THE HONOURABLE SRI JUSTICE L. NARASIMHA REDDY and THE HONBLE SRI JUSTICE M. M.SEETHARAMA MURTI I.T.T.A.No.148 of 2004 24-12-2014 Malreddy Ranga Reddy, hyderabad.. Appellant Assistant Commissioner of Income Tax, Central Circle 2, Hyderabad.. Respondent
THE HONOURABLE SRI JUSTICE L. NARASIMHA REDDY and THE HONBLE SRI JUSTICE M. M.SEETHARAMA MURTI
I.T.T.A.No.148 of 2004
24-12-2014
Malreddy Ranga Reddy, hyderabad.. Appellant
Assistant Commissioner of Income Tax, Central Circle 2, Hyderabad..
Respondent
Counsel for the Appellant: SRI Y. RATNAKAR
Counsel for Respondent: Ms. M. KIRANMAYEE,
representing SRI J.V. PRASAD,
learned Senior Standing Counsel
<Gist:
>Head Note:
? Cases referred:
HON'BLE SRI JUSTICE L.NARASIMHA REDDY
AND
HON'BLE SRI JUSTICE M.SEETHARAMA MURTI
I.T.T.A.No.148 of 2004
JUDGMENT: (per the Honble Sri Justice L.Narasimha Reddy)
This appeal under Section 260-A of the Income Tax Act,
1961 (for short the Act) is preferred against the order dated
28.04.2004 passed by the Hyderabad Bench A of the Income Tax
Appellate Tribunal (for short Tribunal) in IT(SS)A
No.123/HYD/2003. The assessee is the appellant.
The premises of the appellant was searched on 19.01.2001
by the officials of the Income Tax Department in exercise of power
under Section 132 of the Act. A receipt evidencing payment of a
sum of Rs.10,00,000/- to one Mr. Prabhakar Reddy is said to have
been discovered. Another receipt evidencing repayment of that
very amount was also discovered. A statement under sub-Section
(4) of Section 132 of the Act is also recorded on the day of search.
When a question was put to the appellant as to whether he has
made any payment to one Mr.Prabhu, he gave answer in a
negative.
Thereafter, a further statement was recorded on 27.03.2001.
A question was put to the appellant as to whether he paid a sum of
Rs.10,00,000/- to Mr. Prabhakar Reddy. The appellant accepted
that he paid that amount to Mr.Prabhakar Reddy on 25.11.2000
for purchasing of a plot. He further explained that the deal did not
fructify, and as such, the amount of Rs.10,00,000/- was returned
to him on 30.11.2000. The case of the appellant was that the
amount is from the funds of M/s.Sapta Sikhara Housing Private
Limited (for short the company) in which he himself and his
family members have substantial stake.
The Assessing Officer passed an order of Block Assessment
on 31.01.2003 adding a sum of Rs.10,00,000/- to his income and
levying tax as provided for under Chapter 14B of the Act. The
appellant filed an appeal before the Commissioner of Income Tax
(Appeals)-I, Hyderabad. The same was dismissed on 22.08.2003.
Thereupon, he filed an appeal before the Tribunal and that was
also dismissed on 28.04.2004.
Sri Y. Ratnakar, learned counsel for the appellant submits
that the very recording of statement from the appellant was
without basis, since no cash or other incriminating documents
were recovered during the search. He contends that if the receipts
in relation to the payment of amount and then refunding of the
same are to be treated as documents within the purview of Section
132 of the Act, the very basis for the Block Assessment
Proceedings ceases, since the Department did not believe those
receipts at all as true. He contends that though a specific mention
was made that the company has sufficient resources and that the
amount of Rs.10,00,000/- was from those resources, no effort was
made to verify that. Learned counsel submits that the amount has
been reflected in the books of account of the said company and
despite that the Block Assessment was made.
Ms. M. Kiranmayee, learned Junior Standing Counsel
appearing for Sri J.V. Prasad, learned Standing Counsel for Income
Tax, on the other hand, submits that there existed adequate basis
for recording the statement of the appellant once certain material
in the form of receipts were recovered. She contends that the
appellant himself admitted that he paid a sum of Rs.10,00,000/-
and then received it back, but, he did not indicate the source
thereof. Learned counsel points out that the inclusion of the
amount in the books of account of the company was an after
thought and that no interference is warranted in the orders passed
by the Assessing Officer, the Commissioner and the Tribunal.
The appellant is an assessee under the Act and he has been
filing returns year after year. His premises were searched on
19.01.2001. He stated that except two rough receipts evidencing
payment and taking refund of a sum of Rs.10,00,000/- in a
transaction with Mr.Prabhakar Reddy, nothing else was noticed or
recovered in the search.
