to these parties. The assessee confirmed that he has given cash loans to Shri L. Sambashiva Reddy. Before the Asstt. CIT, the assessee stated that loans were given out of funds belonging to the trust namely M/s. Pushpa Family Foundation Trust. The Assessing Officer issued a notice under section 153C read with section 153A on 3-11-2005. No return was filed in response to that notice. Notices under section 142(1) were issued during the pendency of the proceedings. The assessee filed the return of income disclosing an income of Rs. 1,14,040 for the assessment year 1998-99. The Assessing Officer has completed the assessment under section 143(3) read with section 153A of the Income-tax Act. The assessee filed an appeal before the learned CIT(A). Before the learned CIT(A), it was submitted that the learned Assessing Officer was not justified in making the additions. A general ground of appeal was taken that the order of the Assessing Officer is opposed to law, equity weight of evidence etc. The learned CIT(A) decided the issues on merits.

    3. Before us, a specific ground has been taken that the assessee denies himself liable to be assessed under section 143(3) read with section 153C of the Income-tax Act. The assessee has also raised ground of appeal that search initiated in the case of Shri L. Sambashiva Reddy is without jurisdiction. It is being consistently held by the Tribunal that the Tribunal has no jurisdiction to adjudicate upon the legality of the search. Moreover, the search has not taken place on the business or residential premises of the assessee and, therefore, he has no right to challenge the search initiated in the case of Shri L. Sambashiva Reddy. Hence, the ground of appeal, relating to the challenge of search in the case of L. Sambashiva Reddy is dismissed.

    4. If the search is initiated under section 132(1) of the Income-tax Act, then the Assessing Officer has to issue notice to such person to furnish the return of income in respect of each assessment year falling within six assessment years referred to in clause (b) of section 153A. Section 153C provides that where the Assessing Officer is satisfied any money, bullion, jewellery or other valuable article or thing or books of account or documents seized belong to a person other than the person referred under section 153A, then proceedings under section 153A are to be taken against such other person. During the course of proceedings before us, the learned Authorised Representative argued that proceedings under section 153C can be initiated against other person if the money, bullion, jewellery or other valuable article or thing or books of account or documents seized belong to other person. In the instant case, books of account or documents belong to the person, in whose case, search was initiated. Such books of account or documents does not belong to the assessee. It was, therefore, argued that Assessing Officer was not justified in initiating proceedings against the assessee under section 153C of the Income-tax Act.

    5. On the other hand, the learned Departmental Representative submitted that entries in the books of account showed the receipt of loans from the assessee. Such entries are valuable entries and belonging to the assessee. Hence, the Assessing Officer was justified in initiating the proceedings under section 153A read with section 153C of the Income-tax Act.

    6. During the course of proceedings before us, the learned Departmental Representative has submitted the following submissions :

    "It may be seen that the assessee has raised issue regarding validity of assessment completed under section 153C of the Act. By virtue of insertion of new sections 153A, 153B and 153C, of the IT Act, with effect from 1-6-2003, assessment of the income of any other person is assessable under section 153C of the Act. The new section 153C provides that where an Assessing Officer is satisfied that any money, bullion, jewellery or other valuable articles or thing or books of account or documents seized or requisitioned belong or belongs to a person other than the person referred to in section 153A then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against such other person and issue such other person notice and assess or reassess income of such other person in accordance with provision of section 153A.

    From perusal of the record, it is noticed that search action under section 132 was conducted in the business as well as residential premises of Shri L. Sambashiva Reddy, who is the managing director of M/s. Sarvana Construction (P.) Ltd., Bangalore. During the course of search incriminating documents found and seized indicate the names of the persons including Shri P. Shrinivas Nayak (the assessee) who have given the cash loan with dates, repayment of cash loan and the interest payment made to the parties. It was found that transaction relating to Shri P. Shrinivas Nayak entered in the books of account of M/s. Saravana Construction (P.) Ltd. which did not disclose by the assessee. No books of account or assets belongs to the assessee was seized. Subsequently, the Assessing Officer had completed assessment under section 143(3) read with section 153A of the Income-tax Act for assessment years 1998-99 to 2004-05 and addition made by the Assessing Officer was confirmed by the CIT(A) vide order ITA Nos. 77 to 83/Asstt. CIT, CC-I(2)/Bangalore/CIT(A)-VI/2006-07, dated 15-6-2007.

    The assessee relied on the decision of Hon'ble Supreme Court in the case of Union of India v. Ajit Jain [2003] 260 ITR 80 is not applicable in this case, as there was a valid search in the case of Shri L. Sambashiva Reddy and consequent upon to the search operation, Department has detected undisclosed income of the persons including the assessee. Accordingly, the jurisdictional Assessing Officer has completed assessments.

    No arguments is being submitted for ground No. 1(e) as the substantial question of law was raised in ground No. 1(c) and 1(d). In the fact and circumstances of the case, the Hon'ble Bench is requested to issue their finding/direction in this case, since question of law arose first time with reference to the new provision of section 153C of the Act."

    7. We have heard both the parties. It is an undisputed fact that books of account or document does not belong to the assessee, as these were seized from the premises of Shri Reddy. It is nowhere stated that these books of account or documents showed that all the transactions belonging to the assessee. Such books of account or documents contained the transactions relating to the group concerns of Shri Reddy. No valuable belonging to the assessee has been seized during the course of search. The term belonging, implied something more than the idea of casual association. It involves the notion of continuity and indicates one more or less intimate connection with the person over a period of time. The books of account or documents seized during the course of search have a close association with the group concern of Shri Reddy. It records the transaction carried out by that group. It does not record the transaction carried out by the assessee. Under Wealth-tax Act, assets belonging to assessee were taxable. The expression belonging to the assessee connotes both the complete ownership and limited ownership of interest. Of course belonging to is capable connoting, interest, which is less than absolute perfect legal title. However, there should be some limited ownership of interest, if it is to be permitted that the assets belongs to the assessee. In the instant case, documents or books of account found during the course of search and seized cannot be termed, to be indicating any limited interest of the ownership of the assessee in such books of account or documents. The language used in section 153C is materially different from the language used under section 158BD. As per section 158BD, if any undisclosed income relates to other person, then action against such other person can be taken provided such undisclosed income is referable to the document seized during the course of search. However, section 153C says that if valuable or books of account or documents belonging to other persons are seized then action under section 153C can be taken against that person. In the instant case, we are satisfied that books of account or documents do not belong to the assessee and, therefore, the Assessing Officer was not justified in initiating action under section 153A read with section 153C of the Income-tax Act. The Assessing Officer is free to take proper remedial measure as per law.

    In the result, the appeals filed by the assessee are allowed. Since, we are holding that Assessing Officer was not having jurisdiction to assess under section 153A read with section 153C, therefore, we are not deciding the issue on merits, so as to preempt any finding on merits in respect of the issues to be taken by the Assessing Officer in case recourse is taken for remedial measure if any.

    212/3

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    Comments

    P. Srinivas Naik v. Assistant Commissioner of Income-tax, Central Circle-1(2), Bangalore
    (Nov 27, 2007)