Section 132 of the Act confers power upon various
authorities of the Department to conduct search. Since it entails
in penal consequences, every step stipulated therein is required to
be followed meticulously. The recording of statement under sub-
Section (4) of Section 132 of the Act would take place, as a sequel
to the search. It is only when a person is found to be in possession
and control of any books of account, documents, money, bullion or
jewellery, that his statement can be recorded.
The sole basis for recording of statement from the appellant
herein is the recovery of the two receipts referred to above. In such
an event, further steps in the matter must proceed on the
assumption that those two receipts are true.
Sub-Section 4A(ii) of Section 132 of the Act becomes relevant
in this regard, which reads as under:
(4A) Where any books of account, other documents,
money, bullion, jewellery or other valuable article or thing
are or is found in the possession or control of any person in
the course of a search, it may be presumed -
(i) that such books of account, other documents,
money, bullion, jewellery or other valuable
article or thing belong or belongs to such
person;
(ii) that the contents of such books of account
and other documents are true; and.
(rest of the provision is omitted since it is not relevant for
the purpose of this lis.)
A perusal of this provision discloses that the contents of
books of account or other documents must be taken as true. If for
any reason, the authority, who conducted the search, does not
believe such documents as true, the very basis for the proceedings
collapses.
In the instant case, the plea of the appellant was that the
amount was held by the company and that it was paid to the
owner of the land. The transaction did not fructify and it was paid
back to the company. Neither the person, who is said to have
received the amount nor any other individual, were examined to
prove that the payment was by; or, for and on behalf of the
appellant herein. The plea of the appellant was that the
department did not cross-verify the matter from any authorized
representative of the company. Therefore, whether one goes by the
factum of the Department itself treating the only documents,
namely, receipts as not true; or their failure to record the
statements of any individual including the authorized
representative of the company, the very basis for the proceedings
ceases to exist.
The Assessing Officer as well as the Tribunal proceeded on
the assumption that the appellant was under obligation to explain
the factum of payment. When the amount was not recovered nor
was said to be in the control and custody of the appellant, there
was no basis for initiating that proceedings.
We, therefore, allow the appeal and set aside the order of
Block Assessment insofar as it has added a sum of Rs.10,00,000/-
to the income of the appellant. There shall be no order as to costs.
The miscellaneous petitions filed in this appeal shall also
stand disposed of.
___________________________
L.NARASIMHA REDDY, J
____________________________
M.SEETHARAMA MURTI, J
Date: 24.12.2014
I.T.T.A.No.148 of 2004
24-12-2014
Malreddy Ranga Reddy, hyderabad.. Appellant
Assistant Commissioner of Income Tax, Central Circle 2, Hyderabad..
Respondent
Counsel for the Appellant: SRI Y. RATNAKAR
Counsel for Respondent: Ms. M. KIRANMAYEE,
representing SRI J.V. PRASAD,
learned Senior Standing Counsel
<Gist:
>Head Note:
? Cases referred:
HON'BLE SRI JUSTICE L.NARASIMHA REDDY
AND
HON'BLE SRI JUSTICE M.SEETHARAMA MURTI
I.T.T.A.No.148 of 2004
JUDGMENT: (per the Honble Sri Justice L.Narasimha Reddy)
This appeal under Section 260-A of the Income Tax Act,
1961 (for short the Act) is preferred against the order dated
28.04.2004 passed by the Hyderabad Bench A of the Income Tax
Appellate Tribunal (for short Tribunal) in IT(SS)A
No.123/HYD/2003. The assessee is the appellant.
The premises of the appellant was searched on 19.01.2001
by the officials of the Income Tax Department in exercise of power
under Section 132 of the Act. A receipt evidencing payment of a
sum of Rs.10,00,000/- to one Mr. Prabhakar Reddy is said to have
been discovered. Another receipt evidencing repayment of that
very amount was also discovered. A statement under sub-Section
(4) of Section 132 of the Act is also recorded on the day of search.
When a question was put to the appellant as to whether he has
made any payment to one Mr.Prabhu, he gave answer in a
negative.
Thereafter, a further statement was recorded on 27.03.2001.
A question was put to the appellant as to whether he paid a sum of
Rs.10,00,000/- to Mr. Prabhakar Reddy. The appellant accepted
that he paid that amount to Mr.Prabhakar Reddy on 25.11.2000
for purchasing of a plot. He further explained that the deal did not
fructify, and as such, the amount of Rs.10,00,000/- was returned
to him on 30.11.2000. The case of the appellant was that the
amount is from the funds of M/s.Sapta Sikhara Housing Private
Limited (for short the company) in which he himself and his
family members have substantial stake.
The Assessing Officer passed an order of Block Assessment
on 31.01.2003 adding a sum of Rs.10,00,000/- to his income and
levying tax as provided for under Chapter 14B of the Act. The
appellant filed an appeal before the Commissioner of Income Tax
(Appeals)-I, Hyderabad. The same was dismissed on 22.08.2003.
Thereupon, he filed an appeal before the Tribunal and that was
also dismissed on 28.04.2004.
Sri Y. Ratnakar, learned counsel for the appellant submits
that the very recording of statement from the appellant was
without basis, since no cash or other incriminating documents
were recovered during the search. He contends that if the receipts
in relation to the payment of amount and then refunding of the
same are to be treated as documents within the purview of Section
132 of the Act, the very basis for the Block Assessment
Proceedings ceases, since the Department did not believe those
receipts at all as true. He contends that though a specific mention
was made that the company has sufficient resources and that the
amount of Rs.10,00,000/- was from those resources, no effort was
made to verify that. Learned counsel submits that the amount has
been reflected in the books of account of the said company and
despite that the Block Assessment was made.
Ms. M. Kiranmayee, learned Junior Standing Counsel
appearing for Sri J.V. Prasad, learned Standing Counsel for Income
Tax, on the other hand, submits that there existed adequate basis
for recording the statement of the appellant once certain material
in the form of receipts were recovered. She contends that the
appellant himself admitted that he paid a sum of Rs.10,00,000/-
and then received it back, but, he did not indicate the source
thereof. Learned counsel points out that the inclusion of the
amount in the books of account of the company was an after
thought and that no interference is warranted in the orders passed
by the Assessing Officer, the Commissioner and the Tribunal.
The appellant is an assessee under the Act and he has been
filing returns year after year. His premises were searched on
19.01.2001. He stated that except two rough receipts evidencing
payment and taking refund of a sum of Rs.10,00,000/- in a
transaction with Mr.Prabhakar Reddy, nothing else was noticed or
recovered in the search.
Section 132 of the Act confers power upon various
authorities of the Department to conduct search. Since it entails
in penal consequences, every step stipulated therein is required to
be followed meticulously. The recording of statement under sub-
Section (4) of Section 132 of the Act would take place, as a sequel
to the search. It is only when a person is found to be in possession
and control of any books of account, documents, money, bullion or
jewellery, that his statement can be recorded.
The sole basis for recording of statement from the appellant
herein is the recovery of the two receipts referred to above. In such
an event, further steps in the matter must proceed on the
assumption that those two receipts are true.
Sub-Section 4A(ii) of Section 132 of the Act becomes relevant
in this regard, which reads as under:
(4A) Where any books of account, other documents,
money, bullion, jewellery or other valuable article or thing
are or is found in the possession or control of any person in
the course of a search, it may be presumed -
(i) that such books of account, other documents,
money, bullion, jewellery or other valuable
article or thing belong or belongs to such
person;
(ii) that the contents of such books of account
and other documents are true; and.
(rest of the provision is omitted since it is not relevant for
the purpose of this lis.)
A perusal of this provision discloses that the contents of
books of account or other documents must be taken as true. If for
any reason, the authority, who conducted the search, does not
believe such documents as true, the very basis for the proceedings
collapses.
In the instant case, the plea of the appellant was that the
amount was held by the company and that it was paid to the
owner of the land. The transaction did not fructify and it was paid
back to the company. Neither the person, who is said to have
received the amount nor any other individual, were examined to
prove that the payment was by; or, for and on behalf of the
appellant herein. The plea of the appellant was that the
department did not cross-verify the matter from any authorized
representative of the company. Therefore, whether one goes by the
factum of the Department itself treating the only documents,
namely, receipts as not true; or their failure to record the
statements of any individual including the authorized
representative of the company, the very basis for the proceedings
ceases to exist.
The Assessing Officer as well as the Tribunal proceeded on
the assumption that the appellant was under obligation to explain
the factum of payment. When the amount was not recovered nor
was said to be in the control and custody of the appellant, there
was no basis for initiating that proceedings.
We, therefore, allow the appeal and set aside the order of
Block Assessment insofar as it has added a sum of Rs.10,00,000/-
to the income of the appellant. There shall be no order as to costs.
The miscellaneous petitions filed in this appeal shall also
stand disposed of.
___________________________
L.NARASIMHA REDDY, J
____________________________
M.SEETHARAMA MURTI, J
Date: 24.12.2014
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